When it comes to evaluating a carrier’s potential duty-to-defend its insured under a liability policy, it is a long-standing principle of Florida law (and that of many, but not all, other states) that the only sources to be considered are (1) the facts and allegations pled in the underlying complaint made against the insured and (2) the language in the insurance policy. In other words, the insurer is required to evaluate potential coverage from the “four-corners” of the complaint as applied to the “four-corners” of the insurance contract, thus giving rise to what is colloquially known as the “eight-corners” rule.
In practical terms, this means that facts that have not been pled in the underlying complaint or which are outside of the complaint, even if known to the carrier, are typically not able to be considered by a liability insurer when responding to a tender and determining if a duty-to-defend has been triggered under Florida law.
As with so many things, however, there are exceptions. The Florida Supreme Court, various appellate courts and the 11th Circuit Court of Appeals have previously explained that there are some limited circumstances in which an insurer may consider evidence and facts extrinsic to the underlying complaint in evaluating the duty-to-defend. In Florida, a carrier has been permitted to do so when it is aware of undisputed extrinsic facts that would not typically be pled in the underlying complaint and those undisputed extrinsic facts would clearly take the claim outside of coverage.
To better explain, there have been various circumstances discussed by Florida courts in which the consideration of extrinsic evidence on the duty-to-defend has been permitted. One example is when the insurer disagrees that the party seeking coverage is an actual insured under the policy, notwithstanding what may be pled in the underlying complaint. See Nateman v. Hartford Cas. Ins. Co., 544 So. 2d 1026, 1027 (Fla. 3d DCA 1989). Another example is where a complaint is silent on a key fact that could potentially bring the claim within coverage, and the insurer is aware of extrinsic evidence that is “uncontroverted” that would place the claim outside of coverage. See Nationwide Mut. Fire Ins. Co. v. Keen, 658 So. 2d 1101, 1103 (Fla. 4th DCA 1995). And, the Florida Supreme has likewise approved of the practice in limited circumstances, such as where the insured may not have complied with policy conditions, facts that would be outside of the actual complaint:
We note, however, that there are some natural exceptions [to the eight corners rule] where an insurer's claim that there is no duty to defend is based on factual issues that would not normally be alleged in the underlying complaint. One example would be when the insurer claims that the insured did not provide sufficient notice of the claim and therefore breached an assistance and cooperation clause. In such circumstances, we believe the courts may entertain a declaratory action seeking a determination of a factual issue upon which the insurer's duty to defend depends.
Higgins v. State Farm Fire & Cas. Co., 894 So. 2d 5, 10 n.2 (Fla. 2004).
With the above framework being explained, Florida courts have also observed that the exception to the eight-corners rule is a narrow one, and should be applied sparingly. The 11th Circuit Court of Appeals has explained that:
[S]uch cases are best viewed “as exceptional cases in which courts have crafted an equitable remedy when it is manifestly obvious to all involved that the actual facts placed the claims outside the scope of coverage.”
Stephens v. Mid-Continent Cas. Co., 749 F.3d 1318, 1323–24 (11th Cir. 2014) (quoting First Specialty Ins. Corp. v. 633 Partners, Ltd., 300 Fed. Appx. 777, 786 (11th Cir. 2008)).
Recently, in Advanced Sys., Inc. v. Gotham Ins. Co., 3D18-1744, 2019 WL 1646106 (Fla. 3d DCA Apr. 17, 2019), the Third District Court of Appeal arguably further tightened the narrow exception to the eight-corner’s rule, thus making it more difficult for an insurer to argue that extrinsic facts removing the claim from coverage may be considered on the duty-to-defend.
Gotham involved a property damage claim to certain aircraft caused by a malfunctioning foam fire suppressant system. Advanced Systems was the subcontractor that installed the fire suppressant system and was sued in a third-party complaint, which it then tendered to Gotham Insurance for coverage. Gotham Insurance sought summary judgment on the issue of coverage, claiming that there could be no duty-to-defend as the policy contained an exclusion barring coverage for property damage caused by a chemical like that of the foam fire suppressant. Id. at *1.
As summary judgment evidence, Gotham relied on a Material Safety Data Sheet (“MSDS”) for the fire suppressant chemical, which was extrinsic to the third-party complaint, in order to argue that the substance qualified as a “pollutant” under the terms of the policy, and thus was not covered. Id. at *2. The trial court granted summary judgment by relying on the extrinsic MSDS evidence to find that the substance was an excluded “pollutant” and the appeal followed.
Ultimately, the Third District Court of Appeals reversed, finding that the trial court should not have relied upon Gotham’s extrinsic evidence on the duty-to-defend. The Court noted that the extrinsic evidence was not “uncontroverted” because the parties disputed the composition of the foam and the MSDS sheet relied upon, which had apparently been downloaded from the internet, was argued to be unauthenticated.
At the end of the day, the Court rejected the introduction of this extrinsic evidence on the duty-to-defend, and in so doing, may have further narrowed the circumstances in which such evidence may be relied upon by a carrier seeking to disclaim an obligation to defend. While the exception has always been narrowly applied in Florida, the Gotham opinion may represent an even greater restriction upon the consideration of extrinsic evidence pertaining to the duty-to-defend under Florida law. Time will tell.