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.
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 Don's Bldg. Supply v. OneBeacon case,
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 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.
*The author would like to thank and acknowledge the
contributions to this Commentary by Elliott T. Cooper, an associate with
Cooper
& Scully's Dallas
office. |