Texas Law Allows Courts to Look Beyond Eight-Corners Analysis, Consider Extrinsic Evidence, in Certain Circumstances

By: Daniel B. Heidtke

In a significant ruling issued less than one week ago, the Supreme Court of Texas adopted a modified form of the “Northfield exception” to the “eight-corners rule” previously set out by the U.S. Court of Appeals for the Fifth Circuit in Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523 (5th Cir. 2004).

The court in Monroe Guaranty Ins. Co. v. BITCO General Ins. Co., Case No. 21-0232, explained that the practice of looking at extrinsic evidence outside of the four corners of the complaint and four corners of the insurance policy is permissible, in certain circumstances.  As explained by the court, those circumstances require that the extrinsic evidence “(1) goes solely to the issue of coverage and does not overlap with the merits of liability; (2) does not contradict facts alleged in the pleading; and (3) conclusively establishes the coverage fact to be proved.”

Continue reading “Texas Law Allows Courts to Look Beyond Eight-Corners Analysis, Consider Extrinsic Evidence, in Certain Circumstances”

Insurers in Nevada Are Entitled to Reimbursement of Defense Costs Paid to Defend Non-Covered Claims

By: Dominica C. Anderson and Daniel B. Heidtke

In a 4-3 decision filed on March 11, the Nevada Supreme Court responded to a certified question from the United States Court of Appeals for the Ninth Circuit.  In Nautilus Insurance Company v. Access Medical, LLC; Robert Clark Wood, II; and Flournoy Management LLC, 137 Nev. Adv. Op. 10 (Nev. 2021), the court held that an insurer that reserves its right to seek reimbursement of defense costs paid to defend an insured may recover those defense costs from the insured upon a showing that the claim was not covered.  The court held, “when a court finally determines that the insurer had no contractual duty to defend, the insurer may ordinarily recover in restitution if it has clearly reserved the right to do so in writing.”

The coverage dispute arose out of underlying litigation between former business partners that worked together selling medical devices.  “After the partnership soured,” one of the former business partners alleged in a lawsuit that his former business partners (the insureds, in the coverage dispute) intentionally interfered with his new business, including by allegedly telling a prospective client that he was “banned” from selling medical devices.  The former business partner-insureds tendered the intentional interference claim to their insurance carrier.

Continue reading “Insurers in Nevada Are Entitled to Reimbursement of Defense Costs Paid to Defend Non-Covered Claims”

A Reservation of Rights Alone Is Not Enough to Trigger Independent Counsel in California

Last month, California’s Third Appellate District added to a growing list of California appellate decisions holding that the mere possibility or potential for a conflict is not legally sufficient to require a defending insurer to provide independent counsel under California’s Cumis statute, Civil Code section 2860. Simply because the insurer sent a reservation of rights letter is not enough.

In Centex Homes v. St. Paul Fire and Marine Ins. Co. (1/22/2018, No. C081266) __Cal.App.5th __, the Third District addressed a dispute between insurer St. Paul and a developer, Centex Homes, regarding whether the insurer was required to provide independent counsel to defend Centex against actions brought by several homeowners alleging construction defects. St. Paul insured one of Centex’s subcontractors—Ad Land Venture—and Centex tendered the lawsuits to St. Paul for defense. St. Paul agreed to defend, subject to certain reservations of rights, including St. Paul’s right to deny indemnity to Centex for any claims by the homeowners not covered by the policy, including claims for damage to Ad Land’s work and damage caused by the work of other subcontractors not insured by St. Paul.
St. Paul appointed a defense attorney to defend Centex in the underlying actions, but Centex claimed St. Paul’s reservation of rights created a conflict requiring St. Paul to pay for independent counsel under California Civil Code section 2860.

Centex essentially argued that a right to independent counsel exists whenever an insurer reserves rights. The Third District disagreed. Quoting Gafcon, Inc. v. Ponsor & Associates (2002) 98 Cal.App.4th 1388, 1421, the court explained, “a conflict of interest does not arise every time the insurer proposes to provide a defense under a reservation of rights. There must also be evidence that ‘the outcome of [the] coverage issue can be controlled by counsel first retained by the insurer for the defense of the [underlying] claim.’” The court rejected the contention that defense counsel in a construction defect case could control the outcome of the coverage case. (Centex, supra, at p.13-14.)

A conflict of interest exists “only when the basis for the reservation of rights is such as to cause assertion of factual or legal theories which undermine or are contrary to the positions to be asserted in the liability case[.]” (Gafcon, supra, 98 Cal.App.4th at 1421-22.) A “mere possibility of an unspecified conflict does not require independent counsel[;]” rather, the conflict must be “significant, not merely theoretical, actual, not merely potential.” (Dynamic Concepts, supra, 61 Cal.App.4th at 1007.)

The Centex decision follows a long line of California decisions that are “both considered and settled.” (Centex, supra, at p.8.) California courts have repeatedly held that in the absence of an actual conflict of interest giving rise to the insured’s right to independent counsel, the defending insurer controls the defense of the underlying suit, including settlement and trial. “[U]ntil such a conflict arises, the insurer has the right to control defense and settlement of the third party action against its insured, and is generally a direct participant in the litigation.” (Gafcon, supra,  98 Cal.App.4th at 1407, citing James 3 Corp. v. Truck Ins. Exchange (2001) 91 Cal.App.4th 1093, fn. 3; see also Federal Ins. Co. v. MBL, Inc. (2013) 219 Cal.App.4th 29, 41 [“[T]he mere fact the insurer disputes coverage does not entitle the insured to Cumis Counsel;…”]; Blanchard v. State Farm Fire and Cas. Co. (1991) 2 Cal.App.4th 345, 350; Dynamic Concepts, Inc. v. Truck Ins. Exch. (1998) 61 Cal.App.4th 999, 1007; Long v. Century Indem. Co. (2008) 163 Cal.App.4th 1460, 1468; Centex Homes v. St. Paul Fire & Marine Ins. Co. (2015) 237 Cal.App.4th 23, 31-32.)

Protections Against Defended Policyholder Manufacturing Bad Faith Case Via Stipulated Judgment Confirmed By California Court

The California Court of Appeal for the Fourth District, Division Two, in 21st Century Ins. Co. v. Superior Court (Tapia), ___ Cal.App.4th ___  (No. E062244, September 10, 2015), recently confirmed some of the important protections for defending insurers against stipulated judgments that were established in the Hamilton and Safeco decisions and limited the application of other decisions that have been relied on by claimants and policyholders seeking to get around the Hamilton rule against bad faith actions premised on such stipulated judgments. Continue reading “Protections Against Defended Policyholder Manufacturing Bad Faith Case Via Stipulated Judgment Confirmed By California Court”

Controlling Cumis – California Court Confirms that Right to Independent Counsel Can be Terminated by Withdrawing ROR

The Second District Court of Appeal has issued an important new opinion that adds to this year’s series of California appellate decisions on when an insurer owes its policyholder a duty to pay for independent defense counsel, in Swanson v. State Farm General Ins. Co., ___ Cal. App.4th ___ (2013). In Swanson, the Court of Appeal found that an insurer that had issued to its policyholder a reservation of the right to deny coverage that gave rise to the type of conflict that creates a right to independent counsel under California Civil Code section 2860 (“Cumis counsel”) could end that duty by withdrawing that portion of the reservation of rights that created the right to have the insurer pay for such counsel. Continue reading “Controlling Cumis – California Court Confirms that Right to Independent Counsel Can be Terminated by Withdrawing ROR”

Virginia Supreme Court Reaffirms Ruling that Insurer has No Duty to Defend or Indemnify Global Climate Change Suit

Today, the Virginia Supreme Court reaffirmed that Steadfast Insurance Co. does not have a duty to defend or indemnify AES Corporation in an underlying climate change liability suit. See AES Corporation v. Steadfast Insurance Company, No. 100764, 2012 Va. LEXIS 81 (Va. Sup. Ct. April 20, 2012). The Virginia high court is the first state Supreme Court in the nation to issue an opinion concerning insurance coverage for climate change liability suits, which may proliferate in the years ahead.

Continue reading “Virginia Supreme Court Reaffirms Ruling that Insurer has No Duty to Defend or Indemnify Global Climate Change Suit”

© 2009- Duane Morris LLP. Duane Morris is a registered service mark of Duane Morris LLP.

The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

Proudly powered by WordPress