Under Illinois Law, An Accident Occurs Where All The Factors Come Together To Produce A Force That Inflicts Injury
ACE AMERICAN INSURANCE CO. v. RC2 CORP. (April 5, 2010)
RC2 produces and markets children's toys. In 2007, it recalled some of its wooden train sets that had been manufactured in China and sold in the United States. The recalled trains contained lead. A number of class-action suits were filed. RC2 looked to its insurers. It first filed a claim with its domestic insurer. That insurer denied coverage because its policies expressly excluded damages caused by lead paint. RC2 turned to its international insurer, ACE American Insurance Co. ACE denied coverage as well, on the grounds that its policies excluded damages from occurrences that took place in the United States. ACE sought a declaration that it had no duty to indemnify or defend – RC2 counterclaimed for declaratory relief and damages. The district court granted summary judgment to RC2 and awarded $1.6 million in defense costs. ACE appeals.
In their opinion, Judges Posner, Manion, and Hamilton reversed and remanded. The Court first looked at the language of the policies to determine if any ambiguity existed, giving the words their ordinary meaning. The policies cover bodily injury and property damage caused by an "occurrence" that takes place in the “covered territory" (which is defined as anywhere in the world other than the United States). "Occurrence" is further defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The Court found that this language, particularly the connection between the accident and the exposure, supported ACE’s position that the occurrence took place in the United States. Nevertheless, it concluded that the use of the word "accident" in the policy itself might be considered ambiguous. An otherwise ambiguous term in the policy, however, can be rendered unambiguous when considered against the interpretation of that term by the courts over the years. Applying that principle, the Court concluded that Illinois and most other courts take a consistent approach -- that it is the location of the injury, not the location of some precipitating negligent act, the determines the location of an accident for insurance purposes. The Court rejected RC2's position that Illinois' adoption of the "cause theory" is dispositive. The "cause theory" is relevant only to a determination of the number of occurrences, not the location of occurrence. Therefore, the accident occurred were all the factors combined to create the force that inflicted the injury – and that is the United States.
