Texas Supreme Court Holds Stowers Action Not Available Where There Is No Judgment Or Settlement In Excess Of Policy Limits

• Published date: 30 August 2021
• Subject Matter: Insurance, Litigation, Mediation & Arbitration, Insurance Laws and Products, Trials & Appeals & Compensation
• Law Firm: Phelps Dunbar
• Author: Joshua McGraw

The Supreme Court of Texas recently held that there is no Stowers action available for negligent failure to settle where there was no judgment in excess of policy limits. In re Farmers Tex. Cnty. Mut. Ins. Co., 621 S.W.3d 261 (Tex. 2021).

The underlying lawsuit arose out of an automobile accident. The plaintiff brought suit and the defendant's insurer settled the claim within policy limits but obtained a release that was contingent on the insured paying $100,000 of the $350,000 settlement. The insured paid the $100,000 and then sued its insurer for reimbursement. The insurer then sought to dismiss the case on, inter alia, grounds that the insured's claim for negligent failure to settle had no basis in law per Tex. R. Civ. P. 91a. The insurer argued that Texas law does not recognize a cause of action for negligent failure to settle (i.e., a Stowers claim) where there has not been a judgment against the insured exceeding policy limits. The trial court denied the motion to dismiss and the insurer sought mandamus relief. The court of appeals affirmed, with the majority holding that whether a Stowers claim always requires an excess judgment is not clearly established so as to be free from doubt. The insurer again sought mandamus relief.

The Texas Supreme Court determined that the insured had no Stowers claim for negligent failure to settle because there was no judgment or settlement in excess of policy limits. Under the Stowers doctrine, an insurer has a common-law duty to settle third-party claims against...