Texas Supreme Court | Eight Corners Rule

Texas Supreme Court Recognizes Northfield-like Exception to Eight Corners Rule

Almost 20 years ago I stood before a panel of the U.S. Fifth Circuit Court of Appeals, arguing for an exception to what is commonly referred to among Texas insurance practitioners as the “eight-corners” rule. The eight-corners rule provides that in determining whether an insurer has a duty to defend its insured, courts are limited to considering only the factual allegations within the four corners of the plaintiff’s pleading and the terms of the insurance policy. If the allegations in the pleading, taken as true, potentially support a claim covered by the policy, the insurer has a duty to defend its insured.

In Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523 (5th Cir. 2004), I argued to the Fifth Circuit that Texas law should permit courts to consider extrinsic evidence in determining the duty to defend under certain circumstances. The Fifth Circuit subsequently issued an opinion, offering its “Erie guess” that the Texas Supreme Court would not recognize an exception to the eight-corners rule. In doing so, however, the Court opined that if Texas’ highest court were to recognize such an exception, it would apply only “when it is initially impossible to discern whether coverage is potentially implicated and when the extrinsic evidence goes solely to a fundamental issue of coverage which does not overlap with the merits of or engage the truth or falsity of any facts alleged in the underlying case.” Northfield, 363 F.3d at 531. In Texas insurance jurisprudence, this has come to be known as the “Northfield exception” to the eight-corners rule.

Despite the Fifth Circuit’s adherence to a strict eight-corners approach, some courts in Texas began applying the Northfield exception, whereas others declined to do so. This division among the courts prompted the Fifth Circuit to certify to Texas’ highest court the question of whether the Northfield exception is permissible under Texas law.

Today the Supreme Court answered that question in the affirmative, adopting a Northfield-like exception to the “eight corners” rule. See Monroe Guaranty Ins. Co. v. BITCO General Ins. Corp., No. 21-0232 (Tex. Feb. 11, 2022). In Monroe Guaranty, although the Court made clear that it was not abandoning the eight-corners rule, the Court went on to state:

But if the underlying petition states a claim that could trigger the duty to defend, and the application of the eight-corners rule, due to a gap in the plaintiff’s pleading, is not determinative of whether coverage exists, Texas law permits consideration of extrinsic evidence provided the evidence (1) goes solely to an issue of coverage and does not overlap with the merits of liability, (2) does not contradict facts alleged in the pleading, and (3) conclusively establishes the coverage fact to be proved.

Op. at 15.

While the Court’s new rule looks very similar to the Northfield exception, it is actually more beneficial to insurers in that the extrinsic evidence need not relate to a “fundamental” issue of coverage. The evidence can relate to other facts bearing upon coverage, such as the date on which property damage occurs. This aspect of the Court’s decision will therefore have a significant impact in construction defect cases. The Court also made clear that the coverage fact at issue need not be the subject of a stipulation and can be established by other forms of proof. But the evidence must conclusively establish the fact.

The Texas Supreme Court’s holding today in Monroe Guaranty is a big win for the insurance industry. While it took almost 20 years for the Texas Supreme Court to finally address whether the Northfield exception constituted Texas law, Texas insurers will no doubt find that the Court’s decision was well worth the wait.

Alex Beard has 30 years of experience representing individuals and businesses, with a practice focusing on liability insurance coverage, property damage insurance, and civil appeals. He has extensive experience with liability insurance claims and enjoys analyzing coverage issues under numerous types of insurance, including commercial general liability, commercial auto, and life. He has handled over 100 appeals and original proceedings throughout Texas’ 14 intermediate appellate courts, the Texas Supreme Court, and U.S. Fifth Circuit Court of Appeals.

Calculating Supersedeas Security

Calculating Supersedeas Security

If a party to a lawsuit wants to appeal the trial court’s judgment, it has to post security in the form of a supersedeas bond to suspend enforcement of the judgment during the appeal.  In Top Cat Ready Mix, LLC v. Alliance Trucking, LP, et al., the Texas Fifth District Court of Appeals recently addressed the proper calculation of the amount of the supersedeas bond.

Instructions for calculating the amount of the supersedeas bond are set forth in Chapter 52 of the Texas Civil Practice & Remedies Code.  Pursuant to the statute, “the amount of the security must equal the sum of:  1) the amount of compensatory damages awarded in the judgment; 2) interest for the estimated duration of the appeal; and 3) costs awarded in the judgment.”  Tex. Civ. Prac. & Rem. Code §52.006(a).  Unfortunately, the phrase “compensatory damages” is undefined.  In Top Cat Ready Mix, the court was tasked with interpreting the phrase “compensatory damages.”

The issue addressed in Top Cat Ready Mix is whether an award of contractual pre-judgment interest should be included as “compensatory damages” for purposes of calculating the amount of a supersedeas bond under Chapter 52.  The trial court’s judgment awarded the plaintiff $315,087.21 in “actual damages,” $198,739.63 in “contractual pre-judgment interest,” $70,000 in attorneys’ fees, and post-judgment interest.  The defendant superseded the judgment pending its appeal by posting a cash deposit in the amount of $371,802.90, reflecting the “actual damages” award, but not taking into account the “contractual pre-judgment interest.”  The plaintiff filed a Motion to Review Supersedeas Security with the appellate court seeking to increase the amount of the bond to include the “contractual pre-judgment interest.”

In its opinion dated December 27, 2018, the Texas Fifth District Court of Appeals concluded that the phrase “compensatory damages” includes contractual pre-judgment interest.  The court turned to the Black’s Law Dictionary, the Texas Finance Code, and the Texas Supreme Court’s opinion in In re Nalle Plastics Family Limited Partnership, 406 S.W.3d 168 (Tex. 2013) to reach its conclusion.  While pre-judgment interest is “compensatory,” it is not considered an element of damage.  However, in its opinion, the court drew a distinction between pre-judgment interest and contractual interest.  “’Contract interest’ means interest that an obligor has promised or agreed to pay to a creditor under a written contract of the parties.  The term does not include judgment interest.”  Tex. Fin. Code §301.002(a)(1).  The court held, “While pre-judgment interest might not be compensatory damages, ‘contractual interest’ is ‘a part of the debt, as much so as the principal.’”  (citing First Nat’l Bank v. J.I. Campbell Co., 114 S.W. 887, 890 (Tex. Civ. App. – San Antonio 1908, no writ).  Therefore, “contractual interest” is a “compensatory damage” for the purpose of calculating the amount of a supersedeas bond, while statutory “pre-judgment interest” is not.

The court’s opinion in Top Cat Ready Mix, LLC v. Alliance Trucking, LP, et al. provides guidance in both the drafting of judgments and the posting of security for an appeal.  When the amount of “pre-judgment interest” to be awarded is based upon the parties’ contract, it should be noted in the judgment as “contractual interest” and not as “pre-judgment interest.”  If the award recites the nature of the interest clearly, there should be less argument over the proper security needed to suspend enforcement of a judgment during appeal.

Contact Saunders, Walsh & Beard at 214-919-3555 for help with complex litigation matters by one of our AV-Rated attorneys in McKinney, TX.

The Last Out:  Coach is “SLAPPED” for suing baseball volunteers.

Last Out 4

The last “out” was just made in our baseball anti-slapp case where a coach sued another coach and the president of the league for “ruining his reputation” stemming from events at a 7 year old’s baseball game (see prior entries here and here).     After appeal, and reversal, the Trial Court just ordered the Plaintiff to pay the Defendant’s   legal fees totaling over $60,000.00!  The Judge also sanctioned the Plaintiff $20,000.00 to deter him and others from filing similar lawsuitsThat’s a judgment FOR the Defendants to be paid by the Plaintiff for over $80,000.

I suspect that the Coach who sued, wishes he would have moved on to enjoy his summer, as we suggested, instead of filing a lawsuit over such a silly event.

Freedom of speech and protection from this type of lawsuit, is alive and well in Texas!   So, the next time a loudmouth bully with more money than sense threatens to sue a volunteer Board Member or coach for turning him in for bad conduct, wish them luck and tell them to save their money.  They may need it to pay your legal fees.   A home run for Texas volunteers and youth sports!

Kid’s Baseball Coach Strikes Out in Defamation Suit – We’re Going to Extra Innings

In his recent post, my partner Brantley Saunders talked about a decision by the Fort Worth Court of Appeals in a case being handled by our firm.  The case arose out of complaints made by parents about an assistant coach’s behavior at a baseball game – in a 7 year old boy’s baseball league.  The coach took offense and sued the head coach of his own team, claiming he had been “defamed” by the head coach’s reporting of the complaint to the volunteer president of the baseball association.  He also sued the volunteer president.

The trial judge refused to dismiss the case at an early stage, and so we filed an immediate appeal.  Thankfully, the Court of Appeals ruled that the case should have been dismissed under the Texas Citizen’s Protection Act (TCPA).  The TPCA is intended to protect the right of individuals to speak freely on matters of public concern.  Here, the conduct at issue was a “matter of public concern” – the protection of young kids – and so the statute applied.

One question which arose in the case on appeal was whether the TCPA applies not only to publicly communicated statements, but also privately communicated statements.  In an earlier case, the Texarkana Court of Appeals, in a case named Lippincott v. Whisenhunt, ruled that the TCPA does not apply to privately communicated statements.  In our appeal to the Fort Worth Court of Appeals, we argued the Texarkana Court of Appeals was simply wrong and had misread the statute.  On this point, here is an excerpt from the brief we filed:

In Whisenhunt, the court held that the TCPA applies only to individuals who are exercising their right to speak freely in public, and does not apply to speech that is “only privately communicated.”  Whisenhunt, 2013 WL 5539368 at *8.  That holding was erroneous because the court of appeals failed to take into account the statute’s definition of a “communication.”  The term “communication” is defined to include “the making or submitting of a statement or document in any form or medium, including oral, visual, written, audiovisual, or electronic.”  Tex. Civ. Prac. & Rem. Code § 27.001(1) (emphasis added).  The definition contains no requirement that the “communication” be “public” in order to be subject to the statute, nor is there any required minimum number of people that the “communication” must reach in order for the statute to apply.  Had the Legislature intended the TCPA be limited to “publicly communicated” speech it could have easily done so by inserting a word or two into the definition of “communication.”  It did not do so.

Last Friday the Texas Supreme Court reversed the Texarkana Court of Appeals’ decision in Whisenhunt.  The Court ruled that the TCPA applies not only to publicly communicated statements but also privately communicated statements.  In this connection the Court stated:

First, the statute defines “communication” as “the making or submitting of a statement or document in any form or medium, including oral, visual, written, audiovisual, or electronic.” Id. § 27.001 (1). The court of appeals concluded that because the purpose of the Act, as described in section 27.002, includes the phrase “otherwise participate in government,” the Act only protects public communication. 416 S.W.3d at 697. We disagree.

 This statute defines “communication” to include any form or medium, including oral, visual, written, audiovisual, or electronic media-regardless of whether the communication takes a public or private form. Tex. Civ. Prac. & Rem.  Code § 27.001(1). The plain language of the statute imposes no requirement that the form of the communication be public. Had the Legislature intended to limit the Act to publicly communicated speech, it could have easily added language to that effect. See In re M.N., 262 S.W.3d at 802. In the absence of such limiting language, we must presume that the Legislature broadly included both public and private communication. Tex. Civ. Prac. & Rem. Code § 27.011.

 We couldn’t have said it better ourselves.

The assistant coach in our case apparently plans to file an appeal to the Texas Supreme Court.   It is always difficult to get the Supreme Court to agree to hear your case because they have so many to consider, but as the former Yankee great Yogi Berra once said, it ain’t over till it’s over.   Stay tuned.