Stowers Claims

Every Dallas and Fort Worth insurance lawyer has to have an understanding of “Stowers” claims.
Under Texas law, a demand for policy limits is generally referred to as a Stowers demand and can give rise to a suit against the insurance company to collect any excess judgment under the Stowers doctrine. Under the Stowers doctrine, an insurance company owes an implied duty of ordinary care to its insured/customer to accept a reasonable settlement demand that is within policy limits. This is from a case every law school student learns about in law school. The style of the case is G.A. Stowers Furniture Co. v. Am. Indem. Co. It is a Texas Supreme Court case from1929, holding that an insurance company “is held to that degree of care and diligence which a man of ordinary care and diligence would exercise in the management of his own business.” Physicians Ins. Exchange v. Garcia, is a 1994, Texas Supreme Court case that further supported the Stowers ruling. The Stowers duty is not activated by a settlement demand unless three prerequisites are met: (1) the claim against the insured is within the scope of coverage, (2) the demand is within the policy limits, and (3) the terms of the demand are such that an ordinarily prudent insurer would accept it, considering the likelihood and degree of the insured’s potential exposure to an excess judgment.
Another case, the case of Bramlett v. the Medical Protective Company of Fort Wayne, Indiana, which was written by one of the most respected and conservative Republican federal judges in Texas, the Hon. Sidney Fitzwater, contains key holdings which are particularly instructive as to insurance company’s duties in response to this demand and essentially negates any potential defenses that could be asserted in our future Stowers doctrine case. Bramlett also addresses the common Stowers defendant insurance company plea that they should not be liable because they did not have sufficient knowledge of the case at the time the demand was made. The Bramlett Court held: “There is no per se requirement that an insurer know all, or even most, of the facts of the case in order to have a Stowers duty. Indeed, early settlement is encouraged.” Here, there is ample evidence to support our negligence claim against a defendant such that te insurance company must either accept the demand or assume the risk that it will not be able to do so later. If a claimant makes such a settlement demand early in the negotiations, the insurance company must either accept the demand or assume the risk that it will not be able to do so later. In cases presenting a real potential for an excess judgment, insurance companies have a strong incentive to accept.
A proper Stowers demand is will also have language similar to the following:
Accordingly, the Policy Claimants will fully and unconditionally release the defendant of and from any and all liability arising out of the collision and the Policy Claimants’ damages and derivative damages resulting therefrom without limitation in exchange for payment of the Policy’s liability policy limits. This demand includes the Policy Claimants’ agreement to indemnify and defend the Defendants from any and all claims made by anyone claiming by, through or under any of the Policy Claimants in connection with the claim. This demand includes the Policy Claimants’ agreement to satisfy any and all hospital liens, Medicare liens, Medicare set-side requirements, Medicaid liens, ERISA liens, child support liens and any and all other statutory, contractual or common law liens, reimbursement interests or assignments out of the policy limits demanded. This demand will expire by its own terms and be withdrawn if not accepted in writing delivered to plaintiff’s attorney on or before 5:00 p.m. on (name a date not less than 14 days out to be safe). If this demand is not met, suit will be filed against the defendant and they, along with the insurance company, will be responsible for the inevitable excess judgment that will result from trial.