Texas Supreme Court Adopts A Revised Northfield Exception To The Eight-Corners Rule

• Published date: 10 March 2022
• Subject Matter: Insurance, Litigation, Mediation & Arbitration, Insurance Laws and Products, Trials & Appeals & Compensation
• Law Firm: Cozen O'Connor
• Author: Mr James B. Harper

In February, the Supreme Court of Texas issued two opinions important to Texas's duty-to-defend analysis. First, the court settled a split among Texas appellate courts by endorsing a limited exception to the eight-corners rule. Monroe v. BITCO, No. 21-0232, 2022 WL 413940, at *8 (Tex. Feb. 11, 2022) (Monroe v. BITCO or Monroe). And second, the court, in considering the exception, reaffirmed that eight-corners is still the keystone of the duty-to-defend analysis in Texas. Pharr-San Juan-Alamo I.S.D. v. Texas Political Subdivisions, No. 20-0033, 2022 WL 420491, at *5 (Tex. Feb. 11, 2022) (Alamo ISD).

"EIGHT-CORNERS" RULE AND THE NORTHFIELD EXCEPTION

Under the eight-corners rule, the duty to defend is determined by considering solely (1) the complaint against the insured, and (2) the terms of the insurance policy. Loya Ins. Co. v. Avalos, 610 S.W.3d 878, 879 (Tex. 2020) (Avalos). Monroe and Alamo ISD consider an exception to the longstanding eight-corners rule articulated by the Fifth Circuit in Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523 (5th Cir. 2004) (Northfield). The Northfield panel opined that an eight-corners exception would apply, if at all, "when it is initially impossible to discern whether coverage is potentially implicated and when the extrinsic evidence goes solely to a fundamental issue of coverage which does not overlap with the merits of or engage in the truth or falsity of any facts alleged in the underlying case." Id.

Since Northfield, Texas appellate courts have disagreed on the extrinsic evidence issue; some flatly rejecting any exception to eight corners, and others choosing to consider it under the Northfield or a similar standard. Moreover, courts that have considered extrinsic evidence in the duty-to-defend analysis have done so inconsistently. The Supreme Court of Texas had only recognized one limited exception until now: extrinsic evidence regarding collusion by the claimant and insured to allege false facts to invoke a defense duty. See Avalos, 610 S.W.3d at 879 (the collusion exception).

MONROE V. BITCO

Monroe v. BITCO settled the split among Texas courts by expressly endorsing the practice in Texas of considering extrinsic evidence in the insurer's duty-to-defend analysis under a modified Northfield standard. The court declined to recognize a categorical prohibition against a particular type of extrinsic evidence so long as the Monroe standard is met. See Monroe, at *6-8.

Factual Background

Monroe concerned the...