The Texas Supreme Court, in a well-written opinion following some really good briefing by the parties, rejected an insurer’s resort to extrinsic evidence to determine the duty to defend. The complaint had alleged sexual molestation by a youth pastor within the policy’s coverage period, but employment records showed the perpetrator did not become an employee until after the coverage period ended. The case is GuideOne Elite Insurance Co. v. Fielder Road Baptist Church, 2006 WL 1791689 (June 30, 2006). Here is a link to the case. Here is a link to the concurring opinon.
I have been thinking about this issue quite a bit because I recently wrote a piece for the BPM insurance newsletter about extrinsic evidence and the duty to defend. Coincidentally, this case also mirrors a hypothetical coverage issue I posed in this post. The Texas Supreme Court answered the question the way I suspected most courts would under the "eight-corners" rule: the fact of employment goes to the merits of the allegations as well as coverage, and therefore cannot be considered in evaluating the duty to defend, which in most states must be determined solely with reference to the allegations of the complaint and the terms of the policy. The court therefore rejected the insurer’s call for resort to "mixed" extrinsic evidence, and said evidence outside the complaint can be used only in the limited circumstances where it goes to coverage only and does not overlap with proof of the truth or falsity of any allegation.
The church’s supplemental briefing in this case was a particularly nice piece of work, and pointed out that insurer’s are free to write policies that would allow for resort to more extrinsic evidence or that would significantly narrow the duty to defend. Individual insurers do not do so because it would reduce the demand for their products.