"Arising Out of": How Strong Is the Connection?

Broad Interpretation

Most courts interpret the phrase "arising out of" to require some broad causal connection. Courts using this broad interpretation do so regardless of whether this phrase appears in insuring provisions or exclusions.

In Federal Ins. Co. v. Tri‑State Ins. Co., 157 F.3d 800 (10th Cir. 1998), the court addressed the phrase "arising out of" in the context of an "operations exclusion" in a commercial general liability (CGL) policy. The court stated the majority rule for the phrase "arising out of" in insurance policies:

[T]he general consensus [is] that the phrase "arising out of" should be given a broad reading such as "originating from" or "growing out of" or "flowing from" or "done in connection with"—that is, it requires some causal connection to the injuries suffered, but does not require proximate cause in the legal sense.

Id. at 804 (internal citations omitted); see also Hugenberg v. West Am. Ins. Co./Ohio Cas. Group, 249 S.W.3d 174, 186–87 (Ky. Ct. App. 2006) (finding "arising out of" in motor vehicle exclusion in homeowners policy means "originating from, or having its origin in, grounding out of or flowing from"); Taurus Holdings, Inc. v. United States Fid. & Guar. Co., 913 So. 2d 528, 539–40 (Fla. 2005) (finding the term "arising out of" in a CGL policy exclusion unambiguous and broader in meaning than the term "caused by" and means "originating from," "having its origin in," "growing out of," "flowing from," "incident to" or "having a connection with"); Meadowbrook, Inc. v. Tower Ins. Co., Inc., 559 N.W.2d 411, 419–20 (Minn. 1997) (finding the words "arising out of" in a CGL insurance policy exclusion to mean "causally connected with" and not "proximately caused by"); Shell Oil Co., v. AC&S, Inc., 649 N.E.2d 946, 951–52 (Ill. App. Ct. 1995) (liberally construing the phrase "arising out of" to mean "but for" in an additional insured endorsement, resulting in coverage).

New Jersey is a good example of a jurisdiction that has consistently construed the phrase "arising out of" broadly in both insuring provisions and exclusions. In Records v. Aetna Life & Cas. Ins., 683 A.2d 834 (N.J. Super. 1996), a physician brought suit against a medical malpractice insurer, seeking defense and indemnity for an assault and battery action brought by a nurse against him. The insuring provisions of the medical malpractice policy insured the doctor for liability from bodily injury "arising out of" rendering of professional services. The court held the policy applied to the claims for bodily injuries allegedly sustained by the nurse during her altercation with the physician. Id. at 837–38.

Subsequently, in American Motorists Ins. Co. v. L-C-A Sales Co., 713 A.2d 1007 (N.J. 1998), the New Jersey Supreme Court considered the validity and enforceability of an employee exclusion clause in a CGL policy. The court in American Motorists stated:

[t]he critical phrase "arising out of," which frequently appears in insurance policies, has been interpreted expansively by New Jersey courts in insurance coverage litigation. "The phrase 'arising out of' has been defined broadly in other insurance coverage decisions to mean conduct 'originating from,' 'growing out of' or having a 'substantial nexus' with the activity for which coverage is provided."

Id. at 1010 (quoting Records v. Aetna Life & Cas. Ins., 683 A.2d 834, 837 (N.J. Super App. Div. 1996)). Although the court acknowledged the principle that ambiguities in policy language are to be resolved in favor of the insured, the court adhered to the principle that an insurance policy should generally be interpreted according to its plain and ordinary meaning. The court was "persuaded that the 'arising out of and in the course of employment' language of the CGL policy employee exclusion [was] clear and unambiguous, and that it preclude[d] coverage for [the employee's] wrongful discharge claim."

Most jurisdictions do not require a direct proximate causal connection, but instead, require only some broad causal connection. The jurisdictions interpreting the phrase broadly also tend to do so for both insuring provisions and exclusions.

Narrow Interpretation

While the majority rule is to give the phrase "arising out of" a broad construction, other jurisdictions have narrowly defined the phrase. These jurisdictions tend to interpret the phrase to mean something similar to "proximate cause."

In Indiana Lumbermens Mut. Ins. Co. v. Statesman Ins. Co., 291 N.E.2d 897 (Ind. 1973), a delivery truck driver was injured while delivering a water softener to a homeowner when the homeowner's basement stairs collapsed. The homeowner's liability insurer paid the claim and then sought subrogation from the insurer of the delivery truck. The automobile liability policy covered accidents "arising out of the ownership, maintenance or use" of the delivery truck.

The Indiana Supreme Court in Lumbermens ruled that the "efficient and predominating cause" of the accident must arise out of the use of the vehicle in order for an accident to be covered under a policy using the phrase "arising out of." The court concluded that because "the sole and proximate cause of the accident was the negligent maintenance of the stairway," there was no coverage under the delivery truck insurance policy. Id. at 898–99.

Subsequently, in Barga v. Indiana Farmers Mut. Ins. Group, Inc., 687 N.E.2d 575 (Ind. App. 1997), an accident victim was injured when he was hit by the insured's vehicle while it was being driven by a mechanic who was using it as his personal vehicle to "road test" it. After recovering judgment against the mechanic and repair shop and exhausting their insurance policies, the accident victim sought to recover under the vehicle owner's automobile liability policy.

The court in Barga found that the phrase "arising out of," contained in an automobile business operations exclusion, ambiguous. Citing to Lumbermens, the court held that in order for coverage to be excluded under the automobile business operations exclusion, the "efficient and predominating cause" of the accident must have been an automobile business operation. Notably, the court recognized that although the case involved a policy exclusion (unlike in Lumbermens), the phrase "arising out of" must have the same meaning regardless its location in the insurance policy.

In Capitol Indem. Corp. v. Braxton, 24 Fed. App'x 434 (6th Cir. 2001), the court concluded that Tennessee applied a "concurrent causation" analysis when determining whether a loss "arose from" an excluded loss in a CGL policy. In Capitol, a child was injured from hypothermia when left in a van being used for transportation. The court stated that under Tennessee law, the standard was whether a non-excluded cause was a "substantial factor" in causing the loss. If a non-excluded cause was a substantial factor, then this constituted concurrent causation and there was coverage. The court specifically stated, "if the use of the vehicle was the efficient and predominate cause of the injury, then the automobile exclusion is triggered and the insured is under no duty to indemnify. (citing Travelers Ins. Co. v. Aetna Cas. & Sur. Co., 491 S.W. 2d 363, 367 (Tenn. 1973)). The court held that the auto exclusion applied because the operation of the van was the efficient and predominate cause of the injury.

As these cases illustrate, some jurisdictions reject a broader view of the "arising out of" language, regardless of whether the phrase is contained in an insuring clause or a policy exclusion.

Inconsistent Interpretation

While courts generally interpret the phrase "arising out of" either broadly or narrowly, there is at least one jurisdiction that interprets it both ways, depending upon where the phrase is located in the insurance policy.

In Wendell v. State Farm Mut. Auto. Ins. Co., 974 P.2d 623 (Mont. 1999), the Montana Supreme Court construed the phrase "arising out of" in an uninsured motorist benefit provision of an automobile liability insurance policy. The court stated that a split of authority from courts attempting to construe "arising out of" demonstrated that the phrase has more than one reasonable interpretation and was thus ambiguous. The court adopted an expansive fact-intensive test to determine whether an accident "arose out of the use" of a vehicle for purposes of uninsured motorist insurance coverage and remanded the case back to the trial court for a factual determination of whether the appellant's injuries "originated from, or grew out of, or flowed from the use of [the] vehicle."

However, less than a year later, in Pablo v. Moore, 995 P.2d 460 (Mont. 2000), the Montana Supreme Court again confronted the phrase "arising out of." This time, however, the phrase was in a CGL policy exclusion. The plaintiffs were injured in an automobile accident where the defendant's employee was at fault. The plaintiffs sued the employer, alleging it failed to warn of a known hazard and negligently trained and supervised the employee who caused the accident. The employer's insurer argued that its policy did not cover the accident because of the application of the automobile exclusion.

Despite Wendell, the court in Pablo concluded the term "arising out of" contained in the automobile exclusion was ambiguous and construed the ambiguity against the insurer. The court noted that the expansive test in Wendell was justified because it effected the remedial purposes of uninsured motorist coverage in that case. In Pablo, however, the "justification for a broad interpretation of the clause is not present—in fact, here, the plaintiffs benefit from a narrow interpretation of the clause, since it determines the extent to which insurance coverage is excluded."

The underlying premise in the Montana cases is that because the phrase "arising out of" is ambiguous, it should be construed in favor of coverage–regardless of whether it leads to inconsistent interpretations of the phrase. ¹

Conclusion

The determination of whether there is insurance coverage can depend on a court's interpretation of the phrase "arising out of," a phrase frequently used in a policy's insuring or exclusionary provisions. Courts are not consistent in their interpretation of this critical phrase.