However, a problem "arises out of" the fact that no insurance policy says what that phrase means. This leaves it up to individual courts to analyze the phrase and interpret its meaning in various ways.

Some courts see the phrase in a very general way. For example, the U.S. Court of Appeals, Third Circuit, stated in Aetna Casualty and Surety Company v. Ocean Accident & Guarantee Corporation, 386 F.2d 413 (1967), that the phrase was "very broad and vague." An Illinois court in Maryland Casualty Company v. Chicago & Northwestern Transportation Company, 466 N.E.2d 1091 (1984) agreed and echoed the opinion that the phrase "is both broad and vague."

Some courts view the phrase as unambiguous. The Supreme Court of Florida in Taurus Holdings v. United States Fidelity and Guaranty Company, 913 So.2d 528 (2005) said that it agreed with the majority of states in concluding that the phrase "arising out of" is unambiguous. An Illinois court in Allstate Insurance Company v. Smiley, 659 N.E.2d 1345 (1995), found the phrase to be "not ambiguous as a matter of law."

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The causal connection to injury

And yet other courts get more definite and hold that what is important in defining the phrase "arising out of" is finding a causal connection between the injury or damage and the actions of the insured.

For example, the Supreme Judicial Court of Massachusetts tackled the "arising out of" issue in Commerce Insurance Company v. Ultimate Livery Service, Inc., 897 N.E.2d 50 (2008). This decision concerned a claim made against a limousine service when that service let a clearly intoxicated passenger leave the limousine, after which the passenger got into his own car and promptly crashed into the proverbial innocent third party, causing serious injuries. The claim against the insured centered on whether the injuries arose out of the use of the insured's auto.

The insurer argued that the injuries did not arise out of the use of the insured's auto because no alcohol was supplied by the limo service and because the insured's auto was not involved in the collision. The Massachusetts court did not think that way. It was irrelevant to the court that the covered auto was not the vehicle that actually produced the injury and that the insured did not furnish the alcohol. What was important to the court was a causal connection between the use of the limo and the injury. The court found that connection in the fact that the insured's vehicle was used consistently with the insured's business objectives, namely, to permit passengers to get intoxicated while another (the employee of the insured) took care of the driving. The court ascribed this connection as adherence to a "broad causation standard" that apparently is universally accepted in Massachusetts. (Previous court rulings as well as quotes from Couch and Appleman were listed in support of this point.)

As another example, in Shell Oil Company v. AC&S, 649 N.E.2d 946 (1995), the Appellate Court of Illinois adopted the following definition of "arising out of": "originating from, having its origin in, growing out of and flowing from" the operations of the insured.

Bottom line

The bottom line is that the interpretation of the phrase is decided on a case-by-case basis based on the facts of the particular event and interpreted by a particular court. However, the point that is common to most case law and is accepted by a majority of courts is that for an injury or damage to "arise out of" some occurrence or accident, there has to be a causal connection between the injury or damage and the accident.

And, this causal connection has to be based on an interpretation that reasonably establishes a sufficiently close relationship between the injury or damage and the event that causes them. As noted in the Maryland Casualty Company case, the "but for" causation analysis (not necessarily proximate causation) has to be applied to the facts in the instant case when clarifying the scope of "arising out of."

David D. Thamann, JD, CPCU, ARM, is managing editor for FC&S, a sister publication of PropertyCasualty360-National Underwriter and part of ALM. He may be reached at [email protected].