IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 99-10684

STEVE FORD, ETC; ET AL Plaintiffs,

STEVE FORD, d/b/a/ H&F Cotton Co;

GENEVA FORD, 

Plaintiffs-Appellants,

versus

CIMARRON INSURANCE

COMPANY, INC.,

 Defendant-Appellee.

Appeal from the United States District Court

for the Northern District of Texas, Dallas Division

November 1, 2000

Before POLITZ, JONES, and STEWART, Circuit Judges.

CARL E. STEWART, Circuit Judge:

The issue before us is whether the district court erred in granting Defendant-Appellee’s,

Cimarron Insurance Company, Inc. (“Cimarron”), renewed motion for judgment as a matter of law

regarding an insured’s right under Texas law to recover for an insurer’s alleged negligent

investigation, handling, and settlement of an insured’s claims. For the reasons set forth below, we

affirm the district court’s ruling.
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FACTUAL AND PROCEDURAL HISTORY

On July 29, 1994, a fire occurred at the place of business of Plaintiffs-Appellants, Steve Ford

d/b/a H&F Cotton Company and Geneva Ford (“Ford”). Ford tried to end the blaze with portable

fire extinguishers, but they did not work. Consequently, the flames destroyed the premises and

contents of Ford’s company as well as damaged those of the neighboring business, Novatech

Corporation (“Novatech”).

Ford sued Action Fire and Equipment (“Action”), the company that had certified the

extinguishers before the fire, and its liability carrier. Novatech sued Ford for its resulting damages.

Accordingly, Ford notified his liability carrier, Cimarron, of Novatech’s claim. In handling and

settling this claim, Cimarron sent a letter to Novatech stating that Ford was partially negligent in

causing the fire. Action then acquired a copy of Cimarron’s letter to Novatech.

Following Action’s acquisition of the letter, Ford filed suit against Cimarron in the district

court of Dallas County, Texas, alleging that Cimarron negligently handled and settled the Novatech

claim against Ford. According to Ford, this negligence damaged him by diminishing the value of his

suit against Action from a policy limit case to a nuisance value case. Cimarron then removed the suit

to federal district court. 

After Ford presented evidence on the merits of his negligence claim, Cimarron moved for

judgment as a matter of law. The district court instructed the parties that it would hear motions for

judgment as a matter of law only after the jury had the opportuni ty to return a verdict. The jury

returned a verdict for Ford and the district court rendered judgment thereon. Cimarron then filed a

renewed motion for judgment as a matter of law arguing that Texas law does not recognize a
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negligence cause of action for an insurer’s handling, investigating, and settling of an insured’s claim.

The district court granted Cimarron’s motion and Ford now appeals. 

DISCUSSION

I. Standard of Review

“‘A motion for judgment as a matter of law . . . in an action tried by jury is a challenge to the

legal sufficiency of the evidence supporting the jury’s verdict.’” Jones v. Kerrville State Hosp., 142

F.3d 263, 265 (5th Cir. 1998) (quoting Harrington v. Harris, 118 F.3d 359, 367 (5th Cir. 1997)). This

Court reviews a motion for judgment as a matter of law de novo, “applying the same legal standard

as did the trial court.” Omnitech Int’l, Inc. v. Clorox Co., 11 F.3d 1316, 1322-23 (5th Cir. 1994).

Accordingly, “judgment as a matter of law is proper after a party has been fully heard by the jury on

a given issue, and ‘there is no legally sufficient evidentiary basis for a reasonable jury to have found

for that party with respect to that issue.’” Foreman v. Babcock & Wilcox Co., 117 F.3d 800, 804

(5th Cir. 1997) (quoting FED. R. CIV. P. 50(a)). 

II. Negligence Under Texas Law

A. Elements

To prevailon a negligence claiminTexas, a plaintiffmust establish three elements: “(1) a legal

duty owed by one person to another;(2) a breach ofthat duty; and (3) damages proximately resulting

fromthe breach.” Greater Houston Transp. Co. v. Phillips, 801 S.W.2d 523, 525 (Tex. 1990) (citing

El Chico v. Poole, 732 S.W.2d 306, 311 (Tex. 1987)). Duty is the threshold inquiry of any

negligence case. See Phillips, 801 S.W.2d at 525. In Texas, moreover, whether a duty exists is a

question of law for the court to decide from the facts surrounding the occurrence in question. See

id.
 

1 Ranger involved an automobile collision. A jury found John Wesley Guin (“Guin”), an

independent contractor who was hired to drive a dump truck insured by Ranger County Mutual

Insurance Company (“Ranger”), to be 100% negligent. After the trial court rendered a $225,000

judgment against Guin, he filed suit against Ranger under the Stowers doctrine alleging that the claim

was within policy limits and should have been settled.

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B. Stowers Duty

Texas courts have recognized only one tort duty regarding third party insurance cases, that

being the duty stated in Stowers Furniture Co. v. American Indem. Co., 15 S.W.2d 544 (Tex.

Comm’n App. 1929, holding approved). See Maryland Ins. Co. v. Head Indus. Coatings & Serv.,

Inc., 938 S.W.2d 27, 28 (Tex. 1996). According to this duty, an insurer may be held liable in

damages upon refusing an offer ofsettlement when it appears that an ordinary prudent person in the

insured’s situation would have settled. See Stowers, 15 S.W.2d at 547. However, a settlement

demand triggers the Stowers duty only upon meeting three prerequisites: “(1) the claim against the

insured is within the scope of coverage; (2) the demand is within the 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.” American Physicians Ins.

Exch. v. Garcia, 876 S.W.2d 842, 849 (Tex. 1994).

Although this precedent outlines the Texas Supreme Court’s current view and treatment of

the Stowers duty, Ford chose to base histhird party insurance claim on an older case, Ranger County

Mut. Ins. Co. v. Guin, 723 S.W.2d 656 (Tex. 1987), involving liability of an insurance company for

negligence in the handling of a claim against itsinsured.1 He particularly relied on the language “[a]n

insurer’s duty to its insured is not limited to . . . narrow boundaries, . . . rather it extends to the full
 

2

 Saint Paul insured CSI against damages arising from its negligence. But the contract specifically

excluded coverage for punitive damages. While in the care of a CSI owned nursing home, Jacob

Schultz developed severe decubitus ulcers that allegedly resulted in serious personal injury and near

death as a result of CSI’s negligent acts and omissions. Before trial, Saint Paul rejected Schultz’s

$250,000 settlement demand despite its being well within the CSI po licy limits. The jury award

against CSI included $850,000 in punitive damages. CSI claimed Saint Paul was responsible for

paying these punitive damages because Saint Paul had negligently handled the investigation and

settlement negotiations by refusing the initial $250,000 settlement demand. 

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range of the agency relationship. . . . [T]hat includes investigation, preparation for defense of the

lawsuit, trial of the case and reasonable attempts to settle.” Id. at 658 (emphasis added). Under this

expansive view of the Stowers duty, Ford alleges that as his agent, Cimarron had a duty to exercise

ordinary and prudent care in handling the Novatech claim. As such, Ford further argues that he has

met the threshold requirement of a negligence claim in Texas. 

III. Analysis

The present dispute is not this court’sfirst occasion to addressthe issue of negligence actions

available under Texas law in third party insurance cases. In Saint Paul Fire & Marine Ins. Co. v.

Convalescent Servs., Inc., 193 F.3d 340 (5th Cir. 1999), the insured, Convalescent Services, Inc.

(“CSI”), alleged that its insurer, Saint Paul Fire and Marine Insurance (“Saint Paul”), had a duty to

handle claims against CSI in a non-negligent manner.2 Like Ford, CSI based its allegations on the

sweeping language of Ranger.

Upon reviewing the facts of Ranger and subsequent Texas Supreme Court cases, this court

discerned the fallacy of CSI’s reliance. While Ranger does contain language that seems to expand

the Stowers duty, the case itself contained “‘no contention that [the insurer] was negligent in

investigation or trial of the . . . lawsuit.’” Saint Paul, 193 F.3d at 344 (quoting Ranger, 723 S.W.2d
 

3

 Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938).

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at 659). Because the expansive language was not dispositive of an issue at bar in Ranger, this court

reasoned that it was not the case’s holding. See Saint Paul, 193 F.3d at 344.

Furthermore, this court recognized that the Texas Supreme Court had treated the dubious

Ranger language even more narrowly, specifically referring to it as “dictum.” Id. (citing Garcia, 876

S.W.2d at 849);see also State FarmMut. Auto. Ins. Co. v. Traver, 980 S.W.2d 625, 628 (Tex. 1998)

(stating that the language inRanger “about the scope of the insurer’s responsibilities was dict[um]”).

The court explained that “[i]n the context of a Stowers lawsuit, evidence concerning claims

investigation, trialdefense, and conduct during settlement negotiationsis necessarilysubsidiaryto the

ultimate issue of whether the claimant’s demand was reasonable under the circumstances, such that

an ordinarily prudent insurer would accept it.” Garcia, 876 S.W.2d at 849.

CSI premised its arguments against the aforementioned reading of Ranger on the Garcia

dissent, which impugns the majority for its retroactive reformation of the Ranger holding ‘into mere

“dictum.”’ Saint Paul, 193 F.3d at 344 (quoting Garcia, 876 S.W.2d at 863 n.7). Nonetheless, this

court clearly concluded that “the Texas Supreme Court drastically curtailed the broad language of

Ranger.” Saint Paul, 193 F.3d at 344. Thus in making its Erie3prediction of how the Texas

Supreme Court would hold in CSI’s case, we respected the constraints of the court’s more recent

precedent and held that St. Paul did not breach any tort duty to CSI. See id. at 345.

We are a “strict stare decisis court. [Thus], . . . one panel of this court cannot disregard,

much less overrule, the decision of a prior panel.” F.D.I.C. v. Abraham, 137 F.3d 264, 268 (5th Cir.

1998). This rule remains immutable even when the prior panel’s decision involved the interpretation

ofstate law because, “[s]uch interpretations are no less binding on subsequent panels than are prior
 

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 Ford’s contention that insurers should be liable for third party insurance claims in which they

negligently handle, investigate, and settle claims presents an issue that is simply improper for this

court to decide. See Saint Paul, 193 F.3d at 345 (stating “[w]hen making an Erie guess, it is not our

role to create or modify state law. . . .” and feeling constrained by the more recent precedent of the

Texas Supreme Court to conclude that the Stowers duty did not give rise to a cause of action for an

insurers negligent handling, investigation, and settlement of a third party claim). Accordingly, the

Texas Legislature is the appropriate forum for advocating Ford’s position. 

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interpretations of federal law.” Id. (citing Broussard v. Southern Pac. Transp. Co., 665 F.2d 1387,

1389 (5th Cir. 1982) (en banc)). Therefore, a prior panel’s interpretation of state law has binding

precedential effect on other panels of this court absent a subsequent state court decision or

amendment rendering our prior decision clearly wrong. See Abraham, 137 F.3d at 269.

No Texas Supreme Court decision nor amendment hasso subsequently rendered this court’s

decision in Saint Paul clearly wrong. Accordingly, Saint Paul binds us regarding the Ford and

Cimarron dispute. While Ford makes a persuasive argument for requiring insurance companies to

handle, investigate, and settle claims using the ordinary care of a reasonable and prudent person in

the insured’s position, the Stowers duty isthe only common law tort duty Texas currently recognizes

in third party insurance claims.4 Thus in handling Novatech’s claim against Ford, Cimarron can only

be held liable in tort for not accepting a settlement offer that any reasonable person in Ford’s position

would have accepted. Cimarron fulfilled this duty, however, when it settled Novatech’s claim against

Ford. As such, we hold that Cimarron breached no tort duty to Ford.

CONCLUSION

Our holding in Saint Paul is controlling. We therefore find that the district court properly

concluded that under Texas law, Stowers does not impose a duty on insurersto handle, investigate,

and settle claims against insureds using the standard of care of any reasonable and prudent person in

the insured’s position. Accordingly, we AFFIRM the district court’s ruling.
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AFFIRMED.