When can extrinsic evidence be used in insurance coverage disputes? Equine Assisted Growth v. Carolina Casualty Ins. Explained

The Utah Court of Appeals addressed a crucial question in insurance coverage law: when can courts consider extrinsic evidence to determine whether an insurer has a duty to defend under policy exclusions?

Background and Facts

Equine Assisted Growth and Learning Association (EAGALA) faced a lawsuit filed by former employee Greg Kersten. Although captioned in EAGALA’s name with Kersten signing as “President and CEO,” Kersten actually had no authority to sue on EAGALA’s behalf and was no longer affiliated with the organization. EAGALA incurred substantial defense costs before Kersten ultimately dismissed the case. When EAGALA sought coverage from Carolina Casualty Insurance, the insurer denied the claim under the policy’s insured versus insured clause, which excluded coverage for claims brought “by, on behalf of, or in the right of” EAGALA.

Key Legal Issues

The central issue was whether the district court erred in refusing to consider extrinsic evidence showing that Kersten lacked authority to sue on EAGALA’s behalf. Carolina Casualty argued that the complaint’s facial allegations alone triggered the policy exclusion, while EAGALA sought to introduce evidence demonstrating the true nature of Kersten’s unauthorized lawsuit.

Court’s Analysis and Holding

Following Fire Insurance Exchange v. Therkelsen, the court held that extrinsic evidence is admissible when policy language requires determination of objective facts rather than facial allegations. The insured versus insured clause’s language—”by, on behalf of, or in the right of”—describes objective circumstances whose truth cannot be determined solely from a complaint’s caption. Because the policy made the duty to defend dependent on whether there was actually a covered claim, extrinsic evidence was relevant and should have been considered.

Practice Implications

This decision provides important guidance for insurance coverage disputes. Practitioners should carefully analyze policy language to determine whether exclusions depend on facial allegations or underlying facts. When policy terms require factual determinations beyond a complaint’s allegations, courts must consider extrinsic evidence. This principle applies broadly to duty to defend cases where the scope of coverage depends on the true nature of the underlying claim rather than its pleading format.