Alien vs. Policyholder

In recent years, there has been a proliferation of lawsuits brought in the United States by citizens of other countries alleging violations of international law. Using a statute known as the Alien Tort Claims Act (“ATCA”) or the Alien Tort Statute, the plaintiffs have obtained federal-court jurisdiction for a wide variety of claims against individuals and corporations, based overwhelmingly on allegations of harm occurring overseas.

Such claims against corporations bring in their wake insurance issues of vital importance to the corporate defendants. Although alien tort claims are still relatively novel, long-standing principles of insurance law, and judicial precedents established based on more familiar fact patterns, should provide helpful guidance to companies facing these claims.

A Brief History of Alien Tort Claims

In 1789, the first Congress passed the original Judiciary Act. Included in the Act was a provision vesting in the district courts jurisdiction “of all causes where an alien sues for a tort only in violation of the law of nations or a treaty of the United States.” This provision survives, nearly unchanged, and is now codified as 28 U.S.C. ' 1350, which provides, “The district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.”

Despite its long tenure in the statutory law, the Alien Tort Claims Act was virtually unused for nearly 200 years. That began to change in 1980, when the U.S. Court of Appeals for the Second Circuit reversed the dismissal of a lawsuit brought under the ATCA, holding, among other things, that notwithstanding the absence of a relevant treaty, an allegation of torture carried out by a foreign-state official made out a viable allegation of a violation of the law of nations, Filartiga v. Pena-Irala, 630 F.2d 876, 880 (2nd Cir. 1980), and that the exercise of jurisdiction by the district court to hear the lawsuit would be proper, overruling various of the defendant's objections, Id. at 885-89.

Since Filartiga was decided, the number of claims under the ATCA has risen dramatically. Corporate defendants have included a veritable Who's Who of multinationals, and claims have arisen on myriad alleged factual bases. To give just a few examples, Ford Motor Company was sued for allegedly using slave labor in its German manufacturing facilities during World War II; various marquee-name automakers, computer companies, and banks were sued for allegedly aiding and abetting violations of the law of nations by providing vehicles, computer systems, or financing to the apartheid regime in South Africa; and Bridgestone/Firestone was sued for allegedly using unlawful child labor in Liberia to harvest raw latex for tires or other rubber products. Other claims have arisen from Asia, Central America, South America, and elsewhere around the world.

Duty to Defend

The first issue that a policyholder and its insurers are likely to address after the filing of a lawsuit under the ATCA is whether one or more insurers have a duty to defend the insured. Primary insurance policies ordinarily impose on the insurer a duty to defend suits against the insured alleging covered liability, even if the allegations are groundless, false, or fraudulent. Typically, the question of whether the insurer has a duty to defend the insured against a given suit is resolved by means of the so-called “four corners” rule (sometimes referred to as the “eight corners” rule) in which the allegations of the complaint are matched up with the coverage of the primary insurance policy. If there is any possibility that liability in the lawsuit will be insured under the indemnity coverage of the policy ' that is, if any damages sought by the complaint could fall within the four corners of the policy as written ' then the duty to defend is triggered. Restricted to the complaint and the policy, the insurer cannot avoid its duty to defend by pointing to actual or alleged facts outside the complaint or by arguing, for instance, that it will eventually succeed in establishing a coverage defense based upon such other facts, such as an alleged failure of the insured to provide notice swiftly enough.

Applying the four corners test, the insured and its insurer will necessarily examine a variety of preliminary issues in order to determine whether a given primary policy is ruled out, or whether it might be called upon to pay a claim at the end of the ATCA lawsuit. For example, if the insurance policy covers bodily injury that takes place during its policy period, does the ATCA complaint allege dates when bodily injury took place, or is it silent? Unless the policy in question was not in effect at any time in which the bodily injury complained of could have taken place ' for example, a 1974-75 policy, when the complaint alleges injury “during the 1980s” ' the time period of the policy will not rule out potential indemnity exposure, and therefore defense exposure.

Geographic limitations may also come into play. Although most policies provide coverage for occurrences, bodily injury, or property damage anywhere in the world, some policies place restrictions on their territory. For many years, for example, it was not uncommon to find a restriction for countries behind the Iron Curtain or other specified locations. Because ATCA claims are typically grounded upon injury or damage occurring outside the United States, anyone examining the question of coverage for such claims will need to determine the territorial reach of potentially applicable policies.

Assuming that neither the time limitations nor the place limitations on a given primary insurance policy preclude coverage, and assuming that the ATCA complaint alleges the type of loss or damage that is covered by the policy (such as, for many liability policies, bodily injury, personal injury, or property damage), one of the next questions will be whether the insured's liability, if any, would be of a type that is covered or a type that is excluded by a “state of mind” test. This issue reflects the common coverage limitation for injury or damage that was expected or intended from the standpoint of the insured, and at times also reflects an implied public policy restriction on insurance for intentional torts. The issue has arisen frequently in the individual tort context, in which the plaintiff may allege negligence, or may allege only an intentional tort, that is, one in which the tort-feasor is alleged to have intended to cause the injury that ultimately occurred. In some jurisdictions, where the plaintiff has alleged only an intentional tort, courts conclude that because the complaint does not allege covered liability, the duty to defend is not triggered. In other jurisdictions, however, even where the complaint is restricted to an intentional tort, the courts go further and ask whether the plaintiff could recover from the defendant upon a showing of a lesser degree of culpability, such as recklessness or negligence. In those jurisdictions, even though the complaint itself may allege only an intentional tort, the insured is entitled to a defense from its insurer because of the possibility that liability within the coverage of the policy may be imposed. See, e.g., Gray v. Zurich Ins. Co., 65 Cal. 2d 263, 419 P.2d 168, 54 Cal. Rptr. 104 (1966). One advantage of this approach, at least from the perspective of the policyholder, is that it does not place in the tort plaintiff's hands the ability, by framing its complaint to sound only in intentional tort, to deprive the defendant-insured of the insurance funding of the defense.

Even in a case in which the plaintiff's allegations are framed as intentional wrongs, and even under the law of a jurisdiction that restricts its inquiry to the plaintiff's express allegations and refuses to consider whether liability may be imposed for negligence, interested parties evaluating the duty to defend must focus closely on what, exactly, the plaintiff contends was the intentional conduct. Despite some insurers' inaccurate shorthand description of their policies as not insuring “intentional conduct,” insurance policies do indeed insure intentional conduct, so long as the bodily injury or property damage caused by such conduct was not itself expected or intended. A driver, for example, may well intend to make a right turn, but not expect or intend by that act to hit a pedestrian. If an accident results from the turn, coverage is not lost because the driver intended the turn. This can be true even where the causative act itself was illegal and where the driver knew it to be so, as in the case of driving above the speed limit.

In ATCA cases, insureds and the insurers assessing the consequences of allegations of “intentional” conduct must look closely at just what is alleged to have been expected or intended. For example, if the defendant is alleged to have intentionally supported an autocratic regime or a corrupt police force, which in turn caused injury to people or property, those allegations would not ordinarily deprive the defendant of insurance coverage. Only if the defendant is alleged to have expected or intended to cause the injuries would the policy language or its public-policy common-law counterpart preclude insurance. Insurers (like tort plaintiffs) may well contend that the policyholder knew or should have known that a despotic government or a corrupt law enforcement agency would cause such injury, but the allegation that a person or a corporation “should have known” what consequences would follow from its acts is essentially an allegation under the negligence standard, and liability policies were designed and intended to cover policyholders for, among other things, claims arising out of their negligence.

Duty to Indemnify

If there is liability, whether because of a settlement or a judgment, the relevant question for insurance purposes changes from whether there is the potential for coverage to whether there is actual indemnity coverage available to the policyholder. Some of the issues raised in resolving the question of defense may recur, but cast in a different light. For example, instead of asking whether the defendant faced the potential for liability in the absence of a specific intent or expectation to cause the injury for which the insured was sued, such as on a negligence theory, the policyholder-defendant and its insurer may have to address the question of whether or not the policyholder actually, in fact, expected or intended to cause the bodily injury (i.e., the policyholder acted for the purpose of causing injury or with knowledge that its actions were substantially certain to cause bodily injury).

Whether addressing defense or indemnity, insureds and insurers alike will find, at least in the near term, that the insurance law concerning ATCA claims is largely undeveloped. However, policyholders and insurers can look to the case law from other fact patterns for useful precedents. The insurance law is particularly rich in the areas of personal injury, asbestos bodily injury, and environmental. Reasoning from such precedents and analogizing from them ' or distinguishing them ' is one of the key tasks for a coverage lawyer handling an ATCA claim in which there is any room for dispute over the key coverage issues. In addition, relying on black-letter rules of insurance-policy construction such as contra proferentem, in at least some jurisdictions, policyholders may argue that the very multiplicity of cases on both sides of a given issue strongly suggests that standard insurance policies are ambiguous on the issue, and should therefore be construed in a particular case in the manner that most promotes coverage.

Conclusion

Despite their basis in a 220-year-old law, ATCA claims are a relatively new ' and growing ' phenomenon. There is very little law addressing insurance coverage disputes arising from ATCA claims, but as the claims themselves arise in increasing numbers, we can expect the insurance disputes to expand correspondingly. However, even without a developed body of law that is specific to the ATCA, insurance practitioners and parties dealing with these coverage issues can and should look to precedents arising on different fact patterns. These more developed areas of the insurance law will guide policyholders and insurers alike as they evaluate coverage for this new type of claim.

Seth A. Tucker is a partner in the Washington, DC, office of Covington & Burling LLP and a member of this newsletter's Board of Editors. He represents policyholders in complex insurance coverage matters. The views expressed herein are those of the author and not necessarily of Covington & Burling or its clients.

In recent years, there has been a proliferation of lawsuits brought in the United States by citizens of other countries alleging violations of international law. Using a statute known as the Alien Tort Claims Act (“ATCA”) or the Alien Tort Statute, the plaintiffs have obtained federal-court jurisdiction for a wide variety of claims against individuals and corporations, based overwhelmingly on allegations of harm occurring overseas.

Such claims against corporations bring in their wake insurance issues of vital importance to the corporate defendants. Although alien tort claims are still relatively novel, long-standing principles of insurance law, and judicial precedents established based on more familiar fact patterns, should provide helpful guidance to companies facing these claims.

A Brief History of Alien Tort Claims

In 1789, the first Congress passed the original Judiciary Act. Included in the Act was a provision vesting in the district courts jurisdiction “of all causes where an alien sues for a tort only in violation of the law of nations or a treaty of the United States.” This provision survives, nearly unchanged, and is now codified as 28 U.S.C. ' 1350, which provides, “The district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.”

Despite its long tenure in the statutory law, the Alien Tort Claims Act was virtually unused for nearly 200 years. That began to change in 1980, when the U.S. Court of Appeals for the Second Circuit reversed the dismissal of a lawsuit brought under the ATCA, holding, among other things, that notwithstanding the absence of a relevant treaty, an allegation of torture carried out by a foreign-state official made out a viable allegation of a violation of the law of nations, Filartiga v. Pena-Irala , 630 F.2d 876, 880 (2nd Cir. 1980), and that the exercise of jurisdiction by the district court to hear the lawsuit would be proper, overruling various of the defendant's objections, Id . at 885-89.

Since Filartiga was decided, the number of claims under the ATCA has risen dramatically. Corporate defendants have included a veritable Who's Who of multinationals, and claims have arisen on myriad alleged factual bases. To give just a few examples, Ford Motor Company was sued for allegedly using slave labor in its German manufacturing facilities during World War II; various marquee-name automakers, computer companies, and banks were sued for allegedly aiding and abetting violations of the law of nations by providing vehicles, computer systems, or financing to the apartheid regime in South Africa; and Bridgestone/Firestone was sued for allegedly using unlawful child labor in Liberia to harvest raw latex for tires or other rubber products. Other claims have arisen from Asia, Central America, South America, and elsewhere around the world.

Duty to Defend

The first issue that a policyholder and its insurers are likely to address after the filing of a lawsuit under the ATCA is whether one or more insurers have a duty to defend the insured. Primary insurance policies ordinarily impose on the insurer a duty to defend suits against the insured alleging covered liability, even if the allegations are groundless, false, or fraudulent. Typically, the question of whether the insurer has a duty to defend the insured against a given suit is resolved by means of the so-called “four corners” rule (sometimes referred to as the “eight corners” rule) in which the allegations of the complaint are matched up with the coverage of the primary insurance policy. If there is any possibility that liability in the lawsuit will be insured under the indemnity coverage of the policy ' that is, if any damages sought by the complaint could fall within the four corners of the policy as written ' then the duty to defend is triggered. Restricted to the complaint and the policy, the insurer cannot avoid its duty to defend by pointing to actual or alleged facts outside the complaint or by arguing, for instance, that it will eventually succeed in establishing a coverage defense based upon such other facts, such as an alleged failure of the insured to provide notice swiftly enough.

Applying the four corners test, the insured and its insurer will necessarily examine a variety of preliminary issues in order to determine whether a given primary policy is ruled out, or whether it might be called upon to pay a claim at the end of the ATCA lawsuit. For example, if the insurance policy covers bodily injury that takes place during its policy period, does the ATCA complaint allege dates when bodily injury took place, or is it silent? Unless the policy in question was not in effect at any time in which the bodily injury complained of could have taken place ' for example, a 1974-75 policy, when the complaint alleges injury “during the 1980s” ' the time period of the policy will not rule out potential indemnity exposure, and therefore defense exposure.

Geographic limitations may also come into play. Although most policies provide coverage for occurrences, bodily injury, or property damage anywhere in the world, some policies place restrictions on their territory. For many years, for example, it was not uncommon to find a restriction for countries behind the Iron Curtain or other specified locations. Because ATCA claims are typically grounded upon injury or damage occurring outside the United States, anyone examining the question of coverage for such claims will need to determine the territorial reach of potentially applicable policies.

Assuming that neither the time limitations nor the place limitations on a given primary insurance policy preclude coverage, and assuming that the ATCA complaint alleges the type of loss or damage that is covered by the policy (such as, for many liability policies, bodily injury, personal injury, or property damage), one of the next questions will be whether the insured's liability, if any, would be of a type that is covered or a type that is excluded by a “state of mind” test. This issue reflects the common coverage limitation for injury or damage that was expected or intended from the standpoint of the insured, and at times also reflects an implied public policy restriction on insurance for intentional torts. The issue has arisen frequently in the individual tort context, in which the plaintiff may allege negligence, or may allege only an intentional tort, that is, one in which the tort-feasor is alleged to have intended to cause the injury that ultimately occurred. In some jurisdictions, where the plaintiff has alleged only an intentional tort, courts conclude that because the complaint does not allege covered liability, the duty to defend is not triggered. In other jurisdictions, however, even where the complaint is restricted to an intentional tort, the courts go further and ask whether the plaintiff could recover from the defendant upon a showing of a lesser degree of culpability, such as recklessness or negligence. In those jurisdictions, even though the complaint itself may allege only an intentional tort, the insured is entitled to a defense from its insurer because of the possibility that liability within the coverage of the policy may be imposed. See, e.g., Gray v. Zurich Ins. Co. , 65 Cal. 2d 263, 419 P.2d 168, 54 Cal. Rptr. 104 (1966). One advantage of this approach, at least from the perspective of the policyholder, is that it does not place in the tort plaintiff's hands the ability, by framing its complaint to sound only in intentional tort, to deprive the defendant-insured of the insurance funding of the defense.

Even in a case in which the plaintiff's allegations are framed as intentional wrongs, and even under the law of a jurisdiction that restricts its inquiry to the plaintiff's express allegations and refuses to consider whether liability may be imposed for negligence, interested parties evaluating the duty to defend must focus closely on what, exactly, the plaintiff contends was the intentional conduct. Despite some insurers' inaccurate shorthand description of their policies as not insuring “intentional conduct,” insurance policies do indeed insure intentional conduct, so long as the bodily injury or property damage caused by such conduct was not itself expected or intended. A driver, for example, may well intend to make a right turn, but not expect or intend by that act to hit a pedestrian. If an accident results from the turn, coverage is not lost because the driver intended the turn. This can be true even where the causative act itself was illegal and where the driver knew it to be so, as in the case of driving above the speed limit.

In ATCA cases, insureds and the insurers assessing the consequences of allegations of “intentional” conduct must look closely at just what is alleged to have been expected or intended. For example, if the defendant is alleged to have intentionally supported an autocratic regime or a corrupt police force, which in turn caused injury to people or property, those allegations would not ordinarily deprive the defendant of insurance coverage. Only if the defendant is alleged to have expected or intended to cause the injuries would the policy language or its public-policy common-law counterpart preclude insurance. Insurers (like tort plaintiffs) may well contend that the policyholder knew or should have known that a despotic government or a corrupt law enforcement agency would cause such injury, but the allegation that a person or a corporation “should have known” what consequences would follow from its acts is essentially an allegation under the negligence standard, and liability policies were designed and intended to cover policyholders for, among other things, claims arising out of their negligence.

Duty to Indemnify

If there is liability, whether because of a settlement or a judgment, the relevant question for insurance purposes changes from whether there is the potential for coverage to whether there is actual indemnity coverage available to the policyholder. Some of the issues raised in resolving the question of defense may recur, but cast in a different light. For example, instead of asking whether the defendant faced the potential for liability in the absence of a specific intent or expectation to cause the injury for which the insured was sued, such as on a negligence theory, the policyholder-defendant and its insurer may have to address the question of whether or not the policyholder actually, in fact, expected or intended to cause the bodily injury (i.e., the policyholder acted for the purpose of causing injury or with knowledge that its actions were substantially certain to cause bodily injury).

Whether addressing defense or indemnity, insureds and insurers alike will find, at least in the near term, that the insurance law concerning ATCA claims is largely undeveloped. However, policyholders and insurers can look to the case law from other fact patterns for useful precedents. The insurance law is particularly rich in the areas of personal injury, asbestos bodily injury, and environmental. Reasoning from such precedents and analogizing from them ' or distinguishing them ' is one of the key tasks for a coverage lawyer handling an ATCA claim in which there is any room for dispute over the key coverage issues. In addition, relying on black-letter rules of insurance-policy construction such as contra proferentem, in at least some jurisdictions, policyholders may argue that the very multiplicity of cases on both sides of a given issue strongly suggests that standard insurance policies are ambiguous on the issue, and should therefore be construed in a particular case in the manner that most promotes coverage.

Conclusion

Despite their basis in a 220-year-old law, ATCA claims are a relatively new ' and growing ' phenomenon. There is very little law addressing insurance coverage disputes arising from ATCA claims, but as the claims themselves arise in increasing numbers, we can expect the insurance disputes to expand correspondingly. However, even without a developed body of law that is specific to the ATCA, insurance practitioners and parties dealing with these coverage issues can and should look to precedents arising on different fact patterns. These more developed areas of the insurance law will guide policyholders and insurers alike as they evaluate coverage for this new type of claim.

Seth A. Tucker is a partner in the Washington, DC, office of Covington & Burling LLP and a member of this newsletter's Board of Editors. He represents policyholders in complex insurance coverage matters. The views expressed herein are those of the author and not necessarily of Covington & Burling or its clients.