What is Stowers Demand in Texas?
Nearly a century ago, the Texas courts adopted a doctrine that provides insureds and injured accident victims another avenue for recovering compensation when an insurer unreasonably fails to settle an injury claim against the insured. An insurer’s liability may arise when an injured victim makes a Stowers demand: a formal settlement offer at or within the available coverage limit of the insured’s policy when the facts of the case make it clear that the insured is liable for the victim’s injuries. An insurer that refuses a reasonable settlement demand may become liable for the entire verdict entered against its insured at trial, even if that amount is in excess of the policy limits.
When a Stowers Demand Applies
In Texas, Stowers demands typically arise in cases that involve severe injuries and wrongful death where the victim’s damages (the financial compensation they’re entitled to) will likely exceed the at-fault party’s liability insurance limits. Generally, a claimant has substantial evidence to prove the insured’s fault and has indicated a willingness to accept a settlement at or within the insured’s policy limits, but the insured’s provider has delayed settlement negotiations, offered less than the policy limits, or made a low-ball counteroffer to the claimant.
A Stowers demand moves the risk of proceeding to trial in an injury lawsuit from the insured to the insurer in cases where the insurer has final say over the defense, including whether to accept a settlement, and the insurer has refused to agree to a reasonable settlement with an injury claimant.
Requirements for a Valid Stowers Demand
A claim has to meet the following requirements to give rise to a valid Stowers demand under Texas law.
Within Coverage and Policy Limits
An injured claimant has to offer a settlement or affirmatively indicate their willingness to accept a settlement at or below the insured’s available policy limit.
Liability Is Clear
The evidence in the underlying accident claim has to create a high likelihood that a trial court will find the insured liable to the injured claimant.
Full and Unconditional Release
The settlement offered by the injured claimant needs to fully release the insured and their insurer from all further liability to the claimant, including addressing any liens that might create additional liability.
Reasonable Settlement Offer
The insurer has to receive a reasonable settlement offer. What constitutes a “reasonable” offer will depend on factors like the seriousness of the claimant’s injuries, the extent of their financial losses, and the risk that the insured will face a larger judgment after trial.
Reasonable Deadline
A settlement offer needs to provide a specific, reasonable deadline for acceptance or denial, for example, 30 days.
What Happens if the Insurer Refuses
Let’s say an insurer refuses a reasonable settlement offer during pre-trial negotiation, and the case proceeds to trial, where the court issues a judgment that considerably exceeds both the settlement offers and the insured’s policy limits. Under normal circumstances, the at-fault insured would be responsible for paying the difference between the judgment amount and the policy limits. However, under the Stowers doctrine, the insurance company may become liable for the entire judgment, not just the policy limit, if it rejected a reasonable settlement offer while retaining complete control over the defense against an injury claim. The at-fault insured may pursue a Stowers claim directly against their insurer or assign it to the injured claimant.
Mistakes That Invalidate a Stowers Demand
Here are some common circumstances that can undermine the merits of a Stowers demand:
- A settlement offer does not indicate a specific monetary amount
- A settlement involves a conditional or incomplete release of claims against the insured and insurer
- A settlement offer does not provide a clear deadline for response or sets an unreasonably short time for consideration of the offer
- The record contains no evidence that the insurance company received the settlement offer
- A settlement demand exceeds the available policy limits
Difference Between Stowers and Bad Faith
Although both Stowers and bad faith claims arise when insurers act unreasonably, they differ in several key aspects:
- The Stowers doctrine applies to third-party liability insurance policies. Conversely, bad-faith claims apply only to first-party insurance, like property insurance.
- Stowers claims stem from an insurer’s negligence in handling the defense of a third-party claim, whereas bad-faith claims typically require an insurer to have acted willfully, wantonly, or recklessly.
- Only an insured may pursue a bad faith claim, while insureds can assign their Stowers claim to an injured party who has filed a claim against them.
Examples That Show How Stowers Works
The following key cases have shaped how the Stowers Doctrine works in Texas.
G.A. Stowers Furniture Co. v. American Indemnity Co.
This 1929 case established the Stowers doctrine. The defendant insurance company issued a $5,000 policy to Stowers Furniture Company, insuring the company against motor vehicle accident injuries. An individual filed a personal injury lawsuit against the furniture company, and the insurer accepted the defense of the suit. The case proceeded to trial, resulting in a judgment of more than $14,000 against the furniture company. However, before trial, the injured party had offered a settlement of $4,000, which the insurer rejected and countered with a $2,500 settlement.
The furniture company alleged that the insurer knew that the injured claimant was likely to recover far more than the company’s policy limit at trial. The Texas court ruled that, because the insurer had absolute control over the litigation, it had a duty to exercise prudence and ordinary care in managing it. By refusing a reasonable settlement offer within the policy limit, the court held that the insurer became liable for a judgment exceeding the insured’s policy limit.
Texas Farmers Insurance Company v. Soriano
Richard Soriano caused a drunk driving car accident when he tried to pass a truck and collided head-on with another vehicle. Soriano’s friend in the passenger seat died in the crash, and the family in the other vehicle suffered severe injuries. Soriano had coverage under his parents’ policy, which provided the minimum required policy limit. The insurer initially attempted to settle with the family in the other vehicle by tendering the policy limit of $20,000, which the family initially refused. Soriano’s friend’s family also filed suit. Soriano’s friend’s family settled for $5,000 without notice to the other family. Before the settlement, the other family’s counsel agreed to accept the original $20,000 offer, but after the settlement, the insurer offered the remaining $15,000 policy limit, which the family refused.
After the family obtained a verdict against Soriano, Soriano filed suit against the insurer, and a jury found the insurer negligent in handling the injury claims. However, in 1994, the Texas Supreme Court held that when an insurer receives a settlement demand involving multiple claims and inadequate policy limits to satisfy all claims, the insurer may enter a reasonable settlement with one of the claimants, even though the settlement would diminish or exhaust the policy limits available to satisfy other claims.
What Injury Victims Should Watch For
Injury victims should watch out for the following signs that may indicate their case may involve a viable Stowers demand:
- Limited coverage: Stowers demands more frequently occur in cases where an insured has a lower liability insurance coverage limit, which creates a higher risk that an injured claimant’s losses will exceed the available policy limit.
- Clear liability: Insurers may have reasonable grounds to refuse a settlement offer within policy limits if the evidence does not definitively prove the insured’s liability, meaning the insured has a reasonable chance of winning at trial.
- Insurer delay: Rather than accept a victim’s reasonable settlement offer, the insurance company unnecessarily slow-plays negotiations or makes slow-ball counteroffers.
An accident victim can protect their rights to full compensation by hiring an attorney who understands how Stowers demands work and can utilize the doctrine effectively on their behalf. For questions about this or other personal injury matters in Texas, call Loewy Law Firm at (512) 280-0800.
The content on this website is for general informational purposes and should not be considered legal advice. Laws change, and case outcomes depend on specific facts. Viewing this material does not establish an attorney-client relationship. For legal guidance on your specific situation, consult a qualified attorney.