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Vol. 8 - Issue 8
September 25, 2019


Texas Supreme Court To Say: Howdy Duty To Defend


Those who do coverage work, involving Texas law, know that Supreme Court guidance would be useful on the question whether, or to what extent, extrinsic evidence can be used to determine an insurer’s duty to defend (including to disclaim such duty).  Austin may soon come to the rescue. 

Earlier this month the Fifth Circuit, in State Farm Lloyds v. Richards, No. 18-10721 (5th Cir. Sept. 9, 2019), certified the following question to the Supreme Court of Texas: “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 under Texas law?”

Of note, the panel of the Fifth Circuit that certified the question included Judge Willett, formerly Justice Willett of the Texas high court.  Giving his former colleagues extra work could be Judge Willett’s way of getting even for that tuna sandwich that went missing from the fridge in the justices’ kitchen in 2015.    

In simple terms, the issue is whether, based on B. Hall Contracting, for purposes of duty to defend, is the applicability of the eight corners rule, or permissibility of extrinsic evidence (including to disclaim a duty to defend), dependent upon the policy language.  Namely, does it matter if the policy states that the duty to defend applies only to a suit seeking damages because of “bodily injury” or “property damage” to which this insurance applies (standard ISO language these days) versus policy language stating that the duty arises even if the allegations of the suit are “groundless, false or fraudulent”).  [Note that the “groundless, false or fraudulent” duty to defend language is pretty unusual to see these days in commercial general liability forms.]     
Much could be said here about Texas duty to defend law and the role, or not, of extrinsic evidence in the analysis.  And the lawyers at Austin’s Shidlofsky Law Firm PLLC, Texas’s premier firm representing policyholders, have done just that.  Check out this extremely thorough post on the subject on the firm’s Insurance Law Blog. [Clocking in at 45 footnotes, it proves that that everything is bigger in Texas shtick includes blog posts.] 

This is a complex issue.  On one hand, the Texas high court has before it the narrow “policy-language exception” question – does policy language dictate which duty to defend rule applies?  But there is also the question how Texas law treats another duty to defend issue that is the subject of frequent discussion in the state: whether an insurer can walk away from a duty to defend a complaint based on extrinsic evidence that is solely related to determining coverage.  In other words, can an insurer disclaim a duty to defend because the extrinsic evidence it relies on involves “coverage only” facts -- and not facts that overlap with or involve the truth or falsity of the allegations in the underlying action.  The significance of Richards will be tied to how far the court goes in addressing duty to defend. 

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