Opinion ID: 4436721
Heading Depth: 2
Heading Rank: 2

Heading: Extrinsic-Evidence Exception

Text: In Northfield Ins. Co. v. Loving Home Care, Inc., we suggested that if the Texas Supreme Court were to recognize an extrinsic-evidence exception to the eight-corners rule, it would do so only when it is initially impossible to discern whether coverage is potentially implicated and 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. 17 Although Texas has never expressly adopted this two-pronged exception, 18 this court has assumed its viability because the Texas Supreme Court has cited it with approval. 19 Even so, the Texas Supreme Court has yet to decide a case that fits within this narrow exception. 20 15 ACE Am. Ins. Co. v. Freeport Welding & Fabricating, Inc., 699 F.3d 832, 840 (5th Cir. 2012). 16 Id. (citation omitted). 17 363 F.3d 523, 531 (5th Cir. 2004). 18 See GuideOne, 197 S.W.3d at 308 (“[T]his Court has never expressly recognized an exception to the eight-corners rule.”); Zurich Am. Ins. Co. v. Nokia, Inc., 268 S.W.3d 487, 497 (Tex. 2008) (“[W]hile Maryland has recognized exceptions, in some limited circumstances, to the eight-corners rule, Texas has not.”). 19 Ooida, 579 F.3d at 475–76 (“In [GuideOne], the Supreme Court of Texas cited this language from Northfield with approval, though it held that the circumstances of the case before it did not meet the conditions of the exception.”); id. at 476 (“We find that GuideOne supports our ‘Erie guess’ that the limited conditions of an exception to the eight corners rule exists here.”); Star-Tex Res., L.L.C. v. Granite State Ins. Co., 553 F. App’x 366, 371 (5th Cir. 2014) (“We conclude that there is a limited exception to the eight-corners rule that, under the circumstances of this appeal, allows us to consider extrinsic evidence.”); see also Lyda Swinerton Builders, Inc. v. Okla. Sur. Co., 903 F.3d 435, 448 (5th Cir. 2018). 20 See GuideOne, 197 S.W.3d at 309–10; Zurich Am. Ins. Co., 268 S.W.3d at 497; Pine Oak Builders, Inc., 279 S.W.3d at 654. 7 Case: 18-10721 Document: 00515110317 Page: 8 Date Filed: 09/09/2019 No. 18-10721 In GuideOne, the exception did not apply because the extrinsic evidence engaged in the truth or falsity of the facts alleged in the underlying petition, thus failing the second prong. 21 There, the underlying plaintiff alleged she was sexually abused by the insured’s employee during a particular timeframe. The insurer, however, introduced evidence showing that the alleged abuser was not employed during the policy’s coverage period. The court noted this evidence “directly contradict[ed] the plaintiff’s allegations that the [insurer] employed [the abuser] during the relevant coverage period, an allegation material, at least in part, to the merits of the third-party claim.” 22 The court also noted that the plaintiff’s allegations potentially implicated coverage because “the contract provided that [the insurer] should ‘defend any suit brought against [the insured] seeking damages, even if the allegations of the suit are groundless, false or fraudulent’ ” and “Jane Doe alleged that Evans sexually assaulted her during the policy period and was a youth minister at the Church at the time.” 23 The court, however, suggested that extrinsic evidence might be permissible if it concerned only a “pure coverage” question, and provided this example: [I]n International Service Insurance Co. v. Boll, 392 S.W.2d 158, 160 (Tex. Civ. App.—Houston 1965, writ ref’d n.r.e.), the insurer refused to defend its insured in an autocollision case because of a policy endorsement that excluded coverage for “any claim arising from accidents which occur while any automobile is being operated by Roy Hamilton Boll.” The plaintiff’s petition alleged that the insured’s son was driving the insured’s car when the accident occurred, but did not otherwise identify the driver. After resolving the third-party claim, the insured sued his insurer to recover his defense costs. During this subsequent litigation, the parties stipulated that the insured’s only son, Roy Hamilton Boll, was driving the insured vehicle. The court of appeals concluded that the stipulation established 21 197 S.W.3d at 309–10. 22 Id. at 310. 23 Id. 8 Case: 18-10721 Document: 00515110317 Page: 9 Date Filed: 09/09/2019 No. 18-10721 the accident had not been covered and that the insurer had no duty to defend. The extrinsic evidence in Boll, however, went strictly to the coverage issue. It did not contradict any allegation in the third-party claimant’s pleadings material to the merits of that underlying claim. 24 In Zurich American Insurance Co. v. Nokia, Inc., the Texas Supreme Court again declined to adopt an exception to the eight-corners rule. 25 There, plaintiffs in several underlying lawsuits (five MDL cases) alleged that Nokia’s phones resulted in “biological effects” or “biological injury.” The policy, however, covered “damages because of bodily injury.” 26 Although the court’s central holding was that the plaintiffs sought damages because of “bodily injury”—and thus the insurer had a duty to defend—the court’s short discussion of the eight-corners rule is relevant. 27 The insurers urged the court to consider one group of plaintiffs’ briefs in a separate MDL case which indicated that their claims were solely for economic damages—not bodily injury. 28 The court rejected this invitation for several reasons, but primarily because Texas had not recognized an exception to the eight-corners rule. 29 The court further noted that “even if we were to recognize [the Northfield exception] to the eight-corners rule, this case would not fit within its parameters.” 30 In addressing the exception, the court did not reach Nokia’s argument that the extrinsic evidence touched on the case’s merits (going to the exception’s second prong); rather, it foreclosed its analysis at the first prong because the policy 24 Id. 25 268 S.W.3d at 497. 26 Id. at 491. 27 See id. at 493–97. 28 Id. at 497. 29 Id. 30 Id. at 498. 9 Case: 18-10721 Document: 00515110317 Page: 10 Date Filed: 09/09/2019 No. 18-10721 covered damages because of bodily injury, and that’s exactly what the plaintiffs alleged. 31 The most recent case from the Texas Supreme Court involved five underlying suits alleging water damage due to the insured’s defective construction. 32 The policy in that case provided coverage for “those sums that the Insured becomes legally obligated to pay as damages because of . . . ‘property damage’ to which this insurance applies,” but another provision removed coverage for property damage to the insured’s completed work. 33 That exclusion contained an exception “if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.” 34 Thus, if the petitions alleged defective work by a subcontractor, then the insurer had a duty to defend. 35 One of the five underlying complaints did not contain any allegations of defective work by a subcontractor, so the insured “submitted evidence that the defective work alleged . . . was performed by subcontractors.” 36 The court rejected this evidence because it contradicted the facts alleged in the suit (that only the insured performed the work). Thus, the insurer failed at the second prong. In sum, there is no controlling Texas Supreme Court caselaw determining whether there’s a policy-language exception to the eight-corners rule. And so, we turn to the Texas Supreme Court to answer our certified 31 Id. (“We need not reach this issue, however, because here it is not ‘initially impossible to determine whether coverage is potentially implicated’—it is.” (quoting GuideOne, 197 S.W.3d at 309)). 32 Pine Oak, 279 S.W.3d at 651–52. 33 Id. at 653 n.11. 34 Id. at 653. 35 See id. (“[C]overage therefore depends in part on whether the alleged defective work was performed by Pine Oak or a subcontractor.”). 36 Id. at 654. 10 Case: 18-10721 Document: 00515110317 Page: 11 Date Filed: 09/09/2019 No. 18-10721 question. This is an issue that has been, and will likely continue to be, the subject of insurance litigation throughout this circuit.