Insurance Companies Duty To Defend Lawsuit In Texas

The United States Court of Appeals for the Fifth Circuit, decided another case this month dealing with the duty of an insurance company to defend a lawsuit filed against one of its insureds. The decision on this case was handed down by the court on January 4, 2010. The case was an appeal from the United States District Court for the Southern District of Texas. The Fifth Circuit, located in Louisiana, handles appeals that would arise out of Dallas, Fort Worth, Arlington, Grand Prairie, small towns like Weatherford, and all other places in Texas.
In the opening paragraph of the decision the court makes the following statement, “We have occasion once again to take up the seemingly simple task of determining whether an insurance company owes a duty to defend an underlying liability lawsuit, and because the insurer in this case indeed has such a duty, it is also an occasion to again remind: when in doubt, defend.” As stated in this blog in the past, the courts draw a distinction between the obligation of an insurance company to defend an insured who has been sued and the obligation of an insurance company to pay a claim.
The case at issue here is styled, Essex Insurance Company v. Hines. The policy was a “Commercial General Liability Coverage” and another one called a “Commercial Property Coverge” policy. The facts here are relevant to deciding the existence or lack there of, as it relates to coverage in the wording in the policy. What Essex was failing to see was how Texas law applies in the difference between the duty to defend and the duty to pay under a policy of insurance.
Under Texas law, an insurer has a duty to defend a policyholder in actions brought by a third party who asserts claims “potentially” covered by the insurance policy. The key word here being, “potentially.” When determining whether an insurance company owes a duty to defend its policyholder, Texas courts follow the “eight corners” rule, which directs the court to examine only “the allegations in the pleadings” which is the first four courners, and “the language of the insurance policy”, which is the second four corners.
The insurance company argued that the policy did not cover the type of loss the third party was sueing about. The court was saying that maybe the insurance company was right, but the allegations in the lawsuit were sufficient to raise the possibility that coverage would be triggered and thus the insurance company should be providing a defense to Hines.
Anytime someone is sued and they have a policy of insurance that “might” provide coverage, they should take the lawsuit papers to their insurance company. If the insurance company refuses to defend the lawsuit then an experienced Insurance Law Attorney should be contacted.