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By William T. Barker & Ronald D. Kent, Partners, SNR Denton
An insurer's duty to defend is usually determined based on the facts alleged within the four corners of the complaint against the insured. Various jurisdictions allow or require consideration of other evidence ("extrinsic evidence") for various purposes. In Fred Shearer & Sons, Inc. v. Gemini Insurance Co., the Oregon Court of Appeals held that extrinsic evidence may be used to determine whether the party seeking a defense is an insured. This commentary examines that issue.
Gemini insured TransMineral USA, distributor of a stucco product. Fred Shearer & Sons, Inc ("Shearer") installed that product on the exterior of a residence. The product failed, allegedly due to defective installation, and the owners sued the general contractor, who sued TransMineral and Shearer. Gemini refused to defend Shearer. Shearer relied on a vendor's endorsement. While undisputed facts appeared to show that Shearer qualified as an insured under the endorsement, Gemini argued that those facts were extrinsic to the complaints and could not be considered. The trial court disagreed, and the court of appeals affirmed.
While Oregon cases have consistently stated the four-corners rule, the court found those cases distinguishable. As the commentary explains:
The court reasoned that, "[w]hen the question is whether the insured is being held liable for conduct that falls within the scope of a policy, it makes sense to look exclusively to the underlying complaint. That complaint sets the boundaries of the insured's liability." But the facts necessary to decide whether a defendant is an insured may not be relevant to the liability of the defendant, so there may be no reason to allege them in the complaint.
The commentary explains that this case might be interpreted either broadly or narrowly:
There is a strong argument, endorsed by the language quoted in Fred Shearer & Sons from both cases and commentators, that extrinsic evidence should be considered whenever it involves facts not at issue with respect to the insured's liability.  However, even if Fred Shearer & Sons were read to support such an argument, that argument would also have to be tested against other Oregon cases adhering to the "four-corners rule" and limiting use of extrinsic evidence. But, at a minimum, Fred Shearer & Sons is on solid ground in allowing use of extrinsic evidence to determine who is an insured, though not all jurisdictions agree.
The commentary discusses the arguments for and against that position and endorses the conclusion in Fred Shearer & Sons.
 See William T. Barker, When Can Extrinsic Evidence Defeat the Duty To Defend, in NEW APPLEMAN ON INSURANCE: CURRENT CRITICAL ISSUES IN INSURANCE LAW (April. 2007).
William T. Barker is a partner in the Chicago office of SNR Denton, L.L.P., with a nationwide practice representing insurers in complex litigation, including matters relating to coverage, claims handling, sales practices, risk classification and selection, agent relationships, and regulatory matters. He is the co-author of New Appleman Insurance Bad Faith Litigation. He is a member of the Editorial Board of the New Appleman on Insurance Law Library Edition and a Consulting Author of the New Appleman Insurance Law Practice Guide. He has published over 100 articles and speaks frequently on insurance and litigation subjects. He was a Contributing Editor and then Editor of Bad Faith Law Report until that publication merged with Insurance Litigation Reporter, where he is currently Senior Contributing Editor and Editorial Board Director. He has been described as the leading lawyer commentator on the connections between procedure and insurance. See Charles Silver & Kent Syverud, The Professional Responsibilities of Insurance Defense Lawyers, 45 Duke L.J. 255, 257 n.4 (1995). Mr. Barker is a member of the American Law Institute.Ronald D. Kent heads the Litigation Department in SNR Denton's Los Angeles office. He is also Co-Chair of the Firm's National Insurance Litigation and Coverage Practice and is a member of the firm-wide Policy & Planning (Management) Committee. Since 2005, he has been named each year as a leading trial lawyer nationally and in California, based on peer and client evaluations, by Chambers USA: America's Leading Lawyers, the highly respected independent attorney rating organization. Mr. Kent has extensive experience representing major insurance companies on a wide variety of matters, including fraud and bad faith actions, class action and multiple plaintiff litigation, defense of toxic tort and other environmental claims, insurance coverage actions and general business disputes. Mr. Kent has tried matters in state and federal courts throughout California, and in other states, and has successfully handled in excess of 70 arbitrations to final resolution. In addition, he has briefed and argued numerous appellate matters in the California Supreme Court, nearly all California district courts of appeal and the Ninth Circuit Court of Appeals. Mr. Kent is the co-author of the second edition of New Appleman Insurance Bad Faith Litigation.
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