Coverage Depends on Where Accident Occurs

The insured toy manufacturer and distributor brought an action against its insurer seeking a declaration of the insurer's duty to defend. The district court ruled in favor of the insured and the insurer appealed. This case is ACE American Insurance Company v. RC2 Corporation, Inc., 600 F.3d 763 (2010).

 

RC2 designed and marketed toys that were primarily manufactured in China . In 2007, RC2 recalled certain of its wooden railway trains and train set components that had been manufactured in China because they contained lead. This recall led to numerous class action lawsuits against RC2. The insured maintained two separate commercial general liability policies. The first one covered only occurrences that happened within the United States; the other policy applied internationally, but excluded occurrences that took place within the United States .

 

Initially, RC2 sought coverage under the domestic policy, but that policy expressly excluded coverage arising from lead paint claims. RC2 then sought coverage under its other policy but the insurer denied coverage, claiming that the international policy excluded the damages in question because the occurrences took place within the United States . The insured sued and the trial court ruled in its favor. The insurer appealed.

 

The court of appeals noted that the underlying lawsuits involved damages allegedly caused by exposure to lead paint that occurred within the United States , while the manufacture of the products occurred within the coverage territory of the international policy. The insurer, ACE, argued that the governing state law (Illinois) establishes that the occurrence took place in the U.S. where purchasers of the toys were exposed to the lead paint. The insured countered that the law compels the conclusion that an occurrence took place in China where at least some of the negligent acts that caused the harm took place. Both the insured and the insurer cited court rulings in Illinois supporting their respective stands.

 

The circuit court found that 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; what was important to the court was where the occurrence happened. The court said that there was no question that the international policy issued by ACE excluded coverage of exposure to defective products that takes place in the U.S. Any other interpretation would render the domestic and international policies in this case almost entirely redundant.

 

In sum, the court ruled that an accident occurs when and where all the factors come together at once to produce the force that inflicts injury, and not where some antecedent negligent act takes place. Thus, under the policies in question in this case, the accident that constitutes the policy triggering occurrence takes place at the location of the exposure to lead paint, not at the location where the products were manufactured and painted. Since all the parties to this dispute agree that all of the alleged exposure to the defective products took place within the United States , these occurrence took place in the excluded coverage area of the ACE international policy.

 

The decision of the district court was reversed. And the case was remanded.

 

Editor's Note: The policy in dispute here is different from standard general liability coverage forms in that the coverage territory was identified as anywhere but the United States . The decision of the court, then, rested on where the occurrence happened. Using Illinois case law and other court rulings, the circuit court found that the majority rule is that it is the location of the injury that determines the location of the event for purposes of insurance coverage. The fact that the defective products were made in China was not relevant. The occurrence that triggers coverage takes place where the actual event that inflicts harm takes place, and that occurrence happened at the location of the exposure itself: the United States , where coverage was expressly excluded.