June 3, 2019

The Court of Appeal of Florida, Third District reversed and remanded the decision of the lower court, narrowing the exception to the four corners rule. The case is Advanced Systems, Inc. v. Gotham Insurance Co., No. 3D18-1744 (Fla. Dist. Ct. App).

 

This case arose when a foam fire suppressant system in an aircraft hangar failed. The failure resulted in damage to several airplanes. The underlying suit alleges that moisture infiltrated the manual release stations in the system, which resulted in the unintended activation of the system and airplane damage.

 

Gotham Insurance filed a motion for summary judgment, arguing that it did not have a duty to defend the insured because the total pollution exclusion excluded coverage for the claim. Gotham submitted a declaration of a claims specialist, and attached a copy of the Material Safety Data Sheet (MSDS) for the fire suppressant that had been released in the hangar. Gotham argued that the chemical composition of the fire suppressant made it fit within the scope of the pollution exclusion. The trial court agreed and denied coverage to the insured.

 

The appellate court reversed the decision of the trial court, holding that the courts reliance on evidence beyond the pleadings and insurance policy, the MSDS and claims specialists report, was improper. The court rejected Gotham's argument that the exception to the four corners rule “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” applied in this case. The court held that the very narrow exception to the four corners rule only applies in very rare cases. The evidence in this case was not “uncontroverted or manifestly obvious to all” so the court held that the exception to the four corners rule did not apply.

 

Editors Note: Generally, if the allegations against the insured fall within the scope of coverage afforded by a liability policy, then the insurer has a duty to defend its insured. This is known as the four corners rule. Sometimes, though, insurers have an issue determining whether they have a duty to defend when the allegations technically fall within the scope of coverage, but there are undisputed facts known by the insurer that don't happen to fall within the four corners of the policy or the complaint that justify denial of coverage. Without the exception to the four corners rule, the insurer could have to provide coverage for a claim that each party knows should not be covered. So, most courts modify the four corners rule to allow an insurer to use extrinsic evidence to avoid a duty to defend when the insurer's position that there is no duty to defend is based on information that would not normally be in the underlying complaint. This decision narrows the exception to the four-corners rule.

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