It will probably happen to most people at one time or another. Including residents of Dallas, Arlington, Grand Prairie, Mansfield, Burleson, Crowley, De Soto, Mesquite, Weatherford, and lots of other towns and cities in North Texas. An insurance company will refuse a reasonable offer from you or your attorney to settle a claim you have against the insured of an insurance company. If it happens – what can be done?
This article will focus on one aspect of the above. That aspect is when a third party claimant has his demand for a settlement refused by the other person’s insurance company. This happens in lots of scenarios but the most common is a car wreck. The most common situation is where the third party causes a wreck wherein the claimant has damages that exceed the insurance policy limits of the third party who caused the damages. Example – The third party has insurance coverage for the state’s required minimum as of this date, $25,000. The person injured has medical bills exceeding $40,000 plus another $10,000 in lost wages, plus he is entitled to compensation for his impairment, and pain and suffering.
Next, the injured person through his attorney demands that the insurance company for the person who caused the wreck to pay $120,000 to settle the claim or policy limits, which ever is less. The insurance company refuses to pay. The injured person sues the person who caused the wreck and gets a judgment for $120,000. The insurance pays only the $25,000 that they insured and now the injured person has a judgment against the responsible person for the balance. Of course, most of the time the only money this person has is the money he is insured for.
Next, the injured person gets an assignment from the person who caused the damages for the claim he has against his own insurance company for not settling the case for the policy limits of $25,000 and thus exposing him to a judgment for the balance. This is called a “Stowers” claim.
The injured person then takes this assignment and sues the third parties insurance company for the entire amount of the judgment plus other damages that are available by way of the Texas Insurance Code.
The issue was the focus of a case decided on June 25, 2008, by the Tyler Court of Appeals. This case is styled, Home State County Mutual Insurance Company v. George Horn, Jr., as Assignee of Burrell Rowe, as Administrator or the Estate of Eric A. Hulett. In this case Home State County Mutual Insurance Company (Home State) prevailed because the other side failed to properly make a demand on Home State to settle the case. It is vital here that an experienced Insurance Law Attorney be involved in the claim.
In this case, Horn was severely injured and Hulett, the at-fault driver was killed. Horn’s attorney sent a letter dated June 10, 1999 to Home State, the at-fault driver’s insurance company, in which he offered to settle Horn’s claim for policy limits and promised to fully release Home State’s insured from all liability and satisfy the hospital lien, provided the settlement check was received by 5 P.M. on June 25, 1999. Even thought the check was mailed it was not received by the deadline and was refused. Horn sued Hulett’s estate and got a judgment for $10,231,844.06.
Horn eventually got an assignment from Hulett’s estate and sued Home State for failure to settle a Stowers claim as well as other Insurance Code violations.
Home State got the case thrown out of court and what follows is some reasoning used by the Court in reaching its decision and is good guidance for these types of cases.
— Per the Stowers case / doctrine, to prevail on a Stowers cause of action, a plaintiff must establish that the insurer was negligent in failing to accept a settlement offer. As stated by the Texas Supreme Court, the law is well settled that an insurer has no affirmative duty to make or solicit settlement offers under Stowers. Rather, the insurer is held to that degree of care and diligence which an ordinary prudent person would exercise in the management of his own business in determining whether to accept an offer made to it. As a threshold matter, “a settlement demand must propose to release the insured fully in exchange for a stated sum of money.” Furthermore, for a settlement demand to activate the insurer’s Stowers duty, (1) the claim against the insured must be within the scope of coverage, (2) the demand must be within policy limits, and (3) the terms of the demand must be such that an ordinarily prudent insurer would accept it, considering the likelihood and degree of the insured’s potential exposure to an excess judgment. In determining whether the claimant’s demand was reasonable under the circumstances, along with other factors, evidence concerning claims investigation, trial defense, and conduct during settlement negotiations is considered. Nevertheless, the ultimate issue remains whether the claimant’s demand was reasonable under the circumstances such that an ordinarily prudent insurer would have accepted.
This court concluded that Horn failed to demonstrate he was entitled to judgment because no Stowers duty was created as to Hulett’s estate. Here, Horn relied on the June 10 letter to support the existence of a Stowers duty. In the reference line of the letter, Horn defined Berry as Home State’s “insured” and Hulett as Home State’s “driver.” The settlement offer then proposed to “fully release your insured from all liability” in exchange for policy limits. Thus, by its express language, the June 10 letter proposed to release Berry only, and did not offer to release Hulett’s estate.
Horn’s Stowers claim is not his own, but instead is a claim assigned to him by the administrator of Hulett’s estate. In order for Horn, as assignee of Hulett’s estate, to have a potential Stowers claim, he was required to present evidence of a proposed settlement offer to fully release Hulett’s estate. Because Horn’s underlying judgment was taken only against the administrator of Hulett’s estate, an offer to fully release Berry fails to demonstrate the existence of a Stowers duty owed to Horn and Home State. Since there is no evidence of an offer to release Hulett or his estate in the record, the court held that Horn failed to demonstrate that Home State owed Hulett’s estate a Stowers duty and, therefore, was not entitled to judgment.
This case is not hard to follow if you are familar with how the Stowers doctrine works. If you don’t know it, then you probably did not really understand what was happening in this case.
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