COURT OF APPEALS POTENTIALLY EXPANDS STOWERS DOCTRINE TO ELIMINATE THE REQUIREMENT OF A JUDGMENT IN EXCESS OF THE POLICY LIMITS
Last week, the Court of Appeals of Texas, San Antonio concluded that it is not clearly established law that the Stowers Doctrine applies only when there is a judgment in excess of policy limits. With this conclusion, the court denied mandamus relief to insurer seeking dismissal of insured’s (Stowers) claim that she paid the portion of the below-policy-limit settlement demand which the insurer declined to pay. In In Re Farmers Texas. County Mutual Ins. Co., No. 04-19-00180-CV, 2019 WL 2605630, (Tex. App.—San Antonio June 26, 2019, mem. op.), Gibson sued Longoria for injuries he allegedly suffered in a motor vehicle accident. Gibson sought damages in the amount of $1 million, which exceeded Longoria's $500,000 policy limits with Farmers. Gibson designated experts, but Farmer’s attorney, who represented Longoria, did not.
After mediation, the mediator proposed that the parties settle for $350,000. Subsequently, Gibson sent a Stowers demand to Farmers advising that he would accept the mediator’s proposal, but Farmers rejected the proposal and offered $250,000. However, Longoria offered to pay the $100,000 balance and the parties settled. After paying the $100,000, Longoria sued Farmers based on a Stowers cause of action and breach of contract. She contended that the existence of an excess judgment against her was not a required element of a Stowers claim. She also contended that Famers breached its contract by failing to defend the suit by not timely designating an expert and by failing to accept the offer to settle the lawsuit.
In response, Farmers filed two Rule 91a motions to dismiss (allowing a party to move to dismiss a cause of action on the grounds that it has no basis in law or fact”). Farmers asserted that Longoria had no Stowers cause of action because such a claim required that a negligent failure to settle result in an excess judgment. Farmers asserted that it had no contractual obligation to pay damages until it was determined Longoria was legally responsible for any damages, which would not occur because the lawsuit settled. Farmers further asserted that it was relieved of its duty to defend or settle because the insurance policy expressly gave it the right to defend or settle claims “as [it] consider[ed] appropriate”, and Farmers chose to settle.
The trial court denied both of Farmers’ Rule 91a motions. Farmers subsequently filed a petition for writ of mandamus asserting that the trial court abused its discretion by denying Farmers’ motions to dismiss.
On mandamus, the court recognized case precedent that the denial of a Rule 91a motion to dismiss is subject to mandamus review. Despite this, the court conducted a separate and arguably unnecessary analysis into whether Longoria’s Stowers cause of action qualified for mandamus review as an issue of first impression. Under Texas law, “an issue of first impression can qualify for mandamus review when the factual scenario has never been precisely addressed but the principle of law has been clearly established.” The court proclaimed that the issue in this case—whether an insured has a Stowers cause of action against her insurance company when the case settles pre-trial and the insured has paid a portion of the settlement because the insurer refused to pay the entirety of the settlement demand—was an issue of first impression. However, the court concluded that the principal of law on which Farmers’ relied—that a Stowers claim always requires an excess judgment—was “not so clearly established as to be free from doubt.” The court reasoned that although Stowers damages originally arose from a judgment in excess of policy limits, that the Texas Supreme Court has since extended Stowers to include settlements in excess of policy limits in the context of an excess carrier's cause of action against a primary carrier. The court then noted that dismissals pursuant to Rule 91a are appropriate when the pleaded cause of action has been previously rejected by Texas courts or when the circumstances pleaded by the plaintiff have been previously rejected as viable under an accepted cause of action. In the end, the court held that the viability of Longoria’s claim had not been clearly rejected by Texas law and that Farmers was not entitled to mandamus relief on Longoria's Stowers claim.
In dissent, Chief Justice Sandee Bryan Marion declared that although the precise fact pattern at issue in this case had not previously been before any Texas court, it did not present an issue of first impression. Chief Justice Marion further declared that the law is settled that there can be no Stowers liability absent a judgment in excess of policy limits, even under the circumstances of this case. Chief Justice Marion reasoned that “the Stowers doctrine does not protect an insured against potential liability, nor does it protect an insured from incurring an excess judgment in the first place; rather, it affords an insured a remedy in the event of an excess judgment.” Because Longoria did not plead the existence of a judgment in excess of policy limits, Chief Justice Marion would have concluded that she failed to plead a viable Stowers claim and would have held that the trial court clearly abused its discretion by denying Farmers' motion to dismiss.
n regard to Longoria’s breach of contract claims, the Court of Appeals held that the trial court abused its discretion by denying Farmer’s motion to dismiss. To that end, the court concluded that Longoria’s claim that Farmer’s failed to designate experts had no basis in fact because she did not allege she suffered any damages for which she became “legally responsible” due to the alleged failure. As to Farmer’s alleged breach of contract in failing to settle, the court concluded that this claim also had no basis in fact because the policy did not contractually obligate Farmers to pay any specific amount towards a settlement, and instead only obligated Farmers to “settle or defend” “as [it] consider[ed] appropriate.”