(Summer 2007)

The Texas Supreme Court today handed down its decision in this closely watched insurance coverage case involving the use of extrinsic evidence to determine an insurer’s duty to defend. The Court reaffirmed the “eight corners” rule, and declined to create a broad exception to that rule in cases where the true facts would have shown that the event did not take place within the insurer’s policy period.

In Fielder Road, the plaintiff alleged that she was sexually molested by a church youth minister (Evans) “from approximately 1992 to 1994” at various church functions. She further alleged that during that entire time frame, Evans was employed by Fielder Road Baptist Church (“the Church”) and under its supervision and direction. The plaintiff sued the Church and Evans. The Church made demand upon GuideOne to defend the action under a CGL policy which included limited coverage for sexual misconduct.

GuideOne agreed to defend, under reservation of rights, but filed a declaratory judgment suit seeking a finding that it had no obligation to defend or indemnify. In the course of that action, it obtained discovery from the Church establishing that Evans was not employed by the Church after December 15, 1992. The GuideOne policy did not take effect until after that date. Based upon a stipulation of the parties as to this fact, the trial court granted summary judgment to GuideOne declaring that there was no duty to defend or indemnify the plaintiff’s action since Evans was not employed by the Church during GuideOne’s policy period.

On appeal, the Fort Worth Court of Appeals reversed, holding that the “eight corners” rule did not permit the use of extrinsic evidence by GuideOne to defeat its duty to defend. The Supreme Court granted GuideOne’s Petition for Review, and the case was argued in October, 2005.

The Supreme Court discussed the views of various courts concerning the use of extrinsic evidence to determine the duty to defend. It acknowledged that although it had never expressly recognized an exception to the eight corners rule, other courts (including Texas Courts of Appeal) have done so – especially in cases where the extrinsic evidence was relevant only to the coverage issue, and not to any liability issue in the underlying suit. However, the Court found that because the underlying petition alleged (albeit, falsely) that Evans was employed by the Church from 1992 to 1994, GuideOne’s attempted use of the stipulation in this case was not merely as to a coverage fact, but would also have contradicted the liability facts pled by the plaintiff. The Court described this as the use of “overlapping evidence” and expressly held that such an exception would not be recognized to the eight corners rule in Texas. Since GuideOne contracted to defend the Church even against false allegations, the Court held that it must defend the underlying suit.

The majority opinion was authored by Justice Medina. Justice Hecht, joined by three other justices, authored a separate concurring opinion in which he argued that it was unnecessary to even discuss the potential exceptions to the eight corners rule, since even had the stipulation been considered, there were other allegations which would have required a defense.

Importance of Decision: Although the holding of the case expresses the view of only five of the nine justices, this case suggests that the Court will take a very narrow view of any exceptions to the eight corners rule in Texas. By citing (although not expressly endorsing) cases which have recognized a limited exception in cases involving pure coverage facts or “fundamental issues of coverage,” the Court may have tipped its hand that such limited exceptions will be recognized in an appropriate case. However, the Court has clearly stated that extrinsic evidence will never be permitted if it contradicts the factual allegations of the plaintiff’s petition.

This entry was posted in News. Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *