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What Is the Eight Corners Rule?

The Eight Corners Rule is essentially a legal obligation of an insurer to defend an insured policyholder involved in a legal dispute. The allegations made in a complaint will trigger the insurer’s duty to defend an insured party if the allegations fall within the scope of the insured’s coverage. Essentially, the “Eight Corners” include the four corners of the insured’s policy and the four corners of the complaint.

How Does the Eight Corners Rule Work?

The Eight Corners Rule prevents an insurer from looking outside the scope of an alleged complaint and a claimant’s policy to determine when the insurer must defend an insured policyholder. For example, if a third-party files a complaint against a policyholder, the policyholder’s insurer may only consider the elements of the complaint and the policyholder’s insurance policy to determine whether to defend the policyholder against the third party’s complaint.

The courts must interpret the Eight Corners Rule liberally in favor of the insured. That is, the courts will generally uphold that if any allegation in a complaint against a policyholder falls within the scope of his or her coverage, the insurer has a duty to defend the policyholder. Courts generally interpret these facts quite liberally to the benefit of policyholders. However, the courts cannot look outside the scope of the allegations and the policyholder’s coverage to make this decision. Even if a complaint contains fraudulent allegations, as long as the wording of the complaint falls within the scope of an insured policyholder’s coverage, the insurance company has a duty to defend.

The Eight Corners Rule exists to create a buffer between policyholder’s rights and insurer’s duty to defend them. While this rule compels insurers to defend their insured policyholder in the right circumstances, it also protects insurers from liability for fraudulent or baseless allegations. While the Eight Corners Rule may technically permit an insurer to deny defense for a policyholder, an insurer does so at its own risk. If further legal proceedings uncover any element of an alleged complaint against a policyholder that would indicate the insurer had a duty to defend, the insurer would be liable for a breach of contract suit from the policyholder.

Potential Exceptions to the Eight Corners Rule

Very few cases in which the court would look outside the eight corners of a dispute for additional evidence exist. A piece of extrinsic evidence could possibly apply in a case, but that evidence must apply to a specific coverage issue without touching on the specifics of an alleged claim. Essentially, facts outside of the eight corners are not material when it comes to determining an insurer’s duty to defend.

Taking Legal Action Against an Insurer

Insurance companies generally look for any reason to deny liability or coverage, because doing so saves them money. When insurance companies must defend their policyholders from third-party complaints, they may look for any reason to deny this duty to defend. If an insurance company does so and violates a contract with an insurance policyholder, the policyholder will likely pursue legal action against the insurer for breach of contract. Unfortunately, the wording of a complaint and the wording of an insurance policy can make the duty to defend unclear in some situations.

If an insurer knowingly denies coverage in violation of the Eight Corners Rule, it’s likely to lead to an insurance bad faith lawsuit. When a policyholder alleges bad faith, he or she typically starts by drafting an initial complaint to the insurer with the help of an attorney. An experienced insurance bad faith attorney can be a fantastic asset in any situation involving uncertainty surrounding an insurer’s duty to defend a policyholder.