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Texas Obligation to Defend: To Deviate or To not Deviate

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Texas is among the many minority of states that let few, if any, deviations from the “eight-corners rule,” which supplies that an insurer’s responsibility to defend have to be decided from the criticism and the coverage, with out regard to extrinsic proof or info. In Bitco Gen. Ins. Corp. v. Monroe Guar. Ins. Co., No. 19-51012, 2022 WL 1090800 (fifth Cir. Apr. 12, 2022) (“Bitco”), the Fifth Circuit Courtroom of Appeals declined to contemplate extrinsic proof in figuring out Bitco’s responsibility to defend and outlined when a courtroom making use of Texas legislation can deviate from the state’s strict eight-corners rule beneath the Monroe exception.

Bitco and Monroe issued business common legal responsibility insurance policies to 5D Drilling & Pump Companies, Inc. for the years 2013-2014 and 2015-2016, respectively. 5D was sued after it allegedly did not correctly drill a nicely in the summertime of 2014. Each insurers have been placed on discover. Bitco agreed to defend 5D and Monroe refused, citing two enterprise threat exclusions and asserting that the harm occurred outdoors the coverage interval. Bitco filed a declaratory motion in search of a declaration that Monroe additionally owed an obligation to defend and in search of to get better Monroe’s share of the protection prices. The District Courtroom granted abstract judgment in Bitco’s favor based mostly on the allegations of the underlying criticism. Monroe appealed.

On attraction, Monroe relied on a stipulation between the events that the loss occurred in November 2014, outdoors of its coverage interval. Nonetheless, as a result of the stipulation was extrinsic to the coverage and underlying criticism, a problem arose as as to if the extrinsic stipulation could possibly be thought of in figuring out the responsibility to defend.

On attraction, the courtroom in Bitco famous that in Northfield Ins. Co. v. Loving House Care, Inc., 363 F.3d 523 (fifth Cir. 2004), the Fifth Circuit beforehand predicted that Texas legislation would acknowledge a restricted exception to the eight-corners rule the place the extrinsic proof goes solely to the query of protection and doesn’t overlap with the info of the underlying case. Citing to Northfield, the Fifth Circuit in Bitco licensed two vital inquiries to the Texas Supreme Courtroom:

  1. Whether or not the exception in Northfield is permissible beneath Texas Legislation?
  2. When making use of such an exception, could a courtroom contemplate extrinsic proof of the date of an prevalence when (1) it’s initially unattainable to discern whether or not an obligation to defend probably exists from the eight-corners of the coverage and pleadings alone; (2) the date goes solely to the problem of protection and doesn’t overlap with the deserves of legal responsibility; and (3) the date doesn’t interact the reality or falsity of any info alleged within the third social gathering pleadings?[1]

In response, the Texas Supreme Courtroom in Monroe laid out what’s now known as “the Monroe exception,” which supplies:

[I]f the underlying petition states a declare that would set off the responsibility to defend, and the software of the eight-corners rule, attributable to a niche within the plaintiff’s pleading, is just not determinative of whether or not protection exists, Texas legislation permits consideration of extrinsic proof supplied the proof (1) goes solely to a problem of protection and doesn’t overlap with the deserves of legal responsibility, (2) doesn’t contradict info alleged within the pleading, and (3) conclusively establishes the protection truth to be proved.[2]

The Monroe Courtroom additionally regarded to its earlier resolution in Richards v. State Farm Lloyds, 597 S.W. 3d 492 (Tex. 2020), the place the Courtroom had beforehand addressed the usage of extrinsic proof and declined to allow a deviation from the eight corners rule. In Richards, the coverage required a protection if “a declare is made or a swimsuit is introduced in opposition to an insured for damages due to bodily damage . . .. to which this protection applies.” The courtroom famous that “[w]hile some legal responsibility insurance policies conform to defend an insured even when the allegations of the lawsuit are ‘groundless, false, or fraudulent,’ the [] coverage at difficulty didn’t comprise that language.” However, the insurer sought to depend on extrinsic proof to show that the allegations of the underlying criticism have been false. The courtroom rejected the insurer’s makes an attempt to depend on a “policy-language exception” in avoidance of the eight-corners rule, noting that the “presence or absence of a groundless-claims clause has hardly ever, if ever, been vital to Texas courts’ evaluation of the contractual responsibility to defend,” and reiterated that the Courtroom has “by no means held or advised that the eight-corners rule is contingent on a groundless-claims clause.”

On remand, the Fifth Circuit in Bitco declined to contemplate the stipulation and apply the newly established Monroe exception. The stipulation would impermissibly overlap with figuring out the deserves of legal responsibility as a result of “[a] dispute as to when property harm happens additionally implicates whether or not property harm occurred on that date, forcing the insured to admit damages at a selected date to invoke protection, when its place could very nicely be that no harm was sustained in any respect.”[3]

Bitco demonstrates that courts making use of Texas legislation are nonetheless sure by strict requirements as to when they might allow extrinsic proof in figuring out the responsibility to defend. Up to now, Texas permits extrinsic proof in only a few situations. Along with the Monroe exception, the Texas Supreme Courtroom additionally lately permitted a “fraud” exception. In Loya Ins. Co. v. Avalos, 610 S.W.3d 878, 881 (Tex. 2020), reh’g denied (Oct. 2, 2020), the courtroom held that “[g]iven the contractual foundations of the eight-corners rule, we conclude it doesn’t bar courts from contemplating such extrinsic proof relating to collusive fraud by the insured in figuring out the insurer’s responsibility to defend.”


[1] Bitco Gen. Ins. Corp. v. Monroe Guar. Ins. Co., 846 F. App’x 248, 252 (fifth Cir. 2021), licensed query accepted (Mar. 19, 2021), licensed query answered, 640 S.W.3d 195 (Tex. 2022).

[2] Monroe Guar. Ins. Co. v. BITCO Gen. Ins. Corp., 640 S.W.3d 195, 199 (Tex. 2022) (“Monroe”). The Monroe exception was lately utilized in Pharr-San Juan-Alamo Indep. Sch. Dist. v. Tex. Political Subdivisions Prop./Cas. Joint Self Ins. Fund, No. 20-0033, 2022 WL 420491 (Tex. 2022).

[3] Bitco, 2022 WL 1090800, at *3 (citing Monroe, 640 S.W.3d at 203) (emphasis in authentic).

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