1 UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 00-50589

In the Matter of DAVID LEE DAVIS,

Debtor.

SAFEWAY MANAGING GENERAL AGENCY, INC. for

STATE AND COUNTY MUTUAL FIRE INSURANCE CO.,

Appellant,

v.

RANDOLPH OSHEROW, Trustee; JAMES BAKER, Individually and as

Temporary Guardian of the ESTATE OF DAVID BAKER,

an Incapacitated Person; and LELE BAKER,

Appellees.

Appeal from the United States District Court

for the Western District of Texas

Austin Division

June 7, 2001

Before GARWOOD, PARKER, and DENNIS, Circuit Judges.

ROBERT M. PARKER, Circuit Judge:

Appellant Safeway Managing General Agency, Inc., appeals the

district court’s judgment affirming the bankruptcy court’s judgment

declaring that a cause of action pursuant to G.A. Stowers Furniture2

Co. v. American Indemnity Co.

, 15 S.W.2d 544 (Tex. Comm’n App.

1929, holding approved), against Appellant exists in the property

of the bankruptcy estate pursuant to 11 U.S.C. § 541. Because we

conclude that such cause of action does not exist in the property

of the estate, we REVERSE and RENDER.

I.

This action arose out of the following stipulated facts.

David Lee Davis, Debtor, was a driver involved in an automobile

accident on January 21, 1994, that allegedly resulted in injuries

to Appellee David Baker, who was a passenger in Davis’s vehicle.

At t he time of the accident, Davis was insured by an automobile

liability policy issued to him by Appellant on August 17, 1993.

The policy provided liability limits of $20,035.00 per person and

aggregate bodily injury limits of $40,035.00 per accident.

On July 8, 1994, Appellee James Baker, as next friend of David

Baker, brought suit against Davis in the State District Court of

Travis County, Texas. The claims in this suit were later amended

to include claims of James Baker, individually and as temporary

guardian of David Baker, as well as claims of Appellee Lele Baker,

individually, and the suit was transferred to the Travis County

Probate Court. Davis was represented by attorney Ken Richey, who

was retained and paid by Appellant. By letter dated April 5, 1994,

Appellant received an offer of settlement from the Bakers, but

never responded.3

On October 20, 1994, Appellant intervened in the State action

and interpleaded the entire bodily injury limits available under

its policy covering Davis. On November 3, 1994, the Bakers

answered Appellant’s intervention and counterclaimed against

Appellant by asserting a cause of action pursuant to Stowers for

negligently failing to settle claims within the policy limits. The

Bakers’ claims against Davis were later transferred to the Probate

Court. In addition to the Bakers, the State action named as

defendants four other claimants who allegedl y suffered injuries

arising out of the accident and whose claims exceeded the amount of

insurance proceeds available un der Appellant’s policy. All of

these competing claims were resolved befo re Davis filed his

bankruptcy petition--three by settlement and one by default

judgment.

On Ju ly 9, 1996, the trial date for the State action, Davis

filed a Chapter 7 bankruptcy petition and Appellee Randolph Osherow

was appointed as trustee. The Bakers moved the bankruptcy court to

modify the automatic stay to permit the State action to proceed to

a trial and the bankruptcy court modified the stay on October 2,

1996. On November 6, 1996, the bankruptcy court granted Davis his

bankruptcy discharge pursuant to 11 U.S.C. § 727. The Bakers did

not file a complaint or obtain an exception of their cl aims from

the discharge order. However, on September 8, 1997, the Bakers

filed a proof of claim in the bankruptcy case alleging an4

unsecured, non-priority claim in the amount of $2,300,000.00 for

alleged damages arising as a result of the accident.

The State action was tried on or about January 26, 1998, and

a verdict was rendered in favor of Davis. The trial court granted

a new trial and the action was retried on or about April 26, 1999.

The retrial resul ted in a verdict against Davis in the amount of

$550,000.00. The trial court entered judgment against Davis in the

amount of $828,234.42 on July 27, 1999. A motion for new trial was

filed on August 25, 1999, and was denied on October 8, 1999.

After the first verdict, but before the retrial of the State

action, Appellant on February 1, 1999, filed an adversary action in

the bankruptcy court against the trustee and the Bakers seeking a

declaratory judgment that no Stowers claim exists or will exist in

the bankruptcy estate against Appellant for its conduct relating to

the State action. The adversary action was tried by the bankruptcy

court on stipulated facts and the bankruptcy court on February 22,

2000, issued an opinion and a final judgment declaring that a

Stowers cause of action exists and is owned by the bankruptcy

estate. Appellant appealed this judgment to the district court,

which on June 16, 2000, affirmed the bankruptcy court without any

analysis or reasons. Appellant then timely appealed the district

court’s judgment to this court on July 10, 2000.5 II.

We have jurisdiction over this appeal pursuant to 28 U.S.C. §§

158(d) and 1291. We review the trial court’s findings of fact for

clear error and conclusions of law de novo

. C entury Indem. Co. v.

Nat’l Gypsum Co. Settlement Trust (In re Nat’l Gypsum Co.)

, 208

F.3d 498, 504 (5th Cir. 2000). The principal issue raised by this

appeal is whether or not the bankruptcy court correctly declared

that a Stowers cause of action accrued and exists in the bankruptcy

estate. Therefore, our review requires the examination of the

bankruptcy court’s judgment under Texas law. See State Farm Life

Ins. Co. v. Swift (In re Swift)

, 129 F.3d 792, 795 (5th Cir. 1997).

Appellant contends that the bankruptcy court erred in ruling

that a Stowers claim could exist in favor of the estate. Appellant

specifically argues that under Texas law, a Stowers claim does not

accrue until a judgment is rendered in excess of policy limits, and

that in this action, because such judgment was not rendered until

three years after Davis filed for bankruptcy protection, the estate

has no Stowers claim. Moreover, Appellant argues that Davis’s

bankruptcy discharge nullified any potential for a Stowers claim or

any injury that gave rise to a Stowers claim. Finally, Appellant

argues that the bankruptcy court’s decision was based, at least in

part, on factual findings m ade outside the stipulated facts and

beyond the scope of judicial notice.

We agree with Appellant that there is no Stowers claim in the6

bankruptcy estate. The Texas Supreme Court has held that “a

Stowers cause of action does not accrue until the judgment in the

underlying case becomes final.” S treet v. Hon. Second Ct. of

Apps.

, 756 S.W.2d 29 9, 301 (Tex. 1988) (emphasis added);

Linkenhoger v. Am. Fid. & Cas. Co.

, 260 S.W.2d 884, 887 (Tex. 1953)

(“The [insured] could not have maintained this present suit until

such time as his liability and the extent thereof had been

deter mined by a final judgment.”), o verruled in part on other

grounds

, Hernandez v. Great Am. Ins. Co. of New York , 464 S.W.2d

91, 93 (Tex. 1971), Street

, 756 S.W.2d at 301. Since there was no

judgment against Davis until July 27, 1999, more than three years

after the commencement of his bankruptcy case, Davis could not have

had a Stowers claim against Appellant before that date because “the

tort was not complete.” Linkenhoger , 260 S.W.2d at 887. Because

Dav is had no such claim as of the commencement of his bankruptcy

case, such claim also could not have been included in his estate.

See 11 U.S.C. § 541(a)(1) (“[Property of the estate includes] all

legal or equitable interests of the debtor as of the commencement

of the [debtor’s bankruptcy] case.”).

Moreover, Davis’s bankruptcy discharge more tha n two years

prior to the judgment in the State action negates the existence of

a Stowers claim. A S towers claim requires both an insurer’s

negligent failure to settle, and subsequent harm or legal injury to

the insured. F oremost County Mut. Ins. Co. v. Home Indem. Co.

, 8977

F.2d 754, 757 (5th Cir. 1990). Even assuming facts suggesting that

Appellant negligently failed to settle th e Bakers’ claims, Davis

has not suffered any legal injury cognizable under a Stowers cause

of action because he is, due to the discharge, no longer personally

liable to the Bakers for any jud gment in excess of the amount

covered by the ins u rance policy. S ee 11 U.S.C. § 524; cf.

Foremost , 897 F.2d at 758 (holding that a covenant not to execute

releasing the insured from all legal obligations to pay resulted in

no injury to the insured). We agree with Appellees that filing

bankruptcy is costly and burdensome, but we cannot conclude, under

these facts, that a Stowers cause of action exists in the property

of the bankruptcy estate.

Because our conclusion sufficiently disposes of the merits of

this appeal and Appellant’s claim for declaratory judgmen t, we

express no opinion on Appellant’s argum ent that the bankruptcy

court clearly erred by finding facts outside the stipulated facts

for trial and beyond the scope of judicial notice. Therefore, the

judgment of the district court is REVERSED and judgment is RENDERED

in favor of Appellant.8

GARWOOD, Circuit Judge, concurring.

I concur, with these additional observations. A S towers claim

exists to protect the insured against liability on a judgment in

excess of policy limits where that has resulted from the insurer’s

negligent refusal to accept an offer to settle the suit for an

amount within the policy limits. Plainly, the purpose of the

Stowers doctrine is to thus protect the insured

—— not the plaintiff

in the underlying suit (or the insured’s other creditors) as such.

See Whatley v. City of Dallas , 758 S.W.2d 301, 307 (Tex. App.

Dallas, 1988, writ denied) (plaintiff in underlying s uit “has no

standing to assert” Stowers claim). Cf. H ernandez v. Great

American Ins. Co . of N.Y. , 464 S.W.2d 91, 94 (Tex. 1971) (“the

Stowers action lies to repair the harm to the insured”). Moreover,

the protection afforded the insured is against real, meaningful

—— not

simply theoretical

—— liabilit y. F oremost County Mut. Ins. Co. v.

Home Indem. Co. , 897 F.2d 754, 757-58 (5th Cir. 1990). Here, the

insurance company had interpleaded its policy limits into the state

court proceeding over a year before the minor insured filed his

bankruptcy. The insured received his still unobjected to discharge

in bankruptcy well before not only the excess judgment in question

but indeed befo re any trial in the underlying suit and some ten

m onths before any claim was even filed in the bankruptcy b y the

plaintiff in that suit. Appellee contends, and it is essentially1 And, as the bankruptcy was filed long before the judgment in

the underlying suit there was no Stowers claim when the bankruptcy

commenced and hence such a claim could not be included within the

insured’s bankruptcy estate. 11 U.S.C. § 541 (a)(1).

2 This could conceivably be the case even in an involuntary

bankruptcy commenc ed before the judgment in the underlying suit.

See 11 U.S.C. §§ 303(b), 541 (a)(1). In that situation, it could

not be reasonably argued that the insured created his own

difficulty by voluntarily filing for bankruptcy before judgment in

the underlying suit.

9 undispute d, that the minor insured, at and after his bankruptcy

filing, had total assets

—— apart from his putative Stowers claim

—— of

a value of less than $600, consisting entirely of exempt tangible

personal property, had no income and was unemployed. In these

circumstances, it is evident that the insured ’s discharge has at

least the same effect as the covenant not to execute in Foremost

. 1

However, th ere may be situations where, unlike the present

case, the insured in bankruptcy has, at all relevant times, nonexempt assets well in excess of the total of all debts other than

that represented by the outstanding judgment in the underlying suit

g iving rise to the putative Stowers claim, but the total of that

judgment and all the other debts exceeds the value of the insured’s

assets. 2 In such a scenario it is certainly open to reasonable

argument that notwithstanding that the insured receives a discharge

in a bankruptcy commenced before the judgment in the underlying

suit, the insured has in substance used a portion of his non-exempt

assets to pay

the excess judgment and should have a Stowers claim

to that ext ent at least. No such scenario is now before us,10

however.