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Vol. 9 - Issue 6
September 23, 2020


Supreme Court Adopts A 12-Corners Test For Determining Insurer’s Duty To Defend    


The duty to defend is broad.  We all know that.  The standard is usually some version of: a duty to defend is owed if the complaint sets forth any possibility of coverage.  Then the question becomes whether, in making that determination, the insurer’s consideration is limited to the complaint or is expanded to include certain facts outside the complaint.

In insurance parlance, of course, when an insurer’s consideration is limited to the complaint, it is known as the “four corners” rule.  Or, as it is called in some states – the “eight corners” rule, which is exactly the same as the “four corners” rule, but is simply based on the duty to defend being limited to the four corners of the complaint and the four corners of the policy.

Earlier this month, the Connecticut Supreme Court adopted what I would call a “twelve corners” duty to defend rule.  Under this rule, the duty to defend is determined, in some cases, based on consideration of the four corners of the complaint, the four corners of the policy and the four corners of the law library.  [I am aware that Connecticut also allows for consideration of extrinsic evidence for purposes of determining duty to defend. But, for starters, it is “eight corners,” as you may never need to get to a consideration of extrinsic evidence.] 

At issue in Nash St. LLC v. Main Street America Assurance Company, No. SC20389 (Conn. Sept. 9, 2020) was the determination of an insurer’s duty to defend a construction defect action.  The underlying action involved an insured that was hired to lift a house so that concrete work could be done on the foundation.  You can see where this is going.  The house collapsed while it was being lifted.   

The lynchpin coverage issue was the potential applicability of the following CGL exclusions:

(j)(5): property damage to “[t]hat particular part of real property on which you or any contractor or subcontractor working directly or indirectly on your behalf is performing operations, if the ‘property damage’ arises out of those operations . . . .”

(j)(6): property damage to “[t]hat particular part of any property that must be restored, repaired or replaced because ‘your work was incorrectly performed on it.”

A dispute arose -- one that is not unusual when it comes to the scope of exclusions (j)(5) and (j)(6).  How broad is the term “that particular part?”

[The exclusions at issue were actually (k)(5) and (k)(6).  But I will call them (j)(5) and (j)(6) since that’s what they are universally known as.  When they are used in court quotes I’ll keep them as (k)(5) and (k)(6).] 

The competing arguments were of the type usually seen in such disputes:

The insured argued “that ‘that particular part’ of the property on which New Beginnings and/or its subcontractor were working was ‘the sitegrading and foundation work underneath the house . . . [and that] New Beginnings [and/or its subcontractor were] not performing any renovation or other work on the house itself.’ Thus, the [insured] contended, it did not seek to recover for the damage to the work being done underneath the house—that work would be excluded under k (5) and (6). Rather, the [insured] sought to recover for the damage to the house, including renovation work that had allegedly been completed a year before the collapse.”  This is the narrow interpretation of exclusions (j)(5) and (j)(6).

The insurer argued “that ‘that particular part’ of the property on which the subcontractor was performing operations was the whole house because the whole house was being lifted. It further argued that the possibility that the house might collapse while being raised was a foreseeable risk in undertaking those operations. The [insurer] reasoned that all damage that occurs to a house under these circumstances is a ‘business risk’ that falls squarely within exclusions k (5) and (6).”  This is the broad interpretation of exclusions (j)(5) and (j)(6).

How to resolve this became a key issue for purposes of determining whether the insurer was obligated to defend.

The trial court concluded that exclusions (j)(5) and (j)(6) applied and no duty to defend was owed. 

The Connecticut Supreme Court reversed, based on a conclusion that there was “legal uncertainty” surrounding the interpretation of exclusions (j)(5) and (j)(6).

Specifically, there was no relevant Connecticut authority addressing how to interpret exclusions (j)(5) and (j)(6) – broadly or narrowly.  Yet, courts nationally have interpreted exclusions (j)(5) and (j)(6) broadly and narrowly and some concluding that the language is ambiguous.  The Nash court provided much discussion of cases, from all over the country, that showed these competing interpretations.  Based on this, the court stated that such “uncertainty as to how a court might interpret the policy gives rise to the duty to defend.”

The Nash court further explained its decision: “Faced with a lack of any Connecticut appellate authority on point and with numerous state supreme and federal appellate court cases that have adopted interpretations of exclusions k (5) and (6) that are consistent with Connecticut law and would favor the plaintiff, the defendant was presented with a legal uncertainty with regard to its duty to defend.  Because such an uncertainty works in favor of providing a defense to an insured, exclusions k (5) and (6) did not relieve the defendant of its duty to defend New Beginnings.”

Despite this conclusion, the Nash court was quick to point out – in a footnote – a limitation on its decision: “We do not suggest that the absence of a controlling decision is, in and of itself, sufficient to give rise to the duty to defend. There must also be sufficient reason to conclude that the court could construe the policy language in favor of coverage. As the Second Circuit explained, ‘[t]here are, of course, cases in which the policy is so clear that there is no uncertainty in fact or law, and hence no duty to defend. . . . Under some circumstances, the allegations contained in the complaint against the insured will by themselves eliminate all potential doubt and relieve the insurer of any duty to defend. [When], for example, a complaint alleges an intentional tort, and the insurance contract provides coverage only for harms caused by negligence, there would be no uncertainty as to the applicability of the policy exclusion, and hence, no duty to defend the particular [action] brought.”

Here’s my take-away on Nash.  When there is no controlling appellate case law in the jurisdiction over an issue relevant to duty to defend, and the court turns to case law nationally to see if there “legal uncertainty,” there is a reasonable chance that it will find it to exist.  Given the huge body of coverage case law nationally, and that courts in different states often interpret coverage issues based on competing schools of thought, the stage is set for a potential finding of “legal uncertainty.”  The Nash court did not address just how diverse the case law nationally needs to be for it to rise to the level of “legal uncertainty” to trigger a duty to defend.  This decision is likely going to add to disputes over an insurer’s duty to defend.         

So, in some cases, Connecticut now employs a “twelve corners” duty to defend rule.  Under this rule, the duty to defend is determined based on consideration of the four corners of the complaint, the four corners of the policy and the four corners of the law library.

[I avoided the opportunity here to plug Insurance Key Issues as a resource to help in addressing whether there is diverse case law nationally, on numerous issues, to determine if there is “legal uncertainty.”]

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