A previous update analyzed the critical case of Monroe Guaranty Ins. Co. v. Bitco Gen. Ins. Corp., where the Texas Supreme Court recognized an exception to Texas’s “eight corners rule” but found the exception inapplicable to the facts. However, since Monroe, Texas federal courts have applied the Monroe exception on four occasions and considered extrinsic evidence when determining the insurer’s duty to defend. This update provides a brief summary of the cases and takeaways from them.

In Texas, the “eight corners rule” governs whether an insurer has a duty to defend an insured. The eight corners rule, under normal circumstances, requires that an insurer’s duty to defend be based only on (1) the “four corners” of pleadings in the underlying lawsuit against the insured and (2) the “four corners” of the contract (i.e., the terms of the insurance policy).

An insurer’s duty to defend historically has been understood to be broad, as the insurer is obligated to defend the entire suit if there is, potentially, a cause under the complaint within the coverage of the policy. The duty to defend does not turn on the truth or falsity of the plaintiff’s allegations. And, if there is doubt as to whether the complaint states a covered cause of action, such doubt is resolved in the insured’s favor.

The eight corners rule has historically been a source of frustration for insurers. Taking advantage of this broad rule, experienced counsel will often file pleadings anticipating review by an insurer with significant factual gaps or omissions that could determine whether a duty to defend exists.

This all changed in February 2022 with the Monroe case. In Monroe, the Texas Supreme Court held that extrinsic evidence may be considered “if the underlying petition states a claim that could trigger the duty to defend, and the application of the eight corners rule, due to a gap in the plaintiff’s pleading, is not determinative of whether coverage exists” provided the evidence (1) goes solely to an issue of coverage and does not overlap with the merits of liability, (2) does not contradict facts alleged in the pleading, and (3) conclusively establishes the coverage fact to be proved.

Since Monroe, several courts have applied the Monroe exception to consider extrinsic evidence when determining the insurer’s duty to defend.

• National Liability & Fire Insurance v. Turimex, LLC involved a crash involving a tour bus on the way from Houston to Mexico. One of the tour bus passengers filed suit for injuries sustained during the crash. The auto insurer denied defense and indemnity to the tour bus operator. The Southern District magistrate judge admitted extrinsic evidence consisting of a claims notice, an email from the passenger’s counsel, and a news story to prove that the accident occurred in Mexico and thus not in policy’s coverage territory. The judge admitted the evidence because the pleadings did not specify where the accident occurred. Further, the location of the accident did not contradict the pleadings, went solely to coverage, and was conclusive on the issue of whether the accident occurred in the coverage territory.
• In Benites v. Western World Ins. Co., the Western District granted summary judgment on behalf of an insurer after finding the Monroe exception applied to permit the consideration of condo by-laws as extrinsic evidence in determining coverage. In Benites, the pleading alleged that injury occurred on an outdoor balcony attached to the insured’s condo. The coverage issue concerned whether Benites was an additional insured under the policy. The policy provided that all owners of the condos were additional insureds under the policy, “but only with respect to liability arising out of the ownership, maintenance or repair of that portion of the premises which is not reserved for that unit owner's exclusive use or occupancy.” The underlying petition alleged that multiple defendants managed, occupied, or owned the premises where the injury occurred. As a result, the allegations did not conclusively show whether or not coverage existed in the case. Thus, the court found that the Monroe exclusion applied permitting review of the by-laws for a determination of exclusive control of where the injury occurred.
• In Drawbridge Energy US Ventures, LLC v. Federal Insurance Co., an insurance company added a “Pending or Prior Proceedings Exclusion” to a claims-made Directors and Officers policy to prohibit coverage for claims prior to the coverage period. The insurance company denied coverage for the underlying lawsuit on the grounds that it was a related claim made 20 days before the policy period. The basis of the insurance company’s argument that there was no duty to defend related to a letter sent before the policy coverage period commenced, which placed the claim outside of the relevant period. The Southern District found that the letter satisfied the Monroe The Court held that the underlying pleadings were silent as to whether a related claim was made before inception of the policy period. The court also held that the letter went solely to a coverage issue, did not overlap with the merits of liability, did not contradict the pleadings, and conclusively established that the claim was made before the policy period.
• In Progressive Commercial Cas. Ins. Co. v. Xpress Transp. Logistics, LLC, the court admitted evidence identifying a truck involved in an accident and demonstrating that the truck was not the covered auto under the policy and thus not covered. The Southern District held that the evidence identifying the truck did not contradict the pleadings and conclusively determined the insurer’s defense obligations.

There are two key takeaways from Monroe and its progeny. First, the duty to defend standard is now more pro-insurer. In the past, a petition with a claim that “potentially” triggered coverage required a defense of the entire case. Under the post-Monroe eight-corners rule, such a claim does not end the inquiry. Rather, if there is a gap in coverage in the petition, an insurer can use any evidence that satisfies the Monroe elements.

Additionally, the cases have shed light on the kind of evidence that could be admissible. Monroe indicated that a stipulation would suffice, and the courts in the post-Monroe cases admitted a variety of evidence, some of which would not be contained in the claim file. For example, in Turimex, the court admitted an email from the plaintiff’s counsel and a news story providing that the accident occurred in Mexico. In Benites, the court admitted the condominium by-laws.

As such, going forward, insurers should make an effort to perform independent research on each claim and collect and store all of the extrinsic evidence it can locate. This evidence could be used to fill gaps in the pleadings, especially in cases where the pleadings do not contain the dates of the incident or damage.