Diatom purchased a commercial general liability (CGL) policy. The Segers sued Diatom for wrongful death. The insurers denied Diatom's request for a defense under the policies, so Diatom proceeded with the defense it could afford. During this time, settlement offers within the policy limits were made and rejected; the insurer was notified of proceedings but declined to appear. After a one-day trial at which evidence was heard, but at which Diatom was represented only by a lay corporate official not an attorney, the Segers prevailed and won a judgment in excess of the policy limits.

Diatom then agreed to assign to the Segers its possible Stowers claim against its own CGL insurers for having failed to provide a defense. The Segers moved forward against the insurers on that theory.

The key question in the court of appeals was whether the insurers were now barred from contesting, in this case, the reasonableness of the judgment they had refused to defend. In State Farm Fire & Casualty Co. v. Gandy, the Supreme Court held that insurers could challenge the basis for a Stowers claim, when there was an assignment of the claim to the plaintiff and certain equitable factors were implicated. Precisely how to draw that line was not clear. In Evanston Insurance Co. v. ATOFINA Petroleum, Inc., the Supreme Court held that a different set of circumstances fell outside Gandy:

Gandy's holding was explicit and narrow, applying only to a specific set of assignments with special attributes. By its own terms, Gandy's invalidation applies only to cases that present its five unique elements. Here, Gandy's key factual predicate is missing: ATOFINA made no assignment of its claim against Evanston; ATOFINA sued Evanston directly. That removes this case from the formal bounds of Gandy.

The facts here present a mixed bag. The case lacks the "five unique elements" that ATOFINA mentioned were present in Gandy. But on the other hand, it does involve an assignment of a claim, the factor that ATOFINA called the "key factual predicate."

The Supreme Court has granted review and may bring more clarity to this question of when insurers might be exposed to Stowers claims for refusing to defend.

The case also raises some additional questions about the recourse if an insurer violates certain statutory requirements. According to the insurers (several of whom have filed amicus briefs), if an insurance policy becomes void for failure to comply with these requirements, then the only remedy under the statute is for a policyholder to cancel the contract. A group of lawyers who represent commercial insureds has filed an amicus brief arguing the opposite, that the effect of this kind of violation is to take away the insurer's defenses, making the policyholders whole and removing any incentive for insurers to skirt the rules.