The Eleventh Circuit considered whether Alabama law permitted the district court to look beyond the allegations of an arbitration complaint in deciding whether the insurer had a duty to defend. Am. Safety Indem. Co. v. T. H. Taylor, Inc., 2013 U.S. App. LEXIS 5072 (11th Cir. March 14, 2013).

   The insured contractor was 80 percent done with the construction of the owners' house and had been paid 96 percent of the total price, or $731,459.00 when the homeowners ordered him to stop construction. There were unpaid subcontractors and materialmen, and it was estimated that it would cost approximately $200,000 more to complete the project. 

   Three lawsuits were filed against the insured and the owners by lien claimants. The cases were consolidated and the owners filed a cross claim, alleging the insured had misrepresented material facts willfully, maliciously, innocently or by mistake, which was known or should have been known by the insured. The state court ordered that the dispute between the owners and the insured go to arbitration. The owners' arbitration complaint did not expressly identify any legal cause of action or theory of recovery and omitted any reference to misrepresentations, falsity or fraud. The insurer refused to defend the arbitration and filed for declaratory relief.

   The district court found Alabama authority for looking beyond the arbitration complaint and examining the available evidence concerning the facts. This included the allegations in the owners' state cross claim, suggesting intentional conduct by the insured. 

   The Eleventh Circuit agreed this was the correct approach under Alabama law. The underlying pleadings in the state court were admissible evidence with respect to the proper interpretation to be made of the non-specific complaint in arbitration. The underlying pleadings were not hearsay because they were not offered as proof of the truth of the matter asserted, but merely to show that the claim was made whether the allegation of fraud ultimately proved to be true or not. 

    It is doubtful that Hawaii case law would allow the insurer to go beyond the arbitration complaint to determine whether it had a duty to defend. Under Hawaii law, the insurers may not consider extrinsic evidence beyond the pleadings in making a determination to not defend. Extrinsic evidence can only be considered when in support of the insurer's duty to defend. Dairy Road Partners v. Island Ins. Co., Ltd., 92 Haw. 398, 422, 992 P.2d 93, 117 (2000).