Soriano – The best friend insurance carriers don’t know they have.
Here at Hanna & Plaut, we are happy to answer our clients’ questions about Texas law and how that impacts their claims handling. One of the most frequent questions we get involves claims with multiple claims and inadequate policy proceeds to settle those claims. Our clients struggle with the problem of what to do when everyone cannot be made whole. The Texas Supreme Court has given carriers very clear direction in these cases. In Texas Farmers Ins. Co. v. Soriano, 881 S.W.2d 312, 315 (Tex.1994), the court held that insurers may not be held liable for settling reasonable claims with one of several claimants under a liability policy, thereby reducing or exhausting the proceeds available to the remaining claimants. The Court based its conclusion on its reasoning that such an approach promotes the settlement of lawsuits and encourages claimants to make their claims promptly. Further, the policy language clearly reflects the parties’ intent to limit the duty to defend to the time before the policy limits are exhausted. In Travelers Indemnity Co. v. Citgo Petroleum Corp., 166 F.3d 761, 764 (5th Cir. 1999), the Fifth Circuit Court of Appeals applied that same reasoning to claims involving multiple insureds, holding that, when faced with a settlement demand over a policy with multiple insureds, an insurer fulfilling its Stowers duty “is free to settle suits against one of its insureds without being hindered by potential liability to co-insured parties who have not yet been sued.”
Our clients sometimes struggle with this rule especially when the first demand they receive is for a claim that may be worth less than more serious claims with demands that have not yet arrived. However, Soriano makes clear that the carrier cannot be in bad faith if it enters into a reasonable settlement with the first claimant even if later claimants are left empty-handed. Just like at your neighborhood Applebees, the rule is, “First come, first served.”