By my count, about 35 or so states, give or take, allow for the consideration of extrinsic evidence, in one form or another, to determine an insurer’s duty to defend. In other words, they allow for the consideration of information, beyond what’s contained in the complaint itself, to determine if an insurer has a duty to defend. Such pronouncements are often stated as nice-sounding general rules; but there is a paucity of guidance about just how they operate. See Talen v. Employers Mut. Cas. Co., 703 N.W.2d 395, 406 (Iowa 2005) [enhanced version available to lexis.com subscribers], (“The scope of inquiry [for the duty to defend] . . . [includes] the pleadings of the injured party and any other admissible and relevant facts in the record.”); Am. Bumper & Mfg. Co. v. Hartford Fire Ins. Co., 550 N.W.2d 475, 481 (Mich. 1996) [enhanced version available to lexis.com subscribers], (“The insurer has the duty to look behind the third party’s allegations to analyze whether coverage is possible.”); Garvis v. Employers Mut. Cas. Co., 497 N.W.2d 254, 258 (Minn. 1993) [enhanced version available to lexis.com subscribers], (stating that the determination of the duty to defend includes consideration of facts of which the insurer is “aware”); Farmland Mut. Ins. Co. v. Scruggs, 886 So. 2d 714, 719 n.2 (Miss. 2004) [enhanced version available to lexis.com subscribers], (holding that, in determining whether an insurer has a duty to defend, an insurer may consider those “true facts [that] are inconsistent with the complaint,” the insured brought to the insurer’s attention); Peterson v. Ohio Cas. Group, 724 N.W.2d 765, 773–74 (Neb. 2006) [enhanced version available to lexis.com subscribers], (finding that a duty to defend exists where the “actual facts” reveal such a duty exists); Am. Gen. Fire & Cas. Co. v. Progressive Cas. Co., 799 P.2d 1113, 1116 (N.M. 1990) [enhanced version available to lexis.com subscribers], (“The duty of an insurer to defend arises from the allegations on the face of the complaint or from the known but unpleaded factual basis of the claim.”); State Farm Fire & Cas. Co. v. Harbert, 741 N.W.2d 228, 234 (S.D. 2007) [enhanced version available to lexis.com subscribers], (“[T]he issue of whether an insurer has a duty to defend is determined by . . . ‘other evidence of record.’”).
Mississippi is a state that allows for the consideration of extrinsic evidence to determine if an insurer has a duty to defend. In Nationwide Insurance v. Lexington Relocation Services, No. 12-181 (N.D. Miss. Mar. 24, 2014) [enhanced version available to lexis.com subscribers], the Mississippi federal court provided some guidance on how its extrinsic evidence rule works. The decision is lacking in some detail that could have made it even more helpful, but when it comes to this issue you take what you can get.
The Lexington Relocation court addressed whether an insurer had a duty to defend an insured in some sort of non-compete action arising out of one company hiring another company’s former employee. The insurer alleged that it had no duty to defend its insured. The court observed that, under Mississippi law, an insurer’s duty to defend hinges on the allegations in the underlying complaint. However, a “court may consider facts not contained in the underlying pleadings where the insurer is ‘presented with extrinsic facts, of which the insurer has knowledge or could obtain knowledge by means of a reasonable investigation, that trigger coverage under the policy.’ However, a ‘true facts’ analysis is a ‘narrow exception’ to the general rule.” The Lexington Relocation court stated that the “Mississippi Supreme Court has held that if an insured submits uncontroverted, competent evidence establishing the falsity of the pertinent allegations in the complaint, the insured has provided ‘true facts’ under the exception.”
So what constitutes “true facts” to be considered an exception to the rule that the duty to defend is limited to consideration of the allegations in the complaint? The Lexington Relocation court provided this answer: “[T]he insured cannot establish ‘true facts’ by merely denying the allegations in the underlying complaint. . . . The alleged ‘true facts’ under the ‘extrinsic facts’ exception must be supported by competent summary judgment evidence and must constitute a ‘fact,’ not merely a denial of liability. See Natchez Steam Laundry, 131 F.3d at 553 [enhanced version available to lexis.com subscribers], (rejecting as ‘true facts’ insured’s assertion to insurance company that actions alleged were unintentional and therefore covered by the insurance policy). As the Natchez Steam Laundry court explained, if courts deemed such an assertion to be sufficient under Mavar, every insured could simply deny the allegations in the underlying complaint and thereby ‘eviscerate Mississippi’s general rule—that an insurer can determine whether it has a duty to defend by comparing the complaint to the policy.’”
Coverage Opinions is a bi-weekly (or more frequently) electronic newsletter reporting or providing commentary on just-issued decisions from courts nationally addressing insurance coverage disputes. Coverage Opinions focuses on decisions that concern numerous issues under commercial general liability and professional liability insurance policies. For more information visit www.coverageopinions.info.
The views expressed herein are solely those of the author and not necessarily those of his firm or its clients. The information contained herein shall not be considered legal advice. You are advised to consult with an attorney concerning how any of the issues addressed herein may apply to your own situation. Coverage Opinions is gluten free but may contain peanut products.
Randy Maniloff is Counsel at White and Williams, LLP in Philadelphia. He previously served as a firm Partner for seven years and transitioned to a Counsel position to pursue certain writing projects including Coverage Opinions . Nonetheless he still maintains a full-time practice at the firm. Randy concentrates his practice in the representation of insurers in coverage disputes over primary and excess obligations under a host of policies, including commercial general liability and various professional liability policies, such as public official’s, law enforcement, educator’s, media, computer technology, architects and engineers, lawyers, real estate agents, community associations, environmental contractors, Indian tribes and several others. Randy has significant experience in coverage for environmental damage and toxic torts, liquor liability and construction defect, including additional insured and contractual indemnity issues. Randy is co-author of “General Liability Insurance Coverage - Key Issues In Every State” (Oxford University Press, 2nd Edition, 2012). For the past twelve years Randy has published a year-end article that addresses the ten most significant insurance coverage decisions of the year completed.
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