621 S.W.3d 261
Tex.2021Background
- Plaintiff Cassandra Longoria was sued for injuries from an auto accident; policy limits were $500,000 and the plaintiff initially sought $1,000,000.
- At mediation the parties agreed to a $350,000 settlement; Farmers (insurer) paid $250,000 and allegedly demanded or suggested Longoria contribute $100,000 to secure a release.
- Longoria paid $100,000, obtained a release, and then sued Farmers for negligent failure to settle (Stowers) and for breach of contract (including breach of indemnity and duty to defend).
- Farmers moved to dismiss under Texas Rule 91a; the trial court denied dismissal, the court of appeals split (dismissing the contract claim but allowing the Stowers claim), and Farmers sought mandamus relief to this Court.
- The Texas Supreme Court holds Stowers requires liability in excess of policy limits and dismisses the Stowers claim, but allows Longoria’s breach-of-indemnity contract claim to proceed (while dismissing her defended-based contract claim as pleaded).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Availability of Stowers (negligent failure to settle) | Farmers refused a reasonable within-limits settlement, causing Longoria to pay $100k | Stowers liability exists only if insurer’s failure produces a judgment or settlement exceeding policy limits | Stowers requires excess liability; Stowers claim dismissed |
| Breach of contract — indemnity for settlement contribution | Settlement made Longoria legally responsible; policy obligates insurer to pay covered damages, so Longoria seeks reimbursement of $100k | No judicial determination of liability means insurer had no contractual duty to indemnify | Settlement can create legal responsibility; indemnity claim survives Rule 91a dismissal |
| Breach of contract — duty to defend (failure to timely designate experts) | Farmers’ chosen counsel missed expert deadline and harmed Longoria’s defense | Policy permits insurer to defend “as we consider appropriate”; insurer not vicariously liable for independent defense counsel absent special facts | Claim fails as pleaded; insurer not liable on this theory at Rule 91a stage |
| Whether Stowers precludes contractual claims | Contract remedies remain available for within-limits harms | Stowers is the sole remedy for mishandling third-party claims | Court: Stowers is a tort remedy for excess-judgment situations and does not bar contract claims for within-limits indemnity |
Key Cases Cited
- G.A. Stowers Furniture Co. v. Am. Indem. Co., 15 S.W.2d 544 (Tex. Comm'n App. 1929) (establishing insurer's duty to accept reasonable settlements to protect insured)
- Am. Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842 (Tex. 1994) (discussing Stowers duty and insurer–insured conflicts when excess exposure exists)
- Canal Ins. Co. v. Am. Centennial Ins. Co., 843 S.W.2d 480 (Tex. 1992) (addressing excess carrier’s equitable subrogation where primary carrier settled above its limits)
- Phillips v. Bramlett, 288 S.W.3d 876 (Tex. 2009) (stating elements of Stowers duty)
- Maryland Ins. Co. v. Head Indus. Coatings & Servs., Inc., 938 S.W.2d 27 (Tex. 1996) (clarifying Stowers as the recognized tort duty in third-party claim context)
- Evanston Ins. Co. v. ATOFINA Petrochems., Inc., 256 S.W.3d 660 (Tex. 2008) (holding settlement can trigger indemnity obligations)
- D.R. Horton–Tex., Ltd. v. Markel Int’l Ins. Co., 300 S.W.3d 740 (Tex. 2009) (coverage disputes and when indemnity duties arise)
- State Farm Mut. Auto. Ins. Co. v. Traver, 980 S.W.2d 625 (Tex. 1998) (insurer generally not vicariously liable for independent defense counsel)