               IN THE UNITED STATES COURT OF APPEALS
                       FOR THE FIFTH CIRCUIT



                             No. 99-20270



     AMERICAN INSURANCE COMPANY; UNDERWRITERS AT LLOYD’S LONDON;
     AMERICAN HOME ASSURANCE COMPANY,

                                            Plaintiffs-Appellants,

           versus


     ASSICURAZIONI GENERALI S P A; ET AL,

                                            Defendants,

     ASSICURAZIONI GENERALI S P A,

                                            Defendant-Appellee.



           Appeals from the United States District Court
                 for the Southern District of Texas
                            H-93-CV-1801

                            July 24, 2000

Before GARWOOD, WIENER, and DENNIS, Circuit Judges.*

GARWOOD, Circuit Judge:

     Plaintiffs-appellants American Insurance Company, Underwriters at

Lloyd’s London, and Home Assurance Company (collectively, the Excess

Carriers) filed suit in Texas state court against Assicurazioni Generali




     *
      Pursuant to 5TH CIR. R. 47.5 the Court has determined that this
opinion should not be published and is not precedent except under the
limited circumstances set forth in 5TH CIR. R. 47.5.4.
SpA (Generali)1, alleging that Generali violated its duty under the

Stowers doctrine, which requires an insurer to accept a reasonable

settlement offer within policy limits or bear any resulting loss greater

than policy limits. The Excess Carriers claimed that Generali’s failure

to accept a reasonable settlement offer in an underlying personal injury

suit caused them to sustain substantial losses from an eventual

settlement in excess of Generali’s policy limits. Generali removed this

action to federal court on the basis of diversity jurisdiction. The

district court granted summary judgment in favor of Generali.       The

Excess Carriers appeal, and we now reverse and remand.

                   Factual and Procedural History

     Parker & Parsley Petroleum Company (Parker & Parsley) served as a

general partner of a partnership that leased and operated a natural gas

well in the San Juan Basin of New Mexico.        Parker & Parsley was

designated as “operator” of the project. On September 20, 1990, the

well exploded, severely burning three employees of a subcontractor

servicing the wellsite, George Valencia, David Cupps, and Jeffrey Hinger

(collectively, the Hinger plaintiffs).      After recovering workers’

compensation benefits from their employer, the Hinger plaintiffs in

February 1991 filed suit in New Mexico state court against Parker &




     1
        The Excess Carriers had also named Gay & Taylor, Inc., Thomas
Howell Group Americas, and J.G. Reynaud as defendants in this action.
The claims against these defendants were later dismissed, and the Excess
Carriers have not appealed their dismissal. Therefore, those claims are
not before this Court.

                                   2
Parsley, Evergreen Resources, Inc.,2 and certain subcontractors. The

subcontractors settled before trial.3 Parker & Parsley and Evergreen

Resources proceeded to trial.

     Parker & Parsley carried a $1 million primary insurance policy

issued by Generali and a $20 million excess policy issued by the Excess

Carriers.4 Generali’s primary policy required Generali to defend any

suit against Parker & Parsley and reserved for Generali the right to

make such investigation and settlement of any claim or suit it deemed

appropriate.

     The Hinger plaintiffs’ suit against Parker & Parsley and Evergreen

Resources proceeded to trial on November 4, 1992, and ended on December

11, 1992. During a recess on November 10, 1992, the Hinger plaintiffs

presented the following written settlement demand:

          “Plaintiffs are willing to fully settle this case
     with Defendants, Parker & Parsley Petroleum Co. and
     Evergreen Resources, Inc., on the following terms:

           (1)   Payment of the sum of $986,000.00 or the
                 remaining primary limits of your clients’
                 insurance coverage, whichever is less[5];

     2
       Evergreen Resources, a co-general partner of Parker & Parsley,
was also insured under the policies issued by Generali and the Excess
Carriers.
     3
        Halliburton Company settled for $736,000, Wellhead Services,
Inc. for $514,000, and Sam Billington/Drew Bates Consulting Company for
$950,000.
     4
        American Insurance Company held fifty percent of the excess
policy, Underwriters at Lloyd’s London twenty-five percent, and American
Home Assurance Company twenty-five percent.
     5
       Generali had already paid $14,000 to a fourth burn victim, who
was not a party to the Hinger suit.

                                   3
           (2)   Release and conveyance to Plaintiffs of any
                 interest which you may have in the model
                 wellhead and BOP[6];

           (3)   The settlement shall be confidential; and

           (4)   We reserve the option to have some portion of
                 the funds put into a structured settlement to
                 be placed through Larry Ward & Associates. We
                 will advise you within forty-eight (48) hours
                 of your acceptance what portion will be
                 structured.

     This offer expires at 12:00 noon on November 11, 1992.”7

The Hinger plaintiffs’ offer was received at approximately 1:20

p.m. on November 10, 1992, by W.R. Logan (Logan), the New Mexico

attorney defending Parker & Parsley and Evergreen Resources. Logan

then transmitted the offer at 4:00 p.m. on November 10, 1992 to

J.G. Reynaud (Reynaud), the Director of Non-Marine Claims at Gay &

Taylor, Inc., an Atlanta company that served as the third-party

claims administrator for Generali.       In July 1992, Generali had

authorized Reynaud to settle the Hinger suit within Generali’s

policy limits of $1 million.

     Upon receiving the Hinger plaintiffs’ offer, Reynaud and

separate counsel began analyzing the claim and, on the morning of

November 11, 1992, flew to Albuquerque to review defense files and


     6
        A BOP, or blowout preventer, is a well-known safety device
for working on gas wells like the one at issue in the Hinger suit.
     7
        After two days of trial testimony, the Hinger plaintiffs made
the offer, because David Cupps, the most seriously injured of them, did
not believe he was physically and emotionally capable of sitting through
the remainder of the trial.

                                   4
interview Logan regarding the trial’s status.            During this meeting

in Albuquerque, Logan recommended to Reynaud that the offer be

accepted.    Reynaud did not accept the offer by the noon deadline,

and it expired.     Before trial proceedings began on the morning of

November 13, 1992, Reynaud offered the Hinger plaintiffs $110,000

to settle the suit; by its terms, this offer expired when court

recessed that day. The Hinger plaintiffs rejected Reynaud’s offer.

     At the conclusion of the trial, the jury found Parker &

Parsley     and   Evergreen    Resources     liable    for     the      explosion,

allocating    ninety   percent    of   the   responsibility        to    Parker   &

Parsley, nine percent to Evergreen Resources, and one percent to

Sam Billington.     The jury found no fault on the part of the Hinger

plaintiffs or the subcontractors. On December 21, 1992, the Hinger

plaintiffs    obtained   a    judgment     against    Parker   &     Parsley   and

Evergreen Resources on the jury’s verdict for an amount in excess

of $12 million, including approximately $5 million in compensatory

damages and $7 million in punitive damages.8           The trial court later

amended the judgment to account for a settlement credit of $2.2

million; however, this credit was eliminated on appeal.                  Following

appeal, the Hinger suit was settled for almost $16 million with the

Excess Carriers funding approximately $15 million.


     8
         According to Logan, this verdict set a record for the
amount of damages awarded by a jury in New Mexico state district
court in Albuquerque. For a more complete description of the New
Mexico suit, see Hinger v. Parker & Parsley Petroleum Co., 902 P.2d
1033 (N.M. Ct. App. 1993).

                                       5
     The Excess Carriers subsequently filed suit against Generali

in Texas state court, alleging, inter alia, that Generali violated

its duty under the Stowers doctrine to reasonably settle the Hinger

suit within primary policy limits when it rejected the Hinger

plaintiffs’ November 10, 1992 offer.      Generali then removed this

action to federal court on the basis of diversity jurisdiction.

After removal, Generali moved for summary judgment on the following

grounds: (1) that the period of time to accept the November 10,

1992 offer was unreasonable; (2) that the offer’s requirement that

a portion of the settlement’s proceeds be placed in a structured

settlement rendered the offer conditional such that the Stowers

doctrine was not triggered; and (3) that the insured consented to

a trial, thereby precluding the Excess Carriers from asserting a

Stowers claim. The district court granted Generali’s motion on the

basis that Generali acted reasonably, as a matter of law, in

rejecting the November 10, 1992 offer.    Specifically, the district

court concluded that the short period of time to accept the Hinger

plaintiffs’   offer   rendered   Generali’s   decision   to   reject   it

reasonable as a matter of law.     The Excess Carriers now appeal to

this Court.

                             Discussion

     The Excess Carriers assert that the district court erred in




                                   6
granting Generali judgment as a matter of law on their Stowers claim.9

We agree and reverse and remand.

      We review a grant of summary judgment applying the same standard

as the court below was obliged to apply. See King v. Chide, 974 F.2d

653, 655 (5th Cir. 1992). Summary judgment is proper when no issue of

material fact exists and the moving party is entitled to judgment as a

matter of law. See id. at 656. The summary judgment evidence is viewed

in the light most favorable to the nonmovant, in this case, the Excess

Carriers, and questions of law are reviewed de novo. See id. We may

affirm a judgment on any basis raised below and supported by the record.

See Davis v. Scott, 157 F.3d 1003, 1005 (5th Cir. 1998); Davis v.

Liberty Mut. Ins. Co., 525 F.2d 1204, 1207 (5th Cir. 1976); see also 10A

CHARLES ALAN WRIGHT,   ET AL.,   FEDERAL PRACTICE   AND   PROCEDURE § 2716, at 290 (3d

ed. 1998).

      We apply Texas law to the Excess Carriers’ action.10                       When



      9
        On appeal, the Excess Carriers also contend that Generali
breached its obligations under the primary policy by failing to pay
interest on the entire judgment entered in favor of the Hinger
plaintiffs. Generali responds that the Excess Carriers never raised
this claim before the district court and that the primary policy was not
breached. In its order, the district court made no mention of a breach
of contract claim. As we reverse and remand the Excess Carriers’
Stowers action, we need not and do not address the breach of contract
claim.
      10
        The parties assume, without argument, that Texas law governs
this action. Although the Hinger suit occurred in New Mexico, the
primary policy between Generali and the insured reflects that the
insured is a Texas corporation and that complaints by the insured may
be addressed to the Texas Board of Insurance. Accordingly, we apply
Texas law as the parties have treated it as applicable.

                                           7
adjudicating a claim for which state law provides the rules of decision,

we are bound to apply the law as interpreted by the state’s highest

court. See Transcontinental Gas v. Transportation Ins. Co., 953 F.2d

985, 988 (5th Cir. 1992). If the state’s highest court has not spoken

on a particular issue, “it is the duty of the federal court to determine

as best it can, what the highest court of the state would decide.” Id.

When making such a determination, we are bound by an intermediate state

appellate court decision unless “convinced by other persuasive data that

the highest court of the state would decide otherwise.” First Nat’l

Bank of Durant v. Trans Terr Corp., 142 F.3d 802, 809 (5th Cir. 1998)

(internal quotations and footnote omitted). We, however, “will not

expand state law beyond its presently existing boundaries.” Rubinstein

v. Collins, 20 F.3d 160, 172 (5th Cir. 1994) (footnote omitted).

     Under Texas law, an insurer has a duty to accept reasonable

settlement offers.    This is commonly referred to as the Stowers

doctrine. See G.A. Stowers Furniture Co. v. American Indem. Co., 15

S.W.2d 544, 547 (Tex. Comm’n App. 1929, holding approved). A settlement

demand, however, does not trigger the Stowers duty unless three

prerequisites are met: “(1) the claim against the insured is within the

scope of coverage; (2) the demand is within policy limits; and (3) the

terms of the demand are such that an ordinarily prudent insurer would

accept it, considering the likelihood and degree of the insured’s

potential exposure to an excess judgment.” State Farm Lloyds Ins. Co.

v. Maldonado, 963 S.W.2d 38, 41 (Tex. 1998); see Texas Farmers Ins. Co.

                                   8
v. Soriano, 881 S.W.2d 312, 314 (Tex. 1994). To impose a Stowers duty

on an insurer, a settlement demand must propose to release the insured

fully in exchange for a stated sum of money, although the term “the

policy limits” may be substituted for a sum certain.      See American

Physicians Ins. Exchange v. Garcia, 876 S.W.2d 842, 848 (Tex. 1994).

The Stowers doctrine requires that an insurer “exercise that degree of

care and diligence which an ordinarily prudent person would exercise in

the management of his own business in responding to settlement demands

within policy limits.” Id. at 848 (internal quotations omitted). A

breach of this duty gives rise to a cause of action sounding in

negligence.

     Although the Stowers doctrine arose in the context of an insured

seeking a remedy against his insurer, Texas law also permits actions

under the Stowers duty by an excess insurer against a primary insurer

through the doctrine of equitable subrogation. See General Star Indem.

Co. v. Vesta Fire Ins. Corp., 173 F.3d 946, 949-50 (5th Cir. 1999)

(citing American Centennial Ins. Co. v. Canal Ins. Co., 843 S.W.2d 480,

482-83, 485-6 (concurring opinion of Hecht, J., joined by four other

justices) (Tex. 1992)). “Equitable subrogation is the legal fiction

through which a person or entity, the subrogee, is substituted, or

subrogated, to the rights and remedies of another by virtue of having

fulfilled an obligation for which the other was responsible.” Id. at

949. Under equitable subrogation, “an excess insurer, paying a loss

under a policy, ‘stands in the shoes’ of its insured with regard to any

                                   9
cause of action its insured may have against a primary insurer

responsible for the loss.” Id. Accordingly, for the excess insurer to

recover from a primary insurer, “the excess insurer must first prove

that the primary insurer failed to fulfill a duty owed to the insured.”

Id. “In recognizing the availability of this remedy, the Texas Supreme

Court reasoned that, if excess carriers were not subrogated to the

claims of their insured, primary insurers would have less incentive to

settle within their policy limits and might be tempted to ‘gamble’ with

excess carriers’ money when potential judgments approach the primary

insurers’ limits.” Id. (citing American Centennial Ins. Co., 843 S.W.2d

at 483). However, Texas law neither requires the insurer to make or

solicit offers to settle the claim or suit nor has extended direct

duties based on the relationship between excess and primary carriers.

See id.; American Physicians Ins. Exchange, 876 S.W.2d at 851.

     Both Generali and the Excess Carriers agree that the Hinger suit

fell within the scope of Generali’s primary policy. Generali contends

that the Excess Carriers’ Stowers action fails for the following

reasons: (1) the offer was not within the primary policy limits; (2)

Generali acted reasonably in rejecting the offer; (3) the offer was

conditional and therefore does not fall under the Stowers doctrine; and

(4) the insured’s consent to trying the Hinger suit to verdict defeats

the Excess Carriers’ Stowers action. We consider these issues in that

order.

I    Offer Within Policy Limits


                                  10
     On appeal, Generali argues that the district court’s grant of

summary judgment can be affirmed on the basis that the Stowers doctrine

was not triggered by the Hinger plaintiffs’ offer as it was not within

policy limits. Generali contends that the demand for the insured’s

interest, if any, in the blowout preventer (apparently a model trial

exhibit), rendered the offer outside policy limits. In its summary

judgment order, the district court noted “[p]arenthetically, [that] the

offer appears to have exceeded the policy limits because it asks for the

policy limits plus other transfers, but the offer is assumed to have

been within the limits.” “Although we can affirm a summary judgment on

grounds not relied on by the district court, those grounds must at least

have been proposed or asserted in that court by the movant.” Johnson

v. Sawyer, 120 F.3d 1307, 1316 (5th Cir. 1997). Generali did not move

for summary judgment on this ground before the district court.

Therefore, we cannot affirm the district court’s grant of summary

judgment on this basis.11

II   Generali’s Reasonableness as a Matter of Law

     The Stowers doctrine sounds in negligence, requiring an ordinarily


     11
         Curiously, positions taken by Generali before the district
court undercut its assertion on appeal that the Hinger plaintiffs’ offer
was not within primary policy limits. In its motion for summary
judgment, Generali stated that on “November 10-11, 1992, . . . the
Hinger plaintiffs made an offer within Generali’s limit.” Generali’s
reply to the Excess Carriers’ response to Generali’s motion for summary
judgment reiterates this position, declaring that the Hinger plaintiffs
“did not . . . make a demand within Generali’s policy limits[] until the
afternoon of November 10, 1992"–the demand at issue in this appeal.
Moreover, in his deposition, Reynaud testified that the Hinger
plaintiffs’ offer was within primary policy limits.

                                   11
prudent insurer to accept a reasonable settlement offer or be liable for

any judgment in excess of the primary policy limits, taking into

“consider[ation] the likelihood and degree of the insured’s potential

exposure to an excess judgment.” Garcia, 876 S.W.2d at 849. In Garcia,

the Texas Supreme Court stated that “the 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.” Id. The district court interpreted “reasonable opportunity”

to consist of a substantive and a procedural requirement: the former

referring to the reasonableness of the terms of the offer, and the

latter concerning the amount of time to either accept or reject the

offer given the consequences of the decision. This analysis, although

not specifically described in this manner by any Texas court, properly

characterizes the appropriate inquiry. See id. (“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.”). Generali argued, and the district court

concluded, that it acted reasonably as a matter of law in not accepting

the Hinger plaintiffs’ offer because of the short period of time allowed

to accept the offer and the uncertainties involved in the possible

structuring of a portion of the settlement. We disagree and hold that


                                   12
on the instant record a genuine issue of material fact is present as to

whether Generali acted reasonably.

     We first consider the potential exposure to a judgment outside the

primary policy limit. The Hinger plaintiffs had suffered severe burn

injuries, and Logan considered that the damages finding might well run

as high as $3 million, although he did not believe punitive damages were

a possibility. He recommended that the settlement offer be accepted.

Logan expected that the jury would apportion approximately 15-25 percent

of the comparative responsibility to the insured with the remaining

responsibility spread among the plaintiffs and the settling defendants.

Reynaud composed a memorandum on November 9, 1992, one day before

receiving the Hinger plaintiffs’ settlement offer, which stated that

“the verdict could exceed [Generali’s $1 million] policy.” Despite this

possibility, Reynaud considered a $750,000 settlement to be reasonable.12



     Nevertheless, under New Mexico law the insured likely could be held

responsible for the entire loss by the Hinger plaintiffs, even if the

jury apportioned 15-25 percent of the comparative responsibility to the

insured. The Hinger plaintiffs argued before the New Mexico district

court that the principles of Saiz v. Belen School District, 827 P.2d 102




     12
       We also note that on November 7, 1992, the Albuquerque press
reported the multi-million dollar settlement of a local burn victim case
involving a nine year-old girl.

                                   13
(N.M. 1992)13, should apply, under which the insured could be held

strictly liable for the entirety of the Hinger plaintiffs’ losses. In

October 1992, the New Mexico district court made a preliminary ruling

that Saiz would not apply. However, the court also stated that, if the

evidence adduced at trial convinced the court that Saiz should apply,

it would revisit the issue.      In fact, Reynaud testified in his

deposition that, if the Saiz opinion applied, the insured would be

responsible for the entire damage award even if apportioned only one

percent of the comparative responsibility for the Hinger plaintiffs’

losses.

     On this record, a jury could reasonably conclude that an insurer

of ordinary prudence would find the offer substantively reasonable and

that a significant possibility of a judgment in excess of the primary

policy limit existed.

     With regard to the reasonableness of the opportunity to accept the

Hinger plaintiffs’ offer, Generali argues that it was not only the

shortness of the period allowed to accept the offer, but also the

uncertainty surrounding the structured settlement that makes its

rejection of the offer reasonable as a matter of law.      Admittedly,

Reynaud employed independent counsel to assist him in evaluating whether

or not to accept the offer, and the two worked diligently to analyze the

Hinger suit and the offer, including traveling to Albuquerque to meet



     13
         The New Mexico Supreme Court issued the Saiz opinion on
February 21, 1992, over six months before the Hinger suit was tried.

                                   14
with Logan and review defense files. However, we cannot conclude that

the present summary evidence establishes reasonableness as a matter of

law. The events forming the basis of the Hinger suit occurred two years

before the offer was made, the suit had been pending over twenty months,

and, several months before trial, Generali had granted Reynaud the

authority to settle the Hinger suit within the primary policy limits.

Jerrald Roehl, the Hinger plaintiffs’ attorney (Roehl), made the offer

to Logan approximately twenty-three hours before it expired.       When

Reynaud received notice of the offer, twenty hours remained to accept

it. Logan recommended to Reynaud that the offer be accepted. Moreover,

the parties, including Reynaud acting on behalf of the insured, had

previously attempted to mediate the Hinger suit, and the trial in the

New Mexico trial court had already begun several days previously when

the offer was tendered. There is no evidence that more time to evaluate

the offer was ever requested (or that the Hingers’ counsel was informed

such was needed) before it expired, that there was any attempt to accept

the offer after it expired or that there was any reasonable possibility

the offer would have been accepted had more time been allowed.

Reynaud’s November 13th $110,000 settlement offer to the Hinger

plaintiffs reinforces this point, as he handed the offer to Roehl at the

beginning of trial that day and it terminated when court recessed that

day. This certainly was a period of time less than the twenty hours

Reynaud had to accept the Hinger plaintiffs’ November 10th offer and the




                                   15
amount was not even in the same ballpark as the Hingers offer.14

      Although the issue is indeed a very close one, we conclude that on

the present record whether Generali acted reasonably in not accepting

the Hinger plaintiffs’ November 10th offer is a fact question

appropriate for a jury determination, not summary judgment.15        The

district court erred in granting Generali summary judgment on the basis

that it acted reasonably as a matter of law.

III   Unconditional Offer

      In its motion for summary judgment, Generali argued that the Hinger



      14
         We note that there is no evidence even suggesting that the
offer’s reference to a structural settlement provision required more
time for evaluation or had anything whatever to do with the failure to
accept the offer.
      15
         In finding that Generali acted reasonably as a matter of law
because of the lack of sufficient time to evaluate the November 10, 1992
demand, the district court relied on DeLaune v. Liberty Mutual Insurance
Co., 314 So.2d 601 (Fla. Ct. App. 1975), and Glenn v. Fleming, 799 P.2d
79 (Kan. 1990). Neither case, however, supports the conclusion that the
refusal to accept an offer within a twenty-three hour period several
days into the trial of a twenty month old lawsuit (concerning an over
two year old incident), in which discovery was apparently complete,
mediation had been attempted, and authority to settle for policy limits
had been procured, is reasonable as a matter of law. See Glenn, 799
P.2d at 85-86 (holding that failure to accept policy limits offer within
two weeks allowed was not evidence of bad faith where “the case was less
than four months old. Discovery had scarcely begun. There were several
defendants . . . no report of the incident was submitted . . . [to the
insurer] until suit was filed.”); DeLaune, 314 So.2d at 602-03 (finding
no negligence in refusing a policy limit offer that was open for ten
days when the offer was received approximately six weeks after the
occurrence of the underlying accident and only eight days after defense
counsel received the file, on the tenth day, a Friday, defense counsel
informed plaintiff’s counsel he could likely have a response by Monday
but plaintiff’s counsel refused an extension, and on Monday the
insurance company attempted to settle for the policy limit but plaintiff
refused).

                                   16
plaintiffs’ offer was not unconditional, because it permitted the Hinger

plaintiffs to place a portion of the settlement into a structured

annuity.16   Generali claims that this arrangement left open the

possibility that Generali could be held liable for payments to the

Hinger plaintiffs in the event that the annuity company became unable

to make such payments. Generali concludes that this risk of future

exposure rendered the Hinger plaintiffs’ offer conditional and,

therefore, did not trigger the Stowers duty.       The district court

determined that, despite being uncertain, the offer was unconditional.

On appeal, Generali renews this argument. We conclude that the summary

judgment evidence here does not establish as a matter of law that the

Hinger plaintiffs’ offer was conditional.

     “Generally, a Stowers settlement demand must propose to release the

insured fully in exchange for a stated sum of money, but may substitute

‘the policy limits’ for a sum certain.”       American Physician Ins.

Exchange, 876 S.W.2d at 848-49. Moreover, this Court has held that the

Stowers doctrine “does not require the insurer to accept a conditional

offer carrying risks of further liability.” Danner v. Iowa Mutual Ins.

Co., 340 F.2d 427, 430 (5th Cir. 1964); see id. at 429 (“There must be

an unconditional offer to settle before there can be said to be a breach



     16
         The reservation for the structured settlement states as
follows:
     “We reserve the option to have some portion of the funds put
     into a structured settlement to be placed through Larry Ward
     & Associates. We will advise you within forty-eight (48)
     hours of your acceptance what portion will be structured.”

                                   17
of the insurer’s duty.”) (emphasis omitted). Generali claims that the

Hinger plaintiffs’ reservation of the right to place a portion of the

settlement proceeds into a structured settlement18 rendered the offer

conditional.   In support of this position, Generali relies on the

deposition testimony of Don Hawley (Hawley), an associate director of

major litigation claims adjustment at Fireman’s Fund.19 Hawley stated

that it is his understanding that underwriters of structured settlements

retain contingent risks.20    Generali also asserts that the Hinger

     18
        Black’s Law Dictionary defines a structured settlement as “[a]
settlement in which the defendant agrees to pay periodic sums to the
plaintiff for a specified time.” BLACK’S LAW DICTIONARY 1377 (7th ed.
1999). The arrangement contemplated by the Hinger plaintiffs differs
as Generali would be expected to provide funds to Larry Ward &
Associates which would in turn make (or purchase an annuity to make)
periodic payments to the Hinger plaintiffs. The motivation for entering
into such an arrangement is not only because of the economics of the
transaction, but also because of tax benefits which can arise. See
Western United Life Assur. Co. v. Hayden, 64 F.3d 833, 839-40 (3d Cir.
1995).
     19
        Hawley first became involved in the Hinger suit in November
1993, about one year after judgment was entered in favor of the Hinger
plaintiffs. Hawley, acting on behalf of the Excess Carriers, oversaw
the appeal of the judgment and eventual $16 million settlement of the
Hinger suit.
     20
        Hawley’s testimony on this point reads in part as follows:
          “Q. . . .
          What kind of contingent risk is involved in annuities?
          A. If the company that the annuity is placed with is
     unable to meet their obligations, the obligation would back
     on the placing carrier. In this case it would have been
     Fireman’s Fund, AIG and the London market.
          Q.    So in other words, if whoever agrees to make
     these payments in the future to the plaintiffs is unable to
     make those payments, then the excess insurers in this case
     would have then been liable to make those future payments?
          A.    That’s correct.
          Q.    Why do carriers typically seek a discount of
     at least ten percent in order to assume this risk?

                                   18
plaintiffs’ deciding whom the structured settlement would be placed

through created a heightened risk of exposure to future liability.

     In response, the Excess Carriers state that the possible

designation of a portion of the settlement proceeds for the purchase of

a structured settlement or annuity did not render the offer conditional.

The Excess Carriers also maintain that, when considering whether to

accept the offer, Generali was not concerned with any future liability

stemming from a structured settlement. In addition, the Excess Carriers

contend that Generali’s now-stated fear of future liability lacks

validity, as the standard practice is for the insured and insurer to

receive a release from any future liability in the event the annuity

company fails to make the periodic payments. The Excess Carriers claim

that the goal of a structured settlement is to reduce the tax liability

stemming from a plaintiff’s recovery and that section 130 of the

Internal     Revenue   Code,   26    U.S.C.   §   13021,   requires   a


          A.    Well, you’ll have to forgive me, I am not an
     expert in structured settlements or annuities. But as it was
     explained to me by our structured settlement person, was in
     order to assume–in other words, if we’re going to assume the
     hundred percent of the risk anyway, why buy a structure.”
     21
           26 U.S.C. § 130 provided from 1988 through 1996 as follows:

           “(a) In general.–Any amount received from agreeing to
     a qualified assignment shall not be included in gross income
     to the extent that such amount does not exceed the aggregate
     cost of any qualified funding assets.
           (b) Treatment of qualified funding asset.–In the case
     of any qualified funding asset–
                 (1) the basis of such asset shall be reduced by
           the amount excluded from gross income under subsection
           (a) by reason of the purchase of such asset, and
                 (2) any gain recognized on a disposition of such

                                    19
      asset shall be treated as ordinary income.
      (c) Qualified assignment.–For purposes of this section,
the term ‘qualified assignment’ means any assignment of a
liability to make periodic payments as damages (whether by
suit or agreement) on account of personal injury or sickness
(in a case involving physical injury or physical sickness)—
            (1) if the assignee assumes liability from a
      person who is a party to the suit or agreement, and
            (2) if—
                  (A) such periodic payments are fixed and
            determinable as to amount and time of payment,
                  (B) such periodic payments cannot be
            accelerated, deferred, increased, or decreased by
            the recipient of such payments,
                  (C) the assignee’s obligation on account of
            the personal injuries or sickness is no greater
            than the obligation of the person who assigned the
            liability, and
                  (D) such periodic payments are excludable
            from the gross income of the recipient under
            section 104(a)(2).
The determination for purposes of this chapter of when the
recipient is treated as having received any payment with
respect to which there has been a qualified assignment shall
be made without regard to any provision of such assignment
which grants the recipient rights as a creditor greater than
those of a general creditor.
      (d) Qualified funding asset.–For purposes of this
section, the term ‘qualified funding asset’ means any annuity
contract issued by a company licensed to do business as an
insurance company under the laws of any State, or any
obligation of the United States, if—
            (1) such annuity contract or obligation is used by
      the assignee to fund periodic payments under any
      qualified assignment,
            (2) the periods of the payments under the annuity
      contract or obligation are reasonably related to the
      periodic payments under the qualified assignment, and
      the amount of any such payment under the contract or
      obligation does not exceed the periodic payment to
      which it relates,
            (3) such annuity contract or obligation is
      designated by the taxpayer (in such manner as the
      Secretary shall by regulations prescribe) as being
      taken into account under this section with respect to
      such qualified assignment, and
            (4) such annuity contract or obligation is

                             20
complete release of the parties to the litigation for the tax benefits

to become effective. As evidence of this supposedly standard practice,

the Excess Carriers refer to the actual settlement reached in the Hinger

suit which includes an annuity in which the Excess Carriers provided

funds to Larry Ward & Associates for periodic payments to the Hinger

plaintiffs and received a release from any future liability. Therefore,

the Excess Carriers conclude that the Hinger plaintiffs’ offer was

unconditional.

     Neither Generali nor the Excess Carriers cite any authority that

addresses whether the possibility of structuring some portion of a

settlement renders the offer either conditional or unconditional. The


           purchased by the taxpayer not more than 60 days before
           the date of the qualified assignment and not later than
           60 days after the date of such assignment.”

     From 1989 through 1995, 26 U.S.C. § 104(a)(2) provided as follows:

“§ 104.   Compensation for injuries or sickness

      (a) In general.–Except in the case of amounts attributable (and not
in excess of) deductions allowed under section 213 (relating to medical,
etc., expenses) for any prior taxable year, gross income does not
include–

     (1) . . .

     (2) the amount of any damages received (whether by suit or
agreement and whether as lump sums or as periodic payments) on account
of personal injuries or sickness;

     . . .”

The concluding sentence of § 104(a) provided: “Paragraph (2) shall not
apply to any punitive damages in connection with a case not involving
physical injury or physical sickness.”



                                   21
Texas courts which have considered whether an offer is conditional or

unconditional provide little guidance in resolving the issue before this

Court. See Trinity Univ. Ins. Co. v. Bleeker, 966 S.W.2d 489, 490 (Tex.

1998); Insurance Corp. of Am. v. Webster, 906 S.W.2d 77, 80-81 (Tex.

App.—Houston[1st]   1995,   writ   denied);   Jones   v.   Highway   Ins.

Underwriters, 253 S.W.2d 1018, 1022 (Tex. Civ. App.—Galveston 1952, writ

ref’d n.r.e.).   Under the Stowers doctrine, the requirement for an

unconditional settlement offer generally refers to a release of the

causes of action asserted in the underlying litigation, in this case,

the personal injury claims by the Hinger plaintiffs.         A settling

defendant remains subject to claims to enforce the terms of the

settlement reached by the parties.      The Excess Carriers argue that

Generali’s interpretation of the Hinger plaintiffs’ offer raises this

latter type of future liability, not the former. Even so, the question

remains whether the settlement offer was such that its acceptance could

expose Generali to being required, under certain conditions, to pay more

than its policy limits. A structured settlement, contemplating the

purchase of an annunity, may well provide for periodic payments over

time totaling more than the original amount used to purchase the

annunity, in recognition of the earning value of money.       See, e.g.,

Hayden, 64 F.3d at 839-40. If, as here, the cash settlement amount is

the policy limits, and a portion of that is used to fund a structured

settlement, and if the annuity company defaults and the liability

insurer remains liable under the settlement agreement to pay the


                                   22
remaining periodic payments, then the settlement could obligate the

liability insurer to pay more than the amount of its policy limits.22

     Settlement demands, such as the one at issue in this appeal, often

are written in outline form and cannot fully encompass all the details

of an eventual agreement between the parties. Some level of common

practice and understanding necessarily underlies negotiations and

demands. The Hinger plaintiffs’ offer to “fully settle this case with

Defendants” tends to suggest that no potential liability on the part of

Generali or the insured would remain upon acceptance of the offer. See

Gunn Infinite, Inc. v. O’Byrne, 996 S.W.2d 854, 859-60 (Tex. 1999)

(determining that the terms “settle” and “settlement” “implicitly if not

explicitly required” the release of a party’s claims). T         h    e

dispositive issue before the Court remains the meaning of the settlement

offer, specifically, whether or not the common understanding of the

Hinger plaintiffs’ offer includes the release of Generali and the

insured from any future liability–not only on all the claims of the

plaintiffs arising out of the incident in question but also under the

settlement agreement--if Larry Ward & Associates (or the annuity company

it selected) became unable to make the periodic payments to the Hinger

plaintiffs. Neither Hawley’s testimony nor any of the other summary


     22
        For example, if liability insurance company A’s policy limits
are $1,000,000 and the plaintiff’s settlement offer is for Company A to
(1) pay $600,000 in cash to the plaintiff, and (2) pay $400,000 in cash
to Company B in return for Company B’s promise to pay plaintiff $87,000
a year for the next five years, and (3) guarantee Company B’s
obligation to plaintiff, then acceptance of the settlement offer may
obligate Company A to payment of more than its policy limits.

                                   23
judgment evidence resolves this issue. Hawley did not testify to the

common practice and understanding of structured settlement provisions

and, in fact, admitted that he was not an expert in the field of

structured settlements and was essentially merely repeating what had

been “explained to me by our structured settlement person.” Therefore,

his statements cannot be determinative. As noted previously, the Hinger

plaintiffs settled with several defendants before trial. Each offer

contained a provision for structuring some portion of the settlement

through Larry Ward & Associates; the record, however, does not indicate

whether the settling defendants received a release from future liability

associated with the structured settlement. However, the $16 million

settlement reached after the appeal to the New Mexico court of appeals

does contain such a release.23 There is simply no evidence in the record

sufficient to establish that reasonable attorneys and adjusters would

regard the Hinger plaintiffs’ offer as calling for an arrangement under

which Generali would retain contingent liability for the periodic

payments to be made by an annuity company under a structured settlement

or as being reasonably susceptible to being properly so interpreted.

     In addition, when considering whether to accept the Hinger

plaintiffs’ offer, Reynaud was not concerned with any future liability

stemming from the structured settlement provision. Generali’s position


     23
        The correspondence between the Hinger plaintiffs and their
counsel, Roehl, refers to the tax advantages of the structured
settlements, implying that they conform to section 130 of the Internal
Revenue Code. In his deposition testimony, Roehl reiterates the tax
advantages of the structured settlements.

                                   24
in this litigation that the offer was conditional gives the impression

of being a post-hoc rationalization. There is no evidence whatever that

Reynaud or anyone else on behalf of Generali ever concluded (or was

advised)–certainly not prior to the institution of this suit by the

Excess Carriers–that the settlement offer might be so construed as to

authorize imposition of liability on Generali in the event the annuity

company defaulted in the periodic payments to the Hinger plaintiffs that

presumably would be called for under a structured settlement. And it

is also absolutely clear that neither Reynaud nor anyone else on behalf

of Generali ever raised any question, or requested any clarification,

in this respect with the Hinger plaintiffs or anyone else. Cf. Martin

v. Xarin Real Estate, Inc., 703 F.2d 883, 887-88 (5th Cir. 1983)

(refusing to consider payment by personal check instead of cash as a

basis for defeating the formation of contract where the receiver

acquiesced to the form of payment).

     In conclusion, on the present record Generali’s contention that the

offer was conditional has not been established as a matter of law and,

therefore, cannot be a basis for affirming the district court’s

judgment.

IV   Consent by Parker & Parsley as a Defense

     Generali also asserts that the Excess Carriers’ Stowers claim is

barred, because the insured, Parker & Parsley and Evergreen Resources,

did not demand that the November 10, 1992 offer by the Hinger plaintiffs

be accepted and, in fact, desired that the Hinger suit be tried to


                                   25
verdict. In response, the Excess Carriers argue that Texas law has not

recognized this defense to a Stowers action and that, even if it does,

the evidence does not establish the affirmative defense of consent as

a matter of law.      Under the doctrine of equitable subrogation, the

Excess Carriers stand in the shoes of the insured, Parker & Parsley, and

“are subject to any defenses assertable against [the] insured, including

the refusal to settle and the failure to cooperate.”           American

Centennial Ins. Co., 843 S.W.2d at 483.

     Generali cites Certain Underwriters of Lloyd’s v. General Accident

Insurance Co. of America, 909 F.2d 228 (7th Cir. 1990), and Insurance

Co. of North America v. Medical Protective Co., 768 F.2d 315 (10th Cir.

1985), in support of its contention that consent bars the Excess

Carriers’ Stowers claim.    These cases, which apply Indiana law and

Kansas law, respectively, do recognize consent by an insured as a

defense to a suit by an excess carrier against a primary carrier for the

wrongful failure to settle an underlying action within the primary

policy limits. However, Generali has not cited, nor has our independent

research uncovered, any case recognizing consent as a defense under

Texas law to a Stowers claim.24   Moreover, in Insurance Co. of North


     24
        One Texas court of appeals has held that the duty to accept
reasonable offers under the Stowers doctrine exists without the insured
demanding that the offer be accepted. See Highway Ins. Underwriters v.
Lufkin-Beaumont Motor Coaches, 215 S.W.2d 904, 929 (Tex. Civ.
App.–Beaumont 1948, writ ref’d n.r.e.) (“It was not a defense to Insurer
that Insured did not demand acceptance of Alexander’s offers. Insurer
must perform the duty imposed upon it without being activated by
Insured.”). Although this opinion casts some doubt on consent being a

                                   26
America, the policy at issue covered medical malpractice and stated

“that the ‘company shall not compromise any claim hereunder without the

consent of the insured.’” Id. at 319. In contrast, Generali’s primary

policy does not contain such a provision and, in fact, states that

Generali “may make such investigation and settlement of any claim or

suit as it deems expedient.” In addition, Parker & Parsley’s in-house

attorney supervising the Hinger suit, William Dingler (Dingler),

testified that he did not feel certain that he had the authority to veto

a settlement offer by Generali and that Generali, through Reynaud,



defense to a Stowers claim, it does not preclude the existence of the
defense asserted by Generali.
      The Texas Supreme Court’s recent decision, Keck, Mahin & Cate v.
National Union Fire Insurance Co. of Pittsburgh, ___ S.W.3d ____, 2000
WL 674756 (Tex. May 25, 2000), sheds little light on the validity of
consent as a defense to a Stowers claim.      In Keck, the Texas Supreme
Court considered whether an insured’s written release of malpractice
claims against its attorneys precluded an excess insurance carrier’s
malpractice claim against the attorneys, which alleged errors on the
part of the attorneys in handling the defense of an underlying action
against the insured. The court “assume[d], without deciding, that [the
insured]’s agreement with [its attorneys] could affect [the excess
carrier’s] and [the primary carrier’s] respective rights against [the
attorneys] because neither insurance carrier argues differently in this
Court.” Id. at n.2. After concluding that the release did not bar
certain elements of the excess carrier’s malpractice action, the court
then held that the “present summary judgment evidence” did not establish
the validity of the release, because the attorneys (who as fiduciaries
carried the burden of proving that the release agreement was fair and
reasonable) did not show “the state of [the insured]’s information or
that the agreement was fair and reasonable.” Id. at *5. In Keck, the
court also considered a primary carrier asserting the affirmative
defense of contributory negligence on the part of the excess carrier and
the limitations on this defense. See id. at *6-10. Although Generali
pleaded contributory negligence in its answer, it did not raise
contributory negligence in its motion for summary judgment before the
district court. Accordingly, we need not address the Texas Supreme
Court’s treatment of that subject in Keck.

                                   27
determined how to proceed in settlement and mediation processes of the

Hinger suit. Although Generali raised the defense of consent as a basis

for its summary judgment motion, the district court did not pass on the

issue. Assuming arguendo that consent is a valid defense to a Stowers

action, we conclude that Generali has not established its entitlement

to summary judgment on this defense.

     Under Texas law, consent is an affirmative defense, and Generali

bears the burden of establishing it at trial.      See Conoco, Inc. v.

Amarillo Nat’l Bank, 996 S.W.2d 853, 853 (Tex. 1999) (per curiam); see

also General Mills Restaurants, Inc. v. Texas Wings, Inc., 12 S.W.3d

827, 835 (Tex. App.–Dallas 2000, no pet. h.); State Bar of Texas v.

Dolenz, 3 S.W.3d 260, 268 (Tex. App.–Dallas 1999, no pet. h.). Such

consent would have to be predicated on the insured being adequately

informed of settlement negotiations and trial proceedings and on an

unequivocal decision by the insured to refuse the offer. See Certain

Underwriters of Lloyd’s, 909 F.2d at 233-34; Insurance Co. of N. Am.,

768 F.2d at 319-20.    Generali has not established either.

     First, the evidence does not suffice to establish, as a matter of

law, that Dingler was fully informed of the settlement offer and the

trial strategy.   In his deposition testimony, Dingler stated that,

although he was aware of the Hinger plaintiffs’ November 10th offer, he

was not notified of Logan’s recommendation that the offer be accepted.

In the absence of knowing that the lead trial counsel’s opinion was that

the settlement offer should be accepted, an insured cannot be said to


                                   28
have been fully informed such that the defense of consent is established

as a matter of law. See Keck, Mahin & Cate, ___ S.W.3d at ___ (finding

summary judgment inappropriate where the party with the burden of

proving the validity of a release failed to establish the state of

information known by the purported releasing party).       Second, the

evidence does not unequivocally indicate that Parker & Parsley refused

the offer. Admittedly, Dingler did testify that Parker & Parsley’s

general counsel, Mark Withrow, stated that he had no reason to settle

the Hinger suit.   On the other hand, Dingler also testified that he

would have gone along with a decision by Generali to settle the Hinger

suit and that he did not consider himself as having the authority to

veto such a decision. Moreover, Dingler considered Reynaud as being

responsible for making decisions during the mediation conference of the

Hinger suit, and Reynaud did not consult Dingler, or anyone else at

Parker & Parsley, either when he rejected the Hinger plaintiffs’ offer

or when he offered to settle the Hinger suit for $110,000 on November

13. On this record, even if the insured’s consent is a defense to a

Stowers action under Texas law, the evidence, when viewed in the light

most favorable to the Excess Carriers, does not rise to the level

necessary for consent to be established as a matter of law.

                              Conclusion

     For the reasons stated, we reverse the district court’s grant of

summary judgment in favor of Generali and remand the cause for further

proceedings not inconsistent herewith.


                                   29
REVERSED and REMANDED.




                         30
