The Stowers Doctrine is a legal principle unique to Texas that holds insurance companies accountable for handling settlement offers fairly. This principle originated from the landmark 1929 case G.A. Stowers Furniture Co. v. American Indemnity Co., 15 S.W.2d 544 (Tex. Comm’n App. 1929).

Purpose:

The doctrine ensures that insurance companies act in the best interest of their insured clients when considering settlement offers within policy limits.

Mechanism: 

If an insurance company rejects a reasonable settlement offer within the policy limits and a jury later awards a verdict exceeding those limits, the insurance company may be liable for the entire amount, not just the policy limits.

The Plaintiff’s Stowers Demand: 

This is a formal request made by the plaintiff to the insurance company to settle a claim within policy limits.  If the insurance company fails to respond appropriately, it risks being held responsible for any excess judgment. A valid Stowers Demand has four elements: (1) the claim is within the scope of coverage, (2) the demand is within policy limits, (3) the terms are clear, and (4) a prudent insurer would accept the offer based on the likelihood of an excess judgment. Am. Guarantee & Liability Ins. Co. v. Ace Am. Ins. Co., 990 F.3d 842, 847 (5th Cir. 2021).

The Stowers Demand must consist of unambiguous terms and a specific sum certain. Settlement offers lacking clarity or specificity, such as demands for “all policy limits of any and all insurance contracts,” fail to trigger Stowers liability. Id. at 847. The Texas Supreme Court has emphasized that a valid demand must propose a full release of the insured, clearly state the settlement amount, and require a reasonable time to accept. See Rocor Intern., Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 77 S.W.3d 253, 255 (Tex. 2002).

Recent cases have highlighted the importance of clarity in Stowers Demands. For example, in a recent Southern District of Texas case, a settlement demand was deemed invalid because it lacked specificity regarding policy limits and did not propose a sum certain. Golden Bear Ins. Co. v. 34th S&S, LLC, No. CV H-23-1933, 2024 WL 3321508, at *5 (S.D. Tex. June 26, 2024) (finding that Golden Bear’s Stowers Doctrine obligations were not triggered by a demand letter offering to settle all claims “in exchange for the payment of all policy limits of any and all insurance contracts”).

A valid Stowers Demand must provide a reasonable time for acceptance. See Rocor Intern., Inc., 77 S.W.3d at 255. A basic thirty (30) day offer period is common practice. See Stowers Update – 2012, Brent Cooper and Michael Huddleston at 14. However, the reasonableness of the deadline to accept a Stowers Demand is a matter to be determined by the finder of fact depending upon the particular facts and circumstances. See, e.g., Allstate Ins. Co. v. Kelly, 680 S.W.2d 595, 608 (Tex. App.—Tyler 1984, writ ref’d n.r.e.) (finding that a settlement offer held open for 14 days was reasonable). See also Westport Ins. Corp. v. Pennsylvania Nat’l Mut. Cas. Ins. Co., 117 F.4th 653, 676 (5th Cir. 2024) (Because insured and insurer did not have the opportunity to evaluate the merits of the parties’ positions with the Stowers settlement offer only open for 45 minutes, summary judgment in favor of insurer on Stowers claim affirmed); Endurance Am. Ins. Co. v. Lloyd’s Syndicate 3624, No. 3:23-CV-0133-B, 2024 WL 3625671, at *5 (N.D. Tex. July 31, 2024) ( whether an insurance company acted reasonably in not accepting a settlement offer available for 45 days was a fact question for the jury to decide); Am. Ins. v. Assicurazioni Generali, 228 F.3d 409 at *6 (5th Cir. 2000) (unpublished) (concluding that whether an insurance company acted reasonably in not accepting a settlement offer that was only available for 23 hours was a fact question for the jury to decide); Bramlett v. Med. Protective Co. of Ft. Wayne, Ind., No. 3:10-CV-2048-D, 2013 WL 796725, at *5 (N.D. Tex. Mar. 5, 2013) (“A reasonable jury could find from the evidence in the summary judgment record that, in response to plaintiffs’ first Stowers demand, a reasonably prudent insurer would have settled within policy limits” within the 17 day deadline); Allstate Ins. Co. v. Kelly, 680 S.W.2d 595, 608 (Tex. App.—Tyler 1984, writ ref’d n.r.e.) (concluding that the 14-day response deadline to accept or reject a Stowers settlement offer was not unreasonably short, so as to relieve Allstate of its obligations under the Stowers Doctrine, or permit it to escape liability for its conduct found by the jury to be in violation of DTPA and the Texas Insurance Code).

The Stowers Doctrine aims to protect insureds from excess judgments by encouraging insurance companies to act prudently when evaluating settlement offers. Am. Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 851 n. 18 (Tex. 1994) (“[r]equiring the claimant to make settlement demands tends to encourage early settlements.”). Insurers who fail to carefully evaluate settlement offers within policy limits, electing to reject reasonable offers, may find themselves liable for the entire amount of an excess verdict, and not just the policy limits.

Risk Management by Insurers: 

In most Stowers cases, close examination of both the required elements of the Stowers Demand and the insurer’s analysis, investigation, and documentation of the claim are determinative of whether Stowers liability will be imposed against the insurer. See, e.g., Ranger Cnty. Mut. Ins. Co. v. Guin, 723 S.W.2d 656  (Tex. 1987) (holding that an insurer can be liable under Stowers for negligent investigation); Ecotech Intern., Inc. v. Griggs & Harrison, 928 S.W.2d 644, 648 (Tex. App.—San Antonio 1996, writ denied) (“the Stowers [D]octrine covers a broad scope which includes investigation, preparation of a defense, the trial, and certain matters within the agency relationship between the insurer and insured”); Storebrand Ins. Co. U.K., Ltd. v. Employers Ins. of Wausau, 139 F.3d 1052, 1056 (5th Cir. 1998) (considering whether insurer’s actions were unreasonable or imprudent); Pride Transp. v. Cont’l Cas. Co., 511 Fed. Appx. 347, 352 (5th Cir. 2013) (considering whether settlement was reasonable in light of the “likelihood and degree of potential exposure to excess judgment”).

Accordingly, insurers should implement robust risk management strategies to assess and respond to Stowers Demands effectively. This includes thorough investigation of the plaintiff’s claim and timely decision-making to avoid potential Stowers liability.