Southern District of Texas Declines to Allow Extrinsic Evidence Under the Monroe Exception

On 11 December 2024, the United States District Court for the Southern District of Texas issued an opinion illustrating the breadth of an insurer’s duty to defend (Hudson Excess Ins. Co. v Filipp Oilfield Services LLC et al., No 3:23-cv-00379).

Per Texas case law, the well-established “eight-corners” rule governs the determination of an insurer's duty to defend, requiring the court to consider solely the insurance policy and the petition. Notably, the 2022 case, Monroe Guar. Ins. Co. v BITCO Gen. Ins. Corp., introduced an exception to this rule (640 S.W.3d 195, 199 (Tex. 2022)). This allowed for the consideration of extrinsic evidence if gaps existed in the underlying petition that hindered a coverage determination, provided the extrinsic evidence: (i) pertained only to coverage without overlapping with liability merits; (ii) did not contradict the petition’s allegations; and (iii) conclusively established coverage facts (Id. at 196-97).

In Hudson, the court addressed whether the insurer was obligated to defend the insured in a suit involving a severe fire-related injury at a worksite owned by the defendant. The plaintiff’s vague petition included only two factual claims: (i) On or about 23 January 2023, the plaintiff was working at a site in Harris County managed by the defendants; and (ii) a fire/explosion occurred during his work, causing severe injuries. The petition also included photographs and negligence claims, such as “failing to provide proper and/or safe equipment.”

Crucially, the petition did not mention an employer-employee relationship. Insurers sought a declaratory judgment, arguing the bodily injury claims fell under the “Employees, Contractors, Volunteers, and Other Workers” Exclusion. The plaintiff countered, claiming that factual allegations and negligence claims necessitated coverage given the overlap between the two.

The court concluded the insured owed a duty to defend, as the petition’s allegations of bodily injury at a jobsite was covered under the policy and did not trigger exclusions. The court acknowledged that there was a “gap” within the pleadings, as the facts only provide that the plaintiff was “performing his work” without further details relating to the specific relationship of the plaintiff with the defendant. The insurer argued that, since this gap existed, the court must fill in this gap with extrinsic evidence that proves the existence of an employer-employee relationship.

Despite establishing Monroe conditions two and three, the court concluded the extrinsic evidence overlapped with liability merits, thus failing to meet Monroe condition one. The court emphasised its refusal to consider the extrinsic evidence because providing “proper and safe equipment” is a non-delegable duty specific to an employer-employee relationship,

Given the “eight-corners” of the policy and petition conclusively addressed coverage, no extrinsic evidence was considered and the court determined that the insurer was required to provide a defence. The petition alleged a bodily injury that occurred on a jobsite that was covered under the insurance policy and no factual allegation within the petition triggered any exclusions.