There are a number of factors that Courts review when determining whether an insurer has acted under a “reasonably prudent insurer” standard under the Stowers doctrine. We have previously discussed key issues to look out for in a Stowers demand that can impact whether an insurer acts reasonably. Today, however, we will be looking at strategies that insurers and their counsel can employ when analyzing Stowers demands.
As a brief refresher, an insurer’s Stowers duty is not triggered by a settlement demand unless all three of the following prerequisites are met:
- the claim against the insured is within the scope of coverage,
- the demand is within the policy limits, and
- 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.
See Am. Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 848–49 (Tex. 1994). While the determination of what an “ordinarily prudent insurer” is often fact-dependent, there are nonetheless a number of general strategies that insurers can rely on during the initial review of an alleged Stowers demand.
- Know Your Facts.
While Stowers demands may be made pre-suit, the majority of Stowers demands are made during litigation. The key to either scenario is the same: insurers need to ensure that either their adjuster(s) or counsel conduct a thorough investigation. Unless liability is clear, it is extremely important that all phases of discovery be conducted, including depositions of key witnesses or experts. Similarly, it is essential that expert witnesses have reviewed the claim file material. This includes a medical expert to review whether the medical expenses were reasonable and necessary, and various liability experts such as accident reconstructionists, engineers, or field experts to ensure that the insurer understands the proper liability distribution.
If an insured has failed to provide this information, or discovery is ongoing, it is reasonable for the insurer to deny the Stowers demand under the reasonably prudent insurer standard.
- Know Your Venue.
Oftentimes, an insurer will need to look beyond the facts in the claim file to understand the risks involved. Reviewing the jury verdicts and settlement ranges in the venue where the claim is located is essential to understanding the potential risks involved. The more plaintiff-friendly the venue is, the more likely the insured could receive a judgment beyond the policy limits. Accordingly, we recommend that insurers retain counsel to properly review related cases to understand the potential damages involved.
- Know Your Opponent.
Similar to knowing your venue, it is essential that an insurer’s counsel review the jury verdicts and settlement ranges in similar cases with the plaintiff’s counsel making the Stowers demand. By understanding the dollar amounts that an opposing counsel is used to working with, an insurer should be able to create an effective settlement range to avoid a Stowers suit. This is particularly important if the facts of the case are in the insured’s favor.
The bottom line is this: even if the facts of the case aren’t in the insurer’s favor, an insurer should always ensure that it diligently investigates the facts of the case. While analyzing a Stowers demand is always tricky and fact-dependent, these are nonetheless a few strategies that can help an insurer develop a proper response.
