Thompson Coe's Dallas Insurance Litigation and Coverage Partners Rick Harmon and Jody Stasney have paved the way for the Texas Supreme Court to answer insurance practitioners’ frequently debated (and often-litigated) issue on the proper analysis for a liability insurer’s defense obligation: is Texas a strict “eight corners” state or is extrinsic evidence admissible? While the Fifth Circuit provided its “Erie-guess” parameters to allow extrinsic evidence in Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523 (5th Cir. 2004), the Texas Supreme Court has never specifically approved or disapproved of the parameters.
Significantly, the extrinsic evidence issue arises frequently in cases (as in the current lawsuit) when the operative pleading in the underlying lawsuit has no dates upon which to rely for determining a defense obligation under various types of liability policies. The critical issue of extrinsic evidence arises in both the context of insuring agreements, as well as in the application of exclusions or limiting provisions. The Fifth Circuit has certified the precise question to the Texas Supreme Court, which accepted the certified question on March 19, 2021 in BITCO Gen’l Ins. Corp. v. Monroe Guar. Ins. Co., No. 19-51012 (5th Cir. March 12, 2021), certified question accepted, No. 21-0232 (Tex. 2021).
In its opinion, the Fifth Circuit correctly noted that some Texas courts and the Fifth Circuit have made exceptions to the “eight corners” rule, allowing extrinsic evidence to be used in certain circumstances, including most recently in Loya Ins. Co. v. Avalos, 610 S.W.3d 878, 882 (Tex. 2020) (allowing extrinsic evidence when groundless, false, or fraudulent claims have been manipulated by the insured to secure coverage when it otherwise would not exist). But, while the Northfield exception has been favorably cited by the Texas Supreme Court, it has not expressly adopted the Northfield exception to the “eight corners” rule. See GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d 305, 308–09 (Tex. 2006) (favorably describing the Northfield exception, but concluding the facts of that case did not satisfy it). Accordingly, the Fifth Circuit certified the following questions:
- Is the exception to the eight corners rule articulated in Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523 (5th Cir. 2004), permissible under Texas law?
- When applying such an exception, may a court consider extrinsic evidence of the date of an occurrence when (1) it is initially impossible to discern whether a duty to defend potentially exists from the eight-corners of the policy and pleadings alone; (2) the date goes solely to the issue of coverage and does not overlap with the merits of liability; and (3) the date does not engage the truth or falsity of any facts alleged in the third-party pleadings?
Given the supreme court’s somewhat surprising acceptance of the certified questions, the frequently debated and litigated question soon may be answered. Briefing starts on May 19, 2021.