Legal Definitions - eight-corners rule

The eight-corners rule is a principle in insurance law used to determine whether an insurance company has a duty to provide a legal defense for its policyholder when they are sued. This rule dictates that a court will only examine two documents to make this decision:

• The "four corners" of the insurance policy itself, which outlines the coverage provided.
• The "four corners" of the legal complaint (the lawsuit) filed against the policyholder, which details the allegations.

If the allegations made in the lawsuit, when compared to the coverage described in the policy, *potentially* trigger coverage, then the insurer generally has a duty to defend the policyholder. This duty exists regardless of whether the allegations are ultimately true or false, or even if they seem groundless. The court typically does not consider any other outside information or evidence at this initial stage when deciding if a defense is owed.

Examples:

• Example 1: Business Liability Claim

  A small landscaping company is sued by a homeowner who claims that the company's faulty irrigation system installation caused significant water damage to their basement. The homeowner's lawsuit alleges negligence and property damage. The landscaping company holds a general liability insurance policy.

  How it illustrates the rule: A court applying the eight-corners rule would look at the homeowner's lawsuit (the first "four corners") and the landscaping company's insurance policy (the second "four corners"). If the policy covers claims for property damage caused by negligence, the insurer would likely have a duty to defend the landscaping company. This is because the *allegations* in the complaint *potentially* fall within the policy's coverage, even if the landscaping company believes the claim is baseless or that they were not at fault. The insurer cannot introduce evidence at this stage to argue against the claim's merits; their duty to defend is triggered by the potential for coverage based on the documents.

• Example 2: Professional Malpractice Allegation

  A financial advisor is sued by a former client who alleges that the advisor provided negligent investment advice, leading to substantial financial losses. The client's complaint specifically details the alleged poor advice and the resulting monetary damages. The financial advisor has a professional liability (errors and omissions) insurance policy.

  How it illustrates the rule: Under the eight-corners rule, a judge would compare the client's allegations of negligent advice in the lawsuit with the coverage terms of the financial advisor's professional liability policy. Since the policy is specifically designed to cover claims of professional negligence and errors, and the lawsuit clearly alleges such, the insurer would almost certainly have a duty to defend the financial advisor. This holds true even if the advisor believes the client's claims are entirely unfounded. The focus is solely on whether the *potential* for coverage exists by comparing the lawsuit's claims to the policy's terms.

• Example 3: Personal Injury on Property

  A homeowner hosts a gathering, and a guest trips over a loose rug in the living room, sustaining a serious injury. The guest sues the homeowner for personal injury, alleging that the homeowner failed to maintain a safe environment. The homeowner has a standard homeowner's insurance policy that includes personal liability coverage.

  How it illustrates the rule: When determining the insurer's duty to defend, a court would apply the eight-corners rule. It would examine the guest's lawsuit, which alleges personal injury due to the homeowner's negligence, and compare it to the homeowner's insurance policy, which typically includes personal liability coverage for injuries occurring on the property. Because the lawsuit's allegations *potentially* fall within the scope of the personal liability coverage, the homeowner's insurance company would likely be obligated to provide a legal defense for the homeowner, even if the homeowner believes the guest was careless or that the rug was not a hazard.