The insured, a security firm operating in Iraq under contract with the U.S. government, was sued by former Iraqi detainees and their survivors for allegedly torturing prisoners in the Abu Ghraib prison and other detention centers in Iraq. The insured, in turn, sought defense and indemnity coverage for the lawsuits under its commercial general liability protection policies, which obligated the insurer to defend and indemnify the insured against any suit for covered injuries or damage. After the insurer denied coverage, the insured commenced a declaratory judgment action against its insurer, and both parties moved for summary judgment.
The insurer argued that the claims at issue were not covered under the policies, which only “covered injury or damage that’s caused by events or offenses which happen or are committed” in the covered territory, which was defined to include the U.S., Canada and Puerto Rico. The insured contended that this territorial limitation did not apply to bar coverage because (1) some of the underlying claims implicated events that happened in the U.S., and (2) there is an exception to the relevant coverage provision for employees who were away from home for a “short time,” which could apply to some of its employees who were accused of misconduct. The district court found for the insurer, and the insured appeal.
In CACI International et al. v. St. Paul Fire and Marine Ins. Co., No. 08-1885 ( 4th Cir., May 14, 1009), the U.S. Court of Appeals for the Fourth Circuit affirmed the judgment of the district court, holding that the insurer had no duty to defend the insured because the underlying complaints did not allege events that happened in the coverage territory and that “[u]nder well-established principles of insurance law, the place of the injury—not the place of some precipitating cause—determines the location of the ‘event’ for coverage purposes.” Applying Virginia law, the Court further held that the underlying complaints did not allege that the injuries claimed resulted from the activities of the insured’s employee who was in Iraq for only a “short period,” and the exception to the coverage limitation therefore did not apply: “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.” In reaching its decision, the Court noted that it was guided by the “Eight Corners Rule, which requires courts to look primarily at the underlying complaints and the insurance policy to determine if there is a potential for coverage.” The Court declined to consider evidence outside of the underlying complaint, including exhibits that were attached to it.