Richards v. State Farm Lloyds

Facts

Ten-year-old Jayden Meals died in an ATV accident while under the supervision of his paternal grandparents, Ds. Jayden's mother, Amanda Meals, sued Ds, alleging negligent failure to supervise and instruct Jayden. Meals' petition alleged Jayden was under the Ds' 'supervision' and alleged the accident occurred 'on or near the Ds' residence.' Ds had a homeowner's insurance policy with P, which provided if a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage to which this coverage applies, caused by an occurrence, P will: 1. pay up to our limit of liability for the damages for which the insured is legally liable; and 2. provide a defense at our expense by counsel of our choice. We may make any investigation and settle any claim or suit that we decide is appropriate. Ds asked P to provide a defense to the lawsuit and, if necessary, to indemnify them against any damages for which they are liable. Under a reservation of rights, D agreed. P then sued the grandparents and Meals in the Northern District of Texas, seeking a declaration that it had no duty to defend against the claims or indemnify Ds. P moved for summary judgment on the grounds that Meals' claims did not fall within the policy's coverage. P argued that the policy's 'motor-vehicle exclusion' applied. Under the policy's terms, the motor-vehicle exclusion applies when the alleged 'bodily injury' arises from 'use' of a 'motor vehicle owned or operated by or rented or loaned to any insured.' An ATV used 'while off an insured location' is a 'motor vehicle' for purposes of the policy. P argued that this exception is applicable because the bodily injury arising from the use of Ds' ATV on a public recreational trail, not on the grandparents' property. P submitted the police's vehicle crash report, which stated the location of the accident. The policy excludes coverage for bodily injuries to insureds and defines 'insured' to include '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.' P argued Jayden was an 'insured' because the grandparents were his joint managing conservators. P submitted a court order from a suit affecting the parent-child relationship (SAPCR). Ds argued that the eight-corners rule prohibited the district court from considering any evidence, including the crash report and the SAPCR order, when determining P's duty to defend the lawsuit. According to the court, the eight-corners rule did not prohibit consideration of the evidence because the rule applies only to insurance policies that explicitly require the insurer to defend 'all actions against its insured no matter if the allegations of the suit are groundless, false or fraudulent.' Ds' policy did not include a groundless-claims clause, so in the district court's view, the eight-corners rule did not apply at all. The court granted summary judgment for P. Ds appealed. The Fifth Circuit certified the following question 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? The panel further noted that the Fifth Circuit has consistently applied a different exception to the eight-corners rule, derived from Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523, 531 (5th Cir. 2004). That exception allows extrinsic evidence bearing on the duty to defend when (1) 'it is initially impossible to discern whether coverage is potentially implicated' and (2) '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.'

Issues

Rule of Law

Holding and Decision

Legal Analysis

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