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Insurance companies insure and defend litigants against misguided tort cases all the time. But do the companies have a duty to defend if there’s evidence, outside of a plaintiff’s petition, proving that an insurance policy does not cover the alleged wrong? That’s a front-line litigation question that an insurance company is asking the Texas Supreme Court to consider and a question insurance defense lawyers desperately want answered. An insurance company is appealing Fielder Road Baptist Church v. GuideOne Elite Insurance Co., a May 20 decision from Fort Worth’s 2nd Court of Appeals, to the state Supreme Court. It’s a case with a focus on a common dispute that several insurance defense attorneys believe the court will accept for review. GuideOne alleges that it has no duty to defend Fielder Road Baptist Church (FRBC) in a sexual misconduct suit a former parishioner filed against the church and an associate youth minister in 2001. The plaintiff alleges that the associate youth minister — who is no longer employed at that church — abused her while the church employed him. The church denied having any responsibility for the associate youth minister’s alleged actions. The church employed him between 1992 and 1994. GuideOne asserts that the commercial general liability policy it issued FRBC went into effect after the associate youth minister stopped working for the church — an assertion that FRBC agreed with in a stipulation. Two years ago, 153rd District Judge Ken Curry of Fort Worth issued a declaratory judgment that GuideOne had no duty to defend the case, using that stipulation to reach his conclusion. But the 2nd Court reversed that decision because it violated what’s known as the “eight corners” or “complaint allegation rule.” Under that rule, which dates back to nearly 40 years of Texas case law, judges are to consider duty-to-defend questions in light of the policy provisions without reference to the truth or falsity of allegations in a plaintiff’s petition and without reference to what the parties believe or know the facts to be. “Taking the allegations in the underlying pleading as true, as we must, and focusing only on the eight corners of the pleading and the insurance policy, we conclude that the stipulation was not admissible to determine whether GuideOne had a duty to defend FRBC in the underlying litigation,” wrote Justice Anne Gardner. “Thus, the trial court erred by considering the stipulation.” WORST POSSIBLE POSITION Sandra Liser, a partner in Fort Worth’s Brown, Dean, Wiseman, Liser, Proctor & Hart who represents GuideOne and recently appealed the case to the Supreme Court, says the 2nd Court ruling puts insured defendants in a bad spot. The ruling means that even though an insurance company may have to pay for an insured’s defense, it does not mean that it pays for a judgment rendered against a defendant, Liser says. “This puts the insured in the worst possible position where everybody knows that insurance company isn’t going to pay a judgment because there’s no duty to indemnify,” Liser says. “But because an insurance company is defending, it’s impossible to settle the case. So the insured gets taken all the way to judgment with no one to pay it.” But David Petter, an associate with Arlington’s Hoodenpyle & Lobert who represents FRBC, says the issue is simple if you read the insurance policy FRBC had with GuideOne. 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.” The policy, which also contains language saying sexual misconduct is covered, clearly states that GuideOne has the duty to defend the case, Petter says. “We shall have the duty to defend,” Petter says of the policy. “You tell me by reading that, how they get out of this one? That’s exactly what they contracted to do.” “GuideOne has tried to created a spin to make this the most egregious thing ever,” Petter alleges. “But the fact is, the insureds want to be defended.” (Liser believes the court likely will accept the case for review because the 2nd Court issued a similar opinion reversing a duty-to-defend declaratory judgment in 2001 that the Supreme Court accepted for review. But litigants in that case, ITT Hartford Insurance Co. v. Home Depot U.S.A., settled before the high court heard oral arguments. Jerry Bullard, a partner in Fort Worth’s Suchocki, Bullard & Cummings who represented Home Depot in the 2001 duty-to-defend appeal to the high court, says there’s a good chance the high court will take GuideOne. “I could see if there was some interest in seeing if there was some case-by-case determination to look at the facts to see if a defense should be supplied,” Bullard says. REASONS AND ANSWERS There are many reasons why plaintiffs make broad allegations in their petitions — not the least of which is so that an insurance policy may cover the claims if the plaintiff wins a favorable verdict, several insurance lawyers say. But sometimes it’s impossible to get too specific in a petition, says Lori Watson, a lawyer with Dallas’ Law Office of Windle Turley who represents the former parishioner and plaintiff in the underlying FRBC litigation. “Normally we try to be as specific as possible. But a lot of times the allegations are brought years after [the event at issue],” Watson says. Watson says her client was as specific as she could be, given the passage of time. The woman is now in her early 20s, and the alleged abuse happened when she was in her teens. “There may be an issue as to pinning down the dates. But we try to plead the truth,” Watson says. “It’s significant as far as insurance coverage, and one date can make a difference as far as insurance coverage.” Without admitting any wrongdoing, FRBC reached a confidential settlement with Watson’s client more than a year ago, Watson says. And Watson is not involved in the duty-to-defend appeal, a case that likely will determine who ultimately pays for the cost of the settlement — the insurer or the insured. And the outcome of FRBC’s duty-to-defend appeal greatly interests attorneys such as R. Brent Cooper, a partner in Dallas’ Cooper & Scully, who defends insurance companies in coverage disputes. “It’s a very important issue, and it’s important for the insured as well as the insurer,” Cooper says. “What this really gets down to is under what circumstances will the insurer or the insured be allowed to use extrinsic evidence,” Cooper says. “And the Supreme Court heretofore has really not determined the use of extrinsic evidence in the duty to defend.” But in the end, the appeal likely may turn out better for the insurance carrier than the insured, says Ernest Martin, a partner in Dallas’ Haynes & Boone, who represents insured defendants in coverage disputes. He believes the high court likely will look at the language of the GuideOne policy FRBC held to make its determination. Even if the high court decides that the insurance company has to provide a defense to FRBC, it doesn’t mean that it will have to pay for the already-reached settlement, Martin says. The duty to defend and duty to indemnify are two separate issues, Martin says. “I guess the carrier shouldn’t be so terribly upset for two reasons. One, because their policy specifically provides that they will defend a suit even though the allegations are false,” Martin says. “And number two, they still maintain the ability to argue that they don’t have the duty to indemnify.”

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