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Insurance Coverage Crammed Into Eight Corners

Conventional wisdom wags say that insurance companies don't like to pay out money. You know, the part where they collect premiums but don't pay claims.

Well, here's a new twist on that old saw.

The Fielder Road Baptist Church in Arlington, Texas was sued for sexual misconduct because of a former pastor's alleged abuse. It's a familiar claim.

Here, the Church was insured by GuideOne Insurance, and both the Church and the insurance company agreed that the pastor was not employed by the Church during GuideOne's policy period.

That should be the end of the story, right?

Guess again.

That policy reads: "We shall have the right and duty to investigate any claim ... and to defend any suit brought against you seeking damages, even if the allegations of the suit are groundless, false or fraudulent." (Emphasis not in original.)

It's that nasty little word, shall. It denotes a mandatory requirement, as in shall defend the Church.

And the Complaint against the Church is broad enough to trigger coverage under the policy because it doesn't say anything about when the pastor was employed. Now, confusion starts to set in. If the policy says the insurance company must defend, but the insured and insurer agree there's no coverage....

My head hurts. Yours probably does, too.

See, you forgot that Texas has the eight corners rule, didn't you? Eight corners are really two, four corners. The four corners of the Complaint's allegations and the four corners of the insurance policy.

In Texas, those two documents are the only things that determine whether coverage exists under an insurance policy. So, if there's a third document, such as the Church and insurance company's stipulation that the pastor wasn't covered, the Court can't consider the third document to decide whether the insurance company has to defend the Church.

Right now, the score is one to one. The trial court said no, there's no coverage because of the stipulation, then the appellate court said yessiree Bob - we stick to the eight corners rule here. The Complaint says something that triggers coverage, and the policy says "shall," so there's coverage.

Yep, you guessed it. Maybe we go see the Texas Supremes now to find out if there really is coverage.

We'll see whose head hurts after this whole thing is over. Stay tuned.

Printer friendly page Permalink Email to a friend Posted by J. Craig Williams on Wednesday, October 20, 2004 at 00:56 Comments Closed (1) |
 
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