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Vol. 3, Iss. 15
November 5, 2014

“Arising Out Of:” The Policy Language That Cuts Both Ways

It is hardly a revelation to state that the phrase “arising out of,” as used in an insurance policy, is interpreted broadly. Whether this is a good thing depends on the issue and which side of it you are on. This was demonstrated clearly by two recent decisions interpreting this workhorse three word phrase.

In Bond Safeguard Insurance Co. v. National Union, No. 13-561 (M.D. Fla. Oct. 20, 2014), the Florida federal court addressed a breach of contract exclusion, stating that the insurer “shall not be liable to make any payment for Loss in connection with a Claim made against an Insured ... alleging, arising out of, based upon or attributable to any actual or alleged contractual liability of the Company or any other Insured under any express contract or agreement.”

The court noted that “arising out of” has been defined to preclude coverage for claims originating from, having its origin in, growing out of, flowing from, incident to or having connection with, a specified excluding circumstance.

From there the court held that “[c]onsistent with Florida case law, this Court finds that the phrase ‘arising out of’ as used in [the breach of contract exclusion] is unambiguously broad and precludes coverage for purported tort claims that depend on ‘the existence of actual or alleged contractual liability’ of an insured ‘under any express contract or agreement.’”

While an insurer benefits from the broadly interpreted “arising out of,” when the phrase appears in an exclusion, the free lunch gets paid for when “arising out of” appears in an insuring agreement. In Shamoun & Norman, LLP v. Ironshore Indemnity, Inc., No. 14-1340 (N.D. Tex. Oct. 28, 2014), the court held that a professional liability insurer was obligated to provide a defense to a law firm for a fee dispute, rejecting the insurer’s argument that this was not the rendering or failure to render professional legal services.

The court noted that a legitimate argument existed that non-specialized tasks, such as billing and fee setting, do not fall under the definition of professional legal services. But, in the case before it, a different outcome was possible, on account of the language of the insuring agreement: “arising out of the rendering of or failure to render Professional Legal Services.” As the court put it: “While billing and fee setting may not be acts constituting ‘professional services,’ this does not answer whether they are acts ‘arising out of professional services.’”

The court held that, given the breadth of the phrase “arising out of,” a defense was owed: “[U]nder Texas law, the phrase ‘arising out of’ means that there is simply a causal connection or relation, which is interpreted to mean that there is but for causation, though not necessarily direct or proximate causation.” Therefore, despite being a fee dispute, if the claim had a ‘causal connection or relation’ to the provision of professional legal services, a defense was owed.

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