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Insurance Law No. 02-0090, 6/26/2003. Click here for the full text of this decision FACTS: The court interprets the scope of a professional services exclusion in a general liability insurance policy. The insurer argues that the court of appeals erred in affirming the trial court’s judgment that it had a duty to defend and to indemnify its insured, a doctors’ association, against a claim filed by patients who were injured by the administration of contaminated anesthetics. The insurer relies on a provision in its policy excluding coverage for any “[b]odily injury . . . due to rendering or failure to render any professional service.” This exclusion, the insurer asserts, precludes coverage any time a patient’s medical treatment is a but-for cause of an injury, even if the professional services themselves have been rendered to the patients with all due care. HOLDING: The court concludes that the policy excludes coverage only when the insured has breached the standard of care in rendering those professional services. In this case, the allegations in the pleadings raised the possibility that the treating doctors were negligent in their administration of the drug and the possibility that the doctors’ association was negligent in the storage of that drug. Because the plaintiffs alleged professional and nonprofessional negligence, the general liability insurer had a duty to defend the underlying suit in this case under the eight-corners doctrine. But because a fact issue exists about whether the patients’ injuries were caused by the doctors’ rendition of professional services, in which event the insurer’s policy would not cover the doctors’ association, the court remands the indemnity claims to the trial court for further proceedings. This court has held that “arise out of” means that there is simply a “causal connection or relation,” Mid-Century Ins. Co. v. Lindsey, 997 S.W.2d 153 (Tex. 1999), which is interpreted to mean that there is but-for causation, though not necessarily direct or proximate causation. Other jurisdictions also interpret “arising out of” to exclude a proximate cause requirement. Likewise, the 5th U.S. Circuit Court of Appeals has concluded that “‘[a]rising out of’ are words of much broader significance than ’caused by.’” Red Ball Motor Freight Inc. v. Employers Mut. Liab. Ins. Co., 189 F.2d 374 (5th Cir. 1951); see also Am. States Ins. Co. v. Bailey, 133 F.3d 363 (5th Cir. 1998). Since the policy used different wording – “arising out of” versus “due to” in parallel exclusions – the court concludes that the phrases should have different meanings in the context of this policy. The most reasonable conclusion is that “due to” requires a more direct type of causation that could tie the insured’s liability to the manner in which the services were performed. The basic structure of the policy at issue also supports the respondents’ interpretation. If patients were injured because the doctors breached a professional standard of care, then the doctors’ association would be covered under its professional liability policy. If patients were injured because the doctors breached a nonprofessional standard of care, then the doctors’ association would be covered by the general liability policy. If patients were injured because the doctors breached professional and nonprofessional standards of care – if, for example, the doctors were negligent in administering the medication and in securing the cabinets – then the doctors’ association would be covered only under its professional policy, since its general policy excludes coverage for any harm caused by the doctors’ breach of the professional standards of care. At trial, the parties argued that the indemnity question could be decided as a matter of law. But the court believes that the coverage determination depends on a factual resolution of whether the patients’ infection was caused by the doctors’ breach of a professional standard of care. OPINION: Phillips, C.J., delivered the opinion of the court with respect to all parts except II(B), in which Hecht, Owen, O’Neill, Jefferson, Schneider, Smith and Wainwright, JJ., join, and a plurality opinion with respect to part II(B), in which O’Neill, Schneider and Smith, JJ. join. DISSENT: Enoch, J. “The Court’s entire opinion is crafted around a purported concession by Utica that the storage of anesthesia narcotics does not implicate a professional standard of care. To the extent some of my colleagues disclaim joining the whole opinion, that does not diminish the influence that concession has wielded. For it is that concession that provides the only leg upon which the Court’s opinion, rewriting the parties’ insurance agreement, stands. And the premise underlying that purported concession is false. Consequently, I respectfully dissent.”

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