Insurer Has No Duty to Defend Alleged Abuse and Torture by Insured's Employees
In CACI Intern., Inc. v. St. Paul Fire and Marine Ins. Co. 2009 WL 1336611 [C.A.4 (Va.) ], CACI International appealed the district court's decision that its insurer, St. Paul Fire and Marine Insurance Company, had no duty to defend CACI against claims alleging torture and abuse at Abu Ghraib and other prisons in Iraq. Although CACI acknowledged that the insurance policies at issue generally limited coverage to the United States and Canada, CACI argued that some of the underlying claims implicated events that happened in the U.S. , and that other claims fell under an exception to the coverage provision for employees who were away from home for a “short time.”
In 2003, CACI International entered into three contracts with the U.S. government 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 Iraq . Also in 2003, CACI took out a one-year CGL policy with St. Paul, which provided that St. Paul would defend CACI against any suit for covered injuries or damage. CACI renewed this policy for an additional year in March 2004.
The policies covered “bodily injury” that was “caused by an event.” They defined “event” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” They also obligated St. Paul to pay any legally required damages for “covered personal injury” that was “caused by a personal injury offense.” But with one exception, the policies limited coverage to specific geographic areas. The policies included a “short time” exception to the general bar on coverage outside the home territory.
In 2004, CACI was sued by two groups of former Iraqi detainees and their survivors who alleged torture and abuse by CACI employees at Abu Ghraib and other prisons in Iraq . When St. Paul received notice of these complaints, it notified CACI that it believed the alleged abuses did not implicate St. Paul 's duty to defend or indemnify under the policies. CACI filed a declaratory judgment action in federal district court in Virginia, seeking a declaration that St. Paul was obligated under the policies to defend CACI in both lawsuits. St. Paul countered that it had no duty to defend or indemnify CACI. Both parties filed motions for summary judgment.
The district court granted St. Paul 's motion for summary judgment and denied CACI's. The district court concluded that CACI could not invoke coverage under the short time exception because the alleged activities were not indicative of a brief overseas business trip, but rather of a more permanent presence in Iraq . The court also held that the claims of negligent supervision and hiring did not allege activities within the U.S. because the factual predicate for such claims arose from the underlying tortuous conduct of the employee, all of which took place in Iraq.
The U.S. Court of Appeals, Fourth Circuit, stated that in order to assess whether St. Paul had a duty to defend, it must first ask whether the abuses alleged in the underlying complaints took place inside the coverage territory. The court looked initially to the policies to determine the scope of coverage. The policies agreed to defend against suits seeking damages for “covered injury … that's caused by events or offenses which happen or are committed in the [coverage territory],” which included the United States and its territories as well as Canada and Puerto Rico. According to the court, it was undisputed that all of the alleged abuse took place in Iraq.
Nevertheless, CACI argued that some of the alleged activities took place in the coverage territory because one of the complaints alleged negligent supervision and hiring, and these activities (according to CACI) took place in the U.S. CACI noted that the policies provided coverage for “events or offenses which happen or are committed [in the coverage territory],” and that the “ 'event' causing the alleged injury [was] CACI's acts of negligent hiring and supervision.
The appeals court explained that this argument failed for two reasons. First, the complaint did not allege that the negligent supervision took place outside Iraq : it alleged only that CACI “acted negligently and directly harmed Plaintiffs … by failing to take appropriate steps to supervise those persons performing Interrogation Services.” The complaint did not state from where CACI directed its supervision, and in fact suggested negligence on the part of those directly supervising ongoing interrogations in Iraq. Therefore, it was not clear that these allegations on their face implicated events in the coverage territory.
In addition, even assuming that the complaint alleged activities that happened in the U.S., the great weight of case law mandated that it was the location of the injury—not of some precipitating cause—that determined the location of the event for purposes of insurance coverage. According to the court, it was clear that the alleged injuries and abuses took place in Iraq . And, because the place of the injury is controlling, the alleged injuries happened outside the coverage territory.
Next, CACI argued that the alleged abuses may be covered under the exception to the territorial coverage provision for “injury or damage” that “result[s] from the activities of a person whose home is in the coverage territory, but is away from there for a short time on [CACI's] business.” Because CACI was arguing that an exception to non-coverage applied, it bore the burden of proof.
CACI first argued that “short time” was an ambiguous term that was undefined in the policies and thus should be construed against a limitation of coverage. But under Virginia law, the court stated, when words are undefined in an insurance policy, the words used are given their ordinary and customary meaning when they are susceptible of such construction. The court interpreted “short time” to most naturally cover a brief, discrete event such as a several-day business trip abroad.
The court determined that it was clear, therefore, that this limited exception could not encompass activities of the scope and magnitude of CACI's operations in Iraq , as the complaints alleged a pattern and course of conduct that spanned several years.
Although CACI argued that there was some chance that one or more of its employees involved in the alleged abuses were in fact in Iraq for just a short time, and that any claim that was “arguably covered” implicated the duty to defend, the court stated that while there was always a theoretical possibility that some CACI employee outside the U.S. for a short time had some hand in the alleged abuse, this mere possibility did not rise to the level necessary for coverage. Here, the underlying complaints presented no allegations of abuse resulting from the activities of a CACI employee who was in Iraq for only a short time. Therefore, CACI could not sustain its burden of proof.
According to the court, requiring St. Paul to defend CACI on the mere possibility that some employee may have been briefly in Iraq would allow the policies' exception to non-coverage to swallow the rule. Thus, the court declined to extend CACI's coverage beyond the plain terms of its policies and affirmed the judgment of the district court.