Making the call on the duty to defend a case in which the pleadings are silent on a key coverage question – such as the date damage occurred – is problematic for courts, carriers, coverage attorneys, and policyholders alike. The eight corners requirement, limiting the defense assessment to the live petition, generally precludes the use of extrinsic evidence to fill in such gaps in the pleadings. This leaves parties and courts guessing, leading to inconsistent results. Compare Great American Lloyds Ins. Co. v. Audobon Ins. Co., 377 S.W.3d 802, 808 (Tex. App. – Dallas Aug. 6, 2012, no pet.) (silence of petition on when construction or damage took place triggered duty to defend contractor) with Markel Intern. Ins. Co., Ltd. v. Campise Homes, Inc., 2006 WL 1662604 (S.D. Tex. 2006) (no duty to defend construction case where petition alleged purchase date only, which was two years prior to beginning of policy period because there was simply “too great a gap” between purchase contract and start of coverage).
The Fifth Circuit, which has entered this fray before, recently certified a question on the admissibility of extrinsic evidence in a duty to defend case involving the date on which property damage occurred. In Bitco General Ins. Co. v. Monroe Guaranty Ins., Cause No. 19-51012, 2021 WL 955155 (5th Cir. Mar. 12, 2021), the court, referring to its 2004 opinion speculating on potential eight corners exceptions for extrinsic evidence, certified the following questions to the Texas Supreme Court:
- Is the exception to the eight-corners rule articulated in Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523 (5th Cir. 2004), permissible under Texas law?
- When applying such an exception, may a court consider extrinsic evidence of the date of an occurrence when (1) it is initially impossible to discern whether a duty to defend potentially exists from the eight-corners of the policy and pleadings alone; (2) the date goes solely to the issue of coverage and does not overlap with the merits of liability; and (3) the date does not engage the truth or falsity of any facts alleged in the third-party pleadings?
The question arose in a suit alleging property damage claims against a drilling company in connection with an irrigation well. Both Bitco and Monroe insured 5D Drilling & Pump Service Inc. for different coverage periods, Monroe’s extending from October 6, 2015 to October 6, 2016 and Bitco’s apparently covering 5D in preceding periods. The petition alleged that in “the summer of 2014,” a farm hired 5D to drill a commercial irrigation well. 2021 WL 955155, slip op. at *1. In June 2016, the farm filed suit against 5D for breach of contract and negligence after 5D purportedly drilled the well with “unacceptable deviation” and then abandoned the well after it “stuck” the drill bit in the bore hole. 5D notified Bitco and Monroe, claiming they both had a duty to defend it. Monroe declined, claiming the property damage occurred, at least in part, prior to its coverage period. The insurers stipulated, though the petition did not explicitly plead, that the drill bit became stuck “in or around November 2014.” Id. Monroe asked the court to consider the extrinsic evidence of the stipulated date and Bitco argued the eight-corners rule precluded it and, even if considered, it did not establish that Monroe had no duty to defend.
The court briefly reviewed the eight corners rule under which the duty to defend is “determined solely by comparing the four-corners of the pleadings with the four-corners of the insurance agreement.” The court pointed out, however, that the rule “is not absolute” and that the Supreme Court itself last year found, for the first time, an exception to the rule where “there is conclusive evidence that groundless, false, or fraudulent claims against the insured have been manipulated by the insured’s own hands in order to secure a defense and coverage where they would not otherwise exist.” Id. (quoting Loya Ins. Co. v. Avalos, 610 S.W.3d 878, 882 (Tex. 2020)). Such cases are rare and the court noted the “Supreme Court has not definitively ruled on every possible exception.” Id.
The court cited Northfield’s holding that extrinsic evidence is admissible: (1) “when it is initially impossible to discern whether coverage is potentially implicated,” and (2) “when the extrinsic evidence goes solely to a fundamental issue of coverage which does not overlap with the merits of or engage the truth or falsity of any facts alleged in the underlying case.” Id. The Supreme Court, it was noted, “favorably cited” Northfield but did not adopt it. Id.
Finally, the court wrote that the case before it raised the Northfield issue with respect to the “undisputed date of an incident”, and rightly noted that “[r]eceiving a definitive answer to this question is important because ascertaining the date of an occurrence is a frequently encountered ‘gap’ in third party pleadings.” The court noted two prior cases had permitted extrinsic evidence on this issue. Primrose Operating Co. v. Nat’l Am. Ins. Co., 382 F.3d 546, 550 (5th Cir. 2004) (finding duty to defend based on a party stipulation that polluting spills occurred after a date that overlapped with coverage); Ooida Risk Retention Grp., Inc. v. Williams, 579 F.3d 469, 476 (5th Cir. 2009) (considering extrinsic evidence on an applicable exclusion that depended on tandem-driving a commercial motor vehicle). The court certified the two questions, stated above, on “[w]hether the Northfield two-part exception is permissible under Texas law and, if so, whether it permits a court to consider the date of an occurrence under the circumstances of this case.”
In the second certified question, the Fifth Circuit articulated the rule it likely seeks to apply in such cases. The outcome bears watching because, as the Fifth Circuit said, the date of the occurrence is often left out of petitions, likely because it can have the effect of narrowing rather than broadening coverage. The Supreme Court will have its job cut out for it to articulate an exception that can work in this bright line case – the date the well bore got stuck is objectively ascertainable – but also in more typical construction defect cases where the damage can take place over a period of time. In addition, cases where the date of damage does not implicate underlying liability at all may be quite rare – the date of damage at times can also implicate who is responsible – rendering the proposed rule quite narrow in application.
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