Insurance policies abound with the use of the phrase "arisingout of." Some policies provide coverage for injuries and damagethat arise out of a certain event; other policies exclude coveragefor injuries and damages that arise out of a certain event.

For example, Employers Liability insurance under the standardNCCI Workers Compensation policy notes that in order for coveragefor bodily injury to apply, the injury must "arise out of" theemployee's employment.

And, the med pay coverage under the standard ISO Homeownerspolicy applies to a person off the insured location if the bodilyinjury "arises out of" a condition on the insured location. As anexample of an exclusion, see the standard ISO CGL form; thepollution exclusion in the standard ISO CGL form excludes coveragefor injury or damage "arising out of" the actual or allegeddispersal or escape of pollutants. The Homeowners policy excludescoverage for injury or damage "arising out of" a business conductedfrom an insured location or engaged in by an insured.

No insurance policy defines what the phrasemeans

However, a problem "arises out of" the fact that no insurancepolicy says what that phrase means. This leaves it up to individualcourts to analyze the phrase and interpret its meaning in variousways.

Some courts see the phrase in a very general way. For example,the U.S. Court of Appeals, Third Circuit, stated in AetnaCasualty and Surety Company v. Ocean Accident & GuaranteeCorporation, 386 F.2d 413 (1967), that the phrase was "verybroad and vague." An Illinois court in Maryland CasualtyCompany v. Chicago & Northwestern Transportation Company,466 N.E.2d 1091 (1984) agreed and echoed the opinion that thephrase "is both broad and vague."

Some courts view the phrase as unambiguous. The Supreme Court ofFlorida in Taurus Holdings v. United States Fidelity andGuaranty Company, 913 So.2d 528 (2005) said that it agreedwith the majority of states in concluding that the phrase "arisingout of" is unambiguous. An Illinois court in Allstate InsuranceCompany v. Smiley, 659 N.E.2d 1345 (1995), found the phrase tobe "not ambiguous as a matter of law."

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The causal connection to injury

And yet other courts get more definite and hold that what isimportant in defining the phrase "arising out of" is finding acausal connection between the injury or damage and the actions ofthe insured.

For example, the Supreme Judicial Court of Massachusetts tackledthe "arising out of" issue in Commerce Insurance Company v.Ultimate Livery Service, Inc., 897 N.E.2d 50 (2008). Thisdecision concerned a claim made against a limousine service whenthat service let a clearly intoxicated passenger leave thelimousine, after which the passenger got into his own car andpromptly crashed into the proverbial innocent third party, causingserious injuries. The claim against the insured centered on whetherthe injuries arose out of the use of the insured's auto.

The insurer argued that the injuries did not arise out of theuse of the insured's auto because no alcohol was supplied by thelimo service and because the insured's auto was not involved in thecollision. The Massachusetts court did not think that way. It wasirrelevant to the court that the covered auto was not the vehiclethat actually produced the injury and that the insured did notfurnish the alcohol. What was important to the court was a causalconnection between the use of the limo and the injury. The courtfound that connection in the fact that the insured's vehicle wasused consistently with the insured's business objectives, namely,to permit passengers to get intoxicated while another (the employeeof the insured) took care of the driving. The court ascribed thisconnection as adherence to a "broad causation standard" thatapparently is universally accepted in Massachusetts. (Previouscourt rulings as well as quotes from Couch and Appleman were listedin support of this point.)

As another example, in Shell Oil Company v. AC&S,649 N.E.2d 946 (1995), the Appellate Court of Illinois adopted thefollowing definition of "arising out of": "originating from, havingits origin in, growing out of and flowing from" the operations ofthe insured.

Bottom line

The bottom line is that the interpretation of the phrase isdecided on a case-by-case basis based on the facts of theparticular event and interpreted by a particular court. However,the point that is common to most case law and is accepted by amajority of courts is that for an injury or damage to "arise outof" some occurrence or accident, there has to be a causalconnection between the injury or damage and the accident.

And, this causal connection has to be based on an interpretationthat reasonably establishes a sufficiently close relationshipbetween the injury or damage and the event that causes them. Asnoted in the Maryland Casualty Company case, the "but for"causation analysis (not necessarily proximate causation) has to beapplied to the facts in the instant case when clarifying the scopeof "arising out of."

David D. Thamann, JD, CPCU, ARM, is managing editor forFC&S, a sister publicationof PropertyCasualty360-National Underwriter and partof ALM. He may be reached at [email protected].