Supreme Court of Texas Reinforces Strength of The Eight-Corners Rule

The Supreme Court of Texas has declined to recognize a new policy language exception to Texas’ longstanding eight-corners rule. Richards v. State Farm Lloyds, No. 19-0802, 2020 LEXIS 236 (Tex. Mar. 20, 2020). The rejection of this exclusion preserves the rule’s strength and prevents insurance carriers from having a new basis for avoiding the duty to defend. First recognized in 1956, the eight-corners rule instructs Texas courts to determine an insurer’s duty to defend based only upon the allegations within the four corners of a plaintiff’s complaint and the provisions within the four corners of the insurance policy. Heyden v. Newport Chem. Corp. v. S. Gen. Ins. Co., 387 S.W.2d 22, 24 (Tex. 1965). Except in limited circumstances, the eight-corners rule renders the truth or falsity of the plaintiff’s claims irrelevant to this analysis. Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523, 531 (5th Cir. 2004). The rule also prevents courts from considering extrinsic evidence to determine whether a duty to defend exists. Id.

In Richards, State Farm Lloyds sought to avoid its duty to defend by offering extrinsic evidence that the claims asserted against its insured were excluded from the policy’s coverage. Id. at *4-5. On appeal to the United States Fifth Circuit, State Farm argued that the trial court properly considered the extrinsic evidence because the eight-corners rule did not apply to the insurance policy at issue. Specifically, State Farm asserted that the eight-corners rule applies only to policies that expressly require an insurer to defend regardless of whether “the allegations of the suit are groundless, false, or fraudulent.” Id. at *7.  The Fifth Circuit certified the question to the Supreme Court of Texas asking whether Texas law permits the proposed policy language exception. In response, the Court clarified that Texas law prevents insurers from contracting around the eight-corners rule by simply omitting magic language referencing the “groundless, false, or fraudulent” nature of plaintiff’s claims from their policies. Id. at *9. Rather, to avoid the eight-corners rule insurers must proactively include clear a policy provision which expressly contradicts the rule’s application. Id. at *7, 9.  In the absence of such an express provision, the eight-corners rule applies and courts may only evaluate a duty to defend based on the face of the complaint and the policy language. Id. at *11-12.