By J. Collin Spring*
Texas law has long disfavored the now uncommon practice of liability insurers “soliciting a contribution to a settlement from its insured without first committing its own policy limits.” While many insurance companies have abandoned this practice all together, the Supreme Court of Texas was recently faced with such a situation in In re Farmers Texas County Mutual Insurance Company. There, the Court confronted the issue of whether a policyholder can recover the value of her contribution to a settlement when the insurer insisted on the contribution despite the fact that the demand (and ultimate settlement) were within the insurer’s policy limit. In responding in the affirmative, the Court held that a policyholder can, under the right circumstances, recover such a contribution from the insurer under a breach of contract theory.
In re Farmers arose from a third-party automotive liability claim. The policyholder was involved in a car accident wherein the underlying plaintiff sustained bodily injuries. The victim filed suit, alleging damages totaling more than twice the applicable limit of insurance. Shortly before trial, the parties went to mediation, which resulted in the mediator proposing a settlement of $350,000, 70% of the policy’s $500,000 policy limit. The insurer countered with an offer of $250,000, which then led to the underlying plaintiff withdrawing his offer and advising he would seek $2,000,000 in damages.
The policyholder, through her personal counsel, re-initiated settlement negotiations. The underlying plaintiff again agreed to settle for $350,000, and the insurer again refused to contribute more than $250,000. The policyholder ultimately paid the difference between the claimant’s demand and the amount offered by the insurer, and then brought suit against the insurer under three theories: the Stowers doctrine, a breach of the contractual duty to defend, and a breach of the contractual duty to indemnify.
In ruling that the policyholder had no cause of action under the Stowers doctrine, the Court reaffirmed that the Stowers doctrine does not apply “to cases in which there is no liability in excess of policy limits,” whether established by judgment or settlement. The Court also ruled against the policyholder with respect to the policyholder’s breach-of-contract claim based on the insurer’s duty to defend. Specifically, the policyholder sought to hold the insurer responsible for the insurer-selected defense counsel’s failure to timely designate expert witnesses. In rejecting this claim, the Court relied on the now well recognized proposition that “a liability insurer is not ordinarily responsible for the conduct of an independent attorney it selects to defend an insured.” 
Significantly, however, the Court held that the policyholder’s breach-of-contract action as to the duty to indemnify was a viable option. While the insurance company argued that the Texas Supreme Court’s decision in Maryland Ins. Co. v. Head Indus. Coating & Servs., Inc. foreclosed all claims against it other than a Stowers action, the Court responded that Head Industries only foreclosed other types of tort actions. In so holding, the Court explicitly noted that other issues might preclude the policyholder’s recovery. In fact, it noted that it was not holding “that insureds who settle third-party claims unilaterally—without the consent or participation of their insurers—are entitled to reimbursement under their policies.”
The Court expressly noted that its decision simply clarified the narrow issue that “Stowers and other principles of Texas insurance law cited by Farmers do not foreclose as a matter of law a claim for breach of contract against an insurer regarding its indemnity obligation.” This limiting statement may have been at least in part in response to the strong three-member dissent authored by Chief Justice Hecht. While agreeing with the majority as to the outcome of policyholder’s Stowers and duty to defend claims, the dissenting justices would also have ruled against the policyholder on her breach of the duty to indemnify claim based on the policyholder’s denial of liability for the underlying accident in the parties’ settlement agreement. Because the carrier was only obliged to pay damages for bodily injury or property damage for which the policyholder was “legally responsible,” the dissenting justices felt that the policyholder had admitted that her contribution to the settlement was for something other than covered damages.
The eventual effect of In re Farmers remains to be seen as the lower courts begin to address the decision. While some commentators have understandably framed the case as a major victory for policyholders, given the narrow holding and the unique factual circumstances from which it arose, it is unlikely In re Farmers will have a significant impact on the practice of insurance law in Texas.
* J. Collin Spring is an Associate in the Dallas office of Quilling, Selander, Lownds, Winslett & Moser, P.C.. His practice focuses on complex commercial litigation, professional liability, products liability, and insurance coverage.
 Am. Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 850 n.15 (Tex. 1994).
 In re Farmers Tex. County Mut. Ins. Co., — S.W.3d —, 2021 WL 1583878 (Tex. Apr. 23, 2021).
 Id. at *4.
 In re Farmers, 2021 WL 1583878 at *5 (quoting State Farm Mut. Auto. Ins. Co. v. Traver, 980 S.W.2d 625, 628 (Tex, 1998)).
 938 S.W.2d 27 (Tex. 1996).
 In re Farmers, 2021 WL 1583878 at *9–10.
 Id. at *7.
 Id. at *11.
 Id. at *12.
 See, e.g., Shawn Rice, Texas Justices Let Insured Seek Settlement Indemnity Claim, Law360 (Apr. 23, 2021) https://www.law360.com/texas/articles/1378245/texas-justices-let-insured-seek-settlement-indemnity-claim (quoting Thomas G. Kenny).