In a certified question from the Fifth Circuit Court of Appeals to the Texas Supreme Court, our state’s highest civil appellate court recently re-affirmed the long-standing, “eight-corners” duty to defend rule. That rule states that when Texas courts analyze an insurer’s duty to defend its insured (who has been sued in an underlying lawsuit), Texas courts may only consider the allegations contained in the plaintiff’s petition (a document typically referred to as having "four corners"), together with the language of the operative insurance policy (another "four corners" document) – whether an auto, commercial general liability, trucking or other policy – in deciding whether an insurer owes its insured a defense. Four corners plus four corners equals eight corners, hence, the reason for the naming of the rule.
The certified question came from a case styled, Richards v. State Farm Lloyds, and concerned the death of a 10-year-old boy who was riding an ATV near his paternal grandparents’ property, while under their care and supervision. The federal district judge in Fort Worth ruled that since the grandparents’ homeowner’s policy did not have a “groundless-claims clause,” which is a clause that generally states the insurer will offer a defense (to its insured) even if the claims asserted in the petition are “groundless, false, or fraudulent,” the “eight-corners” rule did not apply and the trial judge was free to consider evidence outside the petition and policy language. Specifically, the trial judge reviewed and considered a) the police report for the ATV accident which stated that the location of the accident was not on the grandparents’ property, (thus triggering the “motor vehicle exclusion”), and b) a family court order declaring the grandparents as joint managing conservators, (thus triggering the “insured exclusion”), to grant summary judgment in favor of State Farm Lloyds, ruling that it had no duty to defend or indemnify the grandparents for the wrongful death claims asserted by the boy’s mother. The Fifth Circuit certified the issue to the Texas Supreme Court.
The Texas Supreme Court answered the certified question in a March 20, 2020 opinion, stating that although certain limited exceptions to the “eight-corners” rule exist (not followed by all Texas courts), the “groundless-claims clause” exception was not a recognized one in Texas. The case will now go back to the Fifth Circuit which will most likely reverse the federal district court’s grant of summary judgment with instructions for that court to reconsider its ruling in light of the Texas Supreme Court’s answer to the certified question.
The lesson from the Richards decision is, because of a lack of uniformity in the intermediate appellate courts, the law in Texas remains unclear on the issue of whether extrinsic evidence may be considered in determining an insurer’s duty to defend, and the Texas Supreme Court appears reluctant to create exceptions. As a result, even if your case falls within one of the few limited, recognized exceptions to the “eight-corners” rule, the Texas Supreme Court may be reluctant to enforce that exception. Thus, due consideration must be given to denials of coverage based upon evidence outside the 8 corners.