IT’S FUNDAMENTAL: THE DUTY TO DEFEND – The Anomaly of D.R. Horton-Tex., Ltd. v. Markel Inter’l Ins. Co.

It is well-established that the duty to defend is broader than the duty to indemnify.  Often touted as being “axiomatic”, if there is a potential for coverage under the CGL policy, there is a duty to defend a suit. The duty to indemnify, on the other hand, is narrower because it depends on the insured proving that a loss is actually covered.

Is it possible to have a duty to indemnify but not a corresponding duty to defend? Is the duty to indemnify without a corresponding duty to defend an anomaly, or at least a bit illogical?  Or is it perfectly logical in the context of an “eight-corners” state, like Texas? 

The analysis of the duty to defend begins with an examination of the facts and the policy. It is necessary to determine, however, what facts an insurer must, or can, review when determining its defense obligation in a particular jurisdiction. Is the examination of the facts limited to those stated in the lawsuit or can information extrinsic to the lawsuit be consulted?

While it is universally accepted that the duty to defend is broader than the duty to indemnify, jurisdictions differ as to what information can be used to determine that duty. For instance, in an “eight-corners” state, the decision to defend must be based on a review of the policy and the lawsuit. Use of information outside of the complaint is generally not permitted. In other states, information extrinsic to the complaint must be considered.  In some cases, this information can be used to defeat coverage as well as afford it. In other cases, the information can be used only to afford coverage.

So, while it appears that the defense duty is broad because only a potential for coverage need be established, an eight-corners state restricts the amount of information that can be examined.  Does this restriction detract from the axiom that the duty to defend is broader than the duty to indemnify when only limited information can be used?

Common rationale for rejecting the eight-corners rule can be persuasive. First, the denial of a defense based on information restricted to the lawsuit would appear to be contrary to the broad duty to defend which is universally recognized; and, second, the decision to defend, or not, would be based on the pleadings which could be limited in its recitation of the facts and be subject to “the pleading strategies, whims, and vagaries of third party claimants to control the rights of parties to an insurance contract.”[1]

On March 21, 2013, a federal district court in Texas ruled that the duty to defend and duty to indemnify are distinct duties under Texas law and that one can exist without the other.  Colony Ins. Co. v. Price, 2013 U.S. Dist. LEXIS 38952 (N.D. Tex. Mar. 21, 2013).

Citing the Supreme Court of Texas in D.R. Horton-Tex., Ltd. v. Markel Inter’l Ins. Co, 300 S.W.3d 740, 743, the Colony court stated that “although the duty to defend is ‘strictly circumscribed by the eight-corners doctrine, it is well settled that the facts actually established in the underlying suit control the duty to indemnify.’” Colony 13-14

Is the duty to defend truly broader than the duty to indemnify if determination of the duty to defend is “strictly circumscribed by the eight-corners doctrine?”  To answer this question, it is helpful to distinguish the “potential v. actual” criterion for determining duties from any constraints on the information to which this criterion can be applied.

When the duty to defend must be determined from the lawsuit only and not from extrinsic information, it is possible that no duty to defend exists given the way the lawsuit is drafted.  On the other hand, there may be a duty to indemnify because it can be determined based on information outside of the complaint.

In D.R. Horton-Texas, Ltd., the Court ruled that the defense and indemnity duties are independent of each other and that an indemnity duty can exist without a defense duty: “We hold that even if Markel has no duty to defend D.R. Horton, it may still have a duty to indemnify… That determination hinges on the facts established and the terms and conditions of the CGL policy. D.R. Horton 744.

Hence, the anomaly…the duty to defend is broader than the duty to indemnify, but in an eight-corners jurisdiction, the information used to determine the duty to defend is limited. And while the duty to indemnify is narrower, the information used to determine that duty is broad. Since the duties exist independent of each other, it is possible to have a duty to indemnify without a duty to defend.


[1] Randy Maniloff and Jeffrey Stempel quoting from M. Mooney Corp. v. U.S. Fid. & Guar. Co., 618 A.2d 793, 797 (N.H. 1992), General Liability Insurance Coverage/Key Issues in Every State (New York, NY: Oxford University Press, Inc. 2011) 71.

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