IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 99-10684
STEVE FORD, ETC; ET AL Plaintiffs,
STEVE FORD, d/b/a/ H&F Cotton Co;
GENEVA FORD,
Plaintiffs-Appellants,
versus
CIMARRON INSURANCE
COMPANY, INC.,
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of Texas, Dallas Division
November 1, 2000
Before POLITZ, JONES, and STEWART, Circuit Judges.
CARL E. STEWART, Circuit Judge:
The issue before us is whether the district court erred in granting Defendant -Appellee’s,
Cimarron Insurance Company, Inc. (“Cimarron”), renewed motion for judgment as a matter of law
regarding an insured’s right under Texas law to recover for an insurer’s alleged negligent
investigation, handling, and settlement of an insured’s claims. For the reasons set forth below, we
affirm the district court’s ruling.
FACTUAL AND PROCEDURAL HISTORY
On July 29, 1994, a fire occurred at the place of business of Plaintiffs-Appellants, Steve Ford
d/b/a H&F Cotton Company and Geneva Ford (“Ford”). Ford tried to end the blaze with portable
fire extinguishers, but they did not work. Consequently, the flames destroyed the premises and
contents of Ford’s company as well as damaged those of the neighboring business, Novatech
Corporation (“Novatech”).
Ford sued Action Fire and Equipment (“Action”), the company that had certified the
extinguishers before the fire, and its liability carrier. Novatech sued Ford for its resulting damages.
Accordingly, Ford notified his liability carrier, Cimarron, of Novatech’s claim. In handling and
settling this claim, Cimarron sent a letter to Novatech stating that Ford was partially negligent in
causing the fire. Action then acquired a copy of Cimarron’s letter to Novatech.
Following Action’s acquisition of the letter, Ford filed suit against Cimarron in the district
court of Dallas County, Texas, alleging that Cimarron negligently handled and settled the Novatech
claim against Ford. According to Ford, this negligence damaged him by diminishing the value of his
suit against Action from a policy limit case to a nuisance value case. Cimarron then removed the suit
to federal district court.
After Ford presented evidence on the merits of his negligence claim, Cimarron moved for
judgment as a matter of law. The district court instructed the parties that it would hear motions for
judgment as a matter of law only after the jury had the opportuni ty to return a verdict. The jury
returned a verdict for Ford and the district court rendered judgment thereon. Cimarron then filed a
renewed motion for judgment as a matter of law arguing that Texas law does not recognize a
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negligence cause of action for an insurer’s handling, investigating, and settling of an insured’s claim.
The district court granted Cimarron’s motion and Ford now appeals.
DISCUSSION
I. Standard of Review
“‘A motion for judgment as a matter of law . . . in an action tried by jury is a challenge to the
legal sufficiency of the evidence supporting the jury’s verdict.’” Jones v. Kerrville State Hosp., 142
F.3d 263, 265 (5th Cir. 1998) (quoting Harrington v. Harris, 118 F.3d 359, 367 (5th Cir. 1997)). This
Court reviews a motion for judgment as a matter of law de novo, “applying the same legal standard
as did the trial court.” Omnitech Int’l, Inc. v. Clorox Co., 11 F.3d 1316, 1322-23 (5th Cir. 1994).
Accordingly, “judgment as a matter of law is proper after a party has been fully heard by the jury on
a given issue, and ‘there is no legally sufficient evidentiary basis for a reasonable jury to have found
for that party with respect to that issue.’” Foreman v. Babcock & Wilcox Co., 117 F.3d 800, 804
(5th Cir. 1997) (quoting FED. R. CIV. P. 50(a)).
II. Negligence Under Texas Law
A. Elements
To prevail on a negligence claim in Texas, a plaintiff must establish three elements: “(1) a legal
duty owed by one person to another; (2) a breach of that duty; and (3) damages proximately resulting
from the breach.” Greater Houston Transp. Co. v. Phillips, 801 S.W.2d 523, 525 (Tex. 1990) (citing
El Chico v. Poole, 732 S.W.2d 306, 311 (Tex. 1987)). Duty is the threshold inquiry of any
negligence case. See Phillips, 801 S.W.2d at 525. In Texas, moreover, whether a duty exists is a
question of law for the court to decide from the facts surrounding the occurrence in question. See
id.
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B. Stowers Duty
Texas courts have recognized only one tort duty regarding third party insurance cases, that
being the duty stated in Stowers Furniture Co. v. American Indem. Co., 15 S.W.2d 544 (Tex.
Comm’n App. 1929, holding approved). See Maryland Ins. Co. v. Head Indus. Coatings & Serv.,
Inc., 938 S.W.2d 27, 28 (Tex. 1996). According to this duty, an insurer may be held liable in
damages upon refusing an offer of settlement when it appears that an ordinary prudent person in the
insured’s situation would have settled. See Stowers, 15 S.W.2d at 547. However, a settlement
demand triggers the Stowers duty only upon meeting three prerequisites: “(1) the claim against the
insured is within the scope of coverage; (2) the demand is within the policy limits; and (3) the terms
of the demand are such that an ordinarily prudent insurer would accept it, considering the likelihood
and degree of the insured’s potential exposure to an excess judgment.” American Physicians Ins.
Exch. v. Garcia, 876 S.W.2d 842, 849 (Tex. 1994).
Although this precedent outlines the Texas Supreme Court’s current view and treatment of
the Stowers duty, Ford chose to base his third party insurance claim on an older case, Ranger County
Mut. Ins. Co. v. Guin, 723 S.W.2d 656 (Tex. 1987), involving liability of an insurance company for
negligence in the handling of a claim against its insured.1 He particularly relied on the language “[a]n
insurer’s duty to its insured is not limited to . . . narrow boundaries, . . . rather it extends to the full
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Ranger involved an automobile collision. A jury found John Wesley Guin (“Guin”), an
independent contractor who was hired to drive a dump truck insured by Ranger County Mutual
Insurance Company (“Ranger”), to be 100% negligent. After the trial court rendered a $225,000
judgment against Guin, he filed suit against Ranger under the Stowers doctrine alleging that the claim
was within policy limits and should have been settled.
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range of the agency relationship. . . . [T]hat includes investigation, preparation for defense of the
lawsuit, trial of the case and reasonable attempts to settle.” Id. at 658 (emphasis added). Under this
expansive view of the Stowers duty, Ford alleges that as his agent, Cimarron had a duty to exercise
ordinary and prudent care in handling the Novatech claim. As such, Ford further argues that he has
met the threshold requirement of a negligence claim in Texas.
III. Analysis
The present dispute is not this court’s first occasion to address the issue of negligence actions
available under Texas law in third party insurance cases. In Saint Paul Fire & Marine Ins. Co. v.
Convalescent Servs., Inc., 193 F.3d 340 (5th Cir. 1999), the insured, Convalescent Services, Inc.
(“CSI”), alleged that its insurer, Saint Paul Fire and Marine Insurance (“Saint Paul”), had a duty to
handle claims against CSI in a non-negligent manner.2 Like Ford, CSI based its allegations on the
sweeping language of Ranger.
Upon reviewing the facts of Ranger and subsequent Texas Supreme Court cases, this court
discerned the fallacy of CSI’s reliance. While Ranger does contain language that seems to expand
the Stowers duty, the case itself contained “‘no contention that [the insurer] was negligent in
investigation or trial of the . . . lawsuit.’” Saint Paul, 193 F.3d at 344 (quoting Ranger, 723 S.W.2d
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Saint Paul insured CSI against damages arising from its negligence. But the contract specifically
excluded coverage for punitive damages. While in the care of a CSI owned nursing home, Jacob
Schultz developed severe decubitus ulcers that allegedly resulted in serious personal injury and near
death as a result of CSI’s negligent acts and omissions. Before trial, Saint Paul rejected Schultz’s
$250,000 settlement demand despite its being well within the CSI po licy limits. The jury award
against CSI included $850,000 in punitive damages. CSI claimed Saint Paul was responsible for
paying these punitive damages because Saint Paul had negligently handled the investigation and
settlement negotiations by refusing the initial $250,000 settlement demand.
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at 659). Because the expansive language was not dispositive of an issue at bar in Ranger, this court
reasoned that it was not the case’s holding. See Saint Paul, 193 F.3d at 344.
Furthermore, this court recognized that the Texas Supreme Court had treated the dubious
Ranger language even more narrowly, specifically referring to it as “dictum.” Id. (citing Garcia, 876
S.W.2d at 849); see also State Farm Mut. Auto. Ins. Co. v. Traver, 980 S.W.2d 625, 628 (Tex. 1998)
(stating that the language in Ranger “about the scope of the insurer’s responsibilities was dict[um]”).
The court explained that “[i]n the context of a Stowers lawsuit, evidence concerning claims
investigation, trial defense, and conduct during settlement negotiations is necessarily subsidiary to the
ultimate issue of whether the claimant’s demand was reasonable under the circumstances, such that
an ordinarily prudent insurer would accept it.” Garcia, 876 S.W.2d at 849.
CSI premised its arguments against the aforementioned reading of Ranger on the Garcia
dissent, which impugns the majority for its retroactive reformation of the Ranger holding ‘into mere
“dictum.”’ Saint Paul, 193 F.3d at 344 (quoting Garcia, 876 S.W.2d at 863 n.7). Nonetheless, this
court clearly concluded that “the Texas Supreme Court drastically curtailed the broad language of
Ranger.” Saint Paul, 193 F.3d at 344. Thus in making its Erie3 prediction of how the Texas
Supreme Court would hold in CSI’s case, we respected the constraints of the court’s more recent
precedent and held that St. Paul did not breach any tort duty to CSI. See id. at 345.
We are a “strict stare decisis court. [Thus], . . . one panel of this court cannot disregard,
much less overrule, the decision of a prior panel.” F.D.I.C. v. Abraham, 137 F.3d 264, 268 (5th Cir.
1998). This rule remains immutable even when the prior panel’s decision involved the interpretation
of state law because, “[s]uch interpretations are no less binding on subsequent panels than are prior
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Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938).
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interpretations of federal law.” Id. (citing Broussard v. Southern Pac. Transp. Co., 665 F.2d 1387,
1389 (5th Cir. 1982) (en banc)). Therefore, a prior panel’s interpretation of state law has binding
precedential effect on other panels of this court absent a subsequent state court decision or
amendment rendering our prior decision clearly wrong. See Abraham, 137 F.3d at 269.
No Texas Supreme Court decision nor amendment has so subsequently rendered this court’s
decision in Saint Paul clearly wrong. Accordingly, Saint Paul binds us regarding the Ford and
Cimarron dispute. While Ford makes a persuasive argument for requiring insurance companies to
handle, investigate, and settle claims using the ordinary care of a reasonable and prudent person in
the insured’s position, the Stowers duty is the only common law tort duty Texas currently recognizes
in third party insurance claims.4 Thus in handling Novatech’s claim against Ford, Cimarron can only
be held liable in tort for not accepting a settlement offer that any reasonable person in Ford’s position
would have accepted. Cimarron fulfilled this duty, however, when it settled Novatech’s claim against
Ford. As such, we hold that Cimarron breached no tort duty to Ford.
CONCLUSION
Our holding in Saint Paul is controlling. We therefore find that the district court properly
concluded that under Texas law, Stowers does not impose a duty on insurers to handle, investigate,
and settle claims against insureds using the standard of care of any reasonable and prudent person in
the insured’s position. Accordingly, we AFFIRM the district court’s ruling.
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Ford’s contention that insurers should be liable for third party insurance claims in which they
negligently handle, investigate, and settle claims presents an issue that is simply improper for this
court to decide. See Saint Paul, 193 F.3d at 345 (stating “[w]hen making an Erie guess, it is not our
role to create or modify state law. . . .” and feeling constrained by the more recent precedent of the
Texas Supreme Court to conclude that the Stowers duty did not give rise to a cause of action for an
insurers negligent handling, investigation, and settlement of a third party claim). Accordingly, the
Texas Legislature is the appropriate forum for advocating Ford’s position.
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AFFIRMED.
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