COURT APPLIES LIMITED EXCEPTION TO USE OF EXTRINSIC EVIDENCE IN FINDING BUSINESS USE EXCLUSION PRECLUDES COVERAGE – NO DUTY TO DEFEND OR INDEMNIFY
Recently, the U.S. District Court in San Antonio examined the impact of a business-use exclusion in a Non-Trucking Liability Policy, and after considering extrinsic evidence, concluded that there was no duty to defend or indemnify the insured in a lawsuit following an auto accident. In Hudson Ins. Co. v. Alamo Crude Oil, LLC, 2019 WL 3322867 (W.D. Tex. July 24, 2019), the driver, Michael Johnson was driving a truck owned by Alamo and hit a pedestrian who filed suit. The policy provided coverage only when the truck was used for “non-commercial operations” i.e., “when driven without a trailer and without any intent to perform business related activity for the motor carrier that leased the Truck.” And the policy excludes coverage for “bodily injury or property damage arising from the use of a covered auto…while used to carry property in any business or en route for such purpose.” It was undisputed that Johnson was on his way to pick up a load when the accident occurred. Hudson filed a declaratory judgment action and a motion for summary judgement seeking a declaration that they had no duty to defend the underlying state court lawsuit.
The court examined Texas law addressing the duty to defend and indemnify, as well as the limited exception to the rule precluding consideration of extrinsic evidence in conducting an eight-corners analysis to determine an insurer’s duty to defend. The exception can be applied “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." ”See Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523,521 (5th Cir. 2004). The court then observed that the petition only alleges in conclusory terms that Johnson was acting within the course and scope of employment. But the court also considered the stipulated facts in the parties’ joint Rule 26 Report which brought the claims within the business use exclusion. And, it also found “that the extrinsic evidence - the parties stipulated facts - does not overlap with the underlying petition’s merits.” Accordingly, the court found that Johnson was en route to carry property and that the business-use exclusion applied. Lastly, the court determined that the same reasons that precluded a duty to defend also precluded a duty to indemnify and issued a declaration that the insurer had no duty to defend or indemnify the insured in the underlying lawsuit.