Case Name: SEGUROS TEPEYAC, S. A., COMPANIA MEXICANA de SEGUROS GENERALES, Appellant, v. Maynard BOSTROM and James L. Jernigan, Appellees
Court: United States Court of Appeals for the Fifth Circuit
Jurisdiction: United States
Decision Date: 1965-06-16
Citations: 347 F.2d 168
Docket Number: No. 21167
Parties: SEGUROS TEPEYAC, S. A., COMPANIA MEXICANA de SEGUROS GENERALES, Appellant, v. Maynard BOSTROM and James L. Jernigan, Appellees.
Judges: 
Reporter: Federal Reporter 2d Series
Volume: 347
Pages: 168–189

Head Matter:
SEGUROS TEPEYAC, S. A., COMPANIA MEXICANA de SEGUROS GENERALES, Appellant, v. Maynard BOSTROM and James L. Jernigan, Appellees.
No. 21167.
United States Court of Appeals Fifth Circuit.
June 16, 1965.
William M. Brown, Brown, Herman, Scott & Young, Fort Worth, Tex., for appellant, Cantey, Hanger, Gooch, Cravens & Scarborough, Fort Worth, Tex., of counsel.
John Alan Appleman, Urbana, 111., Albert H. Manus, Jr., Freeport, 111., Joe Spurlock, Fort Worth, Tex., Stanley S. Crooks, Dallas, Tex., Jean Appleman, Urbana, 111., for appellees.
Jerome Sneed, Jr., Austin, Tex., for American Mut. Ins. Alliance, amicus curiae.
Keith F. Kelly, Kelly, Morris, Walker & Maynard, Fort Worth, Tex., for the National Association of Independent Insurers, amicus curiae.
Julietta Jarvis, Chilton Bryan, Houston, Tex., for Aseguradora Reforma, S. A., Cia. General De Seguros, and others, amici curiae, Bryan & Patton, Houston, Tex., of counsel.
Before BROWN and WISDOM, Circuit Judges, and ESTES, District Judge.

Opinion:
WISDOM, Circuit Judge:
This case presents a new twist in the Texas Stowers doctrine. When an injured person claims damages against an insured tort-feasor for an injury covered under a liability policy, the Texas Stowers doctrine requires the insurer to exercise ordinary care to protect the insured to the amount of the policy limits. If the insurer breaches that duty, the insured has a cause of action against the insurer for the total amount of the claimant's judgment against him, including the amount in excess of the policy limit. Here, the policy was for $5,000; allegedly, the claim might have been settled for that amount; instead, the injured claimant recovered a judgment against the insured for $270,000. The insured is insolvent, has paid nothing on the judgment, and did not sue the insurer. The question this case presents is whether the injured claimant has standing to sue the liability insurer for the amount of the judgment in excess of the policy limit. The district court allowed the claimant to sue the insurer for the full $270,000 and, after a jury finding that the insurer was negligent, granted judgment in favor of the plaintiff for $270,000. 225 F.Supp. 222. We reverse the judgment as to the excess over the policy limit.
I.
In November 1958 three young men, Bostrom (plaintiff - appellee), Sullivan, and Jernigan (intervenor) went on a pleasure trip to Mexico in Jernigan's car. After they crossed into Mexico, Jernigan took out public liability insurance with Seguros Tepeyac, S.A., Compañía Mexicana de Seguros Generales (defendant-appellant), a Mexican corporation licensed to do business in Texas. The policy was a three-day "Special Automobile Policy for Tourists" covering risks within the Republic of Mexico only. The maximum coverage was five thousand dollars for each person injured, with ten thousand dollars the total coverage for one accident. The second day of their Mexican holiday, Jernigan's car collided with a bus. Sullivan was driving with Jernigan's permission, and Bostrom was asleep in the back seat. Bostrom "sustained about as serious injuries as a person could endure and live"; he is now a permanent quadriplegic. 225 F.Supp. at 227.
The insured notified the insurer of the accident on the day it occurred. The insurer made an investigation and, within eight days, settled with the bus company for damages to the bus and with Jernigan for damages to his automobile. At that time the company had no knowledge that Bostrom intended to assert a claim against Jernigan, and no reason to negotiate with Bostrom if, as the company contends, the policy does not cover the claim of a guest-passenger. Seguros Tepeyac states that no one was ever aware that Bostrom had asserted a claim until June of 1960, nineteen months after the accident, when Bostrom's attorney informed Jernigan that Bostrom was about to file suit against Jernigan. August 26, 1959, Bostrom's father wrote the Company for a photo-copy of the "insurance file" relating to Jernigan. He wrote again September 20 and December 1 asking for a copy of the insurance policy. The Company replied to these letters, wanting to know his interest in the matter, and sent copies of documents from its file but did not send a copy of the policy until Bostrom's attorney wrote June 30, 1960, asking for a copy.
The copy of the policy forwarded to Bostrom's attorney is the one-page policy sued on in this case. The district court found that there was no evidence to substantiate the insurer's contention that the policy delivered to Jernigan had an additional page excluding liability for injuries to third persons riding as guest passengers.
Shortly before filing suit on July 12, 1960, Bostrom made an oral offer to Sullivan and Jernigan to settle his claim against them for $5,000. They rejected it for lack of funds. Both the insured and the claimant refrained from mentioning the offer of settlement to the insurer, and the Company asserts that it had no knowledge of the existence of the offer until after Bostrom recovered judgment for 54 times the amount of the offered settlement.
August 2, 1960, Jernigan advised Seguros Tepeyac of Bostrom's suit and called upon it to defend the action. A number of letters passed between Jernigan and Seguros Tepeyac before the suit was tried, the insurer consistently denying liability to a guest passenger and refusing to defend the case. February 12, 1962, the plaintiff recovered a judgment for $270,000 against Jernigan and Sullivan after a trial, without a jury, before Judge Sarah T. Hughes in the Dallas Division of the Northern District of Texas.
• Execution on the judgment was returned nulla bona. Bostrom then brought this action against Seguros Tepeyac. On submission of special issues, the jury found that the insurer was negligent "in not initiating and attempting to bring about a settlement" of Bostrom's claim "within the $5,000 limit of the public liability policy in question" February 12, 1962, the district court granted judgment for $270,000, and overruled the defendant's motions for judgment and for judgment n. o. v.
June 24, 1964, while this case was on appeal, Jernigan assigned to Bostrom his claim against Seguros Tepeyac. He then filed with this Court a petition asking that he be permitted to intervene. We allowed the petition preliminarily. The intervention asks that the insurer discharge Bostrom's judgment against Jernigan. Bostrom, however, does not rely on the assignment. In the district court he sued in his own right as a third party beneficiary of the insurance contract. On appeal, his attorney now contends that Bostrom, as a judgment creditor, is entitled to reach funds of the insurer to the amount of his judgment.
II.
In a Stowers situation the "petition asserts, in effect, two causes of action, one for the sums contracted to be paid and one (in tort) for the excess of the judgment above those sums." Highway Ins. Underwriters v. Lufkin-Beaumont Motor Coaches, Inc., Tex.Civ.App.1948, 215 S.W.2d 904. Here, for example, Bostrom has a $5,000 suit, sounding in contract as a third party beneficiary, and a $265,000 suit, sounding in tort, based on the defendant's negligence. We shall discuss, first, the plaintiff's standing to sue in contract.
This Court held in Ohio Casualty Ins. Co. v. Beckwith, 5 Cir. 1934, 74 F.2d 75, that a liability insurance policy is a contract for the benefit of a third person, entitling an injured claimant to sue the insurer to enforce payment of his judgment. Similarly, in Seaton v. Pickens, 1935, 126 Tex. 271, 87 S.W.2d 709, 711, 106 A.L.R. 512, the Texas Supreme Court declared that "[t]he policy inures to the benefit of such injured persons, as well as to the benefit of the assured"; accordingly, "the injured person, after obtaining final judgment against the insured, may sue the insurer to enforce payment of the judgment without causing execution to be issued against the insured." This strong dictum in Seaton v. Pickens is supported by other Texas cases. See Womack v. Allstate Ins. Co., 1956, 156 Tex. 467, 296 S.W.2d 233; Commercial Standard Ins. Co. v. Ebner, 1950, 149 Tex. 28, 228 S.W.2d 507.
Here the contract was executed in Mexico; the insurer was a Mexican company; the parties anticipated public liability coverage for accidents taking place in Mexico. In these circumstances, the trial judge properly found that Mexican law controls the meaning of the contract. Article 147 of the Mexican law governing insurance therefore must be read into the policy. This article, consistent with the civil law generally, specifically recognizes that the injured party is a third party beneficiary of the insurance contract.
"Art. 147. Liability insurance grants the right to the indemnity directly to the damaged third person, who shall be considered as beneficiary of the insurance from the moment of the loss.
"In case of death of the latter, his right to the insurance amount shall be transmitted by way of succession, unless the law or the contract which establish for the assured the obligation to indemnity, specifies the family members of the deceased to whom the indemnity must be paid directly without the need of estate proceedings." (Emphasis supplied.)
In the second paragraph of Article 147, the reference to "the insurance amount" seems to indicate, as well as it should, that the quasi-contract with the claimant is limited to the policy limit.
The only significant clause in the one-page policy provides: "The Company agrees that within the terms, exceptions and General Conditions hereof, the indemnities payable to the insured shall be effected once the damage suffered or caused by the vehicle has been proved and adjusted." Although this clause describes the payment as "indemnities", the clause states that the insurer must pay as soon as the "damage caused by the vehicle" has been proved and adjusted. The amount of damage to third persons is established at the very latest when a judgment is rendered against the insured. Satisfaction of the judgment is not necessary to establish the damages caused by the vehicle to third persons. If the policy had provided that the damage "to the insured" must be fixed before payment by the insurer, the policy would have been an indemnity policy. Compare Universal Automobile Ins. Co. v. Culberson, 1935, 126 Tex. 282, 86 S.W.2d 727; Seaton v. Pickens. Instead, the policy provides that the "damage to the third person" must be fixed before the insurer is liable. The clause in the policy in this case is similar to the typical "No Action" clauses of policies construed as liability policies by the Texas courts. Such clauses usually state: "No action shall lie against the Company until the amount of the damages for which the assured is liable by reason of any loss covered by this policy is determined either by a final judgment against the Assured, or by agreement between the Assured and the plaintiff with the written consent of the Company." These clauses do not permit a direct action by a third party claimant against the insurer before judgment is recovered against the insured, but they establish that the policies are liability policies rather than indemnity policies, and permit an action against the insurer, for the amount of the policy or less, as soon as there is judgment against the insured. See Lander v. Jordan, Tex.Civ.App.1933, 59 S.W.2d 959; American Indemnity Co. v. Martin, Tex.Com.App.1935, 126 Tex. 73, 84 S.W.2d 697; Cuellar v. Moore, Tex.Civ.App.1932, 55 S.W.2d 244; cf. Gulf Ins. Co. v. Vala, Tex.Civ.App.1962, 361 S.W.2d 904, 908; Langdeau v. Pittman, Tex.Civ.App.1960, 337 S.W.2d 343. Courts of other states have held that similar policies are liability policies rather than indemnity policies. Rogers v. Youngs, 1931, 256 Mich. 213, 239 N.W. 511; Capelle v. United States Fidelity & Guaranty Co., 1922, 80 N.H. 481, 120 A. 556; Trandum v. Trandum, 1932, 187 Minn. 327, 245 N.W. 380.
The difference between the policies involved in those cases and the policy in this case emphasizes that the Seguros Tepeyac policy is a liability policy. The usual liability policy provides that the damage must be fixed "by a judgment". The Tepeyac policy merely says that the damage must be "proved or adjusted". "Adjustment" implies an extrajudicial means of establishing the damage; damage may be "proved" judicially or extrajudicially by informal proof of loss.
We hold therefore that the policy was a liability policy and that under Texas law as well as Mexican law the plaintiff had standing, as the third party beneficiary to the contract, to sue for the amount of the policy.
III.
Before discussing the plaintiff's standing to sue in tort for the $265,000 above the policy limit, it is necessary to pause and decide what law applies.
The district judge started with the assumption that the law of Mexico controlled, because the accident occurred in Mexico. He accepted the Mexican statutes on insurance which are silent as to a Stowers situation, but rejected as unreliable the testimony of an "expert" for the insurer that no doctrine paralleling the Stowers doctrine exists in Mexican law. Since there was no credible proof of Mexican law on the claimant's standing to sue or right of action against the insurer for the excess, the district judge "presumed that such law [of Mexico] and that of Texas are the same".
An intriguing, if troublesome, question is created when a conflicts rule calls for the application of foreign law but the content of the law has not been proved to the satisfaction of the trial court. We relegate discussion of the question to a footnote, however, because we prefer to take a different approach from that taken by the trial judge. For purposes of determining the insured's tort liability to the claimant for personal injuries, the law of the place where the injury occurred usually governs. Here that was Mexico. But for purposes of determining the insurer's liability to the insured for negligence in a Stowers situation, the place of the accident is irrelevant and certainly is not determinative as to whether foreign law or the law of the forum should control. On the issue of the insurer's liability for breach of its duty to a Texas assured, Texas has a more significant relation^ ship to the determination of liability than Mexico. Bostrom's offer to settle was made to Jernigan in Texas. Suit was filed in the federal court in Texas against a Texas defendant. The insurer's misconduct — failure to initiate and bring about a settlement and failure to defend the suit — took place in Texas. The insurer qualified to do business in Texas. Texas has an interest in protecting its citizens when there is a breach of the insurer's duty to an insured Texan.
Texas courts usually look to the law of the place where the wrongful act or neglect took place. Mexican National R. R. v. Jackson, 89 Tex. 107, 33 S.W. 857; 12 Tex.Jur.2d, Conflict of Laws, § 13 and cases cited. The original Conflicts Restatement looked to the law of the "place of the wrong", described as "the state where the last event necessary to make an action liable for an alleged tort took place" (§ 377). But Restatement, Second, Conflict of Laws, Tentative Draft No. 9, looks to the "local law of the state which has the most significant relationship with the occurrence and with the parties" (§ 379).
In light of the Texas cases and the state of the law generally, as evidenced by the Restatement, Second, we hold that the law of Texas applies to the determination of the insurer's liability in this Stowers situation. We reach the same result therefore as the district court, without passing on the effect of his ruling that the defendant's expert failed to prove the pertinent Mexican law and without our having to make the violent assumption that in a Stowers situation the law of Mexico is the same as the law of Texas.
IV.
A. We turn now to the issue of the injured claimant's standing to sue the insurer for the excess over the policy limits. We have reached the same conclusion reached in a recent note on this case: "No Texas case directly supports the court's holding on this point, i. e. allowing an injured party to proceed directly against the insurer on a judgment held against the insured for an amount in excess of policy limits. It is submitted that the Texas courts would not allow such a suit under the Stowers doctrine." Note, 18 Sw.L.Jour. 157, 160, 162 (1964).
The insurer's duty to settle runs only to the insured. The New Hampshire Supreme Court, on which Stowers relied, states the controlling principle:
"[T]he duty of an insurance company to protect its insured against liability cannot consistently be extended to include protection to one who is seeking to hold the insured liable.
"In short, conduct to be legally wrongful must contravene some duty which the law attaches to the relation between the parties , and it is clear that no relationship here exists between [the injured third party] and the [insurer] which would permit the maintenance of the present action." Duncan v. Lumbermen's Mutual Casualty Co., 1941, 91 N.H. 349, 23 A.2d 325, 326.
Professor Robert F. Keeton, in an important article on the subject, points out that not only is the claimant a stranger to the relationship between the insurer and the insured, but the claimant profits from the insurer's failure to settle:
"The excess liability of company arises out of the relationship between insured and company. Claimant is a stranger to that relationship. Not only is company without any duty to claimant to accept claimant's reasonable settlement offer, but also, if there is a sizable disparity between the settlement offer and the amount of the judgment obtained in the trial which follows refusal of the offer, claimant is benefited rather than harmed by company's refusal to settle." Keeton, Liability Insurance and Responsibility for Settlement, 67 Harv.L.Rev. 1136, 1176 (1954).
In line with this thinking, the Court of Civil Appeals, in Graves v. Southern Underwriters, Tex.Civ.App.1939,130 S.W.2d 360, 362, in an alternative holding, held:
"In no event could the company's failure to defend Graves' suit against Teel create any grounds of complaint on the part of Graves, since he was enabled, probably by such failure, to obtain a $35,000 judgment against Teel on a claim which he himself testified that he offered to settle for less than $5,000." 130 S.W.2d 360, at 362.
In Wessing v. American Indemnity Company of Galveston, D.C.Mo.1955, 127 F.Supp. 775, Justice, then District Judge, Whittaker, had before him for decision a suit for declaratory judgment brought by an injured party against the insurance company to secure a declaration of the liability of the company to pay to the injured party the amount of the unpaid portion of a judgment secured by her against the insured in excess of policy limits. Judge Whittaker held that the complaint for declaratory judgment did not state a "justiciable controversy":
"Here, the excess liability asserted arises out of the relationship between the defendant, the insurer, and its insureds. Mrs. Douglas was a stranger to that relationship. The defendant owed her no duty at all. Hence, I fail to see how it could be liable to her, in tort, for a breach of duty, for it owed her none. Moreover, her complaint shows that had her offer to settle been accepted she. would have gotten $15,000, but, because it was rejected, her cause went to trial and she obtained a $47,500 judgment, $15,000 of which has been paid. Thus, she did not lose, but stands to benefit, by the failure of defendant to accept her offer of settlement."
See also Chittick v. State Farm Mut. Automobile Ins. Co., D.C.Del.1941, 170 F. Supp. 276; Dye, Insurer's Liability for Judgments Exceeding Policy Limits, 38 Tex.L.Rev. 233, 245 (1959).
B. In order to avoid the result reached in the Texas cases, Bostrom's attorney, a distinguished authority on.insurance law, now contends on appeal that this suit by the judgment creditor is in the nature of a creditor's bill or garnishment to reach funds in the hands of the insurer belonging to the judgment debtor or money the insurer is obligated to pay to the judgment debtor. The fatal defect in this argument is that the insured's claim against the insurer is a contingent and unliquidated chose in action as to the excess of the judgment over the policy limit. Texas law will not permit the garnishment of an unliquidated claim or of any chose in action. See Waples-Platter Grocer Co. v. Texas & P. R. R., 1902, 95 Tex. 486, 68 S.W. 265; Universal Auto Ins. Co. of Dallas v. Christensen, 1930, 119 Tex. 100, 25 S.W.2d 601; Taylor v. Gillean, 1859, 23 Tex. 508; 6 Tex.Jur.2d, Attachment, § 13 ff; 26 Tex.Jur.2d, Garnishment, § 2 ff; 24 Tex.Jur.2d, Executions, § 20.
C. The district court found that Bostrom had standing to sue because of his being in privity with the insured entitling the claimant "to bring suit on a tort growing out of the relationship created by a contract." 225 F.Supp. 222, 233. The court relied on House v. Houston Waterworks Co., 1885, 88 Tex. 233, 31 S.W. 179, 28 L.R.A. 532, approved by this Court in McClendon v. T. L. James & Co., 5 Cir. 1956, 231 F.2d 802, 805. We read House as lending no support to the claimant. The Texas Supreme Court "recognized that for such beneficiary to sue in tort, the relationships of the parties to the contract must be such that a duty is owed to the beneficiary". In that case a resident of Houston sued the Houston Waterworks Co. for damages to his house caused by a fire, alleging a breach of contract between the city and the company; the company failed to furnish water to extinguish the fire. The plaintiff asserted a right to sue as a third party beneficiary of the contract. The court denied recovery. The court said, by dictum, if. a defendant "has committed a breach of duty, he is not protected by setting up a contract in respect to the same matter with another". That is a far cry from this case. Indeed, in House the Supreme Court of Texas described the relations of the parties to the suit in this language: "We think it is clear that there were no contract relations between the plaintiff and the defendants, and consequently no duty which can be the basis of a legal claim." 31 5. W. at 184. We have the same situation here as to the tort claim for the excess; the insurer owed no duty to the injured claimant.
V.
The claimant's reach exceeds his grasp. As Appleman, in his treatise on insurance, very soundly observes:
"In the absence of statutory provisions or required form policies, it is generally held that the injured person stands in the shoes of the insured, and his rights against the insurer are no greater and no less than those of the insured." (Emphasis supplied.) 8 Appleman, Insurance Law and Practice, 1962 Revision, § 4811 (citing many cases).
If the insured has no cause of action against the insurer, the claimant has no standing to sue the insurer for the excess.
As part of the Stowers doctrine, Texas courts have imposed a serious limitation on the insured's right of recovery by treating it as a right to reimbursement. Whether the policy is one of indemnity or liability, Texas courts limit recovery to the amount the insured has paid to the injured party. The basis for this principle is clear in the case of indemnity insurance; the insurer is obligated only to indemnify the insured for his loss. Although less obvious in the case of liability insurance, the principle is essentially the same: recovery in tort depends on a showing of injury; the insured is not injured until he pays some or all of the judgment against him. On principle, we recognize a basic weakness in this rationale, for the judgment is a mortgage on the insured's future. Nevertheless, in all of the Texas eases permitting the insured or the claimant to recover directly from the insurer, the claim was expressly limited to the policy maximum ; in many of these cases the injured person had recovered a judgment above the policy maximum but deliberately limited his claim against the insurer to the maximum coverage under the policy. In no Stowers situation has a Texas court permitted the insured to recover from the insurer unless the insured has first satisfied the judgment. If the Stowers doctrine is to be extended, Texas courts must do it.
In Universal Automobile Insurance Co. v. Culberson, 1935, 126 Tex. 282, 86 S.W.2d 727; reh. den'd, 87 S.W.2d 475 (Tex.Com.App. opinion adopted 1935), the injured party had recovered an uncollectible excess judgment against the insured. Both parties jointly sued the insurer for the amount of the judgment. The Texas Supreme Court held that neither was entitled to recover. The court first dealt with the claim under the policy for the maximum coverage of the policy. Under the peculiar terms of the policy, the injured party had a direct action against the insurer for an amount up to the policy maximum; the insured could sue the insurer only if the suit were brought for the benefit of the injured party. "These provisions", the court said, "do not give the assured any right to prosecute the suit in his own behalf before paying the judgment or the costs." 126 Tex. at 289, 86 S.W.2d at 730. The court then dealt with the claim above the policy limits under the Stowers doctrine. The court held that the policy provisions did not give the injured party or the insured any claim against the insurer, because the excess judgment against the insured had not been paid; "Nor do they give him any right to sue for damages because of failure of the company to make a settlement of Miss Witt's claim. As to his alleged cause of action in that regard, Culberson cannot assert same until he has paid some sum on the judgment in excess of the $5,000 limit in the policy; and then only to the extent of his payment." (Emphasis supplied.) 126 Tex. at 289, 86 S.W.2d at 730-731. In order to make the point doubly plain and to eliminate once and for all any question as to its holding with respect to the right of the injured third party to recover the excess, the Court, on rehearing, said:
"In our opinion, we made it clear that under the terms of the contract, Miss Witt [the injured third party] has no rights thereunder for any amount 'exceeding the amount of the policy,' to wit, $5,000, with interest thereon from the date of the entry of the judgment. It follows therefore that Culberson [insured] cannot sue for her benefit for any sum in excess of this amount." 87 S.W. 2d 475.
Culberson therefore requires this Court to find that neither the insured nor the claimant has standing to sue until the insured has paid some amount on the excess judgment; the insurer is then liable only to the extent of the insured's payments. See Kronzer, The Present Status of the Stowers Doctrine in Texas, 1 Sou.Tex.L.Jour. 167, 171 (1954).
Texas courts have never overruled or limited Culberson. In Linkenhoger v. American Fidelity & Casualty Co., 1953, 152 Tex. 534, 260 S.W.2d 884, the Texas Supreme Court held that the statute of limitation on a Stowers cause of action begins to run from the date of the judgment against the insured, not the date of the insurer's wrongful failure to settle. The court expressly approved Culberson: "The opinion in the case of Universal Automobile Insurance Co. v. Culberson, 126 Tex. 282, 86 S.W.2d 727, clearly supports petitioner's contention. Culberson had brought suit against his insurer for the entire judgment against him, including that portion over and above the policy limit. The court held that as to such excess Culberson could maintain no action against the insurer until he had paid some portion thereof." 152 Tex at 536-537, 260 S.W.2d at 885, 886. The rationale for Culberson, as noted in Linkenhoger, is that the "fundamental purpose underlying all rules of damages, other than punitive damages, is to indemnify the injured party for the pecuniary loss suffered by him Reaugh v. McCollum Exploration Co., 139 Tex. 485, 163 S.W.2d 620 (1942).
In Culberson the court stated, "We construe this as an indemnity obligation, rather than a liability contract." The policy, however, contained a contractual "direct action clause," giving the injured person the right to sue the insurer directly to recover the amount of his judgment against the insured, up to the policy maximum. The policy reached the same result as a liability policy, since the insurer had to pay even though the judgment against the insured had not been satisfied. As we read Culberson, the court introduced this distinction only with reference to the claim for an amount not exceeding the policy maximum. In Culberson the court had to distinguish earlier lines of cases. American Indemnity Co. v. Fellbaum, 1924, 114 Tex. 127, 263 S.W. 908, a pre-Stowers suit for an amount within the policy limits, had held that the insurer was liable up to the policy maximum even though the judgment against the insured had not been satisfied. The court in Culberson distinguished Fellbaum because Fellbaum dealt with a liability policy while the policy in Culberson was an indemnity policy, and because there the insurer had taken full charge of the defense of the insured. The court distinguished Stowers because "it was shown that the company had full charge of the defense of the suit brought by the injured party, and it was further shown that the Stowers Furniture Company had paid in full the judgment against it." (Emphasis supplied.) 126 Tex. at 288, 86 S.W.2d at 730.
Culberson did not distinguish Stowers on the ground that one case involved an indemnity policy and the other a liability policy; Culberson stands for the proposition that neither the liability insurer nor indemnity insurer is liable above the policy maximum until the in sured pays the excess judgment against him. Since the gist of the Stowers cause of action is negligence, as to the excess it should make no difference whether the contract was liability insurance or indemnity insurance. Culberson distinguishes between claims above and below the policy limits, and between liability and indemnity policies; but the distinction between types of policies goes only to claims based on the policies, not Stowers claims sounding in tort.
This interpretation of Culberson is consistent with later Texas cases. See, for example, Seaton v. Pickens, 1935, 126 Tex. 271, 87 S.W.2d 709. As Sea-ton v. Pickens points out, Culberson permitted an action against the insurer (within the policy limits) even though the insured had not satisfied the judgment against him. This is the distinguishing feature of a liability policy as opposed to an indemnity policy. Linkenhoger v. American Fidelity & Casualty Co. tells us that Culberson "held that as to such excess [the amount above the policy maximum] Culberson could maintain no action against the insurer until he had paid some portion thereof." 152 Tex. at 536-537, 260 S.W.2d at 885-886. Linkenhoger does not limit Culberson to indemnity policies.
Ratner v. Wheeler, Tex.Civ.App.1947, 301 S.W.2d 268 (concurring opinion) also lends support to our conclusion. In that case the insured had not paid the judgment against him. The injured party sued the receiver of the insurer under the Stowers doctrine. The court allowed the claim only up to the policy maximum. The majority opinion relied on a statute dealing with judgments taken against an insolvent during the receivership. The concurring opinion points out that the same result follows even without the statute: since the judgment against the insured had not been paid, the Stowers doctrine did not apply. Neither opinion discusses the difference between liability and indemnity policies, but apparently the policy in Ratner v. Wheeler was a liability policy, for the court allowed the claim against the insurer up to the policy maximum even though the insured had not paid the judgment against him.
Culberson has apparently survived Texas "financial responsibility" legislation. Texas law now provides that the owner's driver's license must be revoked after a serious accident unless the owner furnishes proof of financial responsibility or proof that he was covered by a motor vehicle liability policy which meets the statutory requirements. One of the statutory requirements is that the insurer must be liable as soon as there is a judgment against the insured. An indemnity policy would not meet the express requirement of the statute. See Safety Responsibility Act of 1951, as amended, § 5, 21, Tex.Civ.Stat.Ann. art. 6701h; Gillaspie v. Department of Public Safety, 1953, 152 Tex. 459, 259 S.W.2d 177, cert. den'd, 1954, 347 U.S. 933, 74 S.Ct. 625, 98 L.Ed. 1084. No Texas case has suggested that Culberson is in any way weakened by this legislation. Similar legislation in New York does not affect the New York rule that the insurer is not liable for the excess judgment until the insured has satisfied it. Thus, in Harris v. Standard Accident and Ins. Co., 2 Cir. 1961, 297 F.2d 627, the court said: "The argument that insurance should protect the injured person as well as the insured applies only to the extent that the insured has taken out insurance. The argument that having received premiums the insurance company should not be relieved of liability because of the insured's bankruptcy does not apply to the excess judgment since the insurer has received premiums only for the face amount of the policy, here $10,000." 297 F.2d at 631. The liability insurer who escapes liability for an excess judgment because the insured is insolvent has not received a windfall: "The insurer has received premiums only upon the face amount of the policy, and this much it must pay regardless of the insured's financial condition. To argue that the insurer gets an unjustified windfall merely avoids the crucial question whether the insured has actually been harmed." 297 F.2d at 633.
We summarize our holding. The Texas Stowers doctrine encompasses the principle that an injured claimant has standing to sue the insurer as a third party beneficiary of the insurance contract, but may sue only up to the amount of the policy limits. The Culberson limitation on the doctrine deprives the insured of standing to sue the insurer for the excess, except as to any amounts paid on the judgment in favor of the injured claimant. The claimant's rights in an action against the insurer can rise no higher than the insured's rights. When, as in this case, the insured has no standing to sue because of not having paid all or part of the judgment for the excess, the injured claimant has no standing to sue the insurer for the excess over the policy limits. We find it unnecessary to reach other issues in the case.
Accordingly, the Court affirms the judgment below as to the face amount of the policy and reverses the judgment as to the excess amount over the policy limit of $5,000, without prejudice to the rights, if any, of the insured and the injured claimant, or either, to proceed against the insurer on claims and on a showing not inconsistent with this opinion.
. G. A. Stowers Furniture Co. v. American Indemnity Co., Tex.Comm.App.1929, 15 S.W.2d 544; Chancey v. New Amsterdam Casualty Co., Tex.Civ.App.1960, 336 S.W.2d 763, error ref. n. r. e.; 32 Tex. Jur.2d § 445, § 498. See Fidelity & Casualty Co. of New York v. Robb, 5 Cir. 1959, 267 F.2d 473. See Robert E. Keeton, Liability Insurance and Responsibility for Settlement, 67 Harv.L.Rev. 1136 (1954); Kronzer, The Present Status of the Stowers Doctrine in Texas, 1 So. Tex.L.J. 167 (1954); Dye, Insurer's Lia bility for Judgments Exceeding Policy Limits, 38 Tex.L.Kev. 233 (1960); Note, 41 Tex.L.Kev. 595 (1963); Note, 18 S.W.L.Jour. 157 (1964).
. In Stowers the negligence consisted of rejecting an offer to settle within the policy limits. In the instant case, the district court relied on the "view that the duty to settle implies the duty to negotiate." Chancey v. New Amsterdam Cas. Co., Tex.Civ.App.1960, 336 S.W. 2d 763, 764, error ref. n. r. e.
. The able district judge found authority for his holding in Tortuguero Logging Operation, Limited v. Houston, Tex.Civ. App.1961, 349 S.W.2d 315, err. ref., n. r. e., (applying Texas law relating to pre-judgment interest in the absence of proof of Oosta Rica law). As he pointed out, however, there is an exception to the general rule when the system of jurisprudence of the foreign country is different from that of the forum. Article 1, Revised Civil Statutes of the State of Texas provides: "The common law of England, so far as it is not inconsistent with the Constitution and laws of this State, shall together with such Constitution and laws, be the rule of decision, and shall continue in force until altered or repealed by the Legislature". In spite of this strong legislative declaration that Texas is a common law jurisdiction, the district court concluded that since "the civil law originally prevailed in both Texas and Mexico", in this case there should be a presumption that the laws of Mexico and Texas are the same. 225 F.Supp. at 228. See Mexican Cent. Railway Co. v. Marshall, 5 Cir. 1899, 91 F. 933, 938; Mexican Central Railway Co. v. Glover, 5 Cir. 1901, 107 F. 356, 361. Some courts apply their own law by resorting to the presumption of similarity even though the foreign state has a different legal background. See Louknitsky v. Louknitsky, 1954, 123 Cal.App.2d 406, 266 P.2d 910 (applying California community property law in absence of proof of Chinese law); Tidewater Oil Co. v. Waller, 10 Cir. 1962, 302 F.2d 638 (applying "fundamental principles" of Oklahoma tort law but not the Oklahoma Workmen's Compensation Act in absence of proof of Turkish law); Stern Foreign Law in the Courts: Judicial Notice and Proof, 45 Cal.L.Rev. 23 (1957).
On the other hand, there is authority to the contrary in Texas and in this circuit. "Heretofore in all cases for wrongful death or personal injuries occuring in the republic of Mexico, in which the laws of that republic have been alleged and proven, the courts of this state have consistently refused to entertain a suit for the recovery of damages for such death or injury, because the laws of Mexico giving the cause of action and providing for the enforcement are so materially different from the laws of our state relating to torts that the courts of Texas cannot undertake to adjudicate the rights of the parties." El Paso & Juarez Traction Co. v. Carruth, Tex. Comm.App.1923, 255 S.W. 159. See Carter v. Tillery, Tex.Civ.App.1953, 257 S.W.2d 465, err. ref., n. r. e. See also Mexican National Railway Co. v. Jackson, 1896, 89 Tex. 107, 33 S.W. 857, 31 L.R.A. 276; Slater v. Mexican National Railway Co., 1904, 194 U.S. 120, 24 S.Ct. 581, 48 L.Ed. 900. In Panama Electric Co. v. Moyers, 5 Cir. 1918, 249 F. 19, this Court rejected the argument that because of a common civil law background the laws of Panama should be presumed to be the same as the laws of the Canal Zone. This case and similar cases rely on the Cuba Railroad Company v. Crosby, 1912, 222 U.S. 473, 32 S.Ct. 132, 56 L.Ed. 274, in which the Court dismissed the action, stating that the right to recover under foreign law "is part of the plaintiff's case, and if there is reason for doubt, he must allege and prove it."
The older authorities tend toward a jaundiced view of applying the law of the forum. See 3 Beale, Conflicts of Laws § 6211, 622A.2; Restatement, Conflict of Laws § 621 (1934). Modern commentators are more or less in general agreement that the law of the forum should apply when foreign law is not proved. Nussbaum, The Problem of Proving Foreign Law, 50 Yale L.J. 1018 (1941); Currie, On the Displacement of the Law of the Forum, 58 Cal.L.Rev. 964 (1958); Ehrenzweig, Conflict of Laws 366 (1962); Nussbaum, Proving the Law of Foreign Countries, 3 Am.J. Comp.L. 60 (1954); Stern, Foreign Law in the Courts: Judicial Notice and Proof, 45 Calif.L.Rev. 23 (1957).
In the interest of arriving at a just adjudication, the trial judge should have discretion in determining whether the law of the forum, with or without the disguise of a presumption, should prevail. This discretion should be especially broad in a state with a civil law background. To the extent therefore that the content of Mexican law may be considered applicable but not proved, the trial judge correctly applied the law of the forum. See especially Currie, On the Displacement of the Law of the Forum, 58 Cal. L.Rev. 964, 1027 (1958); Goodrich, Conflict of Laws § 83 at 149 (Scoles Ed. 1964); Ehrenzweiz, Conflict of Laws § 127 at 360, 367; Note, 51 Cal.L.Rev. 635 (1963).
. Cf. "The orthodox rule, with torts as with crimes, is that when an act operates across a state line its legal character is determined by the law of the place where it first takes harmful effect or produces the result complained of. A contract may have been made in one state and some personal or property injury suffered or inflicted in the course of performance of the contract in another state.
If action on account of the injury be characterized as sounding in tort rather than in contract, the governing law will be that of the place of injury, not that of the place where the contract was made. Actually, the trend away form the orthodox rule, clearly evident in recent cases, is not toward the equally automatic rule of the Tort Claims Act, but toward something far less exact. It may be described as a sort of luxuriance of rules rather than any single rule. It permits a court to make its choice among a considerable variety of contracts at different places as identifying the 'property' controlling law. A reasonably substantial connection with and responsibility for the local activity is what is required." Leflar, Conflict of Laws § 111 (1959).
. Ҥ 379. The General Principle.
(1) The local law of the state which has the most significant relationship with the occurrence and with the parties determines their rights and liabilities in tort.
(2) Important contacts that the forum will consider in determining the state of most significant relationship include:
(a) the place where the injury occurred,
(b) the place where the conduct occurred,
(c) the domicil, nationality, place of incorporation and place of business of the parties, and
(d) the place where the relationship, if any, between the parties is centered.
(3) In determining the relative importance of the contacts, the forum will consider the issues, the character of the tort, and the relevant purposes of the tort rules of the interested states."
. Keeton continues: "It would therefore be anomalous to permit claimant to recover directly against company in his own right (in the absence of a policy provision, such as the italicized phrase above, clearly having that meaning). Should he be allowed to accomplish the same result indirectly by taking an assignment from insured? A doctrine or statute permitting claimant to recover the excess from company, either in his own right or as assignee of insured, is only slightly beneficial to insured — the one who is the victim of company's wrong. Insured is protected by the cause of action for reimbursement. This additional remedy would benefit insured only by making possible at claimant's option a transfer from insured to claimant of the cost of enforcing the claim of excess liability — such expenses and attorney's fees as are not included in the measure of recovery. The person benefited by such doctrine is claimant — a person not harmed by company's refusal to settle. A judicial extension (either by tort or by implied con tract theory) of the liability of company beyond that undertaken by the agreement cannot be justified by a purpose of benefiting a third party who is not harmed by anything company has done or failed to do. Furthermore, if extensions of liability insurance coverage are to be provided by agreement or legislation for the purpose of benefiting claimants, it is arguable that the increased cost of insurance should be applied toward higher contract limits, rather than toward disregarding limits when a settlement offer is declined." 67 Harv.L.Rev. at 1176.
. Note, 18 S.W.L.J. 157, 161 (1964).
. "[T]here can be no action of tort until payment has been made or loss suffered except where the enforcement of payment by the third person is reasonably certain and its amount can be ascertained with approximate definiteness." Restatement, Torts § 871, Comment j. (1939).
. Keeton comments: "Some courts have taken the view that even though insured has made no payment on the excess judgment and has no assets subject to legal process for collection of the judgment, he has suffered a loss in that he is adjudged liable to pay. The loss is in the increase in his debts by the amount of the excess judgment. More of the courts ' have rejected this view. It has been stated that there must be either payment by insured or else proof that his financial status is such that the excess judgment is certain to be collected. Other opinions dealing with this question have stated simply that the cause of action does not arise until some payment is made by insured in excess of policy limits, not saying what rule should be applied if there is proof that the excess judgment is certain to be collected in the future." Liability Insurance and Responsibility for Settlement, 67 Harv.L.Rev. 1136, 1173-74 (1954).
. Ferris v. Southern Underwriters, Tex. Civ.App.1937, 109 S.W.2d 233 (judgment against insured for $4,300, claim against insurer for $2,500, the policy maximum); Automobile Underwriters Ins. Co. v. Long, Tex.Comm.App.1933, 63 S.W.2d 356 (judgment against insured for $10,-000, claim against insurer for $5,000, the policy maximum); Graves v. Southern Underwriters, Tex.Civ.App.1939, 130 S.W.2d 360 (judgment against insured for $35,000, claim against insurer for $5,000, the policy maximum). See also Commercial Standard Ins. v. Ebner, 1950, 149 Tex. 28, 228 S.W.2d 507 (claim for less than the policy maximum); Traders & General Ins. Co. v. Davis, Tex. Civ.App.1940, 142 S.W.2d 826; Employers Casualty Co. v. Hicks Rubber Co., Tex.Civ.App.1942, 160 S.W.2d 96. Many cases discussed by the parties and the commentators were decided long before Stowers raised the question of the liability of the insurer beyond the maximum coverage of the policy. See e. g., American Indemnity Co. v. Fellbaum, 1924, 114 Tex. 127, 263 S.W. 908, 37 A.L.R. 633. One or two cases do not expressly state that they were brought within the policy limits, but the claims were so low that they were very probably below the policy maximum. See Womack v. Allstate Ins. Co., Texas 1956, 156 Tex. 467, 296 S.W.2d 233, reversing 286 S.W.2d 308; Seaton v. Pickens, 1935, 126 Tex. 271, 87 S.W.2d 709, 106 A.L.R. 512.
. G. A. Stowers Furniture Co. v. American Indemnity Oo., Tex.Comm.App.1929, 15 S.W.2d 544; Linkenhoger v. American Fidelity & Casualty Co., 1953, 152 Tex. 534, 260 S.W.2d 884; Jones v. Highway Ins. Underwriters, Tex.Civ.App. 1952, 253 S.W.2d 1018; Chancey v. New Amsterdam Cas. Co., Tex.Civ.App. 1960, 336 S.W.2d 763; Highway Ins. Underwriters v. Lufkin-Beaumont Motor Coaches, Inc., Tex.Civ.App.1948, 215 S.W.2d 904; see Fidelity & Cas. Co. of N. Y. v. Robb, 5 Cir. 1959, 267 F.2d 473. See also Kronzer, Status of the Stowers Doctrine in Texas, 1 Sou.Tex.L. Jour. 167, 171, 172 (1954) and Dye Insurer's Liability for Judgments Exceeding Policy Limits, 38 Tex.L.Rev. 233, 244, 246 (1959).
. Smoot v. State Farm Mutual Automobile Ins. Co., 5 Cir. 1962, 299 F.2d 525 applied Georgia law. Smoot is also factually distinguishable. In Smoot the insured had not paid the excess judgment, but he had substantial property, including a house and an automobile, from which at least part of the excess judgment could have been satisfied; here the insured cannot satisfy even a part of the excess judgment. We do not decide whether the Texas courts would insist on a formal payment by an insured who could satisfy at least part of the judgment. Since the insured here has no assets, we do not reach the question decided in Smoot. We hold only that Culberson prevents recovery of the excess over the policy from the insurer if the insured has no assets and is completely unable to satisfy the judgment. Erie directs us to apply Culberson in a Texas case. See Note, 41 Tex.L.Rev. 595 (1963).
. See Seaton v. Pickens, 1935, 126 Tex. 271, 87 S.W.2d 709: "It is not expressly stated in the opinion in Universal Automobile Insurance Company v. Culberson, supra, that one who had obtained a final judgment against the assured for injury suffered from the operation of the automobile may, when the insurer fails or refuses to pay the judgment, maintain an action against the insurer to enforce payment of the judgment without first causing execution to be issued against the assured, but that he may so maintain such action follows from the construction of the policy as directly obligating the company to pay the final judgment to the injured person and from the ruling that the assured may maintain an action against the insurer to enforce payment of the judgment, without first paying the same, provided the suit is brought for the use and benefit of the injured person. Under the construction given the policy, the injured person, after obtaining final judgment against the insured, may sue the insurer to enforce payment of the judgment without causing execution to be issued against the assured, or he may cause execution to be issued against the assured and sue the insurer to enforce payment of the judgment in the event the execution is returned unsatisfied." 126 Tex. at 273-274, 87 S.W.2d 710-711.