Extrinsic Evidence And Evaluating The Duty To Defend

Analyzing duty to defend questions is often harder than many people think, and I see a quite a few instances in which people get tripped up by jumping ahead in the analysis without satisfying the initial steps.  Mid-America Pipeline Company, Inc. v. Mountain States Mutual Casualty Co., 2006 WL 1278748 (D. Utah May 8, 2006) provides a good example.  The case concerns a huge gas pipeline explosion near Moab, Utah, in which the town would have been destroyed by a pipeline rupture had not the gas cloud burst into flames before it could spread further.  The insurer for one of the pipeline contractors refused to provide a defense against claims the company caused delays in finishing the pipeline, on the grounds that no covered property damage was alleged in the complaint (Utah is one of the "eight-corner" states in which insurers must evaluate the duty to defend only in light of the policy and the allegations of the complaint).  The insured objected, saying it was obvious a fireball had occurred and caused damage.  However, as the court pointed out, the insurer’s knowledge that there was an actual fireball and property damage was irrelevant to the duty to defend under Utah law. 

What is and what is not extrinsic evidence is often a tough question.  Extrinsic facts are those that are extrinsic to the complaint and go to its merits.  Facts that are related to the identity of the insured, however, or whether the policy is in effect at all, are not extrinsic in this sense.  For example, many insurers today are faced with claims from entities that are related to but are not the named insured.  Investigating which company is entitled to be considered as an insured at all is not making use of  extrinsic facts as that term is understood. 

However, here are two tougher questions for eight-corner jurisdictions.  1.  If a complaint plainly alleges a covered act within the policy period, but personnel documents show the alleged tortfeasor couldn’t have committed the act because he had not yet begun working at the job, should the insurer accept the duty to defend, deny it, file a declaratory action or drop back 15 yards and punt? 2.  If deposition testimony during a case shows the insured knew of a construction defect before the policy period began, can the insurer withdraw from the defense because it is a known loss?        

2 Comments

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2 Responses to Extrinsic Evidence And Evaluating The Duty To Defend

  1. I think the correct rule is the duty to defend is determined from the undisputed facts at the time of notice, which generally will be only the allegations and the policy language.
    So, for your first question, if it is undisputed that the tortfeasor hadn’t started working at the job, he would not be covered, and the carrier can refuse to defend.
    Deposition testimony is not itself an indisputable fact, but rather is evidence of a fact. Accordingly, the carrier would still have a duty to continue the defense. Carriers can withdraw from the defense once it is undisputed that the facts are such that there is no possibility of a covered indemnity claim, i.e., the test for triggering the duty to defend or withdrawing from the defense is the same.

  2. I tend to agree with Marc about the second question, but I’m not sure what I think about the first. The position Marc describes for the first question is one I was ready to assert several years ago, but when I called the insured’s attention to the work history, the insured withdrew its tender (it had other insurance coverage for the alleged incident)before I had a chance to argue much. At the time,I had some doubts about who would prevail.