Opinion ID: 2770137
Heading Depth: 2
Heading Rank: 1

Heading: True Facts Exception

Text: Under Mississippi law, “an insurance company’s duty to defend its insureds derives neither from common law nor statute, but rather from the provisions of its policy . . . .” Baker Donelson Bearman & Caldwell, P.C. v. Muirhead, 920 So. 2d 440, 450 (Miss. 2006). In most instances, an insurer’s “duty to defend is neither greater nor broader than the duty to comply with its other contractual obligations.” Id. Whether an insurer has a duty to defend is primarily determined by comparing the policy language with the allegations in the underlying complaint or declaration. Delta Pride Catfish, Inc. v. Home Ins. Co., 697 So. 2d 400, 403 (Miss. 1997) (citation omitted). “An insurance company's duty to defend its insured is triggered when it becomes aware that a complaint has been filed which contains reasonable, plausible allegations of conduct covered by the policy.” Baker Donelson, 920 So. 2d at 451. 1 There is a narrow exception to this general rule. Even if the allegations in the underlying complaint do not trigger coverage, an insurer still has a duty to defend if the insurer learns of facts — not mere assertions — that support the existence of coverage: [W]here, through independent investigation, an insurer becomes aware that the true facts, if established, present a claim against the insured which potentially would be covered under the policy, the insurer must provide a defense until it appears that the facts upon which liability is predicated fall outside the policy's coverage. 1 Some states, such as Texas, refer to this as the “eight-corners rule,” because what is within the four corners of the policy is compared with the assertions within the four corners of the complaint. See, e.g., GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d 305, 308 (Tex. 2006). Mississippi case law does not recognize that term, though some of this court’s opinions have affixed the label to the similar analysis under Mississippi insurance law. See, e.g., QBE Ins. Corp. v. Brown & Mitchell, Inc., 591 F.3d 439, 443 (5th Cir. 2009). 5 Case: 14-60302 Document: 00512902809 Page: 6 Date Filed: 01/14/2015 No. 14-60302 Auto. Ins. Co. of Hartford v. Lipscomb, 75 So. 3d 557, 559 (Miss. 2011) (citing Mavar Shrimp & Oyster Co., Ltd. v. U.S. Fid. & Guar. Co., 187 So. 2d 871, 875 (Miss. 1966)). We just described the exception as “narrow” because the Mississippi courts have applied the exception only when the insured becomes aware that the “true facts” of the events leading to the claim support at least a duty to defend. For example, in one of the more recent cases, the insurance company investigated the claim and discovered — contrary to the complaint — that its insured, who was covered only under a home-owner’s policy, admitted that the structure subject to the claim was actually rental property. See Lipscomb, 75 So. 3d at 560–61. Because the person seeking coverage admitted to his insurer facts proving there was no coverage, there was no duty to defend. Id. In an earlier case, we discussed the Mississippi doctrine in a manner relevant to the case before us now. Am. States Ins. Co. v. Natchez Steam Laundry, 131 F.3d 551, 553 (5th Cir. 1998). There, the insured argued that its insurer had notice of true facts that triggered the duty to defend. Id. The complaint alleged that the insured had acted intentionally at its laundry when it engaged in bawdy behavior toward the plaintiff; the conduct constituted sexual harassment and created a hostile work environment. Id. at 552. Based on the assertions, the insurer determined there was no coverage because of an intentional-act exclusion in the policy. Id. at 552–53. The insured, though, argued that by informing the insurer that it denied acting intentionally, it created a “true fact” sufficient to trigger the duty to defend. Id. at 553. This court disagreed. We held that a denial “is not a ‘fact,’ but only an assertion.” Id. A contrary conclusion would allow an insured to “trigger the duty to defend merely by denying the allegations in the complaint.” Id. The Gum Tree Defendants suggest that Nationwide’s duty to defend was triggered after it presented the insurer with various pleadings and evidence. 6 Case: 14-60302 Document: 00512902809 Page: 7 Date Filed: 01/14/2015 No. 14-60302 Their answer denied any intentional conduct. Coleman, president of the other two Gum Tree Defendants, also presented a sworn affidavit that denied any intentional conduct. The Gum Tree Defendants claim that these documents establish the falsity of the underlying allegations. The district court determined that these items do not contain any true facts and are simply denials of the allegations in the complaint. The general rule for determining whether the duty to defend has been triggered relies on what the plaintiff alleges, regardless of what the defendant denies, and compares the allegations to the policy language. Perhaps more often than not in duty-to-defend cases, it is the plaintiff’s claim that creates coverage. Here, though, as in Natchez Steam Laundry, the plaintiff’s claim presents a case excluded from the coverage provided by the relevant policies. We do not interpret the “true facts” rule to require an insurance company, when the claim is outside coverage, to consider the denials in an answer when deciding whether to defend or to review affidavits from the insured that support the denials. Such a rule would transform the narrow exception into a broad one. Mississippi case law does not support such a broad reading. Under our diversity jurisdiction, we will not extend this state-law doctrine to a place the state courts have not gone. We agree with the district court that a determination of coverage in this case is limited to the underlying complaint.