Coverage Triggers and Duty-To-Defend Dilemmas
October 2009
Over the last 15 years, many states have
reexamined their positions on what act or what event will trigger a duty to
defend under a liability policy. Most recently, Texas, in
Don's Bldg. Supply, Inc. v. OneBeacon Ins.,
267 S.W.3d 20 (Tex. 2008), clarified for the first time the position that
Texas was going to adopt regarding trigger events for property damage under
most liability policies.
by R. Brent
Cooper and Elliott Cooper
Cooper & Scully
Before this decision, it has been assumed by most courts and most
insurers that the trigger event would be the manifestation of the property
damage. However, the Texas Supreme Court, relying principally on the plain
language of the policy, rejected this trigger theory and instead adopted the
trigger of actual injury. With the adoption of the actual injury rule, many
issues have been created, particularly with respect to the duty to defend.
Prior to the change in the rule, it was common and still is common for
the plaintiff to allege a particular date that the property damage
manifested itself. The reason for allegation of manifestations historically
was not so much as a trigger of coverage, but to bring the case within the
applicable statute of limitations. Many states have a discovery rule in
place with respect to certain types of claims and certain types of property
damage. Therefore, if the statute of limitations were an issue, the
plaintiff would allege merely that the property damage had been discovered
or had manifested within a certain period of time prior to the filing of the
lawsuit. In many cases, this may be the only allegation regarding the timing
of the property damage. However, there is no evidence regarding when the
actual injury took place.
Likewise, in some circumstances, there may be a complete absence of any
allegations regarding when the actual injury took place. The plaintiff may
allege that the defendant's conduct resulted in property damage to the
plaintiff, and the plaintiff is entitled to recovery of damages from that
defendant for the property damage. In such a case, the question presented is
what, if any, insurer is obligated to provide the insured a defense.
The Case for Extrinsic Evidence
Most states in this country follow the eight-corners rule. Under the
terms of the eight-corners rule, the duty to defend is determined by looking
at the four corners of the petition and the four corners of the policy.
However, in the case discussed above, reviewing the four corners of the
petition provided no guidance or instruction regarding when the actual
injury took place. In such case, then, is the insured entitled to no
defense? Assuming that the insured has been insured continually, this does
not seem to be a fair or just result. On the other hand, should every
insurer who has ever insured the insured be required to participate in the
defense? This likewise does not seem to be a fair or reasonable result. The
question then becomes to what extent in situations where there are no
allegations or insufficient allegations regarding trigger should extrinsic
evidence be allowed.
In GuideOne Elite Ins. v. Fielder Road Baptist
Church, 197 S.W.3d 305 (Tex. 2006), the Texas Supreme Court indicated
that extrinsic evidence would not be allowed to determine the duty to defend
in Texas where the facts overlap with the facts in the underlying case or
where it would contradict specific allegations in the petition. The court
noted that it would likely allow extrinsic evidence:
when 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 the truth or falsity of any facts
alleged in the underlying case.
Id. at 308. The court cited with
approval the holding from the Fifth Circuit to the effect that when the
petition does not contain sufficient facts to enable the court to determine
if coverage exists, it is proper to look to extrinsic evidence to adequately
address the issue. This rule would seem to have solid application with
respect to determining whether coverage has been triggered or has not been
triggered. As stated earlier, it seems hardly fair or reasonable for an
insured that has had continual coverage not to be entitled to a defense
solely for the reason that there are no allegations in the petition
regarding when the injury actually occurred.
Assuming that extrinsic evidence can be utilized to create a duty to
defend, the question is then presented as to whether it can also be used by
an insurer under appropriate circumstances to defeat a duty to defend. Some
may argue that while it is permissible to introduce extrinsic evidence for
the purpose of creating a duty to defend, the use of extrinsic evidence to
defeat a duty to defend should not be permitted. While this may be the rule
in some states, it does not appear to be the rule in Texas or the majority
of states. More recently, in Pine Oak Bldrs., Inc.
v. Great Am. Lloyd's Ins., 279 S.W.3d 650 (Tex. 2009),
the supreme court ruled that:
Pine Oak views GuideOne Elite as
distinguishable because in that case, the insurer was attempting to
introduce extrinsic evidence to limit its duty to defend,
whereas here, Pine Oak, the insured, offered extrinsic evidence to
trigger the duty to defend. This distinction is not legally
significant.
Id. at 655. As far as the supreme court in
Texas is concerned, if extrinsic evidence is to be used, it can be used not
only to create a duty to defend but also to defeat the duty to defend as
well. This rule would appear to be keeping in line with the majority of
jurisdictions that address this rule.
Conclusion
The issues of
triggers of coverage and duty to defend present complex and vexing
questions. The cases discussed above have addressed situations on the outer
edges of the continuum. That is, where there are clear allegations of when
the property damage occurred. In real life, many of the factual situations
are not so neat. Most will tend to be closer to the middle than to the
edges. For example, there may be allegations that after a certain day, the
property damage occurred. These are the situations that are more
problematic. Where there are allegations that property damage did occur
after a certain date, can and should extrinsic evidence be admissible? These
are situations where no one broad rule can apply or can control, and
generally, are left up to the courts to decide on a case-by-case basis.
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