What Happens When Insurance Company Will Not Settle Liability Claim

Insurance lawyers will tell you that insurance companies can expose themselves to risk by not settling liability claims that they should settle. This relates to what is called the “Stowers Doctrine.” But exposing themselves to risk and and suffering the risk are two different things. The 1960, Amarillo Court of Appeals case, Chancey v. New Amsterdam Casualty Company, is an example where the insurance company did not get in any trouble. Here is some information about the case.
The present case followed Amsterdam’s refusal to compromise and settle the claim of one Walter Van Luit against Chancey which resulted in a jury verdict and judgment against Chancey in the amount of $58,422.83. The policy limits under the liability policy issued to Chancey was $50,000. The record reflects Amsterdam paid Van Luit the amount of the policy limit of $50,000 plus interest and court costs. Chancey has paid the balance of $8,422.83 to Van Luit, and it is this amount Chancey is seeking over and against Amsterdam. The case was submitted to a jury and upon the finding of the jury the trial court entered a judgment that Chancey take nothing. From this judgment Chancey duly perfected this appeal.
Chancey complained of the trial court’s action in sustaining an exception to Chancey’s petition which alleged the failure of Amsterdam to ‘negotiate’ for a settlement of the case, and refusal of the trial court to submit issues based on the above allegation. It is Chancey’s contention that in as much as the policy gives the insurance coompany the right to ‘investigate, negotiate and settle’ any claim arising under the policy, this right is equally accompanied by the duty to negotiate as well as to settle. The landmark case in Texas on this question is the case of Stowers Furniture Co. v. American Indemnity Co., in which is found the following language:
‘* * * the company reserved the right to settle any such claim or suit brought against the assured. Certainly, where an insurance company makes such a contract; it, by the very terms of the contract, assumed the responsibility to act as the exclusive and absolute agent of the assured in all matters pertaining to the questions in litigation, and, as such agent, it ought to be held to that degree of care and diligence which an ordinarily prudent person would exercise in the management of his own business; and if an ordinarily prudent person, in the exercise of ordinary care, as viewed from the standpoint of the assured, would have settled the case, and failed or refused to do so, then the agent, which in this case is the indemnity company, should respond in damages.’
It will be noted that nowhere in the opinion does the court use language to distinguish between the insurer’s duty to negotiate and settle. No case has been cited, and this court found none which makes such a distinction. The ultimate responsibility of the insurance company to the insured is to exercise such care and diligence which an ordinary, prudent person would exercise in the management of his own business. This court could not agree with Chancey’s contention that the duty to negotiate is separate and apart from the duty to settle. It was the courts’ view that the duty to settle implies the duty to negotiate. These two duties can not be separated as far as the basic obligation to the insured is concerned. It is difficult to see how any controversy could be settled without some measure of negotiation.
To win in a “Stowers” case, it is the burden of the Plaintiff to show that a reasonable a prudent person (insurance company) would have settled the case rather than expose the insured to an excess judgment. Just because an insurance company did not settle does not mean this standard was violated.
An experienced Insurance Law Attorney can usually review the facts in a case and see whether or not it is a good situation for applying the Stowers Doctrine.