Property Casualty Focus

In Southern-Owners Insurance Co. v. Midnight Tires Inc., the U.S. District Court for the Middle District of Florida granted an insurer’s motion for summary judgment after considering extrinsic evidence on the issue of the insurer’s duty to defend in an action seeking a declaration that the insured’s garage general liability policy did not cover claims in an underlying motor vehicle injury lawsuit.

In the underlying action, Midnight Tires Inc. was sued in connection with an auto accident in which the subject vehicle was owned by two officers of Midnight Tires, Melvin Rodriguez and Marydelin Rodriguez. Though the underlying complaint was amended to remove any allegations regarding the vehicle’s ownership, the parties did not dispute that the subject vehicle was owned by Midnight Tires’ officers, who purchased the vehicle from their joint checking account and had an entry recorded with the Florida Department of Motor Vehicles title transaction history memorializing the vehicle sale to Melvin and Marydelin Rodriguez before the accident.

The garage general liability policy provided that Southern-Owners Insurance Co. will cover damages for bodily injury for which the insured, Midnight Tires, is legally responsible arising out of an auto “not owned” by Midnight Tires or any officer of Midnight Tires. In other words, the policy did not provide coverage for bodily injury arising from the use of an auto owned by Midnight Tires or its officers.

According to Southern-Owners, because it was undisputed (although unpleaded) that the vehicle was owned by a Midnight Tires officer, Southern-Owners was entitled to summary judgment on its duty to defend and duty to indemnify Midnight Tires. Specifically, Southern-Owners argued that although the “eight corners rule” generally limits analysis of an insurer’s duty to defend to the four corners of the complaint and the four corners of the policy, the court was permitted to consider extrinsic evidence beyond the underlying complaint when undisputed facts place the claims outside the scope of coverage.

The court agreed, citing Eleventh Circuit precedent recognizing an “exception to the eight corners rules, in which a court may consider extrinsic facts if those facts are undisputed, and, had they been pled in the complaint, they clearly would have placed the claims outside the scope of coverage.” While the exception is limited to “exceptional cases,” the court reasoned that the unambiguous language of the policy excluded the underlying claims where the undisputed facts demonstrated that the officers of the insured owned the car at the time of the accident.

Though the insureds argued that the phrasing of the underlying amended complaint should predominate the court’s duty to defend analysis, the court found that the operative underlying complaint could not be fairly read to contain claims that may be covered by the policy. The court ruled that “at some point in legal pleadings, common sense should prevail, which is in essence the basis for the limited exception to the four corners rule.” The court also cautioned against pleading into coverage, noting that the claims in the initial underlying complaint were clearly excluded by the policy and were later amended to omit allegations regarding ownership of the vehicle seemingly to trigger the duty to defend.

Thus, the court followed the line of Eleventh Circuit cases finding a limited exception for considering extrinsic evidence in determining an insurer’s duty to defend where the evidence is uncontroverted and shows that the policy does not cover the underlying claims. For those reasons, the court held that there was no coverage under the Southern-Owners policy for any of the claims in the underlying action.