Third Circuit Applies Asbestos Exclusion in 30-Year-Old Excess Policies

The U.S. Court of Appeals for the Third Circuit has ruled that an exclusion for losses “arising out of asbestos” in 30-year-old excess insurance policies prevented a manufacturer from obtaining indemnification for thousands of negotiated settlements with personal injury plaintiffs.

The Case

General Refractories Company’s use of asbestos to manufacture various products brought about 31,440 lawsuits against General Refractories alleging injuries from “exposure to asbestos-containing products manufactured, sold, and distributed” by General Refractories dating back to 1978.

After General Refractories’ liabilities from thousands of settled claims exceeded the limits of its primary insurance coverage, the company tendered the claims to its excess insurance carriers.

All but one excess insurer settled. General Refractories went to court, seeking a declaration of coverage for the one remaining carrier. The carrier relied on an asbestos exclusion that stated that the policy did not cover losses “arising out of asbestos.”

The U.S. District Court for the Eastern District of Pennsylvania found that the phrase “arising out of asbestos” contained latent ambiguity because the exclusion reasonably could be read to exclude only losses related to raw asbestos, as opposed to losses related to asbestos-containing products such as those manufactured by General Refractories.

The insurer appealed to the Third Circuit.

The Third Circuit’s Decision

The Third Circuit reversed.

In its decision, the circuit court first ruled that the language of the asbestos exclusion was not ambiguous, reasoning that the phrase “arising out of” had an “established, unambiguous meaning under Pennsylvania insurance law.”

The Third Circuit noted that Pennsylvania courts had long construed the phrase “arising out of,” when used in the context of an insurance exclusion, to mean “causally connected with, not proximately caused by.” Therefore, the circuit court continued, a policy provision containing the phrase “arising out of” was satisfied by “‘[b]ut for’ causation, i.e., a cause and result relationship.”

Here, the circuit court found the application of the “de minimis” standard of “but for” causation compelled the conclusion that General Refractories’ losses were excluded under the policy as a matter of law.

The Third Circuit determined that it was “clear” that there was an appropriate causal connection between asbestos and the losses General Refractories had suffered in asbestos litigation, given that at least some of General Refractories’ products contained asbestos, that the plaintiffs in the underlying asbestos lawsuits allegedly had been exposed to General Refractories’ asbestos-containing products, and that these plaintiffs had alleged injuries from asbestos-related diseases.

The case is General Refractories Co. v. First State Ins. Co., No. 15-3409 (3d Cir. Apr. 21, 2017).