Utilizing the ‘Place of Injury’ Test Regarding Territorial Limitation Clauses in Insurance Policies

Territorial limitation clauses can be found universally in domestic and international insurance policies. Under this coverage restriction, the policy typically covers “bodily injury” if the “bodily injury … is caused by an occurrence that takes place in the coverage territory.” In domestic insurance policies the territorial limitation clause typically limits coverage to the United States, Puerto Rico and U.S. territories. By designating specific territorial locations that are covered, the policy’s territorial limitation clause attempts to set forth clear boundary lines for the geographical reach of the insurance policy coverage. Sometimes those boundary lines can become blurred, however.

The “great weight of case law” holds that “it is the location of the injury—not some precipitating cause—that determines the location of the event for purposes of insurance coverage.” Chiquita Brands Int’l, Inc. v. Federal Ins. Co., 2013 WL 836861 (Ohio Ct. App. 1st Dist. 3/6/13; ACE American Ins. Co. v. RC2 Corp., Inc., 600 F.3d 763, 768 (7th Cir. 2010) Accord, CACI Int’l, Inc. v. St. Paul Fire and Marine Ins. Co., 566 F.3d 150, 156-157 (4th Cir. 2009).

The aforementioned blurry boundary line arises in cases involving injuries that are sustained outside of the United States because of some act or omission that occurred in the United States and the policy restricts coverage to the United States.

In this situation, courts have held that “[t]he location of an ‘occurrence’ is determined by the place where the injury happened; it does not matter that a precipitating event took place elsewhere.” Farmers Alliance Mut. Ins. Co. v. Salazar, 77 F.3d 1291, 1296 (10th Cir. 1996); see also DeWitt v. Nationwide Mut. Fire Ins. Co., 109 Ohio App.3d 716, 720-721, 672 N.E.2d 1104 (11th Dist. 1996); Flintkote Co. v. Gen. Acc. Assur. Co. of Canada, 410 F.Supp.2d 875, 891-892 (N.D. Cal. 2006).

This approach is known as the “place of injury” test.

As an example, in ACE American Ins. Co. v. RC2 Corp., Inc., 600 F.3d 763, 768 (7th Cir. 2010), the ACE policy excluded coverage for occurrences that took place within the United States. The underlying lawsuits involved products using lead paint that were sold and used exclusively in the United States, but had been manufactured in China. The manufacturer argued that the “occurrence” took place in China where the negligent acts that “caused” the harm took place. The insurance company argued that the “occurrence” took place in the United States where the purchasers of the products were exposed to lead paint. The federal district court accepted the manufacturer’s argument and required ACE to defend the manufacturer. The district court reasoned that if some negligent act occurred in the process of the product’s manufacturing that caused harm to occur in another country, the policy potentially extended coverage for those injuries. However, the Seventh Circuit Court of Appeals reversed finding that “the policies are clear that the ‘occurrence’ that triggers coverage takes place where the actual event that inflicts the harm takes place. And based on the undisputed facts in this case, the ‘occurrence’ here happened at the location (or locations) of the exposure itself: within the United States.” ACE American Ins., 600 F.3d at 769. A contrary result, the Court found, “would allow [the manufacturer] to sweep any domestic event into its international policies so long as it posited some antecedent negligent act that occurred someplace outside the United States.”

In CACI Int’l, Inc. v. St. Paul Fire and Marine Ins. Co., 566 F.3d 150, 156-157 (4th Cir. 2009), the underlying lawsuits related to claims of abuse and torture at prisons in Iraq. The insurance policies limited coverage to the United States and Canada. The Fourth Circuit Court of Appeals rejected an argument similar to that made by the manufacturer in ACE American Ins. Co. v. RC2 Corp., Inc., 600 F.3d 763, 768 (7th Cir. 2010), stating:

[E]ven assuming that the complaint alleges activities that happened in the United States, the great weight of case law holds that it is the location of the injury—not of some precipitating cause—that determines the location of the event for purposes of insurance coverage. The reasons for a “place of injury” test are clear. As the district court noted, applying a “cause in fact” test would let plaintiffs sweep any number of worldwide events into the ambit of a domestic policy as long as the underlying complaint alleged negligent supervision. Therefore, a causal test would create a windfall for the insured and render “the insurer responsible for a liability for which it had not contracted.” If domestic policies could be stretched to this extent, global policies would become superfluous and territorial coverage limitations would lose their meaning.

CACI Int’l, Inc., 566 F.3d at 156-157 quoting Keystone Automated Equip. Co. v. Reliance Ins. Co., 369 Pa.Super. 472, 535 A.2d 648, 652 (Pa. Super. Ct. 1988).

In Chiquita Brands Int’l, Inc. v. Federal Ins. Co., 2013 WL 836861 (Ohio Ct. App. 1st Dist., 3/6/13), Chiquita Brands was sued on a complaint that alleged that Chiquita was both directly and vicariously liable for the deaths and injuries of numerous people through murder, torture, kidnapping and other atrocities. It was alleged that Chiquita aided and abetted, conspired with, and participated in a joint criminal enterprise with terrorists. Chiquita was insured by National Union Fire Insurance Co. The National Union policies contained a territorial limitation clause limiting coverage to the United States (including its territories and possessions), Puerto Rico and Canada. Chiquita had purchased the policies to cover its foreign liability. National Union declined coverage asserting that it did not have a duty to defend Chiquita because all of the injuries for which Chiquita faced liability occurred in Columbia which was outside the policies’ coverage territory.

Following a bench trial, the trial court found that Chiquita’s decision to pay the terrorist groups was made at Chiquita’s corporate headquarters in Cincinnati, Ohio. The employees in Columbia simply implemented that policy with the goal of protecting Chiquita’s employees and property. Therefore, the trial court concluded that the location of the occurrence was within the coverage territory, i.e., the United States. On appeal, the Court rejected this argument. The Court used the “place of injury” test and found that the events that inflicted the harm alleged in the underlying complaints took place in Columbia. Therefore, the conduct in the underlying complaints was not within the coverage territory of the policy.