Smith v. Transit Casualty Company

• Decision Date: 04 March 1968
• Docket Number: Civ. No. 1735.
• Citation: 281 F. Supp. 661
• Parties: Mrs. Lorena Bates SMITH et al. v. TRANSIT CASUALTY COMPANY.
• Court: U.S. District Court — Eastern District of Texas

281 F. Supp. 661

Mrs. Lorena Bates SMITH et al. v. TRANSIT CASUALTY COMPANY.

Civ. No. 1735.

United States District Court E. D. Texas, Sherman Division.

March 4, 1968.

COPYRIGHT MATERIAL OMITTED

Aubrey J. Roberts, George C. Chapman, Dallas, Tex., Jack Gray, John L. Sullivan, Denton, Tex., for plaintiffs.

Dean Carlton, Dallas, Tex., Paul Brown, Sherman, Tex., for defendant.

OPINION

FISHER, Chief Judge.

The above entitled matter having come on for consideration and the Court having considered the claims of the parties, and after hearing evidence in connection with the Stowers doctrine controversy, and having carefully considered the evidence and having been fully advised in the premises, makes certain findings of fact and conclusions of law as follows.

This case involves what is commonly known in Texas as the "Stowers Doctrine". In short, the Plaintiffs seek to recover damages against the Defendant on the grounds that the Defendant failed to exercise ordinary care to protect its insured inasmuch as it failed to settle a claim against the insured within the policy limits. Therefore, under the Stowers doctrine, the Defendant is rendered liable for the total amount of the judgment against the Defendant's assured, including the amount in excess of the policy limit.

The so-called Stowers doctrine was first established in the case of Stowers Furniture Co. v. American Indemnity Co., 15 S.W.2d 544 (Tex.Com.App.1929), where the Court held that since the insurance contract gives an insurer complete control of the litigation, it is bound to exercise ordinary care in order to protect the interest of the assured and is:

"* * * held to that degree of care and diligence which an ordinary, prudent person would exercise in the management of his own business, and if an ordinary prudent person, in the exercise of ordinary care, as viewed from the standpoint of the assured, would have settled the case, and failed or refused to do so, then the agent (insurer) * * * should respond in damages." 15 S.W.2d 544, at 547.

On July 27, 1966, an action was commenced against the Defendant, Transit Casualty Co., in the District Court of Denton County, Texas, and subsequently was removed to the jurisdiction of this Court upon proper motion of the Defendant pursuant to the provisions of 28 U.S.C. § 1441.¹

The pertinent facts as adduced from the stipulations and admissions of counsel, and from the evidence introduced at the trial of this case, are hereinafter set forth. Prior to February 8, 1962, for valid consideration, the Defendant made, executed and delivered to Mrs. Lorena Bates Smith its standard automobile liability policy No. AR710640. On or about February 8, 1962, while said insurance policy was in full force and effect, an accident occurred on State Highway 99, approximately four and one-half miles northeast of Denton, in Denton County, Texas, between an automobile owned and driven by Leo V. Selz and an automobile owned and driven by Mrs. Lorena Bates Smith. Lorena Bates Smith notified the Defendant of said accident, and the Defendant began making an investigation thereof. Subsequently, Mrs. Smith, through her attorneys, instituted suit in the District Court in Denton County, Texas, in Cause No. 26,230. Thereafter, by way of cross-action, Mrs. Bessie Selz, Individually and as Independent Executrix of the Estate of Leo v. Selz, deceased, filed suit against Mrs. Smith. The Defendant, Transit Casualty Co., insurer of Mrs. Smith, was promptly notified of the filing of the cross-action, and undertook charge of the defense of the cross-action.

This cause came on for trial on November 2, 1964. At the close of the evidence by the Plaintiff, the Court granted an instructed verdict against Mrs. Smith as to her claim for damages against the Selz Estate. The claims contained in the cross-action were submitted to a jury and a verdict was rendered in favor of Mrs. Bessie Selz against Mrs. Smith for the sum of $81,375.00. Based on such verdict, judgment was entered against Mrs. Smith for the sum of $76,500.00, and thereupon the attorneys for Transit Casualty Co. gave notice of intent to appeal and thereafter did appeal the case to the Fort Worth Court of Civil Appeals, which, after filing of a remittitur, affirmed the judgment against Mrs. Smith in the total sum of $51,375.00. Said judgment has now become final. A writ of execution on the outstanding judgment of $51,375.00 plus interest and court costs, was returned nulla bona on or about July 22, 1966.

The facts and circumstances surrounding the state court suit may be capsuled as follows. The evidence adduced at the state trial established that the accident occurred in the following manner. As Mrs. Smith was driving her car down her righthand side of the highway, she observed another vehicle driven by Mrs. Betty Jo Morris, attempting to pull onto the highway from the right hand shoulder. Allegedly, in order to avoid colliding with the rear of the Morris automobile, Mrs. Smith pulled to the left of the center stripe and struck the vehicle being driven by Leo V. Selz headon as he approached in the opposite line of traffic. Mrs. Smith was seriously injured, and Mr. Selz was fatally injured and a passenger in his vehicle was also seriously injured in the collision. At the trial, the District Court Judge granted an instructed verdict that Mr. Selz was in no way guilty of negligence which proximately caused the accident in question, and placed the entire blame for the collision on Mrs. Smith, and accordingly assessed the damages against her above referred to.

I.

Prior to and during the course of the trial in the state court, there was considerable discussion among counsel for all concerned as to the possibility of a settlement being reached which would be to the satisfaction of all parties. An offer to settle the claims against Mrs. Smith contained in the cross-action within the policy limits was made to the Defendant Transit Casualty Co., but the Defendant refused to accept said offer. The details of the settlement negotiations will be set out more fully hereinafter.

A review of the file of Transit Casualty Co. and the evidence in this record compel the conclusions that the Defendant was guilty of a failure to exercise ordinary care in not accepting the settlement offer of Mrs. Selz's attorneys to settle the claim against Mrs. Smith for $4,500.00. Transit Casualty Company's policy limit covering the Smith vehicle was $5,000.00 The investigation of the Defendant insurance company and its agents established well before trial that Mrs. Smith admittedly had seen the Selz automobile approaching in the other lane from the opposite direction. The impact was head-on in Mr. Selz's lane of traffic, and it was apparent that the chances of finding Selz guilty of contributory negligence were virtually non-existent. Furthermore, the damages asserted on the Selz claims included a death claim and were, of course, quite substantial. The Defendant's trial attorney, Mr. Hauer, repeatedly advised the home office of Transit Casualty Company of the existence of the Stowers doctrine, and urged that they be careful to watch for any settlement offers made within the policy limits. In addition, after taking her deposition, Mr. Hauer advised the Defendant that the insured, Mrs. Smith, would likely make a very poor witness at trial. Mr. Hauer advised the home office of Transit Casualty Company that a judgment against Mrs. Smith would probably be in the range of $50,000.00 to $75,000.00 should the case be submitted to a jury. However, in spite of the advice of its trial attorney, and regardless of its knowledge of the above information, Transit Casualty Company refused to accept the Selz's offer to settle all claims against Mrs. Smith for the sum of $4,500.00. The Court finds and concludes that such failure to settle within the policy limits constituted a failure on the part of the Defendant to exercise ordinary care to protect the interest of its insured, and such failure was a proximate cause of the entry of the judgment in the amount of $51,375.00 against Mrs. Smith.

II.

In addition to the damages sought by the Plaintiff, Mrs. Selz, for the amount of the excess judgment, both Plaintiffs seek punitive damages in the amounts of $12,000.00 and $10,000.00 respectively, alleging gross negligence on the part of Transit Casualty Co. in failing to settle within the policy limits. In no event would Transit Casualty Co. be liable to Mrs. Selz, or the Selz estate for punitive damages for gross negligence in failing to settle. If there is gross negligence, punitive damages would inure solely to the benefit of the assured, Mrs. Smith.

The essence of the contention of the Defendant that failure to settle was not negligence in any degree is the fact that the insured, Mrs. Smith, had retained her own counsel to prosecute a personal injury claim against the Selz estate and Mrs. Morris. Apparently, the Defendant thought that since Mrs. Smith filed her own suit alleging that the fault was not hers but rather that of Mr. Leo Selz, the insurance carrier would never be found negligent for failing to settle. The evidence adduced reveals an obstinate reliance upon this idea by the Defendant. But in order for there to be gross negligence, the negligence must be such as constitutes a "conscious indifference for the rights and welfare of others." Fancher v. Cadwell, 309 S.W.2d 545 (Tex.Civ.App.1958). Although a stubborn and blind faith in the possibility of exoneration from negligence simply because Mrs. Smith filed a suit alleging she was not at fault constitutes a high degree of negligence when considered in the light of all the surrounding facts, nevertheless, this Court does not find that such negligence was a conscious indifference for the rights and welfare of others. The Court finds no grounds for punitive damages inasmuch as the Defendant is not guilty of gross negligence.

III.

Under a trial amendment, the Plaintiffs...