No “Policy-Language Exception” to the Eight-Corners Rule

by LaDawn H. Nandrasy

Richards v. State Farm Lloyds  ::  No “Policy-Language Exception” to the Eight-Corners Rule

In March 2020, the Supreme Court of Texas confirmed that the so-called “eight-corners rule” is still a settled feature of Texas insurance law. In Richards v. State Farm Lloyds, No. 19-0802, the court analyzed the permissibility of a “policy-language exception” to the eight-corners rule. Under that rule, an insurer’s duty to defend is determined by considering the “four corners” of the third-party plaintiff’s pleading in light of the “four corners” of the insurance policy, without regard to the truth or falsity of the allegations in the pleading.

In Richards, a 10-year-old boy died in an all-terrain vehicle accident while under the supervision of his paternal grandparents. His mother sued the grandparents, alleging negligent failure to supervise and instruct the boy on the operation of the vehicle. The grandparents asked their insurer, State Farm, to provide them a defense and, potentially, indemnification for any damages. State Farm filed suit seeking summary judgment that the mother’s claims did not fall within the policy’s coverage because of several exclusions. After considering extrinsic evidence submitted by State Farm to establish applicability of the exclusions to its defense obligation, the court granted summary judgment in favor of State Farm. The court concluded that the eight-corners rule only applies to insurance policies containing a “groundless-claims” clause, in which the insurer expressly agrees to defend the alleged claims, even if groundless, false, or fraudulent.

The Texas Supreme Court reversed. The court acknowledged that policy language designed to avoid the eight-corners rule might be effective, but reasoned that State Farm did not contract around the rule merely by the declining to expressly agree to defend groundless claims. In other words, the absence of policy language that State Farm would defend groundless claims is not the same as the presence of language that it would not provide such a defense.

The court explained that Texas courts have long interpreted contractual duties to defend by applying the eight-corners rule without regard to the presence of a “groundless-claims” clause, and pointed out, “[i]f any party is familiar with the overwhelming precedent to that effect it is a large insurance company.” State Farm “knows how to contract around [the eight-corners rule],” but “did not do so merely by omitting the words ‘groundless, false or fraudulent.’”

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