CACI International, Inc. v. St. Paul Fire & Marine Insurance Co., 566 F.3d 150 (4th Cir. 2009), addresses the question of whether St. Paul had an obligation to defend its insured, CACI, against claims by Iraqi detainees who alleged torture and abuse at Abu Ghraib and other prisons in Iraq. In an opinion authored by Judge Wilkinson, the Fourth Circuit held that the St. Paul CGL policy did not afford CACI coverage for the claims.
In 2003, CACI entered into three contracts with the United States government to provide logistical and intelligence support for U.S. operations in Iraq. The work included screening and interrogating detainees at Abu Ghraib and other prisons in Iraq. At the same time, CACI obtained a one-year “Commercial General Liability Protection” policy with St. Paul, which provided that St. Paul would defend CACI against any suit for covered injuries or damages and would indemnify CACI subject to a $2 million policy limit. CACI renewed the policy for an additional year in March 2004.
The policy’s insuring agreement covered “bodily injury” that was “caused by an event.” An “event” was defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Significantly, the policy limited coverage to the “coverage territory,” which was defined as the United States, its territories and possessions, Canada and Puerto Rico, and the policy confined coverage “only for covered injury or damage that’s caused by events or offenses which happened or are committed there.” The policy provided an exception (“the short-time exception”) to the geographic limitation “for covered injury or damage that’s caused by events or offenses which happened or are committed in the rest of the world if . . . they 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.” Id. at 153.
In the summer of 2004, CACI was sued by two groups, former Iraqi detainees and their survivors, who alleged torture and abuse by CACI employees at Abu Ghraib and other prisons in Iraq. Judge Wilkinson pointedly remarked that “this case is not about the conduct of the war in Iraq.” Id. at 155.
Virginia supplied the rule of decision. Virginia applies the “potentiality rule” determining whether an insurer has a duty to defend its insured. This rule holds that “an insurer’s duty to defend is triggered if there is any possibility that a judgment against the insured will be covered under the insurance policy.” Id. “To implicate the duty, the underlying complaint must allege some fact on which the insurer would be liable.” Id. In evaluating whether a complaint potentially triggers coverage under the policy, Virginia applies the Eight Corners Rule, “which requires courts to look primarily at the underlying complaints and the insurance policy to determine if there is potential for coverage.” Id. This rule “prevents courts from conducting an intensive factual analysis at an early stage of the proceedings, which would only increase litigation costs and needlessly tax parties and courts before the underlying suit had barely begun.” Id.
The court did not find it necessary to address whether the district court had erred in considering two documents attached to the complaint: a job posting for a linguistic support position, and a military report on Abu Ghraib that discussed the involvement of two CACI employees in abuses there. It was not clear “whether the district court properly extended its inquiry by considering these documents attached to or relied on by the complaints.” Id. at 156. “On the one hand, looking beyond the complaint might become a slippery slope.” Id. But, “on the other hand, considering documents attached to the complaint would not entail the extensive factual inquiries or lengthy litigation that the Eight Corners Rule seeks to prevent.” Id. Finally, “there is no apparent need in the insurance context to counter possible manipulations by the plaintiff in the underlying complaint,” as in the disposition of a motion to dismiss. Id. “Because Virginia courts have not signaled their readiness to look beyond the underlying complaint,” the court would “decline to consider those documents attached to the complaints or on which the complaints in the underlying action rely.” Id.
The court held that the allegations in the complaints foreclosed the possibility of coverage under the territorial provision or the “short-time” exception of the policy. Id. CACI argued that some of the alleged activity took place in the coverage territory because one of the two complaints alleged negligent supervision in hiring, and those activities took place in Virginia, California, and elsewhere in the United States. Id. The court rejected this argument. “First, the complaint does not allege that the negligent supervision took place outside Iraq; it alleges only that CACI ‘acted negligently and directly harmed Plaintiffs . . . by failing to take appropriate steps to supervise the persons performing Interrogation Services.’” Id. “The complaint did not state from where CACI directed its supervision, and in fact suggests negligence on the part of directly supervising ongoing interrogations in Iraq.”
On these observations, “it is not clear that these allegations on their face implicate events in the coverage territory.” Id. What is more, “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 events for purposes of insurance coverage.” Id. at 156-57. Sound policy reasons informed the “place of the injury” test. The application of 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.” Id. at 157. In this regard, “a causal test would create a windfall for the insured and render the insurer responsible for a liability for which it had not contracted.” Id. at 157 (internal quotation marks in citation omitted). Applying the place of the injury test, the court held that the alleged injuries and abuses took place in Iraq.
The court further held that the “short-time exception” to the territorial coverage provision did not apply. “Because CACI is arguing that an exception to non-coverage applies, it bears the burden of proof.” Id. The court rejected CACI’s argument that the term “short-time” was an ambiguous term. Rather, the court assigned the term its ordinary and customary meaning, citing the dictionary definition of the word “short” as denoting “brief” or “lasting only a short period of time.” Id. at 158. The context of the policy as a whole illuminated the meaning of the term, remarking that “the policies each had only a one-year period of performance; therefore, travel outside the coverage territory for several weeks or more would defy the common understanding of ‘short-time.’” Id.
On this understanding, “the provision most naturally covers a brief, discrete event, such as a several-day business trip abroad.” Id. The court thus held that “this limited exception cannot encompass activities of the scope and magnitude of CACI’s operations in Iraq.” Id. The court determined that the underlying complaints present no allegations of abuse resulting from the activities of a CACI employee who was in Iraq for only a short time.” Id. at 159.
The court enjoined that “the potentiality rule does not require us to abandon the rule of reason.” The court pointedly remarked that “we are not permitted to take such a massive operation and cram it into a short-time exception.” Id. If the exception were applied in that manner, “the exception would swallow the policy’s coverage provisions whole, and there would be no reason for an insured to ever contract for coverage broader than its policy’s narrowest exception.” Id.
