Texas Supreme Court Allows For Exception to 8-Corners Rule

For greater than 50 years, insurers have recognized that their responsibility to defend a Texas policyholder from a lawsuit have to be determined based mostly solely on the language of the insurance coverage contract and the allegations made by the plaintiff.

The so-called “eight corners rule” refers back to the 4 corners of the coverage and the 4 corners of the civil criticism.

However although that maxim was handed down in a 1965 ruling, courts proceed to battle with conditions through which the responsibility to defend can’t be decided with out contemplating info which can be outdoors of the eight corners, referred to as extrinsic proof.

The Texas Supreme Court docket cleared up a few of the confusion in a ruling Jan. 11 that lays out the circumstances beneath which there’s an exception to the eight-corners rule. The court docket held that extrinsic proof will be thought-about when that proof:

• Goes solely to the problem of protection and doesn’t overlap with the deserves of legal responsibility.
• Doesn’t contradict info alleged within the pleading.
• Conclusively establishes the protection reality to be proved.

The US fifth Circuit Court docket of Appeals requested for the clarification in reference to an insurance coverage protection dispute between two legal responsibility insurers, Monroe Warranty Insurance coverage Co. and Bitco Basic Insurance coverage Corp. Each carriers insured 5D Drilling & Pump Service at completely different instances, and each had been known as upon to defend the corporate after it was sued for allegedly botching an irrigation nicely that it drilled for J & B Farms in Bexar County, inflicting a drill bit to get caught contained in the nicely.

The lawsuit doesn’t say when the harm occurred, which implies there is no such thing as a method to say whether or not Monroe of Bitco ought to pay for 5D’s protection. A US District Court docket choose determined that the eight-corners rule prohibits consideration of any proof about when the drill bit acquired caught. The district court docket dominated that Monroe has an obligation to defend as a result of the harm might have occurred anytime between the drilling contract being shaped in 2014 to the date the lawsuit was filed in 2016.

Monroe appealed. The fifth Circuit determined that solely the Texas Supreme Court docket might determined if there’s any legitimate exception to the eight corners rule. The circuit court docket despatched licensed questions, searching for to be taught if there are legitimate exceptions and through which circumstances they apply.

The fifth Circuit had truly created its personal exception to the eight-corners rule in a 2004 determination, deciding that extrinsic proof bearing solely on protection info will be thought-about in conditions the place the responsibility can’t be decided in any other case. However federal courts wouldn’t have closing say over interpretations of state legislation. The fifth Circuit requested in its licensed questions whether or not the exception it created in Northfield Ins. Co. v. Loving Dwelling Care is correct.

Jared De Jong, a policyholder legal professional for the Payne & Fears legislation agency in Irvine, California, mentioned in an electronic mail that insurers will possible be excited that the Texas Supreme Court docket has validated the exception, however they shouldn’t be.

“Monroe means that an insurer hoping to keep away from a protection based mostly on extrinsic proof could have an uphill battle,” he mentioned.

He defined that the choice creates very slim circumstances through which extrinsic proof will be thought-about.

“We expect Monroe will assist insureds in building disputes the place establishing an obligation to defend activates undisputed extrinsic paperwork corresponding to a subcontract that satisfies the phrases of an additional-insured endorsement, however there might be solely restricted cases the place an insurance coverage provider can efficiently depend on extrinsic proof in a manner that doesn’t overlap with legal responsibility points,” De Jong mentioned.

Subjects
Texas