‘Stowers’ Cases Require Careful Action from Insurance Carriers and Clients



By: Donna Thomisee

What happens when a plaintiff is awarded legal damages that are higher than what the defendant’s insurance policy covers? Is the plaintiff required to accept the limits? Does the insurance company pay the limit and let the plaintiff pursue the remainder? Does the insured have a say in any of it?

These issues, which potentially have major consequences for all three sides, fall under an important section of Texas law known as the Stowers doctrine. Developed through years of court rulings, the Stowers doctrine establishes insurers’ duties in third-party liability claims.

The doctrine is named for a case that began with the G. A. Stowers Furniture Co. in Houston. Late one January night in 1920, an employee was on a delivery when his truck struck a wagon stopped on the roadside. With the truck disabled, the employee left it in the unlit roadway. A little later, a Ford coupe hit the delivery truck and overturned, seriously injuring a woman who was a car passenger. She sued G. A. Stowers Furniture Company for $20,000.

Through its insurer, American Indemnity Co., Stowers was covered for injuries arising from car accidents, though the policy was limited to $5,000. The policy also gave American Indemnity control over defense and settlement.

The accident victim offered to settle for $4,000. American Indemnity offered $2,500, but it later admitted knowing the case was worth much more. The carrier also admitted that, in failing to accept the demand, it did not act reasonably. A jury awarded the victim $14,000. Stowers paid the award then sued American Indemnity.

The case reached the Texas Supreme Court, which issued a benchmark ruling in deciding that, since American Indemnity controlled the defense and settlement, the company had a duty to protect its client up to the policy limit. The court also held that, in such cases, the insurance company is liable for the full amount of the judgment, even if it exceeds the policy.

The Stowers doctrine establishes three criteria to trigger such a case: The claim against the insured is within the scope of coverage; the demand for a settlement is within the policy limits; and the settlement terms are such that an ordinarily prudent insurance company would accept them.

Those requirements create countless pitfalls that require careful review. Potential coverage issues, multiple claimants, multiple insured parties and the effect of liens all must be considered, along with the wording of the settlement demand and whether it was offered in writing.

Lugenbuhl’s experienced legal team offers several recommendations for parties involved in a Stowers case:

  • Time limits. Though there are circumstances in which a two-week time limit might be called for, from a practical sense, it’s nearly impossible for an insurance company to move that quickly. It’s usually best for the claimant and/or insured to give the carrier at least 30 or even 60 days.
  • Paperwork. It’s essential for everyone to keep track of all related documentation. In a case involving a fatality, the insurer should require the claimant to provide any documents filed in probate or at least give an affidavit of heirship.
  • Be forthcoming. Insurers should never try to hide or ignore liens, which can have serious repercussions later. Doing so doesn’t help their clients in the long run, whether plaintiff or defendant.
  • Settlement details. Letters regarding settlement demands and responses should be as specific as possible. If you know of a specific lien, address it in the letter. Insurers should never ignore demand letters or respond with, “We reject your demand.” Resolutions are often much easier when the insured is involved in the process and, at the very least, the insured must be apprised of the demand.
  • Be reasonable. This is often the most essential aspect to resolving Stowers cases. If it appears a claimant is trying to set up a carrier for Stowers, courts usually reject the tactic. Likewise, if the insurer treats a claim unreasonably, the company usually finds itself on the hook for the consequences.
  • Outside counsel. If you’re an attorney or an adjuster involved in a case with lurking insurance issues, hiring counsel to help with coverage assessment and defense can be very beneficial. When you’re closely involved in a claim, your perspective can become skewed. Insurance carriers are likely to find it much less expensive to seek an evaluation from an experienced coverage and Stowers attorney before the deadline passes.


Lugenbuhl shareholder Donna Thomisee’s area of practice focuses on all aspects of litigation and insurance coverage and defense, from intake through the trial and appellate processes. View her profile to learn more about her experience or visit our Insurance practice section to learn more about our firm’s expertise and services.

The content of this article is not intended to serve as an exhaustive review of the laws, statutes or issues related to Stowers cases and is not intended to provide legal advice. The opinions expressed through this article may not reflect the opinions of the firm, individual attorneys or clients.

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