Understanding the Stowers Rule in Texas Personal Injury Cases

If you have been injured in Texas, you may have heard about the Stowers rule. This rule can affect settlement negotiations when the person responsible for your injuries has liability insurance and faces a potential judgment greater than their insurance coverage.

Understanding when the rule applies can help explain why a properly prepared settlement demand matters.

What is the Stowers Rule?

The Stowers rule requires a liability insurer to exercise ordinary care when considering a reasonable settlement demand within its policy limits. This duty is owed to the insurer’s policyholder, also called the insured. Its purpose is to protect the insured from an excess judgment, meaning a judgment greater than the available insurance coverage.

The rule takes its name from G.A. Stowers Furniture Co. v. American Indemnity Co., a 1929 Texas case.

If an insurer negligently rejects a qualifying settlement demand and that failure results in an excess judgment against its insured, the insurer may be responsible for the judgment, including the amount beyond its policy limits. However, rejecting an offer within policy limits does not automatically establish Stowers liability..

What Makes a Settlement Demand Qualify?

Texas courts generally require three conditions before the Stowers duty arises:

1. The claim against the insured falls within the insurance policy’s coverage.

2. The settlement demand is within the applicable policy limits.

3. The demand’s terms are reasonable enough that an ordinarily prudent insurer would accept it, considering the likelihood and extent of an excess judgment against its insured.

A qualifying demand generally must also offer to fully release the insured from the claim in exchange for the settlement payment. The insurer must receive a reasonable opportunity to evaluate and accept the demand.

These requirements make the wording, supporting evidence, and timing of a settlement demand important.

How Does the Stowers Rule Affect My Personal Injury Case?

Although the Stowers duty protects the insured, it can influence settlement negotiations in your injury case. A qualifying demand gives the insurer an opportunity to resolve the claim within its coverage and protect its policyholder from personal exposure.

For example, suppose the responsible driver has $100,000 in applicable liability coverage, and the evidence supports a substantial risk of a judgment exceeding that amount. A reasonable offer to settle within those limits and fully release the driver may trigger the insurer’s Stowers duty.

If the insurer negligently rejects that offer and an excess judgment results, it may face liability beyond its policy limits. Neither the rejection nor the larger judgment, standing alone, proves a Stowers claim.

How Can an Attorney Help?

Your attorney can review the available coverage, evaluate the evidence of fault and damages, and prepare an appropriate settlement demand.

A Stowers claim generally belongs to the insured. An injured person may sometimes pursue it through a valid assignment of the insured’s rights, but that involves additional legal requirements. Sending a demand does not give you an automatic right to sue the other party’s insurer.

In Conclusion

The Stowers rule encourages insurers to accept reasonable opportunities to settle covered claims within policy limits. It can play an important role in serious injury cases, but its application depends on the policy, the settlement demand, and the circumstances.

If you have questions about insurance coverage or a settlement offer after an injury, Lyman Law can review your situation and explain your options.