February 04, 2014 Articles

Insurance 101: Insurer’s Use of Extrinsic Evidence for Duty to Defend in Florida

Liability insurance may entitle an insured to a defense and to indemnification for a third-party claim made against it. In Florida, an insurer's duty to defend its insured against such a claim is separate and apart from the duty to indemnify the insured

by Andy Dogali and Jacqueline H. Palik

Liability insurance may entitle an insured to a defense and to indemnification for a third-party claim made against it. In Florida, an insurer's duty to defend its insured against such a claim is separate and apart from the duty to indemnify the insured. Trizec Properties, Inc. v. Biltmore Construction Co., 767 F.2d 810, 811-12 (11th Cir.1985). It is a frequently stated proposition that the duty to defend is determined under the “eight corners rule, which refers to the comparison of the “four corners’ of the underlying complaint with the ‘four corners’ of the insurance policy.” Colony Ins. Co. v. Barnes, 410 F. Supp. 2d 1137 (M.D. Fla. 2005). An insurer has no duty to defend a suit against an insured where the complaint upon its face alleges a state of facts that fails to bring the case within the coverage of the policy. Capoferri v. Allstate Ins. Co., 322 So. 2d 625, 627 (Fla. Dist. Ct. App. 1975). Likewise, if the factual allegations of the complaint fall within the exclusions of the policy, then an insurer has no duty to defend. International Surplus Lines Ins. Co. v. Markham, 580 So. 2d 251 (Fla. Dist. Ct. App. 1991).

In contrast to the duty to defend, the duty to indemnify is determined by the facts as they are developed at trial. E.g.Stephens v. Horne, 325 So. 2d 459, 462 (Fla. Dist. Ct. App. 1975). Florida courts must look beyond “the artfulness of the pleadings” to determine whether the duty to defend arises, regardless of how the claim is “creatively characterized by the plaintiff.” H.C. Waterford Properties, LLC v. Mt. Hawley Ins. Co., 2009 U.S. Dist. LEXIS 81355 (S.D. Fla. Aug. 21, 2009); State Farm Fire & Cas. Co. v. Tippett, 864 So. 2d 31, 35 (Fla. Dist. Ct. App. 2003) (use of buzz words in complaint will not trigger coverage). These principles are well-established.

Florida state courts and federal courts applying Florida law have at times refused to apply the eight corners rule inflexibly, however. For example, in Weitz Co., LLC v. Transportation Insurance Co., 2009 U.S. Dist. LEXIS 49381 (S.D. Fla. June 11, 2009), the court explained that the allegations of the underlying complaint may not be conclusive as to the duty to defend because the duty may arise later in the underlying litigation if subsequent developments in the case potentially bring the claim within the policy coverage. While there are no similar Florida state court cases, if the insured advises the insurer of facts that would trigger the duty to defend, the insurer may be obligated to investigate these facts. Victoria Select Ins. Co. v. Vrchota Corp., 805 F. Supp. 2d 1337 (S.D. Fla. 2011). It follows that an insurer can ignore extrinsic facts demonstrating a lack of coverage in determining that there is a duty to defend. The situation is murkier, however, when an insurer possesses knowledge that would preclude coverage under the policy, but this information is not included within the four corners of the underlying complaint.

Higgins v. State Farm Fire & Casualty Company

The Florida Supreme Court has explained that an insurer can under certain circumstances consider extrinsic evidence in denying coverage for a claim. Higgins v. State Farm Fire and Cas. Co., 894 So. 2d 5 (Fla. 2004). In Higgins, the insurer filed a declaratory judgment action to resolve whether it was required to defend and indemnify its insured with respect to a complaint for assault and battery filed against the insured. Id. at 7. The plaintiff in the underlying action subsequently amended the complaint to allege negligence against the insured rather than simply alleging non-covered intentional torts. The jury found that the insured had intended to cause the injuries, precluding coverage, but the court granted a motion for a new trial based on improper remarks made to the jury, and both parties appealed various issues.

The Florida Supreme Court held that Florida’s declaratory judgment statute authorizes declaratory judgment actions to determine whether the duty to defend or indemnify has arisen when issues of fact are involved. The court explained that when suit is filed against an insured, there generally is no need for a declaratory judgment action with respect to the insurer's obligation to defendbecause the duty to defend is typically determined by the eight corners rule. However, the court noted that:

[T]here are some natural exceptions to this where an insurer's claim that there is no duty to defend is based on factual issues that would not normally be alleged in the underlying complaint. One example would be when the insurer claims that the insured did not provide sufficient notice of the claim and therefore breached an assistance and cooperation clause. In such circumstances, we believe the courts may entertain a declaratory action seeking a determination of a factual issue upon which the insurer's duty to defend depends. 

Id. at 10 n. 2.

Clearly, therefore, while not obligated to look outside the eight corners, an insurer may look past the underlying complaint and policy when there is no duty to defend based on facts that would not normally be alleged in the underlying complaint. This may be limited to fact-based coverage defenses, such as the date of an insured’s first notice, or an insurer’s late notice, which would normally not be alleged in the underlying complaint. See Composite Structures, Inc. v. Continental Ins. Co., 903 F. Supp. 2d 1284, 1288-89 (M.D. Fla. 2012) (granting summary judgment in favor of insurer; plaintiff would normally not allege in complaint date that he informed defendant of injuries or date that defendant informed the insurer).

Higgins logically does not seem to mandate the filing of a declaratory judgment action whenever an insurer denies coverage in reliance upon extrinsic facts that would normally not be alleged in the complaint. And whether the insured or the insurer files the declaratory judgment action should not alter this analysis. Requiring an insurer to file suit would violate Florida courts’ policy against needless litigation burdening the judicial system. There would seem to be no reason— at least, based upon Higgins—to require an insurer to file a declaratory judgment action when denying coverage based upon such extrinsic facts.

Implications of Higgins and Similar Cases

Additional Florida opinions have recognized that when the insurer is aware of an undisputed fact precluding coverage that is not addressed in the underlying complaints, the insurer is relieved of the duty to defend. Nationwide Mut. Fire Ins. Co. v. Keen, 658 So. 2d 1101 (Fla. Dist. Ct. App. 1995); see also Acosta, Inc. v. Nat’l Union Fire Ins. Co., 39 So. 3d 565, 575 (Fla. Dist. Ct. App. 2010) (in granting summary judgment for insurer on prior litigation exclusion, trial court properly considered complaint from earlier lawsuit even though it was not within eight corners; existence and authenticity the previous complaint was undisputed);Underwriters at Lloyds London v. STD Enters., Inc., 395 F. Supp. 2d 1142 (M.D. Fla. 2005).

In Keen, the court addressed the question of “whether there is any reason why a carrier must defend an insured who concedes a critical fact against his monetary interest that places a claim beyond the carrier’s obligation to pay.” Id. at 1102. On appeal, the insured argued that the duty to defend is broader than the duty to indemnify. The Fourth District Court of Appeal explained that this statement “is one of those widely accepted legal shorthands that if accepted uncritically is calculated to mislead.” Id. The court acknowledged that there may be a duty to defend a claim that is ultimately not covered, but this typically involves a situation when a trier of fact must resolve a “usually nonobjective” disputed fact, such as whether the insured acted negligently or intentionally. The court restated the relationship between the duty to defend and the duty to indemnify so that “the carrier must defend a claim that may ultimately be covered until it is certain that it is not covered.” Id. at 1102-1103. It follows that if it is readily apparent, based upon the insured’s representations or otherwise, that there is no coverage for a claim, the insurer should be relieved of the duty to defend and indemnify against the claim.

In Keen, the insured conceded to the insurer that there was no coverage for the claim, and the underlying complaint did not contain allegations as to the horsepower of the engine that the insured operated at the time of the occurrence, which was the critical issue of coverage. The court acknowledged that ambiguities in the complaint should be construed in favor of the insured, but this principle does not apply where the insured admits a lack of coverage and the complaint does not plead the fact giving rise to coverage. Consequently, the trial court erred in excluding evidence of the insured’s communications with the carrier, and the appellate court accordingly reversed the trial court’s ruling that the insurer breached the duty to defend and indemnity. See also Rowell v. Hodges, 434 F.2d 926, 930 (5th Cir. 1970) (applying Florida law, court upheld insurer’s denial defense based upon insurer’s knowledge of extrinsic evidence, noting: “to say [that the insurer] must gauge its obligation strictly by the pleading called a Complaint, and put blinders on, so to speak, to what it actually knows and has definitely ascertained, is somewhat archaic, considering the nature of our present system of notice pleading”). (Notwithstanding the clarity of Keen and Rowell, the decisions appear contrary to the litany of Florida cases that, prior to Higgins, appeared to mandate a hard-and-fast eight corners approach. For this reason, at least one pre-Higginscourt discussed Keen and Rowell disapprovingly, with Keen being expressly deemed an “aberration” of Florida law. Sphinx Intern., Inc. v. Nat. Union Fire Ins. Co., 226 F. Supp. 2d 1326, 1338 (M.D. Fla. 2002). The continuing vitality of Sphinx is questionable.)

This is consistent with other Florida case law holding that the duty to defend does not arise where the underlying complaint omits facts in an attempt to “plead into coverage.” E.g.,Wilson ex rel. Estate of Wilson v. General Tavern Corp., 469 F. Supp. 2d 1214, 1220 (S.D. Fla. 2009). Again, in accordance with Higginssupra, an insurer may consider extrinsic facts, such as communications with its insured, in denying coverage, specifically where the underlying complaint does not, or typically would not, contain factual allegations as to coverage.

In granting summary judgment in favor of an insurer and finding that the duty to defend did not arise, Judge Robert L. Hinkle of the Northern District of Florida stated that:

Florida courts sometimes have described the eight corners rule in terms suggesting it is universal and inflexible. See, e.g.Reliance Ins. Co. v. Royal Motorcar, 534 So.2d 922, 923 (Fla. 4th DCA 1988) (“The duty of an insurer to defend is determined solely by the allegations of the complaint against the insured, not by the actual facts, nor the insured’s version of the facts or the insured’s defenses.”) (citations omitted). This articulation is perhaps understandable; the eight corners of the relevant underlying pleading and the policy itself are always fundamental to the analysis of an insurer’s duty to defend. Nonetheless, there are and most assuredly should be exceptions to the eight corners rule. See, e.g. Nateman v. Hartford Cas. Ins. Co., 544 So. 2d 1026, 1027 (Fla. 3d DCA 1989) (recognizing and applying exception on issue of who is an insured); Continental Cas. Co. v. Charleston, 704 So. 2d 137, 138 (Fla. 1st DCA 1997) (limiting Nateman to instances when there “is no room for doubt” as to actual facts).

Scottsdale Insurance Co. v. Big Bend Timber Services, Inc.,slip. op. at 20-28 (N.D. Fla. No. 4:02cv279, order granting summary judgment, Jan. 5, 2004).

Judge Hinkle explained that courts in Florida and in other jurisdictions have stated that facts in the underlying complaint that are immaterial can be disregarded in determining the duty to defend, or as in Natemansupra, that extrinsic evidence can be considered in determining who is an insured, despite the fact that this may actually be material to the plaintiff’s claim. Allegations that are “important” to the underlying cause of action must be taken as true, however. This is the same concept elucidated in Higgins: if something is important or material to the claims made in the underlying complaint, it would obviously normally be alleged in the underlying complaint. Higgins states that an insurer may consider extrinsic evidence that would “not normally be alleged in the underlying complaint” in finding that there is not a duty to defend the insured with respect to the underlying claim. Id. at 10 n.2.

Other jurisdictions have also relaxed an otherwise rigid eight corners rule to allow for the insurer’s consideration of information which would not naturally be included in an underlying complaint, or information furnished to the insurer by the insured. E.g., Blake v. Nationwide Ins. Co., 904 A.2d 1071, 1074 (Vt. 2006) (whether the accident occurred in scope of employment was not alleged in complaint); Pompa v. American Family Mut. Ins. Co., 520 F.3d 1139, 1147-48 (10th Cir. 2008) (“insured can have no reasonable expectation of a defense when an indisputable fact, known to all parties, removes the act in question from coverage”); Dairy Road Partners v. Island Ins. Co., Ltd., 992 P.2d 93, 113 (Haw. 2000) (insurer may rely upon extrinsic facts to disclaim liability only when the relevant facts will not be resolved in the underlying case); National Union Fire Ins. Co. of Pittsburgh, Pa. v. Thomas M. Madden & Co., 813 F. Supp. 1349, 1351–52 (N.D. Ill. 1993) (facts ancillary to the underlying claim can be considered in determining whether a duty to defend exists).

In conclusion, the eight corners rule should not be interpreted inflexibly. Communications with an insured can surely be relied upon by the insurer in evaluating whether the duty to defend has arisen with respect to an underlying complaint, particularly when this extrinsic evidence relates to facts that are not alleged in the underlying complaint, are immaterial to claims alleged in the underlying complaint, or would typically not be alleged in an underlying complaint.

It may also be possible, with respect to extrinsic information furnished directly by an insured, even if Higgins does not create a license to rely upon such extrinsic information, that the insurer can estop the insured from arguing for strict application of the eight corners rule, in so far as the insured itself has furnished the extrinsic evidence. The insured should not be heard to argue that information it has itself furnished is not credible and cannot be relied upon by the insurer. See Home Mut. Ins. Co. v. Lapi, 192 A.D.2d 927, 929 (N.Y. 1993) (concluding that the insurer had no duty to defend its insured against a negligence claim when the insured admitted that he had intended to cause the injuries).

It is a breathtaking oversimplification of Florida law to assert that the duty to defend is determined only by a comparison between the four corners of the underlying complaint and the four corners of the liability insurance policy.

Keywords: insurance, coverage, litigation, Florida, duty to defend, eight corners, extrinsic evidence

Andy Dogali, Dogali Law Group, P.A., Tampa, FL, and Jacqueline H. Palik, Butler Pappas Weihmuller Katz Craig LLP, Tampa, FL

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