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Insurance Implications of Terrorist Attacks (Part 2 of 2)

Author: Bill Wilson
 
In Part 1, we focused largely on the exposures presented by the September 11 terrorist attacks and the coverage implications of war and governmental exclusions. In Part 2, we'll examine the coverage implications of terrorist attacks against, or using, biological, chemical, and/or nuclear weapons or facilities.
 
 

The potential use of toxic biological, chemical or nuclear materials in a terrorist attack has received increasing coverage since September 11. Biological agents might include bacteria such as anthrax, botulism, and yersinia pestis (bubonic plague), and pathogens such as smallpox, ebola, cholera, yellow fever, diphtheria, typhus, and encephalitis. Chemical agents could include nerve agents such as VX, Tabun, Sarin (the gas that killed 13 in a Tokyo subway in 1995), and Soman, and tissue agents such as mustard gas. For more information about the properties and uses of biochemical agents and weapons, check out Jane's Chem-Bio Web.

In evaluating whether or not there would be coverage under standard P&C policies, the most likely exclusions would be nuclear and pollution. So, in this article, we'll examine these exclusion under the following ISO-standard policies:

The above list does not include the BusinessOwners Program since the coverages are almost verbatim from the commercial property and CGL forms. In addition, many carriers have their own BOP's, so there may be significant variations in language (the same is true for personal lines policies).

The NCCI Workers Compensation policy is not included because it contains no nuclear or pollution exclusions...so, barring any state statutory provisions, such claims would not be excluded. Needless to say, in the event of a catastrophic occurrence, the solvency of companies with large books of workers comp business could be threatened, particularly since medical expenses are usually statutorily unlimited.

The discussions below involving biochemical agents is based on the premise that these substances would fit the typical definition of a "pollutant": "Any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed."

 

Personal Auto Policy

The personal auto policy has four sections (Parts A-D) where coverage might apply. With regard to biochemical related claims, the ISO PAP has no pollution exclusion, so that leaves us with nuclear exclusions.

Part A - Liability.  Here is the language from the current ISO PP 00 01 policy:

PART A - LIABILITY COVERAGE

EXCLUSIONS

A. We do not provide Liability Coverage for any
   "insured":

   9. For "bodily injury" or "property damage" for
      which that "insured":
      a. Is an insured under a nuclear energy
         liability policy; or
      b. Would be an insured under a nuclear
         energy liability policy but for its
         termination upon exhaustion of its limit
         of liability.

      A nuclear energy liability policy is a
      policy issued by any of the following or
      their successors:
      a. Nuclear Energy Liability Insurance
         Association;
      b. Mutual Atomic Energy Liability
         Underwriters; or
      c. Nuclear Insurance Association of Canada.

Similar to their homeowners form, the exclusion only applies to insureds who are, or would be except for policy expiration, an insured under a nuclear energy liability policy issued by one of the U.S. or Canadian nuclear energy pools.

Part B - Medical Payments.  This section contains two nuclear related exclusions:

PART B - MEDICAL PAYMENTS COVERAGE

EXCLUSIONS
We do not provide Medical Payments Coverage for any "insured" for "bodily injury":

9. Caused by or as a consequence of:
   a. Discharge of a nuclear weapon (even if
      accidental);
   b. War (declared or undeclared);
   c. Civil war;
   d. Insurrection; or
   e. Rebellion or revolution.

10. From or as a consequence of the following, whether
    controlled or uncontrolled or however caused:
    a. Nuclear reaction;
    b. Radiation; or
    c. Radioactive contamination.

Exclusion 9 would seem to be almost redundant since Exclusion 10 is so broad, though it could exist to clarify that the consequential effects of a nuclear explosion are also excluded. More important, it is unlikely that Exclusion 9 would apply to a terrorist attack since it is included in the "war" grouping and, as discussed in Part 1, "war" exclusions are most likely not currently applicable to terrorist attacks.

Exclusion 10 excludes direct and consequential loss from nuclear radiation and contamination. As such, it most likely would preclude Medical Payments claims resulting from the use of a nuclear device or an attack on a nuclear facility that releases radioactivity.

Part C - Uninsured Motorists.  UM/UIM coverage is state-specific, so it is important to review state-specific forms and/or statutes to see if any govern. The UM coverage in the ISO form does not include a nuclear exclusion.

Part D - Physical Damage.  Applying a combination of the Medical Payments exclusions, the following policy language would seem to exclude most nuclear claims for damage to the vehicle:

PART D - COVERAGE FOR DAMAGE TO YOUR AUTO

EXCLUSIONS
We will not pay for:

3. Loss due to or as a consequence of:
   a. Radioactive contamination;
   b. Discharge of any nuclear weapon (even if
      accidental);
   c. War (declared or undeclared);
   d. Civil war;
   e. Insurrection; or
   f. Rebellion or revolution.

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Homeowners Policy

In this analysis, we'll use the ISO HO3 form, though the policy language, in most instances, is identical in other ISO forms such as the HO4 Tenants form and the HO6 Condo form. Since the HO3 has two major sections, Section I for property damage and Section II for liability and medical payments, we'll look at the pollution and nuclear exclusions separately in each section of the HO 00 03.

Section I - Property Coverages.  First, we'll examine the pollution exclusion(s) then nuclear exclusions. With regard to pollution, it's interesting to note that the "pollution exclusion" only applies to direct damage under Coverage A - Dwelling and Coverage B - Other Structures as follows:

SECTION I - PERILS INSURED AGAINST

A. Coverage A - Dwelling And Coverage B - Other
   Structures

   1. We insure against risk of direct physical loss
      to property described in Coverages A and B.
   2. We do not insure, however, for loss:
      a. Excluded under Section I - Exclusions;
      b. Involving collapse, except as provided in E.8.
         Collapse under Section I - Property Coverages;
         and
      c. Caused by:
         (6) Any of the following:
             (e) Discharge, dispersal, seepage,
                 migration, release or escape of
                 pollutants unless the discharge,
                 dispersal, seepage, migration, release
                 or escape is itself caused by a Peril
                 Insured Against named under Coverage C.

                 Pollutants means any solid, liquid,
                 gaseous or thermal irritant or
                 contaminant, including smoke, vapor,
                 soot, fumes, acids, alkalis, chemicals
                 and waste. Waste includes materials to
                 be recycled, reconditioned or reclaimed;

Note that the pollution exclusion above does not apply if the discharge, dispersal, etc. is caused by a Coverage C peril. If an act of terrorism is deemed to be synonymous with "vandalism or malicious mischief," then the exclusion does NOT apply for damage to structures on the premises. Likewise, a biochemical agent spread by an airplane would be covered as well since "aircraft" is a covered peril.

There is no pollution exclusion for damage to Coverage C - Personal Property if written on a broad named perils basis. The logic is that "pollution" is not a named peril. However, if a terrorist attack is deemed to be, for example, an act of vandalism, that peril is named and there could be coverage for biochemical damage to personal property since a "pollution" exclusion is lacking with regard to Coverage C losses.

This presents a dilemma if, as agents are often recommended to do, coverage is provided for personal property on an "all risk" basis that excludes "pollution" losses. According to the Filing Memorandum that accompanied ISO's 1991 Homeowners filing to state insurance departments, a language revision was made, in ISO's words, "This change is being made to avoid having the Special Coverage forms provide lesser coverage than what is provided under a Named Perils form...." So, there is a basis for the position that, if the loss would be covered by a named perils form, it should also be covered by an "all risk" form regardless of any stringent interpretations of exclusions such as this one.

Note: In addition to the policy excerpt above, the Ordinance or Law exclusion applies to any ordinance or law: "Requiring any 'insured' or others to test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of, pollutants." In addition, the limited Ordinance or Law Additional Coverage does not apply to clean up, removal, treatment, etc.

With regard to nuclear exclusions, the HO policy includes two such exclusions, with one referencing a restrictive Condition in the policy:

SECTION I - EXCLUSIONS

A. We do not insure for loss caused directly or
   indirectly by any of the following. Such loss is
   excluded regardless of any other cause or event
   contributing concurrently or in any sequence to the
   loss. These exclusions apply whether or not the loss
   event results in widespread damage or affects a
   substantial area.

   6. War
      War includes the following and any consequence
      of any of the following:
      a. Undeclared war, civil war, insurrection,
         rebellion or revolution;
      b. Warlike act by a military force or military
         personnel; or
      c. Destruction, seizure or use for a military
         purpose.

      Discharge of a nuclear weapon will be deemed a
      warlike act even if accidental.

   7. Nuclear Hazard
      This Exclusion 7. pertains to Nuclear Hazard to
      the extent set forth in M. Nuclear Hazard Clause
      under Section I - Conditions.



SECTION I - CONDITIONS

M. Nuclear Hazard Clause
   1. "Nuclear Hazard" means any nuclear reaction,
      radiation, or radioactive contamination, all
      whether controlled or uncontrolled or however
      caused, or any consequence of any of these.
   2. Loss caused by the nuclear hazard will not be
      considered loss caused by fire, explosion, or
      smoke, whether these perils are specifically
      named in or otherwise included within the
      Perils Insured Against.
   3. This policy does not apply under Section I to
      loss caused directly or indirectly by nuclear
      hazard, except that direct loss by fire
      resulting from the nuclear hazard is covered.

As discussed in the personal auto section above, Exclusion 6 is most likely inapplicable since it relates to the "war" exclusion...Part 1, of this article discusses reasons for the inapplicability of war exclusions to terrorist attacks. However, the Nuclear Hazard Clause above appears to be broad enough to exclude any damage arising out of a nuclear exposure EXCEPT that, similar to the earth movement exclusion, resulting loss by fire is covered.

Finally, keep in mind that Section I coverage is largely triggered by "direct damage" to property. Regardless of whether any exclusions apply, to first trigger coverage, there must be direct damage to property. It remains to be seen whether or not "contamination" by a biological agent constitutes " direct damage."

Section II - Liability Coverages.  First of all, there are NO pollution exclusions in Section II of the HO policy. The nuclear exclusions are as follows:

SECTION II - EXCLUSIONS

E. Coverage E - Personal Liability And Coverage F -
   Medical Payments To Others Coverages E and F do not
   apply to the following:

   5. War
      "Bodily injury" or "property damage" caused
      directly or indirectly by war, including the
      following and any consequence of any of the
      following:
      a. Undeclared war, civil war, insurrection,
         rebellion or revolution;
      b. Warlike act by a military force or military
         personnel; or
      c. Destruction, seizure or use for a military
         purpose.
      Discharge of a nuclear weapon will be deemed a
      warlike act even if accidental;

F. Coverage E - Personal Liability
Coverage E does not apply to:

   5. "Bodily injury" or "property damage" for which
      an "insured" under this policy:
      a. Is also an insured under a nuclear energy
         liability policy issued by the:
         (1) Nuclear Energy Liability Insurance
             Association;
         (2) Mutual Atomic Energy Liability Underwriters;
         (3) Nuclear Insurance Association of Canada;
         or any of their successors; or
      b. Would be an insured under such a policy but
         for the exhaustion of its limit of liability

G. Coverage F - Medical Payments To Others
Coverage F does not apply to "bodily injury":

   3. From any:
      a. Nuclear reaction;
      b. Nuclear radiation; or
      c. Radioactive contamination;
      all whether controlled or uncontrolled or
      however caused; or
      d. Any consequence of any of these;

Again, Exclusion E. most likely would not apply due to the "war" requirement. Exclusion F. would also be unlikely to apply since it is essentially the same as that in the PAP discussed above. However, Exclusion G. most likely would apply.

It should be noted that claims under both PAP and HO policies would most likely involve direct and indirect property damage claims, rather than liability claims. In addition, medical payments claims could arise if the insuring agreements are otherwise triggered.

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Building & Personal Property Coverage Form
and Causes of Loss Forms

The B&PP form is the primary insurance contract used to insure business real and personal property (the policy language, as discussed below, is similar to that used in many BOP policies as well). The B&PP form includes both pollution exclusion and coverage language, while the Causes of Loss forms address nuclear exclusions and a broad pollution exclusion.

Pollution Exclusions/Coverage.  From a coverage standpoint, the B&PP form CP 00 10 includes the following Additional Coverage:

d. Pollutant Clean Up And Removal

We will pay your expense to extract "pollutants" from land or water at the described premises if the discharge, dispersal, seepage, migration, release or escape of the "pollutants" is caused by or results from a Covered Cause of Loss that occurs during the policy period. The expenses will be paid only if they are reported to us in writing within 180 days of the date on which the Covered Cause of Loss occurs.

This Additional Coverage does not apply to costs to test for, monitor or assess the existence, concentration or effects of "pollutants". But we will pay for testing which is performed in the course of extracting the "pollutants" from the land or water.

The most we will pay under this Additional Coverage for each described premises is $10,000 for the sum of all covered expenses arising out of Covered Causes of Loss occurring during each separate 12 month period of this policy.

Similar to the pollution exception discussed in the HO section above, this Additional Coverage (for clean-up only, not property damage...that's excluded in the Causes of Loss forms discussed below) is provided IF the discharge, dispersal, etc. is due to a "Covered Cause of Loss." So, there would be most likely be clean-up coverage for terrorist acts involving vandalism, aircraft, etc. However, this clean-up coverage only applies to pollutant extraction from land or water, not from the property itself or the atmosphere within and around a building. In addition, the limit is $10,000, though that can be increased, over a deductible and on an annual aggregate basis by using endorsement CP 04 07 - Pollutant Clean Up and Removal Additional Aggregate Limit of Insurance.

There is also an Increased Cost of Construction Additional Coverage available for buildings insured on a replacement cost basis. However, coverage does not apply to enforcement of an ordinance or law requiring testing, monitoring, clean-up, removal, containment, treatment, detoxification, neutralization, or assessment of pollutants.

[Note: It is important to note that coverage under this and most property forms requires "direct damage" to trigger to trigger the primary form coverages. Whether or not "contamination" by a biological agent constitutes " direct damage" remains to be seen.]

Finally, in the Causes of Loss forms, there is a specific pollution exclusion that is, again, similar to the pollution exception discussed in the HO section above as shown here in the CP 10 30:

B. Exclusions
   1. We will not pay for loss or damage caused
      directly or indirectly by any of the following.
      Such loss or damage is excluded regardless of any
      other cause or event that contributes concurrently
      or in any sequence to the loss.

      l. Discharge, dispersal, seepage, migration,
         release or escape of "pollutants" unless
         the discharge, dispersal, seepage, migration,
         release or escape is itself caused by any
         of the "specified causes of loss". But if
         the discharge, dispersal, seepage, migration,
         release or escape of "pollutants" results in
         a "specified cause of loss", we will pay for
         the loss or damage caused by that "specified
         cause of loss".
         This Exclusion, l., does not apply to damage
         to glass caused by chemicals applied to the
         glass.

Again, as you can see, coverage for pollution damage IS provided IF the discharge, dispersal, etc. is due to a "specified causes of loss" as outlined in the form. So, once again, there would be most likely be clean-up coverage for terrorist acts involving vandalism, aircraft, etc.

Nuclear Exclusions.  The Causes of Loss forms exclude nuclear exposures as shown here in the CP 10 30:

B. Exclusions
   1. We will not pay for loss or damage caused
      directly or indirectly by any of the following.
      Such loss or damage is excluded regardless of
      any other cause or event that contributes
      concurrently or in any sequence to the loss.

      d. Nuclear Hazard
         Nuclear reaction or radiation, or radioactive
         contamination, however caused. But if nuclear
         reaction or radiation, or radioactive
         contamination, results in fire, we will pay
         for the loss or damage caused by that fire.

This is similar to the Nuclear Hazard Clause in the HO policies, including the fire exception. In addition, there is a Special Exclusion in the Causes of Loss forms for the Legal Liability Coverage Form which removes the fire exception.

Finally, if the exposure is a hospital, research facility or power plant, it is eligible for the endorsement CP 10 37 - Radioactive Contamination. Coverage can be provided on a limited (named perils) or broad basis, BUT it only applies to nuclear radiation or contamination from materials "located at" the premises.

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Business Income (and Extra Expense) Coverage Form

Other than the pollution and nuclear exclusions in the Causes of Loss forms, the business income form has no separate exclusion other than the following limitation from the CP 00 30:

G. DEFINITIONS
   3. "Period of Restoration"....
      "Period of restoration" does not include any
      increased period required due to the enforcement
      of any ordinance or law that:
      (1) Regulates the construction, use or repair, or
          requires the tearing down of any property; or
      (2) Requires any insured or others to test for,
          monitor, clean up, remove, contain, treat,
          detoxify or neutralize, or in any way respond
          to, or assess the effects of "pollutants".

This is similar to the Increased Cost of Construction Additional Coverage discussed in the B&PP section above.

Another important consideration in this form (and most property forms) is that, since the form requires direct damage on the premises (or, for Civil Authority coverage, to other premises), just a biological exposure to humans, without property damage wouldn't be covered...it's like a business shutting down because of a gas leak - not covered without direct damage. (An exception to the "on premises" trigger of direct damage applies to building tenants...if the insured is a tenant, coverage is triggered if direct damage to egress areas of the building prevent access to the insured's premises.)

The issue is, does contamination by a biochemical agent such as anthrax constitute direct damage? Under the CGL, "property damage" is defined to include "Loss of use of tangible property that is not physically injured." However, under the property forms, there must be "direct damage," not just "property damage." Needless to say, a shut-down of a business for biochemical assessment, remediation, etc. could result in a large business income and extra expense loss that would be uninsured unless there has been direct damage.

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Business Auto Coverage Form

In the Business Auto policy, there is a pollution exclusion in Section II - Liability Coverage and a nuclear exclusion in Section III - Physical Damage Coverage.

In addition, there is a mandatory Nuclear Energy Liability Exclusion Endorsement (IL 01 98 in most states) that applies to at least eleven liability coverage parts of the ISO Commercial Package Policy.

Section II - Liability Coverage Pollution Exclusion.  The BAP pollution exclusion is virtually an absolute exclusion if pollution arises out of the transportation or handling of pollutants as shown here in the CA 00 01:

B. Exclusions

This insurance does not apply to any of the following:

11. Pollution
    "Bodily injury" or "property damage" arising out
    of the actual, alleged or threatened discharge,
    dispersal, seepage, migration, release or escape
    of "pollutants":
    a. That are, or that are contained in any property
       that is:
       (1) Being transported or towed by, handled, or
           handled for movement into, onto or from,
           the covered "auto";
       (2) Otherwise in the course of transit by or
           on behalf of the "insured"; or
       (3) Being stored, disposed of, treated or
           processed in or upon the covered "auto";
    b. Before the "pollutants" or any property in which
       the "pollutants" are contained are moved from the
       place where they are accepted by the "insured"
       for movement into or onto the covered "auto"; or
    c. After the "pollutants" or any property in which
       the "pollutants" are contained are moved from
       the covered "auto" to the place where they are
       finally delivered, disposed of or abandoned by
       the "insured".

    Paragraph a. above does not apply to fuels,
    lubricants, fluids, exhaust gases or other similar
    "pollutants" that are needed for or result from the
    normal electrical, hydraulic or mechanical
    functioning of the covered "auto" or its parts, if:
    (1) The "pollutants" escape, seep, migrate, or are
        discharged, dispersed or released directly from
        an "auto" part designed by its manufacturer to
        hold, store, receive or dispose of such
        "pollutants"; and
    (2) The "bodily injury", "property damage" or
        "covered pollution cost or expense" does not
        arise out of the operation of any equipment
        listed in Paragraphs 6.b. and 6.c. of the
        definition of "mobile equipment".

    Paragraphs b. and c. above of this exclusion do not
    apply to "accidents" that occur away from premises
    owned by or rented to an "insured" with respect to
    "pollutants" not in or upon a covered "auto" if:
    (1) The "pollutants" or any property in which the
        "pollutants" are contained are upset, overturned
        or damaged as a result of the maintenance or use
        of a covered "auto"; and
    (2) The discharge, dispersal, seepage, migration,
        release or escape of the "pollutants" is caused
        directly by such upset, overturn or damage.

While it's possible for the policy to respond if, for example, a vehicle was to strike another vehicle containing a biochemical agent, the more likely exposure of such an agent being transported by motor vehicle (even if unknown to the owner or operator) would most likely not be covered.

Section III - Physical Damage Coverage Nuclear Exclusion.  This exclusion says:

SECTION III - PHYSICAL DAMAGE COVERAGE

B. Exclusions

1. We will not pay for "loss" caused by or resulting
   from any of the following. Such "loss" is excluded
   regardless of any other cause or event that
   contributes concurrently or in any sequence to the
   "loss".
   a. Nuclear Hazard
      (1) The explosion of any weapon employing atomic
          fission or fusion; or
      (2) Nuclear reaction or radiation, or radioactive
          contamination, however caused.

Using standard concurrent/sequential causation language, this is a pretty absolute nuclear exclusion for physical damage to motor vehicles.

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Commercial General Liability Coverage Form

For nuclear exposures, the CGL includes no exclusion of its own, relying on the mandatory Nuclear Energy Liability Exclusion Endorsement (IL 01 98 in most states) that applies to at least eleven liability coverage parts of the ISO Commercial Package Policy.

With regard to pollution, the CG 00 01 currently contains the following Coverage A & B exclusions:

SECTION I - COVERAGES

COVERAGE A BODILY INJURY AND PROPERTY DAMAGE LIABILITY

2. Exclusions
   This insurance does not apply to:

   f. Pollution
      (1) "Bodily injury" or "property damage" arising
          out of the actual, alleged or threatened
          discharge, dispersal, seepage, migration,
          release or escape of "pollutants":
          (a) At or from any premises, site or location
              which is or was at any time owned or
              occupied by, or rented or loaned to,
              any insured. However, this subparagraph
              does not apply to:
              (i) "Bodily injury" if sustained within
                  a building and caused by smoke,
                  fumes, vapor or soot from equipment
                  used to heat that building;
              (ii) "Bodily injury" or "property damage"
                   for which you may be held liable,
                   if you are a contractor and the owner
                   or lessee of such premises, site or
                   location has been added to your
                   policy as an additional insured with
                   respect to your ongoing operations
                   performed for that additional insured
                   at that premises, site or location
                   and such premises, site or location
                   is not and never was owned or
                   occupied by, or rented or loaned to,
                   any insured, other than that
                   additional insured; or
              (iii) "Bodily injury" or "property damage"
                    arising out of heat, smoke or fumes
                    from a "hostile fire";
          (b) At or from any premises, site or location
              which is or was at any time used by or
              for any insured or others for the
              handling, storage, disposal, processing
              or treatment of waste;
          (c) Which are or were at any time transported,
              handled, stored, treated, disposed of,
              or processed as waste by or for any
              insured or any person or organization for
              whom you may be legally responsible; or
          (d) At or from any premises, site or location
              on which any insured or any contractors
              or subcontractors working directly or
              indirectly on any insured's behalf are
              performing operations if the "pollutants"
              are brought on or to the premises, site
              or location in connection with such
              operations by such insured, contractor
              or subcontractor. However, this
              subparagraph does not apply to:
              (i) "Bodily injury" or "property damage"
                  arising out of the escape of fuels,
                  lubricants or other operating fluids
                  which are needed to perform the normal
                  electrical, hydraulic or mechanical
                  functions necessary for the operation
                  of "mobile equipment" or its parts,
                  if such fuels, lubricants or other
                  hold, store or receive them. This
                  exception does not apply if the
                  "bodily injury" or "property damage"
                  arises out of the intentional
                  discharge, dispersal or release of
                  the fuels, lubricants or other
                  operating fluids, or if such fuels,
                  lubricants or other operating fluids
                  are brought on or to the premises,
                  site or location with the intent
                  that they be discharged, dispersed
                  or released as part of the operations
                  being performed by such insured,
                  contractor or subcontractor;
              (ii) "Bodily injury" or "property damage"
                   sustained within a building and
                   caused by the release of gases,
                   fumes or vapors from materials
                   brought into that building in
                   connection with operations being
                   performed by you or on your behalf
                   by a contractor or subcontractor; or
              (iii) "Bodily injury" or "property damage"
                    arising out of heat, smoke or fumes
                    from a "hostile fire".
          (e) At or from any premises, site or location
              on which any insured or any contractors
              or subcontractors working directly or
              indirectly on any insured's behalf are
              performing operations if the operations
              are to test for, monitor, clean up,
              remove, contain, treat, detoxify or
              neutralize, or in any way respond to,
              or assess the effects of, "pollutants".
      (2) Any loss, cost or expense arising out of any:
          (a) Request, demand, order or statutory or
              regulatory requirement that any insured
              or others test for, monitor, clean up,
              remove, contain, treat, detoxify or
              neutralize, or in any way respond to, or
              assess the effects of, "pollutants"; or
          (b) Claim or suit by or on behalf of a
              governmental authority for damages
              because of testing for, monitoring,
              cleaning up, removing, containing,
              treating, detoxifying or neutralizing,
              or in any way responding to, or assessing
              the effects of, "pollutants".
          However, this paragraph does not apply to
          liability for damages because of "property
          damage" that the insured would have in the
          absence of such request, demand, order or
          statutory or regulatory requirement, or such
          claim or "suit" by or on behalf of a
          governmental authority.


COVERAGE B PERSONAL AND ADVERTISING INJURY LIABILITY

2. Exclusions
    This insurance does not apply to:

    a. "Personal and advertising injury":

       (10) Arising out of the actual, alleged or
            threatened discharge, dispersal, seepage,
            migration, release or escape of "pollutants"
            at any time.

    b. Any loss, cost or expense arising out of any:
       (1) Request, demand or order that any insured
           or others test for, monitor, clean up,
           remove, contain, treat, detoxify or
           neutralize, or in any way respond to, or
           assess the effects of, "pollutants"; or
       (2) Claim or suit by or on behalf of a
           governmental authority for damages because
           of testing for, monitoring, cleaning up,
           removing, containing, treating, detoxifying
           or neutralizing, or in any way responding
           to, or assessing the effects of, "pollutants".

The Coverage A exclusion is largely a premises/operations exclusion. It applies to pollution occurrences that arise out of the insured's premises or a waste site. For on-going operations, the exclusion applies only if the pollutant is brought onto the site by the insured or by contractors or subcontractors working on the insured's behalf.

While it may be difficult to envision a situation where a business could be held liable for a terrorist biochemical attack, it is conceivable that such an attack could use the facilities of a business to propagate the agent. If such discharge, dispersal, etc. arises out of a business' premises and a liability claim is made on the basis, for example, of negligent security, the CGL would provide no coverage. If a biochemical agent, unbeknownst to the owners, was sent from a business facility and caused pollution at another location, it could be argued, based on the Coverage A language above, that the exclusion would not apply in many cases.

Needless to say, it would be necessary to evaluate each individual circumstance to determine the applicability of the CGL (or any other policy) exclusions. As conditions change and we receive additional feedback on the above analysis, we will be continually updating this article.

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