FIFTH CIRCUIT CERTIFIES EXTRINSIC EVIDENCE QUESTION TO SUPREME COURT OF TEXAS

Since the Supreme Court of Texas issued its 2006 opinion in GuideOne Elite Ins. Co. v. Fielder Road Baptist Church, 197 S.W.3d 305 (Tex. 2006), in which the court coyly hinted that an exception to the eight-corners rule might exist in certain circumstances, but declined to openly endorse its existence, the question of considering extrinsic evidence in duty-to-defend cases has remained in a state of flux and uncertainty.  Some courts have applied the exception as though approved by the supreme court, while others have been more cautious, leading to significant inconsistencies.  Last week, the Fifth Circuit took definitive steps to end the suspense by certifying a direct question to the supreme court on the issue, and just days later, the supreme court accepted the certified question. 

In State Farm Lloyds v. Richards, No. 18-10721, 2019 WL 4267354 (5th Cir. Sept. 9, 2019), certified question accepted (Sept. 13, 2019), a child died in an all-terrain vehicle accident while in the care of his grandparents, and the parents sued the grandparents.  State Farm sought a declaratory judgment that it had no duty to defend, relying on two pieces of extrinsic evidence to show that (a) the accident occurred away from the insured premises and was thus excluded by the policy’s motor vehicle exclusion, and (b) the child qualified as a resident of the grandparents’ household and the claim was thus excluded by the policy’s insured vs. insured exclusion. The parents had filed a bare-bones petition which made no allegations as to either of these fact issues, so the evidence did not contradict the allegations.

The Fifth Circuit asked,

Is the policy-language exception to the eight-corners rule articulated in B. Hall Contracting Inc. v. Evanston Ins. Co., 447 F. Supp. 2d 634 (N.D. Tex. 2006), a permissible exception [to the eight-corners rule] under Texas law?

The court noted that this particular policy confined the duty to defend to claims or suits “to which this coverage applies,” and did not use broader traditional language requiring the insurer to defend even if the claims are “groundless, false, or fraudulent.” At least one district court had previously held that under language similar to this policy, the eight-corners rule does not apply at all, and all relevant evidence may be freely considered. That was the B. Hall case mentioned in the court’s certified question.

Editor’s Note: The supreme court was quick to accept the certified question, and we will monitor this case for further developments which we hope will significantly clarify the state of Texas law on the existence of an extrinsic-evidence exception to the eight-corners rule and its limits.