NORTHERN DISTRICT OF TEXAS CONSIDERS EXTRINSIC EVIDENCE IN FINDING NO DUTY-TO-DEFEND SUIT TO WHICH NO COVERAGE APPLIES

Last week, the Northern District of Texas held that State Farm Lloyds did not have a duty to defend its insured, finding that the relevant policy provision – unlike those typically at issue in Texas cases where the duty to defend is defined more broadly – required a duty to defend only if suit was brought to which coverage applied.   In State Farm Lloyds v. Richards, No. 4:17-CV-753-A, 2018 WL 2225084 (N.D. Tex. [Fort Worth Division] May 15, 2018, mem. op.), ten-year-old Jayden died operating an off-road all-terrain vehicle (“ATV”) while in the care of his grandparents (pursuant to a child custody court order). Jayden flipped the ATV while driving near, but not on, the premises of the grandparents’ residence. Jayden’s parents brought suit against the grandparents alleging they were negligent in allowing Jayden to operate the ATV without a helmet or safety gear and without instruction or supervision.  The grandparents made a demand on State Farm to defend and indemnify them under their homeowners policy with State Farm.  In response, State Farm filed a declaratory action and sought declaration that it did not have a duty to defend or indemnify them.

The insurance policy provided, in part, that “if a claim is made or a suit is brought against an insured for damages because of bodily injury to which this coverage applies, caused by an occurrence, State Farm will pay up to its policy limits of liability for the damages for which the insured is legally liable and will provide a defense at its expense.”   

In analyzing the case, the court noted that the grandparents’ policy with State Farm was unlike those typically at issue in Texas cases.  That is, typically the duty to defend is defined more broadly than the duty to indemnify, requiring the insurer to defend any suit brought against its insured even if the allegations of the suit are groundless, false or fraudulent.  In those cases, courts rely upon the language of the pleadings and the insurance policy, and do not go outside, to determine the duty to defend (eight-corners or complaint-allegation rule).   

In the case at hand, though, the court found, based on the policy’s provision, that the duty to defend arose only if suit was brought to which coverage applied, and the policy did not require State Farm to defend all actions against its insureds.  Consequently, the court found that it was not restricted by the eight-corners rule and relied on the grandparents’ admissions in their discovery responses that Jayden was off their premises when the accident occurred. Accordingly, the court held that State Farm had no duty to defend because occurrences “off an insured location” were excluded from coverage.