Yesterday TCJL filed an amicus brief in Roy Seger, et al. v. Yorkshire Insurance Co., Ltd. and Ocean Marine Insurance Co.Ltd. (No. 13-0673). The brief requests the Texas Supreme Court to accept review of a case involving the interaction between the Stowers doctrine and the Court’s landmark decision in State Farm Fire & Cas. Co. v. Gandy, 925 S.W.2d 696 (Tex. 1996). Together with the Court’s decision in Elbaor v. Smith, 845 S.W.2d 240 (Tex.1992), which declared that Mary Carter agreements are void as against public policy, Gandy eliminated the collusive practice in which a nominal defendant assigns its Stowers claim against an insurer for damages in excess of policy limits. Gandy addressed the specific abuse whereby the plaintiff and insured colluded to obtain an excess judgment without conducting a fully adversarial trial to determine damages. Under pre-Gandy law, the judgment itself was sufficient evidence of damages, despite the fact that no significant evidence of damages had been offered at “trial.” In a nutshell, Justice Hecht, writing for a unanimous court, held that when an insured assigns its Stowers claim to the plaintiff in the underlying suit, the judgment is inadmissible as evidence of damages unless a fully adversarial trial has taken place.
In the Seger case, the Amarillo Court of Appeals applied Gandy to nullify the plaintiff-assignee’s Stowers claim for excess damages against an insurer on the basis that no fully adversarial trial on the underlying claim had occurred. TCJL brief argues, however, that the Court of Appeals’ analysis of Gandy’s requirement of a “fully adversarial trial” creates a potentially dangerous trap for an insured caught between its insurer’s refusal to accept coverage or tender a defense under a CGL policy and a judgment that would almost certainly cripple the insured’s business. A business placed in this position cannot hope for a trial at all, much less a fair and fully adversarial one, for the simple reason that it can neither afford to mount its own defense absent the insurer’s participation nor make a reasonable settlement with a plaintiff seeking to assert a Stowers claim against that same insurer. In short, the resulting “Catch 22” effectively deprives such a defendant of its very right to the “fair trial” that Gandy sought to promote. The Court’s decision on whether to accept review is expected in the next few weeks.