WHAT DOES “ARISING OUT OF” REALLY MEAN?

The phrase “arising out of” is an industry term of art consistently used in insurance policy forms. 

But what does it really mean? 

Both underwriters and courts answer that question differently.  

An underwriter would say that the phrase is intended to mean those acts or omissions of the policyholder that are explicitly covered by the terms of the policy.  There must be a nexus between the act and coverage.  Not just a tenous connection, but an actual, proximate cause and effect relationship that can be drawn using logic and common understanding.  Underwriters use the phrase “arising out of” in the context of risk.  Their whole focus is to determine whether the language in a policy states an assumption of a certain risk and whether that risk is worth the premium charged.

Courts, on the other hand, read an insurance policy in a wholly different context.  They are looking for ambiguities only.  They will apply plain and ordinary meaning to words in a policy and often refer to dictionaries and the expectations of the policyholder to interpret certain phrases.  This approach has led courts to adopt a completely different view of the phase “arising out of.”

In most states, “arising out of” means a but/for connection.  The loss would not have occurred but for the action.  For example, the clause “arising out of ongoing operations” has been interpreted to cover losses that occurred even after operations have ceased.  If the loss would not have occurred but for the ongoing operations at some time, then there would be coverage.  See, Tri-Star Theme Builders, Inc. v. OneBeacon Ins. Co., 426 F. App’x 506, 510 (9th Cir. 2011) (finding coverage for ongoing operations even if loss occurred after operations had ceased because loss arose out of operations at some point in time).