Dallas, Texas (February 19, 2020) -  On February 26, 2020, the Texas Supreme Court will hear an insurer's argument that it should create an exception to Texas' "eight corners rule" in Loya Insurance Company v. Osbaldo Hurtado Avalos et al.  The rule provides that when deciding whether an insurer owes the policyholder a defense, the court's analysis is restricted to the terms of the subject policy and the factual allegations contained in the petition. The petitioner, Loya Insurance Company (Loya), argues that the "'eight corners rule' never meant to prohibit consideration of extrinsic evidence of fraud when the evidence of fraud is undisputed and the fact that fraud has been committed is discoverable in the underlying lawsuit."

The basis of the appeal stems from an auto accident involving two vehicles. Osbaldo Hurtado and Antonio Hurtado sued Karla Guevara and Rodolfo Flores after being struck. During the course of discovery, it was revealed that Flores, not Guevara, was the driver as previously represented. Flores, however, was listed as an excluded driver under the subject policy. Consequently, Loya denied that it had a duty to defend Guevara and cited to Guevara's deposition transcript in which she admitted that Flores was the driver.  

The trial court granted Loya's motion for summary judgment and the Hurtados appealed as assignees of the claim. In overturning the trial court's decision, the Fourth Court of Appeals in San Antonio, Texas held that only the subject insurance policy and pleadings were relevant for the court's determination. As such, it concluded that the trial court erred in considering the deposition testimony that demonstrated fraud.

Loya cites to dicta in GuideOne Elite Ins. Co. v. Fielder Road Baptist Church, 197 S.W.3d 305 (Tex. 2006) in arguing that the Texas Supreme Court left the door open for the adoption of a fraud exception to the "eight corners rule." In the concurring opinion in GuideOne, the Court acknowledged the argument that ignoring the truth or falsity of the allegations invites fraudulent and collusive pleadings. However, the Court noted that the record before it did "not suggest collusion or the existence of a pervasive problem in Texas with fraudulent allegations designed solely to create a duty to defend."

Loya's appeal represents the most recent attempt before the Texas Supreme Court to carve out an exception to Texas' "eight corners rule." While there has been some fluidity surrounding the contours of an insurer's duty to defend, the exceptions allowed generally have been applied in favor of finding coverage.

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