Steven Plitt, Expert Witness

Insurance Bad Faith Claim Handling Expert Serving Clients Nationwide

Phone: 602-322-4038
Steven Plitt, Expert Witness

Steven Plitt, Expert Witness

Insurance Bad Faith Claim Handling Expert Serving Clients Nationwide

DEFENSE COSTS REIMBURSEMENT CONSIDERED BY NEVADA COURT

by | Apr 7, 2022 | Insurance Law

The Nevada Supreme Court held in Nautilus Insurance Co. v. Access Medical, LLC, 482 P.3d 683 (Nev. 2021), on first impression, that the liability insurer could obtain recoupment of defense costs from its insured after establishing that no duty to defend existed.  The court relied upon basic principles of equity in rendering this decision.

In this case the insured was sued over a business dispute.  The defense of the lawsuit was tendered to Nautilus, the general liability insurer.  Initially, the claim was denied.  However, Nautilus undertook the insured’s defense based on an argument that an email the insured had sent the claimant was defamatory.  While defending the insured under reservation, Nautilus filed a declatory judgment action in federal court in Nevada.  The district court held that there was no duty to defend, but disallowed Nautilus’ claim for reimbursement of defense costs.  The case was appealed to the 9th Circuit.  The 9th Circuit agreed with the coverage ruling, i.e., that there was no coverage, but then certified the reimbursement issue to the Nevada Supreme Court.

Four justices of the Nevada Supreme Court agreed that Nautilus was entitled to recover its defense costs based upon principles of unjust enrichment.  Nautilus conferred a benefit on the insured, the insured accepted the benefit, and, therefore, it would be inequitable to allow the insured to retain the benefit.

Given the fact that the law imposed severe penalties on insurers for failing to defend, the court reviewed the reimbursement right as an appropriate remedy for an insurer that is pressured into defending non-covered claims under the threat of bad faith liability.

Three justices dissented, reasoning that there was a growing number of cases in the country disallowing reimbursement.  The dissent argued that insurance companies do not defend close cases to protect their insureds, but rather to protect themselves and, therefore, it would be unfair to require the insured to bear the cost of the insurer’s self-preservation efforts.  In response, the majority concluded that the absence of a contractual reimbursement provision was not material.  The insurer’s claim sounded in equity, not in contract principles.  Additionally, traditional principles surrounding the duty to defend were not material because the court had determined that Nautilus did not have a duty to defend.

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