COURT FINDS THIRD-PARTY HAS DIRECT ACTION AGAINST PHYSICIAN’S INSURER FOR STOWERS EXPOSURE UNDER MEDICAL LIABILITY ACT

March 12, 2012

Last Monday, the U.S. District Court for the Northern District of Texas held that an insurer’s failure to exercise reasonable care in settling claims against an insured physician, were not capped by the now- repealed version of the Medical Liability and Insurance Improvement Act (MLIIA) and, the injured party had  standing  to  bring  a  direct  action  against  the  insurer  under  the  common  law  Stowers  Doctrine exception to the MLIIA.  In Bramlett v. Medical Protective Co. of Fort Wayne, In., 2012 WL 692032 (N.D.Tex. March 5, 2012), an injured third-party obtained a judgment in excess of the physician’s statutory liability cap and, also in excess of the insured physician’s liability insurance policy limits.  The injured third-party then sought to bring a direct-action against the insurer for the Stowers liability.

The court examined Texas case law applying the Stowers exception to the MLIIA and its purpose of encouraging insurers to resolve claims.  The court also noted the distinction in the insurer’s defenses applicable to the insured, differ from those applicable to third-parties.  And, interpreting the exception, the court held that exception provided a direct third-party action against the insurer.  Editor’s Note:  Although the issue addressed in this case has been clarified by statutory changes and is unlikely to recur, the case remains significant in recognizing a direct third-party action against an insurer under Texas law.  We continue to monitor this trend.