Social Inflation Lesson: Not Settling Cost Insurer Millions in Suit by Excess Insurer

The defense team for Chubb Group’s Ace American Insurance Co. was confident that no jury would award more than $2 million in a wrongful death lawsuit filed by the family of Mark Braswell, who died on May 16, 2014, when his bicycle collided with a trailer behind a parked landscaping truck.

After all, there was some evidence that the truck owned by the Brickman Group was legally parked along the road. Also, Braswell’s helmet was cracked down the middle and the injury was to the top of his head, indicating he had his head down at the time of the accident and wasn’t looking where he was going.

Nevertheless, a Houston-area jury awarded about $28 million to Braswell’s widow, mother and two children. The family agreed to settle the case for less than $10 million to avoid an appeal, but that was still enough to blow through the $2 million in primary coverage available through Ace and eat up most of the $10 million in excess coverage available through a policy issued by American Guarantee and Liability Insurance Co.

A December ruling by the U.S. 5th Circuit Court of Appeals makes Ace liable for the entire amount of the settlement and provides another lesson to insurers about the cost of social inflation. Under Texas law, a primary insurer can become responsible for damages far beyond the policy limits if it fails to protect an excess insurer by refusing to accept a reasonable settlement offer.

The appellate panel found that Ace had violated its “Stower’s duty” — named after a 1929 Texas appellate court decision — in rejecting an offer by Braswell’s family to settle the case for $2 million.

“Considering all the trial circumstances, an ‘ordinary and prudent insurer’ in Ace’s position would have realized that the ‘likelihood and degree’ of Brickman’s ‘potential exposure to an excess judgment’ had materially worsened since the trial’s inception,” Circuit Judge Edith H. Jones wrote for the three-judge panel, citing previous case law.

According to a report in the Houston Chronicle, Braswell was a 43-year-old captain in the Houston Fire Department when he crashed into the trailer owned by Brickman, which is now known as BrightView. There were no witnesses, but an attorney for his widow and children told the newspaper that testimony indicated the truck had stopped abruptly and had dangerously parked on a busy four-lane road to unload equipment.

The family sued Brickman for damages and made three settlement offers to Ace before and during the trial. In the final offer, Branswell’s family asked for $2 million, according to the 5th Circuit opinion.

Ace’s counsel estimated the case was worth $1.25 to $2 million. A claims manager for the excess insurer, AGLIC, initially thought the case should settle for within the primary insurance limit of $2 million. The attorneys also conducted jury research and determined it would be important to prove that the Brickman truck did not stop abruptly in front of Braswell and was parked legally.

Things did not go well for the insurers in Harris County District Court. The trial judge, S.K. Sandhill, was known to be “plaintiff friendly,” according to the circuit court’s opinion. Sandhill excluded evidence that the Brickman truck was parked legally. He also allowed the widow, Michelle Braswell, to testify that a

Brickman employee had told her the truck’s driver had “stopped short” in front of her husband, though defense counsel objected that the statement was hearsay.

Michelle was allowed to testify that the accident had caused severe psychological trauma to the couple’s daughter, who had attempted suicide and was admitted to a psychiatric hospital. Two former fire chiefs testified about Braswell’s commitment to service, bravery and love of family. He had once rescued a double amputee from a burning building.

The jury heard testimony that the Brickman crew did not place safety cones around their vehicle while it was parked, despite a company policy. The driver of the truck gave inconsistent testimony about how long he had been parked.

AGLIC’s case manager told Ace that because of the evidentiary rulings, a verdict in excess of $2 million was possible. A defense attorney suggested that Ace settle for that amount. Nevertheless, Ace refused when the Braswells, after the case went to the jury, offered to settle for $2 million.

The jury found in favor of the Braswells and awarded damages of $39,960,000 million, but deducted 32% to reflect Mark Braswell’s share of liability for the accident. The family later accepted a settlement of $9,750,000 to avoid appeal. AGLIC paid $7,750,000 of that, plus $50,000 for a supersedeas bond to protect Brickman on appeal. AGLIC then sued Ace seeking to recoup that money.

The U.S. District Court in Houston found in AGLIC’s favor and awarded AGLIC $7,935,034.33 in damages. Judge Keith P. Ellison wrote in his findings and conclusions of law that Ace’s primary interest was to settle the case below the primary policy limits. He said the insurer rejected advice from experts who warned that most South Texas juries would be reluctant to find a fire captain at fault for such an accident.

Ace said the evidence at trial “increased the known sympathy factor and attendant chance of large soft damages.”

“A reasonable insurer would thus have determined that an offer at the top of the original range suggested by defense counsel was proper given the enhanced possibility of a verdict well above $2 million,” Ellison’s findings state.

On appeal, the 5th Circuit panel rejected Ace’s arguments that it had no duty to accept the settlement offer because it was not clear if Michelle Braswell would equitably share the settlement with her children, a circumstance that in the past had persuaded some Texas courts to refuse to accept settlements. The court said Ace had failed to raise that “novel legal theory” at trial, so was barred from using it on appeal.

“The evidence placed before the district court is sufficient to support that Ace violated its Stowers duty by failing to reevaluate the settlement value of the case and accept the Braswells’ reasonable offer,” the 5th Circuit’s decision concludes.

The ruling is: American Guarantee and Liability Insurance Co. v ACE American Insurance Co.