Strategies, Challenges, and Answers

What Type of Proceedings Must a Nevada Insurer Defend?

Most liability policies obligate the insurance company to defend its insured in case of a “suit”.  So what proceedings constitute a “suit” that an insurer must defend?  Assuming a duty to indemnify for damages based on a theory of liability put forth in the Complaint, the insurance company has a duty to defend such a lawsuit.  State Farm Mut. Auto. Ins. Co. v. Hansen, 131 Nev. Adv. Op. 74, 357 P.3d 338 (2015).  However, the Nevada Supreme Court has not faced a decision as to whether that duty extends beyond the conventional lawsuit arena.

When faced with new issues involving insurance law, the Nevada Supreme Court has often looked to persuasive precedent from other jurisdictions, especially California.  Zurich Am. Ins. Co. v. Coeur Rochester, Inc., 720 F. Supp. 2d 1223, 1234 n. 11 (D. Nev. 2010).  State Farm Mut. Auto. Ins. Co. v. Hansen, 131 Nev. Adv. Op. 74, 357 P.3d 338 (2015)

California’s answers to this question may at first glance appear mixed.  The California Supreme Court stated that it was drawing a “bright line” as to what constituted a “suit” when it issued the opinion of Foster-Gardner, Inc. v. Nat’l Union Fire Ins. Co., 18 Cal. 4th 857, 878, 959 P.2d 265, 279 (1998).  In that case, the court said that an insurance company had no duty to defend its insured against an order issued by the Environmental Protection Agency (“EPA”) directing an insured to remediate pollution allegedly caused by its fertilizer.  The Court insisted that a pre-litigation administrative action that was not commenced by the filing of a Complaint did not constitute a “suit” within the meaning of the standard general liability policy.

However, the Court said that the key to determining what constitutes a suit does not rest solely on the fact that an action is administrative.  For example, just a few years after the Foster-Gardner opinion, the Court said that the insurance company owed a duty to defend its insured in an administrative action before the U.S. Department of Interior Board of Contract Appeals (IBCA).  Ameron Internat. Corp. v. Ins. Co. of State of Pa., 50 Cal. 4th 1370, 1371, 118 Cal. Rptr. 3d 95, 97, 242 P.3d 1020, 1022 (2010).  The court pointed out that in an ICBA action, pleadings were filed and the insured would be obligated to pay the claim based on the determination of the Board.  Therefore, this was a “suit” that the carrier must defend.

As to the duty to appeal, Nevada might also follow the California precedent creating a duty to defend or prosecute an appeal under certain circumstances.  See Jenkins v. Ins. Co. of N. America, 220 Cal. App. 3d 1481, 1489, 272 Cal. Rptr. 7 (App. 1990) (holding that “a duty to defend may include the duty to appeal where reasonable grounds for an appeal exist”).

If you have questions about the duty to defend in Nevada, please contact Mike Mills at Bauman Loewe Witt & Maxwell either by phone at 702-240-6060 or by email at mmills@blwmlawfirm.com

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