In a Duty to Defend Dispute, only Eight Corners Must Be Considered

 April 23, 2018

 The U.S. District Court for the Northern District of Illinois has ruled that an insurer did not have a duty to defend its insured based on the allegations in the underlying complaint, despite the fact that the insured denied some of those allegations in its answer. The case is Century Nat'l Ins. Co. v. GT Transp., Inc., No. 17-C 4765, 2018 U.S. Dist. LEXIS 60456 (N.D. Ill. Apr. 10, 2018).

 The underlying complaint involved Anthony Lincoln, a GT employee. Lincoln was driving a truck owned by GT to a Grainco facility in order to pick up a load of soybeans. Lincoln was allergic to soybeans, and while at the facility he went into anaphylactic shock and later passed away. The complaint alleged an employment relationship between Lincoln and GT, and inferred that the truck was being used with GT's permission.

 In its answer to the complaint, GT denied that Lincoln was an employee, and states that the day Lincoln died he was applying for a job. GT also asserted that Lincoln used the company's truck without permission.

 GT's liability insurer, Century, argued that there was no coverage because the policy that was in place at the time of the incident contained two relevant exclusions which barred coverage for bodily injury to (1) any employee of the insured arising out of an in the course of employment by the insured, and (2) to anyone operating the insured vehicle without permission.

 The court compared the complaint document with the insurance policy using the well-known insurance principal called the "eight-corners" method. The eight-corners method limits the analysis of the duty to defend only to the facts alleged in the complaint, and does not include consideration of the answer unless "unusual circumstances" exist.

 Using this eight-corners method, the court determined that the policy did not provide coverage for the injury alleged in the complaint.

 GT argued that the court should look at pleadings beyond the complaint including the denials contained in the answer as sufficient evidence to establish a duty to defend. GT argued that some non-complaint pleadings may be necessary to assess if a duty to defend arises. The example GT used was when a policy has a self-defense exception to the intentional torts exclusion, a counter-claim by the insured (alleging that the intentional tort occurred as an act of self-defense) is necessary when assessing duty to defend purposes. The court stated that the above circumstance presented an "unusual circumstance" which made it reasonable to look beyond the underlying complaint.

 The court concluded that the Century policy excluded coverage for the facts as they were alleged in the underlying complaint, and none of the pleadings demonstrated circumstances where Century would owe coverage to GT.

 Editor's Note:

The eight corners rule is a principle associated with insurance law. According to the eight corners rule, a liability insurer's duty to defend its insured is determined by reviewing the claims asserted in the plaintiff's complaint, without referencing anything outside of the four corners of the complaint and the four corners of the insurance policy. The plaintiff must assert some claim that would be covered under the insurance policy in order to trigger the duty to defend. If the insured fails to allege a claim that would trigger coverage, the insurer has no duty to defend the suit.

 For good reason, the well-known insurance principal mentioned above is called the "eight corners" principle, not the "twelve-corners" principle. Insurers have a duty to defend and indemnify their insureds. The insureds need only establish that there is potential for coverage under a policy to give rise to the insurer's duty to defend. In this case, if Lincoln was an employee, as alleged in his estates complaint, there would be no insurance coverage, and if he were not an employee but was driving the vehicle without permission there would still be no insurance coverage, as the policy expressly excludes coverage to anyone operating the insured vehicle without the permission of the insured. Under the complaint there is no coverage for these damages, and under the answer there is still no coverage for these damages. Since there was no potential for coverage Century had no duty to defend. A possible workaround: if instead of just filing an answer, GT had filed a counter-claim for declaratory relief, seeking a determination as to whether Lincoln was an employee or a permissive driver, GT may have been able to trigger a duty to defend.