Nanotechnology: A Future Legal Tsunami?

-by John G. Farnan, NLA President 

Lately in the legal field’s insurance coverage world there is a growing buzz about nano­technology. The plaintiffs' bar is always looking for the next asbestos or other type of claim that will enable it to strike at manufacturers, employ­ers and their insurers. That’s why insurers and manufacturers as well as employers with foresight should be looking down the road to try and limit their exposure and liability, and potential harm to workers and users of their products.

No one knows for sure whether the threat of future nanotechnology claims will be a bust (like the threat of "Y2K" remediation claims) or whether it will turn into a health and physical nightmare for workers and product users, and a fiscal nightmare for employers, manufactur­ers and insurers. Thus, in this world of rapidly changing technologies, thoughtful employers, manufacturers and insurers should at least be aware of the threat of nanotechnology claims, and study if and how they should be avoiding or minimizing same.

What Is Nanotechnology?

Before going further, it would be helpful to explain a little about nanotechnology. Basically, it’s the control and use of matter at dimensions less than 1 micron and more often between ap­proximately 1 and 100 nanometers. The prefix "nano" means "one bil­lionth” and a nanome­ter is one-billionth of a meter. A sheet of paper is about 100,000 nano­meters, or 1 millimeter thick.

Nano particles, nano­tubes and nano films are different types of nano materials (their names reflect their individual shapes and dimensions). For example, nanotubes are seamless cylinders of hexagonal carbon net­works which are 50,000 times thinner than a hu­man hair, yet 300 times stronger than steel (and weigh six times less than that alloy). They are being developed for use in adhesives, coatings and polymers, and provide thermal and electrically conductive features that make polymers more resistant against tempera­tures, harsh chemicals, corrosive environments, extreme pressures and abrasions.

Generally speaking, manufactured products are made from molecules, and the properties of those products depend on how manufacturers ar­range those molecules. While manufacturing methods are presently considered to be very crude at the molecular level, they’re now employ­ing nanotechnology in over 200 consumer prod­ucts (e.g., sunglasses, sunscreens, cosmetics, tex­tiles and TVs). For example, nano materials add strength to composite materials used to make lightweight tennis rackets, baseball bats and bi­cycles. Opticians use nano coatings on eyeglasses to make them easier to clean and harder to scratch, and nano ceramics are used in some dental products.

Nanotechnology has the potential to create many new materials with a vast range of applica­tions in medicine, electronics, pharmaceuticals, biomaterials and energy production. When pro­cessed into a bulk material, nano particles can influence the bulk mechanical properties of the material (such as stiffness or elasticity). Nano particles also have found potential in the medi­cal field for delivering drugs to specific cells. For instance, it is reported that nanotech-enabled sensors could possibly be able to "smell" cancer, and that gold nano particles are being developed to detect the early stages of Alzheimer's disease. Nanotechnology also may help reproduce or re­pair damaged human tissue.

What Are the Concerns?

With all these potentially positive applications, what are the concerns? A few press reports have called nanotechnology and nano particles the "as­bestos of the future." Indeed, researchers inject­ing nanotubes into the abdomens of mice have induced lesions similar to those that appear on the outer lining of the lungs after the inhalation of asbestos.

Since nano particles can penetrate the skin, there are concerns about whether the use of nano particles in cosmetics creates a risk to the cosmet­ics user. Unlike most larger-sized particles, some nano particles can gain access to the blood stream via inhalation, ingestion or absorption through the skin, and possibly infiltrate organs and the brain, heart, liver and kidneys. A March 2004 study con­ducted by an environmental toxicologist found extensive brain damage to fish exposed to nano particles for a period of just 48 hours. With all that said, "it’s important to understand that the non-reabsorbable nano particles are likely the cause of toxicity problems," says Joe McDonough, Ph.D., Director of Microencapsulation & Nanomaterials at Southwest Research Institute in San Antonio.

There have been reports of industrial workers in China developing shortness of breath, pleural effusion and pericardial effusion as a result of ex­posure to nano particles—two of whom report­edly died as a result of ensuing respiratory failure. German regulators reported 77 cases of severe re­spiratory complaints in a period of one week aris­ing from the use of a cleansing product known as "Magic Nano."

Coverage Opportunity or Coverage Exclusion?

Putting aside the human costs, to injured workers and users of nanotechnologies, if indeed they prove to have deleterious physical side effects, nanotechnology could be a tremendous boon to the plaintiff's bar if nanotechnology turns out to be another asbestos. The defense bar would also "win" by having a whole host of new claims to de­fend. Insurers are already concerned. Some appar­ently view it as a business opportunity and are de­veloping and selling coverage for nanotechnology risks. Others are already drafting and employing nanotechnology exclusions to curtail or eliminate the exposure to such risks.

For example, Lexington Insurance Company, a Chartis company (the former AIG), announced in 2010 that it was introducing a "Lex Nano ShieldSM" which it described as "an integrated in­surance product and array of risk management ser­vices designed for firms whose principle business is manufacturing nano particles or nano materials, or using them in their processes." The Lexington nanotechnology coverage includes general liability, product liability, product pollution legal liability, and product recall liability exposure coverage. Ad­ditionally, Lexington's policy provides first party coverage if a product containing nano particles or nano materials is recalled from the market for safety reasons.

Other insurers are moving to limit or exclude nanotechnology risks. For example, in 2008, Continental Western Insurance Company issued a nano-specific commercial insurance exclusion. Continental's "background on nanotubes" docu­ment reportedly stated this policy behind its ex­clusion: "The intent of this exclusion is to remove coverage for the, as of yet, unknown and unknow­able risks created by products and processes that involve nanotubes. The exclusion is being added to make you and your customers explicitly aware of our intent not to cover injury and/or damage arising from nanotubes, as used in products and processes. * * *"

This exclusion, which went into effect Novem­ber 15, 2008, modified commercial general liabil­ity, business owners, business auto, garage and mo­tor carrier coverage to preclude liabilities related to nanotechnology and nanotubes.

The Insurance Services Office ("ISO") already has created a "nanotubes and nano technology exclusion" endorsement: Form CW 33 69 06 08. That exclusion precludes coverage for claims aris­ing out of nanotechnology. It says "This insurance does not apply to:

1. "Bodily injury," "property damage" or "per­sonal and advertising injury" related to the actual, alleged or threatened presence of or exposure to "nanotubes" or "nanotechnology" in any form, or to harmful substances emanating from "nano­tubes" or "nanotechnology." This includes the use of, consumption of, ingestion of, inhalation of, ab­sorption of, contact with, existence of, presence of, proliferation of, discharge of, dispersal of, seepage of, migration of, release of, escape of, or exposure to "nanotubes" or "nanotechnology". Such injury from or exposure to "nanotubes" or "nanotech­nology" also includes, but is not limited to:

a. The existence, storage, handling or transpor­tation of "nanotubes" or "nanotechnology"; * * *

d. Any structures, manufacturing processes or products containing "nanotubes" or "nanotech­nology"; * * *

f. Any product manufactured, sold, handled or distributed by or on behalf of the insured which contains "nanotubes" or "nanotechnol­ogy"; * * *."

Don’t Ignore the Issue

For the foreseeable future, the use of nano ma­terials will continue to increase. A January 2008 report from Lloyd's of London on nanotechnol­ogy risks and opportunities estimates that 15 per­cent of all products will contain nanotechnology by the year 2014. Last year alone, revenues for nanotechnology and nano materials in consumer products were nearly $1545 million, according to a May 2010 report by Future Markets, Inc.

At this juncture, it remains to be seen whether this exciting new technology, which may change the way we live and have tremendous health ben­efits, will also have a downside for consumers, property owners and workers. This said downside also could be a boon to the plaintiff's bar and de­fense bar, while creating tremendous challenges for insurers.

However, one thing is certain: This issue will not go away and can only be ignored at its peril. Smart businesses, including manufacturers, em­ployers, law firms and insurers, should be studying this issue and be prepared to deal with it.

NLA President John G. Farnan is an attor­ney with the Cleveland law firm of Weston Hurd LLP, and specializes in Litigation and Appeals.

1 Oberdorster, Gunter (July, 2005). "Nanotoxicology: An Emerging Disci­pline Evolving From Studies of Ultrafine Particles" environmental health perspec­tives 113(7): 823-39.

2 Song, Y., LiX., DuX, Exposure to Nano particles is re­lated to pleural effusion, pulmonary fibrosis and granuloma, Eur. Respir. J. 2009 Sep.: 34-559-67.

3 Nanotechnology cleanser recalled for chest pains, hospitalizations, 15 Mealey's emerg. toxic torts 21 (April 7, 2006).

4 Nanotechnology Law Report (September 24, 2008), www.nanolawreport.com.