Settling a claim within policy limits.

BUMC PROCEEDINGS 2002;15:336–337 In many health care liability claims, especially after the parties begin to discuss a settlement, it is not unusual for plaintiffs to make a demand on the defendant health care provider to settle the claim within policy limits. In Texas, this demand is known as a Stowers demand, after the Texas Supreme Court case G. A. Stowers Furniture Co. v. American Indemnity Co., which recognized that a policyholder had a cause of action against his liability insurer for negligently refusing a settlement offer within policy limits (1). A Stowers demand is an important development in the case and requires action by the health care provider, his counsel, and his professional liability insurance carrier. This article describes the background of this doctrine, its application, and how to respond to such a demand. A strategic purpose of a Stowers demand is to create tension between an insured and his insurance carrier in an effort to force a settlement or to obtain a settlement for a greater amount than the insurance carrier might otherwise be willing to pay. This situation often arises in obstetrical or similar claims in which the patient has significant neurological problems that have required and will require extensive medical care and that may also involve loss of earning capacity. Because the potential damages in such cases almost always exceed the limits of the health care provider’s insurance coverage, plaintiffs almost invariably make a Stowers settlement demand (1). Similarly, plaintiffs often submit a Stowers demand when the injuries may not be as severe but the defendant has a low amount of insurance coverage. The duties of an insurance carrier to its insured arise from the insurance contract. Generally, the insurance carrier owes the insured 2 duties: to defend and to indemnify. The duty to defend simply means that the insurance carrier must retain and compensate counsel to represent, defend, and protect the interests of the insured in litigation. The duty to indemnify means that the insurance carrier must pay an amount up to the limits of its insurance coverage (i.e., policy limits) in the event of an adverse judgment or settlement. The Stowers doctrine arises out of both of these duties. Simply put, the Stowers doctrine is an implied duty that requires the insurance carrier to exercise reasonable care in deciding whether to accept a settlement demand made within the limits of its coverage for an insured. This Stowers duty arises when a settlement demand on the insured satisfies 3 prerequisites: 1) the claim against the insured is within the scope of coverage; 2) the demand is within policy limits and proposes to release the insured fully; and 3) the terms Settling a claim within policy limits