Court Opinion

ID: 9638482
Source: CourtListenerOpinion
Date Created: 2023-08-22 15:44:42.874226+00
Date Added: 2024-06-11T18:10:06.700496
License: Public Domain

GONZALEZ, Justice,
dissenting.
I dissent. The court has misapplied the Stowers Doctrine in several respects. First, the court has erroneously expanded the doctrine to include all aspects of agency law. Second, an unconditional offer to settle is a necessary prerequisite to an insurer’s liability in a Stowers suit. The offer to settle in this case was conditional, thereby relieving Ranger from liability under Stowers,1
I. The Stowers Doctrine.
The court holds that an insurer can be liable under Stowers for negligence other than negligence in failing to settle a claim within the policy limits. This is an incorrect statement of current Texas law.
*661Insurance companies in Texas have a duty to exercise ordinary care in defending lawsuits against insureds. This duty includes the duty to enter into reasonable settlement negotiations or to accept a reasonable settlement offer. This doctrine is utilized to protect an insured from a judgment in excess of policy limits. The controlling issue in a Stowers suit is whether there was “negligence on the part of the [insurer] in failing and refusing to make settlement.” Stowers, 15 S.W.2d at 548.
In this cause, the trial court submitted the following issue:
Do you find from a preponderance of the evidence that the defendant, Ranger Mutual Insurance Company, was negligent in the manner in which it handled the claim and lawsuit asserted against its insureds, Billy Wayne Peden and John Wesley Guin? (emphasis added)
Answer: “We do” or “We do not.”
Answer: “We do.”
This issue was erroneous because it inquired about acts by Ranger other than negligent failure to settle the lawsuit.
The vast majority of cases decided under Stowers recognize and acknowledge these principles. See, e.g., Hernandez v. Great Am. Ins. Co. of New York, 464 S.W.2d 91, 92 (Tex.1971); Allstate Ins. Co. v. Kelly, 680 S.W.2d 595, 598 (Tex.App. — Tyler 1984, writ ref'd n.r.e.); Rosell v. Farmers Texas County Mut. Ins. Co., 642 S.W.2d 278, 279-80 (Tex.App. — Texarkana 1982, no writ); Wood Truck Leasing, Inc. v. American Auto. Ins. Co., 526 S.W.2d 223, 224 (Tex.Civ.App. — San Antonio 1975, no writ); Cook v. Superior Ins. Co., 476 S.W.2d 363, 364 (Tex.Civ.App. — Beaumont 1972, writ ref’d n.r.e.); Globe Indem. Co. v. Gen-Aero, Inc., 459 S.W.2d 205, 207 (Tex.Civ.App. — San Antonio 1970), writ ref'd n.r.e. per curiam, 469 S.W.2d 164 (Tex.1971); Highway Ins. Underwriters v. Lufkin-Beaumont Motor Coaches, 215 S.W.2d 904, 930 (Tex.Civ.App. — Beaumont 1948, writ ref’d n.r.e.). See also Danner v. Iowa Mut. Ins. Co., 340 F.2d 427, 430 (5th Cir. 1964); Lacey v. Mid-Continent Casualty Co., 247 F.Supp. 667 (S.D.Tex.1965).
Commentators are also m agreement. See Anderson, Indemnity Against Punitive Damages: An Examination of Punitive Damages, Their Purpose, Public Policy, and the Coverage Provision of the Texas Standard Automobile Liability Insurance Policy, 27 Sw. L.J. 593, 625 (1973); Brin, Insurance Law, 27 Sw. L.J. 135, 139 (1973); Gibbs, Jillson and Mohney, Creditor and Consumer Rights, 38 Sw. L.J. 281, 284 n. 16 (1974); Gonsoulin, Is an Award of Punitive Damages Covered Under an Automobile or Comprehensive Liability Policy, 22 Sw. L.J. 433, 444 n. 73 (1968); Green, Blindfolding the Jury, 33 Tex.L.Rev. 157, 165 (1954); Kronzer, The Present Status of the Stowers Doctrine in Texas, 1 S.Tex.L.J. 167, 168 (1954); Nations, Excess Liability Damages: The Stowers Doctrine, 18 S.Tex.L.J. 465, 466-67 (1977); Townend, Extension of the Stowers Doctrine to Excess Carriers — Some Proposals and Practical Suggestions, 15 St. Mary’s L.J. 689, 692 (1984); Comment, Insurers Liability for Judgments Exceeding Policy Limits, 38 Tex.L.Rev. 233, 236 (1959); Comment, Prepayment and Assignment Under the Texas Stowers Doctrine, 2 Tex.Tech L.Rev. 69, 69 (1970).
The court states that an insurer’s duty in a Stowers suit is not limited to due care in failing to settle within the policy limits, but rather extends to the full range of the agency relationship including investigation, preparation for defense of the lawsuit and trial of the case. 723 S.W.2d at 659. However, such alleged negligent acts are subsumed in an issue inquiring whether the insurer was negligent in failing and refusing to make a settlement and should only be considered as factors in an underlying Stowers suit. See Globe Indem. Co. v. Gen-Aero, Inc., 459 S.W.2d at 208; Howell, Stowers Doctrine in Texas, 32 Tex.B.J. 374, 458 (1969); Nations, supra, at 467. See also Chancey v. New Amsterdam Casualty Co., 336 S.W.2d 763, 765 (Tex.Civ.App. — Amarillo 1960, writ ref’d n.r.e.) (duty to settle implies the duty to negotiate).
*662The court of appeals held and this court acknowledges that there was “no testimony to indicate that Peden and Guin were not provided a good defense from the standpoint of the investigation of the case and the trial of the case.” 704 S.W.2d 819. Therefore, the only issue before the court was whether Ranger negligently failed to settle a claim within the policy limits.
Peden and Guin also contend that they were not informed about the settlement offer; therefore, Ranger should be liable under Stowers. It is true that failure to inform an insured about a settlement offer can be a factor in considering negligence under Stowers. See Howell, supra, at 458. However, failure to inform an insured about a settlement offer can be the basis of liability under Stowers but only if there was an unconditional offer to settle.
II. Unconditional Offer to Settle.
The settlement offer in question provided, among other things, that the attorneys for Eagle and Fitch would agree “not to collect any judgment against Johnny Guin” in exchange for a joint payment of $19,500 (with release of Peden) or for a payment of policy limits, less $500. The attorneys for Eagle and Fitch testified that even if the policy limits were paid, they fully intended to take Guin’s case to judgment and that they intended to secure a jury finding as to Guin’s negligence. At no time did the attorneys offer to provide Guin, the Ranger insured, with a release of all claims, a motion to dismiss him from the lawsuit, a covenant not to sue, a release of judgment, or any other legal safeguards that would have protected Guin from a final monetary judgment based solely on his own negligence.
Ranger contends it had no duty to accept the offer of settlement on behalf of Fitch and Eagle because it was conditional. The court states that the question of an unconditional offer in this case was “merely evi-dentiary.” 723 S.W.2d at 660. Therefore, the court did not address this issue. I disagree.
No one disputes that this case was brought under the Stowers Doctrine. Being a Stowers case, an unconditional offer to settle is a necessary prerequisite to an insurer’s liability for negligently failing to settle a case within the insurance policy limits. See Jones v. Highway Ins. Underwriters, 253 S.W.2d 1018, 1022 (Tex.Civ.App. — Galveston 1952, writ ref’d n.r.e.). See also Danner v. Iowa Mut. Ins. Co., 340 F.2d 427, 430 (5th Cir.1964) (interpreting Texas law) (offer conditional on covenant not to sue was insufficient); Henke v. Iowa Home Mut. Casualty Co., 97 N.W.2d 168, 173 (Iowa 1959) (where proposal of claimant was conditional, insurer cannot be held liable for refusal to settle within policy limits). There are also sound policy reasons for this requirement. First, even though Peden and Guin would not collect on the judgment as rendered by the jury, the insured could still be exposed to liability to other defendants through joint and several liability claims. Second, such a duty would undermine the expectations of the insurance consumer who believes he is fully protected by the insurance company and would be fully released and absolved of liability by a settlement. Finally, an unpaid judgment against the insured, even though it would not be collected by the plaintiff, would affect the insured’s credit rating, financial reputation, ability to secure insurance, and cause “moral embarrassment.”
Since the settlement offer was to only release one insured while allowing judgment against the other Ranger insured, it does not constitute an unconditional offer to settle. Therefore, Ranger should not be held liable for failing to settle the claim.
III. The Agency Argument.
The court states that under Stowers, an insurer’s duty and therefore liability, “extends to the full range of the agency relationship.” 723 S.W.2d at 659. This is an incorrect statement of current Texas law.
The court is correct to point out that the reasoning of the Commission of Appeals in Stowers was based in part on agency law. *663The commission stated that when an insurance company contracts for the right to take complete and exclusive control of the suit against the insured and settlement, then the insurance company assumes the responsibility to act as the exclusive and absolute agent of the insured. Stowers, 15 S.W.2d at 547. However, the rationale and analysis of the commission should not be seized upon to expand a relatively simple principle.
The commission of appeals in Stowers likened the insurer as an agent of the insured in order to hold the agent “liable to his principal for negligence ... in conducting his principal’s affairs.” Highway Ins. Underwriters v. Lufkin-Beaumont Motor Coaches, Inc., 215 S.W.2d 904, 931 (Tex.Civ.App. — Beaumont 1948, writ ref’d n.r. e.). To expand the limited holding of Stow-ers to include all facets of agency law is unwarranted and unwise. It likewise would be an incorrect application of agency law.
In a true agency relationship the principal has power of direction and right of control over an agent. Restatement (Second) of Agency §§ 1, 14 (1958). This is not the case with the typical liability policy or the policy presented in Stowers. Instead, the insurer is usually in complete control of the settlement and defense of the claim. “Rather than right of control, the insured has at most a cause of action for negligence ... in the handling of the defense or settlement of the claim against the insured.” Keeton, Liability Insurance and Reciprocal Claims from a Single Accident, 10 Sw. L.J. 1, 9 (1956). See also Pattison v. Highway Ins. Underwriters, 278 S.W.2d 207, 212 (Tex.Civ.App. — Galveston 1955, writ ref'd n.r.e.) (insurance claims adjuster is not the agent of insured); Comment, An Insurance Company’s Duty to Settle: Qualified or Absolute?, 41 So.Cal.L.Rev. 120, 125 (1968) (conflicting interests of insurer and insured normally preclude an agency relationship). Therefore, I would not expand the Stowers Doctrine to include all aspects of agency law.
The Stowers Doctrine presents a simple and straightforward rule, firmly entrenched in Texas jurisprudence. I see no need to disturb this body of law. For the above reasons, I would reverse the judgment of the court of appeals and render judgment for Ranger.
SPEARS, J., joins in this dissent.

. G.A. Stowers Furniture Co. v. American Indem. Co., 15 S.W.2d 544 (Tex.Comm'n App. 1929, holding approved).