noting that an erroneous jury instruction is reversible only if it affected the outcome of the case
How later courts described this case
- noting that an erroneous jury instruction is reversible only if it affected the outcome of the case
Written by the judges who cited it.
The opinion
Case: 23-20282 Document: 125-1 Page: 1 Date Filed: 09/18/2024
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
____________ FILED
September 18, 2024
No. 23-20282
Lyle W. Cayce
____________ Clerk
Westport Insurance Corporation, On Its Own Behalf and
Assignee of Houstoun, Woodward, Eason, Gentle,
Tomforde and Anderson, Incorporated, doing business as
Insurance Alliance,
Plaintiff—Appellant/Cross-Appellee,
versus
Pennsylvania National Mutual Casualty Insurance
Company, doing business as Penn National Insurance,
Defendant—Appellee/Cross-Appellant.
______________________________
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:16-CV-1947
______________________________
Before Higginbotham, Stewart, and Higginson, Circuit Judges.
Carl E. Stewart, Circuit Judge:
This is a dispute between a primary insurer, Appellant Westport
Insurance Corporation (“Westport”), and an excess insurer, Appellee
Pennsylvania National Mutual Casualty Insurance Company (“Penn
National”). This case concerns liability for a judgment against their mutual
insured: Insurance Alliance (“IA”), an insurance agency. In 2008, Lake
Texoma Highport LLC (“Highport”) sued IA for failing to procure the
Case: 23-20282 Document: 125-1 Page: 2 Date Filed: 09/18/2024
No. 23-20282
requested insurance coverage to protect its marina, which was damaged
during heavy rainfall destroying much of Highport’s property. IA had a
primary insurance policy with Westport and a policy that provided excess
coverage with Penn National. As the primary insurer, Westport controlled
the defense in the Highport suit. Throughout the underlying litigation,
Highport and Westport engaged in multiple settlement discussions, spanning
from 2009 through 2010, in which Westport rejected five settlement
demands offered. In 2012, a jury found IA liable for breach of contract in
failing to procure the requested insurance coverage for Highport’s marina.
Nearly four years later, Westport and Penn National each sued the
other in IA’s name as its subrogee, seeking to recover the portion of the
excess judgment it paid on the insured’s behalf. Westport sued Penn
National for breach of the excess insurance policy. Penn National
countersued Westport for violating its Stowers1 duty to accept one of the five
settlement offers within the primary insurance policy limits. At summary
judgment, the district court determined that Penn National breached its
duties to defend and to indemnify. After a five-day jury trial, a jury found that
Westport failed to act as an ordinarily prudent insurance company when it
did not accept any of Highport’s settlement demands.
We agree that Penn National breached its duties under the excess
insurance policy. We also agree that Westport’s Stowers duty was triggered
by Highport’s offers and that Westport violated this duty. The district
court’s judgment is AFFIRMED.
_____________________
1
G.A. Stowers Furniture Co. v. Am. Indem. Co., 15 S.W.2d 544 (Tex. Comm’n App.
1929) [hereinafter Stowers].
2
Case: 23-20282 Document: 125-1 Page: 3 Date Filed: 09/18/2024
No. 23-20282
I.
A. Factual Background: The Highport Suit2
In 2007, Highport retained IA to procure blanket insurance for its
marina located in North Texas on Lake Texoma. IA engaged CRC Insurance
Services (“CRC”), an insurance intermediary, which in turn used its
affiliate, Bowood, to obtain a policy for Highport from Lloyd’s of London.
However, the policy obtained from Lloyd’s did not provide blanket coverage.
After suffering extensive flood damage to its marina in 2007, Highport
discovered that it did not have the blanket coverage as it had requested. This
gave rise to disputes among Highport, IA, CRC, Bowood, and Lloyd’s over
responsibility for Highport’s losses. On April 4, 2008, Highport filed a
lawsuit against IA and Lloyd’s in Texas state court for their failure to provide
the requested coverage.
IA was also insured. IA purchased a primary Insurance Industry
Professional Liability Policy from Westport (“Westport Policy”) with a
coverage period of June 1, 2007 to June 1, 2008. IA purchased an Agent’s
Umbrella Liability Policy (“Penn National Policy”) that provided excess
coverage for various underlying insurance policies, including the Westport
Policy from Penn National, with a coverage period of June 1, 2007 to June 1,
2008. The Westport Policy had a $5 million limit of liability per claim, and
the Penn National Policy carried a $15 million limit total. The Westport
Policy also required Westport to assume IA’s defense in cases such as the
underlying Highport litigation. Throughout the underlying litigation,
Highport and Westport engaged in multiple settlement discussions in which
_____________________
2
Over the span of fifty-one pages, the magistrate judge “recounts, in painful detail,
the loss that gave rise to IA’s claim, the course of litigation, the communications among IA,
Westport, Penn National, the underlying plaintiff, and others, and their actions.” We
highlight the most relevant events here.
3
Case: 23-20282 Document: 125-1 Page: 4 Date Filed: 09/18/2024
No. 23-20282
Westport rejected all five settlement demands offered in May 2009,
September 2009, May 2010, July 2010, and November 2010. A jury
ultimately found IA liable for breach of contract in failing to procure the
requested insurance coverage for Highport’s marina and awarded Highport
nearly $13.7 million.
On February 5, 2009, IA filed a third-party complaint against CRC
and Bowood in the Eastern District of Texas. On February 23, 2009, CRC
wrote IA to proclaim that should IA refuse to promptly withdraw the
February 5, 2009 demand letter and dismiss its third-party complaint against
CRC, CRC would treat such refusal as a continuing breach of IA’s obligations
to CRC under the Brokerage Agreement “to indemnify and hold CRC
harmless from any claim asserted against CRC in following the instructions
of the” insured. Moreover, CRC intended the letter to constitute “notice
and demand under the Brokerage Agreement that [IA] indemnify CRC, and
hold CRC harmless from and against any and all claims which have been or
may be asserted against CRC in respect of the insurance policy and
transaction made the basis of this captioned lawsuit.” On March 3, 2009,
Rick Oldenettel, IA’s trial attorney, wrote a letter to James Redeker,
Westport’s claim handler and corporate representative, regarding the CRC
indemnity claim. In the letter, Oldenettel confessed that counsel had
“determined [the third-party complaint] was necessary, because at this point
in time, [IA was] not sure whether the error interjected in the policy between
CRC and Southern Cross,3 or between Southern Cross and Bowood, or
Bowood and the underwriters in London.” He continued that “[IA does] not
_____________________
3
Third-party Defendant CRC Insurance Services lnc.—acting individually and/or
through its agent/affiliated entity/division Southern Cross Underwriters (a/k/a Southern
Cross Underwriters, Inc.) and d/b/a CRC of Texas, Inc. and/or CRC Insurance Services
of Texas, lnc. (hereafter collectively referred to as “CRC”)—is an Alabama corporation
doing business in Texas.
4
Case: 23-20282 Document: 125-1 Page: 5 Date Filed: 09/18/2024
No. 23-20282
believe the indemnity paragraph to be applicable under the facts of this case,
and with [Westport’s] permission will politely decline [the] same.” That
same day, Oldenettel responded to CRC stating that “[IA] rejects, in total,
all of [CRC’s] demands, allegations and contentions contained in [the] letter
of February 23, 2009. The notice letter and the Third-Party Petition will not
be withdrawn, and [IA] intend[s] to proceed with [its] claims as stated.” In
response to IA’s third-party complaint against CRC and Bowood, Highport
filed a second amended complaint asserting claims against CRC and Bowood
as third-party defendants on April 3, 2009.
On May 15, 2009—five days before the scheduled mediation and
slightly more than one year after the filing of the Highport lawsuit—
Oldenettel drafted a letter to Westport and IA stating that, although an initial
exchange of documents by some of the parties had occurred, his opinion was
that the mediation was “extremely premature” because no discovery had
taken place. In the May 15, 2009 pre-mediation analysis letter to Redeker and
Westport, Oldenettel again proclaimed that “[w]e do not believe the
indemnity paragraph to be applicable under the facts of this case” and further
acknowledged that CRC “raised the spectre [sic] of Arbitration per the
contract with [IA].”
On May 20, 2009, IA, CRC, Bowood, and Highport attended their
first mediation. Westport did not attend. Highport delivered a written offer
to IA at the mediation for $2 million with Highport’s “full & complete
release of any and all claims arising out of the placement of coverage at issue
in the pending suit.” The offer was intended to comply with the Stowers
doctrine but expired at 11:30 p.m., forty-five minutes after it was made.
Neither IA nor Westport made a counteroffer in response to the $2 million
demand before the window expired. At midnight on May 20, 2009, Lloyd’s
reached a settlement agreement with Highport for $5.25 million. On May 21,
2009, Oldenettel sent Redeker a post-mediation analysis letter. In the letter,
5
Case: 23-20282 Document: 125-1 Page: 6 Date Filed: 09/18/2024
No. 23-20282
he explained that “[the May 20, 2009] Stower’s letter [was] premature as
there ha[d] not been an adequate opportunity to obtain discovery and
evaluate the merits of everyone’s respective positions. Furthermore, a forty-
five-minute window of opportunity on a Stower’s letter is laughable.”
On September 22, 2009, Highport sent IA a Stowers demand for
settlement in the amount of $2.2 million in exchange for a release of any and
all claims against IA related to the Highport litigation. The offer stated that
it would remain open for fifteen days. Westport rejected the demand. While
Westport controlled IA’s defense, Penn National was not notified of the suit
until 2010, “about two years after the Highport litigation began.” On March
15, 2010, Penn National sent a letter to Westport “demanding [it] resolve
this case within [its policy] limits immediately.”
On May 12, 2010, six days ahead of a second mediation, Highport
drafted a letter to IA offering to release any and all of Highport’s claims
against IA in exchange for $4.9 million. The letter was self-identified as a
Stowers demand. On May 18, 2010, a second mediation was held. At
mediation, Highport demanded $5.9 million but IA, CRC, and Bowood
countered with a joint offer of $2.1 million. The second mediation was
ultimately unsuccessful. In a letter dated May 24, 2010, Penn National wrote
Westport about the $4.9 million Stowers demand. Penn National requested
“Westport settle these cases at its own expense. In the Highport matter,
Westport should resolve this case either for the $4.9 million demanded in
Highport’s May 13, 2010 letter or in any agreement for [a] lesser amount that
[it] may negotiate.”
On July 7, 2010, IA, CRC, and Bowood proposed a collective $1.8
million settlement to Highport with IA contributing $1.1 million and CRC
and Bowood’s contributing a total of $700,000. On July 24, 2010, Highport
proposed a counteroffer of $3.6 million (“July 2010 counteroffer”),
6
Case: 23-20282 Document: 125-1 Page: 7 Date Filed: 09/18/2024
No. 23-20282
indicating that it was the least Highport would accept, but IA and Westport
rejected it. The next settlement action was at the end of October 2010 when
the defendants agreed to increase the combined offer to $2.1 million.
Highport declined the offer, notifying IA that it was “sticking with [its] $3.6
million demand,” (“November 2010 counteroffer”). According to IA,
Westport always maintained that the Highport action could be resolved for
far less than its policy limits and that it was unwilling to tender these policy
limits. On September 13, 2010, CRC filed a third-party demand against IA
for breach of the Brokerage Agreement in an arbitration proceeding before
the American Arbitration Association.
In November 2011, in advance of a court-ordered third mediation,
Highport floated a demand of $25 million with IA’s portion at almost $15
million. Redeker characterized the demand as “ridiculous given the facts of
this case.” At the mediation on November 9, 2011, Highport started with the
$25 million demand and lowered it to $23 million, which received no offers
and effectively ended the mediation. In a letter dated February 10, 2012, IA’s
counsel attested that Westport had passed on several opportunities to settle
within its policy limits based on its belief that a lower settlement could be
reached. IA urged Westport to resolve the case as promptly as possible
because “it seem[ed] to be clear that [IA was] exposed to a jury verdict and
ultimately a judgment in a much larger amount.”
After several rounds of failed settlement offers, the Highport trial
began on April 17, 2012, and the jury ultimately found in favor of Highport.
On June 20, 2012, the state trial court entered a final judgment against IA and
awarded damages in the amount of $8,738,598, representing the jury’s
determination of the amount of property and business-interruption coverage
that would have been provided by the requested policy less the amount
available under the policy obtained. The court also awarded interest, court
7
Case: 23-20282 Document: 125-1 Page: 8 Date Filed: 09/18/2024
No. 23-20282
costs, and attorneys’ fees—totaling $13.7 million against IA. Westport
appealed.
To prevent the seizure of IA’s assets during the appellate process, a
supersedeas bond was needed. IA contended that Westport was obligated to
procure a bond sufficient to cover the entire judgment. In a letter dated July
24, 2012, IA asserted that it was “crystal clear” that it was “Westport’s
obligation to procure a bond sufficient to supersede the entire judgment” and
then to seek reimbursement for any premium “attributable to any portion of
the judgment which exceed[ed] Westport’s liability.” IA opined that it was
“unlikely that anyone other than Westport ha[d] responsibility for payment
of the judgment” due to Westport’s repeated rejections of offers to settle
within the Westport Policy limits. During this time, Highport filed a petition
for a writ of garnishment to seize IA’s assets. Westport requested Penn
National to bond the portion of the judgment above Westport’s limits. Penn
National refused. Penn National’s response echoed IA’s interpretation of
Westport’s duty to procure a bond for the entire amount of the judgment.
During this period of deliberation, IA as principal and Liberty Mutual
Insurance Company as surety obtained a supersedeas bond in favor of
Highport in the amount of $11,257,861 on August 7, 2012, so as to avoid the
seizure of IA’s assets. Afterwards, IA requested that both Westport and Penn
National reimburse it for the bond. Westport responded to IA that it was
“willing to withdraw its argument on the bond, to reimburse IA for the bond
premium and substitute itself or one of its affiliated entities as the principal.”
Westport further requested “that, in the event the [] judgment is upheld on
appeal, Westport and Penn National agree that Westport will pay to Highport
the remainder of its policy limits . . . and Penn National will fund the rest.”
With that information, IA inquired with Penn National about whether it
would pay the remainder of the judgment if Westport’s policy was exhausted
after an appeal. Penn National responded that “[it] will continue to honor its
8
Case: 23-20282 Document: 125-1 Page: 9 Date Filed: 09/18/2024
No. 23-20282
obligations to [IA] under the Penn National policy.” On December 17, 2012,
IA as principal and North American Specialty Insurance Company
(“NASIC”) as surety obtained a substitute supersedeas bond in favor of
Highport in the same amount. The court accepted the bond, and it was filed.
Westport agreed to indemnify NASIC for amounts in excess of Westport’s
policy limits. According to Redeker, Westport posted the supersedeas bond
for the entire amount of the judgment, rather than in the amount of its
remaining aggregate limit, on assurances from Penn National to IA.
On November 18, 2014, the Texas Court of Appeals affirmed the state
trial court’s judgment. See Ins. All. v. Lake Texoma Highport, LLC, 452
S.W.3d 57 (Tex. App.—Dallas 2014 [5th Dist.], pet. denied). On January 15,
2016, the Supreme Court of Texas denied rehearing. On January 20, 2016,
the Texas Court of Appeals issued a mandate affirming the state trial court’s
judgment. On January 21, 2016, Highport demanded that IA pay the full
amount of the judgment or face collection.
On January 28, 2016, IA, Westport, and NASIC entered into a
memorandum of understanding (“MOU”) with Highport that required
NASIC to pay Highport the amount of the judgment not disputed
($9,936,492.65) and to deposit the bond’s balance ($1,321,368.35) into the
state court’s registry until all remaining issues were resolved. Penn National
declined to participate in the MOU negotiations. On February 17, 2016,
Westport then reimbursed NASIC for the undisputed amount
($9,936,492.65). On June 6, 2016, the state trial court determined the balance
due to Highport to be $1,697,820.48, as of May 31, 2016, and released the
funds ($1,321,368.35) in the court registry to Highport. Westport reimbursed
NASIC for the amount released from the court registry. On June 13, 2016,
Penn National paid the remaining amount of that balance ($379,885.78) to
Highport.
9
Case: 23-20282 Document: 125-1 Page: 10 Date Filed: 09/18/2024
No. 23-20282
B. Procedural History
On March 24, 2016,4 Westport brought this suit in IA’s name, as its
subrogee, to recover for Penn National’s breach of the excess insurance
policy, and Penn National counterclaimed in IA’s name, as its subrogee,
under the Stowers doctrine. Westport sued Penn National for breach of the
excess insurance policy and to cover its contribution of the jury award against
IA. It argued that it had to pay $7.7 million over its $5 million policy limits to
prevent enforcement of the excess judgment against IA because Penn
National deflected its obligation to pay under its $15 million excess insurance
policy after exhaustion of the primary policy. Penn National pleaded that
Westport breached its Stowers duty by failing to accept the five settlement
demands from Highport.
Before trial, Westport and Penn National filed competing motions for
summary judgment. The district court referred the matter to the magistrate
judge, who adjudicated the parties’ competing motions and made
recommendations in an eighty-four-page Memorandum and
Recommendation. In a brief opinion, the district court adopted the
magistrate judge’s recommendations in full. The district court granted in
part and denied in part Westport’s Stowers and breach-of-contract motions
and granted Penn National’s motion for partial summary judgment on
Westport’s claims for breach of contract and promissory estoppel.
_____________________
4
Westport filed this insurance action in the Middle District of Pennsylvania against
Penn National. On July 1, 2016, the Middle District of Pennsylvania granted Penn
National’s motion to transfer the venue and transferred the case to the Southern District
of Texas. After the case was transferred, the parties underwent months of filing amended
pleadings and stipulations—omitting claims, supplementing allegations, and adding
requests for declaratory judgment. In January 2018, after a period of discovery, the parties
each filed motions targeting the other’s expert testimony, as well as pending dispositive
motions. On April 18, 2018, the parties unsuccessfully attempted mediation.
10
Case: 23-20282 Document: 125-1 Page: 11 Date Filed: 09/18/2024
No. 23-20282
In its Stowers motion, Westport argued that, as a matter of law, four of
Highport’s settlement offers did not trigger its Stowers duty to settle: (1) the
first challenged offer was the self-described $2 million Stowers demand
presented at the end of the first mediation in May 2009; (2) the second
challenged offer was the self-described $4.9 million Stowers demand
presented in advance of the second mediation in May 2010; and (3) the third
and (4) fourth challenged offers were the $3.6 million counteroffers orally
presented in July 2010 and November 2010 as collective offers to IA, CRC,
and Bowood.5 Granting in part Westport’s Stowers motion, the district court
determined that “the May 2010 $4.9 million demand was not within the
Westport Policy aggregate limit” and “as a matter of law, Westport’s Stowers
duty was not triggered at that time.” Denying in part Westport’s Stowers
motion, the court determined that the “circumstances of the May 2009 $2
million demand are such that a reasonable jury could find that an ordinarily
prudent insurer would have accepted it in light of the likelihood and degree
of Westport’s potential exposure to an excess judgment.” Lastly, the court
determined that “the course of communications and continuing settlement
efforts, could allow a reasonable jury to find that the terms and conditions
were clear with regard to the oral $3.6 million settlement demands of July and
November 2010.”
Granting in part Westport’s breach-of-contract motion, the district
court concluded that Penn National breached its duty to defend in February
_____________________
5
During trial, Westport challenged the September 2009 demand, arguing that it
was not a valid Stowers demand because it did not fully release IA or eliminate the risk of
further liability. This argument was not asserted in its summary judgment motion. At
summary judgment, the court agreed that the May 2010 demand could not provide a basis
for liability. After trial, the court also determined that the May 2009 demand was not a valid
Stowers demand.
11
Case: 23-20282 Document: 125-1 Page: 12 Date Filed: 09/18/2024
No. 23-20282
2016 and breached its duty to indemnify in June 2016.6 The district court
stated that “regarding [the] duty to defend, the Penn National Policy stated
that the transfer of defense would occur when the underlying limits of
insurance were ‘used up’ in the payment of judgments or settlements.”
Thus, the court determined that Penn National’s duty to defend was
triggered on February 17, 2016, “when [Westport] reimbursed NASIC for
the payment to Highport in the amount of $9,936,492.65, an amount clearly
in excess of Westport’s remaining policy limits” and which exhausted the
Westport Policy. As such, the court determined that “Penn National
breached [its] duty [to defend] by failing to assume IA’s defense” because
“according to the summary judgment evidence, Penn National did nothing
to assist in the transfer of defense after receiving Westport’s notification of
exhaustion.” The district court was unpersuaded by “[a]ll of Penn
National’s complaints regarding what Westport did not do in order to
transfer the defense.” Moreover, it held that Penn National’s duty to
indemnify was triggered on June 6, 2016 when “Westport reimbursed
NASIC $1,321,368.35 for the amount released from the court’s registry.
Penn National was responsible for the payment of that amount because its
duty to indemnify was applicable.” Although Penn National paid
$379,885.78 to Highport on IA’s behalf to complete the fulfillment of IA’s
obligation on the judgment of $1,697,820.48, the district court noted that
Penn National did not pay the total amount ($1,321,368.35) released from the
court’s registry at that time and had not reimbursed Westport.
At a November 29, 2022 pretrial conference, Penn National averred
that Westport’s violation of the Stowers doctrine was a defense and thus Penn
National was “entitled to excuse [its] performance based on the doctrine.”
_____________________
6
The district court denied Westport’s breach-of-contract motion as to Penn
National’s duty to indemnify before June 2016.
12
Case: 23-20282 Document: 125-1 Page: 13 Date Filed: 09/18/2024
No. 23-20282
Westport contended that Texas caselaw does not support the notion that “a
primary carrier’s Stowers violation excuses an excess carrier’s obligation to
pay under [its] own policy. It’s not a defense to [excess carriers’]
obligation[s] to their insured to pay the insured’s excess liability.” The
district court concluded that Penn National’s use of the Stowers doctrine was
proper in this sense because the court viewed the use of “defense” as a
practical term rather than a legal term.
On December 5, 2022, a five-day jury trial commenced between
Westport and Penn National. At the close of trial, the jury returned its verdict
in favor of Penn National, finding that Westport had breached its Stowers
duty on four separate occasions—in May 2009, September 2009, July 2010,
and November 2010. The district court subsequently set aside the May 2009
demand as being unsupported by admitted evidence at trial. Still, the court
entered judgment against Westport as to the September 2009, July 2010, and
November 2010 demands. After the trial, Westport filed a Rule 50(b) motion
for judgment as a matter of law and a Rule 59(a) motion for a new trial. The
district court denied Westport’s motions. Westport and Penn National
appealed. We ordered that Westport’s opposed motion to strike portions of
Penn National’s reply brief be carried with the case on February 28, 2024.
II.
We review the denial of a motion for judgment as a matter of law “de
novo, using the same analysis as the district court.” United States v. Hodge,
933 F.3d 468, 473 (5th Cir. 2019). We reverse the district court’s ruling only
if “there is no legally sufficient evidentiary basis for a reasonable jury to have
found for [the nonmovant.]” Id. (quoting Flowers v. S. Reg’l Physician Servs.
Inc., 247 F.3d 229, 235 (5th Cir. 2001)); Reeves v. Sanderson Plumbing Prods.,
Inc., 530 U.S. 133, 149 (2000) (quoting Fed. R. Civ. P. 50(a)). When a
party challenges the denial of a motion for judgment as a matter of law
13
Case: 23-20282 Document: 125-1 Page: 14 Date Filed: 09/18/2024
No. 23-20282
following a jury trial, this court is “especially deferential” to the jury’s
verdict. Olibas v. Barclay, 838 F.3d 442, 448 (5th Cir. 2016) (citation
omitted). We are “wary of upsetting jury verdicts” and “courts may grant
judgments as a matter of law only if the facts and inferences point so strongly
and overwhelmingly in the movant’s favor that reasonable jurors could not
reach a contrary conclusion.” SEC v. Life Partners Holdings, Inc., 854 F.3d
765, 785 (5th Cir. 2017) (internal quotations omitted).
“The jury’s findings of fact are reviewed on the whole record and are
affirmed if supported by substantial evidence.” Hunnicutt v. Wright, 986 F.2d
119, 122 (5th Cir. 1993). This court must “credit the non-moving party’s
evidence and disregard all evidence favorable to the moving party that the
jury is not required to believe.” Abraham v. Alpha Chi Omega, 708 F.3d 614,
620 (5th Cir. 2013) (cleaned up). Moreover, we must “draw[] all reasonable
inferences and resolv[e] all credibility determinations in the light most
favorable to the non-moving party.” Flowers, 247 F.3d at 235 (citation
omitted). We review a district court’s denial of a motion for a new trial for
abuse of discretion. Fornesa v. Fifth Third Mortg. Co., 897 F.3d 624, 627 (5th
Cir. 2018). We reverse “only when there is an absolute absence of evidence
to support the jury’s verdict.” Wantou v. WalMart Stores Tex., L.L.C., 23
F.4th 422, 431 (5th Cir. 2022) (internal quotation marks and citation
omitted).
“Jury instructions are reviewed for abuse of discretion.” Janvey v.
Dillon Gage, Inc. of Dall., 856 F.3d 377, 388 (5th Cir. 2017). “A district court
by definition abuses its discretion when it makes an error of law.” Id. Thus,
when a challenged jury instruction hinges on a question of law, review is de
novo. GE Cap. Com., Inc. v. Worthington Nat. Bank, 754 F.3d 297, 302 (5th
Cir. 2014). This court reviews whether the district court’s charge is a correct
statement of the law and whether it clearly instructs jurors as to the principles
of law applicable to the factual issues confronting them. United States v.
14
Case: 23-20282 Document: 125-1 Page: 15 Date Filed: 09/18/2024
No. 23-20282
Laury, 985 F.2d 1293, 1300 (5th Cir. 1993). However, an erroneous jury
instruction is reversible only if it “affected the outcome of the case.” Mid-
Continent Cas. Co. v. Petroleum Sols., Inc., 917 F.3d 352, 357 (5th Cir. 2019)
(citation omitted).
III.
A. Westport’s Breach-of-Contract Claims & Penn National’s Duties
Damages resulting from Penn National’s breach of its duties to
indemnify and defend are at issue in this litigation. At summary judgment,
the district court held that Penn National breached its duty to defend IA on
February 17, 2016 and breached its duty to indemnify IA on June 6, 2016.
Penn National does not appeal this determination.
Westport argues that Penn National cannot rely on the Stowers
doctrine to relieve it of its contractual duties or as a defense to Westport’s
breach-of-contract claims. Penn National contends that its breaches, which
occurred more than five years after Westport’s breach of its Stowers duty,
caused no damage to IA because Westport’s negligence caused all of IA’s
damages. Further, it maintains that the district court “did not recognize
Stowers as a breach-of-contract defense.” Westport has the better argument
here.
At the September 13, 2022 pretrial conference, Penn National
conceded that it “owed a duty to indemnify and to defend as of [the
aforementioned dates]” and that it failed to do so. However, it emphasized
that its “breach of the contract [should], therefore, [be] excused” because of
asserted “policy defenses.” Namely, Penn National averred, at the
November 29, 2022 pretrial conference, that Westport’s violation of the
Stowers doctrine was a defense and thus Penn National was “entitled to
excuse [its] performance based on the doctrine.” Westport contended that
Texas caselaw does not support the notion that “a primary carrier’s Stowers
15
Case: 23-20282 Document: 125-1 Page: 16 Date Filed: 09/18/2024
No. 23-20282
violation excuses an excess carrier’s obligation to pay under [its] own policy.
It’s not a defense to [excess carriers’] obligation[s] to their insured to pay the
insured’s excess liability.”
In response, the district court explained that this issue “would be
resolved by the jury answering the Stowers question” because “it [was] all
going to come out in the wash.” The district court reasoned that if there was
a Stowers breach, then the damages that Westport owed Penn National for
violating the doctrine would amount to the share of the excess judgment
beyond the Westport policy limits less the portion of the excess judgment
Westport had already paid on the insured’s behalf. In the alternative, if the
jury found no Stowers breach, then Penn National would owe Westport the
portion of the judgment in excess of the Westport policy limits. The district
court concluded that Penn National’s use of the Stowers doctrine was proper
in this sense because the court viewed the use of “defense” as a practical
term rather than a legal term. Moreover, after trial, the district court held:
While it is true that this [c]ourt previously found that Penn
National breached its duties to defend and indemnify (Doc.
No. 122 at 72, 73), these breaches occurred more than five
years after the jury found that Westport violated its Stowers
duty. A finding that Penn National subsequently breached its
duties to defend and indemnify IA has no impact on this case.
We disagree. The district court erred when it made Westport’s ability
to recover from Penn National conditional, concluding that “[i]f the Stowers
claim is unsuccessful, Westport would be entitled to recover from Penn
National the entire amount of the judgment in excess of Westport’s
remaining policy limits less the amount paid by Penn National.” We hold that
Westport was entitled to recover the entire amount of the judgment in excess
due to Penn National’s breach of its duties to indemnify and defend IA under
the excess insurance policy.
16
Case: 23-20282 Document: 125-1 Page: 17 Date Filed: 09/18/2024
No. 23-20282
Put otherwise, once the district court determined that Penn National
had breached the contract, it should have required Penn National to pay the
excess judgment (i.e., the amount owed above Westport’s remaining
aggregate policy limit). Then, the court could have proceeded to trial on Penn
National’s Stowers claim and, if and when the jury found that Westport had
breached its Stowers duty, Westport would have had to pay back the amount
it had just received from Penn National.
However, to the extent that the district court erred in recognizing
Stowers as a breach-of-contract defense, the error was harmless because this
evidence of Penn National’s contract breach—which occurred years after the
Stowers breach—was never presented to the jury. “The harmless error
doctrine applies to the review of evidentiary rulings.” Heinsohn v. Carabin &
Shaw, P.C., 832 F.3d 224, 233 (5th Cir. 2016) (quoting Nunez v. Allstate Ins.
Co., 604 F.3d 840, 844 (5th Cir. 2010)). We apply a deferential abuse of
discretion standard when reviewing a district court’s evidentiary rulings.
Williams v. Manitowoc Cranes, L.L.C., 898 F.3d 607, 615 (5th Cir. 2018). “A
district court abuses its discretion when its ruling is based on an erroneous
view of the law or a clearly erroneous assessment of the evidence.” Heinsohn,
832 F.3d at 233 (quoting Nunez, 604 F.3d at 844. However, “even if a district
court has abused its discretion, [this court] will not reverse unless the error
affected ‘the substantial rights of the parties.’” Heinsohn, 832 F.3d at 233
(quoting Nunez, 604 F.3d at 844); see Fed. R. Evid. 103. As such “[t]he
party asserting the error has the burden of proving that the error was
prejudicial,” Williams, 898 F.3d at 615 (citation omitted).
At the November 29, 2022 pretrial hearing, the district court
concluded that the only issues outstanding for Westport’s breach-of-contract
claim were damages and applicable defenses. Further, because damages were
ascertainable, the district court requested that the parties stipulate to
damages and have the court decide the contract defenses, along with
17
Case: 23-20282 Document: 125-1 Page: 18 Date Filed: 09/18/2024
No. 23-20282
Westport’s unclean hands defense, as a matter of law after trial, so that only
the Stowers negligence questions would be submitted to the jury. On the first
day of trial, the parties stipulated to the damage model and calculations, as
reflected in Exhibit 156, and agreed to submit defenses to the court for
determination after the trial. At the conclusion of the trial, the district court
requested that the parties submit a joint letter outlining their views on the
remaining issues to be decided, namely (1) whether Penn National acted with
unclean hands; (2) whether any of Penn National’s policy defenses applied;
and (3) the parties’ claims to recover their respective attorney’s fees.
Here, the district court’s error was harmless because, “after a
‘thorough examination of the record,’ [we are] able to ‘conclude beyond a
reasonable doubt that the jury verdict would have been the same absent the
error.’” United States v. Cessa, 785 F.3d 165, 186 (5th Cir. 2015) (quoting
United States v. Skilling, 638 F.3d 480, 482 (5th Cir. 2011)). Practically
speaking, the district court was correct to note that when the jury found that
Westport had breached its Stowers duty, the amount above the primary
insurance policy was thus the responsibility of Westport—not Penn
National. After trial, the district court recognized Penn National’s breach
and Westport’s breach and determined that “the ultimate outcome of this
lawsuit will determine which company has to pay the amount of a final
judgment entered against their mutual insured [IA].” As follows, the amount
that Penn National already paid was now reimbursable; and no additional
damages were owed to Westport.
Notably, Westport concedes that Stowers is a “right to
reimbursement” limited “to the amount the insured has paid.” Seguros
Tepeyac, S. A. v. Bostrom, 347 F.2d 168, 178 (5th Cir. 1965). Likewise,
Westport agrees that “Penn [National] stands in the shoes of IA only with
respect to the tiny fraction of the excess judgment it paid—not the $7.7
million at issue in the breach-of-contract claim”—albeit to make the
18
Case: 23-20282 Document: 125-1 Page: 19 Date Filed: 09/18/2024
No. 23-20282
argument that Penn National lacks standing to assert a Stowers claim.
Consequently, that is why the district court’s final judgment only allows for
Penn National to recover damages from Westport in the sum of
$379,885.78—the amount that Penn National indemnified NASIC.
Our review of the record shows that a reasonable jury could have
found that Westport breached its Stowers duty based on the evidence
presented at trial. Notwithstanding what Penn National owed because of its
breach, Westport was required—due to its own breach—to reimburse Penn
National for the amount that it had indemnified NASIC. The jury’s
considerations were void of any mention of Stowers as an excuse for the
contractual breach because the district court had assessed Penn National’s
breach at summary judgment and had also decided that Penn National could
not offer evidence or argument at trial that it had complied with its
contractual obligations and had not breached its contract. Thus, the jury’s
findings were not harmfully influenced so as to affect Westport’s substantial
rights. Heinsohn, 832 F.3d at 233; Williams, 898 F.3d at 615. Under the facts
of this case, any error was harmless because on this record the jury would
have found that Westport breached its Stowers duty and that Penn National’s
payments of the share of the excess judgment were reimbursable. See Skilling,
638 F.3d at 482.
B. Penn National’s Stowers claim
1. Standing
Although it concedes that an excess insurer, such as Penn National,
has standing to assert Stowers to the extent that it paid the excess judgment
against the insured and thereby became the insured’s subrogee, Westport
reasons that because Penn National “did not pay $7.7 million of the excess
liability [it] was never subrogated to the insured’s rights as to that amount;
19
Case: 23-20282 Document: 125-1 Page: 20 Date Filed: 09/18/2024
No. 23-20282
instead, Westport was.” According to Westport, Penn National lacked
standing to assert a Stowers defense. We are unpersuaded.
Under Texas law, an excess insurer “may bring an equitable
subrogation action against the primary carrier” to enforce the primary
insurer’s Stowers duty. Am. Centennial Ins. Co. v. Canal Ins. Co., 843 S.W.2d
480, 483 (Tex. 1992). “Equitable subrogation is the legal fiction through
which a person or entity, the subrogee, is substituted . . . to the rights and
remedies of another by virtue of having fulfilled an obligation for which the
other was responsible.” Am. Ins. Co. v. Assicurazioni Generali SpA, 228 F.3d
409, 2000 WL 1056143, at *3 (5th Cir. 2000) (unpublished). The burden is
on the excess insurer to prove that the primary insurer violated its duty. Id.
In any case of subrogation, the excess insurer cannot recover more from the
third party than what it paid. Associated Int’l Ins. Co. v. Scottsdale Ins. Co., 862
F.3d 508, 510 (5th Cir. 2017) (applying Texas law). “When an insurer pays
out on its insured’s loss, it becomes a ‘pro tanto owner’ of the cause of
action.” Concierge Nursing Ctrs., Inc. v. Antex Roofing, Inc., 433 S.W.3d 37, 45
(Tex. App.—Houston [1st Dist.] 2013, pet. denied) (quoting Thoreson v.
Thompson, 431 S.W.2d 341, 347 (Tex. 1968)).
Here, Penn National is subrogated to IA’s Stowers rights. As the
district court indicated, Penn National paid $379,885.78 to Highport on IA’s
behalf to complete the fulfillment of IA’s obligation on the balance the
district court determined was due to Highport in July 2016. The district court
held that “[b]y virtue of having fulfilled an obligation for which IA was
responsible, Penn National was substituted to IA’s rights under the Stowers
doctrine.” As the district court presented, “[n]o legal authority supports the
idea that an excess insurer must pay the entire amount of a judgment in
excess of the primary insurer’s policy limits in order to be equitably
subrogated to an insured’s Stowers claim.” Specifically, the district court
20
Case: 23-20282 Document: 125-1 Page: 21 Date Filed: 09/18/2024
No. 23-20282
highlighted that such a legal holding “would severely undermine both the
Stowers doctrine and the purpose of equitable subrogation.” We agree.
Westport would have us adopt its conclusion that “an excess insurer
obtains standing to assert Stowers by” first paying the entire amount of the
judgment and then seeking reimbursement. But such a holding would
undermine the protections that the Stowers doctrine affords insureds.
Because no Texas court has ruled on this issue in the Stowers context, we
must make an Erie guess. Am. Guarantee & Liab. Ins. Co. v. ACE Am. Ins. Co.,
990 F.3d 842, 848 (5th Cir. 2021) (citing Ironshore Eur. DAC v. Schiff Hardin,
L.L.P., 912 F.3d 759, 764 (5th Cir. 2019)). The Stowers doctrine encourages
the prompt settlement of claims, while simultaneously protecting insureds
from having to pay any money out of their own pockets, and aims to protect
insureds against the risk of jury verdicts resulting in judgments in excess of
their policy limits. Thus, according to Texas caselaw, Penn National has
standing to bring a Stowers claim in the instant case and its contentions to the
contrary are meritless.
2. Stowers Prerequisites
Westport contends that, as a matter of law, none of the Highport
settlement demands7 meet the Stowers prerequisites, namely (1) the demands
do not “propose to release the insured fully in exchange for a stated sum of
money,” Trinity Universal Ins. Co. v. Bleeker, 966 S.W.2d 489, 491 (Tex.
1998); (2) the demands do not constitute “an unconditional offer to settle
within policy limits,” State Farm Lloyds Ins. Co. v. Maldonado, 963 S.W.2d
38, 41 (Tex. 1998); and (3) the terms of the demands are not “clear and
_____________________
7
Particularly, Westport pinpoints the September 2009 demand and the July and
November 2010 demands. The district court determined at summary judgment that the
May 2010 demand could not provide a basis for liability and at the close of trial that the
May 2009 demand did not provide a reasonable opportunity to settle as a matter of law.
21
Case: 23-20282 Document: 125-1 Page: 22 Date Filed: 09/18/2024
No. 23-20282
undisputed,” Rocor Int’l, Inc. v. Nat’l Union Fire Ins. Co. of Pittsburg, 77
S.W.3d 253, 263 (Tex. 2002).
a. The CRC Indemnity Claim
Westport argues that it was entitled to judgment as a matter of law on
Penn National’s Stowers claim because the Highport settlement demands did
not provide for settlement and release of the CRC indemnity claim. Westport
maintains on appeal that it declined to accept the September 2009, July 2010,
and November 2010 demands because it believed that the offers, if accepted,
left IA exposed to further indemnity liability for the very same incident the
proposed settlement was supposed to resolve.
Specifically, Westport complains that the September 2009 demand
created exposure for IA because “it would have remained at risk for any
additional amount Highport recovered from CRC, without the protection of
the one-satisfaction rule or any control over the amount of that settlement.”
In response, Penn National accuses Westport of crafting this argument as an
ex-post justification for its failure to settle the Highport litigation within
primary policy limits. Penn National contends that at the time the September
2009 demand was tendered, Westport had no concerns about the CRC
indemnity claim as illustrated by the comments proffered by Westport’s
appointed counsel, Oldenettel, in which he communicated to IA that he did
not believe a potential indemnity claim “to be applicable under the facts of
this case.” Moreover, Penn National maintains that an actual, formal
demand for indemnity by CRC was not filed until September 13, 2010—well
after four of the five settlement demands were offered.
Under Texas law, the Stowers duty requires an insurer “to exercise
ordinary care in the settlement of claims to protect its insureds against
judgments in excess of policy limits.” Am. Physicians Ins. Exch. v. Garcia, 876
S.W.2d 842, 843 n.2 (Tex. 1994) (citing Stowers, 15 S.W.2d 544). The Stowers
22
Case: 23-20282 Document: 125-1 Page: 23 Date Filed: 09/18/2024
No. 23-20282
duty is activated by a settlement demand when: (1) the claim against the
insured is within the scope of coverage, (2) there is a demand within policy
limits, and (3) the terms of the demand are such that an ordinarily prudent
insurer would accept it, considering the likelihood and degree of the
insured’s potential exposure to an excess judgment.” Tex. Farmers Ins. Co. v.
Soriano, 881 S.W.2d 312, 314 (Tex. 1994). For Stowers to apply in this case,
Highport’s settlement offers must have met the three aforementioned
Stowers prerequisites, in addition to “clearly stat[ing] a sum certain,” and
being “unconditional.” Soriano, 881 S.W.2d at 314; Rocor Int’l, 77 S.W.3d at
263; Danner v. Iowa Mut. Ins. Co., 340 F.2d 427, 429–30 (5th Cir. 1964)
(applying Texas law).
In its order denying Westport’s Rule 50(b) motion, the district court
rejected Westport’s argument that the September 2009, July 2010, and
November 2010 settlement offers did not address the risk of future liability
that IA faced from an indemnity claim against CRC. Specifically, the court
reasoned that at the time Highport made the September 2009 Stowers
demand, CRC had not asserted a claim against IA. Indeed, CRC never made
such a claim, but instead IA brought a third-party claim against CRC and
CRC filed an answer. Only then, in that answer, did CRC reference the
indemnity provision as a defense to IA’s claims against it. The district court
denied Westport’s Rule 50(b) motion regarding the July and November 2010
demands on a similar ground. Further, the district court explained that any
indemnity claim asserted by CRC would arise out of a separate and distinct
contract dispute. That dispute concerned whether the Brokerage Agreement
between CRC and IA did in fact indemnify CRC against liability, not whether
IA (acting as Lloyd’s insurance agent) failed to procure the requested
insurance coverage to protect Highport’s marina in violation of Lloyd’s
insurance contract with Highport. The district court reasoned that a full
release under Stowers does not require “the release of potential, unasserted,
23
Case: 23-20282 Document: 125-1 Page: 24 Date Filed: 09/18/2024
No. 23-20282
and distinct claims made by third parties” like CRC. We agree. We cannot
square Texas Supreme Court precedent interpreting Stowers with the
desired-for holding that an insurer may characterize a settlement demand—
that does not overtly consider separate and distinct contract disputes—as not
amounting to a full and complete release for the insured. We shall not
immunize primary insurers from exposure to liability under Stowers for
simply invoking claims that would have arisen out of separate and distinct
contract disputes.
Westport argues that Danner v. Mutual Insurance Company squarely
addresses Stowers in the context of indemnity liability not released by the
settlement demand. 340 F.2d at 430. We disagree. The instant case is unlike
Danner. In Danner, Kurt Burmester was injured in a collision with an engine
operated by the Houston Belt and Terminal Railway Company (“Belt”)
while driving an automobile owned by, D. D. Danner and J. W. Maxcey, a
partnership d/b/a Danner Marine Guard Service (“Danner”). Id. at 428. At
the trial, Danner and Belt were held jointly and severally liable to Burmester
for his injuries. Id. Danner carried liability insurance with Iowa Mutual. Id.
While the case was pending on appeal, Danner’s and Burmester’s lawyers—
without Belt’s—arrived at a proposed settlement of $62,000, to be paid by
Danner in return for a covenant not to sue. Id. However, Iowa Mutual refused
to accept the settlement on the ground that the offer was conditional. Id. The
district court ultimately concluded that Burmester’s offer was not a valid
Stowers demand. Id. at 428–29.
Affirming the district court, this court determined that the offer did
not unconditionally protect Danner and Iowa Mutual “fully . . . against
further liability to [Belt] in the event that [Belt] secured a judgment of
indemnity from [Danner], including direct liability, or any costs, expenses or
attorneys’ fees expended in resisting such claims even in the event same
turned out to be without merit.’” Id. at 429–30.
24
Case: 23-20282 Document: 125-1 Page: 25 Date Filed: 09/18/2024
No. 23-20282
Danner is dissimilar to this case. Westport hangs its proverbial hat on
our language acknowledging, pursuant to the facts of that case, the possibility
of one co-defendant obtaining a judgment of indemnity against another co-
defendant. But Danner involved the potential for a claim of common law
indemnity, not the enforcement of a contractual indemnity clause. Id. at 428,
430. Here, however, CRC and IA negotiated such a contractual indemnity
clause as part of the Brokerage Agreement.
In Danner, a finding of joint and several liability at trial allowed
Burmester to collect his damage award, $173,396.05, from any one of the joint
tortfeasors—Belt or Danner. 340 F.2d at 428. The trial court provided for
contribution and denied indemnity. Id.8 Contribution is applicable where
defendants are jointly and severally liable. Under the contribution doctrine,
a defendant who is subject to a judgment can raise a contribution claim
against a liable co-defendant, if he compensates the plaintiff for more than his
share of responsibility. Equitable indemnity, too, governs the allocation of
damages among multiple tortfeasors who are jointly and severally liable.
“Under the common law doctrine of indemnity, the tortfeasor who is entitled
to indemnity receives total reimbursement from another tortfeasor for
damages paid to plaintiff . . . shifting total responsibility for a tort from one
party to another.” B & B Auto Supply, Sand Pit, & Trucking Co. v. C. Freight
Lines, Inc., 603 S.W.2d 814, 816–17 (Tex. 1980). Thus, in Danner, the parties
_____________________
8
Because there was no mention of a contract between Belt and Danner, implied
contractual indemnity was off the table. At most, the defendants could have pursued
common law indemnity. Still, according to the Texas Supreme Court, “[u]nder the
common law, as a general rule, joint tortfeasors have no right of indemnity among
themselves. That rule rests on considerations of public policy, it being against the policy of
the law to adjust equities between wrongdoers[.]” Austin Rd. Co. v. Pope, 216 S.W.2d 563,
564–65 (Tex. 1949).
25
Case: 23-20282 Document: 125-1 Page: 26 Date Filed: 09/18/2024
No. 23-20282
would have been seeking contribution or common law indemnity and not
enforcing a contract dispute.9
Unlike Danner, our case involves a negotiated contractual indemnity
clause, not the doctrine of common law indemnity. Contractual indemnity
under an insurance contract is separate and distinct from indemnity
principles governing apportionment of fault between joint tortfeasors. Tri-
State Oil Tool Indus., Inc. v. Delta Marine Drilling Co., 410 F.2d 178, 181 (5th
Cir. 1969). A party asserting equitable indemnity is not asserting that a
contractual right to indemnity exists; rather, such a party is asserting that,
given the special nature of the case’s circumstances, equity demands that one
party indemnify the other. Id. Westport cites no case that extends Danner’s
holdings about equitable indemnity obligations among jointly liable
tortfeasors to negotiated contractual indemnity agreements among insurance
companies. This court rejects Westport’s invitation to expand Texas law in
its effort to overturn the findings of a jury.
Moreover, we have stated that “[u]nder the Stowers doctrine, the
requirement for an unconditional settlement offer generally refers to a release
of the causes of action asserted in the underlying litigation, in this case, the
personal injury claims by the [injured] plaintiffs.” Assicurazioni Generali,
2000 WL 1056143, at *3. The operative terms here are “release of causes of
_____________________
9
The equitable remedies of contribution and indemnity, among co-tortfeasors,
often go hand-and-hand. Historically, Texas has either through common law or by statute
allowed tortfeasors to receive contribution from co-tortfeasors. See Duncan v. Cessna
Aircraft Co., 665 S.W.2d 414, 426–27 (Tex. 1984). Occasionally, Texas courts have
analyzed when one tortfeasor is entitled to indemnity over and against another tortfeasor
pursuant to non-contractual (or equitable) indemnity. See Gen. Motors Corp. v. Simmons,
558 S.W.2d 855, 859 (Tex. 1977); Austin Rd. Co., 216 S.W.2d at 565. Relevant here, since
the 1964 Danner case, Texas has since abolished the common law doctrine of indemnity
between negligent joint tortfeasors. Cypress Creek Util. Serv. Co. v. Muller, 640 S.W.2d 860,
864 (Tex. 1982); B & B Auto Supply, 603 S.W.2d at 816–17.
26
Case: 23-20282 Document: 125-1 Page: 27 Date Filed: 09/18/2024
No. 23-20282
action asserted in the underlying litigation” and “by the [injured] plaintiffs.”
Id. The CRC indemnity claim neither stems from a cause of action asserted
in the underlying litigation, nor a claim asserted by the plaintiffs. The record
establishes that CRC’s February 23, 2009 demand letter made no mention of
any claims asserted by Highport.
The third-party complaint filed by IA did not give rise to any
obligation on Highport’s part to resolve the contract dispute between IA and
CRC. Westport complains that the September 2009 demand, in particular,
did not release Highport’s claims against CRC, in which Highport sought
recovery for the same damages it sought from IA based on the same coverage
defect. Such an argument suggests that to qualify as a full release of liability,
the September 2009 demand was required to release CRC so that CRC would
have released its claim against IA for indemnification of any such damages.
Notably, IA brought CRC into the litigation as a third-party defendant on
February 5, 2009. It was not until April 3, 2009 that Highport asserted claims
against CRC—in line with IA’s expressed desire. Thus, importing an
obligation on Highport to resolve the indemnity dispute between IA and CRC
would be incongruous. But, again, CRC and IA’s contractual indemnity
dispute was separate from a determination and allocation of fault amongst the
co-defendants in the Highport suit. CRC was not required to dismiss the
CRC claim so that IA could not be pursued for indemnification without first
determining which parties were at fault. Even IA’s counsel, Oldenettel,
admitted that CRC’s presence in the litigation as a third-party defendant
“was necessary” because IA was unsure where the alleged error was
interjected in the supply chain of the insurance procurement.
In addition, Westport complains that “Highport’s arbitration award
against CRC exceeded Westport’s primary policy limits, independent of IA’s
own liability to Highport.” But this further supports the district court’s
reasoning that the CRC indemnity claim arises out of a separate and distinct
27
Case: 23-20282 Document: 125-1 Page: 28 Date Filed: 09/18/2024
No. 23-20282
contract dispute. Here, CRC was not a co-insured under the Westport policy;
rather CRC was to be the indemnified party under its Brokerage Agreement
with IA. Thus, Westport’s argument that the CRC claim had to be released
by Highport to perfect Highport’s Stowers demand is unpersuasive.
Lastly, we acknowledge that analyzing the context in which a full and
complete release of liability is structured proves to be complicated by factors
such as multiple plaintiffs pursuing settlements against a single insured,10
settlement offers that do not release all insureds,11 unique settlement
structures,12 and medical care providers filing liens on settlements for
hospitalization costs.13 However, none of these factors are present here.
Texas Supreme Court precedent does not support Westport’s
argument that the September 2009 demand was not a valid Stowers
demand. See Garcia, 876 S.W.2d at 848. As the Texas Supreme Court stated
in Garcia, “[w]e start with the proposition that an insurer has no duty to
settle a claim that is not covered under its policy.” 876 S.W.2d at 848. If
insurers are not required under their Stowers duty to incorporate claims not
covered under their policies in their settlement calculus, then they are also
not permitted to absorb unrelated claims not covered under their policies to
prevent a Stowers duty from triggering. See St. Paul Fire & Marine Ins. Co. v.
Convalescent Servs., Inc., 193 F.3d 340, 340 n.5 (5th Cir. 1999) (“Stowers does
not extend or create coverage when an insurer negligently handles a claim
against its insured that is not covered in the first instance.”); id. at 345
_____________________
10
Soriano, 881 S.W.2d at 315; Am. Guarantee, 990 F.3d at 842.
11
See OneBeacon Ins. Co. v. T. Wade Welch & Assocs., 841 F.3d 669 (5th Cir. 2016)
(applying Texas law).
12
Assicurazioni Generali, 2000 WL 1056143, at *3.
13
Bleeker, 966 S.W.2d at 489.
28
Case: 23-20282 Document: 125-1 Page: 29 Date Filed: 09/18/2024
No. 23-20282
(“While recognizing the expansive language in Stowers regarding an
insurer’s duty to the insured, we cannot square the Texas Supreme Court’s
recent precedent interpreting Stowers with a holding that the insurer has a
duty to consider claims that are excluded from coverage when making its
determination of whether a settlement is reasonable.”). In St. Paul Fire &
Marine, we said as much in holding that “[an insurer] had no duty to take into
consideration [its insured’s] potential exposure to punitive damages during
settlement negotiations regarding covered claims.” 193 F.3d at 343.14
What was true for punitive damages in St. Paul Fire & Marine is true
here for indemnity clauses in separate contracts with third parties. See id. In
other words, the Brokerage Agreement’s clause requiring IA to “indemnify
and hold CRC harmless from any claim asserted against CRC in following the
instructions of the” insured was irrelevant for purposes of Westport
satisfying its Stowers duty.
Thus, we conclude that the district court did not err in holding that
Highport’s September 2009 letter demanding policy limits in exchange for a
full release of its claims against the IA was a valid Stowers demand which
Westport rejected.
b. Terms of the Demands
Westport argues that the July and November 2010 demands failed to
provide “any terms of any kind other than a dollar amount” and made “no
_____________________
14
St. Paul insured CSI against damages arising from its negligence, but the
insurance policy specifically excluded coverage for punitive damages. 193 F.3d at 341. St.
Paul defended CSI in the underlying state lawsuit. Id. After rejecting the Stowers settlement
demands, the jury found CSI liable for negligence and gross negligence and awarded the
plaintiff, Schultz, $380,000 in actual damages and $850,000 in punitive damages. Id. St.
Paul paid the actual damages award on behalf of CSI but refused to pay the punitive
damages award based on an exclusion in the policy. Id.
29
Case: 23-20282 Document: 125-1 Page: 30 Date Filed: 09/18/2024
No. 23-20282
mention of any release.” However, the record belies its assertion. The
dispositive issue before us is whether a common understanding of Highport’s
2010 counteroffers included the release of IA from any future liability.
Redeker’s testimony and other evidence resolves this issue. He
testified to common practices and his understanding of the CRC indemnity
claim. When considering whether to accept Highport’s offers, Redeker
admitted that Westport was not concerned with any future liability stemming
from the CRC indemnity claim. At trial, Redeker made no mention of any
belief that the mediator’s proposed settlement agreement lacked a full and
unconditional release. He further testified that, in the calculus of his
settlement decision-making, the mediator’s proposed settlement agreement
amounted to “a global release . . . tak[ing] care of the indemnity claim that
[was] being made by CRC against our insured [IA]. This would end this case
for [IA].” Specifically, the first paragraph of the mediator’s proposed
settlement agreement stated:
For and in consideration of the settlement, mutual release, and
dismissal of any and all claims, either pending or which could
be asserted in the future, in any forum or jurisdiction
whatsoever, arising out of the events and actions made the
subject of the captioned cause of action, including cross-
actions, third-party actions, or other indemnity claims, the
parties hereto and their insurers agree and bind themselves to
the following terms.
Correspondingly, the magistrate judge’s memorandum and
recommendation, which the district court acknowledged and adopted,
correctly advised that “the course of communications and continuing
settlement efforts, could allow a reasonable jury to find that the terms and
conditions were clear with regard to the oral $3.6 million settlement demands
of July and November 2010.” As was the case in Assicurazioni Generali, this
language “tends to suggest that no potential liability on the part of [the
30
Case: 23-20282 Document: 125-1 Page: 31 Date Filed: 09/18/2024
No. 23-20282
insurer] or the insured would remain upon acceptance of the offer.” 2000
WL 1056143, at *3. To that end, the jury was instructed that it could:
[C]onsider all of the relevant circumstances at the time,
including but not limited to the likelihood and degree of [IA’s]
potential exposure to a judgment in excess of Westport’s policy
limits, the likelihood of obtaining a full release of the
Highport’s claims against [IA], the clarity of the settlement
demand, the position of the insured regarding settlement, and
whether the demand is unconditional.
On appeal, Westport continues to argue that the July and November
2010 demands did not propose a full and unconditional release. However, we
agree with the district court’s assessment that “there was legally sufficient
evidence to support the conclusion that the July and November 2010
demands were extensions of the [mediator’s proposed settlement
agreement] (from 2009 and 2010) and carried with them the same terms and
conditions as the [proposal].” Westport’s explanation of its understanding
of Highport’s demand at trial belies its current argument that the July and
November 2010 demands lack clear and undisputed terms and do not
propose a full and unconditional release.
We thus conclude that the district court did not err in holding that
Highport’s July and November 2010 demands in exchange for a full release
of its claims against the IA were valid Stowers demands which Westport
rejected.
c. May 2009 demand
On cross appeal, Penn National contends that the May 2009 demand
was within the scope of coverage and that the terms of the settlement demand
were such that an ordinarily prudent insurer would accept it. Penn National
maintains that it introduced ample evidence at trial supporting the jury’s
finding that Westport breached its Stowers duty as to the May 2009 demand.
31
Case: 23-20282 Document: 125-1 Page: 32 Date Filed: 09/18/2024
No. 23-20282
It contends that, as a result, the district court erred in setting aside the jury’s
verdict on this question. We hold that the evidence underlying the district
court’s legal conclusions support its determination.
At summary judgment, the magistrate judge summarily acknowledged
that:
The Fifth Circuit has not set a minimum threshold for finding
the amount of time given to respond to be reasonable as a
matter of law but, rather, considers the reasonableness of the
amount of time within the context of the demand. In
Assicurazioni Generali, the Fifth Circuit considered whether a
demand presented during an afternoon recess six days into a
trial that was set to expire just under twenty-three hours later
provided a reasonable opportunity to settle. See [Assicurazioni
Generali, 2000 WL 1056143, at *1–2] . . . The Fifth Circuit
determined that whether the insurer acted reasonably in not
accepting the plaintiffs’ offer was a fact question not amenable
to summary judgment. Id. at *6.
Additionally, the Supreme Court of Texas has elaborated that the ultimate
Stowers issue is “whether the claimant’s demand was reasonable under the
circumstances, such that an ordinarily prudent insurer would accept it.”
Garcia, 876 S.W.2d at 849. In Assicurazioni Generali, this court interpreted
“reasonable opportunity” to have both substantive and procedural
components; “the former refer[s] to the reasonableness of the terms of the
offer, and the latter concern[s] the amount of time to either accept or reject
the offer given the consequences of the decision.” 2000 WL 1056143, at *5.
Westport averred that four aspects of the circumstances surrounding
negotiations and mediation demonstrated that it did not have a reasonable
opportunity to settle on May 20, 2009: namely, (1) the Highport lawsuit was
in the preliminary stages; (2) very little discovery had taken place; (3) IA had
not had the opportunity to evaluate the merits of the parties’ positions; and
(4) the time limit for a decision was forty-five minutes.
32
Case: 23-20282 Document: 125-1 Page: 33 Date Filed: 09/18/2024
No. 23-20282
Although reasonableness is a fact question, the district court
determined that the evidence adduced at trial did not support the jury’s
conclusion. Specifically, it held that there was no legally sufficient evidence
that Westport acted unreasonably in not accepting the May 2009 offer.
Because, as Westport averred, IA had not had the opportunity to evaluate the
merits of the parties’ positions and there was a forty-five-minute time limit
for IA to reach a decision, we agree.
C. Jury Charge
1. Correct Statement of the Law
Westport challenges the district court’s jury instructions. The jury
charge instructed the jurors on the requisite Stowers elements, stating that:
To prevail on its respective claims, Penn National must prove
by a preponderance of the evidence each of the following [three
elements]:
(1) The settlement demand was within the policy limits of the
Westport Insurance Policy insuring [IA];
(2) The settlement demand fully released [IA]; and
(3) An ordinarily prudent insurer would have accepted the
demand.
It also stated that “[a]ll three elements must be proven as to each date [of a
settlement offer] for [the jury] to find that the burden of proof was satisfied
as to that question.” In a subsequent explanatory paragraph, the charge
further directed the jury that:
When considering these [three elements], you should consider
all of the relevant circumstances at the time, including but not
limited to the likelihood and degree of [IA’s] potential exposure
to a judgment in excess of Westport’s policy limits, the
likelihood of obtaining a full release of the Highport’s claims
against [IA], the clarity of the settlement demand, the position
33
Case: 23-20282 Document: 125-1 Page: 34 Date Filed: 09/18/2024
No. 23-20282
of the insured regarding settlement, and whether the demand
is unconditional.
Westport argues that the district court—at Penn National’s urging—
erred by changing the language in the explanatory paragraph from instructing
the jury to consider “the likelihood of obtaining a full release of the claims
against IA” to instructing the jury to consider “the likelihood of obtaining a
full release of Highport’s claims against IA.” “We review challenges to jury
instructions for abuse of discretion and afford the trial court great latitude in
the framing and structure of jury instructions.” Eastman Chem. Co. v.
Plastipure, Inc., 775 F.3d 230, 240 (5th Cir. 2014). Under this standard, “[w]e
will reverse the district court’s decision only if the requested instruction (1)
was a substantially correct statement of the law, (2) was not substantially
covered in the charge as a whole, and (3) concerned an important point in the
trial such that the failure to instruct the jury on the issue seriously impaired
the defendant’s ability to present a given defense.” United States v. Wright,
634 F.3d 770, 775 (5th Cir. 2011) (internal quotation marks omitted) (quoting
Cooper Indus., Inc. v. Tarmac Roofing Sys., Inc., 276 F.3d 704, 714 (5th Cir.
2002)). We hold that Westport has failed to establish these elements and,
thus, has failed to show that the district court’s failure to implement its
requested instruction merits reversal.
Westport’s argument that the district court’s jury instructions failed
to feature “all claims against IA” as a focal point to the Stowers duty—
notwithstanding if those claims were asserted by other claimants or
co-defendants—misstates the Stowers duty’s scope. The Texas Supreme
Court has clarified that settlement offers must “clearly state a sum
34
Case: 23-20282 Document: 125-1 Page: 35 Date Filed: 09/18/2024
No. 23-20282
certain,”15 be “unconditional,”16 and cannot “carry[] risks of further
liability.”17 Because any potential obligation IA owed to CRC did not bear on
Highport’s offers to IA, that obligation could not have invalidated Highport’s
Stowers-compliant offers, which were unconditional and did not carry any risk
of future liability. As such, we hold that the district court’s jury instructions
were correct statements of law.
Furthermore, Westport’s requested instruction was substantially
covered in the charge as a whole. This court has explained that “in
submitting [a Stowers question] for the jury’s decision, every factor entering
into its determination should be clearly and fairly presented.” Fid. & Cas. Co.
of N.Y. v. Robb, 267 F.2d 473, 476 (5th Cir. 1959). Notably, Westport’s
preferred jury instruction was still included in the elements that Penn
National was required to prove by a preponderance of the evidence. Even
Westport concedes this by arguing that the jury “might have read these
instructions to allow it to also consider the CRC claims” because the jury
instructions explicitly instructed the jurors that “[w]hen considering these
questions, you should consider all of the relevant circumstances at the
time[.]”Consequently, Westport has failed to demonstrate that failure to
instruct the jury on the CRC indemnity claim seriously impaired its ability to
present a given defense.
Westport argues that “[w]hether Highport’s settlement offers would
have released the CRC claims was relevant to the likelihood and degree of
IA’s potential exposure to an excess judgment.” Fortunately, Westport had
the opportunity to present these considerations at trial. Indeed, beginning
_____________________
15
Rocor Int’l, Inc., 77 S.W.3d at 263.
16
Danner, 340 F.2d at 429–30.
17
Id.
35
Case: 23-20282 Document: 125-1 Page: 36 Date Filed: 09/18/2024
No. 23-20282
with its opening statements, Westport made clear throughout the trial its
view that “the resolution of CRC’s indemnity claim” was a relevant issue in
its settlement decision-making “that came into play with respect to the first
two demands.”
Still, both Penn National and the district court point to contradictory
evidence supporting the jury’s finding. For example, contemporaneous claim
notes between Redeker and Oldenettel—recorded five days before the first
mediation in May 2009—reveal that Westport did “not believe the
indemnity paragraph to be applicable under the facts of this case.” see Am.
Guarantee, 990 F.3d at 850. Moreover, the jury heard credible evidence that
it was over one year later, on September 13, 2010, when CRC actually
asserted a claim against IA, and it did so in a parallel arbitration between
Highport and CRC. In its third-party demand against IA for breach of the
Brokerage Agreement, CRC explained that “[a]s a result of [IA]’s wrongful
failure to comply with its obligations under the CRC Brokerage Agreement,”
it was forced “to file an Opposed Motion to Compel Arbitration, Motion to
Stay, and Motion to Stay Discovery against [IA] in the federal court lawsuit.”
Thus, dissimilar to Robb, the evidence of the CRC indemnity claim was not
“completely exclude[ed] from the jury’s consideration.” See 267 F.2d at 476.
Even if we concluded that the CRC indemnity claims were a relevant
consideration for Westport in making its settlement decisions, the jury
charge was a correct statement of law. Under the jury instructions, the jury
was free to include the CRC indemnity issue as one of the “relevant
circumstances” in the district court’s explicitly nonexhaustive list of relevant
considerations.
For these reasons, we conclude that the district court’s jury
instruction “substantially covered” Westport’s preferred instruction and
did not misstate the law. Wright, 634 F.3d at 775. Thus, the district court did
not err in instructing the jury. Moreover, even if the district court erred by
36
Case: 23-20282 Document: 125-1 Page: 37 Date Filed: 09/18/2024
No. 23-20282
not listing the CRC indemnity issue as a relevant consideration in the Stowers
analysis, that error would be harmless here because the jury was free to
consider the heavily litigated CRC issue under the broad language of the
instructions.
2. Closing Arguments
Westport insists that Penn National’s closing arguments about the
jury instruction injected error into the jury’s verdict. Westport contends that
“during its closing arguments, Penn [National] repeatedly pointed to the
objected-to instruction and told the jury that it meant that the copious
evidence Westport had presented about the CRC indemnity issue was an
‘irrelevant’ ‘side show’ because under the [district court’s] jury instructions,
‘all that matters, and [the jury charge] states it expressly, is [whether the
settlement demand allows for] an unconditional release from the claims of
Highport . . . not CRC.” Westport avers that “Penn [National] later
reiterated this point, asserting again that under the jury charge, the jury was
to consider ‘the likelihood of obtaining a full release of the . . . the Highport
claims against [IA]. Not CRC’s.’”
We acknowledge that litigants may use their closing argument only
“to assist the jury in analyzing, evaluating and applying the evidence.”
United States v. Morris, 568 F.2d 396, 401 (5th Cir. 1978). Thus, it was
permissible for Penn National to utilize its closing argument to argue that the
evidence did not support Westport’s contention that the CRC indemnity
claim overwhelmingly factored into its failure to accept Highport’s
settlement demands. Still, “to the extent that the context could alter the
effect of an isolated remark, we must also consider the prejudicial effect of
the remarks taken together.” United States v. Smith, 814 F.3d 268, 276 (5th
Cir. 2016). Notably, Westport acknowledges that it still discussed the CRC
evidence in its opening and closing arguments. And the plain text of the jury
37
Case: 23-20282 Document: 125-1 Page: 38 Date Filed: 09/18/2024
No. 23-20282
instruction does not state that the jury could not consider the CRC indemnity
issue. Hence, we hold that the jury was not improperly precluded from
considering the CRC indemnity claim when evaluating the reasonableness of
Westport’s settlement decisions.
Still, Westport complains that it “was unable to tell the jury that the
court’s instructions did not mean what Penn [National] said [they] meant, as
the trial court had ruled for [Penn National] on that very issue, on that very
basis.” Westport argues that it could not “have objected to Penn [National]’s
closing arguments, as they were entirely consistent with the trial court’s
(erroneous) ruling.” That argument is baseless. Notably, Westport does not
cite a ruling from the district court holding that it could not object,
presumably because no such ruling exists. Plainly put, the district court’s
decision to reword the jury instructions did not preclude consideration of the
CRC indemnity issue, nor did that decision bar Westport from raising an
objection to Penn National’s closing arguments. If Westport failed to
recognize the distinction between the district court’s instruction and Penn
National’s closing arguments about that instruction, that failure is
Westport’s alone. Because we are unpersuaded by Westport’s arguments,
we hold that the interest of substantial justice is not at stake in the instant
case and that the district court’s judgment does not warrant reversal. See
Shipman v. Cent. Gulf Lines, Inc., 709 F.2d 383, 388 (5th Cir. 1983) (citation
omitted) (holding that arguments that are not objected to are reviewed only
in “exceptional cases where the interest of substantial justice is at stake”);
see also Alaniz v. ZamoraQuezada, 591 F.3d 761, 778 (5th Cir. 2009)
(“Improper argument may be the basis for a new trial where no objection has
been raised only where the interest of substantial justice is at stake.”
(alteration adopted) (citation and quotation marks omitted)); Whitehead v.
Food Max of Miss., Inc., 163 F.3d 265, 276 (5th Cir. 1998) (reversing judgment
38
Case: 23-20282 Document: 125-1 Page: 39 Date Filed: 09/18/2024
No. 23-20282
based on improper closing argument where the appellant “fail[ed] to object
to almost all of the statements now challenged”).
Viewed in the light most favorable to the jury verdict, we hold that the
evidence was sufficient for the jury to find that “an ordinarily prudent insurer
would accept [the settlement demands], considering the likelihood and
degree of the insured’s potential exposure to an excess judgment.”
OneBeacon, 841 F.3d at 678 (quoting Garcia, 876 S.W.2d at 849).
IV.
The district court’s judgment is AFFIRMED. IT IS FURTHER
ORDERED that Appellant’s opposed motion to strike portions of
Appellees’ brief is DENIED.
39