Case: 18-10721        Document: 00515496207             Page: 1      Date Filed: 07/20/2020




           United States Court of Appeals
                for the Fifth Circuit
                                                                          United States Court of Appeals
                                                                                   Fifth Circuit

                                                                                 FILED
                                                                             July 20, 2020
                                                                            Lyle W. Cayce
                                     No. 18-10721
                                                                                 Clerk


 State Farm Lloyds,

                                                                  Plaintiff—Appellee,

                                          versus

 Janet Richards; Melvin Richards; Amanda Culver Meals,

                                                            Defendants—Appellants.



                   Appeal from the United States District Court
                       for the Northern District of Texas
                             USDC No. 4:17-CV-753


 Before Elrod and Willett, Circuit Judges.*
 Per Curiam:
       In summer 2017, a ten-year-old died in an ATV accident at his
 paternal grandparents’ house. The boy’s mom sued the grandparents, the
 Richards, in state court. The Richards asked their insurer, State Farm, to
 defend (and if necessary, indemnify) them. But State Farm refused and
 sought a declaration in federal court that it had no duty to do either. The
 parties filed cross summary-judgment motions, and the district court granted
 State Farm’s motion. We reverse and remand.


       *
           This matter is being decided by a quorum. 28 U.S.C. § 46(d).
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                                          I
        Jayden Meals was killed in an all-terrain vehicle accident while under
 the temporary care of his grandparents, the Richards. Jayden’s mother,
 Amanda Meals, sued the Richards in Texas state court, alleging they were
 negligent in allowing Jayden to operate the ATV at his young age, without
 instruction, supervision, or a helmet or other protective gear. The Richards
 sought a defense from State Farm Lloyds under their homeowner’s insurance
 policy. That policy requires State Farm to provide a defense against a suit for
 bodily injury.
        Specifically, the insurance policy requires State Farm to provide a
 defense “[i]f a claim is made or a suit is brought against an insured for
 damages because of bodily injury . . . to which this coverage applies, caused
 by an occurrence.” And under this policy, an “occurrence” includes “an
 accident” that “results in . . . bodily injury.”
        State Farm initially defended this suit under a reservation of rights,
 but later sought a declaration in federal court that it had no duty to defend or
 indemnify the Richards. In a summary-judgment motion, State Farm argued
 that two exclusions barred coverage.
        The first, the “motor-vehicle exclusion,” exempts from coverage
 bodily injury “arising out of the . . . use . . . of . . . a motor vehicle owned or
 operated by or loaned to any insured.” The policy defines “motor vehicle”
 to include an “all-terrain vehicle . . . owned by an insured and designed or
 used for recreational or utility purposes off public roads, while off an insured
 location.” The policy defines “insured location” to mean “the residence
 premises.” Thus, the policy excludes coverage for bodily injury arising from
 the use of an ATV while off the Richards’ premises. In support of its
 summary-judgment motion, State Farm attached a vehicle crash report and
 the Richards’ admissions indicating the crash occurred off their premises.




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        The other exclusion—the “insured exclusion”—excludes coverage
 for bodily injury to any insured “within the meaning of part a. or b. of the
 definition of insured.” The policy defines “insured” to mean “you and, if
 residents of your household: a. your relatives; and b. any other person under
 the age of 21 who is in the care of a person described above.” State Farm thus
 attached to its motion the Richards’ admission that they were Jayden’s
 grandparents, as well as a court order appointing them as joint-managing
 conservators to show that Jayden was a “resident of [the Richards’]
 household.”
        Appellants filed cross summary-judgment motions. They argued that,
 under Texas’s eight-corners rule, State Farm could not rely on extrinsic
 evidence to prove up a policy exclusion. The district court disagreed and,
 finding that the extrinsic evidence satisfied both exclusions, granted
 summary judgment for State Farm. State Farm Lloyds v. Richards, No. 4:17-
 CV-753-A, 2018 WL 2225084, at *3–4 (N.D. Tex. May 15, 2018). The
 district court also held that State Farm had no duty to indemnify. Id. at *4–
 5.
        According to the district court, the eight-corners rule does not apply
 if a policy does not include language requiring the insurer to defend “all
 actions against its insured no matter if the allegations of the suit are
 groundless, false or fraudulent.” Id. at *3 (citing B. Hall Contracting, Inc. v.
 Evanston Ins. Co., 447 F. Supp. 2d 634, 645 (N.D. Tex. 2006), rev’d on other
 grounds, 273 F. App’x 310 (5th Cir. 2008)). This is the purported “policy-
 language exception” to the eight-corners rule. Because the district court
 concluded that State Farm’s duty to defend arose only if a suit was brought
 to which the coverage applies, it reasoned that extrinsic evidence was
 admissible to make that determination. Id. at *3. Appellants timely appealed.




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        This case involves important and determinative questions of Texas
 law, as to which there is no controlling Texas Supreme Court precedent. So
 we declined to make an Erie guess and instead certified the following question
 to the Supreme Court of Texas: “Is the policy-language exception to the
 eight-corners rule articulated in B. Hall Contracting Inc. v. Evanston Ins. Co.,
 447 F. Supp. 2d 634 (N.D. Tex. 2006), a permissible exception under Texas
 law?” State Farm Lloyds v. Richards, 784 F. App’x 247, 253 (5th Cir.),
 certified question accepted (Sept. 13, 2019). The Supreme Court of Texas
 answered in the negative: “The ‘policy-language exception’ to the eight-
 corners rule . . . is not a permissible exception under Texas law.” Richards v.
 State Farm, 597 S.W.3d 492, 500 (Tex. 2020). The Court discussed but
 declined to weigh in on any other exception to the eight-corners rule. Id.
                                        II
        Whether an insurer has a duty to defend its insured in an underlying
 suit is a question of law that we review de novo. See Ooida Risk Retention
 Grp., Inc. v. Williams, 579 F.3d 469, 472 (5th Cir. 2009) (citing Liberty Mut.
 Ins. Co. v. Graham, 473 F.3d 596, 599 (5th Cir. 2006)); Guar. Nat’l Ins. Co.
 v. Vic Mfg. Co., 143 F.3d 192, 193 (5th Cir. 1998). Summary judgment is
 proper when, viewing the evidence in the light most favorable to the non-
 moving party, the record reflects that no genuine dispute of material fact
 exists, and the moving party is entitled to judgment as a matter of law. Ooida,
 579 F.3d at 472 (citing FED. R. CIV. P. 56(c)).
                                       III
        The underlying dispute in this case concerns whether State Farm
 must defend its insureds—the Richards—against personal-injury claims
 brought by Meals. In this diversity suit, we apply Texas law. See, e.g.,
 Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523, 527 (5th Cir.
 2004). And under Texas’s well-established eight-corners rule, an insurer’s




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 “duty to defend is determined by the claims alleged in the petition and the
 coverage provided in the policy.” Pine Oak Builders, Inc. v. Great Am.
 Lloyds Ins. Co., 279 S.W.3d 650, 654 (Tex. 2009). The petition’s (or
 complaint’s) “four corners” + the policy’s “four corners” = the “eight
 corners” that give the rule its name. “Only these two documents are
 ordinarily relevant to the duty-to-defend inquiry.” Ooida, 579 F.3d at 472
 (citation omitted). “If the underlying pleading alleges facts that may fall
 within the scope of coverage, the insurer has a duty to defend; if, on the other
 hand, the pleading only alleges facts excluded by the policy, there is no duty
 to defend.” Id. (citing Northfield, 363 F.3d at 528).
        “The duty to defend is determined by consulting the latest amended
 pleading.” Northfield, 363 F.3d at 528 (emphasis omitted). Here, that’s
 Meals’s third-amended complaint. The insureds have the initial burden to
 establish that a claim is potentially within the scope of coverage. Id. If the
 Richards carry this burden, it then shifts to State Farm to show “that the
 plain language of a policy exclusion or limitation allows [it] to avoid coverage
 of all claims, also within the confines of the eight corners rule.” Id. (emphasis
 removed). When determining whether each side has satisfied its burden, the
 Texas Supreme Court has instructed us—when applying Texas law—to
 “resolve all doubts regarding the duty to defend in favor of the duty . . . and
 [] construe the pleadings liberally.” Zurich Am. Ins. Co. v. Nokia, Inc., 268
 S.W.3d 487, 491 (Tex. 2008).
                                        A
        Turning to Meals’s third amended complaint, she alleges facts that
 possibly implicate coverage under the policy, meaning—according to the
 eight-corners rule—State Farm would have a duty to defend. In particular,
 Meals makes the following factual allegations:




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        On or about June 11, 2017 . . . Jayden Meals, age 10, was
        operating, on Defendant, Janet Richards’ property, a 2004
        Polaris off-road all terrain vehicle . . . , owned by the Defendant,
        Janet Richards. Defendants allowed Jayden to operate the ATV
        on their property while Jayden was not wearing a helmet or
        safety gear. Jayden was killed because of Janet Richards
        allowing him to operate the ATV on their property, without
        instruction, without supervision, and without a helmet or other
        potentially livesaving protective gear. The decision to allow
        Jayden to operate the motor vehicle or ATV was made at the
        Richards’ house, where the ATV was kept. Jayden had no
        experience in safely operating an ATV and was too young to be
        properly trusted with its operation. Jayden resided with his
        Mother and Grandmother, Sharen Culver, at 727 Jones Road,
        Weatherford, Parker County, Texas, where he had resided for
        many years.
 In relevant part, the policy provides the following coverage (Coverage L):
        If a claim is made or a suit is brought against an insured for
        damages because of bodily injury . . . to which this coverage
        applies, caused by an occurrence, we will:
                1. pay up to our limit of liability for the damages for
                which the insured is legally liable; and
                2. provide a defense at our expense by counsel of our
                choice.
        Coverage L, however, explicitly does not apply to bodily injury arising
 out of the use of an insured’s motor vehicle. And the policy’s definition of
 “motor vehicle” includes an insured’s ATV “used for recreational or utility
 purposes off public roads, while off an insured location.”
        Appellants argue that Meals’s complaint repeatedly alleged “the
 Richards’ actionable conduct that gave rise to Jayden’s death all occurred on
 the Richards’ property,” and that those allegations “clearly implicate the
 Policy coverage for an ‘occurrence’ occasioned by a motor vehicle operated
 on the Richards’ property; as contemplated by . . . the scope of the Motor



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                                        No. 18-10721


 Vehicle Exclusion.” Comparing Meals’s allegations within the four corners
 of her third-amended complaint to the terms within the four corners of the
 policy, indeed, Meals alleged facts that possibly implicate coverage under the
 policy. And even if there were doubt, “such doubt will be resolved in [the]
 insured’s favor.” Northfield, 363 F.3d at 528 (quotation and citation
 omitted). So Appellants have met their initial burden under the eight-corners
 rule.
         Yet the district court concluded that the eight-corners rule does not
 apply because “the policy does not require plaintiff to defend all actions
 against its insured no matter if the allegations of the suit are groundless, false
 or fraudulent.” Richards, at *3.
         But as the Supreme Court of Texas explained in response to our
 certified question, “[t]he ‘policy-language exception’ to the eight-corners
 rule . . . is not a permissible exception under Texas law.” Richards, 597
 S.W.3d at 500. 1 That Court has “never held or suggested that the eight-
 corners rule is contingent on a groundless-claims clause.” Richards, 597
 S.W.3d at 498. Consistent with this approach, “Texas courts of appeal have
 routinely applied the eight-corners rule for many decades, without regard to
 whether the policy contained a groundless-claims clause.” Id. at 499.
         In fact, the Texas Supreme Court only recently—and for the first
 time—applied any exception to the eight-corners rule. Loya Ins. Co. v.
 Avalos, No. 18-0837, 2020 WL 2089752, at *3 (Tex. May 1, 2020).
 Specifically, in Avalos, it held that “an insurer owes no duty to defend when
 there is conclusive evidence that groundless, false, or fraudulent claims


         1
          Like federal courts, Texas courts have no jurisdiction to render advisory opinions.
 But answering a certified question is a constitutionally permissible advisory opinion
 because the Texas Constitution grants the Supreme Court of Texas jurisdiction to “answer
 questions of state law certified from a federal appellate court.” TEX. CONST. art. V, § 3-c.




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 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.” Id. In this case, there have been no allegations of collusive fraud by
 the insured, so the exception does not apply. And neither does the purported
 “policy-language exception.” The district court erred in applying it.
                                             B
         State Farm argues we should affirm the district court on other grounds
 supported by the record. Like the district court, State Farm concludes that
 the eight-corners rule does not apply but argues instead that the district court
 should consider extrinsic evidence under a different exception.
         We have at times applied a “very narrow” exception to the eight-
 corners rule, GuideOne Specialty Mut. Ins. Co. v. Missionary Church of
 Disciples of Jesus Christ, 687 F.3d 676, 686 (5th Cir. 2012), “where 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.” 2 Ooida, 579 F.3d at 475 (citing
 Northfield, 363 F.3d at 531); see also Star-Tex Res., L.L.C. v. Granite State
 Ins. Co., 553 F. App’x 366, 371 (5th Cir. 2014) (per curiam). But this is not
 one of those cases.
         As discussed, the Richards met their initial burden to establish that a
 claim is potentially within the scope of coverage. See infra Part III(A). So, the
 burden now shifts to State Farm to show “that the plain language of a policy


         2
           As the Texas Supreme Court made clear when responding to our certified
 question, it has acknowledged that “some courts” use this exception, but it has not yet
 weighed in on whether it’s a valid exception under Texas law. Richards, 597 S.W.3d at 496–
 97, 500; see also Zurich, 268 S.W.3d at 497 (acknowledging but not addressing the Fifth
 Circuit’s use of the exception).




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 exclusion or limitation allows the insurer to avoid coverage of all claims, also
 within the confines of the eight corners rule.” Northfield, 363 F.3d at 528.
 To support its no-duty-to-defend argument, State Farm invokes two policy
 exclusions: the “motor vehicle exclusion” and the “insured exclusion.” The
 issue is whether extrinsic evidence is permissible under our “very narrow”
 exception to show that these policy exclusions apply to this claim.
        First, the “motor vehicle exclusion.” Under this exclusion, there is
 no coverage for bodily injury arising out of the use of a “motor vehicle”
 owned by an insured. State Farm argues that the ATV Jayden was driving
 constitutes a “motor vehicle” under the policy, meaning that any bodily
 injury arising out of Jayden’s use of the ATV would not be covered. But to
 meet the definition of a “motor vehicle,” Jayden must have been using the
 ATV “off public roads, while off an insured location.” Meals’s third-
 amended complaint does not include the location of the accident. So to show
 the exclusion applies, State Farm seeks to use extrinsic evidence—namely, a
 crash report that shows the location of the crash and the Richards’
 admissions regarding the location of the crash.
        Under the very narrow exception we have recognized, the extrinsic
 evidence must “go[] 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.” Ooida, 579 F.3d at 476.
        In Meals’s third-amended complaint, she alleges “Jayden was killed
 because” “[the Richards] allowed Jayden to operate the ATV on their
 property.” Meals’s allegations of negligence focus on acts or omissions on
 the Richards’ property. For example, Meals alleges the Richards were
 negligent for “[f]ailing to directly supervise a person younger than 14 years
 of age operating an ATV on the Richards’ property in violation of Texas
 Transportation Code § 663.032”; “[f]ailing to monitor Jayden on the




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  Richards’ property as a person using ordinary care would have done in the
  same or similar circumstances”; allowing Jayden to operate the ATV on the
  Richards’ property without a helmet, other protective gear, seatbelt, proper
  instruction, or a certified training course; “[f]ailing to inspect the ATV
  before allowing Jayden to operate the vehicle on the Richards’ property to
  ensure that it was safe”; and “[a]llowing Jayden to operate the ATV on the
  Richards’ property without the skills, abilities, or judgment needed to
  operate the ATV safely.”
         Considering these allegations, the extrinsic evidence State Farm seeks
  to admit problematically “overlap[s] with the merits of or engage[s] the truth
  or falsity of [] facts alleged in the underlying case.” Ooida, 579 F.3d at 476.
  By arguing that only the location of the “accident”—as State Farm interprets
  that term—matters, State Farm is challenging Meals’s claim that “Jayden
  was killed because of Janet Richards allowing him to operate the ATV on
  their property.” In other words, the extrinsic evidence State Farm urges the
  court to consider is simply too entwined in the merits for the “very narrow
  exception” to apply. GuideOne, 687 F.3d at 686 (finding that the “very
  narrow exception” to the eight-corners rule does not apply because “the
  evidence considered by the district court to determine coverage overlaps with
  the merits of [plaintiff’s] action”). This type of “overlapping evidence”
  “poses a significant risk of undermining the insured’s ability to defend itself
  in the underlying litigation.” GuideOne Elite Ins. Co. v. Fielder Rd. Baptist
  Church, 197 S.W.3d 305, 309 (Tex. 2006) (refusing to consider “mixed” or
  “overlapping” extrinsic evidence); cf. Star-Tex, 553 F. App’x at 372−73
  (considering undisputed extrinsic evidence that shows employee was
  “operating a motor vehicle” when she allegedly caused bodily harm to a
  customer—thus triggering the policy’s auto exclusion—as “[i]t does not
  overlap with the merits of the underlying dispute because the mere fact that
  [the employee] was operating a motor vehicle does not establish her




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                                   No. 18-10721


  negligence or relate to [plaintiff’s] negligent-hiring or respondeat superior
  claims.”). Thus, State Farm’s argument is unavailing.
         Second, the “insured exclusion.” State Farm also points to this
  exclusion and seeks to introduce extrinsic evidence showing Jayden was an
  “insured” under the policy, meaning his bodily injury would not be covered.
  Specifically, State Farm seeks to introduce the Richards’ admission that they
  were Jayden’s grandparents, as well as a court order appointing them as joint-
  managing conservators to show that Jayden was a “resident of [the
  Richards’] household.” Appellants argue this extrinsic evidence should not
  be considered because it “contradict[s] allegations in [Meals’s] underlying
  pleading.” We agree.
         Here, the policy lists the Richards as the named insureds. And, under
  the policy, all other subcategories of “insureds” must be “residents of” the
  Richards’ household. Meals’s third-amended complaint does not contain any
  allegations suggesting Jayden was a “resident” of the Richards’ household.
  Rather, the complaint states that “Jayden resided with his Mother and
  [maternal] Grandmother, Sharon Culver, at 727 Jones Road, Weatherford,
  Parker County, Texas, where he had resided for years.” So considering the
  extrinsic evidence to determine whether Jayden was a “resident of [the
  Richards’] household,” would impermissibly “engage the truth or falsity of
  [] facts alleged in the underlying case.” Ooida, 579 F.3d at 476.
         In sum, the eight-corners rule applies here; the “very narrow
  exception” does not. And Meals’s third-amended complaint contains
  allegations within its four corners that potentially constitute a claim within
  the four corners of the policy. Thus, we reverse the district court’s holding
  that State Farm does not have a duty to defend the Richards.




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                                       IV
         Finally, Appellants challenge the district court’s holding that State
  Farm has no duty to indemnify, arguing that duty is not yet justiciable. Under
  Texas law, “[t]he duty to defend and the duty to indemnify are distinct and
  separate duties.” King v. Dall. Fire Ins. Co., 85 S.W.3d 185, 187 (Tex. 2002)
  (citation omitted); see also Northfield Ins. Co., 363 F.3d at 528 (applying
  Texas law). And “the duty to defend is broader than the duty to indemnify.”
  Am. States Ins. Co. v. Bailey, 133 F.3d 363, 368 (5th Cir. 1998) (applying
  Texas law) (citation omitted). “While the duty to defend depends on the
  allegations in the pleadings, the duty to indemnify is triggered by the actual
  facts that establish liability in the underlying suit.” Ooida, 579 F.3d at 472
  (quotation marks and citation omitted). So, “[g]enerally, Texas law only
  considers the duty-to-indemnify question justiciable after the underlying suit
  is concluded, unless ‘the same reasons that negate the duty to defend likewise
  negate any possibility the insurer will ever have a duty to indemnify.’”
  Northfield, 363 F.3d at 529 (emphasis omitted) (quoting Farmers Tex. Cty.
  Mut. Ins. Co. v. Griffin, 955 S.W.2d 81, 84 (Tex. 1997)). Here, State Farm
  has a duty to defend, so the exception to non-justiciability does not apply.
  And because the underlying suit remains pending, we reverse the district
  court on this issue.
                                 CONCLUSION
         After carefully reviewing the record and the parties’ briefing and
  arguments, and for the reasons discussed above, we REVERSE and
  REMAND. We DENY all pending motions.




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