Debunking the Stowers Myths :: Common Misperceptions Explained (Part 3)

By Amy Stewart Law

This is part of a series examining common “Stowers myths,” which can obscure application of an insurance company’s duty to behave in a reasonably prudent manner in responding to settlement demands.  

MYTH: The insured can make a Stowers demand that triggers an insurer’s duty to settle.

Some insureds may seek to trigger an insurer’s Stowers obligations by demanding that the insurer settle a lawsuit against them within policy limits and expecting the insurer to make the first settlement offer with the third-party claimant. To date, however, the Texas Supreme Court has declined to impose upon insurers the burden to initiate settlement negotiations. See American Physicians Ins. Exchange v. Garcia, 876 S.W.2d 842, 851 (Tex. 1994) (“Considering the negotiating incentives for each party, we conclude that the public interest favoring early dispute resolution supports our decision not to shift the burden of making settlement offers under Stowers onto insurers.”).  

As such, only a settlement demand made by a third-party claimant can expose an insurer to liability for failure to settle, assuming the demand meets the criteria to qualify as a Stowers demand. Stowers liability is based upon the insurer’s failure to exercise that degree of care and diligence a person ordinarily exercises in the management of his own business. The insured bears the burden of proving that the insurer’s failure to settle was unreasonable. If the insured later assigns a Stowers claim to a judgment creditor, the assignee bears the same burden of proof. 

Confusion regarding the third-party trigger may stem from the fact that only the insured has the right to recover against the insurer for breach of the Stowers duty to settle. Put another way, the Stowers cause of action belongs to the insured. While a letter from the insured demanding that the insurer settle within policy limits may bolster the Stowers claim by providing some evidence of the demand, the insured’s demand alone is insufficient to support Stowers liability.  

If you have questions regarding the Stowers doctrine or if you need assistance in securing an insurer’s participation in a settlement, contact us. 

The insurer has an obligation to settle all claims against the insured within policy limits. Stay tuned!