In CACI International Inc. et al. v. St. Paul Fire and Marine Ins. Co., No. 08-1885, the U.S. Court of Appeals for the Fourth Circuit ruled that an insurer had no duty to defend a defense contractor against multiple lawsuits alleging that the company’s employees tortured detainees at the Abu Ghraib prison in Iraq. The underlying complaints against the insured did not allege events that happened within the coverage territory of the policies, which limited coverage to the United States and Canada.  

Background Facts  

In 2003 and 2004, St. Paul issued commercial general liability insurance policies to CACI International and related companies. These domestic policies contained a coverage territory provision that generally limited coverage to the United States and Canada. But the policies also contained an exception extending coverage for injuries that “result from the activities of a person whose home is in the coverage territory, but is away from there for a short time on your business.”  

In addition to the domestic policies, CACI purchased separate global policies from St. Paul, insuring against covered liability “anywhere in the world” except for certain prohibited areas. Iraq was designated as a prohibited area and was excluded from coverage under the global policies.  

In 2003, CACI entered into contracts with the United States government to provide logistical and intelligence support for the U.S. military operations in Iraq. This work included screening and interrogating detainees in Abu Ghraib and other prisons in Iraq.  

In June 2004, a group of former detainees filed a class action lawsuit in the U.S. District Court for the Southern District of California against CACI and other defendants. The suit alleged that interrogators employed by CACI physically abused Abu Ghraib detainees as part of an illegal scheme to extract intelligence through torture. The complaint also alleged negligent supervision and hiring on the part of CACI. In July 2004, a second lawsuit alleging similar claims was filed against CACI in the U.S. District Court for the District of Columbia.  

CACI sought coverage for both suits under its domestic policies, which covered “bodily injury” that was “caused by an event.” The policies defined “event” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” CACI argued that the allegations of negligent hiring and supervision triggered coverage for bodily injury under the domestic policies. CACI also argued that the allegations fell within the policies’ “personal injury” coverage.  

St. Paul Wins Summary Judgment  

In March 2008, CACI filed a declaratory judgment action in the U.S. District Court for the Eastern District of Virginia, seeking a declaration that St. Paul was obligated to defend CACI against the claims alleged in the detainee lawsuits. St. Paul denied any duty to defend under the policies, and both parties filed motions for summary judgment.  

In July 2008, the district court granted St. Paul’s motion for summary judgment, holding that the policies’ territorial exclusion barred coverage for the allegations of torture and abuse in Iraq. The court held that the allegations of negligent hiring and supervision did not implicate coverage for bodily injury in the United States because “the factual predicate for such claims [arose] from the underlying tortious conduct of the employee,” all of which took place in Iraq.  

The district court rejected CACI’s attempt to invoke the exception for employees who were away from the coverage territory for “a short time.” In analyzing the exception, the district court applied the eight corners rule.  

The district court observed that few courts have discussed what evidence is “intrinsic” to the complaint for purposes of applying the eight corners rule. The court noted, however, that the eight corners rule is a variant of the well-established “four corners rule,” under which courts may consider the complaint itself and any document attached to it when ruling on a Fed. R. Civ. P. 12(b)(6) motion to dismiss. Under the four corners rule, courts may also consider any document that “was integral to and explicitly relied on in the complaint … if the plaintiffs do not challenge its authenticity.”  

The court held that “there [was] no reason not to apply those principles” to determine the insurer’s duty to defend.  

The court therefore considered three documents that it held were “intrinsic” to the complaints: (1) a job posting for linguistic support positions with CACI and other defense contractors in Iraq; (2) a military report on Abu Ghraib discussing the involvement of two CACI employees in prisoner abuses; and (3) CACI’s contracts with the government, which were 12 months in duration and required CACI to provide a team of multiple interrogators and counterintelligence agents to work 12-hour shifts for six-day workweeks in Baghdad. According to the district court, these documents — along with the complaints themselves — revealed that “the government requested, and CACI provided, a corps of contract interrogators to live and work in Iraq for an extended period of time.” Thus, the district court held that CACI could not claim coverage under the policies’ “short time” exception.  

The Fourth Circuit Affirms  

On May 14, 2009, the Fourth Circuit affirmed the award of summary judgment in a published opinion. Judge J. Harvie Wilkinson III wrote the majority opinion in which District Judge David A. Faber of the U.S. District Court for the Southern District of West Virginia joined. Judge Dennis W. Shedd wrote a dissenting opinion.  

The majority agreed with the district court — albeit for different reasons — that the allegations of negligent supervision and hiring in the United States did not invoke the policies’ coverage for bodily injury. CACI argued that it is not the location of the injury, but rather the location of the event causing the injury that determines whether the claim falls within the coverage territory limits. Accordingly, CACI argued that the allegations of negligent hiring and supervision of employees in the United States fell within the policies’ coverage territory, notwithstanding that the alleged injuries all took place in Iraq.  

The Fourth Circuit rejected this argument, reasoning as follows:  

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. The reasons for a “place of the injury” test are clear. … Applying a “cause in fact” test would let plaintiffs sweep any number of worldwide events into the ambit of a domestic policy as long as the underlying complaint alleged negligent supervision. Therefore, a causal test would create a windfall for the insured and render the insurer responsible for a liability for which it had not contracted. If domestic policies could be stretched to this extent, global policies would become superfluous and territorial coverage limitations would lose their meaning.  

The Fourth Circuit also held that coverage was not available under the short time exception to the policies’ coverage territory provision. CACI argued that the complaints “left open the possibility” that the injuries alleged in the detainee lawsuits resulted from the activities of a CACI employee who was in Iraq for a short time. Accordingly, CACI argued that coverage was dictated by the “potentiality rule,” under which an insurer must defend if there is any potential that a judgment against the insured will be covered by the insurance policy.  

The Fourth Circuit rejected CACI’s argument, holding that “the potentiality rule does not require us to abandon the rule of reason.” The court explained that “while there is always a theoretical possibility that some CACI employee outside the United States for a short time had some hand in the alleged abuse, this mere possibility does not rise to the level of potentiality.” The detainee lawsuits alleged an intricate and ongoing course of conduct that spanned several years. Accordingly, the Fourth Circuit ruled that it would be improper “to take such massive operation and cram it into a short time exception.”  

Potential Implications  

The Fourth Circuit’s ruling holds two important implications for future litigation of commercial general liability policies. First, the Fourth Circuit has now joined the majority of courts holding that the location of an “event” or “occurrence” is determined by the place where the injury happened, even if a precipitating cause took place elsewhere. Second, the Fourth Circuit’s ruling stresses that the “potentiality” for coverage should be grounded in a reasonable reading of the underlying complaints.