Generally speaking, an insurer is not permitted to rely upon extrinsic evidence when making its duty to defend determination. Instead, the insurer is required to rely solely upon the allegations of the complaint against its insured and must defend whenever a claim potentially falls withing the policy's coverage. However, in its recent decision of Haines v. State Auto Property & Casualty Ins. Co., No. 10-1946 (3d Cir. 2011), the Third Circuit made clear that there are times when extrinsic evidence is relevant to the duty to defend determination.
In Haines, the key issue was whether, under a homeowner's policy, the insured was covered for a bodily injury caused by its golf cart. The policy included a "Motor Vehicle Liability" exclusion that specifically excluded coverage of golf carts as "recreational motor vehicles." However, that exclusion also included an exception that applied if the golf cart was "used solely to service the residence premises."
Needless to say, the insurer argued that coverage was barred by the "Motor Vehicle Liability" exclusion and that no exception to the exclusion applied. In making its argument that no exception applied, the insurer relied upon evidence not included in the allegations of the complaint, but instead obtained during its own independent investigation of the claim. The U.S. District Court for the W.D. PA also relied upon this extrinsic evidence in support of its conclusion that the exclusion applied to preclude coverage under the policy.
The Third Circuit agreed with both the conclusion of the District Court and its consideration of extrinsic evidence obtained in the insurer's investigation of the accident. Importantly, however, citing Air Prods. & Chems., Inc. v. Hartford Accident & Indem. Co., 25 F.3d 177, 180 (3d Cir. 1994) (prohibiting the insurer from introducing evidence to show that an exclusion applied), the Third Circuit was careful to point out that consideration of such evidence was only permissible because the evidence was used to show that no exception to the exclusion applied, and not to support the application of the exclusion.
Thus, the Haines decision does not give insurers the right to stray from the four corners of the complaint in making a coverage decision. Rather, when the insurer meets its burden of demonstrating that a claim falls within an exclusion and the policyholder fights back arguing an exception to the exclusion, an insurer may rely on extrinsic evidence.
Still, if the complaint includes allegations that demonstrate that the exception applies, don't be surprised if extrinsic evidence is not considered. Logic and the long line of cases requiring strict reliance on the allegations in the complaint seem to dictate that the complaint still rules the day when it specifically addresses a fact or issue.
In Haines, the key issue was whether, under a homeowner's policy, the insured was covered for a bodily injury caused by its golf cart. The policy included a "Motor Vehicle Liability" exclusion that specifically excluded coverage of golf carts as "recreational motor vehicles." However, that exclusion also included an exception that applied if the golf cart was "used solely to service the residence premises."
Needless to say, the insurer argued that coverage was barred by the "Motor Vehicle Liability" exclusion and that no exception to the exclusion applied. In making its argument that no exception applied, the insurer relied upon evidence not included in the allegations of the complaint, but instead obtained during its own independent investigation of the claim. The U.S. District Court for the W.D. PA also relied upon this extrinsic evidence in support of its conclusion that the exclusion applied to preclude coverage under the policy.
The Third Circuit agreed with both the conclusion of the District Court and its consideration of extrinsic evidence obtained in the insurer's investigation of the accident. Importantly, however, citing Air Prods. & Chems., Inc. v. Hartford Accident & Indem. Co., 25 F.3d 177, 180 (3d Cir. 1994) (prohibiting the insurer from introducing evidence to show that an exclusion applied), the Third Circuit was careful to point out that consideration of such evidence was only permissible because the evidence was used to show that no exception to the exclusion applied, and not to support the application of the exclusion.
Thus, the Haines decision does not give insurers the right to stray from the four corners of the complaint in making a coverage decision. Rather, when the insurer meets its burden of demonstrating that a claim falls within an exclusion and the policyholder fights back arguing an exception to the exclusion, an insurer may rely on extrinsic evidence.
Still, if the complaint includes allegations that demonstrate that the exception applies, don't be surprised if extrinsic evidence is not considered. Logic and the long line of cases requiring strict reliance on the allegations in the complaint seem to dictate that the complaint still rules the day when it specifically addresses a fact or issue.
