Chapter 5-7 Stowers Claim

• Jurisdiction: United States

5-7 Stowers Claim

5-7:1 Overview

5-7:1.1 Related Causes of Action

Bad Faith, Breach of Contract, Late Payment of Claims, DTPA, Deceptive Insurance Practices

MUST READ CASES

G. A. Stowers Furniture Co. v. Am. Indem. Co., 15 S.W.2d 544, 547-48 (Tex. Comm'n App. 1929, holding approved)

Am. Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842 (Tex. 1994)

Seger v. Yorkshire Ins. Co., Ltd., 503 S.W.3d 388 (Tex. 2016)

OneBeacon Ins. Co. v. T. Wade Welch & Assocs., 841 F.3d 669 (5th Cir. 2016).

5-7:2 Elements

The Stowers Doctrine holds that a liability insurer that undertakes the defense of an insured has a duty to act in good faith in settling a liability claim.¹⁴⁵ The "duty to defend" language in standard insurance policies gives liability insurers absolute control over the conduct of the defense, and absent a consent to settle provision, complete discretion whether to settle the claim and for what amount. The carrier is not obligated to accept pretrial settlement demands for an amount within the liability policy limit and has the contractual right to take the claim to trial. The Stowers Doctrine imposes an extracontractual duty on insurers to act in good faith related to settlement demands within policy limits. If the insurer unreasonably rejects a pretrial settlement offer within policy limits resulting in a trial and an excess verdict against the insured for an amount above policy limits, the insurer may be liable to pay the entire judgment, even in amounts above policy limits. An insurer has a Stowers duty when the insurance policy requires the following: (1) the insurer to defend any claim within the scope of coverage; (2) the insurer is to indemnify the insured for any damages awarded against insured within the scope of coverage up to the policy limits; and (3) insurer has control over insured's defense.¹⁴⁶

These contractual duties give rise to the implied Stowers duty to accept reasonable settlement demands within policy limits.¹⁴⁷ 5-7:2 Elements

(1) The claim against the insured was within the scope of coverage¹⁴⁸

An insurer has no duty to settle a claim that is not covered under its policy.¹⁴⁹
The initial burden is on the plaintiff to prove coverage.¹⁵⁰ To prove coverage, the plaintiff must establish that (1) the injury or damage is the type covered by the policy, (2) the injury or damage was incurred at a time covered by the policy, and (3) that the injury or damage was incurred by a person whose injuries are covered by the policy.¹⁵¹

(2) There was a settlement demand within the policy limits¹⁵²

Insured must establish that a third party offered to settle its claims against insured within policy limits.¹⁵³
A Stowers settlement demand must release the insured fully in exchange for a specified amount of money or the policy limits.¹⁵⁴

(3) The terms of the demand were such that an ordinary prudent insurer would have accepted, considering the likelihood and degree of the insured's potential exposure to an excess judgment¹⁵⁵

Insured must also offer evidence that insurer's negligent failure to settle proximately caused damages to the insured.¹⁵⁶
The injury producing event in a Stowers action is the underlying judgment in excess of policy limits.¹⁵⁷

5-7:3 Damages and Remedies

5-7:3.1 Actual Damages

Insured can recover actual damages, which are fixed as a matter of law as the amount of the excess judgment rendered against the insured over the policy limit.¹⁵⁸ However, if the insured assigns her Stowers action to the plaintiff in the underlying suit, the underlying judgment is inadmissible as evidence of damages unless rendered as the result of a fully adversarial trial.¹⁵⁹

5-7:3.2 Exemplary Damages

Exemplary damage awards serve to punish the wrongdoer and set a public example to prevent the repetition of the act.¹⁶⁰ The punishment imposed through exemplary damages is to be directed at the wrongdoer, and an award of exemplary damages must be specific as to each defendant.¹⁶¹ A claimant may recover exemplary damages in a Stowers claim, so long as it does not violate an express statutory definition of exemplary damages.¹⁶² See Chapter 11, Section 11-12.

5-7:3.3 Court Costs

The trial court has discretion to allocate the court costs under Rule 141 as it deems appropriate and will...