Duty to Defend

The court of appeals has issued an opinion affirming an insurer’s obligation to cover the costs of defense.  In an underlying lawsuit, two homeowners sued their builder for negligent construction of the home.  The builder had been insured by several companies over the years, including Great American and Audobon.  Great American initially agreed with the other insurers that it would  cover one-third of the defense costs, but it pulled out of that deal when it was revealed that the damage to the house had occurred before its policy went into effect.  Audobon then sued Great American.  The trial court granted summary judgment in favor of Audobon, and the court of appeals affirmed.

On appeal, Great American argued that it had no duty to defend the underlying case because discovery had established that the homwoners’ claim did not arise during its policy period.  The court of appeals rejected that argument because the duty to defend is invoked by the plaintiff’s pleading, not the underlying facts.  In this case, the homeowners’ petition alleged only that the injury had occurred at some unspecified date in the past, which could have included the period when Great American’s policy was in effect.  Thus, under the “eight corners” of the pleading and the insurance policy, Great American was obligated to cover the costs of defending the claim.

Great American Lloyd’s Ins. Co. v. Audobon Ins. Co., No. 05-11-00021-CV