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(Article from Insurance Law Alert, May 2017)

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Reversing a Pennsylvania federal district court decision, the Third Circuit ruled that an asbestos exclusion unambiguously precluded coverage for claims alleging injury caused by asbestos-containing products.  General Refractories Co. v. First State Ins. Co., 855 F.3d 152 (3d Cir. Apr. 21, 2017).

The parties disputed whether two excess policies covered claims arising out of exposure to asbestos-containing products manufactured by General Refractories.  The sole issue on appeal was whether a policy exclusion that bars coverage for losses “arising out of asbestos” applies to injury claims derived from exposure to asbestos-containing products.  A Pennsylvania federal district court deemed the exclusion latently ambiguous, finding that “asbestos” was subject to two reasonable interpretations –  raw asbestos only or asbestos-containing products – and thus held that the policies were obligated to cover the losses.  The Third Circuit reversed.

The Third Circuit ruled that the phrase “arising out of,” when used in an insurance exclusion, is unambiguous under Pennsylvania law.  It means that the exclusion applies when the excluded act or thing is a but for cause of the injury or damage.  Because the losses at issue would not have occurred but for asbestos (either raw or within finished products), the exclusion squarely applies.  The Third Circuit explained that the district court’s analysis of the term “asbestos” was misplaced because the phrase “arising out of”  has “an unambiguous legal meaning that renders any uncertainty concerning the meaning of the word ‘asbestos’ immaterial.”