5th Circuit Rejects Bid by Family of Truck Accident Victim for Share of Insurance Settlement

The family of a Texas man who was killed in a collision with a semi-truck cannot stake a claim to any portion of a $1 million insurance settlement that was paid to the family of another victim of the same accident, a panel of the 5th Circuit Court of Appeals ruled Friday.

The appellate panel affirmed a decision by a federal bankruptcy court that the family of Carlos Tellez Jr. could not block the disbursement of a policy-limit settlement by the trucking company’s insurer because the other victim’s family made a valid settlement demand before an involuntary bankruptcy petition was filed.

Tellez and Anna Isabel Ortiz were both killed when the car they were riding in was struck by a truck owned by Josiah’s Trucking on a country road near Edinburg on Dec. 19, 2020. The victims’ families used different strategies to pursue damages.

Ortiz’s family demanded that the trucking company’s insurance carrier, Brooklyn Specialty Insurance Co., settle their claim by paying the $1 million policy limit. Such requests are called Stowers demands in Texas, named after a 1929 court decision that held insurers have a duty to pay claims within the policy limits if there is a reasonable likelihood that the insured may be held liable for an amount in excess of those limits.

Brooklyn Specialty paid $680,000 to Ortiz’s family and $320,000 to the family’s attorney, Rogelio Solis in Edinburg.

Tellez’s family did not make a Stowers demand. Instead, the family filed a lawsuit against Josiah’s Trucking and later a petition for involuntary bankruptcy to force the sale of the company’s assets.

Unfortunately for the Tellezes, the bankruptcy petition was filed eight days after Brooklyn Specialty paid the settlement to Ortiz’s family. The trustee of Josiah’s Trucking’s estate filed a motion with the bankruptcy court seeking recovery of the settlement payment. The bankruptcy court, after sending a certified question seeking guidance from the 5th Circuit, denied the request.

The bankruptcy petition did not produce enough revenue to pay all of the claims against Josiah’s Trucking, which totaled $8 million. The sale of the company’s two tractors and trailers netted only $41,850.00.

The 5th Circuit has ruled on a similar issue before. In a 2018 case titled In re OGA Charters, the court ruled that when a debtor is contending with a “siege of claims” that exceed the limits of its insurance policies, proceeds from an insurance settlement can be classified as property of the estate. The court said that doesn’t give the debtor a right to pocket the proceeds, but does allow the insured to settle as many claims as possible.

“Thus, the bankruptcy court correctly concluded that, under binding precedent in In re OGA Charters, the policy proceeds would be considered property of the estate,” the opinion says.

The 5th Circuit affirmed the decision of the bankruptcy court.