Mad Cow Disease

Mad Cow disease (bovine spongiform encephalopathy BSE), which first appeared in the United Kingdom in the mid-1980s, has now been detected in the United States. With the discovery of one dairy cow from a herd of 4,000 in rural Washington state infected with Mad Cow disease, comes far-reaching insurance ramifications and a complex tort issue.

The economic costs associated with the discovery of a Mad Cow infected animal could easily be in the billions, as countries impose bans on imported U.S. beef and U.S. consumers avoid buying it. Still, the economic costs are very different from the insurance costs.  The following is an overview on potential types of insurance coverages and the exposures involved:

<b>Animal Mortality (life insurance for livestock):</b> Insurance would cover the market value of cattle in government-enforced slaughter, but such coverage is not typically taken out on the average cow. Usually it's taken out on special livestock of particularly high value (e.g., prize stud bull, etc.), so penetration is low, relative to the population of cattle. In Europe, national governments bore most of these costs when BSE and FMD (foot & mouth disease) ravaged herds there. Nevertheless, a farm could be forced to destroy all cattle - and one insured bull could be worth hundreds of thousands of dollars.
Product Recall: This coverage is not often purchased (rather rare, in fact) even though the costs of a recall can be considerable. There was some interest in this coverage following the European outbreaks, but that interest, in recent years, has waned.

<b>Business Interruption:</b> This is not applicable coverage. It requires physical loss or damage to insured premises as a result of a covered peril. The fact that a grocery store, meat packer, butcher shop or restaurant would have to close or might lose business as the result of the Mad Cow outbreak does not fit the definition of physical loss or damage. Closure by civil action (government authority) doesn't apply either, since there still needs to be a covered peril to trigger the closure (infection is not a covered peril). Bottom Line: No exposure under Business Interruption.

<b>Tort-Related Exposures:</b> If the Mad Cow infected meat is found to have gotten into the food supply, litigation would undoubtedly ensue. Normally one needs to demonstrate some physical or financial harm in a tort case. Here, nobody has become ill and the latency period is so long that this is not an immediate issue - at least in terms of personal injury cases. One could argue that the claimant was caused emotional distress if it can be demonstrated that tainted meat was consumed. Fear of developing a disease is not normally compensable (though some would argue that's what has happened with asbestos).

<b>Negligence:</b> This is a more likely and immediately obvious avenue for a tort case. The argument could be made, if the tainted meat reaches the food supply, that the farmer, meat packer, processors, feedstock supplier, retailer/restaurant etc., were all negligent and caused (or suffered) economic damage. In that case, there would be suits filed by these parties against each other and against outside parties. The products liability issue right now is probably most relevant to the feedstock supplier. Usually, cows are infected by consuming tainted feedstock containing as an ingredient from the ground-up organs of other cattle. Litigation could be expected to erupt over this.

The "nightmare" scenario is that the meat from many infected cows has already entered the food supply without detection for an extended period of time. The long latency period means that a large future liability is potentially building. This is unlikely since the USDA has been testing for years with this being the first, and an apparently isolated case. The second reason that the “nightmare” scenario is very unlikely, is that consuming meat from an infected animal does not automatically lead to the human form of this illness, Creutzfeldt-Jakob Disease. It is in fact extremely rare, though always fatal.