Atlantic Cas. Ins. Co. v. Gonzalez, No. 10-20296 (5th Cir. November 24, 2010) see Decision
Only in Texas does a court have to fudge the law a little to get around the state's absolute "8-corner" rule to reach what is obviously the correct result. The 8-corner rule, also called the "complaint allegation rule," bars a court from considering any evidence beyond the terms of the insurance policy and the allegations in the complaint to determine whether a liability insurer owes a duty to defend its insured in a lawsuit. Most states follow this rule but none so strictly as Texas, which adopted an arguably absolute application of this rule in Guideone Elite v. Fielder Road Baptist Church, 197 S.W.3d 305 (Tex. 2006). The problem with an absolute application of this principle is that a plaintiff can plead a covered case out of coverage or, as attempted here, an uncovered case into coverage, simply by manipulating the allegations in the lawsuit.
The plaintiff was electrocuted while working for a friend, who was working as an independent contractor for the insured, PV Roofing Corp. As a result, the plaintiff lost both arms and and legs and sued PV Roofing. The plaintiff's original petition alleged that he was an employee of the insured. He amended that pleading and alleged merely that he was working at home. Later, in a third and then a fourth amended petition, the plaintiff alleged explicitly that he was not an employee or independent contractor of PV Roofing, but was "engaged in residential roofing" and had control over "the job." PV Roofing sought defense and indemnification from its CGL carrier, Atlantic Casualty, which denied coverage.
The policy contained an exclusion barring coverage for:
(i) "bodily injury" to any "employee" arising out of or in the course of (a) Employment by the insured; or (b) Performing duties related to the conduct of any insured's business
(ii) "bodily injury" to an "contractor" arising out of or in the course of performing services of any kind for which the insured may become liable in any capacity . . .
The policy defines "employee" to include any person "hired, leased, contracted or volunteering for the purpose of providing services to or on behalf of any insured, whether or not paid for such services" (the plaintiff alleged that he was not paid).
Can anyone reasonably believe that the plaintiff did not meet this definition of an "employee"? Yet he explicitly alleged in his most recent pleading that he was not an employee or contractor. Under the 8-corner rule, the court is supposed to take the allegations as they are on face value and not consider any other evidence beyond the allegations.
In fact, the court considered extrinsic deposition evidence that the plaintiff was working at the direction of a PV Roofing contractor. In doing so, the court fudged a little, as I said. First, the court noted that "Gonzalez has not contested this testimony or the use of this extrinsic evidence." However, that is not relevant to whether the court may consider that extrinsic evidence. On that point, the court relied on a 1993 5th Circuit decision permitting consideration of extrinsic evidence "when a petition's factual allegations are insufficient to determine if there is a possible case for coverage." W. Heritage Ins. Co. v. River Entm't, 998 F.2d 311 (5th Cir. 1993). The court did not consider whether this 1993 decision might no longer represent Texas law on the subject after the Guideone decision, which I think is the fudge factor here. The court upheld judgment for Atlantic and refused to find a duty to defend.
The result is certainly correct. However, I don't think the court needs to consider extrinsic evidence. The allegation that the plaintiff was not an employee is more legal than factual, a point the court mentioned, and only factual allegations are relevant to the coverage analysis. More compelling than the absence of factual allegations is the logical disconnect between the plaintiff's seeking legal liability from PV Roofing and his denial of any outside control over his work. I think the court should be permitted, even within the 8-corner rule, to draw the necessary inference, from the plaintiff's own allegations, that PV Roofing's legal liability must be based on some control by the defendant. The factual allegations are certainly vague but necessarily imply that PV Roofing had some responsibility for Gonzalez's work; otherwise, how could he seek to hold the insured legally liable?
Also, the policy itself excludes bodily injury to a contractor performing services "for which any insured may become liable in any capacity." If PV Roofing may be held liable, then the exclusion applies, and the policy applies only if legal liability is sought against he insured. Coverage is a logical impossibility.
The point here, however, is that Texas's absolute 8-corner rule should be modified to allow courts some leeway to consider extrinsic facts. Otherwise, plaintiffs may manipulate a defendant's coverage simply by artful pleading.
David S. White, Thompson & Knight LLP
www.tklaw.com
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