Opinion ID: 1209525
Heading Depth: 3
Heading Rank: 2

Heading: Interpretation of the Operative Language in the Policy

Text: 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. Spirco urges us to answer this question in the positive, while American argues the loss is too attenuated from the alleged property 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 meaningful 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., 203 S.W.3d 781, 785-88 (Mo.Ct.App. 2006), the court interpreted causation language in a liability policy covering a recreational pontoon boat. The policy language at issue in Poage was resulting from. The court in Poage noted that the Missouri Supreme Court previously had interpreted this language more narrowly than the phrase arising out of. Id. at 785; see also Spirtas Co. v. Fed. Ins. Co., 521 F.3d 833, 835-36 (8th Cir.2008) (affirming a broad construction of the insurance policy language arising from). In an effort to better articulate the causal relationship described by the phrase resulting from, the court in Poage reviewed the facts and policy language in several cases. The court held that the language resulting from was more narrow than the language arising out of, but was not so limited as to be synonymous with proximate or immediate causation. Poage, 203 S.W.3d at 785-86. Rather, the Poage court held that the language resulting from required the causative link between a harm and a covered occurrence or event to be reasonably apparent such that the harm could be considered a natural and reasonable incident or consequence of the covered event or occurrence. Id. at 787. 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 fine 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 pontoon 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 Mut. Auto. Ins. Co. v. Flanary, 879 S.W.2d 720 (Mo.Ct.App. 1994), State Farm Mut. Auto. Ins. Co. v. Whitehead, 711 S.W.2d 198 (Mo.Ct.App. 1986), and Fidelity and Cas. Co. of New York v. Wrather, 652 S.W.2d 245 (Mo.Ct. App.1983). In all three cases, the operative causation language was resulting from. Whitehead and Wrather, like Poage, suggest a fairly broad meaning for the term resulting from; Flanary does not. In Flanary the court found no coverage. Flanary, 879 S.W.2d at 724. The policy at issue in Flanary was a liability policy insuring a truck. Id. at 721. The policy insured against bodily injury to others ... caused by accident resulting from the ownership, maintenance or use of [the insured truck]. Id. The owner of truck had driven the truck to a construction site carrying a portable welder. At the site, the owner parked the truck next to a crane and operated the portable welder to fabricate a boom for a crane. The portable welder was not attached to the insured truck's power supply at the time of its use. During construction of the boom, the crane collapsed and injured another person. The court held the causal relationship between the injury and the ownership, maintenance or use of the insured truck was too attenuated to justify coverage under the operative resulting from language. Id. at 724. In Wrather, policy language that was materially the same as in Flanary resulted in a finding of coverage. Wrather, 652 S.W.2d at 247. There, a farmer used an insured automobile to drag a burning tire through a field in an effort to light the field on fire to burn off vegetation. Id. Smoke from the resulting fire blew across a nearby highway, decreased visibility, and led to an accident and injury not involving the insured vehicle. Id. Similarly, in Whitehead, the court found coverage under an automobile liability policy. Whitehead, 711 S.W.2d at 201. There, one passenger in an insured vehicle shot another passenger. The court in Whitehead found coverage emphasizing that the vehicle was not simply the situs of the shooting, but that the vehicle was being used to transport the shooter and the victim at the time of the shooting. Id. at 199-200. While these cases 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, 203 S.W.3d at 783-84 (It is important to note that insurance policies are designed to provide protection and will be liberally interpreted to grant, rather than deny, coverage.... If there is an ambiguity, it will be construed in favor of the insured.). Given this state of the law in Missouri, and given the general rule that we must resolve ambiguities in favor of coverage, we believe it is necessary to view the present harm as reasonably apparent under Poage such that there is coverage. 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 agreement, may in many circumstances imply this duty of indemnification. See, e.g., U.S. Fid. & Guar. Co. v. Centropolis Bank of Kansas City, Mo., 17 F.2d 913, 916 (8th Cir.1927) (applying Missouri law and recognizing a common law duty to indemnify a surety); 23 Williston on Contracts § 61:59 (Richard A. Lord 4th ed. 2008) ([E]ven in the absence of any express contract of indemnity, the principal obligor is impliedly bound to indemnify the surety and make it whole.). Without such a duty, the surety would be more akin to an insurer with subrogation rights only as against third parties rather than a guarantor who may look to the contracting party itself for satisfaction. Against this backdrop, the surety's defense costs were reasonably apparent and a natural and reasonable incident or consequence of the underlying property damage claim. As such, we believe the district court correctly held that the judgment against Spirco for the surety's fees fell within the policy's coverage provision. American cites our decision in Esicorp, Inc. v. Liberty Mutual Insurance Co., 266 F.3d 859 (8th Cir.2001), in support of its position that there should be no coverage for the surety fees at issue in the present case. Esicorp was a coverage dispute involving a commercial general liability policy that contained the causative-language phrase because of ... property damage. Id. at 861. American appears to argue that we accorded a narrow meaning to this policy language, excluding coverage for any direct or indirect consequential costs that do not, in and of themselves, satisfy the policy definition for property damage. In fact, American's argument, if correct, would appear to accord no breadth whatsoever to the phrase because of and effectively eliminate any coverage for damages that are in any degree attenuated from damages that are conceded or proven to be property damage. 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 a 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 falling 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. Esicorp, 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 cases are the source for the reasonably apparent or natural and reasonable incident or consequence of test. Poage, 203 S.W.3d at 787. Neither line of authority directly discusses the actual policy language at issue in our case, so the question becomes whether one phrase is more analogous to the present policy's phrase as a result of than the other. 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, 203 S.W.3d at 785-88, and in the several cases cited therein. Given the above-stated rule that we must resolve ambiguities in favor of coverage, our search for analogous language naturally should lead us to accept comparisons between phrases more likely to result in coverage rather than phrases likely to defeat coverage. If one of the causative language phrases from insurance policies addressed by prior Missouri cases unambiguously stood out as more akin to the present policy language, there would be no need for application of this general rule of interpretation. No such clarity exists in the present case, however, so there is no compelling reason to conclude that American's favored phrase should guide our analysis.