TRANSIT CASUALTY COMPANY v. Smith

• Decision Date: 08 May 1969
• Docket Number: No. 26311.,26311.
• Parties: TRANSIT CASUALTY COMPANY, Appellant, v. Mrs. Lorena Bates SMITH et al., Appellees. Mrs. Lorena Bates SMITH et al., Appellants, v. TRANSIT CASUALTY COMPANY, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

410 F.2d 210 (1969)

TRANSIT CASUALTY COMPANY, Appellant, v. Mrs. Lorena Bates SMITH et al., Appellees.

Mrs. Lorena Bates SMITH et al., Appellants, v. TRANSIT CASUALTY COMPANY, Appellee.

No. 26311.

United States Court of Appeals Fifth Circuit.

April 15, 1969.

Rehearing Denied May 8, 1969.

Paul Brown, Sherman, Tex., R. A. Dean Carlton, Meer, Chandler & Carlton, Dallas, Tex., Brown, Kennedy & Hill, Sherman, Tex., for appellant.

Jack Gray, John L. Sullivan, Fred H. Minor, Denton, Tex., Frank Finn, Jr., George C. Chapman, Dallas, Tex., for appellee.

Before THORNBERRY and MORGAN, Circuit Judges, and LIEB, District Judge.

PER CURIAM:

This appeal arises from a judgment below growing out of a "Stowers Doctrine"¹ action by Mrs. Lorena Smith, appellee, against her insurer, Transit Casualty Company. Mrs. Smith, along with Mrs. Leo Selz, were plaintiffs in the court below.

The case grows out of a collision which occurred near Denton, Texas, between an automobile owned and driven by Mrs. Selz's deceased husband, and an automobile driven by Mrs. Smith. Thereafter, Mrs. Smith brought an action in the District Court of Denton County, Texas, alleging that Mrs. Selz and a Miss Morris, a third party, were negligent in causing her personal injuries. By way of a cross-action, Mrs. Selz, individually, and as independent executrix of the Estate of Leo Selz, proceeded against Mrs. Smith. Transit assumed charge of the defense of the cross-action, and Mrs. Smith retained her own counsel for her cause of action.

At the close of the evidence presented by Mrs. Smith in the state action, the Denton County District Court granted an instructed verdict against Mrs. Smith and her claim for damages against the Selz Estate. The cross-action of Mrs. Selz was submitted to a jury and resulted in a verdict in favor of Mrs. Selz against Mrs. Smith for the sum of $81,375.00. Miss Morris, whose insurance carrier had offered to settle for her entire policy limits, was exonerated. After an appeal to the Fort Worth Court of Civil Appeals, the judgment against Mrs. Smith was reduced to the sum of $51,375.00.

Prior to and during the damage suit trial in the state court, there was discussion among counsel for all concerned as to the possibility of a settlement satisfactory to all the parties. The insurance carrier for Miss Morris offered her entire policy limits. Mrs. Selz's attorneys offered to settle the Selz claim for $4,500.00 with Transit, whose policy limits covering the Smith vehicle were $5,000.00, but Transit declined and the negotiations for settlement thereby failed.

After the writ on the state court judgment was returned nulla bona, Mrs. Smith executed a promissory note for $51,375.00 payable on demand to Mrs. Selz, and wrote a check for $5.00 as an initial payment on the note, receiving a receipt therefor. Along with the note and check, Mrs. Smith executed a written assignment to Mrs. Selz for her cause of action against Transit to the extent of $51,375.00 for its negligent failure to settle within the policy limits, but Mrs. Smith expressly reserved any claim she might have for punitive damages against Transit.

Thereafter, Mrs. Smith and Mrs. Selz brought this declaratory action in the state court which was properly removed to the federal district court under Title 28, U.S.C., Section 1441. After a trial of the action in the district court, the Court made findings of fact and conclusions of law which held that under Texas law the failure of Transit to settle the Smith claim for $4,500.00, which was within the limits of the policy, constituted a failure on the part of Transit to exercise ordinary care to protect its insured, and that such failure was a proximate cause...