Hunton Insurance Recovery Blog

Last week, in Golden Bear Insurance Company v. 34th S&S, LLC, a Texas federal court held that an insurer had no duty to cover a personal injury judgment in excess of the $1 million policy limit. The holding reminds parties in Texas to carefully consider the most basic—and sometimes very particular—requirements surrounding Stowers demands.

The coverage dispute arose from an underlying personal injury suit in which patrons of a bar sued the bar and its owner for injuries sustained after bouncers at the bar allegedly assaulted the patrons. The patrons’ counsel sent a written settlement demand, which the insurer rejected. At trial, the jury returned a $3.2 million verdict against the bar and its owner, and the insurer tendered the balance of its policy limits, which did not fully satisfy the final judgment. The patrons argued that they made a proper Stowers demand against the bar and thus the bar was entitled to indemnification by the insurer for the full amount of the final judgment in excess of the policy’s $1 million limit.

On summary judgment, the United States District Court for the Southern District of Texas considered whether a proper Stowers demand was ever made against the bar. Under the Stowers doctrine, a tortious duty to settle is activated where (i) the claim against the insured is within the scope of coverage, (ii) a settlement demand within the policy limits is made, and (iii) the terms of the demand are such that an ordinarily prudent insurer would accept the demand considering the likelihood and degree of the insured’s potential exposure to an excess judgment.

Upon consideration of these three Stowers factors, the district court held that the settlement demand at issue did not trigger the insurer’s duty to settle because the demand failed to state a sum certain amount to settle the claims. Instead, the demand included an offer to settle all claims “in exchange for the payment of all policy limits of any and all insurance contracts.” The district court explained that this statement lacked any specificity regarding the insurer’s policy or the actual amount remaining within the policy. Relying on Fifth Circuit and Texas Supreme Court precedent, the court stated that “settlement offers must be unambiguous and demonstrative of a clear intent of a sum certain.” Because the district court found that the insurer never received a settlement demand with an unambiguous and certain sum, the court concluded that no Stowers obligation was triggered.

The Golden Bear holding provides insight into how Texas federal courts may interpret the requirement that a settlement demand within the policy limits be made. Parties should carefully consider the sum certain requirement when making and responding to settlement demands purporting to trigger the duty to settle under Stowers.