When is a policy limits demand insufficient to invoke the Stowers doctrine? The U.S. District Court for the Southern District of Texas in Golden Bear Insurance Co. v. 34^th S&S, LLC d/b/a Concrete Cowboy et al. recently held that plaintiffs’ settlement demand did not meet the requirements of the Stowers  doctrine and, therefore, did not expose the insurer to extracontractual damages.

Under the nearly 100-year old Stowers doctrine, an insurer may be liable for damages in excess of its policy limits (extracontractual damages) for negligently failing to settle a third-party claim that results in an excess judgment against the policyholder. The duty to settle is invoked by plaintiff’s pre-verdict/award settlement demand that meets the following three requirements:

1.   The claim is within the scope of coverage;
2.   The demand is within policy limits; and
3.   An ordinarily prudent insurer would accept the demand when considering likelihood and degree of its policyholder’s potential exposure.

In Golden Bear, the Court granted summary judgment to the insurer on the basis that that Plaintiffs’ settlement demand lacked the specificity necessary to trigger the Stowers Doctrine. Plaintiffs filed suit against Concrete Cowboy for personal injuries sustained during an assault at Concrete Cowboy’s premises. At the time, Concrete Cowboy carried a commercial general liability insurance policy with $1 million eroding limits underwritten by Golden Bear. During the course of the litigation, Plaintiffs sent a settlement demand to Concrete Cowboy demanding “payment of all policy limits of any and all insurance contracts.” Golden Bear rejected the demand.  At trial, the jury awarded Plaintiffs $3.2 million.

After the verdict, Golden Bear tendered its remaining policy limits and filed a declaratory judgment action against Concrete Cowboy and Plaintiffs, alleging that it owed no duty to pay any amounts above or beyond the amounts prescribed in the policy. It then filed a motion for summary judgment.  Citing the 2021 U.S. Court of Appeals case of American Guarantee and Liability Insurance Company v. ACE American Insurance Company, the Golden Bear court paid special heed to Stowers applying “only when the settlement terms are clear and undisputed” and “clearly state a sum certain”.

In this instance, Plaintiffs’ settlement demand “failed to provide any specificity regarding either Golden Bear’s policy or the actual amount left within the policy itself, let alone an eroding policy such as the one Golden Bear maintained”.  Because Plaintiffs’ demand requested, “all policy limits of any and all insurance contracts”, the Court held the demand lacked the necessary specificity to invoke the Stowers doctrine.

The Golden Bear’s order ranting summary judgment for the insurer underscores the need to carefully craft and read settlement demands to determine whether it meets the criteria of the Stowers doctrine. Policies with eroding or eroded limits, such as almost all architect/engineer and agent/broker professional liability (errors and omissions) policies, require even more attention to detail to ascertain that the necessary specificity is attained.

The attorneys in our Austin and Dallas office have drafted, reviewed, and responded to numerous policy limits demands and Stowers demands, and are available to answer any questions you may have about the Stowers doctrine or settlement procedures. Please contact us at info@gstexlaw.com.

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