FEDERAL JUDGE CONSIDERS EXTRINSIC EVIDENCE, HOLDS NO DUTY TO DEFEND

Last Monday, a San Antonio federal judge relied on extrinsic evidence to grant summary judgment for an auto liability carrier in a duty-to-defend case.  In Sentry Select Ins. Co. v. Drought Transportation, LLC, No. 15-CV-890, 2016 WL 6236375 (W.D. Tex. Oct. 24, 2016), the insured under a business auto policy sought defense in an auto accident lawsuit.  The pleadings merely alleged that the defendant driver had been working in the course and scope of his employment for Circle Bar and/or Drought Transportation, and provided no other facts about the circumstances of the accident.  Sentry sought to show that the vehicle, owned by Drought, had been rented or leased to Circle Bar and was being used in Circle Bar's business at the time of the accident.  These facts, not mentioned in the petition, brought the accident within the scope of a business use exclusion which barred coverage for autos leased out to other businesses.

The court found that because the pleadings were silent as to exactly how the vehicle was being used at the time of the accident, the case fell within the bounds of an exception to the Texas eight-corners rule: (a) it was impossible to determine potential coverage from the face of the petition, and (b) the facts crucial to determining coverage did not overlap the merits of the suit. Because the petition was silent as to whether the vehicle had been leased or loaned to anyone, it was impossible to determine coverage without resorting to extrinsic evidence.  The court was careful to consider only evidence showing whether and to whom the truck had been leased, and whether it was being used in that entity's business, not the disputed liability question of which of the two defendants controlled the driver.

This opinion further cements a line of federal cases, led by Northfield Ins. Co. v. Loving Home Care, Inc. and Ooida Risk Retention Group v. Williams, openly recognizing an exception to the Texas “eight-corners” rule for determining a duty to defend under liability policies, which ordinarily requires that the duty to defend be determined solely on the face of the pleadings.  (In contrast, the majority of state courts in Texas are continuing to follow the Supreme Court’s lead in not openly recognizing any exceptions at all.)  The court in this case also held there was no duty to indemnify under the Griffin rule which holds indemnity, ordinarily not justiciable until after liability is established, could be decided at the outset because there was no duty to defend and the same facts which negate the duty to defend likewise negate any possibility of a duty to indemnify.