If you’re one of our clients, we might send you a draft demand letter to the insurance company that tells the insurance company that the letter is intended to be a “Stowers demand.” What does that phrase mean?
Every insurance policy has a “policy limit” — the maximum amount of coverage the policy offers. (You can read more about that here.)
Way back in 1929, the Texas Supreme Court, in the G.A. Stowers Furniture Co. v. American Indemnity Co. case, ruled that insurance companies had a duty to their insureds to accept a reasonable settlement offer if the offer is within the policy limits. If the insurance company rejects a reasonable settlement offer within the policy limits and the case later resulted in a verdict higher than the policy limits, then the insurance company could be liable for the full amount, even though the amount is higher than the policy limit.
The “Stowers demand” serves two purposes.
For cases with values near or above the policy limits, an offer to settle for the policy limits puts pressure on the insurance company to settle because they don’t want to be liable for an amount more than the policy.
This can sometimes result in funny phenomenon. For example, if a car wreck case is worth between $25,000 and $35,000, an insurance company with $30,000 will likely pay the amount due to the Stowers pressure. However, if the same case had $300,000 of insurance (instead of $30,000), the insurance company doesn’t have any pressure, and they might hold fast to paying $25,000 or less.
If your case far exceeds the policy limits, then the demand will likely result in the settlement of the claim for the limits of the policy. Unfortunately, unless you have purchased underinsured motorist coverage, you’re likely out-of-luck in your attempts to obtain full value of the claim. But, if the insurance company rejects the offer for some reason and a jury later finds that the case is worth more than the policy, then the Stowers demand is necessary to try and set up the claim to make a claim for the full value of the case, similar to that made in the Stowers Furniture Company case.
In short, the demand is necessary to try and settle the case, and failing that, hope that it sets you up to make a full recovery in the future.
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