ABSTRACT
Most Americans and American businesses purchase liability insurance to protect against financial loss should they ever be sued. In furnishing this protection, liability insurers contractually promise policyholders that they will defend them against lawsuits seeking covered damages and indemnify them for such damages up to the policy limits. As important as the insurer’s promise of indemnification is to an insured, the insurer’s agreement to defend the insured in litigation is an equally essential aspect of the liability insurance bargain. An insurer must decide whether it has a duty to defend its insured at the outset of a case. There are two approaches to determining an insurer’s duty to defend. First, there is the eight corners rule, under which the factual allegations in the plaintiff’s complaint or petition are compared with the policy, and the insurer owes a defense only if those allegations potentially implicate the insurer’s duty to indemnify the insured. Second, there is the extrinsic evidence approach. Courts employing an extrinsic evidence approach hold that an insurer must look beyond the pleadings and consider any facts brought to its attention or any facts that it reasonably could discover at the time suit was filed in deciding whether it has a duty to defend. Liability insurance policies typically provide that the insurer will pay the cost of the insured’s defense in addition to the policy’s liability limits. This is a potentially significant expense for the insurer because defense costs may, and often do, exceed any settlement or judgment ultimately paid …
Douglas R Richmond, Using Extrinsic Evidence to Excuse a Liability Insurer’s Duty to Defend, 74 SMU Law Review 119 (2021).
First posted 2021-04-13 09:30:57
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