IN THE SUPREME COURT OF TEXAS

IN THE SUPREME COURT OF TEXAS

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No. 04-0692

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GuideOne Elite = Insurance=20 Company f/k/a Preferred Abstainers Insurance Company, = Petitioner,

Fielder Road = Baptist Church,=20 Respondent

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On Petition for Review from = the

Court of Appeals for the Second = District of=20 Texas

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Argued October 20,=20 2005

Justice Medina delivered the = opinion of=20 the Court, joined by Chief = Justice=20 Jefferson, Justice=20 O=92Neill, Justice Green, and Justice Johnson.

Justice Hecht filed a = concurring=20 opinion, joined by Justice=20 Wainwright, Justice = Brister,=20 and Justice = Willett.

In = this=20 declaratory judgment action, we are asked to create an exception to the=20 complaint-allegation or eight-corners rule. The eight-corners rule = provides that=20 when an insured is sued by a third party, the liability insurer is to = determine=20 its duty to defend solely from terms of the policy and the pleadings of = the=20 third-party claimant. Resort to evidence outside the four corners of = these two=20 documents is generally prohibited.

The = trial=20 court, relying on evidence extrinsic to the policy and pleadings, = declared that=20 the insurer had no duty to defend the underlying claim against its = insured. The=20 court of appeals, however, reversed, concluding that because the = circumstances=20 of the case presented no reason to create an exception to the = eight-corners=20 rule, the trial court had erred in using extrinsic evidence to defeat = the=20 insurer=92s duty to defend. 139 S.W.3d 384. We agree and, accordingly, = affirm the=20 court of appeals=92 judgment.

GuideOne=20 Elite Insurance Company issued a commercial general liability insurance = policy=20 to Fielder Road Baptist Church, effective March 31, 1993. The policy = included=20 the following liability coverage for sexual misconduct:

We agree=20 to cover your legal liability for damages because of bodily injury, = excluding=20 any sickness or disease, to any person arising out of sexual misconduct = which=20 occurs during the policy period. We shall have the right and duty to = investigate=20 any claim ... and to defend any suit brought against you seeking = damages, even=20 if the allegations of the suit are groundless, false or fraudulent, and = we may=20 make any settlement we deem expedient.

The policy=20 expired on March 31, 1994.

On = June 6,=20 2001, Jane Doe filed a sexual misconduct lawsuit against the Church and = Charles=20 Patrick Evans. In her pleadings, Jane Doe alleged that =93[a]t all times = material=20 herein from 1992 to 1994, Evans was employed as an associate youth = minister and=20 was under Fielder Road=92s direct supervision and control when he = sexually=20 exploited and abused Plaintiff.=94 The Church demanded that GuideOne = defend it in=20 the lawsuit and indemnify it for any judgment or settlement. GuideOne = agreed to=20 defend, but questioned coverage under the policy and reserved its rights = to=20 determine that issue at a later time.

A = few months=20 later, GuideOne filed this declaratory judgment action seeking the = policy=92s=20 construction and a declaration that GuideOne had no duty to defend or = indemnify=20 the Church in the underlying sexual misconduct lawsuit. In this action, = GuideOne=20 sought discovery of Evans=92 church employment history. The Church = objected,=20 asserting that GuideOne=92s duty to defend should be determined from the = pleadings=20 and the insurance policy, without resort to extrinsic evidence. The = trial court,=20 however, declined to block the discovery request, and the Church = thereafter=20 advised GuideOne that Evans ceased working for it on December 15, 1992, = before=20 the GuideOne policy took effect.

After both=20 parties filed motions for summary judgment, the trial court granted = GuideOne=92s=20 motion, denied the Church=92s, and rendered judgment declaring that = GuideOne had=20 no duty to defend the Church in the underlying sexual misconduct case. = The court=20 of appeals, however, reversed the summary judgment, concluding that the = trial=20 court had erred in considering extrinsic evidence to defeat GuideOne=92s = duty to=20 defend its insured. 139 S.W.3d 384. The court of appeals further = concluded that=20 Jane Doe=92s allegations were sufficient to invoke that duty, remanding = the case=20 to the trial court for a hearing only on costs and attorney=92s fees. = Id.=20 at 390-91. GuideOne petitioned this Court for review.

GuideOne=20 argues that it had no duty to defend the Church against the underlying = claim of=20 sexual misconduct because Evans left his job as a youth minister before = the=20 policy=92s effective date. Because Jane Doe=92s allegations against the = Church=20 involved Evans=92 conduct while a youth minister, GuideOne suggests, = that=20 extrinsic evidence of when that relationship ended establishes no = coverage=20 existed for Evans=92 acts during the policy period. Recognizing the = eight-corners=20 rule as an impediment to its argument, however, GuideOne contends a = number of=20 reasons support its proposition that extrinsic evidence regarding = Evans=92=20 employment status be considered as an exception to the rule. = =20

First,=20 GuideOne argues that an exception should apply because the extrinsic = evidence=20 here was primarily relevant to the issue of coverage, rather than the = merits of=20 the plaintiff=92s underlying claim. Alternatively, GuideOne argues that = extrinsic=20 evidence is needed to supplement the plaintiff=92s allegations because = those=20 allegations alone are insufficient to determine coverage or the duty to = defend.=20 Finally, GuideOne submits that should the Court conclude that the = employment=20 evidence is relevant both to coverage and liability, an exception to the = eight-corners rule should nevertheless be recognized for this type of = =93mixed=94 or=20 =93overlapping=94 extrinsic evidence.

Under the=20 eight-corners or complaint-allegation rule, an insurer=92s duty to = defend is=20 determined by the third-party plaintiff=92s pleadings, considered in = light of the=20 policy provisions, without regard to the truth or falsity of those = allegations.=20 Argonaut Sw. Ins. Co. v. Maupin, 500 S.W.2d 633, 635 (Tex. 1973); = Heyden Newport Chem. Corp. v. S. Gen. Ins. Co., 387 S.W.2d 22, 24 = (Tex.=20 1965). The rule takes its name from the fact that only two documents are = ordinarily relevant to the determination of the duty to defend: the = policy and=20 the pleadings of the third-party claimant. King v. Dallas Fire Ins. = Co.,=20 85 S.W.3d 185, 187 (Tex. 2002). Facts outside the pleadings, even those = easily=20 ascertained, are ordinarily not material to the determination and = allegations=20 against the insured are liberally construed in favor of coverage. = Nat=92l Union=20 Fire Ins. Co. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139, = 141 (Tex.=20 1997).

Although this=20 Court has never expressly recognized an exception to the eight-corners = rule,=20 other courts have.[1] Generally, these courts have = drawn a=20 very narrow exception, permitting the use of extrinsic evidence only = when=20 relevant to an independent and discrete coverage issue, not touching on = the=20 merits of the underlying third-party claim.[2] Recently, the Fifth Circuit = observed=20 that if this Court were to recognize an exception to the eight-corners = rule, it=20 would likely do so under similar circumstances, such as: =93when it is = initially=20 impossible to discern whether coverage is potentially implicated = and when=20 the extrinsic evidence goes solely to a fundamental issue of coverage = which does=20 not overlap with the merits of or engage the truth or falsity of any = facts=20 alleged in the underlying case.=94 Northfield Ins. Co. v. Loving Home = Care,=20 Inc., 363 F.3d 523, 531 (5th Cir. 2004) (emphasis in original).

GuideOne=20 relies on extrinsic evidence that is relevant both to coverage and the = merits=20 and thus does not fit the above exception to the rule. Hence, GuideOne = argues=20 that we should broaden the exception to include this type of =93mixed=94 = or=20 =93overlapping=94 extrinsic evidence. But very little support exists for = this=20 position, and the Fifth Circuit Court of Appeals has previously rejected = a=20 similar use of overlapping facts for this purpose. In Gulf Chemical = &=20 Metallurgical Corp. v. Associated Metals & Minerals Corp., one = of the=20 plaintiffs in the underlying toxic-tort action alleged that one of = the=20 defendants, Gulf, was strictly liable because it had sold or shipped = molyoxide.=20 1 F.3d 365, 367 (5th Cir. 1993). The petition did not specifically state = when=20 Gulf had shipped molyoxide, but the petition did allege that the = plaintiffs had=20 suffered injures from exposure to the toxin between 1946 and 1990. = Id. at=20 368. Extrinsic evidence would have established that Gulf had not shipped = any=20 molyoxide until January 20, 1986, which was three days after the = expiration of=20 the insurance policy in question. Id. at 368, 370. Although the = fact at=20 issue concerned both the merits and coverage, the Fifth Circuit, = applying Texas=20 law, rejected the use of extrinsic evidence under these circumstances.=20 Id. at 371. We likewise reject the use of overlapping evidence as = an=20 exception to the eight-corners rule because it poses a significant risk = of=20 undermining the insured=92s ability to defend itself in the underlying = litigation.=20 See Ellen S. Pryor, Mapping the Changing Boundaries of the = Duty to=20 Defend in Texas, 31 Tex. = Tech Law=20 Rev. 869, 891-95 (2000) (discussing risks associated with using=20 overlapping evidence as an exception to the eight-corners rule).[3]

Those courts=20 that have recognized an exception to the eight-corners rule have done so = under=20 limited circumstances involving pure coverage questions. For example, in = International Services Insurance Co. v. Boll, 392 S.W.2d 160 = (Tex. Civ.=20 App.=96Houston 1965, writ ref=92d n.r.e.), the insurer refused to defend = its insured=20 in an auto-collision case because of a policy endorsement that excluded = coverage=20 for =93any claim arising from accidents which occur while any automobile = is being=20 operated by Roy Hamilton Boll.=94 The plaintiff=92s petition alleged = that the=20 insured=92s son was driving the insured=92s car when the accident = occurred, but did=20 not otherwise identify the driver. After resolving the third-party = claim, the=20 insured sued his insurer to recover his defense costs. During this = subsequent=20 litigation, the parties stipulated that the insured=92s only son, Roy = Hamilton=20 Boll, was driving the insured vehicle. The court of appeals concluded = that the=20 stipulation established the accident had not been covered and that the = insurer=20 had no duty to defend.

The = extrinsic=20 evidence in Boll, however, went strictly to the coverage issue. = It did=20 not contradict any allegation in the third-party claimant=92s pleadings = material=20 to the merits of that underlying claim. In contrast, the extrinsic = evidence here=20 concerning Evans=92 employment directly contradicts the plaintiff=92s = allegations=20 that the Church employed Evans during the relevant coverage period, an=20 allegation material, at least in part, to the merits of the third-party = claim.=20 Under the eight-corners rule, the allegation=92s truth was not a matter = for debate=20 in a declaratory judgment action between insurer and insured.

Moreover,=20 were we to recognize the exception urged here, we would by necessity = conflate=20 the insurer=92s defense and indemnity duties without regard for the = policy=92s=20 express terms. Although these duties are created by contract, they are = rarely=20 coextensive. See Utica Nat=92l Ins. Co. of Texas v. Am. Indem. = Co., 141=20 S.W.3d 198, 203 (Tex. 2004) (observing that duty to defend and duty to = indemnify=20 are distinct and separate); Whatley v. City of Dallas, 758 S.W.2d = 301,=20 304 (Tex. App.=96Dallas 1988, writ denied) (duty to defend is defined by = the terms=20 of the contract). The policy here obligated GuideOne to indemnify the = Church in=20 the event of a meritorious claim for sexual misconduct, but with respect = to the=20 duty to defend, the contract provided that GuideOne should =93defend any = suit=20 brought against [the insured] seeking damages, even if the allegations = of the=20 suit are groundless, false or fraudulent . . . .=94

The = policy=20 thus defined the duty to defend more broadly than the duty to indemnify. = This is=20 often the case in this type of liability policy and is, in fact, the=20 circumstances assumed to exist under the eight-corners rule. Because the = respective duties differ in scope, they are invoked under different=20 circumstances. Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d = 819,=20 821-22 (Tex. 1997). A plaintiff=92s factual allegations that potentially = support a=20 covered claim is all that is needed to invoke the insured=92s duty to = defend,=20 Heyden Newport Chemical Corp., 387 S.W.2d at 26; whereas, the = facts=20 actually established in the underlying suit control the duty to = indemnify.=20 Trinity Universal Ins. Co., 945 S.W.2d at 821.

Jane Doe=20 alleged that Evans sexually assaulted her during the policy period and = was a=20 youth minister at the Church at the time. As the court of appeals = observed, the=20 allegations were sufficient to trigger GuideOne=92s duty to defend. 139 = S.W.3d at=20 389.

GuideOne=20 contends that it should not have to defend because it knows that = Evans=20 was not in fact an employee of the Church during this period, but the = duty to=20 defend does not turn on the truth or falsity of the plaintiff=92s = allegations. One=20 amicus argues, however, that it should because ignoring the truth = invites=20 fraudulent and even collusive pleadings. The amicus further suggests = that we=20 should adopt a true-facts exception to the eight-corners rule to prevent = the=20 rule=92s recurring use as a tool for fraud. But the record before us = does not=20 suggest collusion or the existence of a pervasive problem in Texas with=20 fraudulent allegations designed solely to create a duty to defend.

Under=20 the present policy, GuideOne agreed to defend the Church against = allegations of=20 sexual misconduct potentially within coverage, even if the plaintiff=92s = allegations were false or fraudulent. Therefore if GuideOne knows these=20 allegations to be untrue, its duty is to establish such facts in defense = of its=20 insured, rather than as an adversary in a declaratory judgment action. = Heyden=20 Newport Chemical Corp., 387 S.W.2d at 25 (observing that the = duty to=20 defend coverage protects policyholders against the expense of suits = seeking=20 damages). Application of the eight-corners rule here thus conforms with = the=20 parties contract, and accordingly we agree with the court of appeals = that the=20 circumstances of this case present no basis for an exception to that = rule.

III

GuideOne also=20 argues that Doe=92s pleadings failed to invoke its duty to defend = because her=20 allegations did not sufficiently describe her bodily injury. The policy = defined=20 =93bodily injury=94 to mean =93bodily injury, sickness or disease = sustained by a=20 person, including death resulting from any of these at any time.=94[4] GuideOne maintains it had no = duty to=20 defend because Doe=92s pleadings sought damages for emotional and = psychological=20 injuries rather than =93bodily injury.=94

The = court of=20 appeals disagreed, noting that Doe=92s allegations of sexual assault, = abuse,=20 molestation and violation were sufficient. 139 S.W.3d at 390. Because = the policy=20 attributed no technical or special meaning to the term =93bodily = injury,=94 the=20 court applied its ordinary and generally accepted meaning, concluding = that=20 bodily injury is commonly understood to be a consequence of sexual = assault and=20 abuse. Id. We agree.

Finally,=20 GuideOne complains that the court of appeals erred in remanding the case = to the=20 trial court for determination of costs and attorneys=92 fees because Doe = did not=20 herself file a declaratory judgment action and did not pray for = attorneys=92 fees=20 in the proceedings below. Contrary to GuideOne=92s argument, however, = the Church=20 asked in its second amended motion for summary judgment that the court = not only=20 grant its motion, but also conduct a hearing and award it attorneys=92 = fees. The=20 Declaratory Judgments Act provides that in any proceeding under the Act = =93the=20 court may award costs and reasonable and necessary attorney=92s fees as = are=20 equitable and just.=94 Tex. = Civ. Prac.=20 & Rem. Code =A7 37.009. The reasonable and necessary = requirements are=20 questions of fact to be determined by the factfinder; the equitable and = just=20 requirements are questions of law for the trial court to decide. = Bocquet v.=20 Herring, 972 S.W.2d 19, 21 (Tex. 1998). The court of appeals = therefore did=20 not err in remanding the issue of attorneys=92 fees and costs to the = trial=20 court.

*=20 * * * *

Finding no=20 error in the court of appeals=92 judgment, we affirm.

____________________________________

David M.=20 Medina

Justice

Opinion=20 delivered: June 30, = 2006

^[1] See generally, 1 Rowland H. Long, The Law of = Liability=20 Insurance =A7 5.02[2][b][ii] at 5-27 (2006) (=93When the = extrinsic facts=20 relied on by the insurer are relevant to the issue of coverage, but do = not=20 affect the third party=92s right of recovery, courts have held that the = insurer=20 may refuse to defend third-party actions even though the allegations in = the=20 complaint indicate coverage.=94); 1 Allan=20 D. Windt, Insurance Claims and Disputes =A7 4:4 Insurer=92s = refusal to=20 defend based on existence of extrinsic facts (4th ed. 2001) (citing = cases=20 which recognize that insurer may use extrinsic evidence to explain or = refute=20 factual allegations that are immaterial or extraneous to the merits of = the=20 third-party=92s claim but relate solely to the question of=20 coverage).

^[2] See, e.g., W. Heritage Ins. Co. v. River = Entm=92t,=20 998 F.2d 311, 313 (5th Cir. 1993) ("However, when the petition does = not=20 contain sufficient facts to enable the court to determine if coverage = exists, it=20 is proper to look to extrinsic evidence in order to adequately address = the=20 issue."); Westport Ins. Corp. v. Atchley, Russell, Waldrop & = Hlavinka,=20 L.L.P., 267 F. Supp. 2d 601, 621-22 (E.D. Tex. 2003) (extrinsic = evidence=20 admissible in deciding the duty to defend where fundamental policy = coverage=20 questions can be resolved by readily determined facts that do not engage = the=20 truth or falsity of the allegations in the underlying petition, or = overlap with=20 the merits of the underlying suit); State Farm Fire & Cas. Co. v. = Wade, 827 S.W.2d 448, 452-53 (Tex. App.-Corpus Christi 1992, writ = denied)=20 (concluding that extrinsic evidence could be admitted in deciding the = duty to=20 defend when the facts alleged are insufficient to determine coverage and = "when=20 doing so does not question the truth or falsity of any facts alleged in = the=20 underlying petition"); Gonzales v. Am. States Ins. Co., 628 = S.W.2d 184,=20 187 (Tex. App.-Corpus Christi 1982, no writ) (holding that facts = extrinsic to=20 the petition relating only to coverage, not liability, may be considered = to=20 determine a duty to defend, where such evidence does not contradict any=20 allegation in the petition); Cook v. Ohio Cas. Ins. Co., 418 = S.W.2d 712,=20 715-16 (Tex. Civ. App.-Texarkana 1967, no writ) ("[T]he Supreme Court = draws a=20 distinction between cases in which the merit of the claim is the issue = and those=20 where the coverage of the insurance policy is in question. In the first = instance=20 the allegation of the petition controls, and in the second the known or=20 ascertainable facts are to be allowed to prevail."); Int=92l Serv. = Ins. Co. v.=20 Boll, 392 S.W.2d 158, 161 (Tex. Civ. App.-Houston 1965, = writ=20 ref=92d n.r.e.) (considering extrinsic evidence of identity of driver of = insured=20 vehicle by stipulation to conclude no duty to defend or indemnify = arose).=20

^[3] One amicus suggests that the Church here = might have a=20 coverage-related incentive to prove that Evans was at least apparently = employed=20 by the Church during GuideOne=92s policy term in order to secure = insurance=20 coverage. This proof, once obtained by the third-party claimant through=20 discovery, would undermine the insured=92s defense to those claims. = Similarly, the=20 insurer might have a coverage-related incentive to develop proof that = the=20 third-party claim is based on criminal or intentional conduct to = establish a=20 policy exclusion.

^[4] Although not relevant here, the sexual = misconduct=20 clause of the policy excluded sickness or disease from the definition, = making=20 the definition of =93bodily injury=94 in this context somewhat circular. =