Risk Management

Strangers in a strange land

Avoid coverage shortcuts where short-term foreign liability is concerned

By Donald S. Malecki, CPCU

One facet of commercial liability insurance that has not generated much discussion but is nonetheless important is the liability claim exposure of employees who must travel to foreign countries to service accounts or assist in the installation and operation of equipment, machinery or other items newly purchased from an entity in the United States.

Much has been written about the coverages an employer should obtain for work-related injuries of its employees while they are in foreign countries for lengthy terms of foreign employment.

What appears not to have been explored in any great detail is the nature of coverage required for vicarious liability of the employer brought about by the acts or omissions of its employees while providing work-services to foreign customers, as well as coverage for the employees themselves when the exposure is for a short period of time.

Some U.S.-based entities, for example, that do not normally deal with foreigners may be hired to assist in the installation and implementation of certain complex machinery or equipment in a foreign country, because of their products or expertise. In some cases, this kind of engagement may occur only once.

If a producer were questioned on whether the standard ISO commercial general liability policy would cover an employer for liability because of an act or omission of one or more of its employees resulting in injury or damage, the answer should be what consultants would likely say: It depends.

This is not an evasive answer. The standard CGL policy, and most likely independently filed policies as well, provides some foreign liability coverage. The extent of coverage is found in the defined term “coverage territory.” In many CGL forms, this term is defined, in part, to include injury or damage arising out of the activities of a person whose home is in the United States, its territories or possessions, Puerto Rico or Canada, but who is away for a short time on the named insured’s business.

What could be troublesome here and might prompt the need for better coverage is the limited period during which coverage applies. In other words, coverage applies only while an otherwise qualified person is away for a short time. One has to wonder in reading that provision just how long “a short time” may be.

Unless an insurer balks at providing coverage because the period was not a short time from its perspective, there may be some business people who are not going to worry about the meaning of a short time. Others, on the other hand, will want to know. Finding the answer, however, is not easy, since the courts often are unpredictable regarding insurance matters.

Looking for an answer

One case that made reference to the phrase “away for a short time on business” is Spears v. Nationwide Mutual Insurance Company, (U.S. Dist. Ct., D.C., DDC.0000402 (2003). The plaintiff was involved in an auto accident while working as an independent contractor for an international management consulting agency in the Ukraine.

The costs of the plaintiff’s trans­port to London were covered by a policy maintained by the international management consulting agency, as were her medical costs and lost wages by another insurer by way of a claim falling within the Defense Base Act.

(Briefly, the Defense Base Act, which was enacted in 1941, provides Federal Longshoremen’s and Harbor Workers Act benefits to civilians performing services related to a U.S. governmental agency in foreign countries.)

At the time of the accident, it was said that the plaintiff was employed from at least June 1995 to October 1995. From everyone’s viewpoint, four months apparently was an acceptable time period with reference to the policy’s territorial limitation of a “short time,” since it was not questioned.

Another case that also took the “short time” phraseology into consideration is Caci International, Incorporated, et al. v. St. Paul Fire and Marine Insurance Company, 566 F.3d 150 (4th Cir. 2009). This is a case where the named insured had a global liability policy but it excluded Iraq. It therefore relied on its domestic CGL policy’s reference to the “short time” wording as a matter of defense in arguing for coverage.

Briefly, the named insured appealed the district court’s decision that its insurer had no duty to defend it against claims alleging torture and abuse at Abu Ghraib and other prisons in Iraq. The named insured acknowl­edged that the insurance policies at issue in this case limited coverage to the United States and Canada.

The named insured nonetheless argued that some of the claims implicated events that happened in the United States, and that other claims fell under an exception to the coverage provision for employees who were away from home for a “short time.”

The problem that confronted the named insured began in 2003 when it had entered into three contracts with the United States to provide logistical and intelligence support for U.S. operations in Iraq. This work included screening and interrogating detainees at Abu Ghraib and other prisons.

In that same year of 2003, the named insured purchased a one-year CGL policy from St. Paul, which was renewed for an additional year. In the summer of 2004, the named insured was sued by two groups of former Iraq detainees and their survivors. The first suit accused the named insured and another corporation of implementing an ongoing “torture conspiracy,” in an attempt to profit by extracting intelligence through torture.

The second lawsuit made similar allegations. It claimed that the named insured’s employees had beaten detainees, deprived them of food, stripped and photographed them and forced them to witness violent attacks on their relatives.

When its insurer received notice of these complaints, it notified the named insured that it believed the alleged abuses did not trigger the insurer’s duty to defend or indemnify under the policies. Ultimately, the district court granted the insurer’s motion for summary judgment.

Insofar as the “short time” exception was concerned, the named insured argued that being an undefined term in the policy, short time was ambiguous and, therefore, should be interpreted in favor of the named insured. The court disagreed. In doing so, it stated that when words are undefined in an insurance policy, the words are to be given their ordinary and customary meaning.

The court went on to say that the word “short” has an ordinary every day meaning: “brief,” or “lasting only short period of time.” The court also stated that the policies involved in this matter each had only a one-year period of performance; therefore, travel outside the coverage territory for several weeks or more would defy the common understanding of “short time.”

The provision, the court added, most naturally covered a brief, discrete event such as a several day business trip abroad. The court therefore concluded that the policy could not encompass activities of the scope and magnitude of the named insured’s operations in Iraq.

Conclusion

It is probably not a good idea for a business to rely on the very limited coverage provided by a CGL policy relating to the coverage territory extension dealing with “short time” foreign exposures. This extension may be useful to a business as a last resort argument if it is caught up in a situation where no other coverage is applicable.

What might be a better idea for a business that gets involved in foreign exposures on a very limited basis is to get its CGL policy endorsed with one of the three endorsements ISO introduced in 2001 that expand on the coverage territory.

Endorsement CG 24 22 Amend­ment of Coverage Territory — Worldwide Coverage expands the coverage territory to anywhere in the world with some exceptions relating to countries subject to trade, economic sanctions or embargos.

Endorsement CG 24 23 Amend­ment of Coverage Territory — Additional Scheduled Countries is self-explanatory. It expands coverage territory to those countries scheduled in the endorsement.

Endorsement CG 24 24 Amend­ment of Coverage Territory — Worldwide Coverage With Specified Exceptions. When issued, coverage territory applies anywhere in the world except (1) in countries specifically listed in the endorsement’s schedule and (2) any country subject to a trade, economic sanction or embargo by the United States.

Producers need to be careful not to suggest that when any one of these endorsements is issued that coverage will apply. These endorsements may help when a claim or suit arises, but whether they will provide the kind of protection an insured seeks depends on too many variables.

The author
Donald S. Malecki, CPCU, has spent 50 years in the insurance and risk management consulting business. During his career he was a supervising casualty underwriter for a large Eastern insurer, as well as a broker. He currently is a principal of Malecki Deimling Nielander & Associates LLC, an insurance, risk, and management consulting business headquartered in Erlanger, Kentucky.