Texas Supreme Court Will Take Up Northfield Exception to “Eight-Corners” Rule
The U.S. Fifth Circuit Court of Appeals has asked, and the Texas Supreme Court has agreed, that it again visit whether these are exceptions to the “eight-corners” rule regarding the duty to defend. BITCO Gen. Ins. Corp. v. Monroe Guar. Ins. Co., 2021 U.S. App. LEXIS 7394, at *2 (5th Cir. [Tex.] 2021).
Last year, the Texas Supreme Court finally recognized an exception to the “eight-corners” rule regarding the duty to defend in instances where collusion is committed by the insured. See Loya Ins. Co. v. Avalos, 610 S.W.3d 878 (Tex. 2020). Insurance lawyers and scholars have speculated whether that decision would open the door to other exceptions to the rule, in light of the fact that the Fifth Circuit and Texas federal district and state appeals courts have recognized what some call the Northfield exception. Under this exception, the use of extrinsic evidence is permitted 1) when it is initially impossible to discern whether coverage is implicated, 2) when the extrinsic evidence goes solely to a fundamental issue of coverage and 3) does not overlap with the merits of or engage the truth or falsity of any facts alleged. Two very recent federal district court cases permitted extrinsic evidence based on the Northfield exception. Nat'l Liab. & Fire Ins. Co. v. Los Chavez Autobuses Inc., 2021 U.S. Dist. LEXIS 44443 (S.D. Tex. March 10, 2021) (allowing extrinsic evidence that accident occurred outside of the coverage territory); Canal Ins. Co. . v. Greenland Trucking, LLC, 2021 U.S. Dist. LEXIS 24212, at *7 (N.D. Tex. Feb. 9, 2021) (denying FRCP 12(b)(6) motion contending insurer could not pursue claim based on facts that go beyond “eight-corners” pertaining to employee injury exclusion).
The Fifth Circuit certified a question on the scope of the exception to the Texas Supreme Court in a declaratory judgment regarding whether an insurer owes an insured a duty to defend a suit for property damage which occurred outside its policy period. The underlying petition contains no allegation as to the time of the damage, and the insurer contends that because the petition is insufficiently precise to determine coverage, the court could consider extrinsic evidence. The district court found the exception did not apply because it believed the petition does not preclude a finding that the damage occurred during the policy period and because the question is relevant both to coverage and the merits of the underlying action.
On appeal, the Fifth Circuit certified two questions to the Texas Supreme Court:
- Whether the Northfield exception is permissible under Texas law?
- When applying such an exception, may a court consider extrinsic evidence of the date of an occurrence when (1) it is initially impossible to discern whether a duty to defend potentially exists from the eight-corners of the policy and pleadings alone; (2) the date goes solely to the issue of coverage and does not overlap with the merits of liability; and (3) the date does not engage the truth or falsity of any facts alleged in the third party pleadings?
The Supreme Court on March 19, 2021 agreed to consider the questions.
