The Fifth Circuit recently rejected an attempt by Chubb's subsidiary Ace American Insurance Co. ("Ace") to avoid liability from its excessive insurance company, Zurich North America's subsidiary American Guarantee & Liability Insurance Co. ("AGLIC"), after Ace unreasonably rejected a settlement offer within its political boundaries in violation of its Stowers duty. See Am. Garanti & Liab. Ins. Co. v. ACE Am. Ins. Co. 19-20779, 2020 WL 7487067 (5th Circ. 21 December 2020). As a result, Ace now has to pay approximately $ 7.2 million in damages to AGLIC to cover its costs of resolving the underlying lawsuit plus interest on advances and legal costs.
In the underlying lawsuit, Mark Braswell was killed after his road bike collided with a stopped truck owned by Brickman Group Ltd., LLC ("Brickman Group"). Id. at * 1
Under Texas law, Stowers requires an insurance company "to exercise ordinary care in settling claims to protect its insured against judgments that exceed political boundaries." Id. at 3. An insurer's Stowers obligation is triggered when: '(1) the claim against the insured is within the scope of coverage, (2) there is a demand within the insurance limits, and (3) the conditions for the demand are such that an ordinary prudent insurance company accepts it in view of the probability and degree of the insured's potential exposure to an exaggerated judgment. ” Id. In addition, Stowers applies only when "the conditions of residence [are] are clear and undisputed" and when the settlement offer is "unconditional" and does not "carry  risks of additional liability." Id.
On appeal, Ace claimed that its Stowers duty was not triggered because Braswell's residency requirement was conditional. Id. at * 4. Ace based his argument on the claim that because Mark Braswell's wife's claims (which were asserted alongside her younger children, whom she represented as the next friend) could have generated negative interests, which at least required court and perhaps guardian approval for any conciliation claims to be considered unconditional. Id.
Since no court in Texas had dealt with this argument before, the Fifth Circuit made an Erie guess and found that there was no evidence that the settlement offer was more favorable to [the mother] than her children or that [the mother] worked with interests that were negative for her children. ” Id. at * 4, 6. In fact, the Fifth Circuit noted that Ace offered "nothing in the minutes to indicate that, if the third settlement offer had been accepted, [the mother] would have placed maximum compensation for his own damages over his children's claims. . ” Id. at 6. In the absence of such evidence, Texas courts do not require the appointment of a guardian, which requires third-party approval of the settlement. Id. And without such a requirement, the Fifth Circuit declared that it "cannot imagine that any settlement generated in a case involving claims by a parent on behalf of themselves and children violates Stowers because of a mere potential conflict of interest." Id. Consequently, the Fifth Circuit claimed that Braswell's winding – up claim triggered Ace's Stowers duty "because it" suggested that the insured should be released completely "and we were not. llkorligt. " Id.
The decision of the Fifth Circuit is a reminder for policyholders to communicate all settlement claims to their insurers in good time and document their wishes that insurers re-evaluate the exposure whenever an opportunity is given to settle a claim, especially when a settlement can be reached within the policy. borders. The decision also emphasizes the importance of unconditional requirements. Finally, the decision serves as a warning to insurers that courts will hold them accountable for their Stowers obligations once the elements have been met.