On May 23, 2014, the U.S. Court of Appeals for the Ninth Circuit issued a brief unpublished opinion addressing the application of the phrase “arising out of” as used in a insurance policy exclusion. In Trenches, Inc. v Hanover Ins. Co., — Fed.Appx. —, 2014 WL 2142216 (9th Cir. May 23, 2014), the insured claimed that the insurance company incorrectly denied the duty to defend. The applicable insurance policy excluded coverage for any potentially covered claim “arising out of” the insured’s breach of certain contractual agreements. Applying California law, the Court of Appeals held that the phrase “arising out of” is to be “construed broadly, even if in an exclusion, to mean ‘originating from,’ ‘incident to,’ or ‘having connection with.'” The court concluded that the complaint in the third-party action alleged that the insured breached the applicable contractual agreement by continuing to use certain intellectual property. Based on that finding, the Court of Appeals upheld the trial court’s dismissal on the basis that the claims fell within the parameters of the “arising out of” exclusion.
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