"Foreign" policies' finer points

Risk & Insurance, Oct 1, 2004 by Charles H. Cox

U.S.-based manufacturers seeking to lower production costs frequently turn to some form of foreign operations. Some companies will establish facilities in foreign countries while others may contract with foreign companies to produce components or entire product lines for them. There are dozens of scenarios for foreign operations, all of which require careful scrutiny of loss exposures and insurance coverage.

Commercial general liability policies usually provide some worldwide protection, which may be enough. With regard to products liability, most commercial general liability policies cover injury or damage if it arises from goods or products made or sold by the named insured in the United States, its territories or possessions, Canada and Puerto Rico (the policy territory).

As such, coverage is afforded for claims arising from products made in the United States and sold in foreign countries. Coverage would also be afforded, however, if the products were made in a foreign country, shipped back to the United States and sold by the named insured within the policy territory.

Most general liability forms also cover activities of persons whose home territory is in the policy territory, but are away for a short time on business. Nevertheless, whether in connection with products or people abroad, regardless of where the injury occurs, suits must be brought in the policy territory or in a settlement the insurer agrees to for coverage to apply. If goods are made in a foreign country and then sold directly within that country or exported directly to other foreign countries for sale, the commercial general liability policy will not apply. Also, if the named insured owns production facilities in foreign countries (outside the policy territory), the commercial general liability policy will not apply.

Some excess umbrella liability policies provide true worldwide coverage. Such policies not only cover claims as provided in the underlying general liability policy (as described above), but they also cover worldwide claims without the "sold in the United States" limitation. Such losses, when not covered by primary insurance, are usually subject to a self-insured retention of at least $10,000 per occurrence.

The business auto policy's coverage territory is limited to the United States, its territories and possessions, Puerto Rico, Canada, and anywhere in the world if a covered private passenger auto is leased, hired, rented or borrowed without a driver for a period of 30 days or less. Suits must be brought in the policy territory or in a settlement the insurer agrees to for coverage to apply.

An excess umbrella liability policy should provide the same coverage as provided by the underlying business auto policy. A true worldwide form will also extend coverage to owned autos or leased, hired, rented or borrowed autos used in foreign countries beyond the primary policy's 30-day limitation (subject to the policy's self-insured retention).

For workers' comp, employees traveling ouftside the U.S. for short times are covered when such trips are related to the named insured's U.S. business. In addition, some insurers will add foreign voluntary compensation coverage for U.S. employees including the cost to repatriate injured people subject to varying limits. If paid foreign employees are involved, it will likely be necessary to buy locally required insurance. Property and crime policies typically do not provide foreign coverage and, depending upon how shipments of goods are handled, some form of transit/cargo insurance will likely be needed.

CHARLES COX is a regular columnist for Risk & Insurance. He can be reached at riskletters@lrp.com.