What Is a Stowers Demand?

Next year will see the 100th anniversary of the accident that led to the Stowers doctrine and was litigated in G.A. Stowers Furniture Co. v. American Indem. Co., 15 S.W.2d 544 (Tex. Comm’n App. 1929, holding approved). Why was this case important, and what impact has it had on insurance law and the way claims are handled?

In the Beginning…

Stowers, which was eventually heard by the Texas Supreme Court, involved an accident between a delivery truck owned by G.A. Stowers Furniture Company and a woman named Mamie Bichon. On January 23rd, 1920, the delivery truck was driving along Austin Street in Houston, Texas, when it collided with a wagon which had stopped on the side of the road. The accident was severe enough to cripple the truck, which the driver then left in search of help. Mamie Bichon, who came along about an hour and a half after the initial accident, crashed into the truck, which had been left unguarded and without any lights on to warn other drivers. Bichon’s Ford coupe was turned over in the crash, and Bichon herself suffered severe injuries. She sued Stowers Furniture Company for the amount of $20,000.

American Indemnity was Stowers’ auto insurance provider, and their policy with the furniture company covered them up to $5,000. Eventually, Bichon offered to settle her claim for $4,000, but American Indemnity refused. Instead, they took the matter to court, where Bichon won and the insurer was ordered to pay a verdict in the amount of $14,107.14. Because this amount was more than what Stowers was insured for, the furniture company was responsible for the difference. As you can imagine, this did not sit well, so they filed suit against American Indemnity.

Stowers claimed that Bichon’s offer to settle at $4,000 was reasonable and the insurance company was wrong to dismiss it. Because of this, they told the court, American Indemnity should be responsible for the entire verdict, including the $9,107.14 in excess of its policy limit. That may not sound like a lot. But keep in mind that, by today’s standards, the total amount comes out to more than $114,000.

In the end, the court agreed with Stowers, and American Indemnity was forced to pay the entire amount. In its ruling, the court said that an insurance company owed its insured a duty to handle its affairs just as it would handle its own.

Thus the Stowers demand was born. This has proven to be an important tool for a few reasons. It provides a way for attorneys to quickly and efficiently settle their clients’ claims. For defense attorneys and carriers, it provides a way to protect their clients and themselves if they believe there is a reasonable chance they are exposed to an excess judgment. While “Stowers” is unique to Texas, many other states have similar laws on the books.

The Basic Ingredients of a Successful Stowers Demand

These are the elements required in every Stowers demand:

  1. There must be coverage. Without an insurance policy to make a claim against, a Stowers demand does not work.
  2. The demand cannot exceed policy limits. It is often the case that insurers do not disclose the policy limits of its clients. Because of this, attorneys will often submit demands for the “policy limit” as opposed to a number amount.
  3. The defendant’s liability must be reasonably clear. There should be little question as to who is at fault in the accident, and that the plaintiff was injured as a result of the defendant’s actions.
  4. The offer must be reasonable. This is fairly self-explanatory. The demands of the plaintiff’s attorney must be in line with the loss incurred and the injuries suffered. Any ordinarily prudent insurer would accept it “considering the likelihood and degree of the insured’s potential exposure to an excess judgment.”
  5. The demand must be unconditional and offer a full release. While the terms of a Stowers demand are very straightforward, this requirement can be the hardest for plaintiff’s attorneys to get right. In return for accepting the plaintiff’s demand without condition, the defendant will be released from all further liability.

Beyond the points outlined above, those new to the Stowers doctrine will have questions. What is the process for submitting a Stowers demand? Does it have to be submitted in writing? Can a Stowers demand be rejected? What does it mean to have an unconditional demand? What happens with a hospital lien? What about Stowers demands concerning minors? Did I send a valid Stowers demand? We will answer these questions and others in an upcoming article.