COURT RECOGNIZES POLICY LANGUAGE ELIMINATES APPLICATION OF “EIGHT-CORNERS RULE” TO DUTY TO DEFEND – ALLOWS EXTRINSIC EVIDENCE

July 18, 2011

A judge in the United States District Court for the Northern District of Texas recently addressed the allowance of extrinsic evidence in support of the insurer’s motion for summary judgment when the “eight-corners rule” did not apply to the duty to defend under that policy due to revisions in the policy language.  In GuideOne Specialty Mutual Insurance Co. v. Missionary Church of Disciples of Jesus Christ, 2011 WL 3670009 (N.D.Tex., July 7, 2011), the court observed that decisions applying the eight- corners rule in Texas typically rely on policy terms providing that the insurer will defend “even if the allegations of the suit are groundless, false or fraudulent.”  The policy in this lawsuit, however, did not include that provision.  To the contrary, the policy at issue stated in relevant part: “we have no duty to defend ‘suits’ for ‘bodily injury’ or ‘property damage’ to which this insurance does not apply.”  In concluding that certain extrinsic evidence was proper for consideration of the insurer’s obligation to defend, the court noted that the policy language “could not make it any clearer that the parties contracted in such a way as to eliminate applicability” of the “eight-corners rule.”  The extrinsic evidence was thus allowed.

Editor’s note: although this policy language exists in many policies sold in Texas, this is the first time this coverage argument has been recognized by a Texas court.  It certainly gives a road map to the use of extrinsic evidence in coverage determinations when the policy in question contains similar defense obligation language.