Another Texas Twist in Insurers' Use of Extrinsic Evidence to Avoid a Duty to Defend

• Pages: 743-764
• Date: 01 October 2022
• Published date: 01 October 2022
• Author: Douglas R. Richmond
• Subject Matter: Derecho Público y Administrativo

743

*Managing Director, Aon Professional Services, Olathe, KS. Opinions expressed here are

solely those of the author.

ANOTHER TEXAS T WIST I N INSURERS’ USE

OF EXTRI NSIC EVIDENCE TO AVOID A DUTY

TODEFEND

Douglas R. Richmond*

Introduction .............................................................................................744

I. Monroe in the Texas Supreme Court ............................................750

A. Background and Facts ...........................................................750

B. The Texas Supreme Court Opinion .....................................752

C. Return to the Fifth Circuit .................................................. 755

II. The Monroe Exception Does Not Reach Pharr ..........................755

A. The Court of Appeals Decision ............................................ 755

B. The Texas Supreme Court Decision ....................................757

C. Summary ............................................................................... 759

III. Analysis ......................................................................................... 760

Conclusion ...............................................................................................764

Tort Trial & Insurance Practice Law Journal, Fall 2022 (57:3)744

INT RODUCTI ON

A liability insurer’s duty to defend its insureds in litigation is a key compo-

nent of the liability insurance bargain.1 The merits of the plaintiff’s lawsuit

against the insured are irrelevant to the insurer’s duty to defend.2 Further-

more, and importantly, the duty to defend attaches where there is merely

the potential for coverage under the policy in question.3 Consequently, an

insurer may have a duty to defend an insured even though it ultimately has

no duty to indemnify the insured.4

There are two approaches to determining an insurer’s duty to defend.

The first is the four corners rule, also and better described as the eight cor-

ners rule.5 Under the eight corners rule, the factual allegations in the plain-

tiff’s complaint or petition are compared with the insurance policy, and the

insurer owes a defense only if those allegations potentially implicate the

insurer’s duty to indemnify the insured.6 Applying the eight corners rule,

1. See Campbell v. Super. Ct., 52 Cal. Rptr. 2d 385, 392–93 (Ct. App. 1996) (“[O]ne of the

primary benefits of an insurance policy is that the insured can expect the insurer to defend

against third-party claims.”); Pine Oak Builders, Inc. v. Great Am. Lloyds Ins. Co., 279

S.W.3d 650, 655 (Tex. 2009) (“A defense of third-party claims provided by the insurer is a

valuable benefit granted to the insured by the policy, separate from the duty to indemnify.”);

Woo v. Fireman’s Fund Ins. Co., 164 P.3d 454, 459–60 (Wash. 2007) (“The duty to defend

is a valuable service paid for by the insured and one of the principal benefits of the liability

insurance policy.”).

2. See United Fire & Cas. Co. v. Prate Roofing & Installations, LLC, 7 F.4th 573, 581 (7th

Cir. 2021) (“[A] liability insurer may not deny a defense on the ground that the suit against its

insured is hopeless.”); Murray-Kaplan v. NEC Ins., Inc., 617 S.W.3d 485, 493 (Mo. Ct. App.

2021) (“An insurer has a duty to defend an insured when the insured is exposed to potential

liability to pay based on the facts known at the outset of the case, no matter how unlikely it

is that the insured will be found liable and whether or not the insured is ultimately found

liable.”).

3. Chi. Title Ins. Co. v.Jen, 245 A.3d 150, 162–63 (Md. Ct. Spec. App. 2021); Sturkin v.

Miss. Ass’n of Supervisors, Inc., 315 So. 3d 521, 537 (Miss. Ct. App. 2020); Merrick v. Fischer,

Rounds & Assocs., Inc., 939 N.W.2d 795, 807 (Neb. 2020).

4. Greene v. Westfield Ins. Co., 963 F.3d 619, 628 (7th Cir. 2020) (applying Indiana law);

Lua v. QBE Ins. Corp.,421 F. Supp. 3d 1082, 1089–90 (D. Colo. 2019) (applying Colorado

law); U-Haul Co. of Mo. v. Carter, 567 S.W.3d 680, 685 (Mo. Ct. App. 2019) (quoting Arch

Ins. Co. v. Sunset Fin. Servs., Inc., 475 S.W.3d 730, 733 (Mo. Ct. App. 2015)); ZRZ Realty Co.

v. Beneficial Fire & Cas. Ins. Co., 266 P.3d 61, 66 (Or. 2011).

5. This approach is also sometimes called the comparison test, the complaint allegation

rule, or the exclusive pleading rule. See Harleysville Mut. Ins. Co. v. Buzz Off Insect Shield,

L.L.C., 692 S.E.2d 605, 610 (N.C. Ct. App. 2010) (referring to the comparison test); R-

   L.  L. I. § 13 cmt. a (A. L. I. 2019) (noting the four corners, eight

corners, and complaint allegation rule terminology); William T. Barker, When Can Extrinsic

Evidence Defeat the Duty to Defend?, N A C C I  I. L., Apr.

2007, at 1, 3 (referring to the exclusive pleading rule).

6. As the explanation of the rule indicates, the “eight corners” describe the four corners of

the complaint or petition combined with the four corners of the insurance policy. Richards v.

State Farm Lloyds, 597 S.W.3d 492, 494–95 (Tex. 2020); AES Corp. v. Steadfast Ins. Co., 725

S.E.2d 532, 535 (Va. 2012).