Finding that the Stowers doctrine was not “activated,” the United States District Court for the Southern District of Texas entered summary judgment in favor of an insurer on its declaratory relief claim. After an underlying judgment was entered against its insured, the insurer sought declaratory relief establishing that it owed only its remaining policy limits for an excess verdict. The trial court agreed with the insurer, entered summary judgment, and the matter is now on appeal to the United States Court of Appeals for the Fifth Circuit.
The coverage dispute arose out of an underlying personal injury suit filed in Texas state court. In the underlying suit, the claimants sued the insured for injuries sustained while at the insured’s business. The claimants’ counsel sent a written settlement offer to the insured, requesting “payment of all policy limits of any and all insurance contract,” which was subsequently rejected. The claimants eventually prevailed at trial against the insured, obtaining a verdict totaling $3.2 million. The insurer tendered its remaining limits, but the claimants asserted that the insurer was obligated to pay the entire judgment because the claimants’ pre-trial settlement demand was a proper Stowers demand.
The trial court provided background on the so-called Stowers doctrine and demands:
“Under G.A. Stowers Furniture Co. v. American Indem. Co., 02 S.W.2d 544 (Tex. Comm’n. App. 1929, holding approved), Texas law imposes a ‘basic tort duty,’ known as the Stowers doctrine, under which insurers, ‘when faced with a settlement offer within policy limits, must accept the offer … when an ordinarily prudent insurer would do so in light of the reasonably apparent likelihood and degree of that insured’s potential exposure to a valid judgment in the suit in excess of policy limits.’” Law Office of Rogelio Solis PLLC v. Curtis, 83 F.4th 409, 411 n.1 (5th Cir. 2023) (quoting Travelers Indem. Co. v. Citgo Petroleum Corp., 166 F.3d 761, 761 (5th. Cir. 1999)). “When . . . the insurer’s negligent failure to settle results in an excess judgment against the insured, the insurer is liable under the Stowers doctrine for the entire amount of the judgment, including the part exceeding the insured’s policy limits.” G.A. Stowers Furniture Co., 15 S.W.2d at 548.
But, “a duty under the Stowers doctrine is not activated by a settlement demand unless:
“(1) the claim against the insured is within the scope of coverage, (2) there is a demand within policy limits, and (3) the terms of the demand are such that an ordinarily prudent insurer would accept it, considering the likelihood and degree of the insured’s potential exposure to an excess judgment.” Am. Guarantee and Liability Ins. Co. v. ACE American Ins. Co., 990 F.3d 842, 847 (5th Cir. 2021).
Most importantly for this matter, the trial court explained, “Stowers applies only when the ‘settlement’s terms [are] clear and undisputed,” and “must clearly state a sum certain.” Id. (citing Rocor Int’l, Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 77 S.W.3d 253, 262–63 (Tex. 2002)).
In light of those requirements, the trial court held, the claimants’ demand for “all policy limits of any and all insurance contracts” lacked the “necessary specificity” to invoke an obligation under Stowers. The trial court explained, “both the Fifth Circuit and Texas Supreme Court have made clear that settlement offers must be unambiguous and demonstrative of a clear intent of a sum certain.” Am. Guarantee and Liability Ins. Co., 990 F.3d at 847 (finding that a settlement offer made within a range lacked the clear statement of a sum certain insufficient to invoke the Stowers duty); Rocor Int’l, Inc., 77 S.W.3d at 262–63 (holding that “a proper settlement demand must clearly state a sum certain and propose to fully release the insured”). Accordingly, the trial court entered summary judgment in the insurer’s favor holding that it owed no duty under Stowers.
The trial court’s summary judgment ruling is currently on appeal in to the United States Court of Appeals for the Fifth Circuit, Golden Bear Insurance Company v. 34 S&S LLC, et al., Case No. 24-20332.