Overseas Products Liability Claims and Insurance Disputes:
How Simple Exclusion Language Can Save Millions
by Kevin M. Cox. For more information, contact Robert E. Scott

The products liability litigation arena has recently seen an influx of overseas production processes litigation. Last year’s massive recalls on products such as children's toys and pet food are just a two examples of the growing trend. Insurance defense practitioners are beginning to realize the impact of such litigation and that massive and expensive product liability claims based on overseas production are a new reality.

A recent decision, Ace American Inc. Co. v. RC2 Corp., 568 F. Supp. 2d 946 (N.D. Ill. 2008), focuses on insurance coverage in these circumstances, addresses issues that products practitioners need to know, and holds that an insurer has a duty to defend its insured in suits arising out of product recalls of products made outside of the United States if included in the coverage territory. In RC2 Corp., a federal district court judge for the Northern District of Illinois, applying Illinois law, held that an insurer has a duty to defend its insured, a toymaker, in suits arising out of the product recalls. The policyholder was sued by parents of children in the United States, alleging various theories of exposure and harm from toys contaminated with lead paint that were made in China, but sold in the United States. The insurer issued four successive liability insurance policies to the policyholder, the maker of the toys. Each of the policies stated that "the 'occurrence' must take place in the 'coverage territory.'" The coverage territory provision included "all of the world outside of the United States." After the policyholder sought coverage for these underlying actions, the insurer denied that it had a duty to defend or indemnify the insured because, inter alia, of the coverage territory of the policies.