Montoya et al v. State Farm Mutual Automobile Insurance Company et al
MEMORANDUM OPINION. Signed by Judge Royce C. Lamberth. (ad)
UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
AMANDA MONTOYA AND
DEANDRA MONTOYA, Individually
and as Assignees and Successors in
Interest ofAraceli Llanas Acosta as
Representative of the Estate ofAndrew
STATE FARM MUTUAL
AUTOMOBILE INSURANCE CO.,
Civil Case No. 16-00005 (RCL)
This is a lawsuit arising out of a car accident between Andrew Acosta, who was insured by
State Farm Mutual Automobile Insurance Company, and a car driven by Amanda Montoya.
Plaintiffs, the Montoyas, sued State Farm on behalf of Acosta's estate for breach of contract,
breach of the duty of good faith and fair dealing, violations of the Texas Insurance Code, and
violations of the Deceptive Trade Practices Act. Before the Court is defendant State Farm Mutual
Automobile Insurance Company's motion for judgment on the pleadings, ECF No. 16. Having
considered the motion, plaintiffs' response, ECF No. 17, defendant's reply, ECF No. 18, and in
light of this Court's previous memorandum opinion that the Montoyas' lack standing to bring
DTPA and Insurance Code claims, ECF No. 14, this Court will grant the motion and issue
judgment on the pleadings.
This case anses out of a straightforward car accident, but it presents a deceptively
complicated posture that is set out in more detail in this Court's October 12, 2016 Memorandum
Opinion, ECF No. 14. However, the Court will recite the basic facts here. On December 8, 2007,
the Montoyas were injured when a car driven by Andrew Acosta, who apparently was intoxicated,
collided with theirs. Mr. Acosta died. State Farm settled the claims of all victims of the accident
except the Montoyas: $25,000.00 to Kristopher Ramirez, a passenger in Acosta's vehicle who also
died, and amounts totaling $6,530.00 and $3,545.00 to two other victims respectively.
Montoyas refused to accept a $14,925.00 settlement offer, which was the remaining amount
available within the $25,000 per person, $50,000 per occurrence limit in Acosta's policy. The
Montoyas sued the Acosta estate and obtained a judgment for $542,933.67. Later, the Montoyas
entered a covenant not to execute on that judgment with the Acosta estate. As part of the covenant
not to execute, the Acosta estate assigned its rights against State Farm for contractual or extracontractual claims arising out of the handling of the accident to the Montoyas.
The Montoyas then sued State Farm and Jeff Frey, the attorney representing the Acosta
estate in the claim. Standing in the shoes of Andrew Acosta, the Montoyas sued State Farm and
Mr. Frey for breach of contract, breach of the duty of good faith and fair dealing, violations of the
Texas Insurance Code, and violations of the Deceptive Trade Practices Act. The Montoyas seek
to recover for themselves actual damages and mental anguish damages suffered by Acosta, as well
as additional exemplary damages based on State Farm's failure to settle the Montoyas' lawsuit
against Acosta within the policy limits, which supposedly exposed the Acosta estate to a trial and
judgment beyond the policy limits.
Plaintiffs originally filed this suit in state court, and State Farm removed the case to federal
court based on diversity jurisdiction. State Farm argued that Mr. Frey, who was a citizen of Texas
like the Montoyas, should not be considered in the diversity analysis because he was improperly
joined. This Court previously determined that Frey was improperly joined because he could not
be held liable as a claims adjuster, and because the Montoyas lacked standing to sue for violations
of the DTPA or Insurance Code. ECF No. 14. Specifically, this Court found that Texas law does
not allow the assignment of claims for violations of the Texas Insurance Code or the DTP A. Thus,
this Court found that the Montoyas lacked standing to assert claims against Frey because their
standing was based on an invalid assignment of those causes of action. Id. This Court dismissed
Frey from the case, but did not address the claims against State Farm.
Defendant State Farm now moves for judgment on the pleadings, seeking dismissal of the
claims for breach of the duty of good faith and fair dealing, violations of the DTPA, and violations
of the Insurance Code. Regarding the claim for breach of the duty of good faith and fair dealing,
State Farm argues that that as a matter oflaw plaintiffs have failed to even allege a critical element
of the Stowers duty: a demand for a settlement within policy limits. Mot. 6, ECF No. 16. Further,
State Farm argues that the Insurance Code and DTPA claims should be dismissed because those
causes of action are not assignable, citing this Court's prior memorandum opinion. Mot. 7.
Federal Rule of Civil Procedure 12(c) states that "[a]fter the pleadings are closed but within
such time as not to delay the trial, any party may move for judgment on the pleadings." FED. R.
CIV. P. 12(c). "A motion brought pursuant to Rule 12(c) is designed to dispose of cases where the
material facts are not in dispute and a judgment on the merits can be rendered by looking to the
substance of the pleadings and any judicially noticed facts." Great Plains Trust Co. v. Morgan
Stanley Dean Witter & Co., 313 F.3d 305, 312 (5th Cir. 2002). The central issue is very similar
to that of a 12(b)(6) motion: whether, in the light most favorable to plaintiff, the complaint states
a valid claim for relief. Id.
A complaint must allege sufficient facts that, accepted as true, state a claim to relief that is
plausible on its face. Bell At!. v. Twombly, 550 U.S. 544, 570 (2007); Ashcroft v. Iqbal, 556 U.S.
662, 677-78 (2009). Similarly, under a Rule 12(c) motion, a court must accept the nonmovant's
allegations as true and must view the facts alleged, and any reasonable inferences therefrom, in the
light most favorable to the nonmoving party. Great Plains, 313 F.3d at 312; see also Cash v. C.
1R.,580 F.2d 152, 154 (5th Cir. 1978). Pleadings are therefore construed liberally, and judgment
is only appropriate if the material facts are undisputed and only questions of law as to whether
relief is plausible remain. Id.
State Farm seeks dismissal of the plaintiffs' claim for breach of the duty of good faith and
fair dealing, as well as the claims for violation of the Texas Insurance Code and DTPA. The Court
will analyze them separately.
Breach of Good Faith and Fair Dealing
The Montoyas' complaint alleges that defendant State Farm owed the Acostas a duty of
good faith and fair dealing, which was allegedly violated when State Farm "denied payment under
its policy, following presentment of [the Montoyas'] claims to it." Compl. 5, if 13, ECF No. 1-1.
State Farm argues that Texas case law is clear that the only common law duty that an insurer owes
to its insured is the Stowers duty to protect the insured by accepting reasonable settlement offers
within policy limits. Mid-Continent Ins. Co. v. Liberty Mut. Ins. Co., 236
2007) (citing Md. Ins. Co. v. Head Indus. Coatings & Servs., Inc., 938 S.W.2d 27, 28 (Tex. 1996)
(partially superseded by statute)); see also G.A. Stowers Furniture Co. v. Am. Indem. Co., 15
S.W.2d 544, 547 (Tex. Comm'n App. 1929, holding approved). This Court agrees.
In Texas, there is no cause of action for breach of the duty of good faith and fair dealing in
the context of third-party insurance claims. Tex. Farmers Ins. Co. v. Soriano, 881 S.W.2d 312,
317 (Tex. 1994). There is similarly no common law tort duty to investigate or otherwise handle
claims brought by a third party against its insured. Md. Ins. Co., 938 S.W.2d at 28-29. There is
no common law cause of action for negligent defense of a third-party claim under Texas law. An
insured is protected by the Stowers doctrine as well as his or her contractual rights contained in
the policy. Id. Therefore, to challenge the adequacy of an insurer's handling of a third-party claim,
a plaintiff must bring either a Stowers claim or a breach of contract claim. 1 To the extent that
plaintiffs plead a breach of the duty of good faith and fair dealing separate from a Stowers claim,
that claim has no basis in law and will be dismissed.
To the extent that plaintiffs' good faith and fair dealing claim attempts to incorporate a
Stowers claim, the pleadings are insufficient. First, the complaint never explicitly states a Stowers
claim, despite it being a widely known doctrine of Texas insurance law. Second, the Texas
Supreme Court has held that "[a] Stowers claim is not a bad faith claim." Md. Ins. Co., 938 S.W.2d
at 29 (citing Am. Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 847 (Tex. 1994)). Third, the
complaint never alleges facts raising the inference that a Stowers duty even existed here.
A Stowers duty is not activated unless three critical elements are met: (1) the claim against
the insured is within the scope of coverage, (2) the demand is within the policy limits, and (3) the
terms of the demand are such that an ordinarily prudent insurer would accept it, considering the
Plaintiffs explicitly raised a breach of contract claim, and State Farm's motion for judgment on the pleadings does
not seek dismissal of that claim. The Court does not consider that claim here.
likelihood and degree of the insured' s potential exposure to an excess judgment. Mid-Continent
Ins. Co., 236 S.W.3d at 776 (quoting Am. Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 849
(Tex. 1994)). These are strict prerequisites to a Stowers claim; even an otherwise reasonable
demand above the policy limits does not trigger a Stowers duty. Id Here, State Farm argues that
the Montoyas have failed to allege a critical element of a Stowers claim: that there was a settlement
demand within the policy limits. Mot. 6. To the contrary, State Farm argues that it is undisputed
that the Montoyas did not make such a demand. Therefore, according to State Farm, the Stowers
duty was never triggered, and as a matter oflaw State Farm owed no common law duties to Acosta.
The Montoyas attempt to construe paragraph nine of their complaint as including a Stowers
[D]espite having agreed to discuss and arrive at, with the assistance
and the direction of the Court, an equitable apportionment of the
insurance proceeds, State Farm and their [sic] agent Jeff B. Frey
proceeded with finalizing settlements without the knowledge of, and
to the detriment of the Plaintiffs. Said settlements included paying
policy limits to the estate of one of the other passengers who was
actually responsible for providing alcohol to the driver, Andrew
Acosta. Such settlements were unfair, unreasonable, and unfounded.
State Farm's actions in settling with culpable and less injured
claimants also left [the insured] unreasonably exposed for a
judgment above and beyond the policy limits.
Resp. 2, ECF No. 17 (quoting Compl.
ii 9). Plaintiffs argue that this is a challenge to the
reasonableness of State Farm's settlement with another claimant. The Montoyas cite to Texas
Farmers Ins. Co. v. Soriano, for the proposition that a plaintiff may establish liability under
Stowers by showing either (1) that the insured negligently rejected a demand within policy limits,
or (2) that a settlement with another claimant that diminishes the remaining proceeds within the
policy limits was itself unreasonable. 881S.W.2d312, 315 (Tex. 1994). Thus, the Montoyas argue
that they have sufficiently asserted the second method of establishing Stowers liability, arguing
that State Farm's settlement with Ramirez was unreasonable because Ramirez was contributorily
negligent. 2 Resp. 5, if 12.
However, while plaintiffs have correctly identified ways in which they might establish
Stowers liability in the context of third-party settlements, they have not alleged any fact giving rise
to an inference that a Stowers duty actually existed in the first place. As noted, the Stowers duty
is not triggered until there is a demand within the policy limits. Mid-Continent Ins. Co., 236 S. W.3d
at 776. Plaintiffs' complaint does not allege that they ever made a settlement demand within the
policy limits. In fact, the Montoyas concede that they "did not make a Stowers demand within the
policy limits." Resp. 5, if 12. Therefore, plaintiffs have failed to plead a critical element triggering
a Stowers duty. As a matter of law, they have not stated a claim for relief that is plausible. Thus,
even if plaintiffs' complaint included a Stowers claim, their pleadings are insufficient as a matter
For the reasons stated above, the Montoyas' claim for breach of duty of good faith and fair
dealing will be dismissed.
Violations of the DTPA and Insurance Code
This Court has previously held that plaintiffs' claims for violations of the DTPA and the
Texas Insurance Code were not assignable under Texas law, and that the Montoyas lack standing
to pursue the "personal and punitive" claims that Acosta may have had against his insurance
provider. Memorandum Opinion, ECF No. 14 (citing PPG Indus., Inc. v. JMB!Houston Ctrs. Ptrs.
Ltd., 146 S.W.3d 79, 87 (Tex. 2004) and Great Am. Ins. Co. v. Fed. Ins. Co., 2006 WL 2263312,
(N.D. Tex. Aug. 8 2006)).
Defendant State Farm seeks dismissal of the DTPA and
Ramirez allegedly purchased the alcoholic beverages that Jed to Acosta's intoxication and the eventual accident.
Insurances Code claims based on this analysis. Mot. 7. Plaintiffs did not respond, and the
Montoyas have raised no argument as to the validity of the DTP A or Insurance Code claims.
Therefore, the Court will take State Farm's argument as conceded. For the reasons articulated in
this Court's previous memorandum opinion, the Montoyas lack standing to bring claims for
violations of the DTPA or Insurance Code arising from State Farm's relationship with Acosta.
Those claims will be dismissed.
In sum, this Court finds that the undisputed material facts here establish that defendant
State Farm is entitled to judgment on the pleadings for three causes of action raised in plaintiff
Montoyas' complaint. First, plaintiffs have not alleged any fact giving rise to the inference that a
Stowers duty existed between State Farm and Acosta because the Montoyas did not make a
settlement demand within the policy limits. Second, for the reasons articulated in this Court's
previous memorandum opinion, the Montoyas lack standing to raise a DTP A claim on behalf of
the Acosta estate. Such claims are not assignable under Texas law. Third, the Montoyas similarly
lack standing to raise violations of the Texas Insurance Code on behalf of the Acosta estate. Such
claims are also unassignable.
Accordingly, the Court will grant defendant's motion for judgment on the pleadings and
the three claims will be dismissed. This Court makes no determination as to the sole remaining
cause of action here: breach of contract.
A separate order shall issue.
Royce C. Lamberth
United States District Judge
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