Negligent Failure to Settle Within Policy Limits
Created on 11/11/08
Negligent Failure to Settle Within Policy Limits
The impact is devastating. At a busy intersection in Fort Bend County, an inattentive driver runs a red light and seriously injures your husband, your children and you. Your new SUV is totaled. The driver who hits you has only Texas minimum required insurance coverage of $20,000 per injured person, up to $40,000 for everyone hurt in an accident, and $15,000 for property damage. Medical bills, physical rehabilitation, lost wages, and damage to your vehicle total $500,000.
Because the driver at fault appears to have few assets, you agree to settle for the driver's insurance policy limits to provide partial reimbursement for your loss. Your attorney makes an offer of settlement for the policy limits to the insurance company. The insurance company ignores the offer. You proceed with a suit against the driver who hit you. A jury awards you $500,000 damages.
What is the potential liability for the insurance company? Policy limits of $40,000 of total medical and $15,000 of property damage?
Answer: $500,000. When an insurance carrier negligently fails to accept a reasonable offer to settle within policy limits, Texas common law recognizes a right to seek damages for the excess of a judgment over the policy limits.
In 1929, the Stowers opinion, G.A. Stowers Furniture Co. v. Am. Indem. Co., 15 S.W.2d 544 (Tex. Comm'n App. 1929), established a duty of reasonable prudence for insurance companies in considering settlement offers. Subsequent cases have affirmed and clarified a cause of action for Texas insured parties when carriers unreasonably fail to settle. The insured's Stowers rights are usually assigned to a third party claimant in exchange for release of the insured.
A specific offer to settle, known as a demand, is necessary to establish Stowers rights. A proper Stowers demand must be unconditional, must propose to fully release the insured in exchange for an amount not greater than the policy limits, must be for a claim covered by the insurance, and must include terms such that a reasonably prudent insurer would accept.
The courts have allowed oral Stowers demands on carriers, but offers to settle should be written to prove each of the elements of a proper demand. The insurance company has no duty to consider demands for more than policy limits, nor to solicit a settlement demand.
The two-year limitations period for Stowers actions requires the plaintiff to file suit within two years after appeals to the underlying judgment have been exhausted.
The Showalter Law Firm is committed to advising families and businesses in today's complex legal environment. Let us help if your business or family is impacted in a manner that has legal ramifications. When you obtain counsel at the onset of a venture or problem, you are more likely to avoid costly mistakes down the road.
The impact is devastating. At a busy intersection in Fort Bend County, an inattentive driver runs a red light and seriously injures your husband, your children and you. Your new SUV is totaled. The driver who hits you has only Texas minimum required insurance coverage of $20,000 per injured person, up to $40,000 for everyone hurt in an accident, and $15,000 for property damage. Medical bills, physical rehabilitation, lost wages, and damage to your vehicle total $500,000.
Because the driver at fault appears to have few assets, you agree to settle for the driver's insurance policy limits to provide partial reimbursement for your loss. Your attorney makes an offer of settlement for the policy limits to the insurance company. The insurance company ignores the offer. You proceed with a suit against the driver who hit you. A jury awards you $500,000 damages.
What is the potential liability for the insurance company? Policy limits of $40,000 of total medical and $15,000 of property damage?
Answer: $500,000. When an insurance carrier negligently fails to accept a reasonable offer to settle within policy limits, Texas common law recognizes a right to seek damages for the excess of a judgment over the policy limits.
In 1929, the Stowers opinion, G.A. Stowers Furniture Co. v. Am. Indem. Co., 15 S.W.2d 544 (Tex. Comm'n App. 1929), established a duty of reasonable prudence for insurance companies in considering settlement offers. Subsequent cases have affirmed and clarified a cause of action for Texas insured parties when carriers unreasonably fail to settle. The insured's Stowers rights are usually assigned to a third party claimant in exchange for release of the insured.
A specific offer to settle, known as a demand, is necessary to establish Stowers rights. A proper Stowers demand must be unconditional, must propose to fully release the insured in exchange for an amount not greater than the policy limits, must be for a claim covered by the insurance, and must include terms such that a reasonably prudent insurer would accept.
The courts have allowed oral Stowers demands on carriers, but offers to settle should be written to prove each of the elements of a proper demand. The insurance company has no duty to consider demands for more than policy limits, nor to solicit a settlement demand.
The two-year limitations period for Stowers actions requires the plaintiff to file suit within two years after appeals to the underlying judgment have been exhausted.
The Showalter Law Firm is committed to advising families and businesses in today's complex legal environment. Let us help if your business or family is impacted in a manner that has legal ramifications. When you obtain counsel at the onset of a venture or problem, you are more likely to avoid costly mistakes down the road.