Claimant/Named Insured Limited to $30K Statutory Minimum when Houston First Court Declines to Find a “Separation of Insureds” Implied in Auto Policy
A closer look at Texas Farm Bureau Mutual Ins. Co. v. Minchew.
by Jes Alexander
Stowers has been around since 1929 during the days when the Commission of Appeals of Texas existed. Over the course of time, the Supreme Court of Texas has further defined the parameters of the Stowers duty: the limits of concurrent policies cannot be stacked, American Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 855 (Tex. 1994); the settlement demand must offer to release all claims and be unconditional, Trinity Universal Ins. Co. v. Bleeker, 966 S.W.2d 489 (Tex. 1998); State Farm Lloyds Ins. Co. v. Maldonado, 963 S.W.2d 38, 41 (Tex. 1998), and excess carriers can get in on the Stowers fun by using it against primary carriers, American Centennial Ins. Co. v. Canal Ins. Co., 843 S.W.2d 480 (Tex. 1992). Nonetheless, a number of issues remain unresolved by the Court with regard to the Stowers duty.
1. The Unique Stowers Issues Surrounding Wrongful Death Claims
One of the more interesting issues that keep coverage lawyers up at night is the unique issue that arises in the wrongful death context. Under Texas law, the wrongful death statute mandates that only a single claim be brought against the tortfeasor for the benefit of the legally entitled beneficiaries (i.e., a surviving spouse, children, or parents of the deceased). Tex. Civ. Prac. & Rem.Code 71.004. When there are multiple beneficiaries, the wrongful death claim cannot be extinguished by a settlement involving one beneficiary – all beneficiaries are required to settle in order to obtain a full release of a wrongful death claim. Therefore, the issue that arises is whether a valid Stowers demand exists when some, but not all, of the beneficiaries make a settlement demand to insured for policy limits to settle their respective portions of the wrongful death claim.
Texas Farmers Ins. Co. v. Soriano, 881 S.W.2d 312 (Tex. 1994) answered a similar question. The Supreme Court of Texas held that, when there are multiple settlement demands to settle entire wrongful death claims, the carrier may accept one of the demands so long as it is reasonable. However, the Court was not faced with the scenario of a demand where some, but not all, beneficiaries of a single wrongful death claim offer to release their respective portions of the claim. Courts from other jurisdictions have addressed this issue. See Williams v. Infinity Ins. Co., 745 So. 2d 573 (Fla. Dist. Ct. App. 1999), 574-75 (finding insurer under no obligation to accept such a demand); Atkinson v. Atkinson, 254 Ga. 70, 76 (Ga. 1985) (“The insurer has failed to show that the insured has not been prejudiced by the insurer’s failure to resolve the one wrongful death claim in its entirety.”). However, no Texas court had addressed the issue.
Enter the First District Court of Appeals in Houston, which became the first appellate court in Texas to attempt to answer this question. Patterson v. Home State County Mutual Insurance Co., 2014 WL 1676931 (Tex. App.—Houston [1st Dist.] Apr. 24, 2014, no pet. h.). The underlying lawsuit involved a collision of an eighteen-wheeler with a car driven by Diane Patterson, which resulted in her death. A wrongful death lawsuit was filed by Marcus Patterson on behalf of himself, his wife’s estate and his children following the death of his wife in the accident. His claims were against the driver of the eighteen-wheeler (“Hitchens”), the driver’s employer (“Brewer”) and a leasing company (“Stretch”).
Patterson employed a multitude of combinations in making settlement demands. In Patterson’s first settlement demand, the two children of the deceased offered to release all of their respective portions of the wrongful death claim in exchange for the full policy limits. Thus, the carrier faced a situation of whether it should accept a settlement demand that would still leave a wrongful death claim pending against the insured. On the other hand, by accepting the settlement demand, the subsequent trial of the wrongful death case would not have blanks to award damages to the two children. The jury could only award damages to the husband. The insurer, Home State, declined this settlement demand.
Undaunted, Patterson sent a second settlement demand. Similar to the original demand, this settlement demand did not offer a full release of the wrongful death claim. Instead, the demand offered to release the claims of the husband only in exchange for the full policy limits. Again, Home State declined this settlement demand.
After these two settlement demands were declined, some interesting machinations occurred in the underlying lawsuit. Home State interpleaded the full limits of the policy ($1,000,004) into the registry of the Court, and withdrew from the defense of the lawsuit. On the other hand, the Patterson Plaintiffs entered a pre-trial settlement involving a covenant not to execute.
A bench trial ultimately occurred. This trial resulted in awards of $514,110.18 in damages to the husband, as independent administrator of Diane Patterson’s estate; $3,250,433.16 in damages to the husband, individually; and $2,158,969.56 in damages each to the two children. Thus, the amounts awarded to the husband and to the two children exceeded the policy limits of the policy.
A subsequent Stowers lawsuit was commenced against Home State by the husband and two children. The First District Court of Appeals, like the trial court that came before it, found that the two demands were not valid Stowers demands, as follows:
Here, Patterson’s first and second settlement offers did not propose to fully release Brewer, as it would still have been liable to an excess judgment to either Marcus Patterson, his children, or his wife’s estate, whichever was not named in the settlement demand. Indeed, by settling in the full amount of the policy limits with only one of the claimants, Home State could have potentially exposed Brewer to an excess judgment by one of the other claimants. Accordingly, we hold that the first and second settlement offers did not trigger Home State’s Stowers duty to settle.
Id. at *9. Thus, the court found that the demand did not satisfy Stowers because the release of some, but not all, beneficiaries of a wrongful death claim was not a full release of claims.
Although a wrongful death case, Patterson may impact situations involving settlement demands where a single claim is owned by multiple parties. Such joint-ownership scenarios can occur by operation of law, or by traditional assignments by the original owner of a claim to other parties.
2. Stowers Now Requires A Release Of All Insureds?
The Patterson Court, however, was just getting warmed up with regard to addressing unresolved Stowers issues. In addition to these two demands, a third settlement demand was made after Home State interpleaded the policy limits into the court’s registry in the underlying lawsuit. Unlike the prior to settlement demands, this third demand offered to release all of the beneficiaries’ claims (i.e.,an offer to release the entire wrongful death claim).
However, the demand did not offer to release all possible insureds. Instead, it only offered to release the employer of the driver, but not the driver who might qualify as an additional insured via a permissive driver provision. Home State declined this settlement demand.
Although the third settlement demand presented a different scenario, the result form the First Court of Appeals was the same – it was not a valid Stowers demand. Specifically, the Court found that an offer that did not offer to release all insureds is conditional:
In his third settlement demand to Home State, Patterson’s only offer that included a release of all the parties, he noted that “[driver] was a permissive user of the vehicle or a Brewer Leasing employee.” The insurance policy for [the company] expressly provided that those insured under the policy included “[a]nyone else while using with your permission a covered auto you own, hire, or borrow.” Thus, Patterson’s third settlement offer did not constitute an unconditional offer to fully release the insureds in exchange for a settlement.
Id. at *10 (emphasis added).
This ruling that Stowers requires an offer to release all insureds in order to be valid appears to conflict with a number of other appellate courts’ decisions. These other cases hold that an insurer acts reasonably in settling claims against one insured for policy limits even though another insured is left open to liability without any coverage. Pride Transportation v. Continental Cas. Co., 511 F. App’x 347 (5th Cir. 2013); Travelers Indemnity Co. v. Citgo Petroleum Corp., 166 F.3d 761, 768 (5th Cir. 1999) (collecting cases across the nation); American States Ins. Co. of Texas v. Arnold, 930 S.W.2d 196, 202 (Tex. App.—Dallas 1996, writ denied). Moreover, the case implicate Soriano, which recognized that an insurer is free to accept “a settlement demand arising out of multiple claims and inadequate proceeds,” so long as it is a reasonable settlement. Soriano, 881 S.W.2d at 315. Therefore, Patterson has inserted uncertainty into the world of Stowers.
3. Does A Stowers Claim Exist When An Insured Does Not Want The Insurer To Settle?
Another interesting issue touched upon in Patterson is the issue of whether a valid Stowers claim exists when the insured does not want the insurance company to accept the settlement. Although the Supreme Court of Texas has not directly opined on the issue, a number of decisions from lower courts in Texas hold that an insured’s request that its insurer reject the settlement may bar a subsequent Stowers claim. Charles v. Tamez, 878 S.W.2d 201, 209 (Tex. App.—Corpus Christi 1994,writ denied); Puente v. Chicago Ins. Co., 2010 WL 3463253, *8 (S.D. Tex. 2010).
Although not citing to any of these decisions, the court in Patterson concludes its opinion with the fact that the insured told defense counsel hired by Home State that he did not want “any settlement demands to be accepted that didn’t involve a release of all of the Pattersons’ claims against both [the company] and [the driver].” Id. at *10. The court’s reliance upon these facts may limit the impact of the other holdings in Patterson.
Significantly, on May 5, 2014, the Patterson Plaintiffs filed a Motion for Rehearing. Thus, the First Court of Appeals’ decision is subject to change. You can be sure that Right off the Press will send any new decisions from the court.