In the ongoing interpretation of the Monroe factors that allow, under limited circumstances,  extrinsic evidence to be introduced in determining whether an insurer owes a duty to defend, yet another court has determined that such evidence was inadmissible under the specific facts of the case. In Hudson Excess Insurance Company v. Flipp Oilfield Services, LLC and Joshua Galatas, the United States District Court for the Southern District of Texas held that extrinsic evidence was not admissible in determining whether an insurer owed a duty to defend its insured in a lawsuit brought by the insured’s worker.

Joshua Galatas filed a lawsuit in a Texas state court against Flipp Oilfield Services, LLC (“Flipp”) and other parties for injuries arising out of a fire. The factual allegations in Galatas’ petition consisted of two sentences and a hospital-bed photo.

Prior to Galatas’ injury, Hudson Excess Insurance Company (“Hudson”) had issued a commercial general liability policy to Flipp. The policy obligated Hudson to defend and indemnify against claims and damages for “bodily injury”, but excluded coverage for claims asserted by “Employees, Contractors, Volunteers and Other Workers” as defined in the policy.

Hudson provided a defense for Flipp under a reservation of rights, and subsequently filed this declaratory action in Federal court.  Hudson sought a declaration that Galatas fell within the policy exclusion and that it did not owe a duty to defend and indemnify Flipp.

Texas courts use the eight-corners rule to determine whether an insurer has a duty to defend its insured. The eight-corner rule requires the court to look at the insurance policy and the plaintiff’s petition and compare the two “without reference to facts otherwise known or ultimately proven.” Monroe Guar. Ins. Co. v. BITCO Gen. Ins. Corp., 640 S.W.3d, 195, 199 (Tex. 2022).

However, under the Monroe factors, extrinsic evidence may be used to fill in a factual gap when determining whether an insurer owes a duty to defend if:

(1) the evidence goes solely to the issue of coverage and does not overlap with the merits of liability,

(2) the evidence does not contradict facts alleged in the pleading, and

(3) the evidence conclusively establishes the coverage fact to be proved.

The facts in Galatas’s pleadings simply allege that he was engaged in “his work” at the time of the injury, without explaining his work relationship with any of the defendants. Hudson requested that the court fill this informational gap with evidence that Galatas was employed by Flipp. However, the court refused to consider Hudson’s proffered evidence because the evidence did not go solely to the issue of coverage, but instead overlapped with the merits of liability.

In his lawsuit, Galatas alleged that the defendants were negligent in “failing to provide proper and/or safe equipment”. The Court noted that this nondelegable duty arises solely between an employer and its employee. The evidence the insurer sought to admit in the coverage action to determine Galatas’ employment relationship with Flipp would, according to the Court, overlap with the merits question of whether Flipp owed Galatas a duty as his employer. As such, extrinsic evidence was not allowed to determine the duty to defend, and Galatas’ petition contained sufficient allegations to trigger Hudson’s duty to defend.

Although the Monroe factors allow for introduction of extrinsic evidence to determine the duty to defend, their application continues to be very narrow. The attorneys in our Austin and Dallas office are attuned to the coverage issues that can impact your exposure or recovery, and work with outside coverage attorneys to provide complete representation of our clients. Please contact us at info@gstexlaw.com with any questions you may have.

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