When you own liability insurance, whether it is home insurance or auto insurance, your policy undoubtedly possesses a clause that allows you to turn the claim over to the insurer when the claim is covered under the policy. The insurance company then has a duty to defend you from lawsuits for those claims. Typically insurers will attempt to settle the suit within the policy limits. Sometimes – and this is likely one of those – the insurance company cannot settle and ultimately ends up losing at trial. The insurance company may not settle for a variety of reasons. For example, the plaintiff may be requesting an unreasonable amount for the damages that occurred, or the settlement offer is reasonable but it exceeds the limits of the policy.
Deciding what to do after a court awards a judgment against you is both a legal and a financial decision. The “right” answer depends on the judgment amount in excess of the insurance, your assets, what state those assets are in, your income and likely future income, and a variety of other factors. One thing to consider is whether the insurance company accurately executed its duty to you under the policy.
In Texas, insurance companies that defend you against claims covered by your policy have a reasonable duty to settle. This means when a settlement is offered against a claim that your policy covers, and the settlement amount is within the maximum limits of your policy, the settlement would include a full release of claims against you, and a reasonable insurer would accept it, the insurance company must accept the offer and settle. There is definitely flexibility in defining what a reasonable insurer would accept in a settlement for a given claim; however, insurance companies are good at calculating the value of claims. They should be able to determine how reasonable a settlement offer is.
Stowers claims in Texas
When an insurance company fails to satisfy this duty, the insured party has a right to recover from the insurance company for the full value of judgment beyond the insurance policy limit (which the insurer has or will pay to the plaintiff). This is a Stowers cause of action in Texas. Texas permits an insured party to assign that claim to the plaintiff to recover the rest from the insurer. That can be a benefit to the insured, because the insured will not have to sue the carrier.
It’s important to note that this cause of action only exists after meeting all the elements. If the plaintiff does not extend a settlement offer within the policy limits then there is no cause of action. If the settlement offer is the maximum policy limit and a reasonable carrier would not accept it, there is no cause of action. The point here is that this cause of action is not a “slam dunk” by any means. It requires another trial and it can be difficult to prove whether rejecting the offer was reasonable.