We need a hard eight: Florida's growing exception to the eight corners rule.

• Author: Lumpkin, R. Hugh

Lawsuits bring stress, anxiety, and the threat of financial ruin. To respond to this threat, responsible people and businesses purchase some form of liability insurance. Liability insurance entitles the policyholder to two important promises. First, the insurer will indemnify the policyholder by paying for covered losses falling within the policy's limits. Second, the insurer will provide the policyholder with a defense from a lawsuit potentially covered by the policy. This second promise, known as an insurer's "duty to defend," typically includes appointment of counsel and payment of attorneys' fees and other legal costs incurred in the policyholder's defense. Liability insurance is sometimes referred to as litigation insurance because liability policies, in addition to indemnifying loss, are designed to "protect[] the insured from the expense of defending suits." (1)

Traditionally, an insurer's duty to defend is determined solely by two documents: the insurance policy and the complaint against the policyholder. (2) Known colloquially as the eight corners rule, a reference to the four corners of the policy and the four corners of the complaint, (3) courts typically limit their determination of an insurer's duty to defend to the facts as alleged in the complaint and do not consider the actual facts developed in the underlying litigation. (4) Any doubts regarding the duty to defend must be resolved in favor of the policyholder, (5) even when coverage may not exist. (6)

In a growing number of instances, however, Florida's courts are using facts outside of the underlying complaint and policy when determining an insurer's duty to defend. Recently, the 11th Circuit Court of Appeals used facts outside the complaint and policy to hold that the insurer had no duty to defend in Composite Structures, Inc. v. Continental Ins. Co., 560 F. Appx. 861 (11th Cir. 2014), finding the case an exception to the eight corners rule. What the Composite Structures opinion lacks, like other cases found to be exceptions to the eight corners rule, is a cohesive framework for how and when exceptions to the eight corners rule can and will be invoked. This article discusses the eight corners rule and cases that have found exceptions, and attempts to create a workable framework for the rare and limited instances when facts outside the policy and complaint warrant consideration.

The 11th Circuit's Invitation to Look Beyond the Eight Corners

In Composite Structures, two seamen brought suit against the policyholder for injuries caused by exposure to carbon monoxide emission from a vessel built by the policyholder. (7) The policyholder tendered the defense to its insurer, and the insurer initially defended the suit, pending investigation of the facts. During litigation with the seamen, it became apparent that the policyholder did not comply with the policy's pollution buy back endorsement, which excluded coverage for release of pollutants or contaminants like carbon monoxide, unless the policyholder could meet five specific conditions, including written reporting of an occurrence to the insurer within 30 days. (8) The policyholder did not dispute that notice was untimely, but argued that the complaint was silent as to when notice was provided and, therefore, the insurer had a duty to defend. (9) The district court "looked beyond the complaint in the underlying lawsuit" and "concluded no duty to defend arose." (10)

The 11th Circuit approved the district court's consideration of facts found outside of the complaint, holding that Florida law permitted consideration of the "uncontroverted date of written notice" in determining the duty to defend because providing notice to the insurer is not the type of "fact that would normally be alleged in the complaint." (11) The 11th Circuit stated that "[t]he Florida Supreme Court has recognized that there are exceptions to the general rule that the duty to defend is determined solely from the allegations of the complaint." (12)

This recognition occurred in a footnote in Higgins v. State Farm Fire & Casualty Co., 894 So. 2d 5 (Fla. 2004). In Higgins, the Florida Supreme Court approved an insurer bringing a declaratory action to determine coverage obligations when no complaint had been filed against the policyholder. (13) The Higgins opinion specifically states that an insurer's defense obligation is determined by the policy and the complaint's allegations when a complaint has been filed. (14) Tucked away in a footnote, however, the Florida Supreme Court noted "that there are some natural exceptions" to the eight corners rule when an insurer disputes its defense obligations based on facts that would "not normally be alleged in the underlying complaint." (15) "One example would be when the insurer claims that the policyholder did not provide sufficient notice of the claim and therefore breached an assistance and cooperation clause." (16) The Composite Structures court noted that it faced facts that were "specifically, the example provided by Higgins" as an exception to the eight corners rule. (17)

What are the "Natural Exceptions" to the Eight Corners Rule?

The Composite Structures court relied on two other decisions that considered facts outside the complaint to decide an insurer's defense obligations. In Nationwide Mutual Fire Insurance Co. v. Keen, 658 So. 2d 1101 (Fla. 4th DCA 1995), the policyholder sought a defense for injuries arising from the operation of his vessel. The policyholder conceded that the boat's horsepower exceeded the maximum allowable under the policy's terms. (18) Though not pleaded, the vessel's horsepower was "a critical and...