FIFTH CIRCUIT APPLIES LIMITED EXCEPTION TO EIGHT-CORNERS ANALYSIS OF INSURER’S DUTY TO DEFEND – FINDS NO DUTY TO DEFEND OR INDEMNIFY
Last Wednesday, the Fifth Circuit examined an insurer’s duty to defend injuries arising from and auto accident under a commercial general liability policy and applied its own limited exception to the eight-corners rule in finding that the insurer had no duty to defend or indemnify. In Star-Tex Resources, L.L.C. v. Granite State Insurance Co., 2014 WL 60192 (5th Cir. (Tex.) January 8, 2014), an intoxicated employee was driving a car on an auto auction lot when they struck another employee who was walking on the lot and pinned them between two vehicles causing serious injury. Suit was filed against the insured, Star-Tex and the responsible employee. They then sought coverage under the employer’s commercial general liability policy. The insurer denied coverage based on the policy’s auto-exclusion and the insureds then filed a declaratory judgment action seeking coverage. The trial court granted summary judgment in favor of the insurer and this appeal followed.
The Fifth Circuit discussed Texas’ relatively strict version of the eight-corners analysis applied to the duty to defend, wherein the factual allegations in the petition are compared to the coverage provided in the insurance policy to determine if the duty to defend exists. In this case, the injured party’s petition only alleged in part that he was “seriously injured in an automobile collision caused by the negligence of…” the employee who was “under the influence of alcohol or drugs at the time of the collision.” The court observed that the petition did not say whether the employee was operating the vehicle, or directing traffic or, working in some other capacity when the accident occurred. So the Fifth Circuit applied its own very limited exception to the eight-corners rule (that has not officially been adopted, nor rejected by the Texas Supreme Court) which permits the use of extrinsic evidence “only when relevant to the independent and discrete coverage issue, not touching on the merits of the underlying third-party claim” and, determined that the auto-exclusion did in fact apply. Accordingly, summary judgment in favor of the insurer was upheld finding no duty to defend and also, no duty to indemnify.