Coverage Territory - What is It?

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Many insurance policies limit coverage to events that occur in a certain geographic area. The insured area is often referred to as the coverage territory. This article will explain the meaning of this term under general liability, commercial auto, commercial property and workers compensation policies. 

General Liability Policies

Most general liability policies are very similar (if not identical) to the standard  ISO commercial general liability form (CGL).

The CGL refers to the coverage territory in the insuring agreements under Coverages A and B. Under Coverage A, it states that bodily injury or property damage is covered only if it is caused by an occurrence that takes place in the coverage territory. Likewise, Coverage B states that personal and advertising injury is covered only if it is caused by an offense that is committed in the coverage territory. Thus, no coverage is provided under the policy for claims resulting from any occurrence or offense that does not take place in the coverage territory.

Meaning of Coverage Territory

The definition of coverage territory in the CGL consists of three parts:

The United States of America (including its territories and possessions), Puerto Rico and Canada The CGL is primarily intended to cover claims stemming from occurrences that take place in the United States. With a few exceptions (outlined below), it doesn't cover claims arising from accidents that occur in foreign countries.

International waters or airspace if the injury or damage occurs while a person or property is traveling between the U.S.A., Puerto Rico and Canada This clause is best demonstrated by an example. Suppose that an employee of yours is on a business trip. While traveling by plane from New York to Puerto Rico, the employee accidentally damages property belonging to another passenger.

At the time the damage occurs, the plane is flying in international airspace. If the owner of the damaged property sues the employee or your firm for property damage, the claim may be covered by your liability policy.

Anywhere in the world, other than the USA, Canada and Puerto Rico This worldwide coverage is limited to three types of claims. It applies only to injury or damage that arises from:

  1. A product you made or sold in the USA, Puerto Rico or Canada For example, your company manufactures shoes in the U.S. and exports them to Europe. A customer in Germany buys your product and then files a product liability lawsuit against your firm. She claims that the heel came off one of the shoes, causing her to fall and sustain a serious head injury.
  2. A short-term business trip made by you or another insured For instance, you are visiting a client at his office in Italy. You toss a cigarette butt into a trash can and accidentally start a fire in the office. The client sues your firm for property damage.
  3. A personal and advertising injury offense that is committed via the Internet or other means of electronic communication For example, you post an ad for your product on your company's website. A competitor in Spain sues you for defamation. The claimant alleges that your ad slandered his company, and he seeks $50,000 in damages.

    Note that the definition of coverage territory in the ISO CGL limits coverage to suits brought in the U.S.A., Puerto Rico or Canada. This means that suits brought in foreign countries (other than Canada) are not covered. In the incidents cited above, the suits by the airplane passenger, the German shoe buyer, the Italian client, and the Spanish competitor would be covered only if they were brought in the U.S.A., Puerto Rico or Canada.

    Commercial Auto

    The standard ISO commercial auto policy defines the coverage territory in the policy conditions. It states that accidents and losses are covered only if they occur in the United States of America (including its territories and possessions), Puerto Rico and Canada.

    The policy affords limited auto liability coverage for vehicles hired outside the U.S. without a driver.

    To be covered, the autos must be private passenger vehicles (not trucks) that have been hired, leased, rented or borrowed for less than 30 consecutive days. For any claim or suit to be covered, it must be brought in the U.S.A., its territories or possessions, Puerto Rico or Canada.

    Commercial Property

    Under the standard ISO commercial property policy, loss or damage is covered only if it occurs in the coverage territory. This term is defined as the United States of America (including its territories and possessions), Puerto Rico and Canada.

    Workers Compensation

    The standard NCCI workers compensation policy does not use the term coverage territory. Part One of the policy (Workers Compensation) incorporates the laws of the states in which covered workplaces are located. These laws determine where coverage applies. Workers compensation insurance is primarily designed to cover injuries that occur in the states where workers are employed. Nevertheless, many states provide some coverage for workers injured while outside their home state or while on short-term foreign travel.

    Part Two of the policy, Employers Liability Insurance, excludes bodily injury that occurs outside the United States of America, its territories or possessions, and Canada. This exclusion does not apply to a citizen or resident who is temporarily outside these countries, say, on a short-term business trip. No suits are covered under Part Two unless they are brought in the USA, its territories or possessions, or Canada.

    Policies with No Definition

    Some policies are silent as to where coverage applies. The absence of a defined coverage territory is common in commercial umbrellas. A policy that does not specify a coverage territory is generally assumed to apply worldwide.