Insurance And The 8 Corners Rule

Dallas insurance attorneys need to understand the 8 corners rule as it relates to insurance policies and lawsuits. A U.S. District Court, N.D. Texas, Fort Worth Division case helps understand this rule. The style of the case is, Acadia Insurance Company v. Jacob and Martin, Ltd. Here is some of the relevant information.
This is an insurance coverage dispute in which Plaintiffs seek a declaratory judgment as to their duties to defend and indemnify Defendants in an underlying state court action. Accordingly, the following facts are drawn from the live pleading in the underlying action. Plaintiffs issued general liability and umbrella policies to Jacob and Martin, Ltd. Jacob and Martin contracted with the city of Gordon, Texas, to design and install a new sewer system. Turner was the lead engineer on the project, and Lovelady was a project engineer. Martin is the general partner of Jacob and Martin.
The City of Gordon also contracted with Granbury Contracting & Utilities, Inc. to install sewer lines. While working on the project, Lovelady directed Eliseo Alberto Ramirez Rodriguez (“Ramirez”), an employee of Granbury, to open a manhole, climb inside it, and remove a plug from the sewer line. When Ramirez removed the plug, “toxic fumes were released and Ramirez died from asphyxia due to methane gas inhalation.” Ramirez’s parents filed suit against Jacob and Martin, Lovelady, Turner, and Martin under the Texas Wrongful Death and Survival statutes.
Thereafter, Plaintiffs filed a complaint seeking a declaration that they owe no duty to defend or indemnify Jacob and Martin, Lovelady, Turner, and Martin in the underlying lawsuit. Plaintiffs filed a motion seeking summary judgment.
Plaintiffs seek summary judgment that they own no duty to defend or indemnify Defendants in the underlying suit. The duties to defend and indemnify are distinct.
An insurer owes a duty to defend its insured if the plaintiff’s factual allegations potentially support a covered claim. An insurer’s duty to defend is determined solely by the allegations in the underlying pleadings, without regard to their truth or falsity, in light of the policy provisions. This is known as the “eight-corners” or “complaint-allegation” rule. “The rule takes its name from the fact that only two documents are ordinarily relevant to the determination of the duty to defend: the policy and the pleadings of the third-party claimant.”
Here, Plaintiffs contend they owe no duty to defend because the underlying suit falls within the pollution exclusion of the policies. The generally liability policy issued by Acadia excludes:
*3 “[b]odily injury” or “property damage” arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of “pollutants” … [a]t or from any premises, site or location which is or was at any time used by or for any insured or others for the handling, storage, disposal, processing or treatment of waste ….
Similarly, the umbrella policy issued by Continental Western excludes: ” ‘[b]odily injury’ or ‘property damage’ which would not have occurred in whole or part but for the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ at any time ….” The Continental Western policy continues:
This exclusion does not apply if valid “underlying insurance” for the pollution liability risks described above exists or would have existed but for the exhaustion of underlying limits for “bodily injury” and “property damage.” Coverage provided will follow the provisions, exclusion, and limitations of the “underlying insurance.”
Both policies define “pollutants” as follows: “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.”
The underlying plaintiffs contend, when Ramirez removed the plug, “toxic fumes were released and Ramirez died from asphyxia due to methane gas inhalation.” Defendants do not dispute that methane is a pollutant or that the exclusions otherwise apply to the facts alleged in the underlying suit. Rather, Defendants ask the Court to consider extrinsic evidence that they contend demonstrates Ramirez may have died from a lack of oxygen. Accordingly, Defendants argue summary judgment should be denied because facts outside the underlying pleadings may give rise to coverage.
Although the Texas Supreme Court has not decided the issue, several courts “have drawn a very narrow exception [to the eight-corners rule], permitting the use of extrinsic evidence only when relevant to an independent and discrete coverage issue, not touching on the merits of the underlying third-party claim.” Here, however, the extrinsic evidence Defendants ask the Court to consider “engage[s] the truth or falsity of … facts alleged in the underlying case.” As such, the Court will not consider any evidence beyond the policies and underlying pleading. Accordingly, the Court concludes that Plaintiffs are entitled to summary judgment on their duty to defend based on the complaint-allegation rule.
This should be confusing to most people. What is important to take from this case is that an experienced Insurance Law Attorney is needed when making claims against an insurance company.