Holds that a liability insurer that undertakes the defense of an insured
has a duty to act in good faith in settling a liability claim; named for a seminal Texas case, G.A. Stowers
Furniture Co. v. American Indem. Co.,
15 S.W.2d 544 (Tex. Comm'n App. 1929). Courts have interpreted the "duty to defend"
language in standard insurance policies as giving liability insurers absolute
control over the conduct of the defense. Whether to settle a liability claim
is therefore completely within the discretion of the liability insurer under
the terms of the policy contract. If the injured party makes a pretrial offer
to settle a liability claim for an amount within the liability policy limit,
the insurer is not obligated to accept the offer and has the contractual right
to take the claim to trial. To protect insureds from abusive practices, courts
impose an extracontractual duty on insurers to act in good faith when deciding
whether to reject a pretrial settlement offer that is within policy limits.
If the insurer acts unreasonably and rejects a good pretrial settlement offer
within policy limits, unwisely takes the claim to trial, loses, and the jury
returns a verdict against the insured for an amount above policy limits, the
defaulting insurer may be liable to pay the entire judgment under the Stowers
Doctrine, even the excess portion above policy limits.