U.S. insurance companies that offer expatriate benefits to employees on temporary assignment abroad may assume that the laws of the states outside of where a policy is issued do not apply to that policy. Unfortunately, this is not the case. In reality, courts and regulators outside the jurisdiction where an insured person is situated may declare that local law is applicable on an extraterritorial basis.
Understanding extraterritoriality
As companies continue to increase their global reach and relocate employees for temporary assignments overseas, insurers and multinational organizations must become familiar with the issues arising from extraterritoriality. In essence, extraterritoriality gives State A the power to exercise authority over a policy that was executed in State B, yet covers individuals located in State A. There are a number of risks inherent in using out-of-state contracts to provide insurance coverage for people located in jurisdictions other than where the group policy is issued. Specifically, a court or regulator may determine that local law shall apply to local coverage even though the group insurance policy was issued outside the jurisdiction.
In the context of expatriate benefits, the insured, despite being on temporary assignment abroad, is often domiciled in State A while covered under a policy issued in State B, where the employer may be headquartered or incorporated. Matters are often further complicated when an insurer uses a multiple-employer trust (MET) or offshore paper. With respect to the former, an employer requests to participate in a MET to which the insurer has issued a master group policy. The employer can be located in State A, the employee's dependents in State B and the MET, to which the policy is issued, in State C. This arrangement presents a host of extraterritorial issues that an insurer must address, beginning, perhaps, with filing and approval of the policy forms. Indeed, under this scenario, which is not uncommon, a group benefit plan may be subject to the laws and regulations of multiple jurisdictions.
The application of law
Extraterritorial application of laws relies on a choice of law analysis. A highly-complex issue, insurers consider choice of law notorious for its uncertain outcomes. This analysis involves interplay of laws from numerous jurisdictions. Traditionally, the place of contracting or the execution of the contract was said to govern the choice of law. However, modern law also looks at the following factors:
residence, domicile, nationality, principal place of business or place of incorporation of the parties, including dependents;
respective governmental interests of any states involved;
protection of expectations;
ease of determining and applying the chosen law;
place of the negotiation of the contract;
place of performance of the terms and conditions of the contract; and
location of the subject matter of the contract (i.e., where the event occurred).
