The document discusses the legal doctrine known as the Stowers duty, which establishes that an insurer has a duty to accept reasonable settlement offers within policy limits. It provides details on what constitutes a valid Stowers demand and when the duty is triggered. It also discusses various defenses insurers can raise and exceptions to the duty, including situations involving multiple claimants, insureds, or inadequate time to respond. The document aims to explain the nuances and complexities of the Stowers duty to assess liability in various insurance claim scenarios.

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Who Is Strong With The Force?

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 The Insurer’s Stowers Duty is Merely the Duty to
Accept a Reasonable Settlement Offer Within the
Available Policy Limits.
 Simple, Right?
 WRONG!!!

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 In 1929, Texas Established An Exclusive Tort Cause of Action for
Insureds Whose Insurance Company Was Negligent in Failing
to Settle a Liability Claim.
 WE CAN CALL IT THE DARK SIDE!!!.
 A Stowers Cause of Action Arises When a Third Party Claimant
(i.e. the Alleged Tort Victim) Offers to Settle a Disputed Claim
Within the Policy Limits and the Insurer Refuses to Settle the
claim.
 If a Jury Finds that An Ordinarily Prudent Insurer Would Have
Agreed to the Settlement Offer, then the Insurance Company
Can be Held Liable for the Amount of the Entire Judgment,
Including that Portion that Exceeds the Available Policy Limits.

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Insurers Have A Contractual Duty To Defend AND
Indemnify the Insured Under the Liability Insurance
policy. Part A: Liability Coverage.
Insurers Have Exclusive Control Over the Settlement of
Any Claim.
Insurers Have Exclusive Control Over Any Litigation
That Arises
Insureds Must Obtain Consent of the Insurer Before
Taking Any Action Concerning the Claim or Litigation.
Part E: Duties After Loss

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• $ Full Policy Limits
• $ The Amount of Any Excess Judgment
Over the Policy Limits
• $ Prejudgment Interest at 6%
• $ Damage to the Insured’s Credit and
Reputation
• $ Lost Profits
• $ Mental Anguish
• $ Exemplary Damages

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 The Stowers Duty Can ONLY be Triggered by
a Proper Demand by the Alleged Tort Victim.
 The Insurer DOES NOT Have a Duty to
Make or Solicit Settlement Offers.
 An EXCESS JUDGMENT Judgment Must be
Entered Against the Insured.

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 The ONLY Defense in a Stowers Case is That the
Demand Did Not Constitute a Stowers Demand
 The Defense of “Mistake of Judgment in Believing
That It Could Obtain a Verdict Favorable to the
Insured” is NOT a Stowers defense.
 The Legal Standard is an Objective Standard From
the Viewpoint of An Ordinarily Prudent Insurer.

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1. The Liability Claim Must Be Within the Scope of
the Insurance Policy. In Other Words, “If the
Glove Doesn’t Fit, You Must Acquit.”
2. The Demand Must Be Within the Policy Limits.
3. The Terms of the Demand Are Such That an
Ordinarily Prudent Insurer Would Have
Accepted It, Considering the Likelihood and
Degree of the Insured’s Potential Exposure to an
Excess Judgment.

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 If There is No Insurance Coverage, Then There Can Be NO
BREACH of Any Duty by the Insurer to Settle the Claim Within
the Policy Limits.
 Simply Put, Stowers ONLY Applies to Covered Claims.
 If An Insurer DOES NOT Assume the Defense of the Insured,
Then There Can Be No Breach of Any Duty. A Failure to
Defend DOES NOT Result in a Tort Cause of Action. Rather,
the Insured Must Sue the Insurer for Breach of Contract.
 DISCLAIMER!!!! If a Claim is NOT Within the Scope of
Coverage, BUT the Insurance Company Defends the Insured
WITHOUT a Reservation of Rights Letter, the Insurer is Subject
to Stowers Liability.

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 Easy One - - A demand for $501,000 When the Policy
Provides $500,000 in Liability Coverage is NOT a Valid
Stowers Demand.
 Also, a Demand for the Limits of Two Different Policies
That Do Not Overlap is NOT a Valid Stowers Demand.
 For Example, If An Alleged Tort Victim Demands the
Policy Limits of Both the Primary and Excess Policies,
Stowers Does NOT Attach to the Primary Policy.
 DISCLAIMER!!!! Stowers May Still Attach to the Excess
Carrier’s Policy, Depending on the Contractual Language
of the Excess Policy.

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The 1994 Garcia Rebellion and the 1998 Bleeker Revolution.
Is the Demand a CONDITIONAL Demand?
Does the Demand Provide a FULL Release of the Insured from
Future Liability?
Are there MULTIPLE CLAIMANTS?
Are there MULTIPLE INSUREDS?
Is there ADEQUATE TIME TO RESPOND to the Demand?
Is the Demand Itself a REASONABLE DEMAND (HINT: The “Paid
or Incurred” Rule in Texas)

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THE JEDI MIND TRICKS OF
THE SHARP ADJUSTER

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 In 1998, the Supreme Court Decided Trinity
Universal Ins. Co. v. Bleeker.
 Bleeker Held That Stowers Does Not Require an
Insurer to Accept a Conditional Offer Carrying
the Risk of Further Liability by the Insured.
 Example: “My client demands and will accept
the full policy limits, provided there does not
exist any other available insurance to cover my
client’s injuries.”

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 The Purpose of the Stowers Doctrine Is to Shift
Excess Exposure Liability To the Insurer When It
Could Have Extinguished It Through Settlement.
 Therefore, A Stowers Settlement Demand MUST
Contain an Offer to Release the Insured from ALL
Potential Claims in Exchange for a Stated Sum of
Money Within Policy Limits.
 Example: “My client demands and will accept the
full policy limits in exchange for a full release of any
potential claims against your insured. I am going to
ignore payment of the hospital liens so that I can get
my client more money in her pocket.”

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 The Existence of a Hospital Lien or Other Similar Lien
is One of The Most Common Pitfalls for Plaintiff’s
Lawyers Attempting to Submit a Proper Stowers
Demand.
 If the Plaintiff’s Lawyer Hasn’t Negotiated an
Agreement With the Hospital Regarding Payment of the
Lien, Then It Would Be Unreasonable For the Insurance
Company to Settle Within Limits.
 The Promise to “Take Care of the Lien Later” or even
Indemnify the Insured is Insufficient.
 Why? The Insured (as Well as the Insurer) are
Responsible For Payment of Texas Hospital Liens From
Any Settlement Funds.

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 The Soriano Rule: When Faced with a Settlement
Demand From One Tort Victim In a Claim
Involving Multiple Claimants With Inadequate
Policy Proceeds, the Carrier’s Duty to the Insured
to Settle is Measured by Reference to Each
Individual Claimant, and Not to the Claims as a
Whole.
 The Insurer May, Without Breaching Its Stowers
Duty, Enter Into a Reasonable Settlement With
One of Several Claimants, EVEN IF the
Settlement Exhausts or Diminishes the Proceeds
Available to Satisfy Other Claims.

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 Example: “My client has medical expenses that exceed the
per person policy limits. I demand and will accept the full
available policy per person limits in exchange for a full and
final release. I have already negotiated the hospital liens.
My buddy down the road tells me you already paid his
clients most of the available insurance funds. This is a
Stowers violation, and I plan to sue.”
 WRONG: An Insurer Does Not Breach Its Duty to Settle By
Offering a Settlement That Is Less Than Policy Limits to One
Claimant, Even a Claimant With the Most Serious Injuries,
Because It Has Already Diminished the Proceeds by Settling
With Another Plaintiff.
 This is Sometimes Called the “First Come – First Served”
Rule.

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 When Multiple Insureds are Involved, “An Insurer is
Free to Make a Reasonable Settlement of the Claim
Without Considering Other Possible Claims Affecting
the Same Policy Limits.”
 If a Stowers Demand is Made that Would Fully Settle
all Claims Against One Insured, the Insurer is Not
Subject to Liability EVEN IF the Settlement Eliminates
Coverage for Another Insured to Whom No Demand
Has Been Made.
 In Addition, an Insurer Who Settles Up to Its Policy
Limits for One Named Insured DOES NOT Have any
Further Obligation to Defend an Additional Insured in
an Action Arising Out Of the Same Accident.

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 An Insurer May be Relieved of its Stowers Duty
to Respond to a Settlement When the Deadline
For Responding to the Settlement Demand is
Unreasonably Short Under the Circumstances.
 Bleeker Found that Thirty Days Was a Reasonable
Time to Evaluate a Settlement Offer. (Case
Specific).
 When Does This Occur? Oftentimes, this
Happens When All Relevant Medical Bills and
Records Have Not Been Received.

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 Example: “My client demands and will accept payment
of the available policy limits of $50,000. She has well
over $50,000 in medical expenses. I trust you will find
this demand to be a reasonable one, and if you do not, I
will sue you under the Stowers doctrine.”
 Reasonable? It Depends. Texas Follows the “Paid or
Incurred” Rule When Considering Medical Expenses.
The “Client” May be a Medicaid Recipient Where the
Charged Medical Expenses Can Be More Than Three
Times the Amount Actually “Pair or Incurred” by the
Patient.
 Therefore, the Total Amount of the Medical Expenses is
Not Always the Benchmark for Determining Whether a
Settlement Demand for Policy Limits is a Reasonable
Demand Under Stowers.

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• 1929: G.A. Stowers Furniture Co. v. American Indemnity
Co., 15 S.W.2d 544 (Comm’n App. 1929, holding
approved) - - An insurer that assumes the duty to
defend and indemnify its insured must exercise due
care when deciding whether to settle a third party
liability claim.
• 1987: Ranger County Mutual Ins. Co. v. Guin, 723 S.W.2d
656 (Tex. 1987) - - An insurer’s Stower’s duty extends to
the duty to investigate, prepare for the defense of the
lawsuit, trial of the case and make reasonable attempts
to settle. [This case is now recognized only as dicta].

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1994: American Physicians Ins. Exch. v. Garcia, 876 S.W.2d
842, 847 (Tex. 1994) - - Three prerequisites exist within the
Stowers duty. Is the demand: (1) within coverage, (2)
within policy limits, and (3) within reason from the
viewpoint of the ordinarily prudent insurer.
1997: State Farm Lloyds v. Williams, 960 S.W.2d 781 (Tex.
App. - - Dallas 1997, review dism’d by agreement) - - An
insurer may have a Stowers duty if it defends a claim that
is not within coverage without a reservation of rights
because the insurer, by not advising the insured of
coverage defenses, deprives the insured of the opportunity
to settle the case for an amount within the settlement
demand.

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1998: Trinity Universal Ins. Co. v. Bleeker, 966
S.W.2d 489, 491 (Tex. 1998) - - A Stowers
settlement demand must not only be within
policy limits, but it must also be unconditional
and promise to release the insured fully from
any potential liability.

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1994: Texas Farmers Ins. Co. v. Soriano , 881 S.W.2d
312 (Tex 1994) - - An insurer does not breach the
Stowers duty by settling with one claimant, even is
the settlement exhausts or diminishes the proceeds
available to satisfy other claims.
Also, the failure of an insurer to settle a third party
liability case does not result in a bad faith cause of
action in favor of the insured. The insured's’
EXCLUSIVE remedy falls under Stowers, and the
cause of action is owned solely by the insured.

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1994: Charles v. Tamez, 878 S.W.2d 201 (Tex. App. - -
Corpus Christi 1994, writ denied) - - An insured’s cause
of action under Stowers is subject to equitable
subrogation and assignment. In other words, it can be
involuntarily assigned by a statutory Turnover Order or
voluntarily assigned by the insured to the claimant.
1996: State Farm Fire v. Gandy, 925 S.W.2d 696 (Tex 1996)
- An assignment of a Stowers cause of action is INVALID
if (1) it is made BEFORE a fully adversarial trial against
the insured with an excess judgment entered, (2) the
insurer tendered a defense, and (3) the insurer accepted
coverage or made a good faith effort to adjudicate the
coverage issues prior to the adjudication of the plaintiff’s
claim.

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