Strategies, Challenges, and Answers

Inadequate Limits? What Not To Do. . .

Insurance companies regularly ask Mills & Associates for advice on how to handle claims where policy limits are inadequate, either because the injuries are severe or because there’s just not enough money to satisfy the multiple claimants.  The case of Benchmark v. Sparks, 127 Nev. Adv. Op. 33, 254 P.3d 617 (2011) all but does away with one option that has been popular with the insurance companies, that of interpleader.

Inadequate Limits Nevada, Interpleader, Nevada Coverage Law, Nevada Bad Faith Law, Mills & Associates Nevada Insurance and Coverage Lawyers, Las Vegas Insurance and Coverage Lawyers 702-240-6060 The court explained that the Benchmark policy included a provision that said that the company’s duty to settle or defend ends when its limit of liability was exhausted.  The Benchmark insured was involved in an accident in which one person was killed and another was seriously injured.  Benchmark filed an interpleader asking the court’s permission to deposit the policy limits.  Benchmark argued that once its policy was exhausted, that it would have no further duty to defend.  The trial court allowed the interpleader but would not release the company from its duty to defend.  Benchmark appealed but only after it had defended the underlying bodily injury claim.

The Nevada Supreme Court upheld the decision of the trial court.  It said that the reason why Benchmark could not avoid the duty to defend was because the policy was ambiguous.  Benchmark had not made it clear that it could terminate the defense by depositing the policy limits with the court.  The court followed an argument that was made by the court in Brown v. Lumbermens Mutual Casualty Co., 390 S.E.2d 150 (N.C. 1990).  The court explained the exhaustion provision’s ambiguity as follows:

the provision, when read as a whole, was capable of two interpretations: either the insurer could exhaust its liability by any conceivable method, or it could exhaust its liability by only one of the two methods previously stated in the provision.  Id.  Given the provision’s ambiguity, the Brown court concluded that “the provision … must be interpreted favorably to the insured. So interpreted, it means that the insurer’s duty to defend continues until its coverage limits have been exhausted in the settlement of a claim or claims against the insured or until judgment against the insured is reached.”

Because of the ambiguity, the Nevada Supreme Court interpreted the language of the policy in favor of the insured and found that the carrier had to either settle or defend.  It couldn’t just toss the money and run.  The court did not rule out the interpleader option altogether.  It simply said that if the company was going to cut off the defense by interpleader, the policy would have to more clearly state that that was an options.  So if your policy uses this pretty standard language, the option of interpleading and avoiding a defense is all but eliminated.

One tool that we have used at Mills & Associates which is still a viable option is to file the Interpleader and then force all parties to the Interpleader action to come to a settlement conference, where hopefully, a resolution can be reached.  It is unclear however, if the party does not appear in the interpleader, whether that is sufficient to protect the insured.  That option will have to be explored in light of this new case.

Readers may also  find it helpful to review our previous blog post on Policy Limit Demand Letters.