10 Jan Crossing Borders: The Deficiencies of Domestic Insurance Policies in International Commerce
Today, organizations from around the globe are expanding their presence and venturing into international markets. With the evolution of the Internet and advances in technology, world markets are more accessible than ever, and organizations like yours are seeking foreign opportunities or are already selling into them. But are you aware that most United States domestic insurance policies do not fully extend to protect you in these foreign territories? Whether doing business in the European Union, Central or South America, or some far-away exotic port, most insureds that export, trade, or sell in these territories are in fact uninsured.
All domestic insurers, including big names like The Hartford, CNA, Liberty Mutual, and State Farm, define the territories within which a named insured can operate and expect to receive policy benefits. Generally, these territories are limited to the United States (its territories and possessions), Puerto Rico, and Canada.
In assessing their degree of exposure, organizations currently doing business in foreign territories need to ask a number of questions, including:
What if organizations hire ‘foreign nationals’?
What if organizations sell their products directly into an overseas market, whether through a direct sales force or via the Internet?
What if a product or a component of a product is made overseas?
What about property that is in transit or in the custody of salespeople?
What about an injury to a foreign worker or an American worker in a foreign territory?
Fortunately, these and other risks presented by the global marketplace can be affordably transferred by express language within domestic policies or through alternative coverage forms known as ‘International Insurance.’
Read your current policy and note its limitations:
“Coverage territory” means: The United States of America (including its territories and possessions), Puerto Rico, and Canada… and all other parts of the world if the injury or damage arises out of goods or products made or sold by you in the territory described above.
The language further states that other covered injury or damage will be insured solely if it arises from the activities of a person whose home is in the territory above but who is away for a “short time” on business. But in no event does an insurance company have a duty to pay damages unless such damages are based on the merits of a suit brought within the stated territory.
The implications of an uncovered risk in a foreign territory may extend well beyond the obvious matters of defense and indemnity. If a lawsuit brought against you in a foreign court succeeds, your assets abroad may be seized to satisfy a judgment, or you may be barred from doing further business in that country. Furthermore, a long-arm statute may exist that could allow a foreign judgment to be satisfied by assets held here in the United States.
Liability and property exposures are not the only risks that need to be addressed when an organization conducts business internationally. State workers’ compensation laws typically extend benefits of the state to employees temporarily away from the workplace, but not away permanently or for an extended period of time. Although “temporary” may not be specifically defined in the policy, a period of six months is the usual standard. If an employee is moved overseas for an assignment longer than six months, a foreign voluntary workers’ compensation endorsement should be added to the domestic policy; such an endorsement provides state benefits for injuries to workers and includes, among other benefits, repatriation expenses. If, however, a foreign worker is hired in a foreign territory, or a United States worker is eligible for foreign benefits, as defined by the foreign territory, an organization needs to consider the international foreign workers’ compensation coverage form.
International insurance has additional benefits as well. Some of these policies provide limited health benefits, kidnap and ransom, and auto liability. Domestic health insurance programs often have limited medical benefits when an insured is ill or injured in a foreign territory. As important is the territorial limitation of domestic automobile policies. In the event of an accident or injury to a third party or property damage, domestic policies simply do not respond.
International policies also offer kidnap and ransom extensions, which are invaluable, considering that the risk of kidnapping is at an all-time high. Corporate executives, as well as wealthy citizens and their families, are attractive targets for kidnap and extortion when working or traveling in a foreign country. International policies can provide expert security consultation prior to going to a foreign country and may cover the cost of paying ransom in the event of an abduction.
As more and more business is transacted in many parts of the globe, the start of the new year may be the right time to get an insurance check-up to determine if your organization’s assets are sufficiently protected.