The broad asbestos exclusion found in a Business Owners policy barred coverage for the insured after it sold a building in which asbestos was discovered. Phillips v. Parmelee, 2013 Wisc. LEXIS 747 (Dec. 27, 2013). 

   Prior to purchasing an apartment building, the insured had the building inspected. The report indicated that the building's heating supply ducts likely contained asbestos. The insured then sought to sell the building. The Real Estate Condition Report stated the insured was not aware of "asbestos or asbestos-containing materials on the premises."

   The buyers purchased the property. A contractor cut through asbestos-wrapped ducts, dispersing asbestos throughout the building. The buyers sued the insured for breach of contract/warranty and negligence in failing to adequately disclose defective conditions including asbestos.

   American Family Mutual Insurance Company denied coverage under the asbestos exclusion. The exclusion prevented coverage for "any loss arsing out of, resulting from, caused by, or contributed to in whole or in part by asbestos, exposure to asbestos, or the use of asbestos." The insured sued American Family. The circuit court found the asbestos exclusion precluded coverage and the court of appeals affirmed.

   The Supreme Court affirmed. The words "arising out of" were very broad. The exclusion required a causal connection between asbestos and the loss. The insured argued the exclusion did not explicitly apply to losses arising out of the "dispersal" or "presence" of asbestos. Instead, the exclusion should be limited to the exclusion to loss caused by "exposure to" or "use of" asbestos. But the court determined the exclusion was written in broad, comprehensive language that included a wider range of asbestos-related losses than that advocated by the insured. A reasonable insured would interpret the asbestos exclusion to preclude the loss alleged by the buyers.