The Stowers Doctrine. How Texas Law Forces Insurance Companies to Settle Within Policy Limits

The 1929 Case That Still Controls Texas Insurance Settlement Practices

In 1929, the Texas Commission of Appeals decided *G.A. Stowers Furniture Co. v. American Indemnity Co.*, 15 S.W.2d 544, 544–546 (Tex. Comm'n App. 1929, holding approved). The case established a principle that has shaped Texas insurance litigation for nearly a century. When a liability insurance provider is defending its insured against a covered claim made by a third party, the insurer has a duty to exercise reasonable care in responding to a settlement demand that is within the policy's limits. If the insurer's decision to reject such an offer leads to a judgment against the insured for damages in excess of the policy's limits, that decision will be measured against the degree of care and diligence that ordinarily prudent persons would exercise in the management of their own businesses. A breach of this duty gives the insured a cause of action for the excess damages, commonly referred to as a Stowers action.

The Texas Supreme Court refined and reaffirmed this standard in *American Physicians Insurance Exchange v. Garcia*, 876 S.W.2d 842, 848 (Tex. 1994), and the doctrine has been consistently applied ever since.

The Four Prerequisites That Activate the Stowers Duty

The Stowers duty is not triggered by every settlement demand. Texas courts have identified four specific prerequisites that must be met before the insurer's duty arises. The claimant bears the burden of establishing each of these elements [*Seger v. Yorkshire Ins. Co.*, 503 S.W.3d 388, 396 (Tex. 2016); *American Physicians Ins. Exch. v. Garcia*, 876 S.W.2d 842, 848–849 (Tex. 1994)].

1. The Claim Must Be Within the Scope of the Policy's Coverage
The claim against the insured must fall within the coverage provided by the insurance policy [Seger v. Yorkshire Ins. Co., 503 S.W.3d 388, 396 (Tex. 2016)]. In a Stowers action, the burden is on the insured to prove coverage. The coverage element has three components. The injury or damage must be (1) the type covered by the policy, (2) incurred at a time covered by the policy, and (3) to a person whose injuries are covered by the policy. The failure to prove any of these components bars coverage under the policy and therefore precludes recovery under the Stowers doctrine [Seger v. Yorkshire Ins. Co., 503 S.W.3d 388, 400–410 (Tex. 2016)].
For example, if an auto liability policy excludes intentional acts and the plaintiff's claim is based on an intentional assault, Stowers does not apply. Similarly, if a policy exclusion eliminates coverage for a particular category of claimant, the duty never arises.

2. The Demand Must Be Within the Policy's Limits
The third party's offer to settle the claim must be for a sum equal to or within the limits of the insurer's liability under the insurance contract [American Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 849 (Tex. 1994); State Farm Lloyds Ins. Co. v. Maldonado, 963 S.W.2d 38, 41 (Tex. 1998)].
A demand that exceeds the policy limits does not trigger the Stowers duty. However, there is an important nuance. A settlement demand that is technically in excess of the policy limits might still be considered "within the limits" if the insured notifies the insurer of the insured's willingness to fund the excess. In State Farm Lloyds Ins. Co. v. Maldonado, the Texas Supreme Court left open the question of whether a demand would have triggered the duty if the insured had notified the insurer of the willingness to fund the excess [963 S.W.2d 38, 41 n.6 (Tex. 1998)].
This is why experienced plaintiff's attorneys in Texas carefully craft their Stowers demands to fall at or below the policy limits, removing any ambiguity and placing maximum pressure on the insurer.

3. The Settlement Must Provide a Full Release of the Insured
The Stowers duty does not come into play unless the proposed settlement will result in a full release of the insured's liability to the claimant. If the claimant's offer does not include releases of the hospital liens securing the claimant's medical expenses, the Stowers duty is not activated [Trinity Universal Ins. Co. v. Bleeker, 966 S.W.2d 489, 491 (Tex. 1998)].
Similarly, the duty is not triggered by an offer from the claimant to accept a sum equal to or within the policy's limits from the primary carrier so that the claimant can then pursue the insured's excess carrier. If the offer is not accompanied by a promise to release the liability insured, the Stowers duty does not attach [Birmingham Fire Ins. v. American Nat. Fire, 947 S.W.2d 592, 599 (Tex. App. 1997, writ denied)].
This requirement protects insurers from demands that would settle one layer of exposure while leaving the insured vulnerable to continued litigation. But it also means the plaintiff's attorney must draft the demand precisely, including a clear and unconditional release of the insured, to properly trigger the duty.

4. The Terms Must Be Such That a Reasonably Prudent Insurer Would Accept
The third party's proposal to settle must be on such terms that an ordinarily prudent insurer would have accepted it, considering the likelihood and degree of the insured's potential exposure to an excess judgment [Allstate Ins. Co. v. Kelly, 680 S.W.2d 595, 608 (Tex. App. 1984, writ ref'd n.r.e.)].
This is where the rubber meets the road. If liability is clear, the plaintiff's damages far exceed the policy limits, and the demand is within limits with a full release, a reasonably prudent insurer has no rational basis to refuse. The insurer that rejects such a demand is gambling with its insured's money, and under Stowers, the insurer pays the price when that gamble fails.
Texas courts have also held that the deadline in a Stowers demand must give the insurer a reasonable amount of time to evaluate and respond. An insurer was relieved of its Stowers duty when the deadline for responding to the settlement demand was unreasonably short [Allstate Ins. Co. v. Kelly, 680 S.W.2d 595, 608 (Tex. App. 1984)].

The Insurer Has No Duty to Make or Solicit a Settlement Offer

An important limitation of the Stowers doctrine is that it applies only to the insurer's refusal of a demand for settlement within the policy limits. It does not obligate the insurer to make or solicit a settlement proposal [*American Physicians Ins. Exch. v. Garcia*, 876 S.W.2d 842, 849–851 (Tex. 1994); *Birmingham Fire Ins. v. American Nat. Fire*, 947 S.W.2d 592, 597–599 (Tex. App. 1997, writ denied); *Insurance Corp. of Am. v. Webster*, 906 S.W.2d 77, 79 (Tex. App. 1995, writ denied)].

In *Garcia*, the Texas Supreme Court clarified that evidence concerning claims investigation, trial defense, and the insurer's conduct during settlement negotiations is "necessarily subsidiary to the ultimate issue of whether the claimant's demand was reasonable under the circumstances, such that an ordinarily prudent insurer would accept it" [876 S.W.2d 842, 849 (Tex. 1994)].

This means the burden falls on the plaintiff's attorney to send the demand. The insurer will not come to you. A well-crafted, timely Stowers demand is the trigger that activates the insurer's duty and creates the pressure to settle.

Stowers Only Applies When the Insured's Liability Exceeds Policy Limits

A Stowers claim is available only when the insurer refuses to settle within the policy limits and the insured ultimately becomes liable in excess of those limits, whether as a result of judgment or settlement. If the parties reach a settlement within policy limits, no Stowers claim is available [*In re Farmers Tex. Cty. Mut. Ins. Co.*, 621 S.W.3d 261, 268 (Tex. 2021)].

The Texas Supreme Court stated plainly that "our precedent has consistently recognized a Stowers cause of action only when the insured's liability exceeds policy limits" [*In re Farmers*, 621 S.W.3d at 268]. Even if the plaintiff alleges some misconduct by the insurer in refusing to settle earlier or for a different amount, there is no Stowers action if the case ultimately resolves within limits [*Murray v. San Jacinto Agency, Inc.*, 800 S.W.2d 826, 829 (Tex. 1990)].

In *In re Farmers*, the policy limit was $500,000 and the third party claimant was willing to settle for $350,000. The insurer refused to go higher than $250,000. Fearing an excess judgment, the insured contributed $100,000 of their own money to reach the $350,000 settlement. The insured then sued the insurer to recover the $100,000 they contributed, asserting both a Stowers claim and breach of contract. The Texas Supreme Court held that because the insured's liability as ultimately determined by the settlement did not exceed the policy limits, the Stowers claim must be dismissed [621 S.W.3d 261, 276–277 (Tex. 2021)]. The Court noted, however, that the insured is not left without a remedy. An insured who contributes to a settlement within policy limits in response to a solicitation or demand by the insurer can bring a contractual claim for reimbursement based on the insurer's breach of the policy duty to indemnify [621 S.W.3d at 270–275].

Multiple Claimants and the Stowers Duty

Accidents on Texas highways frequently injure more than one person. A multi-vehicle pileup on I-35, a commercial truck crash on Highway 290, or a catastrophic intersection collision can leave multiple claimants competing for the same pool of insurance coverage. The question of how the Stowers duty applies when there are multiple claims against the same insured is one of the most strategically important issues in Texas personal injury practice.

Each Claim Is Evaluated Separately Under Soriano
The Texas Supreme Court addressed this issue directly in Texas Farmers Ins. Co. v. Soriano, 881 S.W.2d 312 (Tex. 1994). In Soriano, a liability carrier faced multiple claims resulting from its insured's negligent operation of a motor vehicle. The insurer settled one of the wrongful death claims (the Lopez claim) for $5,000, reducing the $20,000 liability coverage to $15,000. The remaining claimants were offered the $15,000 balance but rejected it and insisted on payment of the full $20,000 policy limit. At trial, the verdict was against the insured and greatly in excess of the remaining insurance coverage.
In the ensuing Stowers action, the Texas Supreme Court held that the insurer's duty to accept a reasonable settlement offer is examined by viewing each claim separately. The insurer would be liable under Stowers only if a reasonably prudent insurer would not have settled the Lopez claim, considering solely the merits of that claim and the potential liability of the insured on that claim alone [881 S.W.2d 312, 315 (Tex. 1994)]. Because the Lopez settlement was reasonably made, the limits were properly reduced, and there was never a subsequent demand to settle the other claims within the remaining policy limits that would trigger the Stowers duty on those claims [881 S.W.2d at 315–316].
The Soriano approach means that an insurer may, without breaching the Stowers duty, enter into a reasonable settlement with one of several claimants even if that settlement exhausts or diminishes the proceeds available to satisfy other claims. The Court noted that this approach promotes settlement of lawsuits and encourages claimants to make their claims promptly [881 S.W.2d at 315].

The Strategic Implications for Plaintiffs
For injured Texans, the Soriano rule creates both opportunities and urgency. If you are one of multiple claimants competing for a single pool of policy limits, the first claimant to submit a valid Stowers demand within the available limits puts the insurer in the most difficult position. If the insurer settles with an earlier claimant and the remaining limits are insufficient to cover your claim, the insurer may argue that it properly reduced the available limits through a reasonable settlement and that no valid within-limits demand was ever made on your claim.
This is why it is critical to retain an attorney and assert your claim as early as possible in multi-claimant situations. An experienced Texas plaintiff's attorney understands the race dynamics created by Soriano and will move aggressively to protect your position.

Joint Stowers Demands
In some multi-claimant cases, the plaintiff's attorney may send a joint Stowers demand on behalf of all claimants, offering to resolve all claims for the combined policy limits. This approach can be effective when the total damages clearly exceed the available coverage and liability is undisputed, because it simplifies the insurer's decision. The insurer can resolve all exposure in a single transaction rather than facing the risk of an excess verdict on any individual claim.

Multiple Policies and the Stowers Duty

Many defendants in Texas carry layered insurance coverage, with a primary policy covering the first portion of liability and an excess (or umbrella) policy covering damages beyond the primary limits. The interaction between Stowers and these layered policies raises distinct issues that Texas courts have addressed.

When Multiple Insurers Are Involved and No Single Insurer Can Fund the Settlement
The Texas Supreme Court has expressly reserved the question of whether the Stowers duty is implicated when a settlement requires funding from multiple insurers but no single insurer can fund the settlement within its particular policy limits [American Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 849 n.13 (Tex. 1994)].
One Texas court of appeals answered this question. In AFTCO Enters. v. Acceptance Indem. Ins. Co., 321 S.W.3d 65, 69–72 (Tex. App. 2010, pet. denied), the court concluded that the Stowers duty is not implicated when multiple claimants and multiple insurers are involved and the only settlement offer made is a global offer to settle all claims for the combined policy limits of all the policies. Because no individual insurer had the opportunity to settle any claim within its own policy limit, the Stowers duty was not triggered.
This is an important limitation that plaintiff's attorneys must account for when structuring demands in complex, multi-policy cases. Rather than making a single global demand against all carriers, the more effective approach is often to make separate demands against each carrier within each carrier's respective policy limits, ensuring that each insurer independently faces the Stowers calculus on its own coverage.

The Excess Carrier's Right to Enforce the Stowers Duty
Texas law recognizes that an excess carrier can enforce the Stowers doctrine against a primary carrier through the theory of equitable subrogation. If the primary carrier unreasonably refuses to accept a settlement offer that would have absolved the insured from further exposure to liability and the excess carrier from possible payment of damages over the primary coverage, the excess carrier is entitled to enforce the insured's cause of action under the Stowers doctrine [Rocor Int'l, Inc. v. Nat'l Union Fire Ins. Co., 77 S.W.3d 253, 260 (Tex. 2002); American Centennial Ins. Co. v. Canal Ins. Co., 843 S.W.2d 480, 483 (Tex. 1992)].
However, the excess carrier must establish the same prerequisites that the insured would have to prove in a traditional Stowers case. There must have been an offer to settle the claim in full within the limits of the primary coverage that would have resulted in a release of the insured's potential liability. A demand from the third party claimant that the primary carrier pay its limits so that the third party can then pursue the excess carrier is not the kind of offer that triggers the primary carrier's Stowers duty [American Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 848–849 (Tex. 1994)].

Practical Example of Layered Coverage
Consider a commercial trucking company operating on I-10 in Texas. The company carries a $1 million primary liability policy and a $5 million excess policy from a different insurer. A plaintiff injured in a catastrophic crash sends a Stowers demand to the primary carrier for the full $1 million primary limit, with a full release of the insured. The primary carrier refuses, believing it can win at trial. The jury returns a $4 million verdict.
The primary carrier now owes the $1 million policy limits plus the $3 million excess under a Stowers theory. But the excess carrier, which had to pay $3 million on its layer because the primary carrier's refusal to settle within primary limits exposed the excess layer, can pursue its own equitable subrogation claim against the primary carrier under Rocor and American Centennial.
The result is that the primary carrier's refusal to accept a reasonable within-limits demand creates liability running in multiple directions, both to the insured and to the excess carrier, all traceable back to the original Stowers violation.

The Stowers Doctrine Does Not Apply in Reverse

It should be noted that the Stowers duty does not apply in reverse. The insurer's conduct in accepting a demand to settle a claim against the insured is not subject to challenge under the Stowers doctrine. One Texas court of appeals has reasoned that the insurer has the absolute right to settle a claim and its conduct in that regard can be no breach of duty [*Dear v. Scottsdale Ins. Co.*, 947 S.W.2d 908, 915 (Tex. App. 1997, writ denied)].

However, if the settlement was the result of the insurer's breach of some other contractual or statutory duty, such as the duty to conduct a reasonable investigation [Tex. Ins. Code §541.060(a)(7)], the insured may have a separate claim for harm resulting from the insurer's acceptance of a settlement demand [*Wood Truck Leasing v. American Auto. Ins. Co.*, 526 S.W.2d 223, 224–225 (Tex. Civ. App. 1975, no writ)].

The Relationship Between Stowers and the Texas Insurance Code

The Texas Supreme Court in *Garcia* noted that although a breach of the Stowers doctrine is not in itself a violation of the Insurance Code, the Court expressed no opinion on the difference between the insurer's obligation to make a good faith attempt to settle under the Insurance Code (now Section 542.001 et seq.) and the Stowers duty [876 S.W.2d 842, 847 n.11 (Tex. 1994)]. In *Rocor Int'l, Inc. v. Nat'l Union Fire Ins. Co.*, 77 S.W.3d 253, 261–262 (Tex. 2002), the Texas Supreme Court interpreted the statutory standard of liability under the Insurance Code as not requiring a fundamentally different approach from Stowers.

As a practical matter, a Stowers demand that the insurer unreasonably refuses may also support claims under the Texas Insurance Code for unfair settlement practices, potentially exposing the insurer to statutory penalties, attorney's fees, and treble damages in addition to the excess judgment.

Why Stowers Is the Most Important Doctrine in Texas Personal Injury Practice

For injured Texans, the Stowers doctrine transforms the insurance settlement process. Without it, insurance companies would have no financial consequences for rejecting reasonable demands within policy limits. They could gamble with their insured's financial future every time, knowing that their maximum exposure was capped at the policy limits regardless of the outcome at trial.

Stowers eliminates that free option. It forces insurers to evaluate claims honestly and settle when the evidence supports a within-limits resolution. It gives the plaintiff's attorney a tool to apply meaningful pressure on the insurer by creating the specter of excess liability. And in cases involving multiple claimants or layered policies, it creates a web of obligations and potential liability that makes unreasonable refusals to settle economically irrational for the insurer.

Contact Medina & Medina to Discuss Your Case

If you have been injured in a Texas accident and the insurance company is refusing to offer fair compensation, the Stowers doctrine may be the key to unlocking the resolution you deserve. Call Medina & Medina at (512) 883-0012 for a free consultation. We understand how to craft effective Stowers demands, how to navigate multi-claimant and multi-policy situations, and how to hold insurers accountable when they refuse to act reasonably under Texas law. You pay nothing unless we win.

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