State Farm Lloyds v. Janet Richards, et al

United States Court of Appeals
for the Fifth Circuit

No. 18-10721

State Farm Lloyds,

Plaintiff—Appellee,

versus

Janet Richards; Melvin Richards; Amanda Culver Meals,

Defendants—Appellants.

Appeal from the United States District Court
for the Northern District of Texas
USDC No. 4:17-CV-753

Before Elrod and Willett, Circuit Judges.*
Per Curiam:
In summer 2017, a ten-year-old died in an ATV accident at his
paternal grandparents’ house. The boy’s mom sued the grandparents, the
Richards, in state court. The Richards asked their insurer, State Farm, to
defend (and if necessary, indemnify) them. But State Farm refused and
sought a declaration in federal court that it had no duty to do either. The
parties filed cross summary-judgment motions, and the district court granted
State Farm’s motion. We reverse and remand.

*
This matter is being decided by a quorum. 28 U.S.C. § 46(d).
United States Court of Appeals
Fifth Circuit
FILED
July 20, 2020

Lyle W. Cayce
Clerk

No. 18-10721
2
I
Jayden Meals was killed in an all-terrain vehicle accident while under
the temporary care of his grandparents, the Richards. Jayden’s mother,
Amanda Meals, sued the Richards in Texas state court, alleging they were
negligent in allowing Jayden to operate the ATV at his young age, without
instruction, supervision, or a helmet or other protective gear. The Richards
sought a defense from State Farm Lloyds under their homeowner’s insurance
policy. That policy requires State Farm to provide a defense against a suit for
bodily injury.
Specifically, the insurance policy requires State Farm to provide a
defense “[i]f a claim is made or a suit is brought against an insured for
damages because of bodily injury . . . to which this coverage applies, caused
by an occurrence.” And under this policy, an “occurrence” includes “an
accident” that “results in . . . bodily injury.”
State Farm initially defended this suit under a reservation of rights,
but later sought a declaration in federal court that it had no duty to defend or
indemnify the Richards. In a summary-judgment motion, State Farm argued
that two exclusions barred coverage.
The first, the “motor-vehicle exclusion,” exempts from coverage
bodily injury “arising out of the . . . use . . . of . . . a motor vehicle owned or
operated by or loaned to any insured.” The policy defines “motor vehicle”
to include an “all-terrain vehicle . . . owned by an insured and designed or
used for recreational or utility purposes off public roads, while off an insured
location.” The policy defines “insured location” to mean “the residence
premises.” Thus, the policy excludes coverage for bodily injury arising from
the use of an ATV while off the Richards’ premises. In support of its
summary-judgment motion, State Farm attached a vehicle crash report and
the Richards’ admissions indicating the crash occurred off their premises.

No. 18-10721
3
The other exclusion—the “insured exclusion”—excludes coverage
for bodily injury to any insured “within the meaning of part a. or b. of the
definition of insured.” The policy defines “insured” to mean “you and, if
residents of your household: a. your relatives; and b. any other person under the
age of 21 who is in the care of a person described above.” State Farm thus
attached to its motion the Richards’ admission that they were Jayden’s
grandparents, as well as a court order appointing them as joint-managing
conservators to show that Jayden was a “resident of [the Richards’]
household.”
Appellants filed cross summary-judgment motions. They argued that,
under Texas’s eight-corners rule, State Farm could not rely on extrinsic
evidence to prove up a policy exclusion. The district court disagreed and,
finding that the extrinsic evidence satisfied both exclusions, granted
summary judgment for State Farm. State Farm Lloyds v. Richards, No. 4:17-
CV-753-A, 2018 WL 2225084, at *3–4 (N.D. Tex. May 15, 2018). The
district court also held that State Farm had no duty to indemnify. Id. at *4–5.
According to the district court, the eight-corners rule does not apply
if a policy does not include language requiring the insurer to defend “all
actions against its insured no matter if the allegations of the suit are
groundless, false or fraudulent.” Id. at *3 (citing B. Hall Contracting, Inc. v.
Evanston Ins. Co., 447 F. Supp. 2d 634, 645 (N.D. Tex. 2006), rev’d on other
grounds, 273 F. App’x 310 (5th Cir. 2008)). This is the purported “policy-
language exception” to the eight-corners rule. Because the district court
concluded that State Farm’s duty to defend arose only if a suit was brought
to which the coverage applies, it reasoned that extrinsic evidence was
admissible to make that determination. Id. at *3. Appellants timely appealed.
This case involves important and determinative questions of Texas
law, as to which there is no controlling Texas Supreme Court precedent. So

No. 18-10721
4
we declined to make an Erie guess and instead certified the following question
to the Supreme Court of Texas: “Is the policy-language exception to the
eight-corners rule articulated in B. Hall Contracting Inc. v. Evanston Ins. Co.,
447 F. Supp. 2d 634 (N.D. Tex. 2006), a permissible exception under Texas
law?” State Farm Lloyds v. Richards, 784 F. App’x 247, 253 (5th Cir.), certified
question accepted (Sept. 13, 2019). The Supreme Court of Texas answered in
the negative: “The ‘policy-language exception’ to the eight-corners rule . . .
is not a permissible exception under Texas law.” Richards v. State Farm, 597
S.W.3d 492, 500 (Tex. 2020). The Court discussed but declined to weigh in
on any other exception to the eight-corners rule. Id.
II
Whether an insurer has a duty to defend its insured in an underlying
suit is a question of law that we review de novo. See Ooida Risk Retention Grp. ,
Inc. v. Williams, 579 F.3d 469, 472 (5th Cir. 2009) (citing Liberty Mut. Ins. Co.
v. Graham, 473 F.3d 596, 599 (5th Cir. 2006)); Guar. Nat’l Ins. Co. v. Vic Mfg.
Co., 143 F.3d 192, 193 (5th Cir. 1998). Summary judgment is proper when,
viewing the evidence in the light most favorable to the non-moving party, the
record reflects that no genuine dispute of material fact exists, and the moving
party is entitled to judgment as a matter of law. Ooida, 579 F.3d at 472 (citing
F
ED. R. CIV. P. 56(c)).
III
The underlying dispute in this case concerns whether State Farm
must defend its insureds—the Richards—against personal-injury claims
brought by Meals. In this diversity suit, we apply Texas law. See, e.g.,
Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523, 527 (5th Cir.
2004). And under Texas’s well-established eight-corners rule, an insurer’s
“duty to defend is determined by the claims alleged in the petition and the
coverage provided in the policy.” Pine Oak Builders, Inc. v. Great Am. Lloyds

No. 18-10721
5
Ins. Co., 279 S.W.3d 650, 654 (Tex. 2009). The petition’s (or complaint’s)
“four corners” + the policy’s “four corners” = the “eight corners” that give
the rule its name. “Only these two documents are ordinarily relevant to the
duty-to-defend inquiry.” Ooida, 579 F.3d at 472 (citation omitted). “If the
underlying pleading alleges facts that may fall within the scope of coverage,
the insurer has a duty to defend; if, on the other hand, the pleading only
alleges facts excluded by the policy, there is no duty to defend.” Id. (citing
Northfield, 363 F.3d at 528).
“The duty to defend is determined by consulting the latest amended
pleading.” Northfield, 363 F.3d at 528 (emphasis omitted). Here, that’s
Meals’s third-amended complaint. The insureds have the initial burden to
establish that a claim is potentially within the scope of coverage. Id. If the
Richards carry this burden, it then shifts to State Farm to show “that the
plain language of a policy exclusion or limitation allows [it] to avoid coverage
of all claims, also within the confines of the eight corners rule.” Id. (emphasis
removed). When determining whether each side has satisfied its burden, the
Texas Supreme Court has instructed us—when applying Texas law—to
“resolve all doubts regarding the duty to defend in favor of the duty . . . and
[] construe the pleadings liberally.” Zurich Am. Ins. Co. v. Nokia, Inc., 268
S.W.3d 487, 491 (Tex. 2008).
A
Turning to Meals’s third amended complaint, she alleges facts that
possibly implicate coverage under the policy, meaning—according to the
eight-corners rule—State Farm would have a duty to defend. In particular,
Meals makes the following factual allegations:
On or about June 11, 2017 . . . Jayden Meals, age 10, was
operating, on Defendant, Janet Richards’ property, a 2004
Polaris off-road all terrain vehicle . . . , owned by the Defendant,
Janet Richards. Defendants allowed Jayden to operate the ATV

No. 18-10721
6
on their property while Jayden was not wearing a helmet or
safety gear. Jayden was killed because of Janet Richards
allowing him to operate the ATV on their property, without
instruction, without supervision, and without a helmet or other
potentially livesaving protective gear. The decision to allow
Jayden to operate the motor vehicle or ATV was made at the
Richards’ house, where the ATV was kept. Jayden had no
experience in safely operating an ATV and was too young to be
properly trusted with its operation. Jayden resided with his
Mother and Grandmother, Sharen Culver, at 727 Jones Road,
Weatherford, Parker County, Texas, where he had resided for
many years.
In relevant part, the policy provides the following coverage (Coverage L):
If a claim is made or a suit is brought against an insured for
damages because of bodily injury . . . to which this coverage
applies, caused by an occurrence, we will:
1. pay up to our limit of liability for the damages for
which the insured is legally liable; and
2. provide a defense at our expense by counsel of our
choice.
Coverage L, however, explicitly does not apply to bodily injury arising
out of the use of an insured’s motor vehicle. And the policy’s definition of
“motor vehicle” includes an insured’s ATV “used for recreational or utility
purposes off public roads, while off an insured location.”
Appellants argue that Meals’s complaint repeatedly alleged “the
Richards’ actionable conduct that gave rise to Jayden’s death all occurred on
the Richards’ property,” and that those allegations “clearly implicate the
Policy coverage for an ‘occurrence’ occasioned by a motor vehicle operated
on the Richards’ property; as contemplated by . . . the scope of the Motor
Vehicle Exclusion.” Comparing Meals’s allegations within the four corners
of her third-amended complaint to the terms within the four corners of the
policy, indeed, Meals alleged facts that possibly implicate coverage under the

No. 18-10721
7
policy. And even if there were doubt, “such doubt will be resolved in [the]
insured’s favor.” Northfield, 363 F.3d at 528 (quotation and citation
omitted). So Appellants have met their initial burden under the eight-corners
rule.
Yet the district court concluded that the eight-corners rule does not
apply because “the policy does not require plaintiff to defend all actions
against its insured no matter if the allegations of the suit are groundless, false
or fraudulent.” Richards, at *3.
But as the Supreme Court of Texas explained in response to our
certified question, “[t]he ‘policy-language exception’ to the eight-corners
rule . . . is not a permissible exception under Texas law.” Richards, 597
S.W.3d at 500.
1
That Court has “never held or suggested that the eight-
corners rule is contingent on a groundless-claims clause.” Richards, 597
S.W.3d at 498. Consistent with this approach, “Texas courts of appeal have
routinely applied the eight-corners rule for many decades, without regard to
whether the policy contained a groundless-claims clause.” Id. at 499.
In fact, the Texas Supreme Court only recently—and for the first
time—applied any exception to the eight-corners rule. Loya Ins. Co. v. Avalos,
No. 18-0837, 2020 WL 2089752, at *3 (Tex. May 1, 2020). Specifically, in
Avalos, it held that “an insurer owes no duty to defend when there is
conclusive evidence that groundless, false, or fraudulent claims against the
insured have been manipulated by the insured’s own hands in order to secure
a defense and coverage where they would not otherwise exist.” Id. In this
case, there have been no allegations of collusive fraud by the insured, so the

1
Like federal courts, Texas courts have no jurisdiction to render advisory opinions.
But answering a certified question is a constitutionally permissible advisory opinion
because the Texas Constitution grants the Supreme Court of Texas jurisdiction to “answer
questions of state law certified from a federal appellate court.” T
EX. CONST. art. V, § 3-c.

No. 18-10721
8
exception does not apply. And neither does the purported “policy-language
exception.” The district court erred in applying it.
B
State Farm argues we should affirm the district court on other grounds
supported by the record. Like the district court, State Farm concludes that
the eight-corners rule does not apply but argues instead that the district court
should consider extrinsic evidence under a different exception.
We have at times applied a “very narrow” exception to the eight-
corners rule, GuideOne Specialty Mut. Ins. Co. v. Missionary Church of Disciples
of Jesus Christ, 687 F.3d 676, 686 (5th Cir. 2012), “where it is initially
impossible to discern whether coverage is potentially implicated and when
the extrinsic evidence goes solely to a fundamental issue of coverage which
does not overlap with the merits of or engage the truth or falsity of any facts
alleged in the underlying case.”
2
Ooida, 579 F.3d at 475 (citing Northfield,
363 F.3d at 531); see also Star-Tex Res., L.L.C. v. Granite State Ins. Co., 553 F.
App’x 366, 371 (5th Cir. 2014) (per curiam). But this is not one of those cases.
As discussed, the Richards met their initial burden to establish that a
claim is potentially within the scope of coverage. See infra Part III(A). So, the
burden now shifts to State Farm to show “that the plain language of a policy
exclusion or limitation allows the insurer to avoid coverage of all claims, also
within the confines of the eight corners rule.” Northfield, 363 F.3d at 528. To
support its no-duty-to-defend argument, State Farm invokes two policy
exclusions: the “motor vehicle exclusion” and the “insured exclusion.” The

2
As the Texas Supreme Court made clear when responding to our certified
question, it has acknowledged that “some courts” use this exception, but it has not yet
weighed in on whether it’s a valid exception under Texas law. Richards, 597 S.W.3d at 496–
97, 500; see also Zurich, 268 S.W.3d at 497 (acknowledging but not addressing the Fifth
Circuit’s use of the exception).

No. 18-10721
9
issue is whether extrinsic evidence is permissible under our “very narrow”
exception to show that these policy exclusions apply to this claim.
First, the “motor vehicle exclusion.” Under this exclusion, there is no
coverage for bodily injury arising out of the use of a “motor vehicle” owned
by an insured. State Farm argues that the ATV Jayden was driving
constitutes a “motor vehicle” under the policy, meaning that any bodily
injury arising out of Jayden’s use of the ATV would not be covered. But to
meet the definition of a “motor vehicle,” Jayden must have been using the
ATV “off public roads, while off an insured location.” Meals’s third-amended
complaint does not include the location of the accident. So to show the
exclusion applies, State Farm seeks to use extrinsic evidence—namely, a
crash report that shows the location of the crash and the Richards’
admissions regarding the location of the crash.
Under the very narrow exception we have recognized, the extrinsic
evidence must “go[] solely to a fundamental issue of coverage which does
not overlap with the merits of or engage the truth or falsity of any facts alleged
in the underlying case.” Ooida, 579 F.3d at 476.
In Meals’s third-amended complaint, she alleges “Jayden was killed
because” “[the Richards] allowed Jayden to operate the ATV on their
property.” Meals’s allegations of negligence focus on acts or omissions on
the Richards’ property. For example, Meals alleges the Richards were
negligent for “[f]ailing to directly supervise a person younger than 14 years
of age operating an ATV on the Richards’ property in violation of Texas
Transportation Code § 663.032”; “[f]ailing to monitor Jayden on the
Richards’ property as a person using ordinary care would have done in the
same or similar circumstances”; allowing Jayden to operate the ATV on the
Richards’ property without a helmet, other protective gear, seatbelt, proper
instruction, or a certified training course; “[f]ailing to inspect the ATV

No. 18-10721
10
before allowing Jayden to operate the vehicle on the Richards’ property to
ensure that it was safe”; and “[a]llowing Jayden to operate the ATV on the
Richards’ property without the skills, abilities, or judgment needed to
operate the ATV safely.”
Considering these allegations, the extrinsic evidence State Farm seeks
to admit problematically “overlap[s] with the merits of or engage[s] the truth
or falsity of [] facts alleged in the underlying case.” Ooida, 579 F.3d at 476.
By arguing that only the location of the “accident”—as State Farm interprets
that term—matters, State Farm is challenging Meals’s claim that “Jayden
was killed because of Janet Richards allowing him to operate the ATV on their
property.” In other words, the extrinsic evidence State Farm urges the court
to consider is simply too entwined in the merits for the “very narrow
exception” to apply. GuideOne, 687 F.3d at 686 (finding that the “very
narrow exception” to the eight-corners rule does not apply because “the
evidence considered by the district court to determine coverage overlaps with
the merits of [plaintiff’s] action”). This type of “overlapping evidence”
“poses a significant risk of undermining the insured’s ability to defend itself
in the underlying litigation.” GuideOne Elite Ins. Co. v. Fielder Rd. Baptist
Church, 197 S.W.3d 305, 309 (Tex. 2006) (refusing to consider “mixed” or
“overlapping” extrinsic evidence); cf. Star-Tex, 553 F. App’x at 372−73
(considering undisputed extrinsic evidence that shows employee was
“operating a motor vehicle” when she allegedly caused bodily harm to a
customer—thus triggering the policy’s auto exclusion—as “[i]t does not
overlap with the merits of the underlying dispute because the mere fact that
[the employee] was operating a motor vehicle does not establish her
negligence or relate to [plaintiff’s] negligent-hiring or respondeat superior
claims.”). Thus, State Farm’s argument is unavailing.
Second, the “insured exclusion.” State Farm also points to this
exclusion and seeks to introduce extrinsic evidence showing Jayden was an

No. 18-10721
11
“insured” under the policy, meaning his bodily injury would not be covered.
Specifically, State Farm seeks to introduce the Richards’ admission that they
were Jayden’s grandparents, as well as a court order appointing them as joint-
managing conservators to show that Jayden was a “resident of [the
Richards’] household.” Appellants argue this extrinsic evidence should not
be considered because it “contradict[s] allegations in [Meals’s] underlying
pleading.” We agree.
Here, the policy lists the Richards as the named insureds. And, under
the policy, all other subcategories of “insureds” must be “residents of” the
Richards’ household. Meals’s third-amended complaint does not contain any
allegations suggesting Jayden was a “resident” of the Richards’ household.
Rather, the complaint states that “Jayden resided with his Mother and
[maternal] Grandmother, Sharon Culver, at 727 Jones Road, Weatherford,
Parker County, Texas, where he had resided for years.” So considering the
extrinsic evidence to determine whether Jayden was a “resident of [the
Richards’] household,” would impermissibly “engage the truth or falsity of
[] facts alleged in the underlying case.” Ooida, 579 F.3d at 476.
In sum, the eight-corners rule applies here; the “very narrow
exception” does not. And Meals’s third-amended complaint contains
allegations within its four corners that potentially constitute a claim within
the four corners of the policy. Thus, we reverse the district court’s holding
that State Farm does not have a duty to defend the Richards.

No. 18-10721
12
IV
Finally, Appellants challenge the district court’s holding that State
Farm has no duty to indemnify, arguing that duty is not yet justiciable. Under
Texas law, “[t]he duty to defend and the duty to indemnify are distinct and
separate duties.” King v. Dall. Fire Ins. Co., 85 S.W.3d 185, 187 (Tex. 2002)
(citation omitted); see also Northfield Ins. Co., 363 F.3d at 528 (applying Texas
law). And “the duty to defend is broader than the duty to indemnify.” Am.
States Ins. Co. v. Bailey, 133 F.3d 363, 368 (5th Cir. 1998) (applying Texas
law) (citation omitted). “While the duty to defend depends on the allegations
in the pleadings, the duty to indemnify is triggered by the actual facts that
establish liability in the underlying suit.” Ooida, 579 F.3d at 472 (quotation
marks and citation omitted). So, “[g]enerally, Texas law only considers the
duty-to-indemnify question justiciable after the underlying suit is concluded,
unless ‘the same reasons that negate the duty to defend likewise negate any
possibility the insurer will ever have a duty to indemnify.’ ” Northfield, 363
F.3d at 529 (emphasis omitted) (quoting Farmers Tex. Cty. Mut. Ins. Co. v.
Griffin, 955 S.W.2d 81, 84 (Tex. 1997)). Here, State Farm has a duty to
defend, so the exception to non-justiciability does not apply. And because the
underlying suit remains pending, we reverse the district court on this issue.
C
ONCLUSION
After carefully reviewing the record and the parties’ briefing and
arguments, and for the reasons discussed above, we REVERSE and
REMAND. We DENY all pending motions.