This article is general information for insurance professionals. It is not legal advice, it does not address any particular claim, and reading it does not create an attorney-client relationship with Keramidas Law Firm. Decisions about a specific demand should be made with counsel.
A Stowers demand is a settlement offer from a claimant to a liability insurer to resolve a claim against the insured for an amount within the policy limits. Under Texas law, if the demand meets certain requirements and the carrier unreasonably rejects it, the carrier can become responsible for a later judgment that exceeds those limits. For an adjuster, that makes a Stowers letter one of the most time-sensitive documents that can land in a claim file.
This article explains where the doctrine comes from, what has to be true before the duty applies, and a practical way to handle the response window. It is written for adjusters, claims managers, carriers and self-insured businesses.
Where the Stowers Doctrine Comes From
The name comes from G.A. Stowers Furniture Co. v. American Indemnity Co., a Texas decision from 1929. The insurer in that case controlled the defense and turned down an offer to settle within limits. The verdict that followed was larger than the policy. The court held that an insurer that takes control of the defense and of settlement must use ordinary care in deciding whether to accept a within-limits offer, meaning the care an ordinarily prudent person would use in managing their own business.
The policy gives the carrier the right to control settlement, while the insured carries the risk of anything above the limits. Because the carrier is making a decision with someone else’s money at stake, Texas law expects it to weigh the insured’s exposure along with its own.
What Triggers the Stowers Duty in Texas
Not every demand letter is a Stowers demand, whatever its heading says. In American Physicians Insurance Exchange v. Garcia (1994), the Texas Supreme Court said the duty is activated when three things are true:
- The claim against the insured is within the scope of coverage.
- The demand is within the policy limits.
- The terms are such that an ordinarily prudent insurer would accept them, considering the likelihood and degree of the insured’s potential exposure to an excess judgment.
Texas courts have also looked for an offer to fully release the insured in exchange for the payment. A demand that would leave the insured exposed after the carrier pays is a different kind of offer, and it may not carry Stowers consequences.
Reading the Demand: Three Problem Areas
Release terms and liens
Look at exactly who and what the claimant offers to release. If the release leaves out a known hospital lien or another lien attached to the claim, the insured could still face exposure after payment. Texas courts have treated that gap as relevant to whether a demand was a proper Stowers demand. Check lien questions before a response goes out.
Multiple claimants or multiple insureds
When several claimants compete for one set of limits, Texas law has generally allowed a carrier to accept a reasonable demand from one claimant even though doing so reduces or exhausts what is left for the others. A demand that offers to release only one of several insureds raises separate questions. Both situations are fact-specific and should go to counsel early.
Deadlines
The doctrine does not set a fixed number of days. The demand sets its own deadline, and the later question is whether the carrier had a reasonable opportunity to evaluate it. In practice, deadlines measured in a few weeks are common, and shorter ones appear. A short deadline is not automatically unreasonable, so the clock should be treated as real from the day the letter arrives.
How to Respond to a Stowers Demand: A Practical Sequence
The steps below are general and are not a substitute for legal advice on a particular claim. They describe the order in which the work usually needs to happen.
- Calendar the deadline the day the letter arrives. Record when and how it was received, and make sure it reaches the adjuster with authority over the file instead of sitting in a general mailbox.
- Confirm coverage and limits. Identify the policy, the applicable limits, any amounts already paid, and any open coverage questions or reservation of rights.
- Test the demand against the three elements. Is the claim covered, is the amount within limits, and does the letter offer a full release of the insured?
- Evaluate liability and damages with what is in the file. Note what is missing, such as medical records, billing, lien information, wage documentation or the crash report. The earlier the facts were gathered, the easier this step is, which is one reason early investigation matters in Texas auto and trucking claims.
- If more information or time is needed, ask in writing and ask promptly. Say specifically what is needed and why. A request for an extension does not stop the clock by itself, and the claimant is not required to agree.
- Keep the insured informed. The insured is the one exposed to an excess judgment. Telling the insured about the demand, the deadline and the potential exposure is sound practice, and many carrier guidelines require it.
- Bring in defense counsel early. Counsel can assess venue, verdict range, the release language and whether the demand meets the legal requirements.
- Document the reasoning at the time of the decision. A file that shows what was considered, by whom and when is far more useful later than one reconstructed after a verdict.
- Respond in writing before the deadline. If the decision is to accept, accept the terms as offered. A reply that adds or changes terms is generally treated as a counteroffer and not an acceptance.
Common Mistakes With Stowers Letters
Most problems with Stowers demands are process problems. The letter is routed to the wrong desk. It is treated as routine correspondence. The deadline passes with no written response at all. Each of those is avoidable with a simple intake rule: any letter that names policy limits and a deadline gets escalated the same day.
Another mistake is assuming a defective demand can be ignored. A flawed letter still tells the carrier where the claimant is heading, and a claimant’s lawyer can often cure the defect with a second letter. A further one is evaluating the demand only on the carrier’s own view of liability without an honest look at how a jury in that venue might see the damages.
Stowers Is Not a First-Party Claim
Stowers is sometimes lumped together with other insurance disputes, but it is a distinct doctrine. Stowers is a common-law duty of ordinary care that arises in third-party liability claims when the carrier controls the defense and settlement. Disputes between an insurer and its own policyholder over the handling of a first-party claim follow different rules under Texas law. A single dispute can involve more than one theory, which is one more reason to have counsel look at the whole file rather than the demand letter alone.
Free CE Training on the Stowers Doctrine for Texas Adjusters
Keramidas Law Firm offers free continuing education classes for adjusters, accredited for continuing education hours by the Texas Department of Insurance. One of the classes is devoted to the Stowers doctrine: what triggers it and what to do with a Stowers demand. The current list is on the firm’s Texas insurance CE classes page. Licensing and continuing education rules for adjusters are published by the Texas Department of Insurance.
Frequently Asked Questions
How long does a carrier have to respond to a Stowers demand?
There is no single statutory deadline. The demand states its own deadline, and the legal question is whether the carrier had a reasonable opportunity to evaluate the offer. Treat the stated date as binding unless an extension is confirmed in writing.
What makes a Stowers demand valid?
Under Garcia, the claim must be within coverage, the demand must be within policy limits, and the terms must be ones an ordinarily prudent insurer would accept given the insured’s likely exposure. Texas courts also look for an offer of a full release of the insured.
Does a carrier have to make a settlement offer if no demand has been made?
Under Garcia, the Stowers duty is generally not activated until the claimant makes a demand within limits. That is a legal minimum and not a claims strategy. Whether to open settlement discussions in a particular file is a separate judgment call.
What happens if a valid Stowers demand is rejected and the verdict exceeds the limits?
If the rejection is later found to have been unreasonable, the carrier may be held responsible for the full judgment, including the amount above the policy limits. That result is not automatic. It depends on whether the demand met the requirements and on what a prudent insurer would have done with the information available at the time.
Does the Stowers doctrine apply outside Texas?
Stowers is a Texas doctrine. Other states, including Oklahoma, have their own rules for time-limited policy-limits demands, and those rules differ in important ways. Confirm the law of the state involved with counsel before responding.
Questions About a Stowers Demand in Texas?
Keramidas Law Firm represents insurance carriers and businesses across Texas and Oklahoma from its office in Richardson, including auto insurance defense and trucking matters where policy-limits demands are common. If a Stowers demand has arrived and the deadline is running, call 214-299-8016 or contact the firm to ask for a consultation.
Disclaimer. Nothing in this article is legal advice. It is general educational information about Texas law and does not apply the law to any particular claim, policy or set of facts. Reading it or contacting the firm through this website does not create an attorney-client relationship. How to respond to a settlement demand depends on the facts, the policy, the claims, the defenses and applicable law, and should be decided with a licensed attorney.
