AMARILLO COURT OF APPEALS OVERTURNS $35M STOWERS VERDICT, FINDS NO EVIDENCE OF DAMAGES SINCE TRIAL NOT “FULLY ADVERSARIAL”

July 22, 2013

The Amarillo Court of Appeals on Friday ruled for two defendant insurers in a $35 million Stowers lawsuit, when it reversed a trial court judgment in favor two wrongful death plaintiffs and rendered a new judgment that the plaintiffs take nothing.  In Yorkshire Ins. Co., Ltd. et al v. Seger et al, No. 07-12-00090-CV (Tex. App.—Amarillo July 19, 2013), the plaintiffs in a wrongful death lawsuit had received an assignment of the judgment-proof defendant’s causes of action against the insurers.  The insurers challenged a judgment on a jury verdict that the claims of the estates of two decedents were covered by the relevant CGL policies, and that the underlying liability judgment was the result of a fully adversarial trial and therefore established damages as a matter of law.

The court of appeals’ opinion turned on the applicability of State Farm Fire & Cas. Co. v. Gandy, a 1996 Texas Supreme Court opinion that carved out an exception to the Stowers doctrine in cases where the underlying judgment was not the result of a fully adversarial trial.  First, the Court distinguished 2008’s Evanston Ins. Co. v. ATOFINA Petrochemicals, Inc., which narrowed the scope of the Gandy exception.  In ATOFINA, unlike Gandy and this case, there was no assignment of the claim against the insurer, and the insured had amble incentive to minimize the judgment or settlement because the insured had the potential to have to pay the final amount.  Crucial to the Amarillo court’s analysis was the fact that in this case, the insured was essentially judgment-proof, and therefore had no reason to attempt to minimize the eventual verdict against it.  The court of appeals therefore concluded that ATOFINA did not control.

Next, the court of appeals determined that the $35 million judgment was not the result of a fully adversarial trial.  The insured was not represented by counsel, and did not announce ready for trial.  The insured’s principal appeared as the insured’s “representative,” but the court of appeals concluded that she served more in the role of witness than legal representative — for example, at the conclusion of her testimony, she was excused from the trial by the judge.  And, no one challenged the apparent lack of evidentiary support for the total amount of the judgment.  The court, echoing its opinion in the appeal of a prior judgment in the same, held that the insured’s “participation in the underlying proceeding was so minimal that the proceeding cannot be fairly characterized as adversarial[.]”  The amount of the underlying judgment was therefore inadmissible.  Because there was no evidence of the insured’s damages that was properly admitted, the evidence was legally insufficient to support the judgment, and the court of appeals rendered judgment in the insurers’ favor.