Last week, a bench trial of a Stowers case between a primary and excess insurer resulted in a ruling requiring the primary carrier to pay the excess carrier the difference between the primary carrier’s limit and the much larger post-judgment settlement the excess carrier was required to pay. 

Am. Guar. & Liability Ins. Co. v. Ace Am. Ins. Co., No. 4:18-CV-382, 2019 WL 4316531, (S.D. Tex. Sept. 11, 2019) (slip op.) involved an underlying suit in which a cyclist was killed in Cypress, Texas when he collided with the back of a stopped truck.  The defendant, a landscaping company, had liability policies with three different carriers - $2 million primary, $10 million excess, and $40 million high excess.  The underlying suit went through two unsuccessful mediations, and on three different occasions – before trial, during trial, and during jury deliberations – the plaintiffs made Stowers demands to fully settle the case for the primary carrier’s $2 million limit.  The primary carrier rejected all three demands, and the jury returned a verdict of nearly $40 million, resulting in a judgment of approximately $27 million. This Stowers suit between the primary and excess carriers followed.

After a bench trial, the district court held the primary carrier was unreasonable in refusing Stowers demands for its $2 million limit, and owed the excess carrier the difference between the $2 million primary limit and the $9 million post-judgment settlement negotiated by the first excess carrier. The court held the primary carrier’s initial evaluation, which was significantly below defense counsel’s evaluation and apparently consisted of multiplying its policy limit by defense counsel’s projected risk of a plaintiff verdict, was unreasonable on its face.  The Stowers duty requires the carrier to consider the insured’s total risk of exposure and not merely its own policy limit.  Nevertheless, the primary carrier’s rejection of the pre-trial Stowers demand was reasonable at that time in light of numerous factors favoring the defense.  But several unfavorable rulings during trial should have alerted the primary carrier to the increased risk of excess exposure to its insured, and its rejection of the second and third Stowers demands was unreasonable, particularly in light of defense counsel’s prior settlement evaluation of up to $2 million.

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