Eight Corners and True Facts
by Summer Frederick
The Texas Supreme Court adopted the eight-corners rule, which governs an insurer’s duty to defend an insured, in 1965 in Heyden Newport Chemical Corp. v. So. Gen. Ins. Co..A basic application of the eight-corners rule is this: if, when comparing the four corners of the policy with the four corners of the complaint, the allegations potentially fall within the scope of coverage, the insurer’s duty to defend is triggered. Under the eight-corners rule, it is the allegations of the complaint that trigger the duty to defend, not the true facts.
The Texas Supreme Court has never expressly recognized an exception to the eight-corners rule. The Court considered this issue in 2006 inGuideOne Insurance Co. v. Fielder Rd. Baptist Church. While the Court did not hold that a true facts exception could never exist, it declined to hold that an exception was warranted under the facts of that case. In its decision, the Court noted that the policy’s insuring agreement provided that the insurer should “defend any suit brought against [the insured] seeking damages, even if the allegations of the suit are groundless, false or fraudulent[.]”
The Fielder Road decision created uncertainty. For one thing, it was unclear whether its holding should be limited to policies containing the “groundless, false or fraudulent” language. This language was written out of the standard ISO general liability form in the mid-1980s. After Fielder Road, some argued that because the language at issue in that case no longer appeared in the standard general liability form, the eight-corners rule was essentially dead. As the argument went, if policy language did not require insurers to defend against groundless, false, or fraudulent claims, true facts could be considered. This position seems to have been rejected.
But the question still remains: is there an exception? If there is, what limits define it? If there is no exception, why doesn’t the Court just say so? These questions have been the topics of controversy for many years.
Texas federal courts and the Fifth Circuit have recognized the existence of a narrow exception to the eight-corners rule for several years. These courts have permitted the consideration of extrinsic evidence when the complaint is silent concerning particular facts that bear upon an issue of insurance coverage only. The true facts can be considered if the facts would not overlap with the merits of the case, or engage the truth or falsity of any allegation.
The Fifth Circuit recently affirmed a true facts exception inAce Am. Ins. Co. v. Freeport Welding & Fabricating, Inc., 699 F.3d 832, 839 (5th Cir. 2012). There, the Court considered true facts to answer the threshold question of whether a party was an insured before engaging in an eight-corners analysis.
In a similar vein, the Fourteenth Court of Appeals in Houston considered a scenario in which the underlying pleading contained erroneous facts that triggered the insurer’s duty to defend in Weingarten Realty Mgmt Co. v. Liberty Mut. Fire Ins. Co. The party seeking coverage argued that even if the petition was mistaken, the court was bound by the allegations because of the eight-corners rule, and was prevented from looking at true facts. Under those circumstances, the court recognized the need for a very narrow exception to eight-corners. It emphasized that the party seeking coverage was not the named insured, and was therefore not entitled to the benefit of the eight-corners rule. A petition for review to the Texas Supreme Court in Weingarten was denied.
While the eight-corners rule has been the law of the land for decades, a slow trend in lower courts appears to favor finding more reasons to consider true facts. The Texas Supreme Court has taken an equivocal position on the topic, neither expressly recognizing an exception nor stating that an exception could never exist. Although the parameters of the rule could have been defined if the petition had been accepted in Weingarten, review was denied. Until the Texas Supreme Court directly addresses the issue of whether and when true facts can be considered, there will likely continue to be cases falling on both sides of this issue.
Summer Frederick is an attorney at Tollefson, Bradley, Mitchell & Melendi, LLP. She can be reached at firstname.lastname@example.org.