The Third Circuit in General Refractories Co. v. First State Insurance Co., No. 15-3409 (3d Cir. April 21, 2017), upheld the application of the asbestos exclusion in a case that it described as involving "a staggering number of asbestos claims." The court considered a form of the exclusion, contained in two excess policies issued in 1985-86, that barred coverage for excess net loss "arising out of asbestos." The district court had concluded that the exclusion could be reasonably read to encompass only claims of exposure to asbestos in its raw mineral form. The Third Circuit found that the district court had erroneously focused on the meaning of the term "asbestos" instead of the antecedent "arising out of" language, which "renders any uncertainty concerning the meaning of the word 'asbestos' immaterial." The Third Circuit emphasized that, under Pennsylvania law, the language "arising out of" when used in an exclusion, dictates a "but for" causation standard (causal connection), which does not require a showing that a product proximately caused an injury. The court accordingly held that the exclusion applied to losses that "would not have occurred but for asbestos or which are causally connected to asbestos."
The Third Circuit noted that this causal interpretation of "arising out of" language is "well-settled" and necessary to promote consistency among insurance contracts in Pennsylvania. Specifically, the court said, "[w]ere we to ignore the consistent and explicit meaning assigned to the phrase ['arising out of'] in Pennsylvania insurance exclusions, we would cast doubt on a tradition of interpretation that many parties have relied upon in defining their contractual obligations." The court further stated that "[p]arties to an insurance contract must be able to place faith in consistent interpretations of common language when drafting their policies if they are to properly allocate the risks involve[d]."
Practically, the Third Circuit decision prevented a potential costly expansion of insurers' exposure to asbestos-related claims, as well as provided guidelines for the many exclusions in numerous policies that include the "arising out of" language. The Third Circuit appeared to leave open the possibility that future parties might be able to present evidence of a different meaning of "arising out of" that was unique to their contracts, but made clear that "the phrase is not ambiguous on its face when used in a Pennsylvania insurance contract."
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