The Fifth Circuit certified a question to the Texas Supreme Court about the use of extrinsic evidence in determining the insurer’s duty to defend. State Farm Lloyds v. Richards, et al, 2019 U.S. App. LEXIS 27221 (5th Cir. Sept. 9, 2019).
The insureds’ grandson was killed in an all-terrain vehicle accident while under their temporary care. The child’s parents sued the insureds, alleging they were negligent in failing to supervise and instruct the child. The insureds sought a defense from State Farm under their homeowners’ policy. State Farm defended under a reservation of rights, but sought a declaration there was no duty to defend or indemnify from the federal district court.
State Farm filed a motion for summary judgment, contending two exclusions barred coverage. The “motor-vehicle exclusion” exempted coverage for bodily injury arising from the use of an ATV while off the insureds’ premises. In support of the summary judgment motion, State Farm attached a vehicle crash report showing that the accident occurred away from the insureds’ premises, as well as the insureds’ admissions that the accident occurred off an insured location. The “insured exclusion” barred coverage for bodily injury to an insured, which included relatives who were residents of the household or under 21 years of age. State Farm attached the insureds’ admission that they were the child’s grandparents, as well as an order appointing them as joint-managing conservators.
The district court found the extrinsic evidence satisfied both exclusions, and granted summary judgment to State Farm. The district court ruled that the eight-corners rule did not apply if a policy did not include language requiring the insurer to defend “all actions against its insured no matter if the allegations of the suit were groundless, false, or fraudulent.”
The Texas Supreme Court had hinted in prior cases that extrinsic evidence could be relied upon in narrow circumstances as an exception to the eight-corners rule. But the court had never adopted the rule. Therefore, the Fifth Circuit asked whether the policy-language exception to the eight-corners rule was a permissible exception under Texas law.