News & Insights  |  Newsletters

Stowers Is the Only Common Law Third-Party Claims Handling Cause of Action in Texas

July 2011

A federal district court, applying Texas law, has held that the only common law cause of action against an insurer for bad faith claims handling in the third-party context is provided by the Texas Supreme Court's decision in G.A. Stowers Furniture Co. v. American Indemnity Co., 15 S.W.2d 544 (Tex. 1929). Mid-Continent Cas. Co. v. Eland Energy, Inc., 2011 WL 2417158 (N.D. Tex. June 14, 2011). The court therefore granted the insurer judgment as a matter of law on the insured's non-Stowers common law claim for breach of the duty of good faith and fair dealing concerning the insurer's investigation and defense of third-party claims arising out of Hurricanes Katrina and Rita.

After a jury returned a verdict in favor of the insured on its claim for breach of the duty of good faith and fair dealing, the insurer renewed its motion for judgment as a matter of law, arguing that Stowers provided the only common law cause of action against an insurer for handling a third-party claim and, therefore, the insured's non-Stowers claim should be dismissed. The insured argued that two other Texas Supreme Court decisions, Republic Insurance Co. v. Stoker, 903 S.W.2d 338 (Tex. 1995), and State Farm Mutual Automobile Ins. Co. v. Traver, 980 S.W.2d 625 (Tex. 1998), recognized additional grounds on which an insurer could be found to have breached a common law duty of good faith and fair dealing in the third-party claims handling context. The court reviewed Stoker and Traver and concluded that the passages on which the insured relied were dicta that did not alter the Stowers rule. Accordingly, the court granted the insurer judgment as a matter of law on the insured's claim for breach of the duty of good faith and fair dealing.