966 F.3d 389
5th Cir.2020Background
- Ten-year-old Jayden Meals died in an ATV accident while temporarily in the care of his paternal grandparents, Janet and Melvin Richards.
- Jayden’s mother sued the Richards in Texas state court alleging negligent supervision and allowing a minor to operate an ATV on the Richards’ property without safety gear.
- The Richards sought defense and indemnity from their homeowner’s insurer, State Farm Lloyds; State Farm initially defended under a reservation of rights, later sued for a declaration of no duty to defend or indemnify, and moved for summary judgment.
- The policy provides Coverage L (bodily-injury defense/indemnity) but excludes injuries “arising out of” use of a motor vehicle (definition includes ATVs used off an insured location) and excludes injury to an "insured" (which includes relatives or persons under 21 who are residents of the household).
- The district court considered extrinsic evidence (crash report and admissions) and relied on a purported “policy-language exception” to the eight-corners rule to grant summary judgment for State Farm; the Fifth Circuit certified that question to the Texas Supreme Court.
- The Texas Supreme Court rejected the policy-language exception; on remand the Fifth Circuit held the eight-corners rule controls, declined to admit the extrinsic evidence under the narrow exception, reversed the district court’s no-duty-to-defend and no-duty-to-indemnify rulings, and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether insurer had a duty to defend under Texas’s eight-corners rule | Meals argued the third-amended petition alleges facts (ATV operation on Richards’ property, lack of supervision/helmet) that potentially fall within Coverage L, triggering a duty to defend | State Farm argued exclusions apply and sought to use extrinsic evidence to show the injury occurred off insured premises and that Jayden was an insured, negating duty to defend | Court held the eight-corners rule applies; Meals’s pleading potentially alleges coverage so insurer has a duty to defend (extrinsic evidence not admissible under eight-corners) |
| Validity of the “policy-language” exception to the eight-corners rule | N/A in merits of underlying case; appellants challenged district court’s reliance on the exception | State Farm and district court relied on the exception to admit extrinsic evidence because the policy did not contain a groundless-claims clause | Texas Supreme Court (certified answer) and Fifth Circuit: the policy-language exception is not permissible under Texas law; court erred to apply it |
| Whether extrinsic evidence may be considered under the Fifth Circuit’s “very narrow” exception (motor-vehicle and insured exclusions) | Meals: extrinsic evidence would overlap with merits and contradict allegations that accident occurred on Richards’ property and that Jayden resided elsewhere | State Farm: the complaint omits accident location and residence status, so extrinsic evidence (crash report, admissions, conservatorship order) is needed to show ATV was used off insured location and Jayden was an insured | Court held the “very narrow” exception does not apply because the extrinsic evidence would overlap with the merits (it would engage truth/falsity of allegations); extrinsic evidence not admissible to invoke exclusions |
| Justiciability of duty to indemnify before resolution of underlying suit | Appellants: duty to indemnify is not justiciable while underlying suit pending; reverse only if no possible duty to indemnify | State Farm: sought declaration of no duty to indemnify now | Court held duty to indemnify question is premature; because duty to defend exists and underlying case remains pending, indemnity is not yet justiciable and district court’s no-indemnity ruling reversed |
Key Cases Cited
- Pine Oak Builders, Inc. v. Great American Lloyds Insurance Co., 279 S.W.3d 650 (Tex. 2009) (articulates eight-corners rule for duty to defend)
- Ooida Risk Retention Group, Inc. v. Williams, 579 F.3d 469 (5th Cir. 2009) (duty-to-defend standard and limits on extrinsic evidence)
- Northfield Insurance Co. v. Loving Home Care, Inc., 363 F.3d 523 (5th Cir. 2004) (burden shifting and duty-to-defend analysis under Texas law)
- Zurich American Insurance Co. v. Nokia, Inc., 268 S.W.3d 487 (Tex. 2008) (resolve doubts in favor of duty to defend; pleadings construed liberally)
- GuideOne Specialty Mut. Ins. Co. v. Missionary Church of Disciples of Jesus Christ, 687 F.3d 676 (5th Cir. 2012) (describes the Fifth Circuit’s narrow exception permitting extrinsic evidence in limited circumstances)
- King v. Dallas Fire Insurance Co., 85 S.W.3d 185 (Tex. 2002) (distinguishes duty to defend from duty to indemnify)
- Richards v. State Farm Lloyds, 597 S.W.3d 492 (Tex. 2020) (Texas Supreme Court: policy-language exception to eight-corners rule is impermissible)