Expert Commentary

Eight-Corners Rule Defeats Right to Defense

Terry Graham Jr. killed would-be burglar Hiram Joshua Chambers at Graham's ranch house in Smith County, Texas, by shooting him in the face at close range with a shotgun. Graham successfully defended the resulting wrongful death lawsuit by Chambers's family members. Since his insurer refused to defend him, Graham incurred $130,841.43 in defense costs. He sued Texas Farm Bureau Underwriters (Underwriters), the issuer of Graham's Texas farm and ranch owner's insurance policy, to recover his defense costs.


Claims Practices
January 2015

Both parties filed motions for summary judgment, and the trial court granted Graham's motion. Underwriters appealed in Texas Farm Bureau Underwriters v. Graham, 2014 Tex. App. LEXIS 13029 (Ct. App. Tex.—Texarkana Dec. 5, 2014).

Background

It was uncontested (1) that Graham was an insured under the policy, (2) that he had paid all premiums required under the policy, (3) that he had personal liability coverage for bodily injury occurring on the resident premises as of the date of the incident, (4) that the incident occurred on the resident premises, and (5) that Underwriters received timely notice of Graham's request for defense. Seeking reimbursement of the money he paid to his defense attorneys, Graham sued Underwriters for breach of contract and breach of the duty of good faith and fair dealing under Chapter 542 of the Texas Insurance Code (the Prompt Payment of Claims Act), along with attorney fees.

Underwriters filed a legal denial based on the governing "eight-corners rule," which provides that an insurer is entitled to rely solely on the factual allegations contained in the four corners of the complaint in conjunction with the four corners of the liability policy to determine whether it has a duty to defend.

Analysis

Underwriters was correct in its assertion that this case was governed by the eight-corners rule that allows an insurer to rely solely on the factual allegations contained in the petition in conjunction with the terms of the policy to determine whether it has a duty to defend. If a petition does not allege facts within the scope of coverage, an insurer is not legally required to defend a suit against its insured.

When applying the eight-corners rule, a Texas court will construe the allegations in the pleadings liberally. The factual allegations are considered without regard to their truth or falsity, and all doubts regarding the duty to defend are resolved in the insured's favor.

An insurer is obligated to defend the insured if the facts alleged in the petition present a matter that could potentially be covered by the insurance policy. The insured has the initial burden to establish coverage under the policy. Interpretation of insurance contracts in Texas is governed by the same rules as interpretation of other contracts. When construing a contract, the court's primary concern is to give effect to the written expression of the parties' intent.

The policy defined the term "occurrence" as "an accident, including exposure to conditions which results in bodily injury or property damage during the policy period." It also contained the following exclusion: "Coverage C (Personal Liability) … do[es] not apply to: … bodily injury or property damage which is caused intentionally by or at the direction of an insured."

The Chambers family alleged both that Graham committed "a violent assault and battery" on Chambers and, in the alternative, that Graham was "negligent and grossly negligent" in causing Chambers's death. The petition contained the following allegations: "Plaintiff alleges that just before Terry Graham, Jr.'s vicious assault on [Chambers], he had directed [Osborn] to bring to him a loaded 410 shotgun. Before the death of [Chambers], [Graham] had instructed [Osborn] to shoot [Chambers], but [Osborn] refused to do so. Instead, [Osborn] carelessly, negligently, and very foolishly handed the shotgun to [Graham], who then used it to carry out his intent and purpose of bringing about the death of [Chambers]."

Even though the eight-corners rule prohibited the court from looking beyond the Chambers family petition and the terms of the insurance policy, Graham asked the court to consider extrinsic evidence in its analysis. To demonstrate that Underwriters had a duty to defend, Graham relied on a fact that was not included in the underlying petition—that Chambers was burglarizing the property when he was shot, on the jury's verdict absolving Graham of liability for Chambers's death, and on the deposition of Underwriters' corporate representative, who testified that had the petition been amended to take away intent, he would have reconsidered the decision to deny defense.

Reliance on this kind of extrinsic evidence violates the eight-corners rule. Consequently, Graham asked the court to recognize a rule exception referenced in a Texas Supreme Court opinion. In Pine Oak Builders, Inc., 279 S.W.3d at 654 (Tex. 2009), the Texas Supreme Court noted that some courts have recognized an exception "permitting the use of extrinsic evidence only when relevant to an independent and discrete coverage issue, not touching on the merits of the underlying third-party claim." Without expressly recognizing or approving the exception, Pine Oak Builders, Inc., warned that "any such exception would not extend to evidence that was relevant to both insurance coverage and the factual merits of the case as alleged by the third-party plaintiff."

To date, neither the Texas Supreme Court nor the Tyler Court of Appeals has officially embraced any exception to the eight-corners rule, and sister courts have declined to apply the exception referenced in Pine Oak Builders, Inc.

The court was required to determine whether the Chambers family's petition alleged that Graham committed a negligent act in addition to an intentional one. Graham claimed that the Chambers family pled two distinct positions with regard to state of mind.

An accident is generally understood to be a fortuitous, unexpected, and unintended event. Reviewing the Chambers family's pleadings in light of the policy provisions, the court must focus on the facts alleged instead of the legal theories. The underlying petition's causes of action for negligence and gross negligence, on their own, were insufficient to require Underwriters to defend Graham in the Chambers lawsuit.

Nothing suggested that Graham's act in shooting Chambers was anything other than intentional because (1) there was no suggestion that Graham slipped, fell, or otherwise mistakenly pulled the trigger, and (2) other language used in the petition described the shooting as intentional.

Although the court found that the act causing the damage was intentional, we recognize that an intentional act can still be considered an accident because whether an event is accidental is determined by its effect. A deliberate act, performed negligently, is an accident if the effect is not the intended or expected result; that is, the result would have been different had the deliberate act been performed correctly.

A claim does not involve an accident or occurrence when either direct allegations purport that the insured intended the injury (which is presumed in cases of intentional tort) or circumstances confirm that the resulting damage was the natural and expected result of the insured's actions—that is, was highly probable whether the insured was negligent or not.

In this case, the four corners of the petition demonstrated that Graham's use of a "loaded 410 shotgun … to carry out his intent and purpose of bringing about" Chambers's death was intentional. Because Chambers's death was the type of injury that ordinarily follows from pointing a shotgun at a person's head and shooting him or her "at very close range," the court concluded that the injury was a natural and probable result of Graham's act. Where acts are voluntary and intentional and the injury is the natural result of the act, the result is not caused by accident.

Under the terms of the policy, coverage applied only to accidents causing bodily injury and was expressly excluded for acts "caused intentionally by … an insured." Because the incident was not an accident, Underwriters had no duty to defend. Therefore, the trial court erred in granting Graham's cross-motion for summary judgment and in denying Underwriters' summary judgment.

Conclusion

The four-corners/eight-corners rule sometimes results in odd decisions that can be cured by extrinsic evidence. Texas refuses to deal with extrinsic evidence when an insurer makes a decision to defend or not defend the insured. In this case, extrinsic evidence would not have helped. In fact, the ruling in the wrongful death case proved that the death was intentional and proper because the decedent was in the process of burglarizing the insured's home at the time he was shot. The shooting and resulting death were the intent of the insured, and coverage did not apply, nor would it have applied, even if the extrinsic evidence were considered.


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