joined by
DOGGETT, GAMMAGE and SPECTOR, Justices,dissenting.
On December 31,1992, this court issued an opinion in this cause which held that an injured plaintiff, as the assignee of the insured, is not precluded from recovering damages from the insurer by the existence of a covenant between the plaintiff and the insured to seek relief only from the insurer. Now the court has turned to several different issues for its decision — American Physicians Insurance Exchange’s (APIE) duty to defend and to settle — and has avoided an issue important to the jurisprudence of the state. The court now holds that APIE discharged its duty to defend Dr. Ramon Garcia at the trial of the malpractice case and that since APIE never received a settlement demand within policy limits from the parties suing Dr. Garcia for malpractice, APIE could not have breached its Stowers duty to settle. I agree that APIE discharged its duty to defend Dr. Garcia in the malpractice trial until August 13,1985, after the first judgment was signed on August 2, 1985. However, I disagree (1) with the court’s characterization of the case as solely a Stowers case, (2) with the court’s apparent conclusion that APIE did not breach its duty to make reasonable attempts to settle because it never received a settlement demand within its policy limits, (3) with the court’s failure to even acknowledge APIE’s reprehensible handling of Dr. Garcia’s coverage under his APIE policy and (4) with the court’s decision to ignore the questions concerning covenants not to execute.
I.
This dispute originated in a medical malpractice suit brought by Araminta Cardenas, individually and as guardian of the estate of Gustavo Cardenas (Cardenas), against Dr. Garcia. Dr. Garcia had treated Gustavo Cardenas over a period of several years, *856during which time Dr. Garcia purchased malpractice insurance from the Insurance Corporation of America (ICA) and APIE. The effective date of Dr. Garcia’s coverage under APIE’s policy was January 8, 1983. On December 23, 1983, the attorney for Cardenas sent Dr. Garcia a letter asserting: “This claim arises out of the treatment of Mr. Cardenas from September 1980 to the present time and the treatment of Mr. Cardenas with the drugs Haldol and Navane during that time period.” On December 29, 1983, Dr. Garcia contacted APIE concerning the letter from Cardenas’ attorney. At that time, APIE was notified or became aware that Mr. Cardenas had been treated by Dr. Garcia on January 18, 1983, which was within APIE’s coverage period. In fact, a representative of APIE affirmatively stated to Dr. Garcia on January 3,1984 that he had coverage for the treatment of Mr. Cardenas on January 18, 1983:
Notified Dr. Garcia of his limited coverage with APIE for this incident. He took out his API[E] policy on 1-8-83. The incident in question began in September 1980. Dr. Garcia last treated the pt. in his office on 1-18-93 — API[E] would cover this last visit, but it appears Dr. Garcia’s previous insurance carrier has the lion’s share in this incident.
The medical malpractice suit was filed by Cardenas against Dr. Garcia in early March 1984. The plaintiffs’ original petition did not allege any treatment which occurred during APIE’s coverage period. Ross Crossland, who had been retained by ICA, filed an answer on - behalf of ICA. Although Mr. Crossland was retained by ICA, APIE and ICA agreed to share the costs of defending Dr. Garcia as indicated in the following letter from APIE to ICA:
This will follow our telephone conversation of March 16,1984 on the captioned case. I am attaching a copy of our coverage daily which indicates coverage in the amount of $500,000.00 each claim and $1,000,000.00 annual aggregate. It is my understanding that we agree to share any settlement or judgment on a pro rata coverage basis. We will share the legal expenses on a 50/50 basis. It is my further understanding that [Ross Crossland’s firm] ... will be filing an Answer on behalf of Dr. Garcia.1
Dr. Garcia was sent a copy of this letter. Also in March 1984, APIE retained its own independent attorneys to monitor the developments in' the lawsuit in order to keep APIE advised about significant developments. Between June and October 1984, APIE’s file contains the following statements by Dr. Jack Chandler, a physician who was chairman of APIE’s board at that time:
This case will be a tough case to defend. Both Mittler and Garcia are responsible for continuing Haldol. Hard to tell when symptoms of Tardive dyskinesia developed but surely if either doctor had thought of the diagnosis, they would have stopped the drug.
* * * * * *
Apparently Cardenas was treated with the drug [Haldol] continuously until January 18, 1983.... It will be very difficult to imagine Doctors Garcia and Mittler not having to pay something on this case.
Plaintiffs first amended original petition filed in January 1985 did not allege any treatment which occurred during APIE’s coverage period.
In April 1985, APIE informed Dr. Garcia that plaintiffs first amended original petition included a request for an award of punitive damages and that punitive damages were not covered in his policy. APIE further informed Dr. Garcia that plaintiff requested an award of $2,270,000 in damages which exceeded his policy limits of $500,000 and that *857he could be personally liable for any damages of more than $500,000. Plaintiffs second and third amended original petitions filed in May 1985 did not allege any treatment which occurred during APIE’s coverage period. On June 6, 1985, Mr. Crossland, who represented Dr. Garcia on behalf of ICA and APIE, wrote Mr. Clem Lyons, whom Dr. Garcia had retained at his own expense, informing him as follows:
Our client Dr. Ramon Garcia has coverage from two separate insurance companies that might be applicable to this claim. The policy with Insurance Company of America has a single claim limit of $100,000. The policy with API[E] from Dallas is a $500,-000.00 limit. I have been advised by those companies that due to the inability to establish an “date of occurrence” with regard to this claim, an arrangement has been made to share the risk.
In essence the two companies will share any settlement or verdict on a pro rata basis up to the total and aggregate limits of the policies of $600,000.00.
A copy of this letter was sent to APIE’s own independent attorney. On June 10, 1985, Mr. Crossland wrote a representative of ICA stating that “I have broached settlement with the plaintiffs attorney. He indicates that he will get back to me with a figure in the near future.” On July 10, 1985, Mr. Crossland, who represented Dr. Garcia on behalf of ICA and APIE, wrote the plaintiffs attorney, stating
I have been informed that Dr. Garcia, the defendant in the above styled action, was insured by two different companies during the time frame that could be applicable to this suit. The insurance policy with Insurance Corporation of America had a limit of $100,000.00, as previously indicated in answers to interrogatories.
The second policy of insurance was with API[E], with headquarters in Dallas. The policy limits for that policy were $500,-000.00.
I have been informed by both companies that due to the difficulty in ascertaining a date of loss for evaluation purposes, (the liability for which is still herein denied) the companies have elected to pro rate any settlement or adverse jury verdict on an equal basis.
My understanding of this arrangement between the two companies is that the total insurance available for settlement or satisfaction of any adverse judgment is therefore $600,000.00.
On July 15, 1985, Cardenas’ attorney made a settlement demand of $600,000.00 upon Mr. Crossland. Apparently no response was made to the settlement demand. In fact, the record indicates that APIE never even considered settling the case.
II.
Plaintiffs fourth amended original petition filed on July 22, 1985 did not allege any treatment which occurred during APIE’s coverage period. Plaintiffs fifth amended original petition filed on July 28,1985 did not allege any treatment which occurred during APIE’s coverage period. On July 24, 1985, five days before trial, APIE notified Dr. Garcia that there was no coverage under his policy, stating
We have just been advised of the most recent Ammended [sic] Petition in the above captioned lawsuit.
The allegations against you arise from treatment rendered to the plaintiff during the period of October 3,1980 through April 14, 1982, when the plaintiff was treated by Dr. Fernandez. There have been no allegations for the treatment rendered during the office visit with you on January 18, 1983.
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As the allegations against you stem from treatment rendered prior to the inception of your policy with American Physicians Insurance Exchange (January 8, 1983) there is no coverage under this policy for this claim.
Early in the investigation of this lawsuit, you received a letter from Ms. Creighton *858of our office in which she advised Mr. Kambic of ICA of the policy dates and coverage of your policy with American Physicians. She agreed to pay any settlement or judgment on a pro rata coverage basis, and in an effort to determine if our coverage was applicable, she agreed to share the cost of defense with ICA to eliminate duplicity of legal work. Through this discovery, we have now reached the point where all allegations made against you occurred prior to your coverage with American Physicians. Therefore, there is no coverage afforded under your policy.
By copy of this letter, we are advising Mr. Lyons, Mr. Crossland and Mr. Pressley of ICA to continue providing you with coverage and a defense in this matter.
In addition, on July 24, 1985, APIE’s independent attorney notified Mr. Crossland that
This will also confirm my discussions with you on July 24, 1985, wherein I informed you that APIE believes that no coverage exists under the policy held by APIE for this claim. Therefore, you are incorrect in your previous assertions and understanding that an additional $500,000.00 of coverage existed. As you know, the policy of APIE covered act, errors or omissions made by Dr. Garcia during the policy period. The inception date of the policy of APIE was January 8, 1983. All of the Plaintiffs allegations which have been made in the most recent petitions relate to acts and/or omissions allegedly made during 1980, 1981 and through the date of 1982. Therefore, there would be no allegations relating to any conduct of Dr. Garcia while insured by APIE. Any previous arrangement concerning statements about possible sharing on a pro rata basis in any settlement or judgment was dependent on the finding of actual coverage for the allegations which were being made by the Plaintiff during the pendency of this lawsuit. Since no such allegations relate to any act and/or omission occurring during the APIE policy period, there is no coverage afforded to Dr. Garcia for this lawsuit.
Also on July 24, 1985, Mr. Crossland notified Dr. Garcia that “[i]t is my understanding that as of the denial of coverage by APIE, I am no longer in any manner representing their interest.” After July 24, things began to happen at a rapid pace. On July 26, 1985, Cardenas’ attorney discovered that there were not one but two ICA policies with coverage of $100,000.00 and $500,000.00 and increased its settlement demand to $1,100,000. Later that same day, Mr. Crossland informed Cardenas’ attorney that there were not two but three ICA policies with coverage of $100,000.00, $500,000.00 and $500,000.00:
Apparently confusion has arisen with regard to the extent of the liability insurance available in conjunction with this case. I have made further inquiry to ICA, and by way of information to you, response to your letter of July 26, and by way of further supplementation to Answers to Interrogatories, I would like to indicate the following: For the period January 8, 1980 through January 7, 1981, Dr. Garcia was covered by ICA Insurance Policy No. P332080 in the amount of $100,000.00. For the period January 8, 1981 through January 7, 1982, Dr. Garcia was covered by ICA Insurance Policy No. P332081 in the amount of $500,000.00. For the period January 8, 1982 through January 7, 1983, Dr. Garcia was covered by ICA Insurance Policy No. P332082 in the amount of $500,-000.00.
Although I have been advised by representatives of APIE that I do not in any manner represent their interests, based upon information and belief, I believe that for the period January 8, 1983 through January 7, 1984, Dr. Garcia was covered by an insurance policy with that company in the amount of $500,000.00.
It is my understanding that these policies cannot be totaled or aggregated in any manner to establish coverage in an amount in excess of $500,000.00. To the contrary, it is my present belief that in the event that the jury should find any liability against Dr. Garcia, that it will be necessary to have a further finding as to the date of injury to determine the appropriate policy and limits involved. *859I regret any confusion that may have arisen with regard to my previous statements concerning a $100,000.00 policy. At the time of the filing of this law suit, the company [ICA] believed that the allegations arose from treatment commencing in September of 1980. As such, the company understood that the $100,000.00 policy would be applicable to this claim. Again, I regret any confusion that may have arisen from this assessment.2
On July 29, 1985, Cardenas’ attorney increased its settlement demand to $1,600,000. Apparently no response was made to either settlement demand. Also on July 29, 1985, Cardenas filed his sixth amended original petition which alleged treatment occurring during APIE’s coverage period.
After Cardenas amended his pleadings to allege acts of negligence during APIE’s policy terms, APIE’s independent attorney verbally informed Mr. Crossland that “you’re back on the API[E] payroll because they’ll [APIE?] have an obligation to defend now” but neither APIE nor its independent attorney informed Dr. Garcia that his coverage had been “reinstated.” Also on July 29, 1985, Cardenas executed a covenant not to execute against Dr. Garcia in exchange for an assignment of all of his claims against APIE and ICA.3 At the medical malpractice trial, Dr. Garcia was defended by Mr. Lyons *860and by Mr. Crossland. On July 29,1985, the parties agreed to waive a jury and try the case before the court. Throughout the bench trial, APIE’s independent attorney was present in the courtroom but did not participate in the trial. Apparently immediately before final argument, Mr. Crossland, on behalf of ICA, offered Cardenas $100,000 to settle the case. The offer was rejected. On August 2, 1985, the trial court awarded Cardenas $2,235,000 on the malpractice claim against Dr. Garcia.
III.
On August 8, 1985, Dr. Garcia4 filed suit against ICA and APIE alleging negligence in handling his claim and defending him in the medical malpractice suit. In November 1985, the trial court filed its findings of fact and conclusions of law in the malpractice suit. Among other things, the trial court found that Dr. Garcia “committed continuing acts of negligence in his treatment and care of Gustavo Cardenas from September 19, 1980 to February 1983.” The judgment against Dr. Garcia was appealed by ICA on behalf of Dr. Garcia. Apparently APIE was no longer participating — either directly or indirectly — in Dr. Garcia’s defense. In May 1986, Dr. Garcia and ICA settled the malpractice and “bad faith” suits for $2,000,000. The appeal of the malpractice suit was dismissed on joint motion of the parties. Subsequently APIE sought to appeal the malpractice judgment by writ of error in the court of appeals. However, the court of appeals refused to allow it to appeal the malpractice judgment. See APIE v. Cardenas, 717 S.W.2d 707, 709 (Tex.App.—San Antonio 1986, writ ref'd n.r.e.) (“We conclude that APIE, having rejected its right to participate in the trial court, waived the right to challenge the judgment in Cardenas v. Garcia by writ of error.”). In May 1987, Dr. Garcia and APIE agreed to a $500,000 payment in exchange for Dr. Garcia’s agreement not to contest APIE’s motion for a six-month continuance, an offset of the $500,000 payment against any future judgment and a total liability cap of $2.5 million. Along the way, Dr. Garcia amended his pleadings to include negligence, breach of the insurance contracts, violations of the DTPA (false, misleading and deceptive acts, unfair practices in the business of insurance and an unconscionable course of action), violations of articles 21.21 and 21.21-2 of the Insurance Code (including the rules and regulations of the State Board of Insurance made applicable by or issued under article 21.21), and bad faith.5 During the trial of the “bad faith” suit against APIE in November 1987, the “Assignment of Interest in Cause of Action and Agreement Designating Assets Subject to Execution” — the covenant not to execute — was admitted into evidence. The case was submitted to the jury on negligence, gross negligence, DTPA and Insurance Code violations (including false, misleading and deceptive acts or practices, unfair practices in the business of insurance and an unconscionable course of ac*861tion). The jury found that (1) APIE negligently failed to settle Dr. Garcia’s case prior to September 30, 1985, (2) Cardenas’ sixth amended petition alleged separate and distinct acts of negligence committed by Dr. Garcia during APIE’s policy period, (3) APIE denied coverage to Dr. Garcia, (4) APIE failed to defend Dr. Garcia at the trial of the Cardenas case, and (5) APIE’s actions in failing to defend and provide coverage were false, misleading, or deceptive acts or practices. The jury further found that each of these acts was negligent, in heedless and reckless disregard of Dr. Garcia’s rights, an unfair practice in the insurance business, an unconscionable action or course of action, a proximate cause of Dr. Garcia’s damages, and done knowingly. The jury awarded Dr. Garcia $2,235,000 in damages, apportioning 84 percent of the liability to ICA and 16 percent to APIE. Dr. Garcia elected to recover under article 21.21. The trial court rendered judgment for Dr. Garcia in the amount of $1,331,574.00 plus post-judgment interest. Among other things, the court of appeals modified the trial court’s judgment to increase the amount of the judgment for Dr. Garcia and otherwise affirmed the trial court’s judgment.
TV.
After the malpractice suit was filed in March 1984, APIE sat back for almost sixteen months providing Dr. Garcia with unconditional coverage under his policy. In fact, a representative of APIE affirmatively stated to Dr. Garcia on January 3, 1984 that he had coverage for the treatment of Mr. Cardenas on January 18, 1983. However, on July 24, 1985, five days before the malpractice trial, APIE unexpectedly and without notice informed Dr. Garcia that “there is no coverage under this policy for this claim.” The duty of an insurer concerning coverage has been described as follows:
When an insurer first receives notice of a claim or suit against its insured, the insurer must promptly take one of the following actions:
(i)acknowledge receipt of the notice and advise the insured that it will provide coverage;
(ii) advise the insured that it will defend the insured subject to a reservation of its right to deny coverage on one or more specified grounds;
(iii) deny coverage on the grounds that the claim is either not covered under the policy or that the insured has breached a policy condition; or
(iv) rescind the policy if it appears that the policy was procured through fraud, mutual mistake of fact, or the insured’s misrepresentation or concealment of material facts in the application.
BARRY R. OSTRAGER & THOMAS R. NEWMAN, HANDBOOK ON INSURANCE COVERAGE DISPUTES § 2.01 at 38 (6th ed. 1993). However, it is undisputed that APIE failed to perform any of these duties concerning coverage.
During the sixteen month period, the record indicates that APIE totally failed to take any action to determine whether Dr. Garcia had coverage under his policy. There was no investigation of the facts or allegations concerning coverage. There was no reservation of rights letter or non-waiver agreement. APIE never sought an independent coverage opinion. APIE’s explanation for denying coverage on July 24,1985 was that Plaintiffs fifth amended original petition filed on July 23, 1985 did not allege any treatment which occurred during APIE’s coverage period. However, beginning with the plaintiffs original petition filed in March 1984 and continuing with plaintiffs first amended original petition filed in January 1985, plaintiffs second and third amended original petitions filed in May 1985, plaintiffs fourth amended original petition filed on July 22, 1985 and ending with plaintiffs fifth amended original petition filed on July 23, 1985, Cardenas did not allege any treatment which occurred during APIE’s coverage period. APIE knew as much about the allegations in the pleadings in March 1984 as it did on July 24, 1985. Furthermore, in April 1985, APIE informed Dr. Garcia that plaintiffs first amended original petition included a request for an award of punitive damages and that punitive dam*862ages were not covered in his policy. APIE also informed Dr. Garcia that plaintiff requested an award of $2,270,000 in damages which exceeded his policy limits of $500,000 and that he could be personally liable for any damages of more than $500,000. However, APIE gave Dr. Garcia every indication that he had unconditional coverage under his policy for sixteen months and then unexpectedly “withdrew” his coverage five days before trial. In fact, APIE’s vice-president of claims admitted at trial that the allegations in the pleadings were the only factor considered in denying coverage on July 24, 1985. I find this treatment of Dr. Garcia and APIE’s handling of Dr. Garcia’s coverage under his policy reprehensible; however, apparently the court approves of APIE’s handling of Dr. Garcia’s coverage under his policy.
Furthermore, the court asserts that Dr. Garcia may not assert that APIE was es-topped to deny that Dr. Garcia had coverage under his policy because he did not request that this issue be included in the court’s charge. APIE further asserts that the issue was not conclusively established because “APIE notified [Dr.] Garcia on January 3, 1984, that his coverage under the APIE policy was limited because only one office visit occurred during the APIE policy period.” APIE mistakenly equates APIE’s following statement to Dr. Garcia on January 3, 1984 as “limiting his coverage:”
Notified Dr. Garcia of his limited coverage with APIE for this incident. He took out his API[E] policy on 1-8-83. The incident in question began in September 1980. Dr. Garcia last treated the pt. in his office on 1-18-93 — API[E] would cover this last visit, but it appears Dr. Garcia’s previous insurance carrier has the lion’s share in this incident.
Apparently the court mistakenly believes that notification of Dr. Garcia’s “limited coverage with APIE for this incident” was the legal equivalent of a reservation of rights. However, it is undisputed that between January 8, 1983 and January 7, 1984, Dr. Garcia was covered by an APIE insurance policy in the amount of $500,000.00, that Dr. Garcia treated Mr. Cardenas in his office during the policy period on January 18, 1983 and that the January 18, 1983 visit was covered under the APIE policy. In fact, the allegations in the pleadings — which did not allege any treatment which occurred during APIE’s coverage period — were the only factor APIE considered in denying coverage on July 24, 1985. Contrary to the court’s assertion, Dr. Garcia’s coverage under his APIE policy was conclusively established.
V.
Under the Stowers6 doctrine, an insurer owes to its insured the duty to exercise reasonable care in determining whether to settle a claim against the insured within the policy limits. In Ranger County Mutual Insurance v. Guin, 723 S.W.2d 656 (Tex.1987), this court expanded an insurer’s obligation to include a duty to the insured of investigation, preparation for defense, and trial of the case, as well as reasonable attempts to settle:
An insurer’s duty to its insured is not limited to the narrow boundaries contended by Ranger [that a “Stower’s Doctrine” case can be based only upon an insurer’s failure to settle a claim against the insured when the claimant offers to settle within the policy limits], rather it extends to the full range of the agency relationship. In this case, that includes investigation, preparation for defense of the lawsuit, trial of the case and reasonable attempts to settle.
* ⅝ ⅜ * ⅜ *
Ranger contends that at most it merely breached its contract and there is no basis for an award of exemplary damages. A negligent breach of an agency relationship constitutes an independent tort for which an action for damages will lie. This point of law has been well-settled since this Court’s holding in Williams v. O’Daniels, 35 Tex. 542 (1871).
*863Id. at 659-60;7 see American Centennial Ins. v. Canal Ins., 843 S.W.2d 480, 482 (Tex.1992) (“The insurer’s duty to act as an ordinarily prudent person in business management extends to claims investigation, trial defense and settlement negotiations.”); American Centennial Ins., 843 S.W.2d at 485 (Hecht, J., concurring, joined by Phillips, C.J., Gonzalez, Cook and Cornyn, JJ.) (Under Stowers and Ranger, an excess insurance carrier “is equitably subrogated to its insured’s rights against a primary insurance carrier ... for negligently investigating, preparing to defend, trying or settling ... [a] third party action.”). Even the dissent in Ranger County Mutual Insurance v. Guin recognized an insurer’s duty to enter into reasonable settlement negotiations:
Insurance companies in Texas have a duty to exercise ordinary care in defending lawsuits against insureds. This duty includes the duty to enter into reasonable settlement negotiations or to accept a reasonable settlement offer. This doctrine is utilized to protect an insured from a judgment in excess of policy limits.
Ranger, 723 S.W.2d at 661 (Gonzalez, J., dissenting). Consequently, this court has expanded an insurer’s duties to include acting as an ordinarily prudent person in business management — whether under the Stowers doctrine or not — to include making reasonable attempts to settle. This could include the duty to make a good faith effort to evaluate the settlement value of a case, to investigate and explore settlement possibilities, to discuss settlement with the opposing party and to enter into reasonable settlement negotiations. In contrast, an insurer’s duty to act as an ordinarily prudent person in business management to make reasonable attempts to settle does not require that an insurer (1) settle for more than its policy limits, (2) accept a settlement demand in excess of its policy limits, (3) bid against itself, (4) make the first settlement offer to the opposing party, or (5) make unilateral settlement offers.8 In addition, under Ranger County Mutual Insurance v. Guin, a formal settlement demand within policy limits is no longer an absolute prerequisite to trigger an insurer’s duty to make reasonable attempts to settle. Essentially an insurer must do something to facilitate reasonable attempts to settle and may not sit back and do absolutely nothing.
Other jurisdictions have recognized several variations of an insurer’s duty to make reasonable attempts to settle. See Kent Syverud, The Duty to Settle, 76 VA.L.REV. 1113, 1166-67 (1990). In Rova Farms Resort, Inc. v. Investors Insurance Co. of America, 65 N.J. 474, 323 A.2d 495 (1974), the New Jersey Supreme Court recognized that an insurer has an affirmative duty to explore settlement possibilities:
“[a] decision not to settle must be a thoroughly honest, intelligent and objective one. It must be a realistic one when tested by the necessarily assumed expertise of the company.” [quoting Bowers v. Camden Fire Ins. Association, 51 N.J. 62, 237 A.2d 857, 861 (1968) ] This expertise must be applied, in a given case, to a consideration of all the factors bearing upon the advisability of a settlement for the protection of the insured. While the view of the carrier or its attorney as to liability is one important factor, a good faith evaluation requires more. It includes consideration of the anticipated range of a verdict, should it be adverse; the strengths and weaknesses of all of the evidence to be presented on either side so far as known; the history of the particular geographic area in cases of similar nature; and the relative appearance, persuasiveness, and likely appeal of the claimant, the insured, and the witnesses at trial.
* * * * ⅜ *
*864The better view is that the insurer has an affirmative duty to explore settlement possibilities.
Id. 323 A.2d at 503-06 (citations omitted); Alt v. American Family Mutual Ins. Co., 71 Wis.2d 340, 237 N.W.2d 706, 712-13 (1976); Maine Bonding v. Centennial Ins. Co., 298 Or. 514, 693 P.2d 1296, 1299 (1985) (“In conducting the defense of a claim against an insured, including the investigation, negotiation, and litigation of the claim, the insurer must use such care as would have been used by an ordinarily prudent insurer with no policy limit applicable to the claim. The insurer is negligent in failing to settle when an opportunity to settle exists, if in choosing not to settle it would be taking an unreasonable risk — that is, a risk that would involve chances of unfavorable results out of reasonable proportion to the chances of favorable results.”); Spray v. Continental Casualty Co., 86 Or.App. 156, 739 P.2d 40, 43 (1987); Powell v. Prudential Property & Casualty Ins. Co., 584 So.2d 12, 14 (Fla.Dist.Ct.App.1991) (“Where liability is clear, and injuries so serious that a judgment in excess of the policy limits is likely, an insurer has affirmative duty to initiate settlement negotiations.”); Coleman v. Holecek, 542 F.2d 532, 537 (10th Cir.1976) (Kansas law) (“[T]he duty to settle arises if the carrier would initiate settlement negotiations on its own behalf were its potential liability equal to that of its insured.”); Puritan Ins. Co. v. Canadian Universal Ins. Co., 586 F.Supp. 84, 87 (E.D.Pa.1984) (“The better view, however, is that the insurer has an affirmative duty to explore settlement possibilities.”); Self v. Allstate Ins. Co., 345 F.Supp. 191, 196 (M.D.Fla.1972). See Fireman’s Fund Ins. Co. v. Security Ins. Co., 72 N.J. 63, 367 A.2d 864, 867 (1976) (“Security chose to ignore its obligation to make an honest, intelligent and good faith evaluation of the case for settlement purposes and to weigh the probabilities in a fair manner.”); State Automobile Ins. Co. v. Rowland, 221 Tenn. 421, 427 S.W.2d 30, 33-35 (1968); Guarantee Abstract & Title v. Interstate Fire & Casualty Co., 228 Kan. 532, 618 P.2d 1195, 1199 (1980); Bohemia, Inc. v. Home Ins. Co., 725 F.2d 506, 511-12 (9th Cir.1984); Farmers Ins. Exchange v. Schropp, 222 Kan. 612, 567 P.2d 1359, 1365-66 (1977). See generally Commercial Union Ins. Co. v. Liberty Mutual Ins. Co., 426 Mich. 127, 393 N.W.2d 161, 165-66 (1986).
In Rova Farms Resort, Inc. v. Investors Insurance Co. of America, 65 N.J. 474, 323 A.2d 495 (1974), the New Jersey Supreme Court also recognized that a settlement demand within policy limits is no longer an absolute prerequisite:
[I]t would be unrealistic to believe that such an offer is a prerequisite for finding the insurer to have acted other than in good faith. The better view is that the insurer has an affirmative duty to explore settlement possibilities. At worst, the absence of a formal request to settle within the policy is merely one factor to be considered in light of the surrounding circumstances, on the issue of good faith.
Id. 323 A.2d at 505 (citations omitted); Coleman v. Holecek, 542 F.2d at 537 (“the duty to settle does not hinge on the existence of a settlement offer from the plaintiff’); Alt v. American Family Mutual Ins. Co., 237 N.W.2d at 712-13; Powell v. Prudential Property & Casualty Ins. Co., 584 So.2d at 14 (“The lack of a formal offer to settle does not preclude a finding of bad faith. Although an offer of settlement was once considered a necessary element of a duty to settle ... an offer to settle is not a prerequisite to the imposition of liability for an insurer’s bad faith refusal to settle, but is merely one factor to be considered.”); Bohemia, Inc. v. Home Ins. Co., 725 F.2d at 512 (“[A] firm settlement offer ‘is not a prerequisite to recovery in every case’ but is an important factor in determining whether the insurer refused in bad faith to settle a claim within policy limits.”). See Farmers Ins. Exchange v. Schropp, 567 P.2d at 1365-66; State Automobile Ins. Co. v. Rowland, 427 S.W.2d at 33-35. See also American Home v. Hermann’s Warehouse, 117 N.J. 1, 563 A.2d 444, 446-47 (1989).
VI.
The court describes an insurer’s duty to settle as (1) the duty to accept reasonable *865settlement demands within policy limits, (2) the duty to exercise that degree of care and diligence which an ordinarily prudent person would exercise in the management of his own business in responding to settlement demands within policy limits, and (3) a duty of ordinary care that includes reasonable attempts to settle within the insured’s coverage after they receive a formal settlement demand within policy limits. The court further asserts that an insurer’s “Stowers duty” is not activated by a settlement demand unless three conditions exist — (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. The court seems to be fixated on the requirement of a formal settlement demand within policy limits and is unable to make the conceptual shift from the rigid and formalized Stowers requirement of a formal settlement demand within policy limits to the Ranger duty to act as an ordinarily prudent person in business management to make reasonable attempts to settle. Under the court’s analysis, an insurer has no duty to act as an ordinarily prudent person in business management to make reasonable attempts to settle or even to act in good faith until it receives a formal settlement demand within policy limits from the plaintiff. In other words, an insurer can do exactly what APIE did in this case — since it never received a formal settlement demand within its policy limits, APIE was justified in doing absolutely nothing. APIE never even considered the possibility of settlement either before or after the malpractice trial and never responded to any of Cardenas’ settlement demands.
The court attempts to justify APIE’s failure to take any action by stating that APIE never had an opportunity to settle for its policy limits — $500,000.00. This is an outrageous statement! APIE had every opportunity to attempt to settle for $500,000.00, but it never made any attempts to facilitate settlement. APIE never made a good faith effort to evaluate the settlement value of the case, never investigated or explored the possibility of settlement, never discussed settlement with the opposing party and never engaged in reasonable settlement negotiations with the opposing party. The court asserts that APIE never had an opportunity to settle for $500,000.00 because APIE never received a formal settlement demand within policy limits. The court remains fixated on the requirement of a settlement demand within policy limits.
The court asserts that following Ranger would shift the burden of making settlement offers to the insurer. The court apparently envisions the settlement process as a rigid and formalized procedure in which the plaintiff has the “legal burden” to make the first settlement demand and the insurer has the “burden” to respond to the settlement demand.9 However, as any attorney who has ever negotiated and settled a lawsuit knows, the settlement process is not a rigid and formalized procedure. In fact, everyday, plaintiffs, defendants and insurers act to facilitate reasonable attempts to settle — by making a good faith effort to evaluate the settlement value of a case, by investigating and exploring the possibility of settlement, by discussing settlement with the opposing party and by engaging in reasonable settlement negotiations with the opposing party— without the mechanical requirement of a formal settlement demand within policy limits. Furthermore, the court mistakenly and inexplicably seems to believe that requiring an insurer to act as an ordinarily prudent person in business management in making reasonable attempts to settle would require an insurer (1) to make unilateral settlement of*866fers, (2) to offer the policy limits in literally every case in which the potential for an excess judgment exists, (3) to bid against itself in the absence of a commitment by the claimant that the case can be settled within policy limits, and (4) to make the first settlement offer to the opposing party. The court also mistakenly and inexplicably seems to believe that the plaintiff is prohibited from making a settlement demand within policy limits. In addition, the court asserts that requiring an insurer to act as an ordinarily prudent person in business management in making reasonable attempts to settle would reduce the incentive to negotiate a settlement and encourage early settlement. In fact, requiring insurers to act to facilitate reasonable attempts to settle will encourage early settlements and reduce litigation and settlement costs which will benefit plaintiffs, insureds, insurers, purchasers of liability insurance and taxpayers who subsidize much of the cost of the civil justice system.
Furthermore, the court has mischaracter-ized this case as solely a Stowers case. Although the parties and the court of appeals use that terminology, this case is not a suit brought solely under the Stowers doctrine. Dr. Garcia alleged negligence in handling his claim and defending him in the medical malpractice suit, breach of the insurance contracts, violations of the DTPA (false, misleading and deceptive acts, unfair practices in the business of insurance and an unconscionable course of action), violations of articles 21.21 and 21.21-2 of the Insurance Code (including the rules and regulations of the State Board of Insurance made applicable by or issued under article 21.21), and bad faith. The ease was submitted to the jury on negligence, gross negligence, DTPA and Insurance Code violations (including false, misleading and deceptive acts or practices, unfair practices in the business of insurance and an unconscionable course of action). Dr. Garcia elected to recover under article 21.21. Obviously this case is not a suit brought solely under the Stowers doctrine.
VII.
APIE contends that it had no responsibility for coverage — and thus no duty to settle— until July 29, 1985, when plaintiffs filed the sixth amended petition alleging for the first time acts of malpractice within APIE’s policy period. Since the covenant not to execute was signed and the trial commenced the same day, APIE contends that it could not have breached any duty to settle the case. I disagree.
First, I believe that APIE created a duty to settle prior to July 29 — when none otherwise would have existed — by providing Dr. Garcia with unconditional coverage under his policy for sixteen months from March 1984 until July 24, 1985, by totally failing to take any action to determine whether Dr. Garcia had coverage under his policy, and by actually assuming control of the defense with ICA. APIE admits that after suit was filed in March 1984, APIE and ICA entered into a letter agreement agreeing to divide costs of defense and any settlement or verdict on a pro rata basis. It did not expressly disavow coverage until July 24, five days before trial. In fact, in its application for writ of error, APIE admitted that
the evidence showed that APIE had provided defense and coverage to Dr. Garcia prior to the filing of the Fifth Amended Petition. During the one-week period between the Fifth and Sixth Amended Petitions, Dr. Garcia assigned his interest in the policy. This assignment terminated any further obligation on the part of APIE to protect Dr. Garcia from an “excess” policy that could not take place. Nonetheless, APIE did continue to provide a defense and coverage to Dr. Garcia and continued to pay defense costs. Evidence of any actions prior to the Sixth Amended Petition, however, is irrelevant and had no probative value since there was no duty to provide coverage until the Sixth Amended Petition was filed. The undisputed evidence discloses that APIE did provide coverage and a defense after the filing of the Sixth Amended Petition.
APIE further stated in its application for writ of error that “[statements of its attorney] clearly established that APIE had resumed its coverage and did provide a de*867fense.” (Emphasis added). Apparently APIE’s position is that it provided coverage to Dr. Garcia before the filing of the sixth amended petition but since it was not legally obligated to provide coverage, it had no duty to attempt to settle.
There is evidence that plaintiffs offered to settle the case for the total amount of coverage represented by Mr. Crossland to be available, which included APIE’s policy limits. APIE’s involvement raised the stakes of any potential settlement, creating a duty to settle as if it were responsible for coverage. See Ranger Ins. Co. v. Robertson, 707 S.W.2d 135, 142 (Tex.App.—Austin 1986, writ ref'd n.r.e.) (insurer was estopped to deny coverage after undertaking the defense unconditionally for a period of seven months). Furthermore, APIE clearly had a duty to pursue reasonable settlement efforts after plaintiffs filed their sixth amended petition, but it made no settlement attempts and, in fact, APIE never considered the possibility of settlement. There is no logical reason why Dr. Garcia’s assignment of his tort claims should terminate this duty. On July 29, 1985, the parties agreed to waive a jury and try the case before the court. Although APIE’s independent attorney believed that as soon as the jury was waived, a finding of liability was a foregone conclusion and that ICA should settle, neither the independent attorney nor APIE ever considered the possibility of settlement. Apparently APIE was confident that no negligence or causation would be found against Dr. Garcia during APIE’s coverage period. In addition, on July 31, 1985, the trial judge called the attorneys into chambers and told them that he wanted the case settled because he was afraid that he might find punitive damages against Dr. Garcia. The attorneys reported that Cardenas was demanding $1,600,000.00 and ICA and APIE were offering $0. The trial judge was furious and told the attorneys to talk to their clients and attempt to settle. ICA decided to make no settlement offer. In spite of the trial judge’s comments, the record indicates that neither the independent attorney nor APIE ever considered the possibility of settlement and never responded to any of Cardenas’ settlement demands. In fact, the record indicates that neither the independent attorney nor APIE ever considered the possibility of settlement either before or after the malpractice trial. Furthermore, there is at least some evidence of APIE’s failure to attempt reasonable settlement efforts after the filing of the sixth amended petition during the malpractice trial. The assignment between Dr. Garcia and the Cardenas did not terminate APIE’s duty to Dr. Garcia arising under the policy, and thus did not terminate the opportunity to breach that duty. Moreover, regardless of when the bad faith occurs, the damages from the bad faith — the excess judgment against the insured — will typically not accrue in cases such as this until after the assignment and release.
APIE argues that it could not have settled the case independently of ICA; that is, plaintiffs at all times demanded the combined policy limits of the two insurers. There is no evidence, however, that APIE ever offered its individual policy limits. In addition, two insurers jointly responsible for coverage should not be allowed to avoid their duty to make reasonable attempts to settle by arguing that neither could have independently settled the case within their individual policy limits. APIE’s argument is particularly unpersuasive since it agreed with ICA to divide costs of any settlement on a pro rata basis.
VIII.
The next issue, which was considered in our December 31, 1992 opinion, concerns whether an injured plaintiff, as the assignee of the insured, is precluded from recovering damages from the insurer by the existence of a covenant between the plaintiff and the insured to seek relief only from the insurer.
Insurance companies will at times inappropriately refuse to settle a case, thereby exposing their insureds to liability in excess of policy limits. See Kent Syverud, The Duty to Settle, 76 VA.L.REV. 1113, 1120 n. 15 & 1126 (1990). See also Bob Roberts, Agreements Between Claimants and Insureds After Misconduct By Insurers, STATE BAR *868OF TEXAS — SUING, DEFENDING AND NEGOTIATING WITH INSURANCE COMPANIES B-24-26 (1991) (hereinafter Roberts). To remedy this problem, many states, including Texas, allow an insured to assign any claim against the insurer in exchange for a covenant not to execute. See Foremost County Mut. Ins. Co. v. Home Indem. Co., 897 F.2d 754, 759-60 (5th Cir.1990); Young Men’s Christian Ass’n (YMCA) v. Standard Ins. Co., 552 S.W.2d 497, 504-05 (Tex.Civ.App.—Fort Worth 1977), writ ref'd n.r.e. per curiam, 563 S.W.2d 246 (Tex.1978); Reagan M. Brown, Defending Against the Sweetheart Deal, STATE BAR OF TEXAS—SUING, DEFENDING AND NEGOTIATING WITH INSURANCE COMPANIES 1-18 (1991) (hereinafter Brown); Ranger v. Superior Coach Sales and Service of Arizona, 110 Ariz. 188, 516 P.2d 324, 327 (1974); Ivy v. Pacific Automobile Ins. Co., 156 Cal.App.2d 652, 320 P.2d 140, 147 (1958).
The use of a covenant not to execute provides insurers with a strong incentive to give due consideration-to the interests of its insureds. See YMCA, 552 S.W.2d at 504-05; Rawlings v. Apodaca, 151 Ariz. 149, 726 P.2d 565, 575-76 (1986). The necessity of such covenants is particularly apparent when an insurer has refused to provide a defense:
In such a situation, the YMCA rule is needed to protect the insured adequately. Where the insurer refuses to tender a defense, the insured often can protect himself only with a covenant not to execute. Without such a covenant, the insured either would have to pay the plaintiffs enough to settle their claim or would have to incur defense costs himself, even though the insurer is contractually responsible for payment of such costs. Were a covenant not to execute to absolve the insurer of liability, plaintiffs would have no incentive to enter into such a covenant.
Foremost County Mut. Ins. Co., 897 F.2d at 759 (citations omitted). Without the availability of such a covenant, there may be nothing to deter an insurer from failing to give due regard to its insured’s interests. See YMCA, 552 S.W.2d at 504-05; Foremost County Mut. Ins. Co., 897 F.2d at 760.
IX.
In Samson v. Transamerica Insurance Co., 30 Cal.3d 220, 178 Cal.Rptr. 343, 636 P.2d 32 (1981), the California Supreme Court allowed the insured to recover the entire amount of the underlying judgment despite the existence of a covenant not to execute. The court stated:
“[W]here the insurer has repudiated its obligation to defend[,] a defendant in the absence of fraud may, without forfeiture of his right to indemnity, settle with the plaintiff upon the best terms possible, taking a covenant not to execute.” (Zander v. Texaco, Inc. (1968) 259 Cal.App.2d 793, 802, 66 Cal.Rptr. 561; accord, Johansen, [v. California State Auto. Ass’n Inter-Insurance Bureau] supra, 15 Cal.3d 9, 14, fn. 3, 123 Cal.Rptr. 288, 538 P.2d 744; Comunale, [v. Traders and General Ins. Co.] supra, 50 Cal.2d 654, 661-662, 328 P.2d 198). When the insurer “exposes its policyholder to the sharp thrust of personal liability” by breaching its obligations, the insured “need not indulge in financial masochism.... ” (Critz v. Farmers Ins. Group, (1963) 230 Cal.App.2d 788, 801, 41 Cal.Rptr. 401).
******
“[B]y executing the assignment, he attempt[ed] only to shield himself from the danger to which the company.... exposed him.” (Id. at p. 801, 41 Cal.Rptr. 401). He acted in his own self-interest, after Transamerican’s denial of coverage, as he had every right to do. Any resulting damage to Transamerican was not caused by Yagel’s supposed misconduct but by Trans-american’s own intransigence.
Id. 178 Cal.Rptr. at 356, 636 P.2d at 45. Thus, the California Supreme Court imposed liability for the entire amount of the judgment even though the insured had entered into an agreement not to execute.
To hold otherwise would make pretrial covenants not to execute functionally obsolete because
*869[t]he third-party claimant would have no incentive to agree to any arrangement that would protect the insured’s personal assets from execution, for any such agreement would extinguish the insured’s potentially most valuable assets, his cause of action against the insurer. Third-party claimants would have no choice but to proceed to judgment against the insured. This would result in a waste of judicial resources for no other purpose than to preserve the inchoate cause of action for failing to settle.
Stephen Ashley, Garcia v. American Physicians Insurance Exchange: The More the Merrier, 7 Bad Faith Law Report 157, 162 (Sept.1991).
Another policy behind allowing recovery for the excess judgment despite the existence of a covenant not to execute is deterrence:
The final important fact which we extract from the cases is that of deterrence. In contractual relationships in which one party primarily has sought protection or security rather than profit or advantage, contract damages not only fail to provide adequate compensation but also fail to provide a substantial deterrence against breach by the party who derives a commercial benefit from the relationship. In the first place, they offer no motivation whatsoever for the insurer not to breach.
Rawlings v. Apodaca, 726 P.2d at 575 (emphasis in original). If there were no recovery for the excess judgment, there would be more of an incentive for breach of the contract than its performance.
Pretrial covenants not to execute should be encouraged as a matter of public policy favoring settlements and minimizing the insured’s potential damages. See Rainbo Baking Co. v. Stafford, 787 S.W.2d 41, 42 (Tex.1990). Furthermore, “[pjublic policy permitting or proscribing tactical weapons developed by claimants and insurers should be shaped by two influences: (1) the public interest in encouraging settlements, and (2) fairness, that is, equalization of the contenders’ strategic advantages.” Critz v. Farmers Ins. Group, 230 Cal.App.2d 788, 801, 41 Cal.Rptr. 401, 408 (1964). When Dr. Garcia assigned his claim against APIE in exchange for a covenant not to execute, he was able to settle his dispute with the Cardenas by turning his insurer’s wrongful conduct into a bargaining strength in dealing with the claimant. Public policy considerations are better served by allowing an injured claimant to collect from the party who engaged in false, misleading and deceptive acts and caused those damages — the insurance company — rather than the victim of those acts— the insured.10
X.
We are aware of no Texas case addressing the effect of a pretrial covenant not to execute on damages stemming from the insurer’s negligence or bad faith. Whatley v. City of Dallas, 758 S.W.2d 301 (Tex.App.—Dallas 1988, writ denied) and Foremost County Mutual Insurance Co. v. Home Indem. Co., 897 F.2d 754 (5th Cir.1990) are not directly applicable — in both cases the courts expressed “no opinion as to whether a judgment creditor may recover against an insurer damages awarded against its insured in excess of policy limits for which the insured is not personally liable if the insurer has acted negligently *870or in bad faith.” Whatley, 758 S.W.2d at 310 n. 6 (emphasis added). See Foremost County Mut. Ins. Co., 897 F.2d at 759 n. 7.
In Whatley, based upon the circumstances in that case,11 the court of appeals characterized the insured’s claim that the insurer wrongfully failed to defend him as a breach of the insurer’s contractual duty to defend its insured. 758 S.W.2d at 306-07. Subsequently, the court of appeals held that “the [pretrial] covenant not to enforce adjudged damages against the insured does not bar recovery from the insurer within its policy limits.” Id. at 310. However, “the same rule does not apply to allow recovery against an insurer in excess of policy limits.” Id. The court stated that “[t]o allow the creditor to release the insured from liability for such excess damages without effecting the release of the insurer would give the creditor and insured the power to unilaterally to extend the insurer’s liability.” Id. Obviously, a pretrial covenant not to execute on a judgment does not give the creditor (or injured claimant) and insured the power to unilaterally extend the insurer’s liability. Liability will only be imposed if the jury finds that the insurer acted in bad faith, negligently, or in violation of the DTPA or Insurance Code and the damages12 were caused by the insurer’s wrongful conduct. Furthermore, if the jury determines that no coverage existed, the creditor or injured claimant takes nothing since he has agreed not to execute against the assets of the insured.
Some would argue that a plaintiffs agreement not to execute a judgment against a defendant’s personal assets, in exchange for an assignment of defendant’s bad faith claims, eliminates any bad faith damages arising from that judgment. I disagree.
A plaintiffs agreement not to execute a judgment against a defendant’s personal assets, in exchange for an assignment of defendant’s bad faith claims, does not eliminate any bad faith damages aiising from that judgment. If a defendant pays an excess judgment, thereby obtaining a judgment release, the value of the defendant’s bad faith claim against his or her insurer is not diminished. The result should be no different when the defendant obtains relief from the judgment not by paying cash, but by transferring a valuable asset — his or her tort claim. Assume, for example, that Dr. Garcia had assigned his claims against APIE and ICA to a third party in exchange for sufficient cash to pay the malpractice judgment *871to the Cardenases. The fact that Dr. Garcia used that cash to satisfy the judgment should not prejudice the tort claim in the hands of the third party. The result is no different when Dr. Garcia assigns the bad faith claim directly to the Cardenases in exchange for a covenant not to execute, as he did in this case.
XI.
Many courts permit the use of pretrial covenants not to execute.13 See Damron v. Sledge, 105 Ariz. 151, 460 P.2d 997 (1969); Griggs v. Bertram, 88 N.J. 347, 443 A.2d 163, 174 (1982) (even though the insured executed an assignment and a pretrial covenant not to execute, “a settlement [or agreed judgment] may be enforced against an insurer in this situation ... if it is reasonable in amount and entered in good faith.”); Kagele v. Aetna Life & Cas. Co., 40 Wash.App. 194, 698 P.2d 90, 92 (1985); Greer v. Northwestern Nat’l Ins. Co., 109 Wash.2d 191, 743 P.2d 1244, 1251 (1987); Lancaster v. Royal Ins. Co. of America, 302 Or. 62, 726 P.2d 371, 374 (1986) (“Whether the assignment was made of a judgment in existence or a judgment to come into existence is not determinative of whether or not the insured’s assignee may maintain an action against the insurance company. Rather, the language of the covenant is determinative.”); United Services Auto. Ass’n v. Morris, 154 Ariz. 113, 741 P.2d 246 (1987); Steil v. Florida Physicians’ Ins. Reciprocal, 448 So.2d 589 (Fla.Dist.Ct.App.1984); Shook v. Allstate Ins. Co., 498 So.2d 498 (Fla.Dist.Ct.App.1986); Samson v. Transamerica Ins. Co., 30 Cal.3d 220, 178 Cal.Rptr. 343, 636 P.2d 32 (1981); Bishop v. Crowther, 101 Ill.App.3d 933, 57 Ill.Dec. 341, 428 N.E.2d 1021 (1981); Miller v. Shugart, 316 N.W.2d 729 (Minn.1982); State Farm Mut. Auto. Ins. Co. v. Paynter, 122 Ariz. 198, 593 P.2d 948, 953 (App.1979) (A “covenant not to execute is not a release which would permit the insurer to escape its obligations.”). But see Huffman v. Peerless Ins. Co., 17 N.C.App. 292, 193 S.E.2d 773, 774, cert. denied, 283 N.C. 257, 195 S.E.2d 689 (1973) (Under the terms of the consent judgment and the covenant not to execute, the insureds “were not legally obligated to pay damages to plaintiffs.”); American Casualty Co. v. Griffith, 107 Ga.App. 224, 129 S.E.2d 549, 552 (1963) (“[T]he principal amount of recovery sought is not' recoverable because it is not shown to be an amount which the petitioner is legally obligated to pay, and the promise of the defendant is only to pay such sums as the petitioner would be obligated to pay in damages.”); Freeman v. Schmidt Real Estate & Ins., 755 F.2d 135, 138 (8th Cir.1985) (“an insured protected by a covenant not to execute has no compelling obligation to pay any sum to the injured party; thus, the insurance policy imposes no obligation on the insurer.”); Bendall v. White, 511 F.Supp. 793, 795 (N.D.Ala.1981).14
*872In Greer v. Northwestern National Insurance Co., the Washington Supreme Court stated:
A “slim majority” of jurisdictions permit an injured plaintiff to recover damages from the insurer despite the existence of a covenant between the plaintiff and the insured to seek relief only from the insurer. This majority rule is based on the rationale that when an insurer has refused to defend its insured, it is in no position to argue that the steps the insured took to protect himself should inure to the insurer’s benefit.
743 P.2d at 1251 (citations omitted). Accord Steil v. Florida Physicians’ Ins. Reciprocal, 448 So.2d at 591 (“[W]e hold that the carrier was not necessarily exonerated because Walker [the insured] was able to obtain his own discharge from liability in the course of reaching an agreement with Steil [the injured claimant]. Clearly, the intent of Steil and Walker was not to release the carrier.”); Shook v. Allstate Ins. Co., 498 So.2d at 500; Miller v. Shugart, 316 N.W.2d at 732 (“While it is true that defendants need not pay anything, it is also true that the judgment effectively liquidates defendants’ personal liability. We hold, therefore, that plaintiff may seek to collect on that judgment in a garnishment proceeding against the insurer.”); Kagele v. Aetna Life & Cas. Co., 698 P.2d at 92 (in the context of a covenant not to execute coupled with an assignment and settlement agreement, an insurer may be liable to an injured claimant even if the insured is not); Bishop v. Crowther, 57 Ill.Dec. at 344, 428 N.E.2d at 1024 (quoting Bishop v. Crowther, 92 Ill.App.3d 1, 47 Ill.Dec. 594, 600, 415 N.E.2d 599, 605 (1980)) 15 (“The execution determines which of defendant’s assets will be used to satisfy the judgment. An agreement limiting execution to specific assets [such as relating to insurance] does not negate damages.”).
Based on public policy considerations including the interest of judicial economy, encouraging settlements, providing adequate protection of insureds and providing insurers with a strong incentive to give due consideration to the interests of its insureds, I would hold that an injured plaintiff, as the assignee of the insured, is not precluded from recovering damages from the insurer by the existence of a covenant between the plaintiff and the insured to seek relief only from the insurer.
XII.
APIE argues that since Dr. Garcia had received $2.5 million in settlements with ICA and APIE, his damages were satisfied. I disagree.
First, APIE erroneously assumes that the settlements should be applied to the underlying judgment rather than as a dollar-for-*873dollar credit or pro rata reduction of damages in the bad faith case. Second, Texas has the following four distinct contribution schemes — three based on statute and one created at common law:
1. The original contribution statute (Tex. Civ.Prac. & Rem.Code § 32.001 et seq.);
2. The comparative negligence statute (former Tex.Civ.Prac. & Rem.Code § 33.-001 et seq.) which applies only in pure negligence eases filed before September 2, 1987;
3. The common law contribution by comparative causation (Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 429 (Tex.1984)) which applies only to products cases involving strict liability, breach of warranty, and mixed theories of strict liability and negligence tried after July 13, 1983; and
4. The comparative responsibility statute (Tex.Civ.Prac. & Rem.Code § 33.001 et seq.) which applies to cases filed on or after September 2, 1987.
Stewart Title Guaranty Co. v. Sterling, 822 S.W.2d 1, 5 (Tex.1991).
Dr. Garcia filed suit against ICA and APIE in August 1985 alleging negligence in handling his claim and defending him in the medical malpractice suit. Later, Dr. Garcia amended his pleadings to include allegations of negligence, breach of the insurance contracts, violations of the DTPA (false, misleading and deceptive acts, unfair practices in the business of insurance and an unconscionable course of action), violations of articles 21.21 and 21.21-2 of the Insurance Code (including the rules and regulations of the State Board of Insurance made applicable by or issued under article 21.21), and bad faith. The case was tried in November 1987 and submitted to the jury on negligence, gross negligence, DTPA and Insurance Code violations (including false, misleading and deceptive acts or practices, unfair practices in the business of insurance and an unconscionable course of action). The jury found that (1) APIE negligently failed to settle Dr. Garcia’s case prior to September 30, 1985, (2) Cardenas’ sixth amended petition alleged separate and distinct acts of negligence committed by Dr. Garcia during APIE’s policy period, (3) APIE denied coverage to Dr. Garcia, (4) APIE failed to defend Dr. Garcia at the trial of the Cardenas case, and (5) APIE’s actions in failing to defend and provide coverage were false, misleading, or deceptive acts or practices. The jury further found that each of these acts was negligent, in heedless and reckless disregard of Dr. Garcia’s rights, an unfair practice in the insurance business, an unconscionable action or course of action, a proximate cause of Dr. Garcia’s damages, and done knowingly. The jury awarded Dr. Garcia $2,235,000 in damages, apportioning 84 percent of the liability to ICA and 16 percent to APIE.16 Dr. Garcia elected to recover under article 21.21.
As a result, the comparative negligence statute which applies only to pure negligence cases filed before September 2, 1987 (former Tex.Civ.Prac. & Rem.Code § 33.001 et seq.), the common law contribution by comparative causation (Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 429 (Tex.1984)), and the comparative responsibility statute which applies to cases filed after September 2, 1987 (Tex.Civ.Prac. & Rem.Code § 33.001 et seq.) do not apply. Consequently, the original contribution statute (Tex.Civ.Prac. & Rem. *874Code § 32.001 et seq.) applies. Stewart Title Guaranty Co., 822 S.W.2d at 6.
XIII.
Bradshaw v. Baylor University, 126 Tex. 99, 84 S.W.2d 703, 705 (1935) and the “one satisfaction rule” apparently apply in this case. See Stewart Title Guaranty Co. v. Sterling, 822 S.W.2d at 5-8. Under Bradshaw v. Baylor University and the “one satisfaction rule,” nonsettling joint tortfeasors are entitled to receive a credit against the judgment based on the settlements reached between the plaintiff and other joint tortfea-sors. Stewart Title Guaranty Co., 822 S.W.2d at 8. When the jury has fixed the liability of the nonsettling defendant, the credit may be determined through either the dollar-for-dollar method or the pro rata reduction method, whichever results in the greatest reduction. See id. at 9 n. 10; Palestine Contractors, Inc. v. Perkins, 386 S.W.2d 764, 771-72 (Tex.1964) (citing Gus M. Hodges, Contribution and Indemnity Among Tortfeasors, 26 Tex.L.Rev. 150, 170 (1947)). In either case, the credit is applied after the trebling (or doubling) of actual damages under article 21.21 of the Insurance Code, Stewart Title, 822 S.W.2d at 8-9, and the percentages of responsibility found by the jury are inapplicable. See Tex.Civ.Prac. & Rem.Code § 32.001 et seq. (Vernon 1986).
If the dollar-for-dollar credit method is applied, Dr. Garcia’s damages would be calculated as follows:
Actual Damages $2,235,483.30
Additional Damages $4,470,966.60
actual damages $2,235,483.30
x2 under amended art. 21.21 x2
$4,470,966.60
Settlement credit -$2,500,000.00
APIE offset $500,000.00
ICA settlement $2,000,000.00
$2,500,000.00
Attorney’s fees $820,500.00
TOTAL $5,026,949.90 17
TOTAL RECOVERY $2,000,000.00
Under the “partial settlement” with APIE, Dr. Garcia and APIE agreed that Dr. Garcia’s damages would be limited to $2,000,-000.00. Consequently, the total award against APIE using any method of calculating damages would be limited to $2,000,-000.00.
Under the pro rata reduction method, the amount of contribution is based solely on the number of defendants found liable for the plaintiffs damages. See Tex.Civ.PRac. & Rem.Code § 32.003 (Vernon 1986). The credit is “determined by dividing the number of all liable defendants into the total amount of the judgment.” Id. § 32.003(a). In this case, the jury determined that ICA and APIE were liable for Dr. Garcia’s damages. Therefore, the pro rata reduction is determined by dividing the total amount of damages by 2 (or multiplying by .5). If the pro rata reduction provided by Palestine Contractors, Inc. v. Perkins, 386 S.W.2d 764 (Tex.1964) is applied, Dr. Garcia’s damages would be calculated as follows:
Actual Damages $2,235,483.30
Additional Damages $4,470,966.60
actual damages $2,235,483.30
x 2 under amended art. 21.21 _x2
$4,470,966.60
*875APIE’S pro rata reduction -$3,353.224.95
Garcia’s damages $6,706,449.90
Pro rata reduction _x,50
$3,353,224.95
Attorney’s fees $820,500.00
TOTAL $4,173,724.95
TOTAL RECOVERY $2,000,000.00
As a result, regardless of which method of calculating damages was used (dollar-for-dollar credit or pro rata reduction), the result was the same — APIE’s liability was $2,000,-000.
XIV.
APIE argues that the settlement agreements between (1) Cardenas, Dr. Garcia and ICA for $2,000,000 and (2) Dr. Garcia and APIE for $500,000 should have been admitted into evidence. I disagree.
“The traditional Texas rule is that settlement agreements between the plaintiff and a co-defendant should be excluded from the jury. A contrary rule would frustrate the policy favoring the settlement of lawsuits.” General Motors Corp. v. Simmons, 558 S.W.2d 855, 857 (Tex.1977); City of Houston v. Sam P. Wallace and Co., 585 S.W.2d 669, 673 (Tex.1979); McGuire v. Commercial Union Ins. Co., 431 S.W.2d 347, 352 (Tex.1968). See Scurlock Oil Co. v. Smithwick, 12A S.W.2d 1, 4 (Tex.1986).18 The settlement agreements in cases such as Stewart Title Guaranty Co. v. Sterling, 822 S.W.2d 1 (Tex.1991) and First Title Company of Waco v. Garrett, 860 S.W.2d 74 (Tex.1993) were not admitted into evidence for the jury to consider. However, they were considered by the trial court when applying Bradshaw v. Baylor University and the “one satisfaction rule.”
For the reasons explained herein, I would affirm the judgment of the court of appeals.
. A letter from ICA to APIE also reflected the agreement and stated: "This will confirm our agreement that we will divide the costs of defense in this action equally, and will share any judgment rendered porportionately [sic] to our coverage.” Obviously, contrary to the court’s assertion, the language of the agreement in no way evidences an assignment of control over the defense from APIE to ICA.
. However, contrary to the court’s assertions, Mr. Crossland's July 26, 1985 letter did not represent APIE’s position concerning policy limits, settlement authority or anything else because, among other reasons, Mr. Crossland no longer represented the interests of APIE and was no longer defending Dr. Garcia on behalf of APIE. On July 24, 1985, Mr. Crossland notified Dr. Garcia that "[i]t is my understanding that as of the denial of coverage by APIE, I am no longer in any manner representing their interest.” Furthermore, Mr. Crossland did not write his July 26, 1985 letter after seeking settlement authority from APIE.
. The covenant not to execute and the assignment of Dr. Garcia's claims against APIE and ICA were included in one document entitled "Assignment of Interest in Cause of Action and Agreement Designating Assets Subject to Execution.” Among other things, the "document” stated:
ARAMINTA CARDENAS, Individually and as Guardian of the ESTATE OF GUSTAVO CARDENAS and LAW OFFICES OF PAT MA-LONEY, P.C. hereby agree and covenant that should judgment against DR. RAYMOND A. GARCIA be obtained in the above-referenced cause, they shall not levy or issue execution, garnishment or any other process, including abstract of judgment against any assets, or property, of any kind or description, of DR. RAYMOND A. GARCIA with the sole exception of the liability insurance policy or policies which the Defendant, DR. RAYMOND A. GARCIA, as insured thereunder may have with ICA and/or API[E].
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It is further agreed that ARAMINTA CARDENAS, Individually and as Guardian of the ESTATE OF GUSTAVO CARDENAS, will indemnify DR. RAYMOND A. GARCIA to the extent of any amount of judgment which might be rendered in favor of ARAMINTA CARDENAS, Individually and as Guardian of the ESTATE OF GUSTAVO CARDENAS against DR. RAYMOND A. GARCIA in excess of what is actually collected from the insurance carrier.
⅝ ⅜ ⅜ kt ⅜«
Plaintiff, ARAMINTA CARDENAS, Individually and as Guardian of the ESTATE OF GUSTAVO CARDENAS, further agrees to indemnify and hold harmless DR. RAYMOND A. GARCIA, his heirs and executors, and assigns and any and all other persons, firms, professional associations or corporations in privity with him against any and all future claims or damages, costs and expenses arising out of the treatment of DR. RAYMOND A. GARCIA provided GUSTAVO CARDENAS during the years Mr. Cardenas was under his professional care.
For and in consideration of the foregoing promise to look only to the proceeds of the liability policies described above in satisfaction of any judgment these Plaintiffs may be entitled to against DR. RAYMOND A. GARCIA, DR. RAYMOND A. GARCIA sells, assigns, transfers, sets over and delivers to ARAMINTA CARDENAS, Individually and as Guardian of the ESTATE OF GUSTAVO CARDENAS and LAW OFFICES OF PAT MALONEY, P.C., their executors, administrators, and assigns, for their use and benefit, any and all sum or sums of money now due or owing DR. RAYMOND A. GARCIA, and all claims, demands, and causes of action of whatsoever kind and nature, which Defendant, DR. RAYMOND A. GARCIA, has had or now has, or may have against Defense Attorneys or ICA or API[E], or any other person or persons, and each and any of them, whether jointly or severally, arising out of, or for any loss, injury or damage sustained by him, or cause or causes of action arising, growing out of, or relating to, or connected with the handling of the claims of ARA-MINTA CARDENAS, Individually and as Guardian of the ESTATE OF GUSTAVO CARDENAS against DR. RAYMOND A. GARCIA.
. The suit was filed by Cardenas as Dr. Garcia's assignees.
. In his seventh amended original petition, Dr. Garcia alleged, among other things, that APIE was liable in the following particulars:
(1) In failing to bargain, negotiate and settle the case within the applicable policy limits;
(2) In failing to advise DR. GARCIA of the potential of an excess judgment and exposure beyond the limits of the policy;
(3) In failing to advise DR. GARCIA of settlement offers made and the effect on him if the offers were not accepted;
(4) In failing to act in good faith to bargain, negotiate and effectuate a settlement;
(5) In withdrawing coverage to DR. GARCIA and failing to provide him with a defense;
(6) In breaching their contract of insurance to provide him coverage under the policy and provide a defense;
(7) In breaching their fiduciary duty to act in good faith and provide coverage under the policy and a defense to DR. GARCIA;
(8) In not providing coverage and a defense after Plaintiff Cardenas’ petition was amended;
(9) In failing to carry on negotiations to settle;
(10) In failing to investigate the facts of the case filed by Cardenas to determine that coverage under the policy existed;
(11) In failing to tender the $500,000.00 as provided in the policy of insurance to Plaintiff to be applied toward the judgment and continuing to refuse to pay under the policy of insurance; and
(12) In abandoning the defense of DR. GARCIA prior to the trial of the case against him.
. G.A. Stowers Furniture Co. v. American Indemnity Co., 15 S.W.2d 544 (Tex.Comm'n App.1929, holding approved).
. The court has retroactively altered Ranger County Mutual Insurance v. Guin so that its holding — that an insurer’s duty to its insured includes "investigation, preparation for defense of the lawsuit, trial of the case and reasonable attempts to settle” — has been transformed into mere "dictum.”
. Furthermore, the plaintiff is not prohibited from making a settlement demand within policy limits.
. The court also states that "[i]n light of the fact that Maloney was informed of the insurers' position [concerning policy limits]....” However, which “position” concerning policy limits is the court referring to? ICA’s $100,000.00 limit and APIE’s $500,000.00 limit communicated to Mr. Maloney on July 10, 1985? ICA’s two policies with coverage of $100,000.00 and $500,000.00 and APIE’s $500,000.00 limit discovered by Mr. Maloney on July 26, 1985? ICA’s three policies with coverage of $100,000.00, $500,000.00 and $500,000.00 and APIE’s $500,000.00 limit communicated to Mr. Maloney on July 26, 1985?
. Although this case is different from many cases involving pretrial covenants not to execute (such as settlement or consent judgments) because the issues in the malpractice case were vigorously contested in an adversary proceeding, we are aware that cases involving pretrial covenants not to execute may not always be energetically contested in an adversary proceeding. Consequently, permitting the insured to "settle” with the injured claimant before trial and sign a covenant not to execute may present a real concern for the insurer. See United Services Auto. Ass'n v. Morris, 154 Ariz. 113, 741 P.2d 246, 252-53 (1987) ("To relieve himself of personal exposure, the insured may be persuaded to enter into almost any type of agreement or stipulation by which the claimant hopes to bind the insur-er_”). "The real concern in this type of case is that the settlement [or judgment] between the claimant and the insured may not actually represent an arm’s length determination of the worth of the plaintiff's claim." Steil v. Florida Physicians' Ins. Reciprocal, 448 So.2d 589, 592 (Fla.Dist.Ct.App.1984).
. Apparently the insured never claimed that the insurer acted negligently or in bad faith in failing to defend him in the underlying suit.
. In this type of case, the insured’s damages may include the amount of the underlying judgment and additional damages. For example, a physician suffers significant harm when an insurer’s bad faith leads to the entry of an adverse judgment. Amicus Curiae Texas Medical Association asserts that foreseeable harm may include:
1. The loss of the fair chance to prepare and present a successful defense or reach settlement prior to trial.
2. Harm resulting from stress caused by the insurer’s negligent failure to defend or bad faith failure to settle.
3. Possible exhaustion of the insured’s aggregate professional liability insurance policy limits. If the insured's aggregate policy limits are exhausted under a "claims made” professional liability insurance policy, the physician would be exposing his personal assets and property to satisfy any other adverse judgment or settlement.
Brief of Amicus Curiae, Texas Medical Association at 8. In addition, the existence of the unpaid judgment can harm a person's credit, in that:
[t]he presence of a judgment against the insured will cause him problems in ordinary borrowing. No bank or bank officer can explain to the FDIC that the person to whom it or he wants to loan substantial money is not ever going to have to pay off the judgment. Nor can the insured get most bankers to stand that kind of heat with their loan committees .... If the insured is late as to other obligations, the creditor may even file involuntary bankruptcy proceedings [against the insured] because they count the judgment as a debt.
See Roberts at B-26-27. See also Campbell v. State Farm Mutual Automobile Ins. Co., 840 P.2d 130, 139 (Utah App.1992). Harm may arise in other contexts as well. For example, the rendition of a medical malpractice judgment may negatively impact the physician's reputation and the standing in both the medical community and the community at large. In short, an individual still suffers damages and many forms of harm.
. In addition, the overwhelming majority of courts permit the use of pretrial and/or post-trial covenants not to execute. See, e.g., Metcalf v. Hartford Acc. & Ind. Co., 176 Neb. 468, 126 N.W.2d 471 (1964); Griggs v. Bertram, 88 N.J. 347, 443 A.2d 163, 174 (1982); American Family Mut. Ins. Co. v. Kivela, 408 N.E.2d 805 (Ind.App.1980); Miller v. Shugart, 316 N.W.2d 729 (Minn.1982); First Nat’l Indem. Co. v. Mercado, 511 S.W.2d 354 (Tex.Civ.App.—Austin 1974, no writ); Kagele v. Aetna Life & Cas. Co., 40 Wash.App. 194, 698 P.2d 90 (1985); Crabb v. Nat’l Ind. Co., 87 S.D. 222, 205 N.W.2d 633 (1973); Ammerman v. Farmers Ins. Exch., 22 Utah 2d 187, 450 P.2d 460 (1969); State Farm Mut. Auto. Ins. Co. v. Paynter, 122 Ariz. 198, 593 P.2d 948 (App.1979); Steil v. Florida Physicians’ Ins. Reciprocal, 448 So.2d 589 (Fla.Dist.Ct.App.1984); Shook v. Allstate Ins. Co., 498 So.2d 498 (Fla.Dist.Ct.App.1986); Glenn v. Fleming, 247 Kan. 296, 799 P.2d 79 (1990); Greer v. Northwestern Nat’l Ins. Co., 109 Wash.2d 191, 743 P.2d 1244 (1987); Lancaster v. Royal Ins. Co. of America, 302 Or. 62, 726 P.2d 371 (1986); United Services Auto. Ass’n v. Morris, 154 Ariz. 113, 741 P.2d 246 (1987); Zander v. Casualty Ins. Co., 259 Cal.App.2d 793, 66 Cal.Rptr. 561 (1968); Samson v. Transamerican Ins. Co., 30 Cal.3d 220, 178 Cal.Rptr. 343, 636 P.2d 32 (1981); LaRotunda v. Royal Globe Ins. Co., 87 Ill.App.3d 446, 42 Ill.Dec. 219, 408 N.E.2d 928 (1980); Bishop v. Crowther, 101 Ill.App.3d 933, 57 Ill.Dec. 341, 428 N.E.2d 1021 (1981); Coblentz v. American Surety Co., 416 F.2d 1059 (5th Cir.1969); Gray v. Grain Dealers Mut. Ins., 871 F.2d 1128, 1133 (D.C.Cir.1989); Steedly v. London & Lancashire Ins., 416 F.2d 259 (6th Cir.1969). But see Huffman v. Peerless Ins. Co., 17 N.C.App. 292, 193 S.E.2d 773, cert. denied, 283 N.C. 257, 195 S.E.2d 689 (1973); American Casualty Co. v. Griffith, 107 Ga.App. 224, 129 S.E.2d 549 (1963); Bendall v. White, 511 F.Supp. 793, 795 (N.D.Ala.1981).
. Although this case is limited to pretrial covenants not to execute, APIE’s arguments — that a pretrial covenant not to execute necessarily negates all damages — would apply equally to post-trial covenants not to execute. In other words, under the reasoning employed by APIE, if Cardenas executed a covenant not to execute against Dr. Garcia in exchange for an assignment of his claims against APIE and ICA after the underlying medical malpractice trial, Dr. Garcia would still not suffer a compensable harm because of the alleged "protective effects” of the covenant not to execute.
. In the appeal of the underlying injury suit, the defendant/insured asserted that there was no proof of damages:
Plaintiff and defendant entered into a covenant providing that plaintiff would not seek to execute any judgment against any personal assets of defendant, but reserved the right to execute against assets relating to his insurance. Crowther [the defendant/insured] asserts that a legal consequence of this covenant is that no damages are enforceable against him individually. He further maintains that plaintiff failed to establish an element of his cause of action: proof of damages. We disagree. Defendant’s argument fails to distinguish between such concepts as liability, damages, judgment and execution. Defendant's liability and the amount of damages were both established by the judgment. The execution determines which of defendant’s assets will be used to satisfy the judgment. An agreement limiting execution to specific assets does not negate damages.
Bishop v. Crowther, 47 Ill.Dec. at 600, 415 N.E.2d at 605.
. The jury was asked 2 questions related to “apportionment.” Special Issue No. 33 asked:
What percentage, if any, of the damages found by the Court in Cardenas v. Garcia were proximately caused by the acts or omissions of Dr. Garcia on or after 1/8/83?
Answer by stating the percentage found.
We, the Jury, Answer: 16%
Special Issue No. 36 asked:
For each party found by you to have caused damage to Dr. Garcia find the percentage caused by:
ICA 84%
APIE 16%
100%
Apparently, special issue nos. 33 and 36 were submitted by APIE.
. This figure does not include any amounts which may be recoverable as prejudgment interest. We express no opinion whether prejudgment interest should be considered when determining dollar for dollar credit or pro rata reduction.
. However, "when a settling defendant retained a financial stake in a plaintiff's recovery [such as a Mary Carter agreement], the excluding of evidence of that fact from the jury was harmful error.” Scurlock Oil Co. v. Smithwick, 724 S.W.2d at 4; General Motors Corp. v. Simmons, 558 S.W.2d at 858-59. APIE does not argue that it or ICA retained a "financial stake” in Dr. Garcia's recovery. Consequently, this case is different from a Maty Carter case.