Strategies, Challenges, and Answers

U.S. District Court For Nevada Refuses To Dismiss Extra-Contractual Claims Even Though It Finds There Is No Coverage

Mr. Turk was a builder.  His companies and others built the Rancho del Norte Villas.  The construction was supposed to comply with the Fair Housing Act.  It didn’t.  The Disabled Rights Action Coalition sued Turk and a number of others for the alleged violations.

Turk turned to several insurance policies that he thought should cover him.  After various attempts to get a response, he filed for declaratory relief.  Ultimately, the court determined that there was no coverage under any of the policies for Turk.  See Turk v. TIG Ins. Co., 616 F.Supp.2d 1044 (D. Nev. 2009).

However, Turk’s suit had included claims against TIG for violations of Nevada’s Unfair Claims Practices Act (NRS 686A.310) and for the Breach of Good Faith and Fair Dealing based in both tort and contract.  Even though the court summarily denied Turk’s claims for coverage, the court let stand all the extra-contractual claims.

TIG felt that since there was no coverage, there could be no extra-contractual liability.  Not so! said the court.  As to the Unfair Claims Settlement Practices Act claims, the court specifically faulted TIG for incorrectly denying the existence of a policy when in fact there was one.  (It took TIG over a year to find a copy of the policy that Turk thought should cover him).  The court specifically cited to NRS 686A.310(1)(d) which requires a company to “affirm of deny coverage within a reasonable period of time” as a possible basis for liability.

The court went on to say that there genuine issues of fact regarding the allegations of breaches of duties of good faith and fair dealing.  The court said:

The Court disagrees with TIG’s assertion a claim for breach of the implied covenant of good faith and fair dealing fails in the absence of insurance coverage. As the Supreme Court of Nevada stated in the A.C. Shaw Construction v. Washoe County case, every contract imposes upon each party a duty of good faith and fair dealing. 784 P.2d at 9 (emphasis added). Turk and TIG entered into a contract for insurance and the Court sees no reason why TIG should be able escape the duties imposed upon all contracting parties in Nevada, even if Turk’s claim for coverage was ultimately unfounded. Moreover, even if TIG did not breach the express terms of the insurance contract, it may very well have breached the spirit of the contract by asserting for several months that it never insured Rancho del Norte. See Hilton Hotels v. Butch Lewis Prods., 808 P.2d at 922-23 (A breach of the duty of good faith and fair dealing can occur “[w]here the terms of a contract are literally complied with but one party … deliberately contravenes the intention and spirit of the contract.”). For this same reason, the Court concludes that Plaintiff may also have a claim for tortious breach of this duty: TIG owed a special duty of loyalty to its insured that it may have violated when it continued to assert that it never insured Rancho del Norte.

616 F.Supp.2d at 1054

If you face claims of Bad Faith or violations of Nevada’s version of the Unfair Claims Settlement Practices Act, NRS 686A.310, please call Mike at Mills & Associates.  We’ll do our best to respond to your questions.