Lee Shidlofsky on Additional Insured Status in Strict Eight Corners States

Lee Shidlofsky on Additional Insured Status in Strict Eight Corners States

Insurance coverage can oftentimes be won or lost depending on whether a particular jurisdiction follows a strict eight corners analysis for determining the duty to defend or permits the introduction of extrinsic evidence which particularly affects determination of the status of additional insureds. In this commentary, Lee Shidlofsky discusses the facts of D.R. Horton-Texas, Ltd. v. Markel Intl Ins. Co., 2006 Tex. App. LEXIS 9346 for which the Houston court of Appeals filed a petition for review with the Supreme Court of Texas. In this case, the court addressed whether extrinsic evidence can be used to trigger the duty to defend for an additional insured. The court declined to adopt an exception to the “eight corners” rule specifically when analyzing an insurer’s duty to defend. However there remains ambiguity as to whether the exception exists in Texas when an insurer knows or reasonably should know facts that would establish coverage. Most jurisdictions accept this exception. With this petition, Texas has the opportunity to remain a strict “eight corners” state.
 
Shidlofsky points out that “in general, using evidence not available in a petition or insurance policy (i.e., “extrinsic evidence”) in order to create (or defeat) a duty to defend violates a strict “eight corner” rule where only the petition and insurance policy are used in determining the insurer’s obligation to defend its insured. Nevertheless, most jurisdictions recognize an exception to that rule when an insurer knows or reasonably should know facts that would establish coverage.”
 
Shidlofsky proposes that Texas’ strict “eight corners” rule impacts additional insureds status. In D.R. Horton, neither the subcontractors nor the damage they caused were listed in the petition, but D.R. Horton had extrinsic evidence that demonstrated the damages were caused by the subcontractor. The subcontractor’s liability carriers (for which D.R. was listed as additional insureds) refused to defend D.R. Holmes because the petition did not mention the subcontractors. The trial court refused to allow introduction of extrinsic evidence to show these damages. The court of appeals affirmed the decision saying “the evidence related to both coverage and liability” and held that the masonry subcontractor’s insurer had no duty to defend D.R. Horton.” Shidlofsky says,” In other words, the court refused to adopt any exception to the “eight corner” rule for “liability only” or “overlapping/mixed facet” scenarios.”
 
Shidlofsky concludes, “Only time will tell, though, whether the court will keep things strict in Texas or take the first step in softening the rule while recognizing the contractual agreements made between parties such as those in a contractor-subcontractor relationship involving additional insured status. Moreover, as noted, this issue is not limited to Texas and applies to all states that adhere to a strict “eight corners” approach to the duty to defend.”
 
 
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