                               Fourth Court of Appeals
                                      San Antonio, Texas
                                    DISSENTING OPINION
                                         No. 04-19-00180-CV

           IN RE FARMERS TEXAS COUNTY MUTUAL INSURANCE COMPANY

                     From the 285th Judicial District Court, Bexar County, Texas
                                   Trial Court No. 2018CI11399
                            Honorable Karen H. Pozza, Judge Presiding

Opinion by: Patricia O. Alvarez, Justice
Dissenting Opinion by: Sandee Bryan Marion, Chief Justice

Sitting:          Sandee Bryan Marion, Chief Justice
                  Patricia O. Alvarez, Justice
                  Irene Rios, Justice

Delivered and Filed: June 26, 2019

           I concur in the majority’s decision to grant relator Farmers Texas County Mutual Insurance

Company’s (“Farmers”) petition for mandamus as it pertains to real party in interest Cassandra

Longoria’s breach of contract claim. Because I believe there can be no negligent failure to settle

(or “Stowers”) claim absent a judgment in excess of policy limits, however, I respectfully dissent

from the majority’s decision to deny the petition as it pertains to that claim.

                                        The Stowers Doctrine

           Under the common law Stowers doctrine, when responding to settlement demands within

policy limits, an insurer has a duty “to exercise ‘that degree of care and diligence which an

ordinarily prudent person would exercise in the management of his own business’ . . . .” Am.

Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 848 (Tex. 1994) (quoting G.A. Stowers Furniture

Co. v. Am. Indem. Co., 15 S.W.2d 544, 547 (Tex. Comm’n App. 1929)). A Stowers claim arises
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when an “insurer’s negligent failure to settle results in an excess judgment against the insured.”

Phillips v. Bramlett, 288 S.W.3d 876, 879 (Tex. 2009).

        To plead a Stowers claim, the insured must allege: “(1) the claim is within the scope of

coverage; (2) a demand was made that was within policy limits; and (3) the demand was such that

an ordinary, prudent insurer would have accepted it, considering the likelihood and degree of the

insured’s potential exposure to an excess judgment.” Seger v. Yorkshire Ins. Co., Ltd., 503 S.W.3d

388, 395–96 (Tex. 2016). “When these conditions coincide and the insurer’s negligent failure to

settle results in an excess judgment against the insured, the insurer is liable under the Stowers

Doctrine for the entire amount of the judgment, including that part exceeding the insured’s policy

limits.” Phillips, 288 S.W.3d at 879. Therefore, to plead a Stowers claim, the insured must allege

the three elements giving rise to a duty and Stowers damages, i.e.—the difference between an

excess judgment and policy limits. See id.

                                              Analysis

        Here, the parties’ dispute concerns damages and whether Longoria’s pleadings, “taken as

true, together with inferences reasonably drawn from them, . . . entitle [Longoria] to the relief

sought.” See TEX. R. CIV. P. 91a.1. Farmers argues Longoria’s failure to plead that any negligence

on Farmers’ part resulted in an excess judgment is fatal to Longoria’s Stowers claim. In response,

Longoria argues the existence of an excess judgment against the insured is not a required element

of a Stowers claim.

        While recognizing that Stowers damages may arise from a judgment in excess of policy

limits, the majority concludes the precise question presented in this case is one of first impression.

Specifically, the majority states no Texas court has determined “whether an insured has a Stowers

cause of action against her insurance company when, as here, the case settles pre-trial and the




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Dissenting Opinion                                                                     04-19-00180-CV


insured has paid a portion of the settlement because the insurer refused to pay the entirety of the

settlement demand.” Although it appears no Texas court has addressed the precise fact pattern at

issue here, I do not believe this case presents a novel question of law. Applying supreme court

precedent, I would hold the law is settled that there can be no Stowers liability absent a judgment

in excess of policy limits, even under these circumstances.

        The Phillips decision is instructive. 288 S.W.3d 876. In that case, the supreme court

addressed the interplay between the Stowers doctrine and the statutory damages cap in a health

care liability claim. Id. at 878–79. The court explained that where the statutory damages cap is less

than the insurance policy limits, there can be no Stowers damages because there can be no excess

judgment:

        [T]he Stowers Doctrine and the statutory cap both shield the insured physician from
        excess liability: the first from liability in excess of policy limits, the latter from
        liability in excess of the legislatively fixed cap. But because the cap limits damages
        without regard to insurance coverage, its application will always affect Stowers
        liability to some degree. When the cap is above the amount of insurance coverage,
        it will simply restrict Stowers liability. When the cap falls below the amount of the
        policy, however, the cap will eliminate the possibility of any excess liability against
        the insured and, with that, any common-law claim under the Stowers Doctrine.

Id. at 879 (emphasis added). In other words, there is no Stowers claim unless the insured is liable

for an amount in excess of policy limits. The court emphasized that “excess liability” is “one

critical element” of a Stowers claim. Id. While the Phillips majority did not state that an excess

“judgment” is a critical element of a Stowers claim, it stands to reason there can be no Stowers

liability without one because the insured has no legal obligation to pay anything absent a judgment.

        Longoria, however, argues an insured may incur excess liability by way of a settlement

within policy limits. According to Longoria, her alleged damages (which are undisputedly less

than her $500,000 policy limits) are Stowers damages because she would not have incurred them

but for Farmers’ negligent mishandling of the underlying litigation, which she claims exposed her



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Dissenting Opinion                                                                     04-19-00180-CV


to a potential judgment of up to $1 million. But the Stowers doctrine does not protect an insured

against potential liability, nor does it protect an insured from incurring an excess judgment in the

first place. Rather, it affords an insured a remedy in the event of an excess judgment. As the

dissenting opinion in Phillips states, the purpose of the Stowers doctrine is “to afford the insured

a safe harbor should its insurer unreasonably refuse to settle a claim within policy limits and the

insured thereafter suffer an excess judgment.” Id. at 884 (O’Neill, J., dissenting) (emphasis added).

        Longoria also relies on the supreme court’s decision in Canal, an equitable subrogation

case involving excess insurance carriers. See Am. Centennial Ins. Co. v. Canal Ins. Co., 843

S.W.2d 480 (Tex. 1992). In Canal, the primary carrier provided coverage up to $100,000 and

handled the investigation and defense of a negligence case brought against the insured. Id. at 481.

After the underlying case settled for $3.7 million, the two excess carriers brought suit against the

primary carrier, alleging the primary carrier’s mishandling of the litigation forced the excess

carriers to pay the full settlement less the primary carrier’s $100,000 contribution. Id. Answering

a question of first impression in Texas, the supreme court held the excess carriers could assert an

equitable subrogation action against the primary carrier. Id. at 483. The court explained its

reasoning:

        [O]ur prior decisions in Stowers and Ranger County imposed clear duties on the
        primary carrier to protect the interests of the insured. The primary carrier should
        not be relieved of these obligations simply because the insured has separately
        contracted for excess coverage. In this situation, where the insured has little
        incentive to enforce the primary carrier’s duties, the excess carrier should be
        permitted to do so through equitable subrogation.

Id. (internal citations omitted).

        Unlike an insured, who has no legal duty to pay a settlement she has not consented to pay,

excess carriers can be liable for the full amount of any settlement in excess of the primary carrier’s

policy limits. Therefore, for policy reasons, Canal created a narrow rule permitting an excess



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Dissenting Opinion                                                                   04-19-00180-CV


carrier to assert a Stowers claim against a primary carrier even where the excess liability is the

result of a settlement in lieu of a judgment. The Canal rule simply has no applicability where there

is no excess coverage. But even if we were to read Canal as permitting an insured to bring a

Stowers claim in the absence of an actual judgment, as Longoria encourages us to do, the Canal

rule would not relieve the insured of the burden to plead damages in excess of the primary policy

limits. Longoria has not done so here, nor can she, as the settlement she agreed to was within her

policy limits.

         Because Longoria did not plead the existence of a judgment in excess of policy limits, I

would hold she failed to plead a viable Stowers claim and, therefore, the trial court clearly abused

its discretion by denying Farmers’ motion to dismiss the claim. Accordingly, I respectfully dissent

from the majority’s decision to deny the petition for mandamus as it pertains to Longoria’s Stowers

claim.

                                                  Sandee Bryan Marion, Chief Justice




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