                                                           United States Court of Appeals
                                                                    Fifth Circuit
                                                                 F I L E D
                            REVISED APRIL 15, 2005
                                                                 March 31, 2005
                IN THE UNITED STATES COURT OF APPEALS
                                                             Charles R. Fulbruge III
                            FOR THE FIFTH CIRCUIT                    Clerk



                                 No. 03-10705



     LIBERTY MUTUAL INSURANCE COMPANY,

            Plaintiff-Counter-Defendant, Appellee-Cross-Appellant,

            versus

     MID-CONTINENT INSURANCE COMPANY,

            Defendant-Counter-Claimant, Appellant-Cross-Appellee.



            Appeal from the United States District Court
                 for the Northern District of Texas



Before GARWOOD, JOLLY and BARKSDALE, Circuit Judges.

PER CURIAM:

     This     Texas   law    diversity   case   involves   important     and

determinative questions of Texas law as to which there is no

controlling Texas Supreme Court precedent. Accordingly, we certify

those unresolved questions to the Supreme Court of Texas.



     CERTIFICATION FROM THE UNITED STATES COURT OF APPEALS
     FOR THE FIFTH CIRCUIT TO THE SUPREME COURT OF TEXAS,
     PURSUANT TO THE TEXAS CONSTITUTION ART. 5, § 3-C AND
     RULE 58 OF THE TEXAS RULES OF APPELLATE PROCEDURE
TO THE SUPREME COURT OF TEXAS AND THE HONORABLE JUSTICES THEREOF:

           I.   STYLE OF THE CASE: PARTIES AND COUNSEL

     The style of the case in which certification is made is

Liberty Mutual Insurance Company v. Mid-Continent Insurance

Company, Case No. 03-10705, in the United States Court of Appeals

for the Fifth Circuit, on appeal from the United States District

Court for the Northern District of Texas, Dallas Division.

Liberty Mutual Ins. Co. v. Mid-Continent Ins. Co., 266 F. Supp.

2d 533 (N.D. Tex. 2003).    Federal jurisdiction is based on

diversity of citizenship.

     The names of all the parties to the case, each of whom is

represented by counsel, and the respective names, addresses and

telephone numbers of their counsel, are as follows: Liberty

Mutual Insurance Company, plaintiff and counter-defendant in the

district court, appellee and cross-appellant in this court,

represented by Richard A. Capshaw and Mikel J. Bowers of Capshaw,

Goss & Bowers, L.L.P., 3031 Allen Street, Suite 200, Dallas,

Texas 75204, Tel. 214/761-6610; and Mid-Continent Insurance

Company, defendant and counter-claimant in the district court,

appellant and cross-appellee in this court, represented by Brian

L. Blakeley and Carrie Davis Holloway of Blakeley & Reynolds,

P.C., 1250 N.E. Loop 410, Suite 420, San Antonio, Texas 78209,

Tel. 210/805-9799.

                     II.   STATEMENT OF THE CASE


                                  2
      In this suit between two liability insurers Liberty Mutual

Insurance Company (Liberty Mutual) seeks to recover from Mid-

Continent Insurance Company (Mid-Continent) a portion of the sums

Liberty Mutual paid to settle a third party claim against Kinsel

Industries    (Kinsel),    a   covered     insured    under       each   of   their

respective    $1   million     comprehensive      general        liability    (CGL)

policies.    Each insurer assumed defense of Kinsel, and the case

ultimately settled for $1.5 million, but Mid-Continent would pay

only $150,000, so Liberty Mutual (which also had a $10 million

excess policy covering Kinsel) paid the remaining $1,350,000 and

then brought this suit against Mid-Continent for $600,000, which it

contended    Mid-Continent      was   obligated      for    as     its   remaining

proportionate part of        the $1.5 million settlement.            Following a

bench trial, the district court awarded Liberty Mutual $550,000.

Mid-Continent now appeals that judgment.1

      Kinsel, the general contractor for the State of Texas on a

highway construction project, was the named insured under Liberty

Mutual’s $1 million CGL policy.            Mid-Continent insured Crabtree

Barricades (Crabtree), Kinsel’s subcontractor responsible for signs

and dividers on the project.          The Mid-Continent $1 million CGL

policy issued to Crabtree also identified Kinsel as an additional

insured for liability arising from Crabtree’s work under the

contract.    It is undisputed that these two CGL policies were in


      1
        Liberty Mutual cross-appeals only the district court’s failure to award
it prejudgment interest.

                                       3
force and effect and provided Kinsel defense and indemnity coverage

respecting the underlying suit against it, of which the insurers

were properly notified.              Liberty Mutual and Mid-Continent have

consistently treated their respective CGL policies as being primary

and on the same level with respect to each other and governed by

identical “other insurance” clauses in each policy providing for

equal or pro rata sharing up to policy limits.2                 Each CGL policy

     2
         “4.    Other Insurance.

               If other valid and collective insurance is available   to
               the insured for a loss we cover under Coverages         A
               [“Bodily Injury and Property Damage Liability”] or B   of
               this Coverage Part, our obligations are limited        as
               follows:

               a.   Primary Insurance

                       . . . If this insurance is primary our
                       obligations are not affected unless any of
                       the other insurance is also primary. Then,
                       we will share with all that other insurance
                       by the method described in c. below.

               . . .

               c.   Method of Sharing

                       If all of the other insurance permits
                       contribution by equal shares, we will
                       follow this method also.       Under this
                       approach each insurer contributes equal
                       amounts until it has paid its applicable
                       limit of insurance or none of the loss
                       remains, whichever comes first.

                       If any of the other insurance does not
                       permit contribution by equal shares, we
                       will contribute by limits.      Under this
                       method, each insurer’s share is based on
                       the ratio of its applicable limit of
                       insurance to the total applicable limits of
                       insurance of all insurers.”

      Liberty Mutual also insured Kinsel        under an Umbrella Excess Liability
Policy with $10 million policy limits.          In the trial court, Mid-Continent
contended that this Umbrella Excess policy      should be considered in determining
the share of the settlement to be borne by      it and Liberty Mutual respectively.

                                           4
also contained “voluntary payment” clauses providing:

      “No insureds will, except at their own cost, voluntarily
      make a payment, assume any obligation, or incur any
      expense, other than for first aid, without our consent.”3

Each CGL policy likewise contained subrogation clauses providing,

inter alia, “[i]f the insured has rights to recover all or part of

any payment we have made under this Coverage Part [bodily injury or

property damage liability], those rights are transferred to us.”

      In November 1996, an automobile accident occurred in the

construction zone covered by Kinsel’s contract with the State. Due

to the construction, the two eastbound lanes of the normally four-

lane highway were closed, so that eastbound and westbound traffic

were each routed into one of the two (normally) westbound lanes.



The trial court rejected that contention, ruling that the Umbrella policy was
excess over both Liberty Mutual’s and Mid-Continent’s CGL policies. 266 F. Supp.
2d 533 at 545-46. Mid-Continent has not appealed that ruling.
      Mid-Continent does contend on appeal that Liberty Mutual’s $1 million auto
policy naming Kinsel insured should have been taken into account in determining
what portion of the $1.5 million settlement Mid-Continent was to be charged with,
with the result that the ultimate judgment against Mid-Continent should not in
any event have exceeded $350,000. Liberty Mutual contends that the district
court correctly ruled that this policy did not cover the claim against Kinsel
(and that in any event the auto policy provided only excess coverage). The issue
thus presented will not be reached unless it is determined that Mid-Continent is
obligated to pay Liberty Mutual some portion of the $1.35 million Liberty Mutual
paid to effectuate the $1.5 million settlement.
      3
          The Mid-Continent and Liberty Mutual CGL policies likewise each
contained provisions that any “insured must . . . Cooperate with us in the
investigation, settlement or defense of the claim or ‘suit’” and that

      “A person or organization may sue us to recover on an agreed
      settlement or on a final judgment against an insured obtained after
      an actual trial; but we will not be liable for damages that are not
      payable under the terms of this Coverage Part [‘Bodily Injury and
      Property Damage Liability’]or that are in excess of the applicable
      limit of insurance. An agreed settlement means a settlement and
      release of liability signed by us, the insured and the claimant or
      the claimant’s legal representative.”

                                       5
A westbound driver (Cooper) crossed into the lane assigned to

eastbound traffic and collided head-on with an eastbound car,

driven   by   James   Boutin    and   carrying             his    wife   and   their      two

children. The Boutin family members suffered substantial injuries,

and they all sued Cooper (the westbound driver), the State, Kinsel,

and Crabtree in the district court of Liberty County, Texas, in

July 1997.

     In April 1998, Mid-Continent agreed to share with Liberty

Mutual the costs of defending and indemnifying Kinsel.4                            Although

Liberty Mutual and Mid-Continent agreed that a total verdict for

all the Boutins of about $2–3 million was likely, they ultimately

differed significantly in their assessments of the settlement value

of the case against Kinsel specifically. Both had initially viewed

Kinsel’s likely percentage of fault at between 10% and 15%; Mid-

Continent     remained    of   that   view,          but   Liberty       Mutual,    due    to

developments in the case, later increased its assessment to 60%.

At a second mediation with the plaintiffs in May 1999, Liberty

Mutual agreed to settle for $1.5 million on behalf of Kinsel and

demanded that Mid-Continent contribute half of that amount.                            Mid-

Continent, calculating the settlement value of the case against

Kinsel at     $300,000,    agreed     to       pay    only       $150,000   toward     that

settlement and so Liberty Mutual funded the remaining $1,350,000




      4
         Costs of defense are not in issue in this suit between Liberty Mutual
and Mid-Continent.

                                           6
thereof.5     At the same time, Mid-Continent settled the Boutins’

claims against Crabtree for $300,000.6

      Liberty Mutual filed this action against Mid-Continent in

Texas state court, and Mid-Continent removed the case to federal

court on the basis of diversity.            After a bench trial in February

2003, the district court concluded that Liberty Mutual was entitled

to recovery from Mid-Continent in the amount of $550,000.                  That

amount was determined on the basis that under the “Other Insurance”

and “Method of Sharing” provisions of the Mid-Continent and Liberty

Mutual $1 million CGL policies (see note 2 above) Mid-Continent was

obligated     to   contribute   one   half    of   the   $1.5   million   Kinsel

settlement, or $750,000, and, having contributed $150,000, now owed

$600,000     more;   but,   Mid-Continent’s        liability    was   capped   at

$550,000 because its policy limits were $1 million and it had

already paid $450,000 thereof ($150,000 for the Kinsel settlement

and $300,000 to settle the claims against Crabtree), leaving only

$550,000.     Liberty Mutual, 266 F. Supp. 2d at 546.

      The district court, following General Agents Insurance Company

of America, Inc. v. Home Insurance Company of Illinois, 21 S.W.3d

419 (Tex. App.–San Antonio 2000, pet. dism’d by agr.) (“General

Agents”), held that each insurer “owed a duty to act reasonably” in



      5
        Although Liberty Mutual’s CGL policy limits were $1 million, the excess
$350,000 paid by Liberty Mutual is apparently attributable to its $10 million
Umbrella Excess Liability Policy in favor of Kinsel (see note 2, supra).
      6
          No party has questioned the reasonableness of the Crabtree settlement.

                                        7
exercising rights under its CGL policy.   See id. at 542.   The court

noted that Mid-Continent determined “that the claims against Kinsel

should settle for no more than $300,000."    Then, after reviewing

the developments in the underlying litigation, the court found in

relevant part as follows:

     “. . . it was objectively unreasonable for Mid-Continent
     to refuse to change its estimate that Kinsel’s potential
     exposure was only 10-15% of the total liability. . . .
     Mid-Continent’s continued insistence that Kinsel was
     responsible for only 10-15% of the total liability did
     not account for the actual exposure faced by Kinsel, and
     was therefore, unreasonable. . . . Mid-Continent’s
     recalcitrance to consider any change, despite the
     changing circumstances, was unreasonable, causing it to
     unreasonably assess its insured’s exposure.
          Unlike Mid-Continent, Liberty Mutual remained
     flexible in the changing environment of the Boutin case.
     . . . Kinsel faced a significant risk of being jointly
     and severally liable for a verdict in the range of $2-3
     million. . . . Liberty Mutual determined Kinsel could be
     found as much as 60% responsible. Sixty percent of the
     average potential verdict, $2.5 million, is $1.5 million.
     By agreeing to settle for that amount, Liberty Mutual
     resolved the case within policy limits, based on a
     reasonable estimation of Kinsel’s liability, and avoided
     the real potential of joint and several liability.
     Accordingly, Liberty Mutual’s assessment of Kinsel’s
     liability and the ultimate settlement reached was
     reasonable.
          Because the Court finds that Mid-Continent was
     unreasonable in exercising its rights under its policy
     and that Liberty Mutual was reasonable in exercising its
     rights, Liberty Mutual is entitled to subrogation.” Id.
     at 543-44.

     Mid-Continent appeals.   In its appeal, Mid-Continent does not

challenge the district court’s fact findings as being clearly

erroneous or not adequately supported by the evidence, and we

accept the district court’s findings of fact.



                                 8
                            III.   LEGAL ISSUES

      Mid-Continent’s principal contention on appeal is that, having

timely assumed (together with Liberty Mutual) defense of the suit

against Kinsel and acknowledged policy coverage, it was entitled,

under the terms of its policy, including the voluntary payment

provision, see Charter Roofing Co., Inc. v. Tri-State Ins. Co., 841

S.W.2d 903, 907 (Tex. App.–Houston [14th Dist.] 1992, writ denied),

to determine how much it would pay or offer to pay in settlement,

and owed no duty in that respect to Liberty Mutual or to Kinsel,

except only for the duty it owed Kinsel, in the event of an adverse

judgment, to indemnify him under its policy up to the limits

thereof and, if the judgment exceeded the policy limits, under

Stowers, for the entire judgement if its refusal of the plaintiff’s

offer to settle within policy limits were unreasonable.7                  Mid-

Continent recognizes that its reasoning in this respect is contrary

to General Agents, but contends that General Agents, which was not

reviewed by the Texas Supreme Court, is contrary to established


      7
        See Stowers Furniture Co. v. Am. Indem. Co., 15 S.W.2d 544 (Tex. Comm’n
App. 1929, holding approved). Under Stowers, if an insurer rejects a demand to
settle within policy limits that would fully release the insured and that an
ordinarily prudent insurer would accept, the insurer is liable for a subsequent
judgment even if it exceeds the policy limits. Stowers, 15 S.W.2d at 545, 547-
48; Am. Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 848-49 (Tex. 1994).
      The district court’s judgment seems not to have been based on Stowers
itself or as applied in American Centennial Ins. Co. v. Canal Ins. Co., 843
S.W.2d 480 (Tex. 1992), in that it limits Liberty Mutual’s recovery to the
$550,000 remaining on Mid-Continent’s policy limits, though if not so limited
Liberty Mutual’s recovery would have been $600,000. See Liberty Mutual, 266 F.
Supp. 2d at 546.    But, Stowers and American Centennial contemplate insurer
liability beyond policy limits. However, Liberty Mutual makes no complaint in
this respect and does not challenge this aspect of the judgment in its cross-
appeal.

                                      9
Texas law.8    Mid-Continent contends that it breached no duty under

its policy, that it breached no Stowers duty to its insured Kinsel

to which Liberty Mutual could be subrogated, and that, apart from

any such subrogation to Kinsel’s rights, Liberty Mutual was owed no

duty by Mid-Continent.        In the latter connection, Mid-Continent

notes that in American Centennial Ins. Co. v. Canal Ins. Co., 843

S.W.2d 480 (Tex. 1992), the Texas Supreme Court held that the only

duty which a primary liability insurer owed to an excess liability

carrier was by way of the excess carrier’s subrogation to the

Stowers rights of the common insured, and that there was no

independent duty owed by the primary to the excess carrier.             Id. at

485-86 (opinion      of   Hecht,   J.,   joined   by   Phillips,    C.J.,   and

Gonzalez, Cook and Cornyn, J.J.).

      Liberty Mutual essentially rests on General Agents.               There,

GAINSCO and Home were concurrent primary liability insurers, each

for $1 million, of Power Equipment, a defendant in a personal

injury suit.      GAINSCO and Home each acknowledged coverage and

provided defense.         GAINSCO was willing to provide $250,000 to

settle, but no more.        Home’s offer to settle for $1,250,000 was



      8
         The district court’s opinion states that “the parties argue . . . that
the approach taken by the court in General Agents Ins. Co. is the proper method
for resolving the disputes in this case.” Liberty Mutual, 266 F. Supp. 2d at
542. Although Liberty Mutual did rely in the district court (as it does on
appeal) on General Agents, Mid-Continent correctly points out that the district
court’s statement is in error insofar as it implies that Mid-Continent agreed
that General Agents controlled, and that in fact Mid-Continent argued below that
General Agents was not a correct statement of Texas law, a position that Mid-
Continent also re-urged in its timely motion for reconsideration below.

                                      10
accepted by the plaintiff and funded $1 million by Home and

$250,000 by GAINSCO.     Home sued GAINSCO for $375,000 (one half the

$1,250,000 settlement less the $250,000 paid by GAINSCO), and

recovered judgment based on the jury finding that $1,250,000 was

“the fair and reasonable amount that should have been paid to

settle the claim against” Power Equipment. GAINSCO objected to the

failure to submit an issue as whether it acted “reasonably and in

good faith in the defense . . . and settlement” of the suit.

General Agents, 21 S.W.3d at 424-25.        On GAINSCO’s appeal, the San

Antonio Court of Appeals reversed and remanded for a new trial,

holding that “[t]he trial court should have submitted a question to

the jury that inquired about the reasonableness of GAINSCO’s

position and actions in exercising its rights under its policy

given the totality of the circumstances.”                Id. at 426.     The

opinion, however, plainly indicates that GAINSCO would be liable to

Home had such an issue been submitted and answered adversely to

GAINSCO.

     The   basis   of   this   latter    holding   is,   however,   somewhat

unclear.    The General Agents opinion expressly recognizes that

“Home had the burden of proving its right to payment [from GAINSCO]

through contractual or conventional subrogation to the right of

Power Equipment.”       Id. at 425.      It cites in support Employers

Casualty Co. v. Transport Ins. Co., 444 S.W.2d 606, 610 (Tex.

1969), and Liberty Mutual Ins. Co. v. General Ins. Co., 517 S.W.2d


                                    11
791,    798    (Tex.   Civ.   App.–Tyler,       1974,     writ   ref’d   n.r.e.),

recognizing,     however,     that    in    both    of   those   cases   the   non-

contributing co-insurer had wrongfully denied coverage and refused

to defend, Employers Casualty Co., 444 S.W.2d at 607; Liberty

Mutual Ins. Co., 517 S.W.2d at 798, thus forfeiting its right to

rely on the “no action” and/or “voluntary payment” clauses of its

policy as recognized in Gulf Insurance Co. v. Parker Products, 498

S.W.2d 676, 679 (Tex. 1973). The General Agents court acknowledges

that was not the situation in the case before it, as “GAINSCO did

not erroneously claim that it had no responsibility.                  It was ready

and willing to proceed in its defense of Power Equipment at trial.”

General Agents, 21 S.W.2d at 424.               Nevertheless, General Agents

concluded that GAINSCO could be liable to Home because:

       “GAINSCO’s willingness to proceed with the defense of the
       lawsuit and its right to enforce the no-action clause in
       its policy must be balanced against Home’s desire to
       settle for policy limits and its co-equal right to
       control the defense and settlement of the lawsuit.” Id.

This suggests, however, that liability would be based on a duty

between co-insurers, rather than subrogation by one co-insurer to

the rights of the insured against the other co-insurer.

       The    only   authority   on    which       General   Agents   appears    to

ultimately be based consists of two cases which it describes as the

ones on which “GAINSCO relies . . . to support its view of the

proper question to be submitted to a jury in this type of case,”




                                           12
id. at 425 (emphasis added),9 namely Storebrand Ins. Co. U.K. ,

Ltd. v. Employers Ins. Co. of Wausau, 974 F. Supp. 1005 (S.D. Tx.

1997), aff’d, 139 F.3d 1052 (5th Cir. 1998), and Keystone Shipping

Co. v. Home Ins. Co., 840 F.3d 181 (3d Cir. 1988).

      In Storebrand the defendant, Wausau, a servicing agent for the

Texas Workers Compensation Facility and issuer on its behalf of a

$500,000    Workers   Compensation     and   Employers     Liability    policy

covering an employee leasing company and its clients, undertook the

defense of a suit against the leasing company and TDI, one of the

leasing company’s clients, brought by an employee of the leasing

company injured while working for TDI.              The plaintiff demanded

$500,000 to settle, Wausau would pay no more than $300,000, and, at

TDI’s demand, TDI’s comprehensive general insurer, Storebrand, paid

the remaining $200,000 to effectuate the settlement.               Storebrand

then sued Wausau for that $200,000.            The district court granted

summary judgment for Wausau, concluding that as a matter of law it

had a reasonable basis for not offering more than $300,000 in

settlement, Storebrand, 974 F. Supp. at 1009, and this court

affirmed.    Storebrand, 139 F.3d 1052.         It is unclear whether the

district court regarded the employee’s claim as a first party claim

(under Aranda Ins. Co. of North America, 748 S.W.2d 210, 212 (Tex.

1988)) or a third party claim, or whether it regarded Storebrand as


      9
        This suggests that the defendant-appellant GAINSCO was not contending
that it could not have liability to Home, the other co-insurer in that case, had
GAINSCO been found to have acted unreasonably.

                                      13
an excess, rather than a co-primary, insurer, or as asserting TDI’s

rights against Wausau by subrogation or as claiming rights directly

owed Storebrand by Wausau.10         In sum, Storebrand simply casts no

meaningful light on the present issue.

      Keystone – the other decision relied on by General Agents –

somewhat more directly addresses the issue.            There, Home Insurance

was one of several third level excess liability carriers providing

coverage to the defendant in the underlying tort suit for property

damage. The plaintiff in the underlying suit offered to settle for

$30 million, but Home refused to contribute more than its pro-rata

share of $24.8 million, which it concluded was the fair value of

the case.      The other third level excess carriers made up the


      10
          The district court in Storebrand held that Wausau, as it was acting
only as an agent for the insurer, the Texas Workers Compensation Facility, could
not be liable for breach of good faith and fair dealing, but could be liable for
its own violations of the DTPA or the Texas Insurance Code. Id., 974 F. Supp.
at 1009. The court noted that the employee’s suit alleged claims “under the
Longshore and Harbor Workers’ Compensation Act (LHWCA) and claims for negligence”
but never “alleged claims against TDI under section 905(b) of the LHWCA.” Id.
at 1007. We agreed. Id., 139 F.3d at 1054. The district court did not address
Stowers. In affirming the district court, we stated:

      “Storebrand contends that the district court erred in finding that
      Wausau acted in good faith and thus was immune from liability under
      [Insurance Code] Article 21.21 and the DTPA. Storebrand’s claims
      complain of unfair claims settlement practices. As such, they do
      not sound in fraud, nor do they claim fraud or misrepresentation.
      Instead, they are essentially statutory bad faith claims. We have
      already stated that we believe Wausau’s actions were reasonable.
      Similarly, we do not see any evidence of bad faith. . . .

      . . .

      Storebrand does not prevail under the terms of the Stowers doctrine.
      First, Wausau’s actions were not unreasonable, and they were not
      imprudent.   Also, no judgment was made against TDI, because the
      matter was settled in mediation. Further, the insurer in this case
      is the Facility, and Wausau should not be made liable as an insurer
      in this context.” Id., 139 F.3d at 1056 (emphasis added).

                                       14
difference and the case was settled for $30 million.          The other

contributing   carriers   sued   Home   in   the   Pennsylvania   Federal

District Court for $965,011.22, being Home’s pro rata share of the

difference between $24.8 million (as to which Home had paid its

share) and the $30 million settlement amount.          Although finding

that the $30 million settlement was not unreasonable (and that

Home’s pro rata share of the full $30 million settlement was not

more than its policy limits), the district court held for Home

based on its finding that Home’s $24.8 million evaluation was

reasonable and in good faith.           On appeal, the Third Circuit

affirmed, holding that the district court’s fact findings were not

clearly erroneous.    Keystone, 840 F.2d at 184, 186.         The court

noted that “the governing” law was that “of Pennsylvania,” and that

there was an “absence of controlling Pennsylvania authority.”         Id.

at 186. The Keystone court (one judge concurred in the result with

minimal elaboration) reasoned that Pennsylvania likely “would not

have a recalcitrant insurer whose evaluation falls within the range

of all reasonable settlements wholly free to escape payment of its

portion of a reasonable settlement by its co-insurer,” but that

when “the co-insurer who objects to the size of the proposed

settlement nevertheless contributes to a settlement which is not

unreasonably low” its “obligation is measured by good faith.”         Id.

at 184.   The court notes its agreement with the assumption of the

parties that a co-insurer in Home’s position owes some duty to the


                                   15
other co-insurer but expressly declines to identify the source of

that duty.       Id. at 184-85 & n.9.11       The court concludes that, even

though     the    co-insurers’     settlement     at   $30   million   was   not

unreasonable, neither was Home’s $24.8 million evaluation, id. at

185, 186, and Home accordingly should not be liable, observing

“[w]e find it hard to conclude that Pennsylvania would impose on a

co-insurer a greater obligation to his fellows than it does upon an

insurer to its insured.”          Id. at 186.12

      As    neither    the     General   Agents    opinion    itself   nor   the

authorities it cites reflect the source of the duty imposed on a

co-insurer in Mid-Continent’s position, we accordingly examine the

traditional Stowers duty imposed on liability insurers.

      The decisions of the Texas courts are unclear with respect to

whether Kinsel, the common insured here, would have any Stowers

cause of action, to which co-insurer Liberty Mutual could be

subrogated, against Mid-Continent for its unreasonable refusal to


      11
           The court states:

      “. . . the parties assume the existence of a duty on the part of
      Home, as co-insurer, to pay a share of this settlement pro-rata to
      the share of indemnity it underwrote in the third excess level
      contract. They do not refer us to the source of that duty. . . . we
      believe some duty exists. . . . Without precisely pigeonholing the
      nature of its origin, we will therefore accept their invitation and
      assume a duty’s existence without determining whether it arises out
      of obligation implied in contract, duties of contribution or
      equitable subrogation imposed by the law of restitution, or by a
      fictional duty constructed from the loan receipts [received from the
      insured by the co-insurers suing Home].” Id., n.9.
      12
         While the court mentions Home’s “good faith,” it also suggests that its
“holding . . . may support the view that the distinction between good faith and
reasonableness is largely illusory.” Id., n.11.

                                         16
pay more than $150,000 (of its remaining $700,000 policy limits) to

consummate the $1,500,000 settlement.              This lack of clarity arises

in several respects.

        First,   a   Stowers     claim   involves,    or     at   least   typically

involves, an excess judgment after an actual trial.                  See Street v.

Court of Appeals, 756 S.W.2d 299, 301-02 (Tex. 1988).                 And, absent

a judgment following trial, it would be difficult to know whether

the failure to accept a settlement offer within policy limits

constituted negligence or whether, or to what extent, the insured

was in fact damaged thereby.                 See Texas Farmers Ins. Co. v.

Soriano, 881 S.W.2d 312, 316 n.4 (Tex. 1994) (“[a]s in any case

predicated on negligence, the insured must offer evidence that the

insurer’s failure to settle proximately caused damages to the

insured . . . Soriano had the burden of proving that he would have

suffered a lesser amount of damages had Farmers behaved differently

.   .   .”).13       Moreover,    allowing     a   Stowers    recovery     in   such

circumstances appears to deny the insurer the benefit of the

policy’s     clauses     (see    note    3    supra   and    accompanying       text)

precluding recovery of “voluntary payment” or other than under a

settlement approved by the insurer or a judgment “against an

insured obtained after an actual trial.”              See Street, 750 S.W.2d at



      13
         Moreover, here there are no express findings that a judgment against
Kinsel after an actual trial would likely have exceeded either the amount of the
total settlement ($1,500,000) (or even the amount of Mid-Continent’s remaining
policy limits of $700,000).

                                         17
302.14    While, as above noted, an insurer has been held to have

waived the     benefit    of   such   policy   provisions    by    refusing   to

defend,15 we are aware of no Texas case holding that an insurer who

assumes the duty to defend and admits coverage (as Mid-Continent

did   here)   waives     the   benefit    of   such   provisions    merely    by

negligently refusing to accept a settlement offer within policy

limits.

      There are, however, two Texas Supreme Court decisions which

suggest that a Stowers claim does not always require judgment after

an actual trial.     In Rocor v. Nation Union Fire Ins. Co., 77 S.W.2d

253 (Tex. 2002), the insured, Rocor, which was covered by liability

policies providing $1 million self-insured retention and placing

the duty to defend on Rocor, sought recovery from its liability

carriers for the increased attorney fees Rocor incurred in defense

of a third party tort suit (which the insurers ultimately settled

within policy limits) due to the insurers’ negligent delay in

settlement thereof.       The Supreme Court’s opinion indicates that,

under sections 4(10)(ii) and 16(a) of Tex. Ins. Code art. 21.21,




      14
         But see State Farm Lloyds Ins. Co. v. Maldonado, 963 S.W.2d 38, 40-41
(Tex. 1998) (rejecting third party plaintiff-judgment creditor’s claim against
liability insurer of judgment debtor on “actual trial” policy provision;
rejecting insured’s Stowers claim on lack of demand within policy limits without
addressing “actual trial” policy provision).
      15
          See Liberty Mutual Ins. Co., 517 S.W.2d at 798; Gulf Ins. Co., 498
S.W.2d at 679. See also Employers Casualty Co., 444 S.W.2d at 607.

                                         18
and likely also under Stowers,16 Rocor, the insured, could have

recovered from its liability insurers the attorneys’ fees incurred

by Rocor in the third party suit following a negligent failure by

the insurers to accept a clear offer by the third party to settle

the underlying suit within policy limits.          Nevertheless, the court

denied recovery because there was no evidence of any such offer

prior to the actual settlement, as required by Stowers.               However,

judgment following actual trial in the underlying suit was not

necessary to demonstrate that Rocor incurred the claimed attorneys’

fees sued for, or the amount thereof, prior to the settlement of

the underlying suit and because it did not sooner settle.                Thus,

Rocor does not appear to be controlling as to the need for judgment

following trial in the underlying third party suit where the

Stowers claim is for liability to the third party in the underlying

suit or for payments made to discharge that liability.

      More closely related to the latter scenario is American

Centennial Ins. Co. v. Canal Ins., 843 S.W.2d 480 (Tex. 1992), in

which the court held, for the first time, that “if an excess

insurance carrier is required to pay a portion of a judgment

rendered against its insured in favor of a third party, it is

equitably subrogated to its insured’s rights against a primary

      16
          The Rocor court construed the cited sections of article 21.21 as
imposing an actionable settlement duty which in the context of a third party
claim was identical to, or at least no more extensive than, that imposed by
Stowers. The Rocor court did observe, however, that “the case does not fit
neatly within the Stowers paradigm because the insurer ultimately settled within
policy limits.” 77 S.W.2d at 261.

                                      19
insurance carrier under” Stowers and Ranger County Mut. Ins. Co. v.

Guin, 723 S.W.2d 656 (Tex. 1987), “for negligently investigating,

preparing to defend, trying or settling the third party action.”

American Centennial, 843 S.W.2d at 485 (concurring opinion of

Hecht, J., joined by Phillips, C.J., and Gonzalez, Cook and Cornyn,

J.J.).17     The court only very briefly outlines the facts, observing

that   the    primary   carrier,       which    provided     $100,000    coverage,

“investigated and defended the suit, hiring an outside law firm,”

and that “[b]ecause of alleged mishandling by trial counsel of the

litigation, the [excess] insurers [who had coverage from $100,000

up to $4 million] were forced to settle for $3.7 million.”                    Id. at

481.   The trial court had granted summary judgment “determining

that the      primary   insurer    .   .    .   owed   no   duty   to   the   excess

carriers,” the court of appeals reversed and remanded for trial the

claims against the primary insurer, and the Supreme Court affirmed

that action of the court of appeals. The extent to which American

Centennial dispenses with any requirement for a judgment in excess

of policy limits following an actual trial is unclear as applied to

a Stowers action based on negligent refusal of an offer to settle



      17
         The court also held there was no direct or independent duty owed by the
primary carrier to the excess carrier, and that the excess carrier had no claim
against the primary carrier for breach of a duty of good faith and fair dealing
or under the Texas Insurance Code or the DTPA. Id. at 485-86.
      The court likewise held that “an excess carrier in the circumstances
described above is equitably subrogated to its insured’s rights against his
attorney for negligent handling of the defense of the third party action,” but
that “the attorney should not be exposed to any greater liability to the excess
carrier than to his client, the insured.” Id. at 486.

                                           20
within policy limits.        To begin with, nothing in the opinion of the

Supreme Court, or of the court of appeals (810 S.W.2d 246, Tex.

App.–Houston [1st] 1991), in any way addresses that question (or

mentions    any    “actual     trial”    or   “voluntary    payment”     policy

provision) or any contention in respect to it.18              Moreover, it is

apparent that American Centennial did not involve refusal of a

settlement offer within policy limits. The Supreme Court’s opinion

merely mentions “alleged mishandling by trial counsel of the

litigation,” and the presence of a fact issue “as to whether the

claim was properly handled,” all without any further specification.

843 S.W.2d at 481-82.         The court of appeals opinion details the

course of the litigation, noting that the defense attorneys had,

before     depositions       were   taken,     formally      admitted     facts

substantially establishing the insured’s liability and had been

unable to withdraw those admissions.          810 S.W.2d at 249.       There is

no mention of any offer to settle within the primary carrier’s

limits or of any evidence that such a settlement was ever possible,

and the court of appeals states “even if Canal had no opportunity

to settle the . . . lawsuit within its policy limits of $100,000,

it may have breached the Stowers duty” because under Ranger County

      18
           The court of appeals observed that the $3.7 million settlement
“agreement was formalized, and a judgment was signed on February 3, 1986,” id.,
810 S.W.2d at 250, but it is obvious there was no “actual trial.” The court of
appeals also held that limitations on the Stowers claim against the primary
carrier commenced to run 30 days after the judgment (no appeal having been taken)
so the excess carriers’ suit was timely. Id. at 254-55. The Supreme Court
affirmed this limitations holding (and likewise held that limitations on the
claim against the attorneys handling the case on retention by the primary carrier
were tolled until the judgment became final). 843 S.W.2d at 483-84.

                                        21
the   “insurer’s    duty   is   not   limited   to   accepting    reasonable

settlement offers within its policy limits.”           810 S.W.2d at 254.19

The Supreme Court in American Centennial likewise cites Ranger

County for the proposition that the Stowers duty “extends to claim

investigation, trial defense and settlement negotiations.”                 843

S.W.2d at 482.     In sum, it seems clear that American Centennial did

not involve negligence with respect to a settlement offer, but

rather some sort of negligence in respect to handling the pretrial

aspects of the defense, while here there is no claim, evidence or

finding of anything comparable on the part of Mid-Continent.

Finally, although the Supreme Court’s expressed holding in American

Centennial – that an excess insurer is equitably subrogated to the

insured’s Stowers rights against the primary insurer – has never

been questioned, later Texas Supreme Court opinions cast doubt on

its largely unarticulated conclusion that a Stowers violation may

be shown absent negligent failure to accept a proper offer to

settle within the primary’s policy limits (and absent any excess

judgment following actual trial).           See American Physicians Ins.

Exch. v. Garcia, 876 S.W.2d 842, 849 (Tex. 1994); Maryland Ins. Co.

v. Head Indus. Coatings & Servs., Inc., 938 S.W.2d 27, 28-29 (Tex.




      19
         Also, the dissenting opinion in the court of appeals states (without
contradiction by the majority or by the Supreme Court) that “[t]he set of facts
before us is actionable, if it is at all, only by the expansion of the Stowers
doctrine by the supreme court’s holding in Ranger County . . . .” 810 S.W.2d at
258.

                                      22
1996); State Farm Mut. Auto Ins. Co. v. Traver, 980 S.W.2d 625, 628

(Tex. 1998); Rocor, 77 S.W.2d at 261-62.20


      20
           In Garcia, the court explains (876 S.W.2d at 849):

      “In Ranger, we stated that insurers have a duty of ordinary care
      that includes ‘investigation, preparation for defense of the
      lawsuit, trial of the case and reasonable attempts to settle.’ 723
      S.W.2d at 659; see also American Centennial, 843 S.W.2d at 482, 485
      (plurality and concurring opinions) (citing Ranger for standard of
      reasonableness in ‘investigating, preparing to defend, trying or
      settling the third party action’). At the same time, however, the
      court noted that ‘there is no contention that Ranger was negligent
      in investigation or trial of the Fitch/Eagle lawsuit.’ 723 S.W.2d
      at 659.

      . . .

      In the context of a Stowers lawsuit, evidence concerning claims
      investigation, trial defense, and conduct during settlement
      negotiations is necessarily subsidiary to the ultimate issue of
      whether   the  claimant’s    demand  was   reasonable   under   the
      circumstances, such that an ordinarily prudent insurer would accept
      it. . . . the dissent relies on language in Ranger that is dictum.
      . . . [t]he Stowers remedy of shifting the risk of an excess
      judgment onto the insurer is inappropriate absent proof that the
      insurer was presented with a reasonable opportunity to prevent the
      excess judgment by settling within the applicable policy limits.”

      Maryland Insurance states “we now hold that Texas law recognizes only one
tort duty in this context, that being the duty stated in Stowers . . . an insured
is fully protected against his insurer’s refusal to defend or mishandling of a
third party claim by his contractual and Stowers rights.” Maryland Insurance,
938 S.W.2d at 28-29. Rocor makes plain that a Stowers breach does not occur
until the insurer negligently refuses a proper settlement demand within policy
limits. Rocor, 77 S.W.3d 261-62. State Farm Mutual approves the above quoted
language from Garcia and states that Ranger’s broad language about the scope of
the insurer’s responsibilities was dicta.” State Farm Mutual, 980 S.W.2d at 628.
State Farm Mutual also holds that, contrary to other dicta in Ranger, “a
liability insurer is not vicariously responsible for the conduct of an
independent attorney it selects to defend an insured.” Id. That holding, too,
may undermine the American Centennial conclusion that there was evidence of a
Stowers violation.
      This court has relied on the above decisions to conclude that the broad
language in Ranger has been limited by Garcia so that the Stowers duty is
triggered only by a demand to settle within policy limits the insurer’s refusal
of which would be negligent and that “the Stowers duty is the only common law
tort duty Texas currently recognizes in third party insurance claims.” Ford v.
Cimarron Insurance Co., 230 F.3d 828, 832 (5th Cir. 2000). See also St. Paul
Fire & Marine Ins. Co. v. Convalescent Servs., Inc., 193 F.3d 340, 344 (5th Cir.
1999); Travelers Indem. Co. v. Citgo Petroleum Corp., 166 F.3d 761, 764 (5th Cir.
1999).

                                       23
     It must also be noted that although American Centennial holds

an excess insurer is subrogated to the insured’s Stowers claim

against the primary carrier which had taken full charge of but

mishandled the defense of the case, it does not address such

subrogation in favor of one of two co-primary insurers which has

equally participated in the defense as against the other co-primary

insurer    likewise    so    participating.        Here    Liberty    Mutual

participated in the defense and was not without control of the

litigation.     Moreover, while Liberty Mutual had an applicable

excess umbrella policy which funded $350,000 of the ultimate

settlement, that fact alone would not seem to sustain the $550,000

judgment against Mid-Continent, at least not unless Liberty Mutual

in its capacity as a co-primary insurer which had assumed defense

was likewise also subrogated to a Stowers claim of the insured

against Mid-Continent.

     Finally, uncertainty about a Stowers duty on Mid-Continent’s

part to its insured Kinsel arises also from the fact that there was

never any offer to settle within Mid-Continent’s policy limits,

whether viewed as $1 million or $700,000.21               Mid-Continent was

aware, however, that the plaintiffs had agreed to accept $1.5

million in full settlement of their claims against Kinsel, an



      21
         At or before the settlement of the plaintiffs’ claims against Kinsel,
Mid-Continent paid $300,000 to settle the plaintiffs’ claims against Crabtree,
also its insured under the same policy. There has been no challenge to the
reasonableness of that settlement. See Texas Farmers Ins. Co. v. Soriano, 881
S.W.2d 312 (Tex. 1994).

                                     24
amount within the combined remaining limits of the Mid-Continent

and Liberty Mutual primary policies, and that Liberty Mutual was

willing and able to, and ultimately did, fund that settlement.            Yet

Mid-Continent would not contribute more than $150,000, although

that amount was far less than its proportionate part and it could

have contributed a total of $700,000 without exceeding its policy

limits.      This state of facts also presents the questions not

addressed by Texas courts since left open as follows in Garcia,

viz:

       “. . . insurers have no duty to accept over-the-limit
       demands. We do not reach the question of when, if ever,
       a Stowers duty may be triggered if an insured provides
       notice of his or her willingness to accept a reasonable
       demand above the policy limits, and to fund the
       settlement, such that the insurer’s share of the
       settlement would remain within the policy limits. . . .
       Nor do we address the Stowers duty when a settlement
       requires funding from multiple insurers and no single
       insurer can fund the settlement within the limits that
       apply under its particular policy.” Id., 876 S.W.2d at
       849 n.13.

       In   sum,   although   the   recent   decision    in   General   Agents

supports     the   district   court’s    determination    that,   under   its

unchallenged factual findings, Mid-Continent violated a duty of

unspecified origin to Liberty Mutual (either as equitable subrogee

of their common insured, Kinsel, or otherwise) to contribute its

proportionate part of the Kinsel settlement, of which Liberty

Mutual had funded a disproportionately large amount, nevertheless

the holding of General Agents in this respect appears to be res

nova so far as concerns Texas law.

                                        25
     The question of whether any such duty on the part of Mid-

Continent exists is a question of Texas law, determinative of the

present suit, for if no such duty exists Liberty Mutual is entitled

to no recovery.

     Mid-Continent further argues in the alternative that even if

there is some such duty on its part, it should not be deemed to

have been breached merely because Mid-Continent may have been

negligent in its assessment of the case against Kinsel as having a

maximum settlement value of $300,000 and Liberty Mutual may have

been reasonable in valuing the case against Kinsel at $1.5 million.

Rather, according to Mid-Continent, any such duty on its part

should be measured by the standard applied to suits against an

insurer for breach of the duty of good faith and fair dealing in

the denial of a first party claim under Aranda v. Ins. Co. of North

America, 748 S.W.2d 210, 213 (Tex. 1988), which we have described

as requiring the insured to “establish the absence of a reasonable

basis for denying or delaying payment of the claim and that the

insurer knew, or should have known that there was no reasonable

basis . . . .”    Higginbotham v. State Farm Mut. Auto Ins. Co., 103

F.3d 456, 459 (5th Cir. 1997).   We observe, however, that the Texas

Supreme Court has subsequently abandoned the “no reasonable basis”

formulation, and held that the trier of fact may determine that the

insurer acted in bad faith if it “knew or should have known that it

was reasonably clear that the claim was covered.”     Universe Life


                                  26
Ins. Co. v. Giles, 950 S.W.2d 48, 54-56 (Tex. 1997).                 The Giles

opinion makes plain that the insured’s burden in the third party

context under Stowers is less that than in a first party context

under Giles (or Aranda), but it also makes plain that it has

“declined to extend the bad-faith cause of action to the third

party context.”      Giles, 950 S.W.2d at 53 n.2.

     The question of whether the standard set forth in General

Agents    –   essentially     whether   the   insurer    in    Mid-Continent’s

position was unreasonable in its evaluation of the third party case

(as well as whether the evaluation of the insurer in Liberty

Mutual’s position was reasonable) – is the appropriate one by which

to measure whether Mid-Continent breached any duty it had to

Liberty Mutual is likewise determinative, as the district court’s

findings and judgment here essentially rest on General Agents.

     As to none of these related questions of law does there appear

to be any controlling Texas Supreme Court precedent.

                        IV.    QUESTIONS CERTIFIED

     We       accordingly     hereby     certify   the        following   three

determinative questions of law to the Supreme Court of Texas:

     1.       Two insurers, providing the same insured applicable

primary insurance liability coverage under policies with $1 million

limits and standard provisions (one insurer also providing the

insured coverage under a $10 million excess policy), cooperatively

assume defense of the suit against their common insured, admitting


                                        27
coverage.    The insurer also issuing the excess policy procures an

offer to settle for the reasonable amount of $1.5 million and

demands that the other insurer contribute its proportionate part of

that settlement, but the other insurer, unreasonably valuing the

case at no more than $300,000, contributes only $150,000, although

it could contribute as much as $700,000 without exceeding its

remaining available policy limits.       As a result, the case settles

(without an actual trial) for $1.5 million funded $1.35 million by

the insurer which also issued the excess policy and $150,000 by the

other insurer.

     In that situation is any actionable duty owed (directly or by

subrogation to the insured’s rights) to the insurer paying the

$1.35 million by the underpaying insurer to reimburse the former

respecting its payment of more than its proportionate part of the

settlement?

     2.   If there is potentially such a duty, does it depend on the

underpaying    insurer   having   been   negligent   in   its   ultimate

evaluation of the case as worth no more than $300,000, or does the

duty depend on the underpaying insured’s evaluation having been

sufficiently wrongful to justify an action for breach of the duty

of good faith and fair dealing for denial of a first party claim,

or is the existence of the duty measured by some other standard?

     3.     If there is potentially such a duty, is it limited to a

duty owed the overpaying insurer respecting the $350,000 it paid on

the settlement under its excess policy?

                                   28
     We disclaim any intention or desire that the Supreme Court of

Texas confine its reply to the precise form or scope of the

questions certified.




                               29
