1

G.A. Stowers Furniture Co. v. Am. Indem. Co., 15 S.W.2d 544

(Tex. Comm’n App. 1929, holding approved).

 IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

CONTINENTAL CASUALTY §

COMPANY, §

 §

Plaintiff, §

 § Civil Action No. 3:04-CV-1866-D

VS. §

 §

ST. PAUL FIRE & MARINE §

INSURANCE COMPANY, et al., §

 §

Defendants. §

MEMORANDUM OPINION

 AND ORDER 

In this insurance litigation brought by two excess carriers

against a primary carrier seeking on various theories to recover

the proceeds they paid as a result of an adverse state-court

judgment against their insured, the court must decide whether the

primary carrier is entitled to summary judgment dismissing Stowersbased1

 and related claims. For the reasons that follow, the court

grants in part and denies in part the primary carrier’s motion for

summary judgment.

I

This is a removed action by plaintiff Continental Casualty

Company (“Continental”) and intervenor First Specialty Insurance

Corporation (“First Specialty”), two excess insurance carriers,

against defendant St. Paul Fire & Marine Insurance Company (“St.
2St. Paul attempts to characterize itself as an “excess”

carrier by virtue of USA Truck’s $2 million “self-insured

retention.” Concluding that this distinction is immaterial for

purposes of the court’s analysis, it will, for purposes of

convenience, refer to Continental and First Specialty as “excess

carriers” and to St. Paul as the “primary carrier.”

3

The court recounts the evidence in a light favorable to

Continental and First Specialty as the summary judgment nonmovants

and draws all reasonable inferences in their favor. E.g., U.S.

Bank Nat’l Ass’n v. Safeguard Ins. Co., 422 F.Supp.2d 698, 701 n.2

(N.D. Tex. 2006) (Fitzwater, J.) (citing Clift v. Clift, 210 F.3d

268, 270 (5th Cir. 2000)). 

- 2 -

Paul”), a primary insurance carrier.2 Continental and First

Specialty allege that St. Paul negligently failed to settle within

its policy limits an underlying state-court lawsuit brought against

its insureds, USA Truck, Inc. (“USA Truck”) and its driver, David

Wayne Elie (“Elie”). 

Bradley Dane Turpin (“Turpin”), a police officer, was injured

in a motor vehicle accident involving his motorcycle and a tractortrailer owned by St. Paul’s insured, USA Truck, and operated by

Elie, USA Truck’s employee.3

 Turpin and his wife sued USA Truck

and Elie in Texas state court (“Turpin Litigation”). Following a

trial, the jury returned a verdict in favor of the Turpins in the

sum of approximately $16.5 million.

Before the jury returned its verdict, the Turpins made at

least three settlement demands on USA Truck. The first was for

$1.675 million. This offer was within USA Truck’s $2 million

self-insured retention, but it was apparently rejected by USA

Truck, whose own settlement offer never exceeded $750,000
4The St. Paul policy granted St. Paul the “right to

investigate and settle any claim or suit to the extent that [St.

Paul] believe[s] is proper.” Continental App. 254. The policy

also granted St. Paul the “right to associate in the defense and

control of any claim or suit that is reasonably likely to involve

[them].” Id.

- 3 -

throughout the course of the litigation.

Anticipating a potential adverse judgment against its insured,

St. Paul became involved in the case, engaged in discussions with

the Turpins’ counsel, retained local counsel to represent St. Paul,

and otherwise participated in the litigation under the terms of the

St. Paul policy.4 The Turpins increased their settlement demand to

$3.5 million. Neither St. Paul nor USA Truck accepted this demand.

USA Truck elected not to increase its $750,000 offer.

Two weeks later, the jury returned a verdict in favor of the

Turpins for approximately $16.5 million. The verdict was satisfied

by USA Truck’s $2 million self-insured retention and by the

benefits paid under USA Truck’s primary and excess insurance

policies. St. Paul provided the first $5 million in auto and

commercial general liability coverage, subject to the self-insured

retention. Continental and First Specialty provided the next $5

million in excess coverage.

Continental brought the instant equitable subrogation action

against St. Paul in Texas state court to recover the benefits it

paid and to obtain additional relief. First Specialty intervened

as a plaintiff, and the action was removed to this court based on
5

In addition to its motion for summary judgment, St. Paul has

filed three other motions that are currently pending: St. Paul’s

August 14, 2006 “Motion to Exclude/Motion to Limine the Opinions

and Testimony of Plaintiff’s and Intervenor’s Expert Gary G. Beck”;

its October 20, 2006 motion for leave to file its second amended

answer; and its October 27, 2006 motion for leave to refile its

appendix in support of its summary judgment replies. The court

addresses St. Paul’s motion to exclude infra at § VI. The court

denies St. Paul’s other two motions as moot. Even if the court

considered the evidence in St. Paul’s reply appendix, it would

reach the same result. And the court is denying St. Paul’s summary

judgment motion on the merits, not on the ground that the defenses

were not properly pleaded.

6

The court addresses waiver at note 16 in § III(G), estoppel

in § III(G), and failure of condition precedent in § III(A).

- 4 -

diversity of citizenship. 

Continental and First Specialty maintain that they are

entitled to relief as equitable subrogees of USA Truck and Elie

based on St. Paul’s allegedly negligent failure to accept the

Turpins’ $3.5 million settlement demand. First Specialty also

asserts claims for negligent handling of the defense and settlement

negotiations.

St. Paul moves for summary judgment on Continental and First

Specialty’s claims and on its affirmative defense that a release

agreement bars all claims.5 St. Paul also appears to move for

summary judgment on unpleaded affirmative defenses of waiver,

estoppel, and failure of condition precedent.6

II

St. Paul’s burden varies according to whether it is seeking

summary judgment on Continental and First Specialty’s claims or on
7Continental and First Specialty contend that St. Paul waived

the affirmative defenses of waiver, estoppel, and failure of

condition precedent by failing to plead them. The court holds

infra at § V(C) that these defenses are not waived.

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its affirmative defenses of release, waiver, estoppel, and failure

of condition precedent.7 Because St. Paul will not bear the burden

of proof at trial on Continental and First Specialty’s Stowersbased claims, St. Paul need only point the court to the absence of

evidence of any one essential element. See Celotex Corp. v.

Catrett, 477 U.S. 317, 323 (1986). Once it does so, Continental

and First Specialty must go beyond their pleadings and designate

specific facts demonstrating that there is a genuine issue for

trial. See id. at 324; Little v. Liquid Air Corp., 37 F.3d 1069,

1075 (5th Cir. 1994). The absence of evidence of an essential

element mandates entry of summary judgment. See Edgar v. Gen.

Elec. Co., 2002 WL 318331, at *4 (N.D. Tex. Feb. 27, 2002)

(Fitzwater, J.) (citing Celotex Corp., 477 U.S. at 323). 

Concerning the part of its summary judgment motion that is

addressed to its affirmative defenses, because St. Paul will bear

the burden of proof on these affirmative defenses at trial, it

“must establish ‘beyond peradventure all of the essential elements

of the . . . defense[s].’” Bank One, Tex., N.A. v. Prudential Ins.

Co. of Am., 878 F. Supp. 943, 962 (N.D. Tex. 1995) (Fitzwater, J.)

(quoting Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir.

1986)).
8St. Paul also argues for the second time that a valid release

agreement between USA Truck and St. Paul bars all claims by

Continental and First Specialty as equitable subrogees. The court

addresses and rejects this contention infra at § IV(C).

9

St. Paul appears to contend at one point that the policy

prohibited it from assuming control of the defense.

- 6 -

III

St. Paul moves for summary judgment on Continental and First

Specialty’s Stowers claims for negligent failure to settle,

contending they fail as a matter of law. It posits that First

Specialty’s other claims for negligent handling of the defense and

settlement are not cognizable under Texas law.8

A

St. Paul contends that no duty to settle was ever triggered,

because USA Truck did not tender its self-insured retention——a

condition precedent to payment under the St. Paul policy——until the

last day of trial, so it never had the opportunity to settle. St.

Paul also posits that it never exercised control over the defense

or settlement negotiations, and that the terms of the St. Paul

policy did not require that it do so;9 that there is no evidence

that it ever refused to settle the case, or that the insured ever

demanded that it settle; and the evidence shows that the insured

instructed St. Paul not to settle.

Continental and First Specialty respond that St. Paul is

liable under the Stowers doctrine for negligently refusing to

accept the Turpins’ $3.5 million settlement demand. They posit
10Continental posits that “St. Paul made its presence——and the

potential availability of its moneys over the $2 million

threshold——known to the plaintiffs’ attorneys months before trial.”

Continental Br. 3.

- 7 -

that St. Paul’s initial “negligent interjection” in the case and

ultimate assumption of control over the defense and settlement

negotiations gave rise to a duty to accept the Turpins’ reasonable

settlement demand within policy limits——a duty that St. Paul

allegedly breached. Continental and First Specialty also contend

that St. Paul’s initial “negligent interjection” into the case

virtually eliminated the possibility of a settlement within the

insured’s $2 million self-insured retention, thereby eliminating

any incentive for the insured to settle. They appear to posit that

once St. Paul entered the case, it had a duty to accept the $3.5

million offer——despite the apparently undisputed fact that the

insured objected to settlement——because the insured’s disincentive

to settle only arose as a result of St. Paul’s own negligence.10

B

Texas law recognizes that insurers owe an implied duty of

ordinary care to their insured to accept reasonable settlement

demands that are within policy limits. See, e.g., Am. Physicians

Ins. Exch. v. Garcia, 876 S.W.2d 842, 849 (Tex. 1994); G.A. Stowers

Furniture Co. v. Am. Indem. Co., 15 S.W.2d 544, 547 (Tex. Comm’n

App. 1929, holding approved) (holding that insurer “is held to that

degree of care and diligence which a man of ordinary care and
- 8 -

diligence would exercise in the management of his own business.”).

This doctrine is commonly referred to as the Stowers doctrine, and

it is limited in scope. The Fifth Circuit, interpreting Texas law,

has noted that “[t]he raison d’etre for the Stowers doctrine is

that the insurer, when in control of the litigation, might refuse

a settlement offer that its client, the insured, would want to

accept if it had that option.” Foremost County Mut. Ins. Co. v.

Home Indem. Co., 897 F.2d 754, 758 n.5 (5th Cir. 1990). Moreover,

although the Stowers doctrine imposes a duty of ordinary care on an

insurer who assumes control of the defense and settlement of a

case, it does not “impose any duty on an insurer . . . to make or

solicit settlement proposals.” Garcia, 876 S.W.2d at 849-51

(discussing Ranger County Mut. Ins. Co. v. Guin, 723 S.W.2d 656

(Tex. 1987)). Rather, a Stowers plaintiff must plead and prove

that the claim against the insured is within the scope of coverage,

that the settlement demand is within policy limits, and that the

terms of the settlement demand are such that an ordinarily prudent

insurer would accept the demand, considering the likelihood and

degree of the insured’s potential exposure to an excess judgment.

Id. at 849. Implicit in the foregoing elements is the principle

that an insurer cannot be liable unless it assumes control over

settlement negotiations and is “presented with a reasonable

opportunity to prevent the excess judgement by settling within . .

. policy limits.” Id.; see Stowers, 15 S.W.2d at 548 (holding
- 9 -

insurer to reasonable care standard in exercising its exclusive

control over settlement negotiations); see also Ranger County Mut.

Ins. Co., 723 S.W.2d at 659 (“We held in Stowers that an insurer

which, under the terms of its policy, assumes control of a claim

. . . is held to that degree of care and diligence which an

ordinary prudent person would exercise in the management of his own

business.”). The absence of a duty to defend does not vitiate a

Stowers claim. See Rocor Int’l, Inc. v. Nat’l Union Fire Ins. Co.,

77 S.W.3d 253, 263-64 (Tex. 2002) (holding that insurer’s

assumption of exclusive control over settlement negotiations

triggered Stowers duty absent duty to defend). And at least one

Texas court has held that the Stowers duty exists even absent a

demand by the insured that the insurer accept the offer. See

Highway Ins. Underwriters v. Lufkin-Beaumont Motor Coaches, 215

S.W.2d 904, 929 (Tex. Civ. App. 1948, writ ref’d n.r.e) (“It was

not a defense to Insurer that Insured did not demand acceptance of

[the settlement offers]. Insurer must perform the duty imposed

upon it without being activated by Insured.”)

The Stowers duty arises only between the insurer and the

insured, and Texas courts have never recognized the existence of a

direct Stowers duty between insurance carriers. Texas law,

however, permits an excess carrier to bring an equitable

subrogation action under Stowers against a primary carrier. See

Am. Centennial Ins. Co. v. Canal Ins. Co., 843 S.W.2d 480, 482-83
11The Canal court also noted that a primary carrier would have

less incentive to settle reasonably if it were not liable to the

excess carrier in equitable subrogation, and that wrongful failure

to settle would likely result in increased excess coverage

premiums. See Canal Ins. Co., 843 S.W.2d at 483. 

- 10 -

(Tex. 1992) (citations omitted). Texas courts have reasoned that

primary carriers should not be relieved of the duty of care owed to

the insured simply because the insured has separately contracted

for excess coverage and has little incentive to sue the primary

carrier.11 See id. (citing Peter v. Travelers Ins. Co., 375 F.

Supp. 1347, 1350 (C.D. Cal. 1974), and Commercial Union Ins. Co. v.

Med. Protective Co., 393 N.W.2d 479, 483 (Mich. 1986)). Thus in an

equitable subrogation action under Stowers brought by an excess

carrier against a primary carrier, the excess carrier is said to

“‘stand[ ] in the shoes’ of its insured with regard to any cause of

action its insured may have against a primary insurer responsible

for the loss.” Mt. Hawley Ins. Co. v. Lexington Ins. Co., 2003 WL

21467230, at *5-*6 (N.D. Tex. June 23, 2003) (Fish, C.J.) (citing

Gen. Star Indem. Co. v. Vesta Fire Ins. Corp., 173 F.3d 946, 949

(5th Cir. 1999)). Accordingly, “before an excess insurer can

recover from a primary insurer under the doctrine of equitable

subrogation, the excess insurer must first prove that the primary

insurer failed to fulfill a duty owed to the insured.” Id.
- 11 -

C

With these principles in mind, the court turns to St. Paul’s

motion for summary judgment on Continental and First Specialty’s

Stowers-based claims. In the instant case, resolving the question

whether a legal duty arose under the Stowers doctrine turns on

whether a reasonable jury could find that St. Paul assumed control

over the settlement discussions and was “presented with a

reasonable opportunity to prevent the excess judgment by settling

within . . . policy limits.” Garcia, 876 S.W.2d at 849. This is

because, as noted, under Texas law

the Stowers duty arises only when an insurer

undertakes a defense, because in that

circumstance, the insurer assumes the

responsibility to act as the exclusive and

absolute agent of the insured in all matters

pertaining to the questions of litigation and,

thus, must act as an ordinarily prudent

person. It is this right to make strategic

decisions that imposes extra-contractual

duties on a defending carrier. 

Wilcox v. Am. Home Assur. Co., 900 F. Supp. 850, 858 (S.D. Tex.

1995) (emphasis added) (citations omitted). Mere participation in

the defense of the case is not enough. Unless the evidence shows

that St. Paul undertook a defense of the insured and assumed

responsibility to act as its exclusive agent, St. Paul cannot be

liable under Stowers. Because Continental and First Specialty do

not argue that the St. Paul policy terms gave complete and

exclusive control over the defense and settlement of the Turpin

Litigation, the court must consider whether Continental and First
- 12 -

Specialty have adduced evidence of St. Paul’s actual involvement in

the case that would be sufficient for a reasonable jury to find

that St. Paul assumed control.

Viewed favorably to Continental and First Specialty, the

evidence they have adduced would enable a reasonable jury to find

that St. Paul assumed control of the defense and therefore had a

duty under Stowers to accept the Turpins’ $3.5 million settlement

demand. The evidence suggests that St. Paul hired local counsel,

Kent Adams, Esquire (“Adams”), to represent St. Paul and to

evaluate the suit. Adams at one point contacted the Turpins

regarding settlement negotiations. He also submitted a written

evaluation of the case to USA Truck, who asserts that the

evaluation omitted material information. St. Paul advised USA

Truck that it could reasonably anticipate a verdict within the

range of $3 to $7 million. St. Paul also apparently asked USA

Truck to permit Adams to represent it, USA Truck agreed, and,

shortly before trial, Adams filed a notice of appearance as

additional counsel for USA Truck. Adams was responsible for

conducting voir dire, examining and cross-examining witnesses, and

presenting closing argument, and he was lead counsel by the

conclusion of the trial. At one point, St. Paul offered to

contribute to a settlement, and it later attempted to force a
12Continental characterizes these threats as “self-serving”

attempts to cover up the fact that St. Paul had taken on a Stowers

duty. Continental appears to posit (but without adequate

explanation) that these threats actually reflect “additional

control” by St. Paul over the defense.

13In so holding, the court need not rely on the testimony of

Gary Beck, whose testimony is the subject of St. Paul’s pending

motion to exclude, which the court addresses infra at § VI. 

- 13 -

settlement by threatening to take over.12 St. Paul continued to

assert control over Adams, at one point asking him to investigate

whether USA Truck had intentionally prejudiced St. Paul’s position

and later by sending him an email concerning closing arguments in

the case. On May 26, 2004, during trial, the Turpins made a

written $3.5 million settlement demand that St. Paul did not

accept. Considered in toto, this evidence is sufficient to permit

a reasonable jury to find that, before the Turpins made the

settlement demand, St. Paul undertook to defend the insured,

assumed control of the Turpin Litigation, and thereby assumed a

duty under Stowers.13

D

Relying on National Union Fire Insurance Co. v. CNA Insurance

Cos., 28 F.3d 29, 33 (5th Cir. 1994), St. Paul maintains that it

cannot be liable under Stowers because, as an “excess” carrier, it

was not capable of accepting the $3.5 million settlement demand

before USA Truck tendered the limits of its self-insured retention,
14As noted, see supra note 2, St. Paul characterizes USA Truck

as the “primary” carrier because of the $2 million self-insured

retention.

15Failure of a condition precedent is an affirmative defense

on which St. Paul will bear the burden of proof at trial. E.g.,

Tex. Dep’t of Hous. & Cmty. Affairs v. Verex Assur., Inc., 68 F.3d

922, 928 (5th Cir. 1995).

- 14 -

which it failed to do until June 9, 2004, the last day of trial.14

St. Paul appears to posit that its payment obligation under the

policy could not have arisen before USA Truck tendered its $2

million self-insured retention.15 

St. Paul’s reliance on National Union Fire Insurance Co. is

misplaced. The terms of the policy at issue in that case

unambiguously reserved control of the defense to the primary

carrier. The court held that the evidence adduced by the summary

judgment nonmovant at most suggested that the insurer had

participated in settlement negotiations, and that such

participation was alone insufficient to constitute assumption of

the defense. Nat’l Union Fire Ins. Co., 28 F.3d at 33 (noting that

insurer’s participation in settlement negotiations does not itself

constitute assumption of insured’s defense) (citing ArkwrightBoston Mfrs. Mut. Ins. Co. v. Aries Marine Corp., 932 F.2d 442,

445-46 (5th Cir. 1991)). In the present case, St. Paul has not

shown that the policy terms unambiguously reserved control of the

defense to USA Truck, or that St. Paul’s conduct only amounted to

participation in settlement negotiations rather than control.
- 15 -

Morever, as the court has already noted, the absence of a duty to

defend the insured is not dispositive. The relevant inquiry under

Stowers is whether St. Paul assumed control of the litigation and

settlement negotiations. See Rocor Int’l, Inc., 77 S.W.3d at 263-

64. Accordingly, the court concludes that there is a genuine fact

issue that precludes summary judgment on this ground.

E

St. Paul also appears to posit that it was precluded under the

terms of the policy from settling the case against USA Truck’s

desire. It argues that the terms of auto liability portion of the

policy, unlike the commercial general liability portion, do not

give St. Paul the right to settle a case and then recover the

self-insured retention from USA Truck. In other words, St. Paul

maintains that because the auto liability endorsement did not

expressly give it the right to recover the self-insured retention

from USA Truck, it did not afford St. Paul the right to settle the

case. The court disagrees. 

The plain terms of the auto liability endorsement provide that

“[St. Paul will] have the right to investigate and settle any claim

or suit to the extent that we believe is proper,” and that St. Paul

will “have the right to settle any claim or suit within the

available limits of coverage.” D. App. 103. St. Paul’s alleged

inability to recover the self-insured retention from USA Truck

under the terms of the policy, even if true, does not support
- 16 -

interpreting the policy in a way that vitiates a provision that

grants St. Paul the right to settle claims. Thus St. Paul has not

established that it was contractually precluded from accepting the

Turpins’ $3.5 million settlement demand.

F

St. Paul also contends that it could not have refused to

settle the case because its insured never demanded or requested

that it settle. Although it appears to be undisputed that USA

Truck never demanded that St. Paul settle the Turpin Litigation,

the Stowers duty exists even absent a demand by the insured that

the insurer accept the offer. Moreover, the court rejects St.

Paul’s argument insofar as it is premised on the notion that the

Stowers doctine requires an affirmative act of refusal on the part

of the insurer. Presuming all the other elements are satisfied,

Stowers only requires a negligent failure to accept a reasonable

settlement demand within policy limits. The court accordingly

rejects St. Paul’s contention that USA Truck’s failure to demand

that it settle the case somehow forecloses Continental and First

Specialty’s subrogated Stowers action.

G

St. Paul maintains that Continental and First Specialty are

estopped from bringing an equitable subrogation claim under Stowers

because USA Truck made clear to St. Paul that it was committed to

defending the suit, would not tender its self-insured retention,
16St. Paul also argues that a purported waiver by USA Truck of

claims against St. Paul is binding on Continental and First

Speciality as equitable subrogees. But St. Paul has failed to

establish the elements of this affirmative defense. See, e.g.,

FDIC v. Niblo, 821 F. Supp. 441, 451-52 (N.D. Tex. 1993) (Cummings,

J.).

- 17 -

and even threatened St. Paul with allegations of bad faith if it

were to negotiate a settlement over USA Truck’s objections.16

Because estoppel is an affirmative defense, e.g., FDIC v. Niblo,

821 F. Supp. 441, 451-52 (N.D. Tex. 1993) (Cummings, J.), St. Paul

must establish the elements of that defense “beyond peradventure.”

This it has not done.

 St. Paul posits that these actions by USA Truck vitiate any

duty to settle, and amount to conduct binding on Continental and

First Specialty as USA Truck’s equitable subrogees. The court

disagrees. St. Paul fails to cite any authority to support the

proposition that principles of estoppel preclude an excess carrier

from bringing a Stowers action where the insured did not wish to

settle, and this court has not located such authority on its own.

The court’s own research, however, has located expressions of

skepticism by the Fifth Circuit that an insured’s failure to demand

acceptance of a settlement offer and desire to try a case to

verdict is a recognized defense to a Stowers action. See Am. Ins.

Corp. v. Assicurazioni Generali SpA, 228 F.3d 409, 2000 WL 1056143,

at *9-*10 (5th Cir. 2000) (unpublished table decision)

(characterizing this as type of consent defense that the proponent
17In other words, “consent” by the insured to the insurer’s

failure to accept a settlement demand.

- 18 -

bears the burden of establishing).17 The Fifth Circuit concluded

not only that the proponent of the defense failed to cite any

authority for the existence of a consent defense, but that the

panel’s independent research had failed to uncover any case

recognizing consent as a defense under Texas law to a Stowers

claim. Id. The Fifth Circuit went on to conclude that even

assuming such a defense existed, the proponent had not established

it as a matter of law. Conducting a similar analysis in the

instant case, the court concludes that assuming arguendo that the

insured’s desire not to settle can be a defense to a Stowers claim,

St. Paul has failed to establish that defense as a matter of law.

For the foregoing reasons, the court denies St. Paul’s motion

for summary judgment on Continental and First Specialty’s equitably

subrogated Stowers-based claims.

H

Continental appears to rely solely on the Stowers doctrine to

assert subrogated claims on the basis of allegations that St. Paul

negligently failed to accept the Turpins’ $3.5 million settlement

demand. First Specialty, however, asserts in its summary judgment

response separate and more general allegations that St. Paul is

liable for negligently handling the defense and settlement

negotiations, as well as for breach of duty under Stowers. St.
- 19 -

Paul argues that any non-Stowers-based claims asserted by an excess

carrier against a primary carrier on the basis of equitable

subrogation are not cognizable under Texas law.

Texas law does not recognize an equitable subrogation action

by excess carriers against a primary carrier for negligent handling

of the defense or settlement negotiations. The only tort duty

recognized under Texas law in this context is the Stowers duty to

accept reasonable settlement demands that are within policy limits.

First Specialty’s reliance on more expansive language from Ranger

County Mutual Insurance Co. and Rocor International, Inc.

suggesting that Texas law recognizes a broader tort duty in this

context is misplaced. Ranger County Mut. Ins. Co., 723 S.W.2d at

659 (suggesting in dicta that Stowers duty extends to “the full

range of the agency relationship,” including “investigation,

preparation of the defense of the lawsuit, trial of the case, and

reasonable attempts to settle.”). The Texas Supreme Court has

clearly held that Texas law recognizes only one tort duty in this

context, and that is the Stowers duty to accept reasonable

settlement demands within policy limits. See Md. Ins. Co. v. Head

Indus. Coatings & Servs., Inc., 938 S.W.2d 27, 28 (Tex. 1996) (per

curiam).

Accordingly, the court grants St. Paul’s summary judgment

motion to the extent it seeks dismissal of First Specialty’s claims

that exceed those brought under Stowers.
- 20 -

IV

The court turns next to the question whether St. Paul has

established beyond peradventure that it is entitled to dismissal of

this lawsuit based on the affirmative defense of release. To

prevail, St. Paul must demonstrate without genuine and material

factual dispute, and as a matter of law, that the release precludes

Continental and First Specialty’s claims against St. Paul. 

A

In its first summary judgment motion, St. Paul maintained that

USA Truck, individually and on behalf of its employee, fully

settled and released all controversies arising out of and related

to the underlying suit, and that the settlement and release between

USA Truck and St. Paul precluded Continental and First Specialty

from recovering against St. Paul on claims premised on equitable

subrogation. The court denied the motion. Cont’l Cas. Co. v. St.

Paul Fire & Marine Ins. Co., 2006 WL 984690, at *3 (N.D. Tex. Apr.

14, 2006) (Fitzwater, J.) (“Continental I”). In its first summary

judgment motion, St. Paul argued that the release was binding on

the grounds that it was executed on August 26, 2004 at 12:08 p.m.,

before USA Truck attempted to revoke it at 2:13 p.m. the same day.

Id. at *2. The court held, however, that there was, at a minimum,

a genuine issue of material fact whether USA Truck’s written

instructions for acceptance of the release were contained not only

in the release itself but also in a facsimile that W. Todd Barnett,
18In the facsimile, sent on August 25, 2004 at 6:17 p.m.,

Barnett included the following: “[p]lease send me St. Paul’s

execution page in the morning,” and “[p]lease hold USA Truck’s

execution page in trust until St. Paul has delivered its fully

executed signature page to my offices.” Continental I, 2006 WL

984690, at *2 (citing D. App. 307, 423). Additionally, the release

provides that “[t]his Settlement Agreement shall become effective

following execution by USA TRUCK and ST. PAUL.” Id. (citing D.

App. 424).

- 21 -

Esquire (“Barnett”), USA Truck’s counsel, sent to Christopher W.

Martin, Esquire (“Martin”), St. Paul’s counsel. Id.18 The court

reasoned that St. Paul had failed to establish as a matter of law

that the instructions contained in the facsimile were not part of

the offer. And it concluded that there was a genuine issue of

material fact whether they were. Id.

B

In the present summary judgment motion, St. Paul addresses the

fact issue identified in Continental I. It posits that the release

is valid because the “undisputed evidence” shows that the facsimile

was nothing more than a transmittal page and that it was not part

of the release. In support of this contention, St. Paul cites the

deposition testimony of Barnett and Eric McConnell, USA Truck’s

Risk Management Manager and a signatory to the release, and the

terms of the release. St. Paul argues that the release was valid

upon execution by the parties, that “execution” was accomplished by

signatures only, and that execution occurred before USA Truck

attempted to revoke it. St. Paul appears to contend that because

it has addressed the “singular fact issue” that the court
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identified in Continental I, it is entitled to summary judgment

based on the affirmative defense of release.

St. Paul also argues that the purportedly validly-formed

release bars all claims in this case. It contends that the

subrogated claims that Continental and First Specialty are

asserting are barred because Continental and First Specialty “stand

in the shoes” of USA Truck, who is bound by the release. St. Paul

maintains that because Continental and First Specialty’s claims are

“purely derivative,” St. Paul may assert all defenses against them

that it could assert against USA Truck, including the affirmative

defense of release. It then posits that the terms of the release

bar all claims by Continental and First Specialty as the equitable

subrogees of USA Truck and Elie against St. Paul. St. Paul relies

on Keck Mahin v. National Union Fire Insurance Co., 20 S.W.3d 692

(Tex. 2000), and Healthsouth Corp. v. Gulf Underwriters Ins. Co,

C.A. No. 4:01-CV-793-Y (N.D. Tex. July 8, 2004) (Means, J.)——cases

in which it was determined that a valid release between the primary

insurer and the insured barred subsequent equitable subrogation

claims by excess insurers.

Continental and First Specialty respond, inter alia, that the

evidence on which St. Paul relies to support its second summary

judgment motion is irrelevant to its affirmative defense of

release. They maintain that the subjective beliefs of USA Truck

and its counsel regarding the facsimile are immaterial under Texas
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law, and they are, in any event, of negligible probative value.

Continental contends that any testimony concerning the purpose or

effect of the facsimile is excluded by the best evidence rule. It

also argues that St. Paul’s reliance on the express terms of the

release is misplaced because it is the validity of the release that

is at issue, and this evidence is cumulative of proof already

presented to the court; that there has not been any performance

under the agreement; that the cited portion of the Barnett

deposition is irrelevant because, when taken in context, the

testimony is vague and does not make offer or acceptance any more

or less likely; and that there is a genuine issue of material fact

whether the purported release was accepted, because USA Truck

communicated its revocation of the offer before St. Paul

communicated its acceptance thereof to USA Truck.

First Specialty also maintains that there was no communication

of St. Paul’s assent to USA Truck prior to USA Truck’s revocation;

and that the purported release, even if valid, does not defeat

First Specialty’s equitable subrogation claims on behalf of USA

Truck and Elie, because an insured’s release of a third party has

no effect on the subrogated insurer’s claim against the third party

if the third party had actual notice of the insurer’s subrogation

claim prior to the release. First Speciality further contends that

St. Paul had knowledge of First Specialty’s equitable subrogation

claim on behalf of USA Truck and that the claim matured before the
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purported release was signed; that the “actual payment” rule that

St. Paul advances is inconsistent with the purposes of equitable

subrogation; and that the purported release does not affect First

Specialty’s subrogated claims on behalf of Elie, because he was not

a party to the purported release.

C

“Under Texas law, release is an affirmative defense on which

St. Paul will have the burden of proof at trial.” Continental I,

2006 WL 984690, at *1 (citing MG Bldg. Materials, Ltd. v. Moses

Lopez Custom Homes, Inc., 179 S.W.3d 51, 64 (Tex. App. 2005, pet.

denied)). “A release, valid on its face, is a complete bar to any

later action based upon matters covered in the release” unless the

release is set aside.” Westfield Dev., Inc. v. Rubashkin, 2007 WL

491115, at *2 (Tex. App. Feb. 15, 2007, no pet. h.) (not designated

for publication) (internal quotation marks omitted) (quoting

Winkins v. Frank Winther Invs., Inc., 881 S.W.2d 557, 559 (Tex.

App. 1994, no writ)). “[I]n order to establish [its] affirmative

defense of release, the [defendant] must prove the elements of a

contract.” Id. (internal quotation marks omitted) (quoting Vera v.

North Star Dodge Sales, Inc., 989 S.W.2d 13, 17 (Tex. App. 1998, no

pet.)). “When the party who will have the burden of proof at trial

concerning an affirmative defense seeks summary judgment on the

basis of that defense, it must establish beyond peradventure all of

the essential elements of the . . . defense.” Continental I, 2006
19Notably, St. Paul does not attempt to incorporate by

reference any previous arguments relating to the release that it

proffered in its first summary judgment motion. 

- 25 -

WL 984690, at *1 (internal quotation marks omitted) (quoting Bank

One, Tex., N.A., 878 F. Supp. at 962).

St. Paul has failed to meet this burden. In Continental I the

court held only that St. Paul had failed to meet its burden because

there was “at a minimum” a genuine issue of material fact whether

a valid release agreement was ever formed. Id. at *2 (“In this

case, there is at a minimum a genuine issue of material fact

whether USA Truck’s written instructions for acceptance were

contained not only in the release itself but also in the facsimile

that Barnett sent to Martin.” (emphasis added)). The court did not

hold that St. Paul had established its affirmative defense as to

all elements except the validity of the formation of the release

(as St. Paul appears to assume). See id. As noted, “in order to

establish [its] affirmative defense of release, the [defendant]

must prove the elements of a contract.” Rubashkin, 2007 WL 491115,

at *2 (quoting Vera, 989 S.W.2d at 17). St. Paul has not met this

burden. Instead, regarding the elements of the purported contract,

St. Paul has focused its argument almost entirely on whether the

parties subjectively intended that the facsimile that Barnett sent

to Martin formed part of the terms of the agreement.19 Accordingly,

even if the court were to accept St. Paul’s argument, it would be

insufficient under “the heavy ‘beyond peradventure’ standard to
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obtain summary judgment on an affirmative defense as to which it

will have the burden of proof at trial.” Continental I, 2006 WL

984690, at *2. 

V

St. Paul moves for leave to file a second amended answer. It

seeks to assert the affirmative defenses of estoppel, waiver, and

failure of condition precedent. 

A

The court denies the motion as moot because it has denied St.

Paul’s summary judgment motion on the merits, not on the ground

that St. Paul failed to plead these affirmative defenses. 

B

Because the issue could arise at trial or in formulating the

pretrial order, however, the court will address whether St. Paul

has waived these affirmative defenses by failing to plead them.

St. Paul argues that pursuant to Fed. R. Civ. P. 15(a), its request

for leave should be granted because there is no undue delay or

prejudice to plaintiff or intervenor, and that abatement of

discovery prevented St. Paul from asserting these defenses earlier.

Continental and First Specialty respond that leave to amend should

be denied because, after a scheduling order deadline for amending

pleadings has passed, the moving party must show “good cause” under

Rule 16(b) before Rule 15(a) comes into play, and that St. Paul

cannot meet the “good cause” standard of Rule 16(b).
- 27 -

C

The Fifth Circuit has explicitly recognized that 

[a]lthough failure to raise an affirmative

defense under rule 8(c) in a party’s first

responsive pleading “generally results in a

waiver . . ., [w]here the matter is raised in

the trial court in a manner that does not

result in unfair surprise . . . technical

failure to comply precisely with Rule 8(c) is

not fatal.”

Giles v. Gen. Elec. Co., 245 F.3d 474, 491 (5th Cir. 2001) (quoting

Allied Chem. Corp. v. Mackay, 695 F.2d 854, 855-56 (5th Cir.

1983)); e.g., Johnson v. Johnson, 385 F.3d 503, 516 n.7 (5th Cir.

2004). “Thus, a defendant does not waive an affirmative defense if

he ‘raised the issue at a pragmatically sufficient time, and [the

plaintiff] was not prejudiced in its ability to respond.’” Giles,

245 F.3d at 491 (brackets in original) (quoting Allied Chem. Corp.,

695 F.2d at 856). Accordingly, St. Paul need not have obtained

leave to amend under Rule 15(a), provided that it raised the

defenses in this court at a pragmatically sufficient time and there

is no resulting unfair surprise or prejudice to Continental’s and

First Specialty’s ability to respond. See id.; Swicegood ex rel.

Swicegood v. Med. Protective Co., 2003 WL 22234928, at *9 n.16

(N.D. Tex. Sept. 19, 2003) (Fitzwater, J.).

St. Paul raised its affirmative defenses of waiver, estoppel,

and failure of condition precedent in its motion for summary

judgment. Continental and First Specialty did not move under Rule

56(f) to obtain additional discovery so that they could respond to
- 28 -

St. Paul’s motion, and they have not adequately demonstrated that

they were prejudiced in their ability to respond to these defenses

or that they were unfairly surprised by them. 

Continental and First Specialty argue that they would be

prejudiced because they have already conducted extensive discovery

in the absence of notice that St. Paul will rely on these

affirmative defenses. This argument is undermined, however, by the

absence of any showing that Continental and First Specialty require

significant additional discovery to fully and fairly respond to St.

Paul’s affirmative defenses. Accordingly, the court holds that

these defenses are available to St. Paul at trial and can be

included in the pretrial order.

VI

St. Paul moves to exclude or moves in limine to prevent

Continental and First Specialty from introducing certain opinions

and testimony of Gary G. Beck, whom they intend to call as an

expert witness. The court denies the motion to exclude without

prejudice, and it defers a ruling on the motion in limine until the

pretrial conference. After considering the motion, the court has

determined that it is better considered in the context of a

pretrial (or trial) ruling rather than in the present vacuous

setting.
- 29 -

* * *

For the foregoing reasons, St. Paul’s August 14, 2006 motion

for summary judgment is granted in part and denied in part. St.

Paul’s August 14, 2006 motion to exclude/motion in limine is denied

without prejudice to the extent St. Paul seeks to exclude Beck’s

opinions and testimony, and the court defers a ruling on the motion

in limine until the pretrial conference. The clerk of court is

directed to close the motion in limine for statistical purposes, in

accordance with the usual procedure. St. Paul’s October 20, 2006

motion for leave to file its second amended answer, and its October

27, 2006 motion for leave to refile its appendix in support of its

summary judgment replies, are denied as moot.

SO ORDERED.

August 23, 2007.

_________________________________

SIDNEY A. FITZWATER

UNITED STATES DISTRICT JUDGE