Deputy Stowers Lawsuit, Legal Duty and Insurance Consequences Explained
The Stowers duty is a critical legal principle in insurance law, yet it often flies under the radar for most policyholders and insurers alike. However, a recent court case involving ACE American Insurance Co. has brought this duty into the spotlight, shedding light on the serious consequences of failing to uphold it. If you’re unsure about what this lawsuit means for insurers, policyholders, and the broader insurance landscape, this blog article breaks it down for you.
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What is the Stowers Duty?
At its core, the Stowers duty obligates insurers to act in the best interests of their policyholders by accepting reasonable settlement offers within the policy limits. The duty was named after a landmark Texas case, Stowers Furniture Co. v. American Indemnity Co., where the court ruled that an insurer must exercise “ordinary care” when it comes to accepting or rejecting settlement offers in order to avoid exposing the policyholder to greater risk.
This principle protects policyholders from being left vulnerable to judgments that exceed their insurance coverage, a scenario that can lead to substantial financial consequences.
The Case That Brought Stowers to the Forefront
A recent example of the Stowers duty in action comes from a lawsuit involving the death of Mark Braswell, who was tragically killed when his road bike collided with a truck owned by the Brickman Group Ltd. The truck was insured by ACE American Insurance Co., with a primary insurance policy, and an excess policy provided by American Guarantee & Liability Insurance Co. (AGLIC).
Following the accident, the Braswell family filed a wrongful death claim against the Brickman Group. Before the case went to trial, the family’s legal counsel made two settlement demands: the first, a “high/low” offer between $1.9 million and $2 million, and the second, a firm demand for $2 million. ACE rejected both demands, believing that the offer with costs would push the total beyond its policy limits, and the second offer was deemed conditional due to the potential conflict of interest between the family members.
The case was eventually brought to court, and the court found that ACE had breached its Stowers duty by rejecting the settlement offers. The jury ruled that ACE should have accepted the second, unconditional demand and that its failure to do so exposed the insurer to liability. As a result, ACE was ordered to pay more than $7 million in damages to AGLIC.
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What Does This Mean for Insurers and Policyholders?
The Braswell case highlights a fundamental principle: insurers must carefully evaluate settlement offers that fall within policy limits and should avoid letting concerns about conflicts or other speculative factors influence their decisions. By rejecting the offers, ACE exposed itself to much larger potential payouts, including court costs, prejudgment interest, and attorney fees, all of which could have been avoided by a timely and prudent settlement.
For policyholders, the ruling serves as an important reminder of the value of clear and unconditional settlement demands. If you find yourself in a similar situation, it’s crucial to communicate your demands explicitly, knowing that they may trigger an insurer’s duty to act on them. The case also serves as a warning: insurers who fail to fulfill their Stowers duties could be held accountable for decisions that lead to excess liability.
Key Takeaways from the Stowers Lawsuit
- The Duty to Settle: Insurers must accept settlement offers that are reasonable, clear, and fall within the policy limits to protect their insureds from the risk of excessive judgment.
- Rejection of Settlement Offers: Rejection of reasonable settlement offers within policy limits can result in the insurer being held liable for the excess damages that follow.
- Unconditional Demands: Settlement offers must be unconditional and clearly communicated to trigger the insurer’s Stowers duty. Conditional offers that leave room for negotiation may not invoke the insurer’s duty to settle.
- Policyholders’ Role: As a policyholder, ensuring that your settlement demands are clear, reasonable, and within policy limits can protect you from additional liability. Documenting these requests carefully and promptly is crucial.
What Insurers Should Learn from This Case
The Braswell case highlights the importance of insurers taking their Stowers duties seriously. Insurers are obligated to make decisions based on the potential exposure to judgment and must not let speculative or conflicting interests derail the settlement process. A well-timed settlement within policy limits can save insurers significant costs and avoid unnecessary litigation.
For insurers, it’s critical to have a well-defined process for evaluating settlement offers, especially when policy limits are at stake. Insurers who fail to fulfill their Stowers duty could face costly consequences, as ACE discovered in this case.
FAQs
What happens if an insurer breaches its Stowers duty?
In the case of a breach, the insurer may be held liable for any excess judgment amounts that exceed the policy limits. The insurer could also face additional damages, including court costs, prejudgment interest, and attorney fees. The insurer may be required to pay these costs even if the amount exceeds the policy limits, as seen in the case involving ACE American Insurance
TASK & PURPOSE.
Can an insurer refuse a settlement offer if they believe the claim could exceed policy limits?
No, under the Stowers duty, the insurer must evaluate all settlement offers within the policy limits and act in good faith to avoid excess exposure. The insurer should not reject a settlement solely on speculative concerns about potential conflict or future complications unless the settlement offer is conditional
TASK & PURPOSE.
What triggers the Stowers duty for insurers?
The Stowers duty is triggered when a settlement demand is made within policy limits and the terms of the demand are clear and unconditional. If an insurer rejects such an offer without valid reason, they may be found in violation of their Stowers duty NATIONAL LAW REVIEW.
Can policyholders directly sue an insurer for breaching the Stowers duty?
Yes, policyholders can bring a lawsuit against their insurer if they believe that the insurer has failed to fulfill its Stowers duty. In such cases, the policyholder may be entitled to damages that could include the excess judgment and any additional costs resulting from the insurer’s failure to settle TASK & PURPOS.
How does the Stowers duty affect claims in excess of policy limits?
The Stowers duty protects policyholders from financial exposure in cases where a claim could potentially result in a judgment exceeding the policy limits. By rejecting a reasonable settlement within those limits, insurers risk exposing their insureds to a much larger liability, which they will be liable for paying if the case goes to trial
Conclusion
The Stowers duty is a powerful safeguard for policyholders, ensuring that insurers act in their best interests by accepting reasonable settlement offers within policy limits. The case involving ACE American Insurance serves as a timely reminder of the severe financial consequences insurers can face if they fail to meet this obligation. Whether you’re an insurer or a policyholder, understanding the Stowers duty can help you deal with the complex world of claims settlements and ensure that your interests are adequately protected.
