FUNDAMENTAL RULES REGARDING THE DUTY TO DEFEND:
A PRACTICAL GUIDE FOR JUDGES, THEIR
CLERKS,

BEGINNING PLAINTIFF’S LAWYERS AND NEW-TO-THE-GAME
INSURANCE COVERAGE COUNSEL, USING TEXAS LAW AS A PARADIGM

Michael Sean Quinn*

                This
is a “ how-to essay.” It is not designed to prove anything.  We are uninterested in reviewing the 100±
Texas cases that can be found at least partially on this topic.  All we want to do is to help new-comers find
their way around quickly. Section I contains 11 axioms. Section II addresses how to plead so that your client, the person alleging injury at the hands of another, is likely to be dealing with the tortfeasor’s liability carrier. (Of course, sometimes one wants the opposite to be true.) Section III is to help newbies at coverage work analyse situations at a fundamental level.  
            Many liability insurance
policies—although not all of them–have a semi-automatic duty requiring the
insurer  to defend the insured against certain
lawsuits built into them.  In many
states, if claims are asserted for which there would be a duty to indemnify
when the claims are proved, then there is a duty to defend an insured in a
lawsuit against the insurer’s insured. 
Usually, the duty to defend is determined by the content of the
plaintiff’s pleadings, without reference to actual empirical facts.  This is a widely recognized rule.  In Texas, and some other states,  it is often referred to as the “Eight-Corners
Rule,” in accordance with which an insurer’s duty to defend is determined by
comparing the plaintiff’s pleading with the insurance policy.  (Page by page, it is the comparison of the four
corners of the petition/pleading and the four corners of the insurance
contract, for a total of 8 corners.)
            In some states, the rule is not
quite as strong as it is being portrayed here. 
Some courts will depart from the rule when a plaintiff files outrageous
pleadings.  This essay is not meant to
address the more relaxed rule in other states; it’s a distinctly minority rule
anyway, and some of the states which have a different rule actually have
several different rules, and the one explored here is usually one of them or
one of the variants on what only appears to be a single guiding principle.
            When there is a “duty to defend,”
the carrier is often required to conduct the defense, and it often has the
right to do so, subject to some exceptions. 
Usually, the carrier picks defense counsel, subject to some exceptions.
Usually, the carrier pays the defense lawyer on behalf of the insured, but not
in all policies. And in some liability policies, there is not duty to defend at
all. For generations, defense lawyers from around the country—from around the
U.S.A.—have worried about the fact that the insured is clear their client, but
they are taking instructions and receiving fees from the liability carrier.
This is sometimes referred to as the “triangle of conflicting interests,” but
it has many names, Sometimes, the carrier had a duty to pay for a defense,
e.g., by reimbursing the client, and often this partial-duty-to-defend lets the
insured pick its own lawyer, but from a list created by the insured. Having mentioned
all these very important topics, now is the time to remark that this essay is
about none of them.
            The topic of this essay is mainly of
sets of rules, directives and norms (“rules”). 
Section I formulates eleven rules for determining the insurer’s
duty-to-defend.  Section II is a set of
rules for plaintiffs’ lawyers trying to devise pleadings that will trigger the
duty to defend for the defendant/s being sued.  
(Notably insurers make decisions not by groups but by individuals.  Thus, if a plaintiff wants each of five
defendants to be defended by an existing liability insurer, the plaintiff must
make sure that the rules apply to each defendant.)  Section III is designed for coverage lawyers
trying to figure out whether there is a duty to defend.  Coverage lawyers can apply these twelve rules
and thereby avoid mistakes in analyzing and determining whether the duty
applies.
            The duty to indemnify on behalf of
an insured defendant for a plaintiff’s injuries and losses is often called a
“third-party duty.”  Liability insurance
is frequently called “third-party insurance.” 
This observation is not true with respect to the duty to defend.  The right to a defense belongs to an insured;
it is triggered by the insured defendant having been sued by a plaintiff for
actions covered under the insured’s policy
Thus, the duty-to-defend can be considered “first-party insurance”
included in liability policies.
I.          
ELEVEN RULES GOVERNING
THE LIABILITY INSURER’S DUTY TO DEFEND

            Almost all of what is said here
should be understood in the context of the Eight-Corners Rule.  The application of this rule and thus
determinations of an insured’s right to a defense, do not depend upon truths
about the external world.  Instead one
depends upon truths about the complaint/petition filed against the
defendant-insured and upon truths about the liability insurance policy between
the defendant-insured and the insurer. 
These truths should not generally be regarded as complex, subtle, hidden
or mysterious. 
These
rules should be applied in a common-sense and straightforward way.  This is a hard lesson for legal academics,
resourceful and clever coverage lawyers and insurance executives that may be
tempted by economics.  Nevertheless, they
are almost always fundamental, except when the plaintiff’s complaint/petition
in the underlying case is outrageous. 
Even then, liability insurers usually have a duty to defend which courts
recognize.  See Lee R. Russ and Thomas F. Segalia, Couch on Insurance 3D § 200:20 at p. 200-51 (2005).  Chapters on the duty to defend for liability
insurers can be found in Chapters 200-202.
            These rules apply to every court
(state or federal) so long as “Eight-Corners Duty”-type law applies.  However, not all liability policies contain a
duty to defend, such as D&O policies.
1.         Whether
an insurer to a liability policy/contract is obligated to defend the insured is
a question of law to be decided by
the court.
                        Comment:   This implies that
virtually all questions as to whether the liability insurer has a duty to defend,
at least under the Eight-Corners Rule, should be decided by summary
judgment.  Even if this issue were not a
question of law, it should be decided on summary judgment since the only
relevant evidence is the plaintiff’s pleading in the underlying case and the
insurance policy.

2.         To
determine an insurer’s duty to defend compare the relevant factual allegations or assertions in the four corners of the
plaintiff’s live petition or complaint with the language of the insurance
policy. 
Comment:  What is most important about this rule is
that it is factual assertions which
are to be examined.  Assertions as to law
are irrelevant.  The closest case one
ever finds to issues of law influencing the duty has to do with whether someone
is an insured.  Sometimes, plaintiffs try
to plead a policy into existence by pleading facts in a way that might evidence
that the defendant is an insured under a certain insurance policy.  Usually, courts refuse to treat this sort of
tactic as a relevant factual assertion. 
In general, factual assertions are relevant when they pertain to
empirical matters that tend to prove that a defendant is liable for injuring
one or more plaintiffs.



3.         The
focus is on the factual allegations that show the origin or alleged cause of
the compensable damages.  It is not on
the legal theories alleged.
Comment:  Some words used by lawyers encompass factual
assertions and legal assertions.  The
term “negligence” is one such example. 
Thus, asserting that someone has acted in a negligent way is an assertion
of fact.  The term is also the name of a
cause of action.  In general, when there
is an assertion that a defendant has been negligent, that should be treated as
a fact assertion.



4.         Courts
are to give a liberal interpretation to the factual allegations in the petition
when applying the Eight-Corners Rule.
Comment:  The word “liberal” here is not clear.  It likely means “expansive” or “flexible”. It
should be thought of in terms of a judicial tendency to try to find coverage.  After all, the purpose of insurance is to
protect its insured, and if the insured has been sued, the insured probably
needs a defense.

5.         In case
of doubt as to whether allegations in the complaint/petition against the
insured state a cause of action covered by a liability policy that are
sufficient to compel the defense, all such doubt will be resolved insured’s
favor.
Comment:  In general liability policies, including many
homeowners policies, there are two separate approaches to liability.  One of them, often called Coverage A pertains
to physical injuries caused by accidents. 
The other coverage, often called Coverage B, pertains to economic and
psychological injuries caused by named causes of action, such as defamation and
false arrest.  It is much easier to be
expansive and flexible in the case of Coverage A than it is in the case of
Coverage B.

6.         If a
petition/complaint does not allege any facts falling within the scope of
coverage, an insurer is not required to defend a suit against its insured.
Comment:  The fact pleadings on the basis of which a
duty to defend is decided need not be specific, narrow or colorful.  For example, the following proposition would
probably trigger a duty to defend in most jurisdictions:  “The defendant acted negligently when he
mistakenly performed some act at issue in this case that proximately caused a
series of unexpected consequences in the empirical world causing the plaintiff
bodily injury (or property damage).” 

7.         The
insurer does not have a duty to defend if the facts pleaded falling within the
insuring agreement also fall within an exception or exclusion.
Comment:  If the plaintiff pleads two separate
propositions, one of which is within the insuring agreement only, while the
other is within both the insuring agreement and an exclusion, then there is a
duty to defend.  (See Rule 10.)

8.         The
court may not read facts into the
pleadings, look outside the
pleadings, or imagine  factual scenarios not pleaded that might trigger coverage when they are not there or
genuinely suggested.
Comment:  This rule does have some vagueness in
it.  How does one distinguish between
something that is genuinely suggested, something that is only suggested and
something that is subtly hinted at?  The
problem:  The prohibition on the use of
imagination is common.  It is to be found
in a variety of cases. A problem lies inside the concepts of imagining  and imagination.  Suppose a judge is
trying to figure out whether a duty to defend is to be provided given vague
language in the pleadings.  Entertaining
and reflecting upon images of conduct in the imagination to determine whether
they would fit into both general terms of the pleading and the terms of the
policy, and so thereby conform to the Eight-Corners Rule is appropriate and sensible.  Hypotheticals invariably involve the use of
the imagination to some degree.  What the
imagination should not be utilized to do is to alter the language of or the
ideas in the pleadings. 

9.         An
insurer’s duty to defend arises if the factual allegations against the insured,
when reasonably construed, state at least one cause of action potentially
covered by the policy.
Comment:  A potentially non-covered suit creates
problems for the insurer that abides by its contractual duty to defend but also
intends to disavow any duty to indemnify. 
Should the insurer choose to assume the defense, it must clearly and
explicitly reserve its right to disclaim coverage early on.

10.       A duty
to defend any one of the claims against an insured requires the insurer to defend
the entire suit.
Comment:  The court will not allocate the defense to
only those claims in the petition that are covered under the policy.  The whole suit gets defended, if any part of
it does.  This rule does not apply in all
states.  It does not apply in certain
states restricting coverage away from causes of action that could not possibly
be covered, for example, battery or fraud.



11.       Courts
are required to resolve all doubts regarding the duty to defend in a favor of
the duty.
Comment:  Many courts subscribe to this rule quite
explicitly.  The word “all” should be
changed to the word “most” in some states. 
When a trial court indicates that there is a duty to defend, courts of
appeal seldom reverse them.

 

II.       
 PLAINTIFF’S PLEADINGS:
HOW TO PLEAD IN ACCORDANCE WITH THE RULES

1.                 
Some allegation of accident, negligence, inadvertence,
mistake or error must be pleaded (subject to a few exceptions).
Comment:  A fundamental principle of insurance is the
Principle of Fortuity.  Generally,
insurance is the transfer of risk for losses that are fortuitous.  This is not to suggest that only accidental
human behavior is insurable.  Intentional
conduct may be insurable (for example, when it accidentally leads to
consequences that cause unintended injuries). 
Nevertheless, insurance does not cover deliberate conduct that
intentionally causes contemplated injuries. 
Plaintiffs’ are advised not to be obscure on this point.  There should be a clear allegation of
fortuity.
2.                 
Address the time of occurrence in a general and broad
manner when you are unsure about when there was coverage—this may trigger more
than one policy.
Comment:  Avoiding dates may diminish over time, if
summary judgment is sought, for example, on the basis of limitations.  Frequently, however, the plaintiff and
defense counsel will defer any such motions until late in the game, in order to
make sure that the duty to defend is not destroyed.
3.                 
If it is reasonable to believe that some sort of bodily
injury may exist, plead that there is “probably” bodily injury.
Comment: Pleading
only mental anguish and/or financial loss, as a general rule, will not trigger
coverage.  In addition, it is not
permissible to lie and claim there was bodily injury when there was not any.



4.                 
If the plaintiff’s claim is defamation, the bodily
injury is not central. Make sure that injury and damages independent of bodily
injury are pleaded.
Comment:  There usually is no coverage for bodily
injury when recovery is being sought under Coverage B.  It need not be pleaded, and certainly should
not be emphasized–unless there is also an injury-causing accident involved.
5.                 
Remember the phrase “personal injury” is used quite
differently in tort-talk and the language of insurance policies.
Comment:  In many general liability insurance policies,
the phrase “personal injury” simply refers to the kinds of injuries that arise
in torts for which Coverage B applies. 
Under general tort law, the phrase “personal injury” refers to any kind
of injury (whether bodily, mental or financial) suffered by a person as a
result of the tort.
6.                 
Obtain all the possibly relevant liability insurance
policies at issue as soon as possible.
Comment:  If there are a variety of liability insurance
policies, there may be various ways to plead the complaint/petition.  Various policies may also influence how
insurance policies are triggered.  Study
them.  If policies are not available, but
one possibly exists, use standard forms as a guide until the policy/policies
are produced.

7.                 
Once you have a policy that may possibly provide coverage,
amend your petition/complaint as necessary to trigger a duty to defend.
Comment:  Often, defense lawyers will not attempt to
file special exceptions to pleadings if it is not in the interest of their
client, the insured.
8.                 
Plead facts both in particular and in general
ways.  Fact-pleadings that trigger duty
to defend coverage need not be specific, unless you are court ordered to do so.


9.                 
Conflicting fact patterns involving unintentional
conduct about which there is uncertainty should be explicitly pleaded in the
alternative
Comment:  This does not require that there be separate
repetitive paragraphs.
10.             
Never plead a factual proposition that you know
to be false.
Comment:  A lawyer asserting a clear factual
proposition which s/he knows to be false in a pleading is unethical.  This sort of conduct is prohibitive by the
Rules of Professional Conduct governing lawyer behavior and by Rules of
Procedure, such as Rule 11 of the Federal Rules of Civil Procedure, by Rule 13
of the Texas Rules of Civil Procedure and by those of most other
jurisdictions. 
11.             
Avoid pleading factual propositions that your client
will likely reject. 
Comment:  This is especially true if the client is
rejecting the proposition on the grounds of evidence.  There should be less concern when the client
is rejecting the proposition on the grounds of embarrassment.
12.             
It is not necessary to plead the legally organized
elements of causes of action in orderly detail to trigger a duty to defend.
Comment:  Recall section I, Rule 3, courts are not looking
for legal theories alleged.

13.       If the
defendant probably has liability insurance but no such insurer has provided a
defense, counsel for the plaintiff should consider doing at least one of the following:

a.         Ask the defendant’s
lawyer why not;
b.         Ask the
defense lawyer what you can do to help obtain insurer involvement (e.g.,
replead if petition was inappropriately pleaded).
c.         Report
the claim yourself to the defendant’s insurer, indicating who you are.
13.             
When in doubt use an experienced coverage lawyer to
draft the petition.
III.       
COVERAGE COUNSEL:  ANALYZING THE EIGHT CORNERS

1.         Carefully
study and take notes in your analysis of the petition and insurance policy,
including endorsements.
2.         Rarely
are insurers (or their lawyers) permitted to go outside the pleading to decide
a duty to defend even when the factual allegations in the live pleading are
extremely vague.  The use of extrinsic
evidence is not favored in most states, including the federal courts.  Most courts tend to strictly apply the
“Eight-Corners Rule.”  In the absence of
clear contrary authority, do not use extrinsic evidence.
Comment: Although Texas has no bright-line
rule against the use of extrinsic evidence, recently the courts have moved in
that direction.  California and Arizona are states that do not subscribe to
the rule against use of extrinsic evidence.

3.         Factual
matters that are not in any way connected to the underlying tort claims are not
to be included in duty-to-defend coverage analysis.
4.         Focus
on factual allegations not the causes of action, when analyzing
petitions for duty-to-defend determinations.
Comment:  This proposition applies to Coverage A in
general liability insurance policies.  It
applies whenever what is insured against are accidents.  Even in the case of Coverage B, it is
unlikely that an insurer would have to find a duty to defend if the only
relevant allegation in the petition is this: 
“The defendant committed the tort of defamation against the Plaintiff.”  Factual allegations can be quite general,
even vague, but there must be some factual allegations.  Arguably, the mere assertion that someone has
committed a tort does not by itself imply factual allegations triggering a duty
to defend.  The preceding assertion may
be controversial in some states.  On the
other hand, the following assertion probably triggers coverage:  “The Defendant committed the tort of
defamation with respect to the Plaintiff, although the Defendant did not
realize that his assertions were false.” 
This allegation contains a factual assertion, whereas the former does
not.
5.         Use of
the graphic tool below will assist in the analysis.
 
I    (1)  
(3)
II    (2)  
(3)
III    (1)  
(4)
IV    (2)  
(4)
Specific Factual
Allegations of
Unintentional
Behavior
General Factual
Allegations of
Unintentional
Behavior
Specific Factual
Allegations of
Intentional
Actions
General Factual
Allegations of
Intentional
Actions
            a.         Ignore columns III and IV.
            b.         Ignore the presence of any
contradictions or inconsistencies across the various columns.  Analyze each separate component of any
contradiction or inconsistency.
c.         If
there are sufficient specific factual
allegations to constitute negligence, gross negligence or products liability
cause of action, then there is a duty to defend.
d.         If there
are sufficient factual allegations to constitute a cause of action named in the
insuring agreement, then there is a duty to defend. 
 e.         If (i) there are sufficient general factual allegations to
constitute a cause of action and if (ii) a reasonable person can coherently
find a cause of action, then, there probably is a duty to defend.
 f.          Generally, facts alleging intentional conduct will be excluded and will
not trigger the duty to defend (so long as there is no other facts fall within
the scope of coverage).
6.         Resolve
ambiguities in favor of there being a duty to defend.
Comment:  Looking for, recognizing, discarding and even
thinking about ambiguities is sometimes a complicated process.  It is true in reviewing coverage.  The following are five sub-rules in thinking
about ambiguities.
a.         If the ambiguity is obvious, infer a
duty to defend.
b.         If an
ambiguity is obscure, and research reveals no unreversed cases asserting
ambiguity, ignore the ambiguity at least at first and treat the language as unambiguous,
without danger of insurer bad faith.
c.         If
ambiguity exists, is obscure and there is mixed law, let the insurer client
decide whether to defend after proper consultation.
d.         Remember:
The term “accident” is ambiguous, but few courts have said so.
e.         Ambiguity
comes in many forms:  vague terms can be
ambiguous; word orders can render apparent clarity ambiguous, and conflicts
between two terms can produce ambiguity.
7.         All
doubts and genuine uncertainties are to be resolved by courts in favor of the
duty to defend.  This is the way coverage
counsel should approach them.
8.         Coverage
determinations should be researched and written out.
CONCLUSION

As indicated in the beginning, this essay consists
of three separate sets of rules, introductions thereto and comments
thereon.  It is a formulation of basic
rules that can be utilized in analyzing the “Eight Corner’s Rule” and
determining whether the insurer owes its insured the duty to defend a lawsuit.  Hopefully, with this essay as a guide, the
analysis can be tackled with some ease.
*Michael Sean Quinn, Ph.D., J.D., c.p.c.u. . . .

The Law Firm of Michael Sean Quinn et

Quinn and Quinn

                                 1300 West Lynn Street, Suite 208

                                             Austin,
Texas 78703

                                                 (512)
296-2594

                                            (512)
344-9466 – Fax

                               E-mail:  mquinn@msquinnlaw.com
Olga
Seelig was substantially involved in writing an earlier draft, and it was
presented at a State Bar CLE in Texas.

Originally posted on 04/03/2015 @ 4:24 pm

Michael Sean Quinn, PhD, JD, CPCU, Etc

Michael Sean Quinn, PhD, JD, CPCU, Etc. (530)

One of Texas's leading insurance scholars, Michael Sean Quinn is a past chair of the Insurance Section of the State Bar of Texas and has a broad legal practice.

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