Many insurance policy conditions and exclusions are triggered by the phrase “arising out of” and the Third Circuit recently ruled on this issue in a case pertaining to asbestos-related claims.  General Refractories Co. v. First State Ins. Co., involved a coverage dispute between General Refractories Co. and Travelers for numerous claims brought by  claimants allegedly injured following exposure to GRC’s asbestos-containing products.

The asbestos exclusion in the Travelers policies excluded coverage for injuries or losses “arising out of” asbestos. GRC noted that prior policies distinguished between claims stemming from direct exposure to asbestos fibers and those arising from exposure to asbestos-containing products. GRC claimed on this basis that the term “asbestos” in its policy referred only to the physical substance in its raw form, which it did not produce and that the exclusion was ambiguous. Travelers argued that the exclusion had only one reasonable interpretation — that claims for injuries related to asbestos in any form were excluded from coverage. The district court agreed with GRC, and the judge determined that the exclusion was ambiguous and must be construed in GRC’s favor.

GRC appealed the ruling to the Third Circuit, who held that the “provision plainly encompasses losses that would not have occurred but for asbestos or which are causally connected to asbestos,” regardless of whether in its raw form or within another product. The court found the exclusion to be unambiguous and enforceable.

Under Pennsylvania law, the term “arising out of” requires “but-for” causation. “But-for” causation does not require a showing that a product proximately caused an injury. Since the losses relating to the underlying asbestos claims would not have occurred but for asbestos, whether raw or within finished products, the exclusion was applicable. Because all of the claims against GRC arose out of asbestos under the “but-for” causation standard, Travelers was not obligated to provide coverage for the claims. As such. the appellate court reversed the district court ruling.

Thanks to Jorgelina Foglietta for her contribution to this post and please write to Mike Bono if you would like further information.