Insurer not on hook for toy claims

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Boston — A commercial liability insurer was not required to defend class actions alleging that its insured negligently sold toys containing lead that were made in China, the 7th Circuit has ruled in reversing judgment.

The defendant designs and markets “Thomas and Friends” toys based on the popular children’s program. The toys are primarily manufactured in China.

The defendant recalled certain of its toy trains because they contained lead. The recall resulted in the filing of numerous class actions against the defendant in the United States.

The plaintiff provided commercial liability coverage to the defendant under multiple policies. The insurer denied coverage of the lead toy claims based on policy provisions excluding coverage for alleged harm caused by exposure to defective products in the United States.

The defendant argued that the plaintiff had a duty to defend because its policies potentially extended coverage to injuries that occurred in the United States, if some negligent act in the process of the product’s manufacturing that caused the harm occurred in another country.

The court, however, concluded that the plain language of the policies at issue and applicable Illinois law precluded coverage of the lead toy claims.

“[U]nder Illinois law and unless a particular policy contemplates a different definition, an accident occurs when and where all the factors come together at once to produce the force that inflicts injury and not where some antecedent negligent act takes place. Thus, under the policies in question here, the accident that constitutes the policy-triggering occurrence takes place at the location of the exposure to lead paint, not at the location where the products were manufactured and painted,” the court said.

U.S. Court of Appeals, 7th Circuit. ACE American Insurance Co. v. RC2 Corp., Inc., No. 09-3032. April 5, 2010. Lawyers USA No. 993-1773.