There Is a Stranger in My House: Texas Recognizes At Least One Exception to the “Eight Corners” Rule

In a prior article, I discussed the opinion by the United States Court of Appeals for the Fifth Circuit discussing Texas’ unwavering commitment to the “eight corners” rule when analyzing an insurer’s duty to defend. Although the “eight corners” rule is sound law in Texas, there exists at least one exception to the rule.

As mentioned above, in July of 2012, the Fifth Circuit noted that Texas has had an “unwavering commitment” to the “eight corners rule.” The “eight-corners rule” provides that courts may look only to the pleadings and the insurance policy to determine whether a duty to defend exists. The allegations in the pleadings are considered in light of the policy provisions without regard to their truth or falsity.

In 2011, the Houston Court of Appeals examined a case where a company claiming to be a commercial landlord at a shopping center sought coverage from the insurance company under its tenant’s commercial general liability policy. The coverage facts are straightforward. The company that sought coverage had been sued by an employee of the tenant that was injured in the tenant’s store, and in that lawsuit, the company was identified, albeit improperly, as the landlord of the property. As such, the company, although it was not actually the landlord, sought coverage under the tenant’s CGL policy because the CGL policy provided additional insured coverage to the landlord. Specifically, the tenant’s commercial general liability policy contained an endorsement naming “all lessors of the premises leased as additional insureds under the policy.”

The employee named the wrong company as the landlord, but under the “eight corners” rule, the trial court should have been confined to the employee’s petition naming the wrong company as the lessor and the tenant’s commercial general liability policy naming all lessors as additional insureds. Yet, the trial court looked beyond the petition and insurance policy and examined extrinsic evidence to determine that the company that sought coverage under the tenant’s CGL policy was not actually the lessor, and therefore, not an additional insured.

The Houston Court of Appeals held that the “eight corners” rule exists for the protection of the insured, and because the company that was improperly named in the employee’s lawsuit as the lessor was a total stranger to the policy would not be entitled to a defense under any set of facts, extrinsic evidence was admissible. Under the Court’s rationale, extrinsic evidence is admissible to show that an alleged insured is in fact a total stranger to the insurance policy under which coverage is claimed.