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In the case of Hudson Insurance Co. v. BlaMar Trucking Inc. et al., case number 1:22-CV-00096, in the U.S. District Court for the Southern District of Texas, the court will hear testimony and receive evidence and answer the question of whether or not Hudson Insurance Company has a duty to defend its policyholder based on the policy's exclusion clause.

Hudson Insurance Co. claims that a trucking company that it insured is not covered under its policy which involved an underlying personal injury lawsuit that was filed by one of its employees. In its complaint, Hudson argued that the recent Texas Supreme Court ruling (also known as the “8 Corners Rule”) allows an insurer to introduce “extrinsic evidence” into the record in order to argue against the insurer's "duty to defend" coverage.

Hudson’s attorney, Ken E. Kendrick of Sutter & Kendrick PC, argued in his amended complaint filed on Thursday that it has extrinsic evidence that will show that the personal injury lawsuit that was filed against the policyholder, BlaMar Trucking Inc. and one of its employees, a driver for the company, was actually initiated by a separate employee of the trucking company, which according to Hudson, triggered them to invoke the policy exclusion, essentially refusing to defend the trucking company or its employee in the personal injury action filed against them.

Hudson’s amended complaint argued that "The allegations in the underlying lawsuit, together with the unpled extrinsic facts, are subject to the policy's employer liability exclusion.”

Hudson’s counsel argues that the Texas Supreme Court's recent decision in February 2022, in the case of Bitco General Insurance Co. v. Monroe Guaranty Insurance Co., allows insurers to introduce, and for a judge to look at evidence that was not pled in a complaint, or written into a policy. This ruling became known as “the eight corners rule” in determining whether or not an insurance company has a duty to defend it's insured.

Attorney Kendrick told the court that Hudson initially agreed to represent BlaMar and Antonio G. Villarreal Lozano against the allegations of Esequiel Ybarra because it was unaware of Ybarra's employment status. Hudson argues that Ybarra’s complaint did not mention that he was also employed by the trucking company. Hudson claims that if it had known sooner that Ybarra was also employed by the trucking company, it would have immediately invoked the exclusion clause.

According to Hudson’s court pleadings, it says it discovered that Mr. Ybarra and Mr. Lozano were both employed by BlaMar through testimony given in the underlying lawsuit. Mr. Ybarra’s complaint alleged that he suffered injuries while he was in the passenger seat of the tractor-trailer operated by Lozano when he lost control causing injuries and property damage.

BlaMar had a commercial auto policy issued by the Hudson Insurance Company which contains an employer's liability exclusion that allows Hudson to deny coverage for bodily injury to any BlaMar employee "arising out of and in the course of" their employment or while performing employment-related duties, according to the terms and conditions of the policy, which Hudson included in its amended complaint.

The language of the policy also includes a clause known as the “fellow employee exclusion,” which according to Hudson’s attorney, is the basis for denying coverage for Ybarra's claims against Lozano.

Hudson’s attorney is seeking an order from the Texas federal court finding that it has no duty to defend BlaMar or Lozano, against Ybarra’s suit. Attorney Kendrick is arguing that the extrinsic evidence related to Ybarra's employment status is permitted under the Texas Supreme Court's ruling in the Bitco case.

The Bitco ruling authorizes the court to consider extrinsic evidence, which in the context of contract law, is evidence that relates to a contract but that does not appear on the “four corners” of the contract, because it comes from a source other than that which involved the setting in which the parties negotiated the contract.

The Bitco ruling allows for the introduction of extrinsic evidence in three circumstances: 1). when the evidence does not involve the merits of liability 2). The evidence does not contradict the pleadings in an underlying lawsuit against the policyholder, and 3). The evidence will clearly establish whether or not there is coverage.