The Stowers duty was first recognized in 1929 in the case of Stowers Furniture Co. v. American Indemnity, and since has broadened and narrowed the duties it imposes. The Stowers duty is the duty an insurer is obligated to perform in order to exercise reasonable care in handling claims against its insured. This duty was enacted to ensure that insurers exercise due care in evaluating settlement demands that are within the policy limits of the insured.
In 1929 a driver for Stowers Furniture Co. hit a car while delivering furniture to Houston, Texas which seriously injured the driver of that car. A suit was brought against Stowers furniture and before the trial date the injured party made a demand for $4,000.00, which was in Stowers $5,000.00 policy limit, to settle for her damages (known as a Stowers demand). American Indemnity rejected the demand saying they wouldn’t pay more than $2,500.00 while knowing that the judgment was likely to exceed Stowers policy limit. The case was tried and the injured party was owed $14,107.15.
Stowers Furniture Co. then brought an action suit against its insurer, American Indemnity, saying the insurance company didn’t use due care when evaluating the case because it refused to accept the demand that was in policy limits. Since the amount exceeded Stowers $5,000.00 policy limit, the furniture company would be liable for anything above that amount. The jury sided with Stowers saying that American Indemnity did not act as a prudent insurer and was held responsible for the verdict of $14,107.15.
The policy stated that American Indemnity had the right to take complete control of the suit against Stowers and that Stowers was prohibited from making any settlement. By holding that right, the insurance company takes on the responsibility of being the insured’s agent, and it should act with care and diligence just as an ordinary person would I managing his business.
Prior to the Stowers duty, insurance companies didn’t put themselves in their insured’s shoes because they knew that if they win they only lose defense costs, and if they lost they only lose the amount that the insured’s policy covers, leaving the insured to pay the rest. The Stowers duty puts burden on the insurance agencies reminding them to act with care because they could be liable for whole settlement if they act negligently on behalf of their insured.