Dеfendant American International Specialty Lines Insurance Company (“American”) appeals an adverse grant of summary judgment in which the district court 1 held American must provide coverage to Plaintiff Spirco Environmental, Inc. (“Spir-co”), for a separate judgment in which the same court held Spirco and others were liable to pay a surety’s attorney and expert witness fees. We affirm.
I. Background
Relevant background information is provided in our separate opinion in Case No. 07-1547. That case involved a claim by a surety against a group of contractors for payment of the surety’s attorney and expert witness fees under an indemnity agreement. In Case No. 07-1547 we affirmed the district court’s holding that the contractor-indemnitors were liable to the surety for approximately $800,000 in fees incurred in the defense of a $4 million claim by a New Jersey property owner. The surety incurred these substantial attorney and expert witness fees in a protracted arbitration proceeding focused on the alleged release and spread of asbestos by one of the contractor-indemnitors, Spir-co. The present case involves a claim by Spirco against its general casualty and pollution insurer, American, for coverage of the fee award.
We incorporate by reference the facts set forth in Case No. 07-1547 and also set forth the following, additional facts. When *639 the property owner asserted its counterclaims in the arbitration, the property owner labeled the claims as breach of contract counterclaims. During the course of arbitration, when counsel for Spireo sent a letter to the surety simultaneously advocating an aggressive defense and complaining about the surety’s participation in the arbitration, counsel for Spireo described the property owner’s claims as follows:
My review to date reflects that many of the claims being presented would fall into the category of property damage rather than nоnperformance of work. [The property owner’s] own mediation position paper reflects this fact:
The lion’s share of the contamination, as well as the cost of the second remediation, however, resulted from Spirco’s negligent work practices that permitted [Asbestos Containing Material] to contaminate areas in the Building that did not contain asbestos and should have been protected.
As discussed in Case No. 07-1547, the arbitrators’ findings also demonstrate that the nature of the alleged harm stemmed from property damage rather than breach of contract. Specifically, the arbitrators held that Spireo performed under thе contract and, after Spireo left the site, other parties damaged the property owner’s building by exposing asbestos and causing its spread throughout the site.
When the surety later asserted a claim for fees against Spireo and the other in-demnitors, Spireo sought coverage and a defense from American. American provided a defense under a reservation of rights, but, ultimately denied coverage. 2 Spireo then brought the present declaratory judgment action seeking resolution of the coverage issue.
American argued below that the fee award was in the context of a dispute having its roots in contract — the fees were due under an indemnity agreement, and the underlying arbitration dispute between the property owner and Spireo involved the alleged breach of a remediation contract between Spireo and the property owner. Spireo argued that the fee award had its roots in a claim of property damage — the property owner alleged not only that Spireo breached a remediation contract, but that Spireo spread asbestos to previously uncontaminated areas of the property, requiring the property owner to undertake a second, more expensive remediation of the building.
American argued in the alternative that even if the court were to accept Spirco’s characterization of the underlying dispute between the property owner and Spireo as one involving property damage, the indemnity award should not be covered by the American policy because: (1) the contractual indemnity award was too attenuated from the alleged property damage; (2) the indemnity award was economic loss rather than property damage; and (3) certain exclusions would prevent coverage even if American’s policy were otherwise found to apply.
Regarding the “attenuation” argument, the American policy provided coverage for a “Loss as a result of Claims for ... Property Damage.” The policy defined Loss in relevant part as “1. Monetary awards or settlements of compensatory damages arising from ... Property Damage; 2. Clean-Up costs; or 3. Claim Ex *640 penses.” American argued that the operative causation language in the coverage provision, “as a result of,” demanded a narrow construction that looked only to the immediate cause of the alleged expense. 3 According to American, this immediate cause was a contract claim on the indemnity agreement, and there was no coverage for contract claims. Spirco argued that the operative causation language “as a result of’ merited a broader construction and that it was permissible to look behind the contractual indemnity right to examine the facts of the underlying dispute between the New Jersey property owner and Spirco that gave rise to the expenses covered by the indemnity agreement. According to Spirco, the underlying dispute was a claim for property damage.
The district court held: (1) the underlying dispute was a property damage dispute; (2) the indemnification award was not too attenuated from the property damage claim to trigger coverage; and (3) no policy exclusions applied. Accordingly, the district court ordered American to provide coverage. American appeals.
II. Discussion
A. Coverage
i. Nature of the Underlying Dispute
The property owner characterized its arbitration counterclaim against Spirco as a breach of contract claim, but the substance of the property owner’s claim was an allegation of property damage. The property-damage nature of the counter-claim was apparent to Spirco’s attorney at the outset of the arbitration, apparent from the nature of the arguments presented in arbitration, and apparent from the arbitrators’ findings. The arbitrators found that Spirco had completed the remediation contract and left the site in a clean condition. The arbitrators found further that the property owner’s allegations related to asbestos not exposed by Spirco during Spirco’s remediation of the site. Rather, the arbitrators found that other contractors accessed the site after Spirco left and that these other contractors were responsible for the asbestos contamination. The alleged damages of $4 million that the property owner sought from Spirco included the purported cost of clean-up, remediation, or destruction for a section of the property оutside the scope of the original contract with Spirco. Ultimately, the property owner’s claim was not simply a breach of contract claim limited to the task of finishing a job commensurate in scope with the original contract between Spirco and the property owner; it was a claim for property damages shown to be unrelated to the work under the contract.
Further, we note that the property owner dismissed a separate bad-faith failure to pay claim against the surety before the surety incurred the bulk of its attorney and expert witness fees. Accordingly, the only claim against the surety that survived into the expensive and protracted arbitration was derivative of the property owner’s claim against Spirco. It was not an independent bad-faith claim that might be viewed as more attenuated from the property damage claim.
We believe that for coverage purposes in the instant case, then, the district court properly characterized the underlying arbitration claim as a claim for property damage. This conclusion is based on the
*641
property owner’s factual assertions, the substance of the property owner’s claims, and the arbitrators’ findings rather than the label, “breach of contract,” that the property owner elected to attach to its claim.
See Mo. Terrazzo Co. v. Iowa Nat'l Mut. Ins. Co.,
ii. Interpretation of the Operative Language in the Policy
Because we agree with the district court that it is appropriate to characterize the underlying dispute as one involving a claim for property damage, it is necessary to examine the operative, coverage-triggering language of the American policy. The specific question we face is whether the loss, a contractual indemnity award for a surety’s fees incurred in defense of the property damage claim, falls within the scope of the policy’s definition of “Loss.” Spireo urges us to answer this question in the positive, while American argues the loss is too attenuated from the alleged proрerty damage to justify coverage. The parties agree that Missouri law applies to our interpretation of the American policy. The parties also agree that the operative language at issue in this case is “as a result of,” such that coverage exists for a “Loss” that occurred “as a result of’ property damage. Finally, the parties agree that there is no Missouri precedent exactly on point to provide clear guidance as to the scope of the operative language “as a result of.”
There are, however, several cases involving a similar phrase, “resulting from.” Finding no convincing authority describing a mеaningful basis to distinguish between the terms “as a result of’ and “resulting from,” we presume that Missouri would apply the same interpretation to both phrases.
In
Poage v. State Farm Fire & Casualty Co.,
In reviewing the earlier cases, the Poage court described application of the “resulting from” language in several unique and unusual circumstances. Read in light of Poage, this collection of cases serves to illustrate the “reasonably apparent” or “natural and reasonable incident or consequence” test. Typically, such a collection of cases would serve as a helpful tool for drawing the fíne distinctions necessary to distinguish harms that are “reasonably apparent” from harms that are not. Unfortunately, because the facts of Poage and the cases cited therein differ dramatically from one another, the cases do not lend themselves to meaningful comparisons, and these important distinctions remain unclear.
For example, in Poage itself, the question at issue in the coverage dispute was whether a liability policy for a pоntoon boat covered injuries to a person who had been an occupant of the insured boat, but who was swimming in open water about twenty-five feet from the insured boat when a different, passing boat struck her. Id. at 782. The Missouri Court of Appeals in Poage held that the personal injury resulting from the collision between the passing boat and the swimmer was “a natural and reasonable incident or consequence” of the use of the insured boat. Id. at 787-88. The result obtained in Poage, therefore, sets forth a seemingly broad construction of the “reasonably apparent” test.
In reaching this conclusion, the
Poage
court cited
State Farm Mwt. Auto. Ins. Co. v. Flanary,
In
Wrather,
policy language that was materially the same as in
Flanary
resulted in a finding of coverage.
Wrather,
While these eases clearly establish a causal nexus somewhere short of proximate cause, it is not clear how the causal nexus in each case can be said to be “reasonably apparent.” In Poage, the insured boat had carried the injured swimmer to the general area where the collision occurred between the swimmer and an entirely separate vessel, and there was coverage. In Flanary, the insured truck carried the welder and welding equipment to the general area where the construction accident occurred, but there was no coverage. In Whitehead, one passenger in a vehicle shot another passenger, and there was coverage. In Wrather, the insured vehicle was merely a tool for pulling a burning tire, but injuries causally related to the smoke from that fire were found to be covered. Flanary is difficult to reconcile with the three other cases, but Whitehead, Wrather, and Poage collectively suggest a broad construction for the term “reasonably apparent” under Missouri law.
At the end of the day, it is not clear in the present case what result must flow from application of Missouri’s “reasonably apparent” or “natural and reasonable incident or consequence of’ test. Missouri, however, applies a general rule of construction requiring courts to interpret ambiguities in an insurance policy in favor of coverage and against the insurer.
Poage,
Rarely will construction, demolition, or remediation projects that are substantial in scope not involve sureties, and rarely will surety bonds not be dependent on indemnification of the surety by the bond purchaser. In fact, surety law, even in the absence of an express indemnification agreеment, may in many circumstances imply this duty of indemnification.
See, e.g., U.S. Fid. & Guar. Co. v. Centropolis Bank of Kansas City, Mo.,
American cites our decision in
Esicorp, Inc. v. Liberty Mutual Insurance Co.,
We disagree. We find two holdings in Esicorp. Esicorp holds first that, when a contractor installs faulty material and must destroy or tear apart a structure to reach and replace the faulty material in order to properly complete a job, the tear-out and rebuilding costs are not “property damage” as that term generally is used in standard commercial general liability policies. In fact, we distinguished this situation from a situation where faulty materials or faulty parts actually fail and cause harm in some other way:
It is significant that the defectively welded pipe sections did not collapse or burst or otherwise cause accidental injury to surrounding property as a result of SLT’s negligent inspection. Instead, Esicorp argues that the incorporation of the defectively welded pipe sections into the partially completed pipe system was covered property damage, and therefore all direct and consequential costs resulting from that damage are covered losses.
Id. at 862. In rejecting the contractor’s theory, which we labeled an “incorporation theory,” we made clear that we were examining the meaning of the policy term “Property Damage,” and we made no reference to the language “because of.” In fact, we analyzed the definition of the term “Property Damage” in standard, pre-1973 commercial general liability policies and in different, standard, post-1973 policies. In neither examination did we focus on the causative language “because of.” Maintaining our focus on the definition of “property damage,” we held:
After careful review of this more recent line of cases, we conclude the Supreme Court of Missouri would reject Esicorp’s incorporation theory and hold that there is no “property damage” unless and until the incorporation of a defective product or component results in “physical injury to tangible property” in at least some part of the system.
Id. at 863.
In Esicorp, there was a second holding, but this second holding, like the first, did not require our court to define the phrase “because of’ or determine what degree of attenuation this phrase encompassed. The insurer in Esicorp had conceded that about $11,000 of damages, in fact, comprised property damage. That amount was а minute fraction of the overall, asserted loss of over $3 million. We did not reach the question of what fraction of the $3 million could be deemed covered damages as fall *645 ing within the policy’s “because of’ language. Rather, we noted that the insured bore the burden of proving coverage but had failed to present evidence or .arguments attempting to apportion the $3 million between damages not covered by the policy and covered damages that existed “because of’ the conceded $11,000 in property damage. We stated:
It is apparent from Esicorp’s damage evidence that the vast bulk of the $3,046,709 loss allegedly attributable to SLT’s negligent inspection were the costs of repairing the defective welds in the field and the consequential damages caused by the need to undertake those repairs. Esicorp made no attempt to apportion either its total loss or the settlement amount between these direct and consequential, repair costs, which were not covered property damage, and the direct and consequential costs resulting from the limited damages Liberty Mutual concedes were covered. Esi-corp, in suing as assignee of SLT, had the insured’s burden to prove that its losses fell within the policy’s insuring agreement.
Id. at 864. Because we decided Esicorp based on a failure of proof, and because we did not reach the hard question of defining the degree of attenuation described by the policy in question, we reject American’s argument that Esicorp stands for the general proposition that direct and consequential damages can never be'Covered under policy language like that used in Esicorp.
Finally, even if we were to view
Esicorp
as setting
forth
a strictly limiting standard for the scope of insurance coverage, American’s argument would appear to force us to choose between two lines of authority: cases interpreting the phrase “because of,” on the one hand, and cases interpreting the phrase “resulting from,” on the other. As explained above, the “resulting from” cаses are the source for the “reasonably apparent” or “natural and reasonable incident or consequence of’ test.
Poage,
We believe it is a close question whether the ambiguous and untested language of the present policy — “as a result of’ — is more closely analogous to the phrase “because of’ as argued by American or the phrase “resulting from” as addressed in
Poage,
B. Economic Loss
Regarding American’s characterization of the indemnity award as an unrecoverable economic loss, there is no language in the policy excluding economic loss or economic harm from the definition of “Loss.” American cites
American States Ins. Co. v. Mathis,
In the present case, as explained above, the indemnification award for the surety’s fees was “reasonably apparent” and a “natural and reasonable incident or consequence” of the underlying property damage claim. As such, American’s economic-loss theory in this case is simply an extension of its causation argument: American would have us terminate the chain of causation at the indemnity agreement and not look behind the indemnification award to determine the nature of the underlying arbitration claim. We have already rejected this limited approach to defining the causal-nexus requirement under the present policy.
C. Exclusions
Finally, American argues that even if coverage would otherwise exist, the following exclusion applies:
This policy does not provide coverage and the company will not pay Loss for: Any Claim based upon or arising out of liability of others assumed by the Insured under any contract or agreement.
The district court found this exclusion did not apply because Spirco did not assume the liability “of others.” According to the district court, Spirco merely agreed to indemnify its surety, whose liability as surety was limited to that of Spirco, the principal. Spirco urges us to adopt the position of the district court. In addition, Spirco argues that an exception to this exclusion applies. The exception Spirco relies upon provides, “This exclusion does not apply to liability: ... 3. That the Insured would have in the absence of the contract or agreement.” 4
If the award at issue were an amount the surety was required to pay, as surety, to cover an obligation that Spirco owed to a third party (for example, if arbitrаtion had resulted in an award against Spirco and in favor of the New Jersey Property owner), the inapplicability of the cited exclusion would be beyond dispute. In such a situation, the amount paid by the surety unquestionably would have been Spirco’s own liability paid by the surety, and not a liability “of others.” Here, however, the fees at issue were amounts the surety reasonably expended to protect itself and Spirco, and it is less clear that the award of fees and expenses under the indemnity agreements should be characterized as Spirco’s own liability rather than the liability of “others” assumed by Spirco.
Although this issue is close, we believe the district court reached the correct conclusion in rejecting application of the exclusion and finding that the underlying fee award did not represent a “liability of others assumed by the Insured under any contract or agreement.” This ambiguity, like that discussed above, must be resolved in favor of coverage.
Killian v. State Farm Fire & Cas. Co.,
In any event, even if the exclusion were otherwise applicable, we conclude that Spirco is correct in its argument that the exception to the exclusion would apply. The exception states, “This exclusion does not apply to liability: ... 3. That the Insured would have in the absence of the contract or agreement.” Althоugh no Missouri case has explicitly held that a common law, non-contractual duty to indemnify a surety extends to reasonable fees and expenses, general surety law provides that the implicit duty to indemnify a surety extends to those sums required to make the surety whole.
See, e.g., U.S. Fid. & Guar. Co.,
Because there is coverage and no exclusion defeats coverage, we affirm the judgment of the district court.
Notes
. The Honorable David D. Noce, United States Magistrate Judge for the Eastern District of Missouri, sitting by consent of the parties in accordance with 28 U.S.C. § 636(c).
. Spireo argues on appeal that American's reservation of rights was only partial and that American's failure to more fully reserve its right to deny coverage precludes American from adopting its current position. We have reviewed American’s reservation of rights and find Spirco’s argument to be without merit. At any rate, our resolution of this appeal in Spirco's favor moots this point.
. The parties appear to agree that the operative language in the coverage provision, “as a result of,” controls. The operative language in part of the definition of "Loss,” i.e., "arising from,” is broad in scope, and the parties do not assert that this separate language provides any additional limitation on the operative language from the coverage provision.
. We note the inconsistency between this argument (that the duty to indemnify the surety exists as a matter of common law without regard to any contractual duty) and the losing arguments that Spirco and the other indemni-tors advanced in today's companion case (that no duty to indemnify the surety exists as between the surety and the indemnitors).