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United States Court of Appeals
Fifth Circuit
F I L E D
REVISED APRIL 15, 2005
March 31, 2005
IN THE UNITED STATES COURT OF APPEALS
Charles R. Fulbruge III
FOR THE FIFTH CIRCUIT
Clerk

No. 03-10705

LIBERTY MUTUAL INSURANCE COMPANY,
Plaintiff-Counter-Defendant, Appellee-Cross-Appellant,
versus
MID-CONTINENT INSURANCE COMPANY,
Defendant-Counter-Claimant, Appellant-Cross-Appellee.

Appeal from the United States District Court
for the Northern District of Texas

Before GARWOOD, JOLLY and BARKSDALE, Circuit Judges.
PER CURIAM:
This Texas law diversity case involves important and
determinative questions of Texas law as to which there is no
controlling Texas Supreme Court precedent. Accordingly, we certify
those unresolved questions to the Supreme Court of Texas.
CERTIFICATION FROM THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT TO THE SUPREME COURT OF TEXAS,
PURSUANT TO THE TEXAS CONSTITUTION ART. 5, § 3-C AND
RULE 58 OF THE TEXAS RULES OF APPELLATE PROCEDURE

TO THE SUPREME COURT OF TEXAS AND THE HONORABLE JUSTICES THEREOF:
I. STYLE OF THE CASE: PARTIES AND COUNSEL
The style of the case in which certification is made is
Liberty Mutual Insurance Company v. Mid-Continent Insurance
Company, Case No. 03-10705, in the United States Court of Appeals
for the Fifth Circuit, on appeal from the United States District
Court for the Northern District of Texas, Dallas Division.
Liberty Mutual Ins. Co. v. Mid-Continent Ins. Co., 266 F. Supp.
2d 533 (N.D. Tex. 2003). Federal jurisdiction is based on
diversity of citizenship.
The names of all the parties to the case, each of whom is
represented by counsel, and the respective names, addresses and
telephone numbers of their counsel, are as follows: Liberty
Mutual Insurance Company, plaintiff and counter-defendant in the
district court, appellee and cross-appellant in this court,
represented by Richard A. Capshaw and Mikel J. Bowers of Capshaw,
Goss & Bowers, L.L.P., 3031 Allen Street, Suite 200, Dallas,
Texas 75204, Tel. 214/761-6610; and Mid-Continent Insurance
Company, defendant and counter-claimant in the district court,
appellant and cross-appellee in this court, represented by Brian
L. Blakeley and Carrie Davis Holloway of Blakeley & Reynolds,
P.C., 1250 N.E. Loop 410, Suite 420, San Antonio, Texas 78209,
Tel. 210/805-9799.
II. STATEMENT OF THE CASE
2

In this suit between two liability insurers Liberty Mutual
Insurance Company (Liberty Mutual) seeks to recover from Mid-
Continent Insurance Company (Mid-Continent) a portion of the sums
Liberty Mutual paid to settle a third party claim against Kinsel
Industries (Kinsel), a covered insured under each of their
respective $1 million comprehensive general liability (CGL)
policies. Each insurer assumed defense of Kinsel, and the case
ultimately settled for $1.5 million, but Mid-Continent would pay
only $150,000, so Liberty Mutual (which also had a $10 million
excess policy covering Kinsel) paid the remaining $1,350,000 and
then brought this suit against Mid-Continent for $600,000, which it
contended Mid-Continent was obligated for as its remaining
proportionate part of the $1.5 million settlement. Following a
bench trial, the district court awarded Liberty Mutual $550,000.
Mid-Continent now appeals that judgment.1
Kinsel, the general contractor for the State of Texas on a
highway construction project, was the named insured under Liberty
Mutual's $1 million CGL policy. Mid-Continent insured Crabtree
Barricades (Crabtree), Kinsel's subcontractor responsible for signs
and dividers on the project. The Mid-Continent $1 million CGL
policy issued to Crabtree also identified Kinsel as an additional
insured for liability arising from Crabtree's work under the
contract. It is undisputed that these two CGL policies were in
1 Liberty Mutual cross-appeals only the district court's failure to award
it prejudgment interest.
3

force and effect and provided Kinsel defense and indemnity coverage
respecting the underlying suit against it, of which the insurers
were properly notified. Liberty Mutual and Mid-Continent have
consistently treated their respective CGL policies as being primary
and on the same level with respect to each other and governed by
identical "other insurance" clauses in each policy providing for
equal or pro rata sharing up to policy limits.2 Each CGL policy
2 "4. Other Insurance.
If other valid and collective insurance is available to
the insured for a loss we cover under Coverages A
["Bodily Injury and Property Damage Liability"] or B of
this Coverage Part, our obligations are limited as
follows:
a. Primary Insurance
. . . If this insurance is primary our
obligations are not affected unless any of
the other insurance is also primary. Then,
we will share with all that other insurance
by the method described in c. below.
. . .
c. Method of Sharing
If all of the other insurance permits
contribution by equal shares, we will
follow this method also. Under this
approach each insurer contributes equal
amounts until it has paid its applicable
limit of insurance or none of the loss
remains, whichever comes first.
If any of the other insurance does not
permit contribution by equal shares, we
will contribute by limits. Under this
method, each insurer's share is based on
the ratio of its applicable limit of
insurance to the total applicable limits of
insurance of all insurers."
Liberty Mutual also insured Kinsel under an Umbrella Excess Liability
Policy with $10 million policy limits. In the trial court, Mid-Continent
contended that this Umbrella Excess policy should be considered in determining
the share of the settlement to be borne by it and Liberty Mutual respectively.
4

also contained "voluntary payment" clauses providing:
"No insureds will, except at their own cost, voluntarily
make a payment, assume any obligation, or incur any
expense, other than for first aid, without our consent."3
Each CGL policy likewise contained subrogation clauses providing,
inter alia, "[i]f the insured has rights to recover all or part of
any payment we have made under this Coverage Part [bodily injury or
property damage liability], those rights are transferred to us."
In November 1996, an automobile accident occurred in the
construction zone covered by Kinsel's contract with the State. Due
to the construction, the two eastbound lanes of the normally four-
lane highway were closed, so that eastbound and westbound traffic
were each routed into one of the two (normally) westbound lanes.
The trial court rejected that contention, ruling that the Umbrella policy was
excess over both Liberty Mutual's and Mid-Continent's CGL policies. 266 F. Supp.
2d 533 at 545-46. Mid-Continent has not appealed that ruling.
Mid-Continent does contend on appeal that Liberty Mutual's $1 million auto
policy naming Kinsel insured should have been taken into account in determining
what portion of the $1.5 million settlement Mid-Continent was to be charged with,
with the result that the ultimate judgment against Mid-Continent should not in
any event have exceeded $350,000. Liberty Mutual contends that the district
court correctly ruled that this policy did not cover the claim against Kinsel
(and that in any event the auto policy provided only excess coverage). The issue
thus presented will not be reached unless it is determined that Mid-Continent is
obligated to pay Liberty Mutual some portion of the $1.35 million Liberty Mutual
paid to effectuate the $1.5 million settlement.
3 The Mid-Continent and Liberty Mutual CGL policies likewise each
contained provisions that any "insured must . . . Cooperate with us in the
investigation, settlement or defense of the claim or `suit'" and that
"A person or organization may sue us to recover on an agreed
settlement or on a final judgment against an insured obtained after
an actual trial; but we will not be liable for damages that are not
payable under the terms of this Coverage Part [`Bodily Injury and
Property Damage Liability']or that are in excess of the applicable
limit of insurance. An agreed settlement means a settlement and
release of liability signed by us, the insured and the claimant or
the claimant's legal representative."
5

A westbound driver (Cooper) crossed into the lane assigned to
eastbound traffic and collided head-on with an eastbound car,
driven by James Boutin and carrying his wife and their two
children. The Boutin family members suffered substantial injuries,
and they all sued Cooper (the westbound driver), the State, Kinsel,
and Crabtree in the district court of Liberty County, Texas, in
July 1997.
In April 1998, Mid-Continent agreed to share with Liberty
Mutual the costs of defending and indemnifying Kinsel.4 Although
Liberty Mutual and Mid-Continent agreed that a total verdict for
all the Boutins of about $23 million was likely, they ultimately
differed significantly in their assessments of the settlement value
of the case against Kinsel specifically. Both had initially viewed
Kinsel's likely percentage of fault at between 10% and 15%; Mid-
Continent remained of that view, but Liberty Mutual, due to
developments in the case, later increased its assessment to 60%.
At a second mediation with the plaintiffs in May 1999, Liberty
Mutual agreed to settle for $1.5 million on behalf of Kinsel and
demanded that Mid-Continent contribute half of that amount. Mid-
Continent, calculating the settlement value of the case against
Kinsel at $300,000, agreed to pay only $150,000 toward that
settlement and so Liberty Mutual funded the remaining $1,350,000
4 Costs of defense are not in issue in this suit between Liberty Mutual
and Mid-Continent.
6

thereof.5 At the same time, Mid-Continent settled the Boutins'
claims against Crabtree for $300,000.6
Liberty Mutual filed this action against Mid-Continent in
Texas state court, and Mid-Continent removed the case to federal
court on the basis of diversity. After a bench trial in February
2003, the district court concluded that Liberty Mutual was entitled
to recovery from Mid-Continent in the amount of $550,000. That
amount was determined on the basis that under the "Other Insurance"
and "Method of Sharing" provisions of the Mid-Continent and Liberty
Mutual $1 million CGL policies (see note 2 above) Mid-Continent was
obligated to contribute one half of the $1.5 million Kinsel
settlement, or $750,000, and, having contributed $150,000, now owed
$600,000 more; but, Mid-Continent's liability was capped at
$550,000 because its policy limits were $1 million and it had
already paid $450,000 thereof ($150,000 for the Kinsel settlement
and $300,000 to settle the claims against Crabtree), leaving only
$550,000. Liberty Mutual, 266 F. Supp. 2d at 546.
The district court, following General Agents Insurance Company
of America, Inc. v. Home Insurance Company of Illinois, 21 S.W.3d
419 (Tex. App.San Antonio 2000, pet. dism'd by agr.) ("General
Agents"), held that each insurer "owed a duty to act reasonably" in
5 Although Liberty Mutual's CGL policy limits were $1 million, the excess
$350,000 paid by Liberty Mutual is apparently attributable to its $10 million
Umbrella Excess Liability Policy in favor of Kinsel (see note 2, supra).
6 No party has questioned the reasonableness of the Crabtree settlement.
7

exercising rights under its CGL policy. See id. at 542. The court
noted that Mid-Continent determined "that the claims against Kinsel
should settle for no more than $300,000." Then, after reviewing
the developments in the underlying litigation, the court found in
relevant part as follows:
". . . it was objectively unreasonable for Mid-Continent
to refuse to change its estimate that Kinsel's potential
exposure was only 10-15% of the total liability. . . .
Mid-Continent's continued insistence that Kinsel was
responsible for only 10-15% of the total liability did
not account for the actual exposure faced by Kinsel, and
was therefore, unreasonable. . . . Mid-Continent's
recalcitrance to consider any change, despite the
changing circumstances, was unreasonable, causing it to
unreasonably assess its insured's exposure.
Unlike Mid-Continent, Liberty Mutual remained
flexible in the changing environment of the Boutin case.
. . . Kinsel faced a significant risk of being jointly
and severally liable for a verdict in the range of $2-3
million. . . . Liberty Mutual determined Kinsel could be
found as much as 60% responsible. Sixty percent of the
average potential verdict, $2.5 million, is $1.5 million.
By agreeing to settle for that amount, Liberty Mutual
resolved the case within policy limits, based on a
reasonable estimation of Kinsel's liability, and avoided
the real potential of joint and several liability.
Accordingly, Liberty Mutual's assessment of Kinsel's
liability and the ultimate settlement reached was
reasonable.
Because the Court finds that Mid-Continent was
unreasonable in exercising its rights under its policy
and that Liberty Mutual was reasonable in exercising its
rights, Liberty Mutual is entitled to subrogation." Id.
at 543-44.
Mid-Continent appeals. In its appeal, Mid-Continent does not
challenge the district court's fact findings as being clearly
erroneous or not adequately supported by the evidence, and we
accept the district court's findings of fact.
8

III. LEGAL ISSUES
Mid-Continent's principal contention on appeal is that, having
timely assumed (together with Liberty Mutual) defense of the suit
against Kinsel and acknowledged policy coverage, it was entitled,
under the terms of its policy, including the voluntary payment
provision, see Charter Roofing Co., Inc. v. Tri-State Ins. Co., 841
S.W.2d 903, 907 (Tex. App.Houston [14th Dist.] 1992, writ denied),
to determine how much it would pay or offer to pay in settlement,
and owed no duty in that respect to Liberty Mutual or to Kinsel,
except only for the duty it owed Kinsel, in the event of an adverse
judgment, to indemnify him under its policy up to the limits
thereof and, if the judgment exceeded the policy limits, under
Stowers, for the entire judgement if its refusal of the plaintiff's
offer to settle within policy limits were unreasonable.7 Mid-
Continent recognizes that its reasoning in this respect is contrary
to General Agents, but contends that General Agents, which was not
reviewed by the Texas Supreme Court, is contrary to established
7 See Stowers Furniture Co. v. Am. Indem. Co., 15 S.W.2d 544 (Tex. Comm'n
App. 1929, holding approved). Under Stowers, if an insurer rejects a demand to
settle within policy limits that would fully release the insured and that an
ordinarily prudent insurer would accept, the insurer is liable for a subsequent
judgment even if it exceeds the policy limits. Stowers, 15 S.W.2d at 545, 547-
48; Am. Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 848-49 (Tex. 1994).
The district court's judgment seems not to have been based on Stowers
itself or as applied in American Centennial Ins. Co. v. Canal Ins. Co., 843
S.W.2d 480 (Tex. 1992), in that it limits Liberty Mutual's recovery to the
$550,000 remaining on Mid-Continent's policy limits, though if not so limited
Liberty Mutual's recovery would have been $600,000. See Liberty Mutual, 266 F.
Supp. 2d at 546. But, Stowers and American Centennial contemplate insurer
liability beyond policy limits. However, Liberty Mutual makes no complaint in
this respect and does not challenge this aspect of the judgment in its cross-
appeal.
9

Texas law.8 Mid-Continent contends that it breached no duty under
its policy, that it breached no Stowers duty to its insured Kinsel
to which Liberty Mutual could be subrogated, and that, apart from
any such subrogation to Kinsel's rights, Liberty Mutual was owed no
duty by Mid-Continent. In the latter connection, Mid-Continent
notes that in American Centennial Ins. Co. v. Canal Ins. Co., 843
S.W.2d 480 (Tex. 1992), the Texas Supreme Court held that the only
duty which a primary liability insurer owed to an excess liability
carrier was by way of the excess carrier's subrogation to the
Stowers rights of the common insured, and that there was no
independent duty owed by the primary to the excess carrier. Id. at
485-86 (opinion of Hecht, J., joined by Phillips, C.J., and
Gonzalez, Cook and Cornyn, J.J.).
Liberty Mutual essentially rests on General Agents. There,
GAINSCO and Home were concurrent primary liability insurers, each
for $1 million, of Power Equipment, a defendant in a personal
injury suit. GAINSCO and Home each acknowledged coverage and
provided defense. GAINSCO was willing to provide $250,000 to
settle, but no more. Home's offer to settle for $1,250,000 was
8 The district court's opinion states that "the parties argue . . . that
the approach taken by the court in General Agents Ins. Co. is the proper method
for resolving the disputes in this case." Liberty Mutual, 266 F. Supp. 2d at
542. Although Liberty Mutual did rely in the district court (as it does on
appeal) on General Agents, Mid-Continent correctly points out that the district
court's statement is in error insofar as it implies that Mid-Continent agreed
that General Agents controlled, and that in fact Mid-Continent argued below that
General Agents was not a correct statement of Texas law, a position that Mid-
Continent also re-urged in its timely motion for reconsideration below.
10

accepted by the plaintiff and funded $1 million by Home and
$250,000 by GAINSCO. Home sued GAINSCO for $375,000 (one half the
$1,250,000 settlement less the $250,000 paid by GAINSCO), and
recovered judgment based on the jury finding that $1,250,000 was
"the fair and reasonable amount that should have been paid to
settle the claim against" Power Equipment. GAINSCO objected to the
failure to submit an issue as whether it acted "reasonably and in
good faith in the defense . . . and settlement" of the suit.
General Agents, 21 S.W.3d at 424-25. On GAINSCO's appeal, the San
Antonio Court of Appeals reversed and remanded for a new trial,
holding that "[t]he trial court should have submitted a question to
the jury that inquired about the reasonableness of GAINSCO's
position and actions in exercising its rights under its policy
given the totality of the circumstances." Id. at 426. The
opinion, however, plainly indicates that GAINSCO would be liable to
Home had such an issue been submitted and answered adversely to
GAINSCO.
The basis of this latter holding is, however, somewhat
unclear. The General Agents opinion expressly recognizes that
"Home had the burden of proving its right to payment [from GAINSCO]
through contractual or conventional subrogation to the right of
Power Equipment." Id. at 425. It cites in support Employers
Casualty Co. v. Transport Ins. Co., 444 S.W.2d 606, 610 (Tex.
1969), and Liberty Mutual Ins. Co. v. General Ins. Co., 517 S.W.2d
11

791, 798 (Tex. Civ. App.Tyler, 1974, writ ref'd n.r.e.),
recognizing, however, that in both of those cases the non-
contributing co-insurer had wrongfully denied coverage and refused
to defend, Employers Casualty Co., 444 S.W.2d at 607; Liberty
Mutual Ins. Co., 517 S.W.2d at 798, thus forfeiting its right to
rely on the "no action" and/or "voluntary payment" clauses of its
policy as recognized in Gulf Insurance Co. v. Parker Products, 498
S.W.2d 676, 679 (Tex. 1973). The General Agents court acknowledges
that was not the situation in the case before it, as "GAINSCO did
not erroneously claim that it had no responsibility. It was ready
and willing to proceed in its defense of Power Equipment at trial."
General Agents, 21 S.W.2d at 424. Nevertheless, General Agents
concluded that GAINSCO could be liable to Home because:
"GAINSCO's willingness to proceed with the defense of the
lawsuit and its right to enforce the no-action clause in
its policy must be balanced against Home's desire to
settle for policy limits and its co-equal right to
control the defense and settlement of the lawsuit." Id.
This suggests, however, that liability would be based on a duty
between co-insurers, rather than subrogation by one co-insurer to
the rights of the insured against the other co-insurer.
The only authority on which General Agents appears to
ultimately be based consists of two cases which it describes as the
ones on which "GAINSCO relies . . . to support its view of the
proper question to be submitted to a jury in this type of case,"
12

id. at 425 (emphasis added),9 namely Storebrand Ins. Co. U.K. ,
Ltd. v. Employers Ins. Co. of Wausau, 974 F. Supp. 1005 (S.D. Tx.
1997), aff'd, 139 F.3d 1052 (5th Cir. 1998), and Keystone Shipping
Co. v. Home Ins. Co., 840 F.3d 181 (3d Cir. 1988).
In Storebrand the defendant, Wausau, a servicing agent for the
Texas Workers Compensation Facility and issuer on its behalf of a
$500,000 Workers Compensation and Employers Liability policy
covering an employee leasing company and its clients, undertook the
defense of a suit against the leasing company and TDI, one of the
leasing company's clients, brought by an employee of the leasing
company injured while working for TDI. The plaintiff demanded
$500,000 to settle, Wausau would pay no more than $300,000, and, at
TDI's demand, TDI's comprehensive general insurer, Storebrand, paid
the remaining $200,000 to effectuate the settlement. Storebrand
then sued Wausau for that $200,000. The district court granted
summary judgment for Wausau, concluding that as a matter of law it
had a reasonable basis for not offering more than $300,000 in
settlement, Storebrand, 974 F. Supp. at 1009, and this court
affirmed. Storebrand, 139 F.3d 1052. It is unclear whether the
district court regarded the employee's claim as a first party claim
(under Aranda Ins. Co. of North America, 748 S.W.2d 210, 212 (Tex.
1988)) or a third party claim, or whether it regarded Storebrand as
9 This suggests that the defendant-appellant GAINSCO was not contending
that it could not have liability to Home, the other co-insurer in that case, had
GAINSCO been found to have acted unreasonably.
13

an excess, rather than a co-primary, insurer, or as asserting TDI's
rights against Wausau by subrogation or as claiming rights directly
owed Storebrand by Wausau.10 In sum, Storebrand simply casts no
meaningful light on the present issue.
Keystone the other decision relied on by General Agents
somewhat more directly addresses the issue. There, Home Insurance
was one of several third level excess liability carriers providing
coverage to the defendant in the underlying tort suit for property
damage. The plaintiff in the underlying suit offered to settle for
$30 million, but Home refused to contribute more than its pro-rata
share of $24.8 million, which it concluded was the fair value of
the case. The other third level excess carriers made up the
10 The district court in Storebrand held that Wausau, as it was acting
only as an agent for the insurer, the Texas Workers Compensation Facility, could
not be liable for breach of good faith and fair dealing, but could be liable for
its own violations of the DTPA or the Texas Insurance Code. Id., 974 F. Supp.
at 1009. The court noted that the employee's suit alleged claims "under the
Longshore and Harbor Workers' Compensation Act (LHWCA) and claims for negligence"
but never "alleged claims against TDI under section 905(b) of the LHWCA." Id.
at 1007. We agreed. Id., 139 F.3d at 1054. The district court did not address
Stowers. In affirming the district court, we stated:
"Storebrand contends that the district court erred in finding that
Wausau acted in good faith and thus was immune from liability under
[Insurance Code] Article 21.21 and the DTPA. Storebrand's claims
complain of unfair claims settlement practices. As such, they do
not sound in fraud, nor do they claim fraud or misrepresentation.
Instead, they are essentially statutory bad faith claims. We have
already stated that we believe Wausau's actions were reasonable.
Similarly, we do not see any evidence of bad faith. . . .
. . .
Storebrand does not prevail under the terms of the Stowers doctrine.
First, Wausau's actions were not unreasonable, and they were not
imprudent. Also, no judgment was made against TDI, because the
matter was settled in mediation. Further, the insurer in this case
is the Facility, and Wausau should not be made liable as an insurer
in this context." Id., 139 F.3d at 1056 (emphasis added).
14

difference and the case was settled for $30 million. The other
contributing carriers sued Home in the Pennsylvania Federal
District Court for $965,011.22, being Home's pro rata share of the
difference between $24.8 million (as to which Home had paid its
share) and the $30 million settlement amount. Although finding
that the $30 million settlement was not unreasonable (and that
Home's pro rata share of the full $30 million settlement was not
more than its policy limits), the district court held for Home
based on its finding that Home's $24.8 million evaluation was
reasonable and in good faith. On appeal, the Third Circuit
affirmed, holding that the district court's fact findings were not
clearly erroneous. Keystone, 840 F.2d at 184, 186. The court
noted that "the governing" law was that "of Pennsylvania," and that
there was an "absence of controlling Pennsylvania authority." Id.
at 186. The Keystone court (one judge concurred in the result with
minimal elaboration) reasoned that Pennsylvania likely "would not
have a recalcitrant insurer whose evaluation falls within the range
of all reasonable settlements wholly free to escape payment of its
portion of a reasonable settlement by its co-insurer," but that
when "the co-insurer who objects to the size of the proposed
settlement nevertheless contributes to a settlement which is not
unreasonably low" its "obligation is measured by good faith." Id.
at 184. The court notes its agreement with the assumption of the
parties that a co-insurer in Home's position owes some duty to the
15

other co-insurer but expressly declines to identify the source of
that duty. Id. at 184-85 & n.9.11 The court concludes that, even
though the co-insurers' settlement at $30 million was not
unreasonable, neither was Home's $24.8 million evaluation, id. at
185, 186, and Home accordingly should not be liable, observing
"[w]e find it hard to conclude that Pennsylvania would impose on a
co-insurer a greater obligation to his fellows than it does upon an
insurer to its insured." Id. at 186.12
As neither the General Agents opinion itself nor the
authorities it cites reflect the source of the duty imposed on a
co-insurer in Mid-Continent's position, we accordingly examine the
traditional Stowers duty imposed on liability insurers.
The decisions of the Texas courts are unclear with respect to
whether Kinsel, the common insured here, would have any Stowers
cause of action, to which co-insurer Liberty Mutual could be
subrogated, against Mid-Continent for its unreasonable refusal to
11 The court states:
". . . the parties assume the existence of a duty on the part of
Home, as co-insurer, to pay a share of this settlement pro-rata to
the share of indemnity it underwrote in the third excess level
contract. They do not refer us to the source of that duty. . . . we
believe some duty exists. . . . Without precisely pigeonholing the
nature of its origin, we will therefore accept their invitation and
assume a duty's existence without determining whether it arises out
of obligation implied in contract, duties of contribution or
equitable subrogation imposed by the law of restitution, or by a
fictional duty constructed from the loan receipts [received from the
insured by the co-insurers suing Home]." Id., n.9.
12 While the court mentions Home's "good faith," it also suggests that its
"holding . . . may support the view that the distinction between good faith and
reasonableness is largely illusory." Id., n.11.
16

pay more than $150,000 (of its remaining $700,000 policy limits) to
consummate the $1,500,000 settlement. This lack of clarity arises
in several respects.
First, a Stowers claim involves, or at least typically
involves, an excess judgment after an actual trial. See Street v.
Court of Appeals, 756 S.W.2d 299, 301-02 (Tex. 1988). And, absent
a judgment following trial, it would be difficult to know whether
the failure to accept a settlement offer within policy limits
constituted negligence or whether, or to what extent, the insured
was in fact damaged thereby. See Texas Farmers Ins. Co. v.
Soriano, 881 S.W.2d 312, 316 n.4 (Tex. 1994) ("[a]s in any case
predicated on negligence, the insured must offer evidence that the
insurer's failure to settle proximately caused damages to the
insured . . . Soriano had the burden of proving that he would have
suffered a lesser amount of damages had Farmers behaved differently
. . .").13 Moreover, allowing a Stowers recovery in such
circumstances appears to deny the insurer the benefit of the
policy's clauses (see note 3 supra and accompanying text)
precluding recovery of "voluntary payment" or other than under a
settlement approved by the insurer or a judgment "against an
insured obtained after an actual trial." See Street, 750 S.W.2d at
13 Moreover, here there are no express findings that a judgment against
Kinsel after an actual trial would likely have exceeded either the amount of the
total settlement ($1,500,000) (or even the amount of Mid-Continent's remaining
policy limits of $700,000).
17

302.14 While, as above noted, an insurer has been held to have
waived the benefit of such policy provisions by refusing to
defend,15 we are aware of no Texas case holding that an insurer who
assumes the duty to defend and admits coverage (as Mid-Continent
did here) waives the benefit of such provisions merely by
negligently refusing to accept a settlement offer within policy
limits.
There are, however, two Texas Supreme Court decisions which
suggest that a Stowers claim does not always require judgment after
an actual trial. In Rocor v. Nation Union Fire Ins. Co., 77 S.W.2d
253 (Tex. 2002), the insured, Rocor, which was covered by liability
policies providing $1 million self-insured retention and placing
the duty to defend on Rocor, sought recovery from its liability
carriers for the increased attorney fees Rocor incurred in defense
of a third party tort suit (which the insurers ultimately settled
within policy limits) due to the insurers' negligent delay in
settlement thereof. The Supreme Court's opinion indicates that,
under sections 4(10)(ii) and 16(a) of Tex. Ins. Code art. 21.21,
14 But see State Farm Lloyds Ins. Co. v. Maldonado, 963 S.W.2d 38, 40-41
(Tex. 1998) (rejecting third party plaintiff-judgment creditor's claim against
liability insurer of judgment debtor on "actual trial" policy provision;
rejecting insured's Stowers claim on lack of demand within policy limits without
addressing "actual trial" policy provision).
15 See Liberty Mutual Ins. Co., 517 S.W.2d at 798; Gulf Ins. Co., 498
S.W.2d at 679. See also Employers Casualty Co., 444 S.W.2d at 607.
18

and likely also under Stowers,16 Rocor, the insured, could have
recovered from its liability insurers the attorneys' fees incurred
by Rocor in the third party suit following a negligent failure by
the insurers to accept a clear offer by the third party to settle
the underlying suit within policy limits. Nevertheless, the court
denied recovery because there was no evidence of any such offer
prior to the actual settlement, as required by Stowers. However,
judgment following actual trial in the underlying suit was not
necessary to demonstrate that Rocor incurred the claimed attorneys'
fees sued for, or the amount thereof, prior to the settlement of
the underlying suit and because it did not sooner settle. Thus,
Rocor does not appear to be controlling as to the need for judgment
following trial in the underlying third party suit where the
Stowers claim is for liability to the third party in the underlying
suit or for payments made to discharge that liability.
More closely related to the latter scenario is American
Centennial Ins. Co. v. Canal Ins., 843 S.W.2d 480 (Tex. 1992), in
which the court held, for the first time, that "if an excess
insurance carrier is required to pay a portion of a judgment
rendered against its insured in favor of a third party, it is
equitably subrogated to its insured's rights against a primary
16 The Rocor court construed the cited sections of article 21.21 as
imposing an actionable settlement duty which in the context of a third party
claim was identical to, or at least no more extensive than, that imposed by
Stowers. The Rocor court did observe, however, that "the case does not fit
neatly within the Stowers paradigm because the insurer ultimately settled within
policy limits." 77 S.W.2d at 261.
19

insurance carrier under" Stowers and Ranger County Mut. Ins. Co. v.
Guin, 723 S.W.2d 656 (Tex. 1987), "for negligently investigating,
preparing to defend, trying or settling the third party action."
American Centennial, 843 S.W.2d at 485 (concurring opinion of
Hecht, J., joined by Phillips, C.J., and Gonzalez, Cook and Cornyn,
J.J.).17 The court only very briefly outlines the facts, observing
that the primary carrier, which provided $100,000 coverage,
"investigated and defended the suit, hiring an outside law firm,"
and that "[b]ecause of alleged mishandling by trial counsel of the
litigation, the [excess] insurers [who had coverage from $100,000
up to $4 million] were forced to settle for $3.7 million." Id. at
481. The trial court had granted summary judgment "determining
that the primary insurer . . . owed no duty to the excess
carriers," the court of appeals reversed and remanded for trial the
claims against the primary insurer, and the Supreme Court affirmed
that action of the court of appeals. The extent to which American
Centennial dispenses with any requirement for a judgment in excess
of policy limits following an actual trial is unclear as applied to
a Stowers action based on negligent refusal of an offer to settle
17 The court also held there was no direct or independent duty owed by the
primary carrier to the excess carrier, and that the excess carrier had no claim
against the primary carrier for breach of a duty of good faith and fair dealing
or under the Texas Insurance Code or the DTPA. Id. at 485-86.
The court likewise held that "an excess carrier in the circumstances
described above is equitably subrogated to its insured's rights against his
attorney for negligent handling of the defense of the third party action," but
that "the attorney should not be exposed to any greater liability to the excess
carrier than to his client, the insured." Id. at 486.
20

within policy limits. To begin with, nothing in the opinion of the
Supreme Court, or of the court of appeals (810 S.W.2d 246, Tex.
App.Houston [1st] 1991), in any way addresses that question (or
mentions any "actual trial" or "voluntary payment" policy
provision) or any contention in respect to it.18 Moreover, it is
apparent that American Centennial did not involve refusal of a
settlement offer within policy limits. The Supreme Court's opinion
merely mentions "alleged mishandling by trial counsel of the
litigation," and the presence of a fact issue "as to whether the
claim was properly handled," all without any further specification.
843 S.W.2d at 481-82. The court of appeals opinion details the
course of the litigation, noting that the defense attorneys had,
before
depositions
were
taken,
formally
admitted
facts
substantially establishing the insured's liability and had been
unable to withdraw those admissions. 810 S.W.2d at 249. There is
no mention of any offer to settle within the primary carrier's
limits or of any evidence that such a settlement was ever possible,
and the court of appeals states "even if Canal had no opportunity
to settle the . . . lawsuit within its policy limits of $100,000,
it may have breached the Stowers duty" because under Ranger County
18 The court of appeals observed that the $3.7 million settlement
"agreement was formalized, and a judgment was signed on February 3, 1986," id.,
810 S.W.2d at 250, but it is obvious there was no "actual trial." The court of
appeals also held that limitations on the Stowers claim against the primary
carrier commenced to run 30 days after the judgment (no appeal having been taken)
so the excess carriers' suit was timely. Id. at 254-55. The Supreme Court
affirmed this limitations holding (and likewise held that limitations on the
claim against the attorneys handling the case on retention by the primary carrier
were tolled until the judgment became final). 843 S.W.2d at 483-84.
21

the "insurer's duty is not limited to accepting reasonable
settlement offers within its policy limits." 810 S.W.2d at 254.19
The Supreme Court in American Centennial likewise cites Ranger
County for the proposition that the Stowers duty "extends to claim
investigation, trial defense and settlement negotiations." 843
S.W.2d at 482. In sum, it seems clear that American Centennial did
not involve negligence with respect to a settlement offer, but
rather some sort of negligence in respect to handling the pretrial
aspects of the defense, while here there is no claim, evidence or
finding of anything comparable on the part of Mid-Continent.
Finally, although the Supreme Court's expressed holding in American
Centennial that an excess insurer is equitably subrogated to the
insured's Stowers rights against the primary insurer has never
been questioned, later Texas Supreme Court opinions cast doubt on
its largely unarticulated conclusion that a Stowers violation may
be shown absent negligent failure to accept a proper offer to
settle within the primary's policy limits (and absent any excess
judgment following actual trial). See American Physicians Ins.
Exch. v. Garcia, 876 S.W.2d 842, 849 (Tex. 1994); Maryland Ins. Co.
v. Head Indus. Coatings & Servs., Inc., 938 S.W.2d 27, 28-29 (Tex.
19 Also, the dissenting opinion in the court of appeals states (without
contradiction by the majority or by the Supreme Court) that "[t]he set of facts
before us is actionable, if it is at all, only by the expansion of the Stowers
doctrine by the supreme court's holding in Ranger County . . . ." 810 S.W.2d at
258.
22

1996); State Farm Mut. Auto Ins. Co. v. Traver, 980 S.W.2d 625, 628
(Tex. 1998); Rocor, 77 S.W.2d at 261-62.20
20 In Garcia, the court explains (876 S.W.2d at 849):
"In Ranger, we stated that insurers have a duty of ordinary care
that includes `investigation, preparation for defense of the
lawsuit, trial of the case and reasonable attempts to settle.' 723
S.W.2d at 659; see also American Centennial, 843 S.W.2d at 482, 485
(plurality and concurring opinions) (citing Ranger for standard of
reasonableness in `investigating, preparing to defend, trying or
settling the third party action'). At the same time, however, the
court noted that `there is no contention that Ranger was negligent
in investigation or trial of the Fitch/Eagle lawsuit.' 723 S.W.2d
at 659.
. . .
In the context of a Stowers lawsuit, evidence concerning claims
investigation, trial defense, and conduct during settlement
negotiations is necessarily subsidiary to the ultimate issue of
whether the claimant's demand was reasonable under the
circumstances, such that an ordinarily prudent insurer would accept
it. . . . the dissent relies on language in Ranger that is dictum.
. . . [t]he Stowers remedy of shifting the risk of an excess
judgment onto the insurer is inappropriate absent proof that the
insurer was presented with a reasonable opportunity to prevent the
excess judgment by settling within the applicable policy limits."
Maryland Insurance states "we now hold that Texas law recognizes only one
tort duty in this context, that being the duty stated in Stowers . . . an insured
is fully protected against his insurer's refusal to defend or mishandling of a
third party claim by his contractual and Stowers rights." Maryland Insurance,
938 S.W.2d at 28-29. Rocor makes plain that a Stowers breach does not occur
until the insurer negligently refuses a proper settlement demand within policy
limits. Rocor, 77 S.W.3d 261-62. State Farm Mutual approves the above quoted
language from Garcia and states that Ranger's broad language about the scope of
the insurer's responsibilities was dicta." State Farm Mutual, 980 S.W.2d at 628.
State Farm Mutual also holds that, contrary to other dicta in Ranger, "a
liability insurer is not vicariously responsible for the conduct of an
independent attorney it selects to defend an insured." Id. That holding, too,
may undermine the American Centennial conclusion that there was evidence of a
Stowers violation.
This court has relied on the above decisions to conclude that the broad
language in Ranger has been limited by Garcia so that the Stowers duty is
triggered only by a demand to settle within policy limits the insurer's refusal
of which would be negligent and that "the Stowers duty is the only common law
tort duty Texas currently recognizes in third party insurance claims." Ford v.
Cimarron Insurance Co., 230 F.3d 828, 832 (5th Cir. 2000). See also St. Paul
Fire & Marine Ins. Co. v. Convalescent Servs., Inc., 193 F.3d 340, 344 (5th Cir.
1999); Travelers Indem. Co. v. Citgo Petroleum Corp., 166 F.3d 761, 764 (5th Cir.
1999).
23

It must also be noted that although American Centennial holds
an excess insurer is subrogated to the insured's Stowers claim
against the primary carrier which had taken full charge of but
mishandled the defense of the case, it does not address such
subrogation in favor of one of two co-primary insurers which has
equally participated in the defense as against the other co-primary
insurer likewise so participating. Here Liberty Mutual
participated in the defense and was not without control of the
litigation. Moreover, while Liberty Mutual had an applicable
excess umbrella policy which funded $350,000 of the ultimate
settlement, that fact alone would not seem to sustain the $550,000
judgment against Mid-Continent, at least not unless Liberty Mutual
in its capacity as a co-primary insurer which had assumed defense
was likewise also subrogated to a Stowers claim of the insured
against Mid-Continent.
Finally, uncertainty about a Stowers duty on Mid-Continent's
part to its insured Kinsel arises also from the fact that there was
never any offer to settle within Mid-Continent's policy limits,
whether viewed as $1 million or $700,000.21 Mid-Continent was
aware, however, that the plaintiffs had agreed to accept $1.5
million in full settlement of their claims against Kinsel, an
21 At or before the settlement of the plaintiffs' claims against Kinsel,
Mid-Continent paid $300,000 to settle the plaintiffs' claims against Crabtree,
also its insured under the same policy. There has been no challenge to the
reasonableness of that settlement. See Texas Farmers Ins. Co. v. Soriano, 881
S.W.2d 312 (Tex. 1994).
24

amount within the combined remaining limits of the Mid-Continent
and Liberty Mutual primary policies, and that Liberty Mutual was
willing and able to, and ultimately did, fund that settlement. Yet
Mid-Continent would not contribute more than $150,000, although
that amount was far less than its proportionate part and it could
have contributed a total of $700,000 without exceeding its policy
limits. This state of facts also presents the questions not
addressed by Texas courts since left open as follows in Garcia,
viz:
". . . insurers have no duty to accept over-the-limit
demands. We do not reach the question of when, if ever,
a Stowers duty may be triggered if an insured provides
notice of his or her willingness to accept a reasonable
demand above the policy limits, and to fund the
settlement, such that the insurer's share of the
settlement would remain within the policy limits. . . .
Nor do we address the Stowers duty when a settlement
requires funding from multiple insurers and no single
insurer can fund the settlement within the limits that
apply under its particular policy." Id., 876 S.W.2d at
849 n.13.
In sum, although the recent decision in General Agents
supports the district court's determination that, under its
unchallenged factual findings, Mid-Continent violated a duty of
unspecified origin to Liberty Mutual (either as equitable subrogee
of their common insured, Kinsel, or otherwise) to contribute its
proportionate part of the Kinsel settlement, of which Liberty
Mutual had funded a disproportionately large amount, nevertheless
the holding of General Agents in this respect appears to be res
nova so far as concerns Texas law.
25

The question of whether any such duty on the part of Mid-
Continent exists is a question of Texas law, determinative of the
present suit, for if no such duty exists Liberty Mutual is entitled
to no recovery.
Mid-Continent further argues in the alternative that even if
there is some such duty on its part, it should not be deemed to
have been breached merely because Mid-Continent may have been
negligent in its assessment of the case against Kinsel as having a
maximum settlement value of $300,000 and Liberty Mutual may have
been reasonable in valuing the case against Kinsel at $1.5 million.
Rather, according to Mid-Continent, any such duty on its part
should be measured by the standard applied to suits against an
insurer for breach of the duty of good faith and fair dealing in
the denial of a first party claim under Aranda v. Ins. Co. of North
America, 748 S.W.2d 210, 213 (Tex. 1988), which we have described
as requiring the insured to "establish the absence of a reasonable
basis for denying or delaying payment of the claim and that the
insurer knew, or should have known that there was no reasonable
basis . . . ." Higginbotham v. State Farm Mut. Auto Ins. Co., 103
F.3d 456, 459 (5th Cir. 1997). We observe, however, that the Texas
Supreme Court has subsequently abandoned the "no reasonable basis"
formulation, and held that the trier of fact may determine that the
insurer acted in bad faith if it "knew or should have known that it
was reasonably clear that the claim was covered." Universe Life
26

Ins. Co. v. Giles, 950 S.W.2d 48, 54-56 (Tex. 1997). The Giles
opinion makes plain that the insured's burden in the third party
context under Stowers is less that than in a first party context
under Giles (or Aranda), but it also makes plain that it has
"declined to extend the bad-faith cause of action to the third
party context." Giles, 950 S.W.2d at 53 n.2.
The question of whether the standard set forth in General
Agents essentially whether the insurer in Mid-Continent's
position was unreasonable in its evaluation of the third party case
(as well as whether the evaluation of the insurer in Liberty
Mutual's position was reasonable) is the appropriate one by which
to measure whether Mid-Continent breached any duty it had to
Liberty Mutual is likewise determinative, as the district court's
findings and judgment here essentially rest on General Agents.
As to none of these related questions of law does there appear
to be any controlling Texas Supreme Court precedent.
IV. QUESTIONS CERTIFIED
We
accordingly
hereby
certify
the
following
three
determinative questions of law to the Supreme Court of Texas:
1. Two insurers, providing the same insured applicable
primary insurance liability coverage under policies with $1 million
limits and standard provisions (one insurer also providing the
insured coverage under a $10 million excess policy), cooperatively
assume defense of the suit against their common insured, admitting
27

coverage. The insurer also issuing the excess policy procures an
offer to settle for the reasonable amount of $1.5 million and
demands that the other insurer contribute its proportionate part of
that settlement, but the other insurer, unreasonably valuing the
case at no more than $300,000, contributes only $150,000, although
it could contribute as much as $700,000 without exceeding its
remaining available policy limits. As a result, the case settles
(without an actual trial) for $1.5 million funded $1.35 million by
the insurer which also issued the excess policy and $150,000 by the
other insurer.
In that situation is any actionable duty owed (directly or by
subrogation to the insured's rights) to the insurer paying the
$1.35 million by the underpaying insurer to reimburse the former
respecting its payment of more than its proportionate part of the
settlement?
2. If there is potentially such a duty, does it depend on the
underpaying insurer having been negligent in its ultimate
evaluation of the case as worth no more than $300,000, or does the
duty depend on the underpaying insured's evaluation having been
sufficiently wrongful to justify an action for breach of the duty
of good faith and fair dealing for denial of a first party claim,
or is the existence of the duty measured by some other standard?
3. If there is potentially such a duty, is it limited to a
duty owed the overpaying insurer respecting the $350,000 it paid on
the settlement under its excess policy?
28

We disclaim any intention or desire that the Supreme Court of
Texas confine its reply to the precise form or scope of the
questions certified.
29