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G. A. Stowers Furniture Co. v. Am. Indem. Co. - 15 S.W.2d 544 (Tex. Civ. App. 1929)

Rule:

An indemnity company is held to that degree of care and diligence which a man of ordinary care and prudence would exercise in the management of his own business.

Facts:

An insured filed an action against defendant insurer alleging that the insurer did not act in good faith in refusing to settle a lawsuit against the insured brought by a motorist injured when her vehicle struck the insured's vehicle. The insurance policy required the insurer to indemnify the insured. When the insurer refused to accept a settlement and judgment was entered against the insured in an amount exceeding the policy limits, the insured sought to obtain reimbursement from the insurer. The insured argued that in refusing to agree to the settlement, the insurer did not act in good faith, and it did not act like a prudent person would have acted under like circumstances. The trial court issued judgment in favor of the insurer. On appeal, the judgment was affirmed. The insured sought review.

Issue:

Did the insurer act with ordinary care and prudence in handling the insured's claim?

Answer:

No.

Conclusion:

The court found that the provisions of the policy gave the insurer absolute and complete control over any litigation, and that as a matter of law this carried with it a corresponding duty and obligation on the part of the insurer to exercise that degree of care that a person of ordinary care and prudence would exercise under the same or similar circumstances. The court concluded that the failure to exercise such care and prudence was negligence on the part of the insurer. The court remanded for a determination as to whether the insurer had acted as a reasonable person in similar circumstances would have acted in refusing to accept the injured motorist's settlement offer. The court reversed the judgment and remanded the case for a new trial.

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