Texas Appellate Court Finds No Legal Malpractice for Failure to Accept Stowers Demands

In an unpublished opinion, a Texas appellate court held that in a legal malpractice claim against plaintiff trucking company’s former lawyers after an excess verdict, the lawyers retained by the insurer to defend were not liable for failing to recommend acceptance of settlement demands within the insured’s policy limits, known under Texas law as Stowers demands. Plaintiff could not establish causation because the insurance adjuster provided an affidavit in support of summary judgment indicating he had authority to accept the demands and would not have accepted regardless of what the defense law firm recommended.

The legal malpractice claim arose out of an underlying lawsuit involving a trucking accident. The trucking company was defended under a $1 million policy by attorneys retained on its behalf by the trucking company’s insurer. During the course of the underlying lawsuit, a total of three demands were made within the $1 million policy limits, all of which were rejected. At trial, the jury returned a verdict against the trucking company for over $2.8 million, which was in excess of its $1 million policy limit.

Following the verdict, the trucking company sued its insurance company for bad faith failure to settle as well as its former attorneys for legal malpractice and breach of fiduciary duty. The insurance company settled the bad faith suit against it in exchange for release of all claims. The defendant law firm filed summary judgment arguing the plaintiff trucking company could not prove causation. As part of its summary judgment it filed an affidavit from the insurance adjuster indicating although the adjuster consults with retained counsel when deciding whether to accept or reject a settlement demand, he used his own independent judgment, and on many occasions, he will decline to accept a settlement demands despite recommendation of retained counsel to the contrary. Retained counsel’s opinion is only one factor which the insurance adjuster considered. He also indicated the law firm had no authority to settle the lawsuit without approval from the insurance company. Moreover, he indicated had the retained defense counsel recommended to accept the Stowers demand, he would not have accepted the demands regardless of the advice. The trial court granted summary judgment in favor of the defendant law firm and the plaintiff trucking company appealed.

On appeal, the trucking company argued there were issues of fact because it had submitted affidavits from retained experts supporting its claims against the law firm and that the insurance company was not provided with adequate information by the retained law firm to form a proper evaluation of the case. The appellate court affirmed the trial court’s summary judgment and pointed to extensive reporting from the retained defense counsel to the insurance company evaluating the case. It also pointed to recommendations as to settlement value from defense counsel and the insurance adjuster’s own claim notes indicating disagreement with settlement value as he had indicated the settlement value was lower due to potential comparative fault defenses. Therefore, the appellate court ruled that the expert opinions proffered by the plaintiff trucking company were speculative in light of the evidence found in the claim file.

Plaintiff trucking company had also sought to disgorge the attorneys’ fees paid to the law firm under the theory of breach of fiduciary duty.  However, the appellate court upheld the trial court’s decision that fee forfeiture was not available in this case because the fees were paid by a third-party – the insurance company, rather than the trucking company.

The affidavit proffered by the defendant law firm from the insurance adjuster certainly helped secure summary judgment in this case. Because the insurance company had settled out its bad faith claim it likely was more inclined to assist the law firm in defending the malpractice claim given the insurance company had already obtained a release for any other liability or damages.  It was not discussed in the opinion, but this is also a good reminder for attorneys retained by insurance companies to communicate with both the insurer and its client, the insured, as to any and all settlement offers and to provide evaluations and recommendations based upon experience, the law, and the venue.