The Supreme Court of Texas Again has the Chance to Accept or Reject the Northfield Exception. Will They, or Won’t They?

The extrinsic evidence / duty-to-defend conundrum continues to garner judicial attention.

April 14, 2021

Now well into a year since the beginning of the COVID-19 pandemic, there is hope that life can return to “normal” soon.

The COVID-19 pandemic caused insureds significant economic losses. Efforts to obtain coverage under commercial property policies have been less than fruitful, with insurers obtaining dismissals on the pleadings thus far in approximately 70% of reported decisions. But the COVID-19 coverage litigation was not the only significant insurance law development in Texas in 2020. In particular, in 2020, the Supreme Court of Texas considered in two cases whether extrinsic evidence was admissible in determining an insurer’s duty to defend.

In Richards v. State Farm Lloyds (“Richards”), the Court rejected arguments that the eight-corners rule did not apply to insurance policies that did not include an obligation to defend claims even if they were “groundless, false or fraudulent”—i.e., a “policy language” exception to the rule.[1] For the full details and commentary of the Richards opinion, please see the following link. Shortly thereafter, in Loya Insurance Company v. Avalos (“Avalos”), the Supreme Court of Texas recognized a very narrow “collusive fraud” exception—the first time the Court ever adopted an exception to the “eight corners” rule.[2] In that case, the Court stated that an insurer can rely on extrinsic evidence if 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.” [3] For an analysis of the Avalos opinion, please see the following link.

Prior to Avalos, the Supreme Court of Texas was presented with but declined on many opportunities to adopt (or reject) an exception to the eight-corners rule in evaluating the duty to defend. One of the exceptions that the Court recognized on several occasions was developed by the Fifth Circuit in Northfield Insurance Co. v. Loving Home Care, Inc., where the Fifth Circuit stated:

[I]f the four corners of the petition allege facts stating a cause of action which potentially falls within the four corners of the policy’s scope of coverage, resolving all doubts in favor of the insured, the insurer has a duty to defend. If all the facts alleged in the underlying petition fall outside the scope of coverage, then there is no duty to defend. However, in the unlikely situation that the Texas Supreme Court were to recognize an exception to the strict eight corners rule, we conclude any exception would only apply in very limited circumstances: when 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 .[4]

This became known and referred to colloquially as the “Northfield Exception.”

In Richards, the Supreme Court of Texas specifically referred to the Northfield Exception (by name) and outlined the narrow circumstances under which courts have applied it in other cases. The Court , however, declined to express an opinion on the Northfield Exception, noting that it was only addressing the narrow question certified as to whether a “policy language” exception exists. While the Court recognized but expressly declined to analyze the NorthfieldException in Richards, it did not even mention the Northfield Exception in Avalos.

In light of these decisions, we questioned whether the Northfield Exception remained good law. It seemed peculiar that the Supreme Court of Texas did not discuss or even mention the Northfield Exception in Avalos, which was the first time the Court actually acknowledged that there are circumstances when extrinsic evidence is admissible in analyzing the duty to defend. Shortly after the Avalos ruling, The Northern District of Texas opined on the issue in National Liability & Fire Insurance Company v. Young, noting that, while the Supreme Court of Texas did not address the Northfield Exception in Avalos, that rule remained binding on Texas federal district courts: “Neither Texas case law nor a change in statutory authority has displaced the Fifth Circuit’s Northfield [E]xception.” [5]

On March 12, 2021, the Fifth Circuit put the issue directly before the Supreme Court of Texas in Bitco General Insurance Corporation v. Monroe Guaranty Insurance Company. [6] Therein, the Fifth Circuit certified the following questions to the Supreme Court:

  1. Is the exception to the eight-corners rule articulated in Northfield . . . permissible under Texas law?

  2. When applying such an exception, may a court consider extrinsic evidence of the date of an occurrence when (1) it is initially impossible to discern whether a duty to defend potentially exists from the eight-corners of the policy and pleadings alone; (2) the date goes solely to the issue of coverage and does not overlap with the merits of liability; and (3) the date does not engage the truth or falsity of any facts alleged in the third party pleadings?[7]

The facts and issues in Bitco are representative of many common coverage disputes. 5D Drilling & Pump Service Inc. (“5D”) had commercial general liability insurance with BITCO General Insurance Corporation (“BITCO”) for the policy period from October 6, 2013 to October 6, 2014, and with Monroe Guarantee Insurance Company (“Monroe”) for the policy period from October 6, 2015 to October 6, 2016. The Monroe policy, however, did not apply with respect to “any ‘continuation, change or resumption’ of property damage ‘during or after the policy period’ that was known ‘prior to the policy period’ ‘in whole or in part.’”[8]

In “the summer of 2014,” 5D was hired to drill a commercial irrigation well through the Edwards Aquifer. 5D was later sued for breach of contract and negligence after it purportedly drilled the well with “unacceptable deviation” and then abandoned the well after it “stuck” the drill bit in the bore hole. [9] This allegedly rendered the “well practically useless for its intended/contracted for purpose.”[10] 5D then purportedly “failed and refused to plug the well, retrieve the drill bit, and drill a new well.” [11] 5D sought coverage for the lawsuit from both BITCO and Monroe. BITCO ultimately agreed to provide a defense, but Monroe refused, arguing that the “property damage” at issue did not occur during its policy period. [12] In fact, BITCO and Monroe stipulated that the drill bit was stuck in the bore hole “‘during drilling’ ‘in or around November 2014.’”[13] BITCO subsequently filed a declaratory judgment action against Monroe and won summary judgment that Monroe owed a duty to defend.

On appeal to the Fifth Circuit, Monroe urged the court to consider the stipulation between it and BITCO regarding the date of the incident, even though that information was extrinsic evidence.[14] BITCO countered that Texas’s eight-corners rule prohibited consideration of such evidence, and that, even if that evidence was evaluated, it did not establish that Monroe had no duty to defend.[15] In beginning its analysis, the Fifth Circuit recognized that, while the Supreme Court of Texas had never adopted the Northfield Exception, it had “favorably cited” the Northfield Exception in prior cases.[16] Thus, according to the Fifth Circuit, whether Texas law would permit a court to consider the undisputed date of an incident as relevant to determine whether a duty to defend exists under the scope of the Northfield Exception “is important because ascertaining the date of an occurrence is a frequently encountered ‘gap’ in third party pleadings.” [17]

The Fifth Circuit noted that the “omitted date” of when damage or injury occurred can be a “key question” as it relates to whether the insurer has a duty to defend its insured in an underlying suit. The Fifth Circuit recognized that it and some Texas federal courts had previously allowed the use of extrinsic evidence in certain circumstances to clarify the date of an occurrence or specific circumstances surrounding a loss. [18] The court further recognized that the two leading insurance treatise commentators have urged the allowance of extrinsic evidence in limited circumstances when evaluating the duty to defend. [19] As a result, the Fifth Circuit certified the above questions for a ruling from the Supreme Court of Texas.


The adoption of the “collusive fraud” exception in Avalos was not a shock, especially given the facts and circumstances of the case. The very narrow exception to the eight-corners rule carved out in that case requires conclusive proof of collusion and insurance fraud by the insured and the third-party claimant. Given the unwillingness of the Supreme Court of Texas to adopt the Northfield Exception despite being presented with (many) opportunities to do so, and the omission of any reference at all to the existence of the Northfield Exception in Avalos, there was a question as to whether the exception still was good law. Presumably, the Fifth Circuit also recognized this development, finally putting the question squarely in front of the Supreme Court of Texas for a definitive answer on the issue.

It is impossible to predict how the Court will rule. Either way, the effects likely will be monumental for both sides of the insurance bar. While most standard insurance policies impose upon the insurer a duty to defend the insured against a suit in which covered damages are sought, the “eight-corners” rule and contours surrounding that rule are a common law creation. Will the Supreme Court expressly adopt the Northfield Exception as originally developed by the Fifth Circuit? Will the Supreme Court of Texas adopt a modified or more limited exception? Will the Supreme Court of Texas outright reject the Northfield Exception in light of policy language that suggests the determination should be made based on what is “sought” by the claimant? Will the Supreme Court of Texas simply refuse to answer the certified questions?

The answer to the last question will almost assuredly be “no,” as the Court does not appear to have ever refused a certified question. Nevertheless, the other questions remain unanswered for now.

Stay tuned…


Lee Shidlofsky

Douglas P. Skelley

Rebecca DiMasi

Blake Crawford
Senior Counsel

[1] Richards, 597 S.W.3d 492, 499–500 (Tex. 2020).

[2] Avalos, 610 S.W.3d 878 (Tex. 2020).

[3] Id. at 882.

[4] 363 F.3d 523, 531 (5th Cir. 2004) (emphasis in original).

[5] 459 F. Supp. 3d 796, 800 (N.D. Tex. 2020).

[6] No. 19-51012, --- F. App’x ---, 2021 WL 955155, at *4 (5th Cir. Mar. 12, 2021).

[7] Id.

[8] Id. at *1.

[9] Id. at *2.

[10] Id. at *2.

[11] Id.

[12] Id.

[13] Id.

[14] Id. at *3.

[15] Id.

[16] Id. (citing Richards v. State Farm Lloyds, 597 S.W.3d 492, 496–97 (Tex. 2020); GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d 305, 308–09 (Tex. 2006)).

[17] Id.

[18] Id. (citing Ooida Risk Retention Grp., Inc. v. Williams, 579 F.3d 469, 476 (5th Cir. 2009) (examining extrinsic evidence to establish tandem driving of a commercial motor vehicle and thus the application of an exclusion that precluded the insurer’s duty to defend); Primrose Operating Co. v. Nat’l Am. Ins. Co., 382 F.3d 546, 550 (5th Cir. 2004) (relying on extrinsic evidence (parties’ stipulation) to determine whether pollution spills occurred during policy in evaluating duty to defend); Century Sur. Co. v. Dewey Bellows Operating Co., No. H-08-1901, 2009 WL 2900769, at *8 (S.D. Tex. Sept. 2, 2009) (concluding an exclusion applied and no duty to defend existed after examining extrinsic evidence within a counterclaim); Boss Mgmt. Serv., Inc. v. Acceptance Ins. Co., No. H-06-2397, 2007 WL 2752700, at *11–12 (S.D. Tex. Sept. 17, 2007) (considering “occupancy certificates” as extrinsic evidence in evaluating the earliest date in which damage could have appeared).

[19] Id. (citing Couch on Ins. § 200:22 (3d ed. 2020); 1 New Appleman Insurance Law Practice Guide 11A.13 (2020))

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