There are several reasons an insurance company will deny coverage under an insurance policy. Probably the most common reason is due to a misrepresentation in the policy application. The second most common reason is based on exclusions or limitations in the policy. This makes reading the policy and comparing that policy language against the facts in the case to see whether or not the coverage denial can withstand scrutiny.
The U.S. District Court Southern District, Galveston Division, issued a good opinion discussing this issue in 2017. The opinion is styled, Robert Garner; dba Kustom Kolors Boatworks, Ex Rel, et al v. Nautilus Insurance Company.
Nautilus issued a CGL policy to Garner and during the policy period, Garner was sued by a customer, Andrew Dykes, who alleged Garner did poor repair on his boat and caused further damage to his boat by the work that Garner performed. He sued Garner under the Texas Deceptive Trade Practices Act.
Garner informed Nautilus of the lawsuit, but Nautilus denied coverage. The Dykes lawsuit went forward and Dykes ultimately achieved a verdict of $48,375.32.
Garner, filing a declaratory judgment action, then sued Nautilus for its refusal to defend Garner.
The court spent time in its opinion citing the eight corners rule. Under that rule, courts look to the facts alleged within the four corners of the pleadings, measure them against the language within the four corners of the insurance policy, and determine if the facts alleged present a matter that could potentially be covered by the insurance policy. The court examines the factual allegations that give rise to the damages claim, not the legal conclusions or theories asserted. The underlying pleading are read liberally and any doubts about coverage must be resolved in favor of the insured — if any allegation in the complaint is even potentially covered by the policy then the insurer has a duty to defend its insured.
This court then spent time reading the lengthy policy language, including the endorsements and exclusions that were part of the policy. And then as required, the court spend time examining the facts that were pleaded by Dykes in the underlying pleadings and compared those factual pleading with the language of the policy.
Both parties, Garner and Nautilus, filed motions for summary judgement. The court granted judgment in favor of Garner.
This case is a must read for a deep analysis of how the court examined the factual pleadings and compared those factual pleadings with the policy language.