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Vol. 3, Iss. 6
April 1, 2014

The “True Facts” Exception To The Four Corners-Duty To Defend Rule

By my count, about 35 or so states, give or take, allow for the consideration of extrinsic evidence, in one form or another, to determine an insurer’s duty to defend.  In other words, they allow for the consideration of information, beyond what’s contained in the complaint itself, to determine if an insurer has a duty to defend. Such pronouncements are often stated as nice-sounding general rules; but there is a paucity of guidance about just how they operate. See Talen v. Employers Mut. Cas. Co., 703 N.W.2d 395, 406 (Iowa 2005) (“The scope of inquiry [for the duty to defend] . . . [includes] the pleadings of the injured party and any other admissible and relevant facts in the record.”); Am. Bumper & Mfg. Co. v. Hartford Fire Ins. Co., 550 N.W.2d 475, 481 (Mich. 1996) (“The insurer has the duty to look behind the third party’s allegations to analyze whether coverage is possible.”); Garvis v. Employers Mut. Cas. Co., 497 N.W.2d 254, 258 (Minn. 1993) (stating that the determination of the duty to defend includes consideration of facts of which the insurer is “aware”); Farmland Mut. Ins. Co. v. Scruggs, 886 So. 2d 714, 719 n.2 (Miss. 2004) (holding that, in determining whether an insurer has a duty to defend, an insurer may consider those “true facts [that] are inconsistent with the complaint,” the insured brought to the insurer’s attention); Peterson v. Ohio Cas. Group, 724 N.W.2d 765, 773–74 (Neb. 2006) (finding that a duty to defend exists where the “actual facts” reveal such a duty exists); Am. Gen. Fire & Cas. Co. v. Progressive Cas. Co., 799 P.2d 1113, 1116 (N.M. 1990) (“The duty of an insurer to defend arises from the allegations on the face of the complaint or from the known but unpleaded factual basis of the claim.”); State Farm Fire & Cas. Co. v. Harbert, 741 N.W.2d 228, 234 (S.D. 2007) (“[T]he issue of whether an insurer has a duty to defend is determined by . . . ‘other evidence of record.’”).

Mississippi is a state that allows for the consideration of extrinsic evidence to determine if an insurer has a duty to defend. In Nationwide Insurance v. Lexington Relocation Services, No. 12-181 (N.D. Miss. Mar. 24, 2014) the Mississippi federal court provided some guidance on how its extrinsic evidence rule works. The decision is lacking in some detail that could have made it even more helpful, but when it comes to this issue you take what you can get.

The Lexington Relocation court addressed whether an insurer had a duty to defend an insured in some sort of non-compete action arising out of one company hiring another company’s former employee. The insurer alleged that it had no duty to defend its insured. The court observed that, under Mississippi law, an insurer’s duty to defend hinges on the allegations in the underlying complaint. However, a “court may consider facts not contained in the underlying pleadings where the insurer is ‘presented with extrinsic facts, of which the insurer has knowledge or could obtain knowledge by means of a reasonable investigation, that trigger coverage under the policy.’ However, a ‘true facts’ analysis is a ‘narrow exception’ to the general rule.” The Lexington Relocation court stated that the “Mississippi Supreme Court has held that if an insured submits uncontroverted, competent evidence establishing the falsity of the pertinent allegations in the complaint, the insured has provided ‘true facts’ under the exception.”

So what constitutes “true facts” to be considered an exception to the rule that the duty to defend is limited to consideration of the allegations in the complaint? The Lexington Relocation court provided this answer: “[T]he insured cannot establish ‘true facts’ by merely denying the allegations in the underlying complaint. . . . The alleged ‘true facts’ under the ‘extrinsic facts’ exception must be supported by competent summary judgment evidence and must constitute a ‘fact,’ not merely a denial of liability. See Natchez Steam Laundry, 131 F.3d at 553 (rejecting as ‘true facts’ insured’s assertion to insurance company that actions alleged were unintentional and therefore covered by the insurance policy). As the Natchez Steam Laundry court explained, if courts deemed such an assertion to be sufficient under Mavar, every insured could simply deny the allegations in the underlying complaint and thereby ‘eviscerate Mississippi’s general rule—that an insurer can determine whether it has a duty to defend by comparing the complaint to the policy.’”

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