Texas Supreme Court Adopts Monroe Exception To The Eight-Corners Rule Defining An Insurer's Duty To Defend

• Published date: 07 March 2022
• Subject Matter: Insurance, Litigation, Mediation & Arbitration, Insurance Laws and Products, Trials & Appeals & Compensation
• Law Firm: Haynes and Boone
• Author: Mr Micah Skidmore

For more than fifty years, an insurer's duty to defend its insured under Texas law has been governed by the "eight-corners rule," which excludes consideration of anything outside (1) the insurer's policy; and (2) the pleadings or allegations against the insured. The Fifth Circuit Court of Appeals has since recognized exceptions to the "eight-corners rule," including in the case of Northfield Insurance Company v. Loving Home Care, Inc., 363 F.3d 523 (5th Cir. 2004), but historically, the Texas Supreme Court has resisted recognizing any exception that would justify review of extrinsic evidence. GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d 305 (Tex. 2006). Now, the Texas Supreme Court has ruled in two companion cases that, while the eight-corners rule "remains the initial inquiry to be used to determine whether a duty to defend exists," courts may consider extrinsic evidence "if the underlying petition states a claim that could trigger the duty to defend, and the application of the eight-corners rule, due to a gap in the plaintiff's pleading, is not determinative of whether coverage exists, ... provided the evidence (1) goes solely to an issue of coverage and does not overlap with the merits of liability, (2) does not contradict facts alleged in the pleading, and (3) conclusively establishes the coverage fact to be proved."

In the case of Monroe Guaranty Insurance Company v. BITCO General Insurance Corporation, Case No. 21-0232, two liability insurers fought over Monroe's duty to defend an underlying lawsuit that alleged a drilling contractor negligently drilled an irrigation well, causing damage to farmland, without alleging when the damage occurred. The two insurers'BITCO and Monroe'stipulated that the damage occurred before Monroe's policy incepted. But the trial court hearing BITCO's suit to compel Monroe's contribution to the drilling contractor's defense ultimately ruled that the stipulation was extrinsic evidence that improperly exceeded the eight-corners rule. After Monroe appealed the trial court's order finding that property damage could have occurred during Monroe's policy period, the Fifth Circuit certified two questions to the Texas Supreme Court, including the following: "[i]s the exception to the eight-corners rule articulated in [Northfield] permissible under Texas law?"

In response to this question, Justice Huddle underscored that the eight-corners rule remains the law in Texas, but the Texas Supreme Court has now...