855 F.3d 152
3rd Cir.2017Background
- General Refractories Company (GRC) manufactured refractory products that historically contained asbestos and faced ~31,440 asbestos-injury suits dating to 1978.
- GRC had primary and excess liability insurance; after primary limits were exhausted, GRC sought coverage under two excess policies issued by Travelers (1985–86).
- Travelers denied coverage relying on an Asbestos Exclusion that precluded coverage for “EXCESS NET LOSS arising out of asbestos.”
- GRC argued the exclusion was ambiguous and that “asbestos” meant raw mined asbestos (not finished asbestos-containing products), so its settlements for exposure to finished products were covered.
- The district court found a latent ambiguity and ruled for GRC; the court entered judgment for the policy limits plus prejudgment interest.
- The Third Circuit reversed, holding the phrase “arising out of” unambiguously requires but-for causation under Pennsylvania law, and that GRC’s losses were excluded because they would not have occurred but for asbestos (raw or in products).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Asbestos Exclusion is ambiguous | “Asbestos” meant raw mineral asbestos; exclusion therefore did not cover claims from finished asbestos-containing products | Exclusion’s plain meaning covers asbestos in any form (raw or in products) | Court: not ambiguous once “arising out of” is construed; exclusion applies |
| Proper legal meaning of “arising out of” in an insurance exclusion | (GRC accepted but framed it narrowly) used a but-for standard tied to raw asbestos | Means traditional Pennsylvania “but for” causation covering harms causally connected to asbestos | Court: “arising out of” unambiguously requires but-for causation; applies here |
| Admissibility/effect of industry trade usage evidence | Trade usage shows industry distinguished “asbestos” vs “asbestos-containing products,” supporting narrow reading | Course of dealings and documents show parties understood exclusion to be broad | Court: trade usage admissible but cannot overcome unambiguous exclusion phrase requiring but-for causation; even narrow meaning of “asbestos” would catch GRC’s losses |
| Whether Travelers waived the but-for causation argument by not asserting it below | GRC: Travelers failed to raise the specific legal formulation before district court | Travelers: repeatedly argued plain meaning exclusion; can emphasize argument on appeal | Court: no waiver; argument was presented in substance below and, in any event, appellate consideration warranted due to public interest |
Key Cases Cited
- McCabe v. Old Republic Ins. Co., 228 A.2d 901 (Pa. 1967) (interpreting “arising out of” in insurance exclusions as requiring causal connection rather than proximate cause)
- Manufacturers Cas. Ins. Co. v. Goodville Mut. Cas. Co., 170 A.2d 571 (Pa. 1961) (holding “arising out of” satisfied by but-for causation)
- Forum Ins. Co. v. Allied Sec., Inc., 866 F.2d 80 (3d Cir. 1989) (applying Pennsylvania law that “arising out of” requires but-for causation)
- Madison Constr. Co. v. Harleysville Mut. Ins. Co., 735 A.2d 100 (Pa. 1999) (contract interpretation rules; treating “arising out of” language as unambiguous)
- Allstate Prop. & Cas. Ins. Co. v. Squires, 667 F.3d 388 (3d Cir. 2012) (noting the "well-settled" but-for meaning of “arising out of” in Pennsylvania insurance contexts)
- Sunbeam Corp. v. Liberty Mut. Ins. Co., 781 A.2d 1189 (Pa. 2001) (industry custom/trade usage admissible to construe commercial contract terms)