When a customer buys an insurance policy, one of the often unanswered (and unasked) questions is “where does this policy apply?” You may not think it’s a big deal. But what if you just wrote a CGL policy for a customer that has people who work in Great Britain, or Peru? What if they purchase products that are manufactured overseas? What does the ISO CGL coverage form say about where coverage applies?
We are looking at the unendorsed CG 00 01 04 13 (Commercial General Liability Coverage form). Make sure you look at your customer’s policy (including any endorsements that might change the wording that we are discussing.)
To start, let’s look at the coverage A insuring agreement and see what it has to say.
- We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies…. (look at the policy for more details)
- This insurance applies to “bodily injury” and “property damage” only if:
- The “bodily injury” or “property damage” is caused by an “occurrence” that takes place in the “coverage territory”;…
You have already noticed that we didn’t give the whole insuring agreement, but only those parts that are important to this discussion. What we need to see here is the phrase “to which this insurance applies.” The section of the paragraph above tells us something about when this insurance applies. There’s more language that limits when this insurance applies, but what we want to focus on is that defined term, “coverage territory.” Let’s look.
“Coverage territory” means
- The United States of America (including its territories and possessions), Puerto Rico and Canada;
- International waters or airspace, but only if the injury or damage occurs in the course of travel or transportation between any places included in Paragraph a. above; or
- All other parts of the world if the injury or damage arises out of:
- Goods or products made or sold by you in the territory described in Paragraph a. above;
- The activities of a person whose home is in the territory described in Paragraph a. above, but is away for a short time on your business; or
- “Personal and advertising injury” offenses that take place through the Internet or similar electronic means of communication;
provided the insured’s responsibility to pay damages is determined in a “suit” on the merits, in the territory described in Paragraph a. above or in a settlement we agree to.
So what? Why do we care? That’s a valid question and I’m glad you asked it.
The first and second parts of this definition aren’t going to be much of an issue for us. We expect there to be coverage in the United States of America (US). It also makes sense that the coverage territory would include international water and airspace while traveling among those areas that are a part of the coverage territory. We may not often think about it, but there are several places where an aircraft would leave US airspace on the way to another US territorial location. We’re going to refer to this as the A territory going forward.
The third part that starts with, “all other parts of the world,” is where the confusion can begin. There are three specific situations that are covered under this part of the definition.
- Goods in the territory
- People in the territory
- Personal and advertising injury over the internet.
Since personal and advertising injury is handled by another insuring agreement, we will leave that alone in this discussion. Let’s look at some potential issues with the first two bullets, goods in the territory and people in the territory.
Goods in the territory
Here’s the wording in the policy, “Goods or products made or sold by you in the territory described in paragraph a. above;“. By this, we understand that there is potentially coverage for “bodily injury” or “property damage” caused by the insured’s goods or products. This works as long as they were made or sold in the A territory.
So far, it doesn’t matter where the products go, as long as the sale happens in the A territory, or the product was made there. That feels simple but understand why it’s written that way. Some customers will have products that are made outside of the A territory and as long at the sale occurs in the A territory, they’re good to go. The other is true, too. Some customers will have products made in the A territory but sold elsewhere. We don’t see a coverage issue there.
People in the territory
Here we go. Back to the policy, “The activities of a person whose home is in the territory described in Paragraph a. above, but is away for a short time on your business;” Clearly, people can cause “bodily injury” or “property damage”. This paragraph provides coverage for any people who happen to be outside the A territory because the insured has business in other parts of the world.
According to this, it doesn’t matter where in the world the people are. As long as their home is described in the A territory, there is no exclusion here. This provision anticipates that an insured may send someone to another country on business. It doesn’t specify what they are doing for the business so it could be a salesperson making sales calls, an engineer on a tour of manufacturing facilities, or an executive working to make an acquisition deal.
Both of these provisions require that the case be brought in the A territory, or that the company agree to a settlement.
Some holes to consider
First, what happens if the goods or products are neither produced nor sold in the A territory? Unendorsed, this policy won’t cover that situation. In addition, what constitutes made or sold in the A territory? Is it enough that the component parts of the product were built in the A territory, but assembled and sold elsewhere? Is it enough if the component parts were made elsewhere and assembled in the A territory? Is it enough if the product never sees the A territory and is sold over the internet when the insured headquarters is in the A territory? What does sold in the A territory really mean these days? These are the questions that make me wonder if there is a gap in coverage.
Let’s consider our people outside the A territory. What does it mean that their home is in the A territory? Is it enough that there is a mailbox there, even if they haven’t been back to the states for two years? Is it enough that they own a house in the A territory, even though they’ve had a renter in that house while they are out of the country? What is a short time anyway? My wife has been traveling for the last week and that’s a long time to me. Is a short time six months? A year? Five years? Does it count if they are out of the A territory on business, and they’re exploring other countries as well?
We live in a time of location freedom. Workers do not always have to report to a place to work. I’m sitting in my office writing today. I could very well be at a local coffee shop (no national brands, here) writing my blog. Even products aren’t tied to a place. There are products that can be made almost to order. One consumer goods company I know of produces their products based on what was sold last month. Products can be made at one location, stored in another, and drop shipped to a third all without the insured maintaining any inventory under their control.
There’s one more hole in this coverage that I’d like to point out. If an insured has operations or people outside of the A territory, do they have to have insurance that was written and sold in the other country? Do they need that coverage? Are you sure? The ISO CGL coverage form only provides coverage if the suit is brought in the A territory. What if they bring suit in a foreign country? What if the rules of that country require the insured to carry insurance written by a carrier admitted by and sold by an agent licensed by that country?
I know that there are possible solutions to all of these holes, but unless you bring up the potential holes, you never know that they need to be filled. It’s possible that it’s not an issue for any of your customers.
But are you sure?
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