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General Refractories Co. v. First State Insurance Co.

Court of Appeals for the Third Circuit
2017 WL 1416364, 855 F.3d 152, 2017 U.S. App. LEXIS 6984 (2017)
ELI5:

Sections

Rule of Law:

Under Pennsylvania insurance law, the phrase 'arising out of' in a policy exclusion is unambiguous and indicates a 'but for' causation standard, meaning coverage is excluded if the loss is causally connected to the excluded subject matter, regardless of whether it was the proximate cause.


Facts:

  • General Refractories Company (GRC) manufactured and sold heat-resistant products that incorporated asbestos components to maintain strength under extreme heat.
  • GRC never mined or processed raw mineral asbestos itself; it only used the mineral as an ingredient in its finished commercial products.
  • Beginning in 1978, approximately 31,440 lawsuits were filed against GRC by plaintiffs alleging adverse health effects from exposure to GRC's asbestos-containing products.
  • GRC possessed excess insurance policies issued by Travelers (formerly Aetna) for the period of 1985 to 1986.
  • These policies contained an exclusion clause stating the insurance did not apply to 'EXCESS NET LOSS arising out of asbestos.'
  • By 1994, GRC had exhausted the limits of its primary liability insurance through settlements of the injury claims.
  • In 2002, GRC tendered the claims to its excess insurers, including Travelers, seeking indemnification for the ongoing settlements.
  • Travelers denied coverage for the claims, citing the specific exclusion regarding losses arising out of asbestos.

Procedural Posture:

  • GRC filed suit against Travelers and other excess insurers in the United States District Court for the Eastern District of Pennsylvania seeking a declaration of coverage and breach of contract damages.
  • GRC settled with all other defendants, leaving Travelers as the sole remaining defendant.
  • The District Court held a bench trial specifically to interpret the meaning of the phrase 'arising out of asbestos.'
  • The District Court ruled in favor of GRC (Appellee), finding the exclusion ambiguous because 'asbestos' could reasonably be interpreted to mean only raw minerals, not finished products.
  • The District Court entered final judgment ordering Travelers to pay policy limits plus prejudgment interest.
  • Travelers (Appellant) appealed the decision to the United States Court of Appeals for the Third Circuit.

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Issue:

Does an excess insurance policy exclusion for losses 'arising out of asbestos' clearly and unambiguously bar coverage for claims alleging injuries from the insured's asbestos-containing finished products?


Opinions:

Majority - Judge Vanaskie

Yes, the exclusion bars coverage because the phrase 'arising out of' unambiguously necessitates only a 'but for' causal connection between the raw mineral and the resulting loss. The Court rejected the lower court's focus on the definition of the word 'asbestos' (raw mineral vs. finished product) as the source of ambiguity. Instead, the Court emphasized that Pennsylvania law has a well-settled definition for 'arising out of' in insurance exclusions, which means 'causally connected with.' The Court reasoned that even if 'asbestos' referred strictly to the raw mineral, the exclusion still applies because the plaintiffs' injuries—and GRC's resulting financial losses—would not have occurred 'but for' the raw asbestos used to create the finished products. The Court noted that 'but for' causation is a de minimis standard that connects the raw ingredient to the final injury. Consequently, because the losses were causally connected to asbestos, the policy unambiguously excluded coverage.



Analysis:

This decision reinforces the broad scope of the phrase 'arising out of' within the Third Circuit and Pennsylvania insurance law. By establishing that 'arising out of' triggers a 'but for' causation standard—rather than the stricter 'proximate cause' standard—the Court significantly strengthens the position of insurers seeking to enforce exclusions. The ruling renders the specific definition of the excluded noun (in this case, 'asbestos') less critical if a causal chain can be established between that noun and the loss. This creates a high hurdle for policyholders attempting to bypass exclusions by arguing that their liability stems from a product or derivative of the excluded item rather than the item itself.

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