Morris Manning & Martin, LLP

Eleventh Circuit Exception to the “Eight Corners Rule”


On March 20, 2014, the Eleventh Circuit ruled in favor of The Continental Insurance Company (“Continental”) in an appeal from the United States District Court for the Middle of Florida brought by Composite Structures Inc. d/b/a Marlow Marine Sales (“Marlow”).  Like the lower court, the Eleventh Circuit ruled there was no obligation for Continental to defend or indemnify Marlow because of a pollution exclusion (the “Pollution Exclusion”) contained in the Continental policy issued to Marlow (the “Policy”).  The Pollution Exclusion was considered in conjunction with extrinsic evidence as to Marlow’s awareness of the claim and notice to Continental.  Accordingly, the Eleventh Circuit looked beyond the eight corners of the underlying complaint and the Policy (known as the “Eight Corners Rule”) and considered facts not contained in either document. 

In the underlying tort action, two employees aboard a ship built by Marlow allege that during the time they worked aboard the ship they were injured through excessive exposure to carbon monoxide.  They allege negligence and strict product liability claims against Marlow.  The Policy contains a Pollution Exclusion as well as a “pollution buy back” endorsement wherein, if five specific conditions are met, coverage will be afforded for a pollution claim despite the presence of the Pollution Exclusion.  The criteria at issue were the following:  1) that the occurrence be known to Marlow within 72 hours after its commencement; and 2) that the occurrence then be reported in writing to Continental within 30 days after Marlow has knowledge of the occurrence.

Marlow conceded its notice to Continental of the occurrence was not timely.  Nonetheless, Marlow argued that the Court should not consider extrinsic evidence when determining Continental’s duty to defend, and the complaint in the underlying lawsuit was silent on the notice issue.  The parties argued as to whether Florida law permitted exceptions to the Eight Corners Rule to determine whether an insurer is obligated to defend its policyholder.  Marlow unsuccessfully argued against the creation of an exception to the Eight Corners’ Rule for “undisputed facts,” claiming if such an exception exists, it would imperil the duty to defend in many cases. 

Initial concerns regarding policyholder vulnerability to immediate coverage denials and earlier litigation over payment of defense expenses were assuaged by the fact that the Eleventh Circuit opinion (the “Opinion”) was not published, but Continental, wanting to use the Opinion as precedent in other matters, filed a motion to have the Opinion published. 

Continental argued the Opinion should be published because application of the extrinsic evidence exception to the duty to defend was one of first impression in Florida and is a recurring issue.  In its response, Marlow argued the extrinsic evidence exception contained in the Opinion is based upon well-established Florida case law and that the specialized nature of the insurance policy at issue and the unique facts involved do not warrant publication.  In reply, Continental argued that if the case law were “well established,” then Marlow’s filing of the declaratory action at the outset and its subsequent appeal to the Eleventh Circuit should be deemed frivolous.  Moreover, the central issue in the case was not the interpretation of the Policy provisions because both parties conceded the Policy provisions were unambiguous.  Rather, the issue was whether Continental could look to undisputed extrinsic facts (i.e., the date of notice by Marlow) to determine its duty to defend obligation when the undisputed facts would not normally be alleged in the complaint. 

On June 5, 2014, the Eleventh Circuit denied Continental’s Motion for Publication.  The Court did not provide an explanation for the denial, leaving the parties to speculate as to the rationale and the possible persuasive impact of the unpublished Opinion.  To date, it has not been cited by any other litigants calling into question whether the issue is truly a common one.