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Fifth Circuit: Extrinsic Evidence Allowed to Determine Insurer’s Duty to Defend in Limited Circumstances
Insurance Law Update
Fifth Circuit Court of Appeals
In Ooida Risk Retention Group, Inc v. Williams, ___ F.3d ___, 2009 WL 2461850 (5th Cir. (Tex.) Aug. 12, 2009), the Fifth Circuit Court of Appeals held, in an “Erie guess” as to Texas state law, that a court can look beyond the eight corners of an insurance policy and the petition to determine whether an insurer has a duty to defend under limited circumstances.
The case arose out of state court litigation where tractor trailer driver Derrick Williams caused an accident that killed his passenger, Tony Moses. In the subsequent declaratory action brought in federal district court, Ooida sought a judicial declaration that it owed no duty to defend Williams, the insured. At issue was the policy’s “fellow employee” exclusion. The district court found that a duty to defend existed because it could not determine from the eight corners whether Williams was an “employee” of Moses, which would have precluded coverage under the exclusion.
On appeal, the Fifth Circuit relied on its decision in Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523 (5th Cir. 2004), to find an exception to the eight corners rule. According to the Ooida court, the “limited conditions of an exception” to the eight corners rule exist where the court can look to “readily ascertainable facts that do not overlap with the merits of or engage the truth or falsity of any facts alleged in the underlying case.”
The Ooida court concluded that the question of whether the “fellow employee” exclusion applied did not implicate Williams’ negligence in the underlying suit, nor would it contradict any of the allegations in the pleadings. The Ooida court therefore looked to Williams’ deposition testimony to find that Moses did in fact qualify as an employee, and that the “fellow employee” exclusion applied to negate Ooida’s duty to defend in the underlying suit.
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