Last Thursday, the Houston First Court of Appeals affirmed summary judgment in favor of an insurer on claims seeking recovery from the insurer in excess of the policy limits based on an alleged violation of Texas’ Stowers doctrine finding the claimant failed to present settlement demands which triggered the insurer’s duty to settle the liability claims against its insured.

In Patterson v. Home State County Mutual Insurance Co., No. 01-12-00365-CV (Tex. App. – Houston [1st Dist.], April 24, 2014), the claimant’s wife was killed when the insured eighteen-wheel truck collided with her vehicle.  The claimant brought a wrongful death claim against the driver, the trucking company, and the leasing company.  After receiving two demands for policy limits on behalf of the claimant and his children, the insurer filed an interpleader action to allow them to deposit the $1,000,004 policy limits into the registry of the court and then sought to be dismissed from any liability.  The trial court granted the interpleader and dismissed the insurer from all but the potential Stowers causes of action. 

After the interpleader was granted, Home State withdrew its defense because its policy limits were exhausted by payment.  After a bench trial, the claimants were awarded over $5,000,000 in damages, took an assignment of claims from the insured and pursued Home State for the excess judgment based on Stowers. The trial court granted summary judgment in favor of Home State on the Stowers action and this appeal followed.

On appeal, the court reviewed the elements of a demand necessary to trigger an insurer’s Stowers duty to settle under Texas law and held, at a minimum, that it requires: 1) a claim within the scope of coverage; 2) a demand within policy limits; and 3) the terms are such that an ordinary prudent insurer would accept it.  The Court began by noting: “As a threshold matter, a settlement demand must propose to release the insured fully in exchange for a stated sum of money.”  Here, the three demand letters did not offer to release all parties or all of the claims and, furthermore, none of the demands were unconditional.  Further, the named insured under the policy recognized the problems with the offers and did not want Home State to accept them.  After reviewing these issues, and the arguments of the parties, the court affirmed summary judgment in favor of the insurer finding the demands failed to trigger the insurer’s Stowers duty to settle.

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