American Empire Surplus Lines Insurance Company v. Occidental Fire & Casualty of North Carolina

Filing 28

ORDER denying 19 Motion for Judgment.(Signed by Judge Nelva Gonzales Ramos) Parties notified.(mserpa, 2)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
CORPUS CHRISTI DIVISION
AMERICAN EMPIRE SURPLUS LINES §
INSURANCE COMPANY,
§
§
Plaintiff,
§
VS.
§ CIVIL ACTION NO. 2:14-CV-456
§
OCCIDENTAL FIRE & CASUALTY OF §
NORTH CAROLINA,
§
§
Defendant.
§
ORDER
Plaintiff, American Empire Surplus Lines Insurance Co. (American Empire) has
filed suit as an excess insurance carrier against the primary carrier, Defendant Occidental
Fire & Casualty of North Carolina (Occidental), alleging liability under the Stowers
doctrine.

In essence, American Empire contends that Occidental had a reasonable

opportunity to settle an underlying case within policy limits, should have done so, but
failed to do so. As a result, American Empire, as excess insurer, seeks to recover the
amount it paid to settle the matter over the amount of Occidental’s tendered primary
limits, triggered only because of Occidental’s failure to settle. Occidental has filed its
Motion for Judgment on the Pleadings (D.E. 19), asserting that American Empire has no
valid cause of action because a Stowers claim requires that the plaintiff sue for the
amount of an excess judgment rather than an excess settlement. For the reasons set out
below, the motion is DENIED.

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FACTS
This insurance dispute arises out of a claim asserted in Maria Elena Salinas v.
Benchmark Logistics, Inc., Cause No. 11-06-50124, in the 79th Judicial District Court of
Jim Wells County, Texas. According to American Empire’s allegations, Maria Elena
Salinas (Salinas) tendered an appropriate Stowers demand to Occidental, as primary
carrier for Benchmark Logistics, Inc. (Benchmark), offering to settle Benchmark’s
liability in full for an amount within Occidental’s primary policy limits. Occidental
refused the Stowers demand.
Thereafter, the Salinas case went to mediation. At that time, Occidental tendered
its policy limits to settle the case against Benchmark. Salinas refused to accept the
primary limits in settlement. As a result, American Empire’s excess liability coverage
owed to Benchmark was triggered and it paid $300,000 in addition to Occidental’s
primary policy limits to settle Benchmark’s liability. American Empire now sues under
Stowers for the $300,000 it was required to pay to settle the case.
DISCUSSION
Occidental argues that Stowers does not apply to this fact scenario because
American Empire’s damages resulted not from a judgment, but from a voluntary
settlement. It cites a number of cases that speak in terms of the necessity of an excess
“judgment” before Stowers liability attaches. However, none of those cases state that a
“judgment” is required whereas a “settlement” is insufficient. Rather, the requirement of
a “judgment” stems largely from the need to finalize and quantify the damages for any
excess liability caused by an act in violation of the Stowers duty.
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Those requirements—obligation to pay and sum certain—insure that the Stowers
action is ripe for determination. See e.g., Safeway Managing General Agency, Inc. v.
Osherow, Trustee (In re Davis), 253 F.3d 807, 809 (5th Cir. 2001) (Stowers claim was
not an asset in the property of the bankruptcy estate where the claim did not mature prior
to being extinguished by the insured debtor’s discharge); Phillips v. Bramlett, 288
S.W.3d 876, 879 (Tex. 2009) (referencing a judgment as an element of a Stowers claim,
but later referring to “excess liability” as the “critical element” of the Stowers action);
Street v. Honorable Second Court of Appeals, 756 S.W.2d 299, 301 (Tex. 1998) (excess
judgment that is on appeal is “final,” making it ripe for Stowers purposes, if the judgment
has not been superseded and the insured is subject to execution on the judgment); Murray
v. San Jacinto Agency, Inc., 800 S.W.2d 826, 829 (Tex. 1990) (describing an excess
judgment as the injury-producing event that makes the Stowers claim ripe, which does
not rule out the injury caused by having to settle in excess of primary policy limits).
While Occidental claims that RLI Ins. Co. v. Philadelphia Indem. Ins. Co., 421 F.
Supp. 2d 956, 968-69 & n.10 (N.D. Tex. 2006) denies an insurer’s Stowers claim in the
face of liability allegedly created through a settlement, the case does not apply. RLI
involved three carriers and four policies. The carriers jointly evaluated and settled the
underlying claim against their common insured. Rather than presenting a Stowers tortbased scenario related to a carrier’s failure to settle within its own policy limits when it
had the opportunity to do so, the case was a contract-based battle between all of the
carriers as to how the policies were to be construed together and the liability divided up.
The footnote regarding Stowers should not be read to state that it takes a judgment to
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trigger the duty. Rather, it should be read as stating that, when the carriers evaluate and
settle the case together, there is no predicate wrongful act of a primary carrier to trigger
Stowers liability regardless of how damages might ordinarily be incurred to ripen the
case.
American Empire argues that its settlement on behalf of Benchmark accomplishes
the same purposes for which a judgment would otherwise be necessary. The settlement
establishes that the underlying plaintiff, Salinas, recovered a particular amount in excess
of the primary policy limits on behalf of Benchmark and that the amount was paid by a
party entitled to subrogation to Benchmark’s rights against its primary carrier,
Occidental.
American Empire backs its argument with authorities that permit settlements to
trigger insurance company liability in other scenarios. Royal Ins. Co. v. Caliber One
Indem. Co., 465 F.3d 614, 615, 618-20 (5th Cir. 2006) (recognizing that the Texas
Supreme Court, in American Centennial v. Canal, infra, accepted the amount paid by an
excess carrier to settle the underlying case as triggering rights in tort for negligent
handling of the defense by the primary carrier); Keck Mahin & Cate v. Nat’l Union Fire
Ins. Co., 20 S.W.3d 692 (Tex. 2000) (recognizing a claim by an excess carrier against a
primary carrier and its attorneys for negligent handling of a case resulting in the need to
settle within the excess carrier’s policy limits); Am. Centennial Ins. Co. v. Canal Ins. Co.,
843 S.W.2d 480 (Tex. 1992) (referring to the excess carrier’s liability through judgment
or settlement as triggering the right to equitable subrogation to the insured’s rights
against the primary carrier).
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Additionally, American Empire notes that the Fifth Circuit has accepted the
settlement-based claim of an excess carrier against a primary carrier in a Stowers-like
situation arising from Louisiana law that is materially indistinguishable from Stowers.
RSUI Indem. Co. v. Am. States Ins. Co., 768 F.3d 374, 381-82 (5th Cir. 2014). In that
case, the primary carrier expressly raised the argument that the excess carrier’s settlement
was not a good enough basis for its claim and an adjudicated judgment was required.
The Fifth Circuit disagreed, reversing the trial court’s decision to the contrary.
The Court agrees that, in this situation, Occidental raises a distinction without a
difference that threatens the public policy in favor of settlements by requiring an excess
carrier to litigate to final judgment any dispute that cannot be settled within primary
policy limits because of a primary carrier’s failure to accept a Stowers demand. Such a
requirement places all insurance carriers at risk of paying more than would have been
necessary if the claim could have been settled. The excess carrier is at risk of paying
more on a judgment and the primary carrier is at risk of paying more as a result of a
Stowers action to recover the amount of the excess judgment. Such a risk is not justified
by any competing policy concerns.
For the reasons set out above, the Court DENIES the motion for judgment on the
pleadings (D.E. 19).
ORDERED this 22nd day of July, 2015.

___________________________________
NELVA GONZALES RAMOS
UNITED STATES DISTRICT JUDGE
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