Filed: Sep. 09, 2019
Latest Update: Mar. 03, 2020
Summary: Case: 18-10721 Document: 00515110317 Page: 1 Date Filed: 09/09/2019 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT United States Court of Appeals Fifth Circuit No. 18-10721 FILED September 9, 2019 Lyle W. Cayce STATE FARM LLOYDS, Clerk Plaintiff–Appellee, v. JANET RICHARDS; MELVIN RICHARDS; AMANDA CULVER MEALS; Defendants–Appellants. Appeals from the United States District Court for the Northern District of Texas USDC No. 4:17-CV-753 Before ELROD and WILLETT, Circuit Judges.* PER CU
Summary: Case: 18-10721 Document: 00515110317 Page: 1 Date Filed: 09/09/2019 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT United States Court of Appeals Fifth Circuit No. 18-10721 FILED September 9, 2019 Lyle W. Cayce STATE FARM LLOYDS, Clerk Plaintiff–Appellee, v. JANET RICHARDS; MELVIN RICHARDS; AMANDA CULVER MEALS; Defendants–Appellants. Appeals from the United States District Court for the Northern District of Texas USDC No. 4:17-CV-753 Before ELROD and WILLETT, Circuit Judges.* PER CUR..
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Case: 18-10721 Document: 00515110317 Page: 1 Date Filed: 09/09/2019
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 18-10721 FILED
September 9, 2019
Lyle W. Cayce
STATE FARM LLOYDS, Clerk
Plaintiff–Appellee,
v.
JANET RICHARDS; MELVIN RICHARDS; AMANDA CULVER MEALS;
Defendants–Appellants.
Appeals from the United States District Court
for the Northern District of Texas
USDC No. 4:17-CV-753
Before ELROD and WILLETT, Circuit Judges.*
PER CURIAM:**
In summer 2017, a 10-year-old died in an ATV accident at his
grandparents’ house. The boy’s mom sued the grandparents, the Richards. The
Richards asked their insurer, State Farm, to defend (and if necessary,
indemnify) them. But State Farm refused and sought a declaration in federal
court that it had no duty to defend or indemnify.
* This matter is being decided by a quorum. 28 U.S.C. § 46(d).
**Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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No. 18-10721
In doing so, State Farm relied on extrinsic evidence. The Richards
argued that the district court could not consider that evidence under Texas’s
eight-corners rule. This case thus involves important and determinative
questions of Texas law, as to which there is no controlling Texas Supreme
Court precedent. So we decline to make an Erie guess and instead certify
questions to the Supreme Court of Texas.
CERTIFICATION FROM THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT TO THE SUPREME COURT OF TEXAS,
PURSUANT TO ART. 5, § 3-C OF THE TEXAS CONSTITUTION AND
RULE 58 OF THE TEXAS RULES OF APPELLATE PROCEDURE.
TO THE SUPREME COURT OF TEXAS AND THE HONORABLE
JUSTICES THEREOF:
I. STYLE OF THE CASE
The style of the case is State Farm Lloyds, Plaintiff–Appellee, v. Janet
Richards, Melvin Richards, and Amanda Culver Meals, Defendants–
Appellants, in the United States Court of Appeals for the Fifth Circuit, on
appeal from the judgment of the United States District Court for the Northern
District of Texas, Fort Worth Division. Federal jurisdiction over the issues
presented in this case is based on 28 U.S.C. § 1332.
II. STATEMENT OF THE CASE
Jayden Meals was killed in an all-terrain vehicle accident while under
the temporary care of his grandparents, the Richards. Jayden’s mother sued
the Richards in Texas state court, essentially alleging they were negligent in
failing to supervise and instruct Jayden. The Richards sought a defense from
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State Farm Lloyds pursuant to their homeowner’s insurance policy. That policy
required State Farm to provide a defense against a suit for bodily injury.
Specifically, the insurance policy requires State Farm to provide a
defense “[i]f a claim is made or a suit is brought against an insured for damages
because of bodily injury . . . to which this coverage applies, caused by an
occurrence.”
State Farm initially defended this suit pursuant to a reservation of
rights, but later sought a declaration that it had no duty to defend or indemnify
the Richards. In a summary-judgment motion, State Farm argued that two
exclusions barred coverage.
The first, the “motor-vehicle exclusion,” exempts coverage for bodily
injury “arising out of the . . . use . . . of . . . a motor vehicle owned or operated
by or loaned to any insured.” The policy defines “motor vehicle” to include an
“all-terrain vehicle . . . owned by an insured and designed or used for
recreational or utility purposes off public roads, while off an insured location.”
The policy defines “insured location” to mean “the residence premises.” Thus,
the policy excludes coverage for bodily injury arising from the use of an ATV
while off the Richards’ premises. In support of its summary-judgment motion,
State Farm attached a vehicle crash report showing that the accident occurred
away from the Richards’ premises, as well as the Richards’ admissions that the
accident occurred off an insured location.
The other exclusion—the “insured exclusion”—excludes coverage for
bodily injury to any insured “within the meaning of part a. or b. of the definition
of insured.” The policy defines “insured” to mean “you and, if residents of your
household: a. your relatives; and b. any other person under the age of 21 who
is in the care of a person described above.” State Farm thus attached the
Richards’ admission that they were Jayden’s grandparents, as well as an order
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from a SAPCR appointing them as joint-managing conservators in order to
show that Jayden was a “resident of [the Richards’] household.”
The parties filed cross summary-judgment motions. The Richards
argued that, under Texas’s eight-corners rule, State Farm could not rely on
extrinsic evidence to prove up a policy exclusion. The district court disagreed
and, finding that the extrinsic evidence satisfied both exclusions, granted
summary judgment for State Farm. 1 The district court also held that State
Farm had no duty to indemnify. 2
According to the district court, the eight-corners rule does not apply if a
policy does not include language requiring the insurer to defend “all actions
against its insured no matter if the allegations of the suit are groundless, false
or fraudulent.” 3 Because the district court concluded that State Farm’s duty to
defend in this case arose only if a suit was brought to which the coverage
applies, it reasoned that extrinsic evidence was admissible to make that
determination:
[T]he policy at issue here is unlike those typically at issue
in Texas cases where the duty to defend is defined more broadly
than the duty to indemnify. Those cases, in which an insurance
policy provides that the insurer must defend any suit brought
against its insured “even if the allegations of the suit are
groundless, false or fraudulent,” rely upon the eight-corners or
complaint-allegation rule to determine the duty to defend. See
Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523, 528
(5th Cir. 2004); GuideOne Elite Ins. Co. v. Fielder Rd. Baptist
Church, 197 S.W.3d 305, 308 (Tex. 2006). Pursuant to that rule,
an insurer’s duty to defend is determined by the allegations in
the third-party plaintiff’s pleadings and the language of the
insurance policy at issue. Courts do not go outside the pleadings
of the underlying suit except in narrow circumstances where the
1 State Farm Lloyds v. Richards, No. 4:17-CV-753-A, 2018 WL 2225084, at *3 (N.D.
Tex. May 15, 2018).
2 Id. at *4–5.
3
Id. at *3.
4
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court is determining a pure coverage question that may be
determined by facts that do not contradict the merits of the
underlying claim. GuideOne, 197 S.W.3d at 310.
In this case, the policy does not require plaintiff to defend
all actions against its insured no matter if the allegations of the
suit are groundless, false or fraudulent. Rather, the duty to
defend arises only if suit is brought to which the coverage
applies. Thus, the eight-corners rule is not applicable, B. Hall
Contracting, Inc. v. Evanston Ins. Co., 447 F. Supp. 2d 634, 645
(N.D. Tex. 2006), rev’d on other grounds, 273 F. App’x 310 (5th
Cir. 2008), and plaintiff contends that the court can consider
evidence outside Meals’s pleading to determine whether the
Richards’s policy provides coverage for Meals’s claims. Plaintiff
does not contest the facts pleaded by Meals; rather, it says that
additional facts show that there is no coverage. 4
State Farm makes no attempt to defend the district court’s analysis.
The Richards and Meals appealed.
III. LEGAL ISSUES
This is a diversity suit, so Texas law controls. In determining Texas
law, we first consider the final decisions of the Supreme Court of Texas. 5 If
the Texas Supreme Court hasn’t pronounced an opinion on an issue, we may
certify the question to the Texas Supreme Court. 6 The Texas Constitution—
as well as the Texas Rules of Appellate Procedure—permit that court to
“answer questions of law certified to it by any federal appellate court if the
certifying court is presented with determinative questions of Texas law
having no controlling Supreme Court precedent.” 7
The issues in this case concern Texas’s eight corners rule and whether a
potential extrinsic-evidence exception to that rule applies in this case.
4 Id. at *2–3 (docket citations omitted).
5 Austin v. Kroger Tex. L.P., 746 F.3d 191, 196 (5th Cir. 2014); see also U.S. Metals,
Inc. v. Liberty Mut. Grp., Inc., 589 F. App’x 659, 661–62 (5th Cir. 2014) (citing id.).
6 Austin, 746 F.3d at 196.
7 TEX. CONST. art. V, § 3-c(a); TEX. R. APP. P. 58.1.
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A. The Eight-Corners Rule
“In this circuit, courts routinely adjudicate the scope of insurers’ duty to
defend under Texas law. To this point, both Texas courts and federal courts
have consistently applied the eight-corners rule.” 8 “Under the eight-corners
rule, the duty to defend is determined by the claims alleged in the petition and
the coverage provided in the policy.” 9 “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.” 10
“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.” 11
“Courts have defined the scope of the duty to defend broadly: ‘Where the
[petition] does not state facts sufficiently to clearly bring the case within or
without the coverage, the general rule is that the insurer is obligated to defend
if there is, potentially, a case under the [petition] within the coverage of the
policy.’ ” 12 “It is the insured’s burden to establish that a claim is potentially
within the scope of coverage.” 13 “Once the insured has established this, the
burden shifts to the insurer to show ‘that the plain language of a policy
exclusion or limitation allows the insurer to avoid coverage of all claims, also
within the confines of the eight corners rule.’ ” 14 “Because the only two
8 GuideOne Specialty Mut. Ins. Co. v. Missionary Church of Disciples of Jesus Christ,
687 F.3d 676, 682 (5th Cir. 2012).
9 Pine Oak Builders, Inc. v. Great Am. Lloyds Ins. Co., 279 S.W.3d 650, 654 (Tex. 2009)
(Willett, J.).
10 GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d 305, 308 (Tex.
2006).
11 Id. (citing Nat’l Union Fire Ins. Co. v. Merchs. Fast Motor Lines, Inc.,
939 S.W.2d
139, 141 (Tex. 1997)).
12 Missionary Church, 687 F.3d at 683 (alteration in original) (quoting Nat’l Union
Fire Ins.
Co., 939 S.W.2d at 141).
13 Lincoln Gen. Ins. Co. v. Reyna, 401 F.3d 347, 350 (5th Cir. 2005).
14 Id. (citation omitted).
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documents relevant to the duty-to-defend inquiry are the insurance policy and
the petition, an insurer’s duty to defend can be determined at the moment the
petition is filed.” 15 Thus, “[r]esort to evidence outside the four corners of these
two documents is generally prohibited.” 16
B. Extrinsic-Evidence Exception
In Northfield Ins. Co. v. Loving Home Care, Inc., we suggested that if the
Texas Supreme Court were to recognize an extrinsic-evidence exception to the
eight-corners rule, it would do so only
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. 17
Although Texas has never expressly adopted this two-pronged exception, 18 this
court has assumed its viability because the Texas Supreme Court has cited it
with approval. 19 Even so, the Texas Supreme Court has yet to decide a case
that fits within this narrow exception. 20
15 ACE Am. Ins. Co. v. Freeport Welding & Fabricating, Inc., 699 F.3d 832, 840 (5th
Cir. 2012).
16 Id. (citation omitted).
17
363 F.3d 523, 531 (5th Cir. 2004).
18 See GuideOne, 197 S.W.3d at 308 (“[T]his Court has never expressly recognized an
exception to the eight-corners rule.”); Zurich Am. Ins. Co. v. Nokia, Inc.,
268 S.W.3d 487, 497
(Tex. 2008) (“[W]hile Maryland has recognized exceptions, in some limited circumstances, to
the eight-corners rule, Texas has not.”).
19 Ooida, 579 F.3d at 475–76 (“In [GuideOne], the Supreme Court of Texas cited this
language from Northfield with approval, though it held that the circumstances of the case
before it did not meet the conditions of the exception.”);
id. at 476 (“We find that GuideOne
supports our ‘Erie guess’ that the limited conditions of an exception to the eight corners rule
exists here.”); Star-Tex Res., L.L.C. v. Granite State Ins. Co., 553 F. App’x 366, 371 (5th Cir.
2014) (“We conclude that there is a limited exception to the eight-corners rule that, under the
circumstances of this appeal, allows us to consider extrinsic evidence.”); see also Lyda
Swinerton Builders, Inc. v. Okla. Sur. Co.,
903 F.3d 435, 448 (5th Cir. 2018).
20 See GuideOne, 197 S.W.3d at 309–10; Zurich Am. Ins.
Co., 268 S.W.3d at 497; Pine
Oak Builders,
Inc., 279 S.W.3d at 654.
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In GuideOne, the exception did not apply because the extrinsic evidence
engaged in the truth or falsity of the facts alleged in the underlying petition,
thus failing the second prong. 21 There, the underlying plaintiff alleged she was
sexually abused by the insured’s employee during a particular timeframe. The
insurer, however, introduced evidence showing that the alleged abuser was not
employed during the policy’s coverage period. The court noted this evidence
“directly contradict[ed] the plaintiff’s allegations that the [insurer] employed
[the abuser] during the relevant coverage period, an allegation material, at
least in part, to the merits of the third-party claim.” 22 The court also noted that
the plaintiff’s allegations potentially implicated coverage because “the contract
provided that [the insurer] should ‘defend any suit brought against [the
insured] seeking damages, even if the allegations of the suit are groundless,
false or fraudulent’ ” and “Jane Doe alleged that Evans sexually assaulted her
during the policy period and was a youth minister at the Church at the time.” 23
The court, however, suggested that extrinsic evidence might be permissible if
it concerned only a “pure coverage” question, and provided this example:
[I]n 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 costs. During this
subsequent litigation, the parties stipulated that the insured’s
only son, Roy Hamilton Boll, was driving the insured vehicle.
The court of appeals concluded that the stipulation established
21 197 S.W.3d at 309–10.
22 Id. at 310.
23
Id.
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the accident had not been covered and that the insurer had no
duty to defend.
The extrinsic evidence in Boll, however, went strictly to
the coverage issue. It did not contradict any allegation in the
third-party claimant’s pleadings material to the merits of that
underlying claim. 24
In Zurich American Insurance Co. v. Nokia, Inc., the Texas Supreme
Court again declined to adopt an exception to the eight-corners rule. 25 There,
plaintiffs in several underlying lawsuits (five MDL cases) alleged that Nokia’s
phones resulted in “biological effects” or “biological injury.” The policy,
however, covered “damages because of bodily injury.” 26 Although the court’s
central holding was that the plaintiffs sought damages because of “bodily
injury”—and thus the insurer had a duty to defend—the court’s short
discussion of the eight-corners rule is relevant. 27 The insurers urged the court
to consider one group of plaintiffs’ briefs in a separate MDL case which
indicated that their claims were solely for economic damages—not bodily
injury. 28
The court rejected this invitation for several reasons, but primarily
because Texas had not recognized an exception to the eight-corners rule. 29 The
court further noted that “even if we were to recognize [the Northfield exception]
to the eight-corners rule, this case would not fit within its parameters.” 30 In
addressing the exception, the court did not reach Nokia’s argument that the
extrinsic evidence touched on the case’s merits (going to the exception’s second
prong); rather, it foreclosed its analysis at the first prong because the policy
24 Id.
25 268 S.W.3d at 497.
26 Id. at 491.
27 See
id. at 493–97.
28
Id. at 497.
29
Id.
30 Id. at 498.
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covered damages because of bodily injury, and that’s exactly what the plaintiffs
alleged. 31
The most recent case from the Texas Supreme Court involved five
underlying suits alleging water damage due to the insured’s defective
construction. 32 The policy in that case provided coverage for “those sums that
the Insured becomes legally obligated to pay as damages because of . . .
‘property damage’ to which this insurance applies,” but another provision
removed coverage for property damage to the insured’s completed work. 33 That
exclusion contained an exception “if the damaged work or the work out of which
the damage arises was performed on your behalf by a subcontractor.” 34 Thus,
if the petitions alleged defective work by a subcontractor, then the insurer had
a duty to defend. 35 One of the five underlying complaints did not contain any
allegations of defective work by a subcontractor, so the insured “submitted
evidence that the defective work alleged . . . was performed by
subcontractors.” 36 The court rejected this evidence because it contradicted the
facts alleged in the suit (that only the insured performed the work). Thus, the
insurer failed at the second prong.
In sum, there is no controlling Texas Supreme Court caselaw
determining whether there’s a policy-language exception to the eight-corners
rule. And so, we turn to the Texas Supreme Court to answer our certified
31 Id. (“We need not reach this issue, however, because here it is not ‘initially
impossible to determine whether coverage is potentially implicated’—it is.” (quoting
GuideOne, 197 S.W.3d at 309)).
32 Pine Oak, 279 S.W.3d at 651–52.
33 Id. at 653 n.11.
34 Id. at 653.
35 See id. (“[C]overage therefore depends in part on whether the alleged defective work
was performed by Pine Oak or a subcontractor.”).
36 Id. at 654.
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question. This is an issue that has been, and will likely continue to be, the
subject of insurance litigation throughout this circuit.
IV. QUESTION CERTIFIED
We hereby certify the following question of law to the Supreme Court of
Texas:
1. Is the policy-language exception to the eight-corners rule
articulated in B. Hall Contracting Inc. v. Evanston Ins. Co.,
447 F. Supp. 2d 634 (N.D. Tex. 2006), a permissible exception
under Texas law?
We disclaim any intention or desire that the Supreme Court of Texas confine
its reply to the precise form or scope of the question certified.
* * *
QUESTIONS CERTIFIED.
A True Copy
Certified order issued Sep 09, 2019
Clerk, U.S. Court of Appeals, Fifth Circuit
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