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by Alexander Masotto

On December 11, 2024, the United States District Court for the Southern District of Texas refused to allow extrinsic evidence under the Monroe conditions where plaintiff’s employment status and the merits of the case overlapped.[i] Thus, Judge Jeffrey Vincent Brown found that the insurer had a duty to defend.

In the underlying lawsuit, Joshua Galatas v. Marquee Corp., Morgan Enterprises, Inc., Highline Exploration, L.L.C., and Filipp Oilfield Services, LLC, No. 2023-08751 in the 295th Judicial Court, Harris County, Texas, Plaintiff’s bare-boned petition contained just two factual allegations:

(1) On or about January 23, 2023, Plaintiff was working at a job site owned, operated, an/or managed by Defendants in Harris County; and

(2) While performing his work, a fire and/or explosion occurred that severely burned Plaintiff and caused injuries to multiple parts of his body[.]

The petition also included a photograph depicting plaintiff’s injuries and negligence allegations. For example, plaintiff alleged that defendants committed negligence by “[f]ailing to provide proper and/or safe equipment.” Notably, however, plaintiff’s petition did not mention any employer-employee relationship with defendants.   

After suit was filed, the insurer moved for declaratory judgment on its duty to defend and indemnify defendant for the claims asserted by plaintiff, arguing that plaintiff’s bodily-injury claims fell under the “Employees, Contractors, Volunteers and Other Workers” exclusion. In response, plaintiff urged the court to find a duty to defend because his factual allegations triggered coverage, and that the factual allegations overlap with the merits of the negligence claims.

Under the long-standing “Eight Corners” rule, a court looks only to the insurance policy and the plaintiff’s petition to determine an insurer’s duty to defend.[ii] “The court compares the two ‘without regard to the truth or falsity’ in the allegations or ‘without references to facts otherwise known or ultimately proven.’”[iii]

Initially, the insured bears the burden to provide that a claim potentially falls within the scope of coverage.[iv] The burden then shifts to the insurer to negate coverage through policy provisions and exclusions. If any doubt exists, the court must find in favor of an existing duty to defend.[v]

Since 2022, Texas law now provides an exception to the rule that extrinsic evidence is generally prohibited in the duty to defend analysis.[vi] The Texas Supreme Court in Monroe held that a court may consider extrinsic evidence when a gap exists in the underlying petition that prevents a court to determine whether coverage exists if the extrinsic evidence:

(1) goes solely to the 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.[vii]

Here, the Court found that a “gap” existed in the pleadings because the facts only alleged that plaintiff was “performing his work” without details relating to any sort of relationship with defendants. Because a gap existed, the insurer urged the court to “fill” the gap with extrinsic evidence showing that the plaintiff and insurer had an employer-employee relationship.

Although the Court determined that Monroe conditions two and three were satisfied, the Court found that the extrinsic evidence overlapped with the merits of liability. Specifically, the Court refused to consider the extrinsic evidence because providing proper and safe equipment is a nondelegable duty that only arises in an employer-employee relationship. 

Ultimately, the court held that the insurer must defend the insured because plaintiff’s petition alleged that his bodily injury occurred at a jobsite covered under the insurance policy and the factual allegations did not trigger any exclusions. Lastly, the Court found that it could not resolve the question of indemnity until the underlying lawsuit is resolved because the duty to defend and indemnify “are distinct and separate,” and the “facts in the underlying lawsuit control the duty to indemnify.”

Overall, Hudson shows that it is considerably difficult for an insurer to prove all three Monroe conditions in an effort to bring in extrinsic evidence to the duty to defend analysis. Moreover, “artful pleading” absent collusion is not an exception to the Eight Corners rule.

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[i] Hudson Excess Ins. Co. v. Filipp Oilfield Services LLC et al, No. 3:23-cv-00379, in the U.S. District Court for the Southern District of Texas.

[ii] Monroe Guar. Ins. Co. v. BITCO Gen. Ins. Corp., 640 S.W.3d 195, 199 (Tex. 2022). 

[iii] Id.

[iv] State Farm Lloyds v. Richards, 966 F.3d 389, 393, (5th Cir. 2020). 

[v] Zurich Am. Ins. Co. v. Nokia, Inc. 268 S.W.3d 497, 491 (Tex. 2008) (nothing the general rule requiring duty to defend if unclear pleadings potentially implicate a case for coverage, even if “the allegations are groundless, false or fraudulent”) (citation omitted); Liberty Surplus Ins. Corp. v. Allied Waste Sys., Inc., 758 F. Supp. 2d 414, 420 (S.D. Tex. 2010) (“Artful pleading, absent evidence of collusion between the third-party claimant and the insured, does not create an exception to the general rule.”).

[vi] Monroe, 640 S.W.3d at 203.

[vii] Id. at 196-97.