IN THE SUPREME = COURT OF TEXAS

IN THE SUPREME COURT OF TEXAS

════════&#= 9552;═══

No. 05-0261

════════λ= 2;═══

Mid-Continent = Insurance=20 Company, Appellant,

Liberty Mutual = Insurance=20 Company, Appellee

════════λ= 2;══════════&= #9552;═════════_= 52;══════════= ══════════ = 552;═

On Certified Questions from the = United=20 States

Court of Appeals for the Fifth=20 Circuit

════════&#= 9552;═════════λ= 2;══════════&= #9552;═════════_= 52;══════════= ══

Argued October 18,=20 2005

=20 Justice = Wainwright delivered the opinion of the = Court.

=20 Justice = Willett filed a concurring = opinion.

=20 This dispute between one primary liability insurer and another = primary=20 insurer that also provides the applicable excess insurance policy comes = to us on=20 certified questions from the United States Court of Appeals for the = Fifth=20 Circuit. Pursuant to article V, section 3-c of the Texas Constitution = and Texas=20 Rule of Appellate Procedure 58.1, we answer the following questions:

=20 1. Two insurers, providing the same insured applicable primary = insurance=20 liability coverage under policies with $1 million limits and standard = provisions=20 (one insurer also providing the insured coverage under a $10 million = excess=20 policy), cooperatively assume defense of the suit against their common = insured,=20 admitting coverage. The insurer also issuing the excess policy procures = an offer=20 to settle for the reasonable amount of $1.5 million and demands that the = other=20 insurer contribute its proportionate part of that settlement, but the = other=20 insurer, unreasonably valuing the case at no more than $300,000, = contributes=20 only $150,000, although it could contribute as much as $700,000 without=20 exceeding its remaining available policy limits. As a result, the case = settles=20 (without an actual trial) for $1.5 million funded $1.35 million by the = insurer=20 which also issued the excess policy and $150,000 by the other = insurer.

=20 In that situation is any actionable duty owed (directly or by = subrogation=20 to the insured's rights) to the insurer paying the $1.35 million by the=20 underpaying insurer to reimburse the former respecting its payment of = more than=20 its proportionate part of the settlement?

=20 2. If there is potentially such a duty, does it depend on the = underpaying=20 insurer having been negligent in its ultimate evaluation of the case as = worth no=20 more than $300,000, or does the duty depend on the underpaying insured's = evaluation having been sufficiently wrongful to justify an action for = breach of=20 the duty of good faith and fair dealing for denial of a first party = claim, or is=20 the existence of the duty measured by some other standard?

=20 3. If there is potentially such a duty, is it limited to a duty = owed the=20 overpaying insurer respecting the $350,000 it paid on the settlement = under its=20 excess policy?

Liberty=20 Mut. Ins. = Co. v.=20 Mid-Continent Ins. Co., 405 F.3d 296, = 310 (5th=20 Cir. 2005). We answer the first question in the = negative, and=20 therefore do not reach the second and third questions.

I. Background

=20 In November 1996, an automobile accident occurred in the = construction=20 zone of a State of Texas highway project. A=20 westbound car driven by Tony Cooper on the lanes narrowed by = construction=20 crossed into on-coming traffic and collided with an eastbound car driven = by=20 James Boutin and occupied by his = family. All=20 members of the Boutin family suffered = substantial=20 injuries. Kinsel Industries was the general = contractor=20 on the highway project. Crabtree Barricades was Kinsel=92s subcontractor responsible for signs and = dividers.=20 The Boutin family sued Cooper, the State, = Kinsel, and Crabtree in the state district court = of=20 Liberty County, = Texas, for damages resulting from = the=20 accident.

=20 Kinsel was the named insured under = Liberty=20 Mutual Insurance Company=92s $1 million comprehensive general liability = (CGL)=20 policy. Liberty Mutual also provided Kinsel = with $10=20 million in excess liability insurance. Crabtree was the named insured = under=20 Mid-Continent Insurance Company=92s $1 million CGL policy. = Mid-Continent=92s policy=20 identified Kinsel as an additional insured = for=20 liability arising from Crabtree=92s work. Kinsel,=20 therefore, was a covered insured under two CGL policies, both of which = provided=20 Kinsel with $1 million in indemnity coverage = for the=20 underlying suit. The insurers had no contract between them that was = implicated=20 by the automobile accident.

=20 The CGL policies contained identical =93other insurance=94 = clauses providing=20 for equal or pro rata sharing up to the co-insurers=92 respective policy = limits if=20 the loss is covered by other primary insurance:

=20 4. Other Insurance.

If other=20 valid and collective insurance is available to the insured for a loss we = cover=20 under Coverages A [=91Bodily Injury and = Property Damage=20 Liability=92] or B of this Coverage Part, our obligations are limited as follows:

a.=20 Primary Insurance

. . .=20 If this insurance is primary our obligations are not affected unless any = of the=20 other insurance is also primary. Then, we will share with all that other = insurance by the method described in c. below.

. .=20 .

c.=20 Method of Sharing

If all=20 of the other insurance permits contribution by equal shares, . . . each = insurer=20 contributes equal amounts until it has paid its applicable limit of = insurance or=20 none of the loss remains, whichever comes first.

If any=20 of the other insurance does not permit contribution by equal shares, we = will=20 contribute by limits. Under this method, each insurer=92s share is based = on the=20 ratio of its applicable limit of insurance to the total applicable = limits of=20 insurance of all insurers.

Each policy=20 also contained a =93voluntary payment=94 clause,[1] a subrogation clause,[2] and a version of the standard = =93no action=94=20 clause.[3]

=20 Liberty Mutual and Mid-Continent do not dispute that each owed = some=20 portion of Kinsel=92s defense and = indemnification. The=20 insurers agreed that a total verdict for the Boutins=20 against all defendants would be around $2 to $3 million, but they = disagreed on=20 the settlement value of the case against Kinsel.=20 Initially both insurers estimated Kinsel=92s = percentage=20 of fault between ten percent and fifteen percent, but as the case = progressed=20 Liberty Mutual increased its estimate to sixty percent. After repeated = refusals=20 by Mid-Continent to increase its contribution to a settlement, Liberty = Mutual=20 agreed at a mediation with the Boutins to settle on behalf of Kinsel for $1.5 million (sixty percent of a $2.5 = million=20 anticipated verdict). Liberty Mutual demanded Mid-Continent contribute = half, but=20 Mid-Continent continued to calculate the settlement value of the case = against=20 Kinsel at $300,000 and agreed to pay only = $150,000.=20 Liberty Mutual, therefore, funded the remaining $1.35 million, paying = $350,000=20 more than its $1 million CGL policy limit. Liberty Mutual reserved the = right to=20 seek recovery against Mid-Continent for its portion of the settlement. = Sometime=20 later, before trial, Mid-Continent settled the Boutins=92 claim against Crabtree for $300,000. = Liberty Mutual=20 sued Mid-Continent in the 191st Judicial District Court of Dallas County, = Texas, seeking to recover Mid-Continent=92s pro rata share of the sum paid to = settle the=20 Boutin family=92s claim against Kinsel. Mid-Continent timely removed the case to = federal=20 court on diversity grounds. After a bench trial, the United States = District=20 Court for the Northern District of Texas concluded that Liberty Mutual = was=20 entitled through subrogation to recover $550,000 from Mid-Continent. = Liberty=20 Mut. Ins. = Co. v.=20 Mid-Continent Ins. Co., 266 F. Supp. = 2d 533,=20 544, 546 (N.D. Tex. 2003). = Relying on=20 General Agents Insurance Co. of America v. Home Insurance Co. of=20 Illinois, 21 S.W.3d 419 (Tex. App.=97San Antonio 2000, pet. dism=92d by agr.), the = district=20 court determined that each insurer owed a duty to act reasonably in = exercising=20 its rights under the CGL policies. Liberty Mut. Ins., 266 F. Supp. 2d at 542. It found that=20 Mid-Continent was objectively unreasonable in assessing Kinsel=92s share of liability, and that Liberty = Mutual was=20 reasonable in assessing the same and in accepting the Boutins=92 settlement offer. Id. at 543=9644. Specifically, the district court = stated that=20 =93Mid-Continent's recalcitrance to consider any change, despite the = changing=20 circumstances, was unreasonable, causing it to unreasonably assess its = insured's=20 exposure,=94 while on the other hand Liberty Mutual, =93[b]y agreeing to = settle for=20 [$1.5 million] . . . resolved the case within policy limits, based on a=20 reasonable estimation of Kinsel=92s = liability, and=20 avoided the real potential of joint and several liability.=94 Id. at=20 544.

=20 Therefore, the district court concluded that, whether apportioned = pro=20 rata or in equal shares, Mid-Continent was liable in subrogation for = $750,000,=20 one-half of the $1.5 million settlement with Kinsel.=20 Id. at=20 546.[4] Because Mid-Continent already = paid=20 $450,000 of its $1 million policy limit in settlement ($150,000 for the = suit=20 against Kinsel and $300,000 for the suit = against=20 Crabtree), the district court ordered Mid-Continent to pay only = $550,000.=20 Id.=20 Although this amount is $50,000 short of Mid-Continent=92s $750,000 = share of the=20 Kinsel settlement, the district court found = no=20 justification for increasing Mid-Continent=92s total liability above its = $1=20 million policy limit. Id. Mid-Continent appealed, and the Fifth = Circuit=20 certified questions of law to this Court. Tex. R. App. P. 58.1. We = accepted the=20 certified questions.

II. Discussion

=20 Liberty Mutual defends the district court=92s $550,000 award on = grounds=20 that it is entitled to reimbursement through the contractual subrogation = clause=20 in its CGL policy and through the type of equitable subrogation applied = in=20 General Agents. Liberty Mutual argues it is subrogated to the = contractual=20 right of Kinsel to enforce language in = Mid-Continent=92s=20 policy that places a duty on Mid-Continent to defend any claim or suit = and pay=20 an equal or pro rata share of settlement. Liberty Mutual also contends = it is=20 subrogated to the common law right of Kinsel = to have=20 Mid-Continent act reasonably when handling an insured=92s = defense=97including=20 reasonable negotiation and participation in settlement. The latter = suggests we=20 expand or create a modified Stowers duty=20 in the circumstances of this case.

=20 Mid-Continent contends that it did not breach any recognized = contractual=20 or common law duty to Kinsel to which = Liberty Mutual=20 may be subrogated. Mid-Continent further argues that it owed no direct = duty to=20 Liberty Mutual upon which reimbursement may be based. Any new duty in = this=20 context created by General Agents and adopted by the district = court,=20 Mid-Continent continues, is contrary to Texas law.

=20 Specifically, with respect to subrogation, Mid-Continent denies = that=20 Kinsel has an enforceable contract right to = which=20 Liberty Mutual may be subrogated. Mid-Continent explains that because it = complied with its contractual duty to timely assume defense of the suit = against=20 Kinsel and acknowledged policy coverage, = Kinsel=97and therefore Liberty Mutual=97has no = contract claim=20 against Mid-Continent. Mid-Continent relies on the voluntary payment and = no-action clauses in its policy to limit its liability to the amounts it = consented to pay.

=20 Mid-Continent adds that its only common law duty to Kinsel in this third party context was the Stowers duty to accept a reasonable = settlement=20 offer within policy limits from the Boutins, = or else=20 be liable for any excess judgment against Kinsel.=20 See G. A. Stowers=20 Furniture Co. v. Am. Indem. = Co., 15 S.W.2d 544, 547 = (Tex. Comm=92n App. 1929, holding approved); Md. = Ins. Co. v.=20 Head Indus. Coatings & Servs., Inc., 938 S.W.2d 27, 28 (Tex. 1996) (superceded by statute). Claiming = there was=20 no offer within policy limits and no excess judgment, Mid-Continent = asserts=20 Stowers cannot apply in this = case.

=20 Asserting that no direct action exists between co-insurers in = Texas,=20 Mid-Continent points to Traders & General Insurance Co. v. Hicks = Rubber=20 Co., 169 S.W.2d 142 (Tex. 1943) and American Centennial Insurance = Co. v.=20 Canal Insurance Co., 843 S.W.2d 480 (Tex. 1992). In Hicks = Rubber, we=20 held that a direct contribution action does not exist between = co-insurers when=20 their policies contain other insurance clauses. 169 = S.W.2d at=20 148. Similarly in Canal, the Court declined to recognize a = direct=20 action between an excess liability insurer and a primary liability = insurer.=20 843 S.W.2d at 483. Mid-Continent adds that = the lack of=20 litigation in Texas between co-primary insurers = disconfirms=20 any need to create a right of reimbursement between them.

=20 Liberty Mutual=92s claim for = reimbursement=20 involves the contractual and common law duties of an insurer in two = distinct=20 scenarios. The first scenario involves the ability of one co-insurer to = compel a=20 second co-insurer=92s proportionate participation in the settlement of a = third=20 party claim. The second scenario, which arises from the first through = Liberty=20 Mutual=92s claim of subrogation, involves = the ability of=20 an insured to compel an insurer=92s proportionate participation in the = settlement=20 of a third party claim. Because no statute applies in the third party = context,=20 the scenarios are matters of common law contract and tort.

We = agree with=20 Mid-Continent and conclude that Liberty Mutual is not entitled to = reimbursement=20 because there is no direct duty of reimbursement between these = co-primary=20 insurers, and because Kinsel has no rights = against=20 Mid-Continent to which Liberty Mutual may be subrogated. We disapprove = of=20 General Agents to the extent it would provide recovery to an = overpaying=20 co-primary insurer in the context presented.

A. Contribution

=20 Even though Liberty Mutual does not expressly argue for a right = of=20 contribution, its reliance on General Agents necessarily implies = such.=20 Thus, we analyze whether Liberty Mutual has a direct action for = reimbursement=20 under a right of contribution from Mid-Continent.

=20 We recognized long ago in Hicks Rubber =93the general rule = that, if=20 two or more insurers bind themselves to pay the entire loss insured = against, and=20 one insurer pays the whole loss, the one so paying has a right of action = against=20 his co-insurer, or co-insurers, for a ratable proportion of the amount = paid by=20 him, because he has paid a debt which is equally and concurrently due by = the=20 other insurers.=94 Hicks Rubber Co. 169 = S.W.2d at=20 148. The right of action is one of contribution, the elements of = which=20 require that the several insurers share a common obligation or burden, = and that=20 the insurer seeking contribution has made a compulsory payment or other=20 discharge of more than its fair share of the common obligation or = burden.=20 Employers Cas. = Co. v.=20 Trans. Ins. Co., 444 S.W.2d 606, 609 (Tex. 1969) (citing 18 Am. Jur. 2d=20 Contribution =A7 7 (2004)).

=20 We also recognized in Hicks Rubber, however, that = this=20 direct claim for contribution between co-insurers disappears when the = insurance=20 policies contain =93other insurance=94 or =93pro rata=94 clauses. 169=20 S.W.2d at 148. A pro rata clause operates to ensure that each = insurer is=20 not liable for any greater proportion of the loss than the coverage = amount in its policy bears to the entire = amount of=20 insurance coverage available. Id. at=20 147. The effect of the pro rata clause precludes a direct claim = for=20 contribution among insurers because the clause makes the contracts = several and=20 independent of each other. Id. With independent = contractual=20 obligations, the co-insurers do not meet the common obligation = requirement of a=20 contribution claim=97each co-insurer contractually agreed with the = insured to pay=20 only its pro rata share of a covered loss; = the=20 co-insurers did not contractually agree to pay each other=92s pro rata = share.=20 Employers Cas. = Co., 444 S.W.2d at = 609. In=20 addition, the co-insurer paying more than its = contractually agreed upon proportionate share does so voluntarily; that = is,=20 without a legal obligation to do so. Id. at 609=9610. Thus, a co-insurer paying more than = its=20 proportionate share cannot recover the excess from the other = co-insurers.=20 Hicks Rubber, 169 S.W.2d at 148. The = effect is=20 not the same with respect to the insured=92s right of recovery. When an = insured is=20 covered by multiple policies containing pro rata clauses, and the = insured has=20 not been fully indemnified, the insured may enforce this contractual = obligation to recover the multiple insurers=92 shares of the covered = loss, so long=20 as the shares are within the respective insurers=92 policy limits. = See id.,=20 at 147=9648.

=20 The CGL policies at issue here contain pro rata clauses. Liberty = Mutual=20 and Mid-Continent contractually agreed in their respective policies to = pay a=20 proportionate share of Kinsel=92s covered = loss up to $1=20 million. The co-insurers did not, however, contract with each other to = create=20 obligations between themselves or to pay each other=92s proportionate = share of=20 Kinsel=92s loss. There is no contractual = right of=20 contribution between them, and the presence of the pro rata clauses in = the CGL=20 policies precludes an equitable contribution claim. In this situation, = no=20 contractual obligations exist between co-insurers to apportion between=20 themselves the payment on behalf of the insured, and we are not = persuaded to=20 create such an obligation under the common law. Cf. = Canal, 843 S.W.2d at 483 = (declining to=20 recognize an excess insurer=92s right to bring a direct action for = reimbursement=20 from a primary insurer).

=20 This conclusion is contrary to the holding of the San Antonio = Court of=20 Appeals in General Agents, which appears to have recognized a new = duty=20 between co-insurers to reasonably exercise their rights under an = insurance=20 policy given the totality of the circumstances. 21 = S.W.3d at=20 426. There, two insurers, General Agents Insurance Company of = America,=20 Inc. (GAINSCO) and The Home Insurance Company of Illinois (Home), concurrently held = identical=20 $1 million policies in favor of Power Equipment. Id. at 421. It is unclear from the opinion = whether the=20 policies contained pro rata clauses. Still, both insurers acknowledged = coverage=20 and provided defense in a personal injury suit against Power Equipment.=20 Id. at=20 422. The insurers differed in their assessment of prevailing at = trial.=20 Id. Home was willing to offer $1 million in settlement, while = GAINSCO=20 would offer no more than $250,000. Id. Home settled for $1.25 = million, an=20 amount funded $1 million by Home and $250,000 by GAINSCO. Id. = Home sued=20 GAINSCO for $375,000 (one half the $1.25 million settlement less the = $250,000=20 paid by GAINSCO), and recovered judgment based on the jury finding that = $1.25=20 million was =93the fair and reasonable amount that should have been paid = to=20 settle=94 the claim against Power Equipment. Id. at 423.

=20 On GAINSCO=92s appeal, the San = Antonio Court of=20 Appeals reversed and remanded for a new trial, holding that =93[t]he = trial court=20 should have submitted a question to the jury that inquired about the=20 reasonableness of GAINSCO's position and = actions in=20 exercising its rights under its policy given the totality of the=20 circumstances.=94=20 Id. at=20 426 (listing various factors a jury should consider). According to the = court,=20 =93GAINSCO=92s willingness to proceed with = the defense of=20 the lawsuit and its right to enforce the no-action clause in its policy = . . .=20 [had to] be balanced against Home=92s desire to settle for policy limits = and its=20 co-equal right to control the defense and settlement of the lawsuit.=94 = Id.=20 at 424.

=20 The General Agents opinion suggests that breach of this = duty would=20 provide, through subrogation, an overpaying co-insurer with a right of=20 reimbursement for the excess from the breaching co-insurer. Id. at=20 426. Although it characterized the right of action as one of = subrogation,=20 the General Agents court did not identify the rights of the = common=20 insured to which Home could be subrogated to recover its overpayment = from=20 GAINSCO. Rather, by balancing Home=92s interests with those of GAINSCO, = the court=20 appeared to premise a right of reimbursement on a direct duty between=20 co-insurers to act reasonably in exercising their policy rights. = Id. at=20 426. For the reasons outlined above, we disagree with General = Agents=20 to the extent it creates a common law duty between co-primary = insurers to=20 reasonably exercise rights under an insurance policy.

B. Subrogation

=20 Acknowledging that a right of contribution does not exist in this = context, Liberty Mutual contends it can seek reimbursement through = contractual=20 or equitable subrogation to the rights of Kinsel. Both=20 Hicks Rubber and Employers Casualty contain language = suggesting=20 that such an avenue of reimbursement could exist.

=20 In Employers Casualty, after precluding a right to = contribution,=20 we said that the co-insurers=92 remedy for reimbursement would lie in = contractual=20 or equitable subrogation. 444 S.W.2d at 610. = In=20 Hicks Rubber, a case relied upon in Employers Casualty, we = said=20 that when several insurance policies covering the same loss contain pro = rata=20 clauses, none of the co-insurers has a right to contribution from the = others,=20 =93nor will the payment of the whole loss by any of them discharge the = liability=20 of the others.=94 169 S.W.2d at 148. This = languaage suggests that payment of the = insured=92s=20 entire loss by one co-insurer does not relieve the other co-insurers=92=20 contractual obligations to the insured to pay their pro rata = share of the=20 loss. Id. The implication is that the = insured=20 would still have a right to enforce the contractual obligation, and = presumably,=20 that the co-insurer seeking reimbursement could be subrogated to this = right.

=20 Having a right to subrogation, however, is distinct from the = ability to=20 recovery under that right. See Esparza v. Scott & White Health = Plan,=20 909 S.W.2d 548, 551 (Tex. App.=97Austin 1995, writ denied) (=93While an = insurance=20 contract providing expressly for subrogation may remove from the realm = of equity=20 the question of whether the insurer has a right to subrogation, = it cannot=20 answer the question of when the insurer is actually entitled to=20 subrogation or how much it should receive.=94). In Hicks = Rubber and=20 Employers Casualty we did not apply the particular facts to the = elements=20 of the suggested right to subrogation to determine if the overpaying = co-insurer=20 could actually recover. Doing so here, we determine that the facts = preclude=20 recovery because Liberty Mutual cannot meet the elements of = subrogation.

=20 There are two types of subrogation. See id. at 551. Contractual (or conventional) subrogation = is created=20 by an agreement or contract that grants the right to pursue = reimbursement from a=20 third party in exchange for payment of a loss, while equitable (or = legal)=20 subrogation does not depend on contract but arises in every instance in = which=20 one person, not acting voluntarily, has paid a debt for which another = was=20 primarily liable and which in equity should have been paid by the = latter.=20 Argonaut Ins. Co. v. Allstate Ins. Co., 869 S.W.2d 537, 542 (Tex. = App.=97Corpus Christi 1993, writ denied); see also Lee R. Russ & Thomas F. Segalla, = 16 Couch=20 on Insurance =A7 223:1 (3d ed. 2005).[5] In either case, the insurer = stands in the=20 shoes of the insured, obtaining only those rights held by the insured = against a=20 third party, subject to any defenses held by the third party against the = insured. See Interstate Fire Ins. Co. = v.=20 First Tape, Inc., 817 S.W.2d 142, 145 (Tex. App.=97Houston [1st = Dist.] 1991,=20 writ denied); Int=92l Ins. Co. v. Med.-Prof=92l Bldg.=20 of Corpus Christi, 405 S.W.2d 867, 869 (Tex. Civ.=20 App.=97Corpus Christi 1966, writ ref=92d = n.r.e.); see also 16 Couch on Insurance =A7 = 222:5.=20 Privity of contract between the insurers = is not=20 necessary. Phipps v. Fuqua, 32 S.W.2d 660, 663 (Tex. Civ. App.=97Amarillo 1930, writ ref=92d).

1.=20 Kinsel=92s Potential Contractual = Rights

=20 Liberty Mutual asserts a right to subrogation in equity and = through the=20 subrogation clause found in its CGL policy. In either case, Liberty = Mutual must=20 step into Kinsel=92s shoes to assert only = those rights=20 held by Kinsel against Mid-Continent, = subject to any=20 defenses held by Mid-Continent against Kinsel. See=20 Interstate Fire, 817 S.W.2d at 145; = Med.-Prof=92l Bldg. of Corpus Christi, 405 S.W.2d at = 869. The=20 potential rights of Kinsel to which Liberty = Mutual may=20 be subrogated stem from the contractual and common law duties an insurer = owes=20 its insured, which Liberty Mutual and Mid-Continent both owed to Kinsel. We analyze in turn Kinsel=92s right to enforce these duties.

=20 Liberty Mutual argues it is subrogated to the contractual right = of Kinsel to enforce language in Mid-Continent=92s = policy=20 imposing a duty upon Mid-Continent to defend and indemnify Kinsel and to pay a pro rata share of settlement. = We agree=20 that the co-insurers=92 contractual duties to Kinsel=20 were specified in the CGL policies and included, as discussed above, a = several=20 and independent duty to pay a pro rata share of a covered loss up to = their=20 respective policy limits. See Hicks Rubber, 169 S.W.2d=20 at 147. But this duty cannot be viewed independent of the purpose = of a=20 pro rata clause, nor without consideration of the rules of = indemnification. As=20 Mid-Continent validly asserts, Kinsel has no = right,=20 after being fully indemnified, to enforce Mid-Continent=92s duty to pay = its pro=20 rata share of a loss.

=20 A liability policy obligates an insurer to indemnify the insured = against=20 a covered loss arising from the insured=92s own legal liability. Members Mut. = Ins. Co. v. Hermann Hosp., 664=20 S.W.2d 325, 327 (Tex. 1984). An = insured=92s=20 right of indemnity under an insurance policy is limited to the actual = amount of=20 loss. Paramount Fire Ins. Co. v. Aetna Cas. & Sur. Co., 353 = S.W.2d 841,=20 844, 845 (Tex.=20 1962). Where two different policies provide coverage for a loss, the=20 pro rata clause does not create an exception to the principle of = indemnity, but=20 rather implements that principle by eliminating the potential for double = recovery by the insured. See Ortiz = v. Great=20 Southern Fire and Cas. Ins.=20 Co., 597 S.W.2d 342, 343 (Tex. = 1980) (=93One=20 reason that the right of equitable subrogation is granted to an insurer = is to=20 prevent the insured from receiving a double recovery.=94); = Fireman=92s Fund Ins.=20 Co. v. Md.=20 Cas. Co., 77 = Cal. Rptr. 2d 296, 305 (Cal. Ct. App. 1998) (=93The = fact that=20 several insurance policies may cover the same risk does not increase the = insured=92s right to recover for the loss, or give the insured the right = to=20 recover more than once.=94).

[W]here=20 there are several policies of insurance on the same risk and the insured = has=20 recovered the full amount of its loss from one or more, but not all, of = the=20 insurance carriers, the insured has no further rights against the = insurers who=20 have not contributed to its recovery. Similarly, the liability of the = remaining=20 insurers to the insured ceases, even if they have done nothing to = indemnify or defend the insured.

Fireman=92s=20 Fund Ins. Co., 77 Cal. Rptr. 2d at=20 305.

=20 Equity does not demand a different result here. We hold, = therefore, that=20 a fully indemnified insured has no right to recover an additional pro = rata=20 portion of settlement from an insurer regardless of that insurer=92s = contribution=20 to the settlement. Having fully recovered its loss, an insured has no=20 contractual rights that a co-insurer may assert against another = co-insurer in=20 subrogation.

2.=20 Kinsel=92s potential common law = rights

=20 Liberty Mutual also argues it is subrogated to the common law = right of=20 Kinsel to enforce Mid-Continent=92s duty to = act=20 reasonably when handling an insured=92s defense=97including reasonable = negotiation=20 and participation in settlement. An insurer=92s common law duty in this = third=20 party context is limited to the Stowers=20 duty to protect the insured by accepting a reasonable settlement = offer=20 within policy limits. See Stowers, 15 S.W.2d at 547. Stowers is the only common law = tort duty in=20 the context of third party insurers responding to settlement demands. = Md.=20 Ins. Co., 938 S.W.2d at 28 (citing Tex. Farmers Ins. Co. v. Soriano, 881 S.W.2d 312, 318 (Tex. 1994) = (Cornyn, J., concurring). =93The Stowers duty is not activated by a = settlement=20 demand unless three prerequisites are met: (1) the claim against the = insured is=20 within the scope of coverage, (2) the demand is within the policy = limits, and=20 (3) the terms of the demand are such that an ordinarily prudent insurer = would=20 accept it, considering the likelihood and degree of the insured=92s = potential=20 exposure to an excess judgment.=94 Am. Physicians Ins. Exch. v. = Garcia, 876=20 S.W.2d 842, 849 (Tex. 1994) (citing Stowers, 15 S.W.2d at 547). A demand above = policy=20 limits, even if reasonable, does not trigger the Stowers duty to settle. Id.

=20 Mid-Continent did not breach a Stowers duty to Kinsel because the Boutins did not=20 make a settlement offer within Mid-Continent=92s policy limits. See = id.=20 (settlement demand must be within policy = limits to=20 trigger Stowers duty). We decline to = modify=20 Stowers to create rights for = Kinsel and therefore, Liberty Mutual, via = subrogation. In=20 addition, we note Liberty Mutual paid a debt for which it too was = primarily=20 liable, thus not satisfying the traditional subrogation requirement that = the=20 subrogee pay a debt for which another was = primarily=20 liable. See Argonaut Ins. Co., 869 S.W.2d at 542; see also = 16 Couch on Insurance =A7 = 223:1; 44 Am. Jur. = 2d=20 Insurance =A7 1787, at 256 (2003) (=93[T]he doctrine of = subrogation is=20 inapplicable if the liability insurer seeking subrogation is the one = primarily=20 liable; and the doctrine is inapplicable if the effect of the respective = policies is to establish equal liability.=94 (footnotes=20 omitted)).

The = present=20 situation differs from the issue we addressed in Canal. 843 S.W.2d at 482. In Canal we recognized = equitable=20 subrogation as a basis for an excess insurer=92s recovery against a = primary=20 insurer to prevent a primary insurer from taking advantage of an excess = insurer,=20 acting solely as such, when a potential judgment approaches the primary=20 insurer=92s policy limits. Id.=20 at 483. The excess insurer would be forced to pay for a debt = for=20 which another insurer was primarily liable. In this case, however, = Liberty=20 Mutual played a dual role as primary insurer and excess insurer and was = in a=20 position to negotiate a good faith settlement on Kinsel=92s behalf. Equity demanded a remedy for = the excess=20 insurer in Canal, but here equity does not favor such a remedy. A = reasonable primary insurer, which did not improperly handle the claim, = would not=20 pay more than its primary policy limits. In paying $350,000 more than = its $1=20 million policy limits, Liberty Mutual seems to have been motivated by = concern=20 for its excess insurance policy. Mid-Continent cannot be required to = agree to a=20 settlement that requires payment in excess of its remaining coverage to = protect=20 Liberty Mutual=92s excess insurance = interests.

III. Conclusion

=20 In response to the first certified question, we conclude there is = no=20 right of reimbursement in the context presented. Therefore, we do not = reach=20 questions two and three. Kinsel has no = common law=20 cause of action against Mid-Continent, nor does it have, after being = fully=20 indemnified, any contractual rights remaining against Mid-Continent. = Because=20 Kinsel has no rights to which Liberty Mutual = may be=20 subrogated, Liberty Mutual has no right of reimbursement through = subrogation. Of=20 course, how our answer is applied in the case before the Fifth Circuit = Court of=20 Appeals is solely the province of that certifying court. See Amberboy v. Societe de = Banque Privee, 831 = S.W.2d 793,=20 798 (Tex.=20 1992).

&nbs= p; = ; =20 ________________________________________

&nbs= p; = ; = &= nbsp; &n= bsp; =20 J. Dale Wainwright

&nbs= p; = ; = &= nbsp; &n= bsp; =20 Justice

OPINION DELIVERED: = October 12,=20 2007

^[1]=20 The =93voluntary payment=94 clauses provided, =93No insureds=20 will, except at their own cost, voluntarily make a payment, assume any=20 obligation, or incur any expense, other than for first aid, without our=20 consent.=94

^[2]=20 The subrogation clauses provided, =93If the insured has rights to = recover all or=20 part of any payment we have made under this Coverage Part [=91Bodily = Injury or=20 Property Damage Liability=92], those rights are transferred to = us.=94

^[3]=20 =93A person or organization may sue us to recover on an agreed = settlement or on a=20 final judgment against an insured obtained after an actual trial; but we = will=20 not be liable for damages that are not payable under the terms of this = Coverage=20 Part [=91Bodily Injury or Property Damage Liability=92] or that are in = excess of the=20 applicable limit of insurance. An agreed settlement means a settlement = and=20 release of liability signed by us, the insured and the claimant or the=20 claimant=92s legal representative.=94

^[4]=20 At trial the parties disputed how many policies should be considered in=20 apportioning the cost of the settlement, as Liberty Mutual also held a = business=20 auto policy and excess policy in favor of Kinsel.=20 Id. at=20 539. Because the Fifth Circuit=92s certified questions presume = the loss=20 triggered only Mid-Continent=92s and Liberty = Mutual=92s CGL policies, our answers consider only = these two=20 policies.

^[5]=20 =93In the context of equitable subrogation, =91Texas courts have been liberal in = their=20 determinations that payments were made involuntarily.=92=94 Keck, = Mahin & Cate v. = Nat=92l Union=20 Fire Ins. Co. of Pittsburgh, Pa., 20 S.W.3d 692, 702 (Tex. 2000) = (quoting=20 Argonaut Ins. Co., 869 S.W.2d at 542). An insurer is not a = volunteer if=20 it pays a third party claim against its insured in good faith and under = a=20 reasonable belief that the payment is necessary to its protection. = Id. (citing=20 Arkwright-Boston Mfrs. Mut. Ins. Co. v. = Aries=20 Marine Corp., 932 F.2d 442, 447 (5th = Cir.=20 1991)).