117 F.4th 653
5th Cir.2024Background
- Dispute arose between primary insurer Westport Insurance and excess insurer Penn National regarding liability for judgment against their mutual insured, Insurance Alliance (IA), after failure to procure requested coverage for a marina.
- Highport sued IA after substantial property loss, alleging IA failed to obtain appropriate insurance; IA held a primary policy with Westport ($5M limit) and an excess policy with Penn National ($15M limit).
- Westport controlled IA’s defense and rejected several settlement offers from Highport, all of which were within or near Westport’s policy limits.
- A jury awarded Highport nearly $13.7 million; Westport and Penn National later disputed responsibility for excess judgment and related payments.
- The district court ruled Penn National breached duties to defend and indemnify, but a jury found that Westport breached its Stowers duty by not accepting reasonable settlement offers.
- Both parties appealed, challenging elements of contract breach, use of Stowers as a defense, jury instructions, and allocation of liability; Fifth Circuit affirmed the district court’s judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was Penn National’s breach of duty to defend/indemnify excused by Stowers? | Stowers breach isn’t a contract defense | Stowers breach excuses contract performance | Stowers is not a contract defense; Penn still breached |
| Did Westport breach its Stowers duty by failing to settle? | No valid Stowers offers were tendered | Valid Stowers demands, duty was triggered | Westport breached Stowers duty on multiple occasions |
| Did settlement demands require release of CRC indemnity claim to be valid Stowers demands? | Highport’s demands did not release all possible claims | Full release required to cover CRC indemnity exposure | Full release required only covers claims in underlying suit |
| Appropriateness of jury instructions regarding settlement demands and releases | Instruction should mention all claims | Instruction should focus on claims by plaintiff | Jury instruction was correct, error (if any) was harmless |
Key Cases Cited
- G.A. Stowers Furniture Co. v. Am. Indem. Co., 15 S.W.2d 544 (Tex. Comm’n App. 1929) (established primary insurers’ duty to accept reasonable settlement demands within policy limits)
- Am. Centennial Ins. Co. v. Canal Ins. Co., 843 S.W.2d 480 (Tex. 1992) (excess insurer may assert Stowers claim via equitable subrogation)
- Tex. Farmers Ins. Co. v. Soriano, 881 S.W.2d 312 (Tex. 1994) (discussed Stowers prerequisites for settlement demands)
- Trinity Universal Ins. Co. v. Bleeker, 966 S.W.2d 489 (Tex. 1998) (clarified Stowers demand requirements)
- State Farm Lloyds Ins. Co. v. Maldonado, 963 S.W.2d 38 (Tex. 1998) (demand must be unconditional and for a sum certain)
- Rocor Int’l, Inc. v. Nat’l Union Fire Ins. Co. of Pittsburg, 77 S.W.3d 253 (Tex. 2002) (Stowers demand must be clear and undisputed)
- Am. Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842 (Tex. 1994) (analyzes reasonableness of insurer settlement decisions under Stowers)
- B & B Auto Supply, Sand Pit, & Trucking Co. v. C. Freight Lines, Inc., 603 S.W.2d 814 (Tex. 1980) (distinguishes contribution from indemnity among tortfeasors)