Insurance: Drafting an Effective Stowers Demand
January 21, 2012  

In a prior article, I discussed the basics of the Stowers Doctrine.  This article explains how to draft an effective Stowers Demand that will actually trigger a duty to settle on the part of the insurer who receives it.  In the absence of such a demand, no extra-contractual liability can be imposed on the insurer.

My experience in this arena arises from having evaluated hundreds of such demand  letters on behalf of insurance companies over the years and having defended numerous Stowers cases.

Although there is nothing particularly complex about the elements of an effective Stowers demand, it seems like there is at least one published decision every year in which someone gets it wrong.

Let's start with what is not required and not recommended (at least by me).  There is no requirement to cite the Stowers case and/or recite the insurer's duty to its insured at great length.  If per chance you draw one of the few insurance adjusters who has not heard of his employer's duty under Stowers, why would you want to educate him?  Wait until he blows the deadline, then you can explain it.

Most of the time you're just wasting space with a canned Stowers lecture.  It can take away from the effectiveness of your letter because it looks like (and usually is) form-letter boilerplate. If you are going to do it, get it right: there is no apostrophe, as in Stower's.  It is not named after a demand formulated by a Mr. Stower.  It is a demand based on the Stowers doctrine.

Although there are more elements to the Stowers doctrine (e.g., that the claim be covered and that a reasonable insurer would accept it) there are only three required elements for a Stowers demand: (1) that the demand be within available policy limits; (2) that it offer a complete release of liability for the insured; and (3) that the insurer be given a reasonable amount of time to respond.

With regard to the first element, the available limits that count are those of the insurer to which you are making the demand.  A demand that is within the combined limits of a primary and excess carrier will not automatically trigger a duty to settle on the part of  either insurer, nor can you do anything as plaintiff's counsel to force this issue. Once the primary insurer has tendered its limits to the excess carrier, you can make an effective Stowers demand on the excess carrier. The difficulty here is that you are unlikely to be informed of this event.

The next issue with regard to making a demand within limits is that you need to know  the limits.  If you demand the stated policy limit, you may overshoot because that limit may have been reduced by the payment of claims.  For example, payment of a property damage claim arising out of an auto accident will mean that the stated liability limit is no longer available.  You can make an effective Stowers demand simply by offering to settle "for all available limits", but this can be risky.  What if the limits have been drastically reduced to almost nothing? If the defendant has assets beyond the policy, my recommendation is to demand a set amount (the lowest amount you are willing to take) or policy limits, whichever is greater.  If the available limits are below your floor, your Stowers demand will not be effective but you will not have given your case away.

With regard to the second element, the complete release of liability that must be offered relates only to your client and claims arising through him, such as hospital liens.  If there are multiple claimants arising out of a single accident, its not your problem that your demand will exhaust limits and leave the insured unprotected for the other claims.  If your demand is objectively reasonable without regard  to other claims, the insurer has a duty to accept it.  Many adjusters don't seem to realize this because it seems counterintuitive.  For this reason, a multiple claimant accident can often offer fertile ground for developing a good Stowers case.

Hospital liens always seem to cause the most problems in this area.  Always make the express representation that your demand includes a  release of all such liens, known or unknown, valid or invalid.

The last element usually causes the least problems.  There is an old case that holds that a two-week time limit was reasonable under the facts and this seems to be the standard.  But this is only likely to be rock solid  in cases in which the insurer has already had time to investigate the claim.  If your Stowers demand is also the insurer's first notice of the claim, you should give them a longer time period. Remember that the ultimate purpose of the letter is to make your demand look reasonable and the insurer look unreasonable.  It is counter-productive to this goal to draft a letter that looks like you are trying to trap the insurer in a "gotcha" that requires them to make a snap decision.

Finally, a written demand is not actually required under the doctrine but due to the need to prove that certain elements have been met, only a fool would intentionally make it a practice to rely on oral demands.  Sometimes this can't be helped, such as where offers are being swapped back and forth in a mediation.  But in this situation, proving you made the demand can be difficult since the parties are bound by confidentiality.  My recommendation is that if your case does not settle at mediation and you want to make sure you have a valid Stowers demand, write a new demand letter after the mediation.  Since the case has been fully vetted at mediation, a very short response deadline should be found to be reasonable.


Brian Blakeley is a San Antonio attorney and senior partner in the Blakeley Law Firm. He may be reached at 210.826.0715
This article is provided for information purposes only and is not intended as legal advice.