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In Am. Guar. & Liab. Ins. Co. v. ACE Am. Ins. Co., ___ F.3d ___, No. 19-20779, 2020 WL 7487067 (5th Cir. December 21, 2020), a panel of the Fifth Circuit Court of Appeals made two distinct points that are significant for Insurance Claims and Bad Faith Law.
It may be necessary to put the case and the appellate panel in context. The case was brought by an excess carrier against a primary carrier to recover the amounts paid by the excess carrier above the primary's policy limits in a settlement of an underlying case against their common insured.
Putting the appellate panel in context, Judge Edith Jones wrote the opinion. A fiery polemic, Judge Jones is well-known for her opinions on political issues. Her rulings in insurance cases are generally viewed as favorable to the insurance industry, to put it mildly, such as her attempt to invalidate Mississippi case law unfavorable to insurance companies in contrast to rulings of judges in Mississippi who actually have the job of writing Mississippi case law.
Parenthetically, Judge Willett, famous for his humorous Twitter musings, was also on the same panel.
One point this panel made in its decision concerns Texas law, and another point concerns the law of insurance bad faith throughout the United States. The Texas point will be discussed here today; the point important to the USA will be discussed here tomorrow.
On the first point, concerning Texas law, the panel applied what in Texas case law is called "the Stowers doctrine." It is a 'doctrine' that is not really unique to Texas. It or a form of it is applied in Courts in insurance bad faith cases in many other jurisdictions in the nation.
"Under Stowers, an insurer is required to exercise ordinary care in responding to qualifying settlement demands; when presented with a “settlement demand[ ] within policy limits,” an insurer cannot respond negligently. Whether an insurer responds negligently hinges on whether 'the terms of the demand are such that an ordinarily prudent insurer would accept it, considering the likelihood and degree of the insured's potential exposure to an excess judgment.'” American Guarantee, 2020 WL 7487067, at *6 (citations omitted).
Given the facts in the record of the underlying case at the time that the settlement demand in question was made, the panel had very little trouble affirming the trial judge's determination that there was sufficient evidence that the primary carrier violated the Stowers doctrine in this case. The panel decision gratuitously and implicitly inserted a view that the primary carrier violated the doctrine here, but that was never the point on appeal.
From a legal point of view, the appeal in this case was strictly concerned with the sufficiency of the evidence to support the trial court's ruling on the point:
ACE omits that the district court did not consider the possibility of appellate reversal because ACE made no such argument. ACE concededly never argued to that court as a legal matter that Stowers requires consideration of appellate prospects. ACE cannot raise this novel legal theory for the first time on appeal, and we do not address it. But even if we review the evidentiary sufficiency challenge de novo, the evidence is clearly sufficient to support the bench trial verdict that “[a] reasonable insurer would have reevaluated the settlement value of the case [and accepted the Braswells’ third offer].” After all, by the time that offer was made, the trial had taken a demonstrable turn against Brickman. Two of the adverse rulings (disallowing evidence that the truck was legally parked and allowing the stop-short statement attributed to a Brickman employee) aggravated Brickman's greatest known weaknesses in this case. Considering all of the trial circumstances, an “ordinarily prudent insurer” in ACE's position would have realized that the “likelihood and degree” of Brickman's “potential exposure to an excess judgment” had materially worsened since the trial's inception. When presented with the Braswells’ third offer, an ordinary, prudent insurer would have accepted it. The evidence placed before the district court is sufficient to support that ACE violated its Stowers duty by failing to reevaluate the settlement value of the case and accept the Braswells’ reasonable offer.
American Guarantee, 2020 WL 7487067, at *7 (citations omitted).
This long quotation displays the evidence-based decision of the appellate panel that the evidence of a Stowers violation was legally sufficient in this case. That is a point important to Texas law concerning insurer extracontractual liability. It will also perhaps be important in other cases in jurisdictions outside of Texas as well.
Tomorrow, we will consider the second point that the panel made in its decision in this case, a point that will unequivocally affect the law of insurer bad faith in the United States.
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