HNRK Coverage Corner

On November 26, 2018, Judge Feuerstein of the EDNY issued a decision in Merritt Environmental Consulting Corp. v. Great Divide Ins. Co., 17-CV-7495, holding that a policy exclusion for claims “arising out of” radioactive contamination did not require proximate causation, but rather “some causal relationship” between the contamination and the claim. In Merritt Environmental, an environmental consulting business sought coverage under a professional liability policy for lawsuits by a client alleging that Merritt negligently failed to identify radioactive contamination in a property. The insurer denied coverage based on an exclusion applicable to claims “arising from" radioactive contamination.  Merritt argued that the exclusion did not apply because the proximate cause of the claims was Merritt’s alleged professional negligence, not the underlying radioactive contamination.  Magistrate Judge Shields rejected this argument in a report and recommendation issued on October 10, 2018 (the “Report”), finding that the language of the exclusion only required that the contamination be a “but for” cause of the claim.  Judge Feuerstein overruled Merritt’s objections and upheld the Report, explaining:

In the context of an insurance policy exclusion, “[t]he New York Court of Appeals has held that the phrase ‘arising out of’ is ‘ordinarily understood to mean originating from, incident to, or having connection with[,]’” Federal Ins. Co. v. American Home Assur. Co., 639 F.3d 557, 568 (2d Cir. 2011) (quoting Maroney v. N.Y. Cent. Mut. Fire Ins. Co., 5 N.Y.3d 467, 472, 805 N.Y.S.2d 533, 839 N.E.2d 886 (2005) (internal quotations and citation omitted)), and “requires only that there be some causal relationship between the injury and the risk for which coverage is provided.” Id. (quoting Maroney, 5 N.Y.3d at 472, 805 N.Y.S.2d 533). Magistrate Judge Shields properly applied a “but for” test to determine, based upon the complaints in the underlying lawsuits and the language of the relevant provisions of the subject Policy, that the “arising out of exclusion” at issue, i.e., the radioactive matter exclusion in the subject Policy, applies and bars coverage for the underlying lawsuits. See Mount Vernon Fire Ins. Co. v. Creative Hous. Ltd., 88 N.Y.2d 347, 350, 645 N.Y.S.2d 433, 668 N.E.2d 404 (1996); Country-Wide Ins. Co. v. Excelsior Ins. Co., 147 A.D.3d 407, 409, 46 N.Y.S.2d 96 (N.Y. App. Div. 2017).

Insurance policies often employ terms of art that have accepted meanings.  Here, the phrase, “arising under”, as used in the exclusion connotes but-for causation.  By contrast, New York courts interpret the phrase, “caused in whole or in part by” to require proximate causation (See our previous posts here and here).