Guideone Elite v. Fielder Rd Baptist Church

• Citation: 197 S.W.3d 305
• Decision Date: 30 June 2006
• Docket Number: No. 04-0692.,04-0692.
• Parties: GUIDEONE ELITE INSURANCE COMPANY f/k/a Preferred Abstainers Insurance Company, Petitioner, v. FIELDER ROAD BAPTIST CHURCH, Respondent.
• Court: Supreme Court of Texas

197 S.W.3d 305

GUIDEONE ELITE INSURANCE COMPANY f/k/a Preferred Abstainers Insurance Company, Petitioner, v. FIELDER ROAD BAPTIST CHURCH, Respondent.

No. 04-0692.

Supreme Court of Texas.

Argued October 20, 2005.

Decided June 30, 2006.

Rehearing Denied August 25, 2006.

Sandra Cockran Liser, Grant Liser, Jennifer L. Willingham, for petitioner.

James E. Lobert, Jerry R. Hoodenpyle, David Graham Petter, Robert M. Roach, Jr., Robert J. Cunningham, Robert B Dubose, for respondent.

David M. Pruessner, Wade Caven Crosnoe, for amicus curiae.

Justice MEDINA delivered the opinion of the Court, joined by Chief Justice JEFFERSON, Justice O'NEILL, Justice GREEN, and Justice JOHNSON.

In this declaratory judgment action, we are asked to create an exception to the complaint-allegation or eight-corners rule. The eight-corners rule provides that when an insured is sued by a third party, the liability insurer is to determine its duty to defend solely from terms of the policy and the pleadings of the third-party claimant. Resort to evidence outside the four corners of these two documents is generally prohibited.

The trial court, relying on evidence extrinsic to the policy and pleadings, declared that the insurer had no duty to defend the underlying claim against its insured. The court of appeals, however, reversed, concluding that because the circumstances of the case presented no reason to create an exception to the eight-corners rule, the trial court had erred in using extrinsic evidence to defeat the insurer's duty to defend. 139 S.W.3d 384. We agree and, accordingly, affirm the court of appeals' judgment.

I

GuideOne Elite Insurance Company issued a commercial general liability insurance policy to Fielder Road Baptist Church, effective March 31, 1993. The policy included the following liability coverage for sexual misconduct:

We agree to cover your legal liability for damages because of bodily injury, excluding any sickness or disease, to any person arising out of sexual misconduct which occurs during the policy period. We shall have the right and duty to investigate any claim . . . and to defend any suit brought against you seeking damages, even if the allegations of the suit are groundless, false or fraudulent, and we may make any settlement we deem expedient.

The policy expired on March 31, 1994.

On June 6, 2001, Jane Doe filed a sexual misconduct lawsuit against the Church and Charles Patrick Evans. In her pleadings, Jane Doe alleged that "[a]t all times material herein from 1992 to 1994, Evans was employed as an associate youth minister and was under Fielder Road's direct supervision and control when he sexually exploited and abused Plaintiff." The Church demanded that GuideOne defend it in the lawsuit and indemnify it for any judgment or settlement. GuideOne agreed to defend, but questioned coverage under the policy and reserved its rights to determine that issue at a later time.

A few months later, GuideOne filed this declaratory judgment action seeking the policy's construction and a declaration that GuideOne had no duty to defend or indemnify the Church in the underlying sexual misconduct lawsuit. In this action, GuideOne sought discovery of Evans' church employment history. The Church objected, asserting that GuideOne's duty to defend should be determined from the pleadings and the insurance policy, without resort to extrinsic evidence. The trial court, however, declined to block the discovery request, and the Church thereafter advised GuideOne that Evans ceased working for it on December 15, 1992, before the GuideOne policy took effect.

After both parties filed motions for summary judgment, the trial court granted GuideOne's motion, denied the Church's, and rendered judgment declaring that GuideOne had no duty to defend the Church in the underlying sexual misconduct case. The court of appeals, however, reversed the summary judgment, concluding that the trial court had erred in considering extrinsic evidence to defeat GuideOne's duty to defend its insured. 139 S.W.3d 384. The court of appeals further concluded that Jane Doe's allegations were sufficient to invoke that duty, remanding the case to the trial court for a hearing only on costs and attorney's fees. Id. at 390-91. GuideOne petitioned this Court for review.

II

GuideOne argues that it had no duty to defend the Church against the underlying claim of sexual misconduct because Evans left his job as a youth minister before the policy's effective date. Because Jane Doe's allegations against the Church involved Evans' conduct while a youth minister, GuideOne suggests, that extrinsic evidence of when that relationship ended establishes no coverage existed for Evans' acts during the policy period. Recognizing the eight-corners rule as an impediment to its argument, however, GuideOne contends a number of reasons support its proposition that extrinsic evidence regarding Evans' employment status be considered as an exception to the rule.

First, GuideOne argues that an exception should apply because the extrinsic evidence here was primarily relevant to the issue of coverage, rather than the merits of the plaintiff's underlying claim. Alternatively, GuideOne argues that extrinsic evidence is needed to supplement the plaintiff's allegations because those allegations alone are insufficient to determine coverage or the duty to defend. Finally, GuideOne submits that should the Court conclude that the employment evidence is relevant both to coverage and liability, an exception to the eight-corners rule should nevertheless be recognized for this type of "mixed" or "overlapping" extrinsic evidence.

Under the eight-corners or complaint-allegation rule, an insurer's duty to defend is determined by the third-party plaintiff's pleadings, considered in light of the policy provisions, without regard to the truth or falsity of those allegations. Argonaut Sw. Ins. Co. v. Maupin, 500 S.W.2d 633, 635 (Tex.1973); Heyden Newport Chem. Corp. v. S. Gen. Ins. Co., 387 S.W.2d 22, 24 (Tex.1965). The rule takes its name from the fact that only two documents are ordinarily relevant to the determination of the duty to defend: the policy and the pleadings of the third-party claimant. King v. Dallas Fire Ins. Co., 85 S.W.3d 185, 187 (Tex.2002). Facts outside the pleadings, even those easily ascertained, are ordinarily not material to the determination and allegations against the insured are liberally construed in favor of coverage. Nat'l Union Fire Ins. Co. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex.1997).

Although this Court has never expressly recognized an exception to the eight-corners rule, other courts have.¹ Generally, these courts have drawn a very narrow exception, permitting the use of extrinsic evidence only when relevant to an independent and discrete coverage issue, not touching on the merits of the underlying third-party claim.² Recently, the Fifth Circuit observed that if this Court were to recognize an exception to the eight-corners rule, it would likely do so under similar circumstances, such as: "when it is initially impossible to discern whether coverage is potentially implicated and when the extrinsic evidence goes solely to a fundamental issue of coverage which does not overlap with the merits of or engage the truth or falsity of any facts alleged in the underlying case." Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523, 531 (5th Cir.2004) (emphasis in original).

GuideOne relies on extrinsic evidence that is relevant both to coverage and the merits and thus does not fit the above exception to the rule. Hence, GuideOne argues that we should broaden the exception to include this type of "mixed" or "overlapping" extrinsic evidence. But very little support exists for this position, and the Fifth Circuit Court of Appeals has previously rejected a similar use of overlapping facts for this purpose. In Gulf Chemical & Metallurgical Corp. v. Associated Metals & Minerals Corp., one of the plaintiffs in the underlying toxic-tort action alleged that one of the defendants, Gulf, was strictly liable because it had sold or shipped molyoxide. 1 F.3d 365, 367 (5th Cir.1993). The petition did not specifically state when Gulf had shipped molyoxide, but the petition did allege that the plaintiffs had suffered injures from exposure to the toxin between 1946 and 1990. Id. at 368. Extrinsic evidence would have established that Gulf had not shipped any molyoxide until January 20, 1986, which was three days after the expiration of the insurance policy in question. Id. at 368, 370. Although the fact at issue concerned both the merits and coverage, the Fifth Circuit, applying Texas law, rejected the use of extrinsic evidence under these circumstances. Id. at 371. We likewise reject the use of overlapping evidence as an exception to the eight-corners rule because it poses a significant risk of undermining the insured's ability to defend itself in the underlying litigation. See Ellen S. Pryor, Mapping the Changing Boundaries of the Duty to Defend in Texas, 31 TEX. TECH LAW REV. 869, 891-95 (2000) (discussing risks associated with using overlapping evidence as an exception to the eight-corners rule).³

Those courts that have recognized an exception to the eight-corners rule have done so under limited circumstances involving pure coverage questions. For example, in International Service Insurance Co. v. Boll, 392 S.W.2d 158, 160 (Tex.Civ. App.—Houston 1965, writ ref'd n.r.e.), the insurer refused to defend its insured in an auto-collision case because of a policy endorsement that excluded coverage for "any claim arising from accidents which occur while any automobile is being operated by Roy Hamilton Boll." The plaintiff's petition alleged that the insured's son was driving the insured's car when the accident occurred, but did not otherwise identify the driver. After resolving the third-party claim, the insured sued his insurer to recover his defense...