Business insurance and first-of-kind products like AquaBounty

When you look at today’s markets, many of the products currently experiencing strong sales did not exist one-hundred years ago. Indeed, the market tends to reward manufacturers who are creative and innovative, who engage in research and develop something genuinely new. Of course, consumers do not simply rush out of their homes at the first announcement of a new product launch. The majority work on a wait-and-see basis. If the word-of-mouth is strong, they will then jump on the bandwagon and propel sales into the million of units per year zone.

On other occasions, the level of innovation is slightly lower with the application of an existing technology to a new field. This new example is still a first-of-kind, but it may be more controversial and not immediately find acceptance in the market. In each case, it’s up to the insurance industry to respond to requests for product liability cover. Assuming the potential sales are significant, no manufacturer will want to take the risk of selling the new product without a reasonable level of cover should the product prove to have hidden defects.

To understand how this process works, let’s look at the AquaBounty. The FDA has just issued a second report confirming the application of existing gene-modification technology to the Atlantic salmon has produced a fish that’s safe for human beings to eat. We are used to the idea that corn and soybeans that have been tweaked are safe to eat. Indeed, with no labeling requirement, we have been eating genetically-modified vegetables and processed foods containing GM products for some years. So far there seems no sign of danger to us as human beings. This is not to say companies like Monsanto have been using Americans as test subjects in a giant trial to determine food safety, but it does suggest that food produced in a laboratory is not more unhealthy than food produced in a natural environment.

Against this background, it’s interesting to see the wave of opposition to the launch of AquaBounty. It’s been dubbed the Frankenfish by food safety activists and lobby groups. The European Union and other markets have either banned GM products or placed very strong labeling requirements identifying the nature of the products. For the first time, American activists are arguing there should be equally strong labeling laws in our market. Against this background, no manufacturer would go for a product launch without product liability cover. It’s clear a court could find the product had been negligently designed or was sold in breach of a warranty it was fit to be eaten. In theory, this is a strict liability issue, i.e. there’s no defense if the plaintiff proves the product caused loss. So business insurance rates for a controversial product could be higher than usual. In this case, many consumers may be more anxious to find themselves injured. Given the higher risk of claims, the business insurance rate will also be higher.

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