Background
Travelers Property Casualty Company of America and ACE American Insurance Company issued commercial general liability policies to Ericsson entities between 2003 and 2014. The policies covered bodily injury and property damage caused by an “occurrence,” defined as an accident.
Two underlying lawsuits alleged that Ericsson knowingly made protection payments through third-party contractors to foreign terrorist organizations, helping fund attacks and kidnappings that killed or injured U.S. service members, civilians, and their relatives. Travelers sought a declaration that it had no duty to defend, and ACE sought the same relief. The district court granted partial summary judgment to the insurers, concluding that the alleged injuries were not caused by accidents, while staying the unripe indemnification issue until the underlying suits conclude.
The Court’s Holding
The Fifth Circuit affirmed. Applying Texas’s eight-corners rule, the court compared the insurance policies with the factual allegations in the underlying complaints and held that those complaints alleged volitional, intentional conduct rather than an accident. Ericsson’s alleged payments were deliberate, and the absence of an alleged intent to fund terrorist organizations or cause the resulting injuries did not transform the conduct into an accident.
The court rejected Ericsson’s reliance on scattered uses of “reckless” in the lengthy complaints, explaining that the pleaded conduct remained intentional and included alleged conscious disregard of known risks. It also declined to consider hypothetical facts or Ericsson’s contention that the attacks were too attenuated from its conduct, because the duty-to-defend inquiry is governed by the allegations actually pleaded. The ruling addressed only the duty to defend, not the stayed question of indemnification.
Key Takeaways
- Under Texas’s eight-corners rule, courts assess the factual allegations in the underlying complaint rather than imagined facts, extrinsic evidence, or the complaint’s legal labels.
- A deliberate act does not become an “accident” merely because the insured says it did not intend the resulting injury or understand the ultimate destination of its payments.
- Isolated references to recklessness did not trigger a defense where the complaints as a whole alleged knowing payments, conscious disregard of risk, and concealment.
Why It Matters
The decision reinforces that Texas’s insured-friendly duty-to-defend standard still requires allegations falling within the policy’s coverage grant. Courts will not manufacture a potentially covered accident when the underlying pleadings describe volitional conduct throughout.
The ruling leaves open whether the insurers must indemnify Ericsson, an issue the district court stayed pending further factual development and resolution of the underlying Anti-Terrorism Act suits.