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Some states apply an interpretative rule for the obligation to defend a claim for damages by limiting their examination to the facts alleged in the lawsuit and the wording of the insurance policy.
They refuse to consider any evidence that is external to the allegations about the lawsuit.
If any of the allegations are potentially covered by the policy, the obligation to defend is established. If none of the claims in the complaint are potentially covered by the insurance, the insurer may generally refuse to defend.
"Four corners" refers to the parameters of the insurance; there is a variant test called the "eight corner rule". There is little difference between the two; they both take into account the four corners of the suit and the four corners of the policy.
Courts operating under the four-corner or eight-corner rule will not consider external facts or the possibility of a suit being drafted despite. The prudent insurer will, before making a decision, determine which rule or test is applied in the jurisdiction where the loss occurred.
The rationale behind the two rules is to require insurers to defend their insurance against all covered claims regardless of merit. Allowing an insurer to recognize external evidence that contradicts a plaintiff's claims to establish the applicability of a policy exclusion would circumvent the very reason for the rules. 52
Many jurisdictions have ruled that all doubts about the obligation to defend must be resolved in favor of the insured [ Miller v. Elite Ins. Co ., 100 cal. App. 3d 739 (1980)].
The insurer is not obliged to compensate the insured if an unintentional cause never arises, if the jury finds that the insured intentionally caused the plaintiff's damage or if the insured is convicted of battery damage. Even if a policy excludes liability that arises due to violations of the law, there is a risk that the jury would find that there was no violation of the law and that the policy provided coverage. However, if the allegations of negligence against the insured were potentially covered by the insurance, the insurer will have an obligation to defend.
To determine whether there is insurance cover, an analysis of the claims made before the court is required. [ Elec. & Power Co. v. Northbrook Prop. & Cas. Ins. Co ., 475 S.E.2d 264, 265-66 (Va. 1996); Bohreer v. Erie Ins. Grp ., 475 F. Supp. 2d 578, 584 (E.D. Va. 2007)] and notes that Virginia recognizes the "potentiality rule", where an insurer's obligation to defend is triggered if there is any possibility that a judgment against the insured will be covered by the insurance policy. The "eight corner rule" compares the four corners of the insurance with the four corners of the underlying complaint to determine if there is coverage. [ Erie Ins. Exch. v. State Farm Mut. Car. Ins. Co ., 60 Va. Cir. 418 (Va. Cir. Ct. December 16, 2002); AES Corp. v. Steadfast Ins. Co ., 725 S.E.2d 532, 535 (Va. 2012]
© 2021 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to working as an insurance consultant specializing in insurance coverage, insurance claims handling, bad faith insurance and insurance fraud almost as much for insurers and policyholders.
He also acts as an arbitrator or mediator for insurance-related disputes. He practiced law in California for more than 44 years as an insurance and claims management attorney and more than 54 years in the insurance industry.
He is available at http://www.zalma.com and firstname.lastname@example.org. Mr. Zalma is the first recipient of the first annual Claims Magazine / ACE Legend Award. For the past 53 years, Barry Zalma has devoted his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to enable insurance companies and their indemnity staff to become insurance professionals.
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