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Date:
03/22/2021
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Texas Supreme Court to Review Eight-Corners Duty-to-Defend Rule

The Texas Supreme Court has accepted certified questions from the Fifth Circuit Court of Appeals to clarify Texas’ eight-corners rule for determining the existence of a duty to defend.

In Bitco Gen. Ins. Corp. v. Monroe Guar. Ins. Co., No. 19-51012, 2021 WL 955155 (5th Cir. Mar. 12, 2021), certified question accepted (Mar. 19, 2021), the Fifth Circuit asked the Texas Supreme Court to provide guidance on Texas insurance law. In Bitco, the insured was sued for negligently drilling an irrigation well. The insured allegedly got a drilling bit stuck in a bore hole, refused to fix the issue, and eventually abandoned the well. The policy did not cover continuing property damage known to the insured before the policy incepted. The policy period ran from Oct. 6, 2015 to Oct. 6, 2016, and the parties stipulated the drill bit became stuck in November 2014. 

Texas follows an eight-corners rule, where an insurer’s duty to defend is determined solely by comparing the four corners of the complaint against the four corners of the policy. The Fifth Circuit developed an exception to the eight-corners rule, permitting extrinsic evidence where it is impossible to determine the duty to defend based on the pleadings and policy language alone, and where the extrinsic evidence does not overlap with the merits of the underlying case. In Bitco, the Fifth Circuit asked the Texas Supreme Court whether this exception accurately reflects Texas law, and whether a court may “consider extrinsic evidence of the date of an occurrence.”  In certifying these questions, the Fifth Circuit noted that “ascertaining the date of an occurrence is a frequently encountered ‘gap’ in third party pleadings.”  

The Texas Supreme Court’s answer will have a significant impact on companies operating in Texas. Defense coverage for construction-related claims will often turn on evidence that is extrinsic to pleadings. An example is additional-insured coverage, where a homebuilder’s ability to secure coverage under a subcontractor’s policy often turns on project-specific documents and other evidence outside the pleadings and policy. The Bitco decision should provide much needed clarity under Texas law in duty-to-defend cases, and the eventual opinion should help policyholders more accurately predict coverage and manage risk in liability claims.

Disclaimer: Please contact your Payne & Fears attorney for current guidance on the subject matter of this article.