Steven Plitt, Expert Witness Steven Plitt, Expert Witness
Insurance Bad Faith Claim Handling Expert Serving Clients Nationwide

TEXAS SUPREME COURT REJECTS THE USE OF EXTRINSIC EVIDENCE IN DECIDING THE DUTY TO DEFEND BY UPHOLDING A STRICT EIGHT-CORNERS RULE

Recently, the U.S. 5th Circuit Court of Appeals certified the following question to the Texas Supreme Court: "Is the policy-language exception to the eight-corners rule articulated in B. Hall Contracting, Inc. v. Evanston Ins. Co., 447 F.Supp.2d 634 (N.D. Tex. 2006), a permissible exception under Texas law?" In the B. Hall case, the eight-corners rule did not prohibit consideration of extrinsic evidence under the eight-corners rule unless the insurance policies in question explicitly required the insurer to defend "all actions against its insured no matter if the allegations of the suit are groundless, false, or fraudulent." See, B. Hall Contracting, Inc. v. Evanston Ins. Co., 447 F.Supp.2d 634, 645 (N.D. Tex. 2006).

The Texas Supreme Court in Richards v. State Farm Lloyds, 597 S.W.3d 492, 500 (Tex. 2020) found that the B. Hall Contracting, Inc. exception was not valid, while acknowledging that the parties could contract around the eight-corners rule (the Court did not explain how that could be done practically). However, the question that the 5th Circuit had posed was whether the parties in the case actually did contract around the rule by not expressly agreeing that State Farm must defend claims "even if groundless, false, or fraudulent." The Court found that the Groundless Claims Clause did not affect the relevance of extrinsic evidence to the determination of the insurer's duty to defend.

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