Eight Corners Rule

Dallas insurance attorneys will want to read this 2018, opinion from the San Antonio Court of Appeals.  It is styled, Avalos v. Loya Insurance Company.

The case discusses in depth the “eight corners rule” and how courts look at this rule in determining whether or not an insurer has a duty to defend a lawsuit.  The rule takes its name from the fact that only two documents – the insurance policy and pleading – are relevant to the determination of the duty to defend.  Under the eight-corners rule, an insurer’s duty to defend is determined by the third-party plaintiff’s pleadings, considered in light of the policy provisions, without regard to the truth or falsity of those allegations.

When applying the eight-corners rule, the court is tasked with resolving all doubts regarding the duty to defend in favor of the existence of a duty and liberally construe the allegations in the petition in favor of the insured.  Even if the allegations in the petition are groundless, false, or fraudulent, an insurer is obligated to defend.  The duty to defend is not affected by facts that may be ascertained before suit or developed during the course of the litigation.  Thus, according to the 2009, Texas Supreme Court opinion styled, Pine Oak Builders, Inc. v. Great Am. Lloyds Ins. Co., facts outside the pleadings are not material to the determination of the duty to defend even if those facts directly contradict the allegations in the underlying petition.

The Texas Supreme Court has recognized that some courts have adopted exceptions to the eight-corners rule, but it has declined to do so.  The Fifth Circuit has observed that if the Texas Supreme Court were to recognize an exception, it would only occur in a narrow circumstance where 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.  In other words, the narrow exception would permit the use of extrinsic evidence only in cases where it was relevant to an independent and discrete coverage issue, but did not touch on the merits of the underlying claim.  Notwithstanding the forgoing, the Texas Supreme Court has made it clear that if the extrinsic evidence directly contradicts the allegations in the underlying petition, then it will not be considered when determining whether an insurance provider has a duty to defend.