In an English case - British Waterways v Royal & Sun Alliance Insurance plc  EWHC 460 (Comm) – the English High Court interpreted the commonly used phrase "arising out of" in the context of an insurance policy exclusion.
Justice Burton suggested that the phrase “arising out of” might be construed more strictly when contained in an exclusion clause, than in an insuring clause. He said: “…I have the inevitable feeling that a court may in fact have a different approach to concluding whether there is cover for an event from where the court is being asked to conclude that an insurer can exclude cover, even though the words the court is considering may be identical.” This may be of some cause for concern to insurers if the courts in Australia follow the reasoning and interpret the phrase differently when considering an insuring clause as opposed to an exclusion clause.
A father and son, who were independent contractors, were supplying services to the Claimant, British Waterways, in mowing along the banks of a canal. They died when reversing their tractor (with attached hedge-cutter) along the towpath of the canal and it toppled into the water.
Families of the deceased sued British Waterways. Those proceedings were settled. British Waterways then brought a claim against the Defendant Insurers. The Insurers did not accept that the claims were covered by the policy.
The policy provided indemnity in relation to any legal liability incurred for damages (and costs) in respect of accidental death or bodily injury of any person, in connection with the use of the Insured Vehicle. However, the policy included an exclusion for liability arising out of the operation of the Insured Vehicle or attached plant as a tool.
Meaning of “arising out of”
In determining the question: …did the deaths “arise out of the operation of the Tractor as a tool?”, Justice Burton said:
This depends upon the meaning of the words “arising out of”. Although the onus is on the Defendant to establish the availability of the Tool Exclusion, I do not see that that impinges upon the construction, unless it be that there is a different meaning of the words “arising out of” in an exclusion clause from in a clause relating to cover, where the onus is upon the insured.
Justice Burton referred to a series of apparently conflicting English, Scottish and Australian decisions as to the meaning of “arising out of” in the insurance context. After considering them, he concluded that the exclusion was not operative unless the proximate cause of harm was the use of the vehicle as a tool, so that “arising out of” required proximate cause. He said it was “settled law [in England] that the operation of the insured vehicle had to have been the proximate cause of loss”. He also suggested that more recently the test was construed more strictly when considering an exclusion clause as opposed to a coverage clause. Consequently, it was suggested that a weaker causal connection may be acceptable when considering a coverage clause.
Justice Burton held that the operation of the insured vehicle with attached plant as a tool was not the proximate cause of its collapse into the canal. The proximate cause of its toppling into the canal was its being reversed too close to a vulnerable part of the bank. Consequently, he was not satisfied that the deaths, and the liability for the deaths, arose out of the operation of the tractor as a hedge-cutting tool, but it rather arose out of the collapse of the bank when, after completing that phase of the operation, the tractor was being reversed. So, the defendant could not establish the “Tool Exclusion”.
Consequently, he found for British Waterways who was entitled to indemnity.
The Australian Position
In his judgment Justice Burton referred to the Australian case of Government Insurance Office of NSW v Green & Lloyd (1965) 114 CLR 437. Contrary to the decision in the British Waterways case, this case is authority in Australia for the proposition that “arising out of” contemplates more remote consequences than the words “caused by”, and so includes less immediate consequences.
That case concerned an insuring clause in compulsory third party motor vehicle insurance. Barwick CJ stated:
I think the expression "arising out of" must be taken to require a less proximate relationship of the injury to the relevant use of the vehicle than is required to satisfy the words "caused by ". It may be that an association of the injury with the use of the vehicle while it cannot be said that that use was causally related to the injury may yet be enough to satisfy the expression "arise out of" as used in the Act and in the policy.
Similarly Menzies and Windeyer JJ in separate judgments held that the phrase imports a wider connotation than the phrase “caused by” and extends to a result that is less immediate, but there still needs to be some relationship between the use of the vehicle and the injury which has some causal element in it.
This case was applied in another key case of Dickinson v The Motor Vehicle Insurance Trust (1987) 163 CLR 500 where injuries caused by a child left alone in a motor vehicle who lit matches, setting the vehicle on fire and causing injury to another child, were held to “arise out of” the use of the vehicle. The words “arise out of” in an insuring clause, were given a wide meaning, but were said to need some causal or consequential relationship, but not necessarily a direct or proximate relationship with the use of the vehicle.
Similarly Norwich Winterthur Insurance (Australia) Ltd v State Government Insurance Commission (1991) 56 SASR 165 and State Government Insurance Commission v Stevens Brothers Proprietary Limited and Another (1984) 154 CLR 552 are part of a series of cases that has held in the motor vehicle context, for insuring clauses, that the phrase “arising out of” is broad, extends to a result less immediate than a direct or proximate relationship of cause and effect, but still carries some degree of consequence. While broader than “caused by”, there still needs to be some causal element.
In Yaktine v Perpetual Trustees Victoria Ltd (2004) 13 ANZ Insurance Cases 61-637, the phrase was given a similarly wide construction. In this case a solicitor’s professional indemnity insurer refused to cover him where he warranted to have witnessed signatures on a statutory declaration, when he had not. His insurance policy contained an exclusion for liability arising out of dishonesty or fraud which was held to apply as there was found to be a sufficient causal connection between the solicitor’s acts.
In Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd (2000) 23 WAR 291 Justice Ipp stated, in the context of an insuring clause, that:
The words “arising out of” are well recognised as being of broad import. Further, in the context of an insurance policy, there is no reason to construe them narrowly.
In Erect Safe Scaffolding (Australia) Pty Ltd v Sutton and Another (2008) 72 NSWLR 1,the court considered a clause in a contract between a subcontractor and head contractor of a building site, whereby the sub-contractor agreed to indemnify the head contractor for damage “arising out of” the sub-contracting work. The majority in considering these words gave them a wide construction. Justice Giles, as part of the majority stated that the test posited by “arising out of” is wider than “caused by”, though there must be some consequential relationship between the action and the liability or damage. These words do not require a direct or proximate relationship however the phrase is not open-ended and does not import an unlimited concept of causation. Remoteness must form an element of the phrase’s meaning, so that more is required than the mere existence of connecting links between an act, neglect or default and the liability incurred. Similarly Justice Basten, while in dissent also noted that the phrase connotes a weak causal relationship, rather than a direct one so that the physical activity or state of affairs must contribute in a material way to the legal liability.
However in Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (2006) 14 ANZ Insurance Cases 61–701 Justice Einstein, in considering an exclusion clause, noted that the critical consideration is always to ascertain the intention of the parties which found expression in their agreement. In Baulderstone Justice Einstein suggested that an exclusion clause is engaged if the construction was a significant cause of the claim made against the Insured; it need not be the sole or dominant cause. In this respect then, “arising out of” draws a less proximate causal connection.
The phrase “arising out of” in Australia has in the past been given a broader construction than in England (where a stricter test applies) in relation to both insuring clauses and exclusions. We will need to wait to see if Australian courts follow this approach and interpret “arising out of” more strictly when considering exclusion clauses. However, insurers should be aware of the different interpretation that may be given to identical wording in their policies, and brokers need to keep this in mind when considering coverage.