Janet Richards, Melvin Richards, and Amanda Culver Meals v. State Farm Lloyds

Summary

The Supreme Court of Texas answered a certified question from the Fifth Circuit concerning whether a federal district court’s policy-language exception to the eight-corners rule is permissible under Texas law. The court held that the eight-corners rule does not become inapplicable merely because an insurance policy lacks an express groundless-claims clause. The court reserved judgment on other potential exceptions allowing consideration of extrinsic evidence.

Holdings

1. Under Texas law, an insurer does not contract around or eliminate the eight-corners rule merely by omitting from its policy an express agreement to defend claims that are groundless, false, or fraudulent. The policy-language exception articulated in B. Hall Contracting is not a permissible exception.
2. The court did not decide whether the separate Northfield exception, which may permit consideration of extrinsic evidence concerning a fundamental coverage issue that does not overlap with the merits, is permissible under Texas law.

Questions Presented

1. Whether the policy-language exception articulated in B. Hall Contracting Inc. v. Evanston Insurance Co., under which the eight-corners rule does not apply unless the policy contains a groundless-claims clause, is permissible under Texas law.
2. Whether the Supreme Court of Texas should address the Fifth Circuit's separate Northfield exception permitting limited extrinsic evidence on coverage issues.

Disposition

other