Coverage Territory Limitation Excludes Coverage of Negligent Hiring Claims

 

CACI International appealed a district court's decision that its insurer, St. Paul Fire and Marine, had no duty to defend CACI against claims alleging torture and abuse at Abu Ghraib in Iraq . This case is CACI International, Inc. v. St. Paul Fire and Marine Insurance Company, 566 F.3d 150 (2009).

 

CACI 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 prison. At that time, CACI had a general liability insurance policy with St. Paul that provided that the insurer would defend CACI against any suit for covered injuries or damage and would indemnify CACI for up to $2 million. That policy applied to injury and damage claims caused by an event that takes place only in the coverage territory, defined as the U.S., Canada, and Puerto Rico. The policy also included a short time exception to the general bar on coverage outside the defined coverage territory.

 

In 2004, CACI was sued by two groups of former detainees who alleged torture and abuse by CACI employees at Abu Ghraib. The insured turned the lawsuits over to St. Paul, but the insurer denied coverage. The insurer sought a declaratory judgment that it had no duty to defend or indemnify CACI and the district court agreed with the insurer. CACI appealed.

 

The appeals court said that in order to assess whether St. Paul had a duty to defend in this case, the court first must ask whether the abuses alleged in the complaint took place inside the coverage territory as defined. The court found that it was undisputed that all of the alleged abuse took place in Iraq. CACI, however, argued that some of the alleged activities took place in the coverage territory because one of the allegations was that there was negligent supervision and hiring and this took place in Virginia and California. The court said that this argument failed for two reasons.

 

First, the court noted, the complaint did not allege that the negligent supervision took place outside Iraq; it alleges only that CACI acted negligently and directly harmed the plaintiffs by failing to take appropriate steps to supervise those persons performing interrogation services. The complaint does not state from where CACI directed its supervision, and in fact, suggest negligence on the part of those directly supervising ongoing interrogations in Iraq. Therefore, it was clear to the court that the allegations on their face implicate events outside the coverage territory of the policy.

 

More importantly, the court continued, even assuming that the complaint alleges activities that happened in the U.S., 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.

 

Applying these principles, the court held that it was clear the alleged injuries and abuses took place in Iraq. And, because the place of the injury is controlling, the court ruled that the alleged injuries happened outside the coverage territory.

 

As for the short time exception to the territorial coverage provision, the court noted that the exception applies when the injury or damage results from activities of a person whose home is in the coverage territory, but who is away from there for a short time on business. CACI argued that the term “short time” is ambiguous and so, it should be construed against a limitation of coverage. However, the court said that the word “short” means brief or lasting only a short period of time. In this case, the policy had only a one-year period of performance and therefore, travel outside the coverage territory for several weeks or more would defy the common understanding of short time. It was clear to the court from the facts that the complaints covered a course of conduct that spanned several years. There was no reasonable way to take such a massive operation by CACI and cram it into a short time exception.

 

The ruling of the district court was affirmed.

 

Editor's Note: The coverage territory limitation in general liability policies can often be overlooked. However, the insuring agreement requires that injury or damage take place in the coverage territory as defined, and if not, coverage does not exist. The United States Court of Appeals, Fourth Circuit, upheld this point in this case, based on the allegations in the complaint and the facts of the situation.