Strategies, Challenges, and Answers

Many Nevada Judges Allow UM / UIM Breach Of Contract And Extra-Contractual Causes Of Action To Proceed Simultaneously In The Same Suit

Some states require policyholders to complete the litigation over the contract portion of a UM / UIM claim before a bad faith or unfair claims practices action can commence.
Blanchard v. State Farm Mut. Auto. Ins. Co.,575 So.2d 1289, 1291 (Fla.1991) National Sav. Life Ins. Co. v. Dutton,419 So.2d 1357, 1362 (Ala.1982), Lexington Ins. Co. v. Royal Ins. Co. of Am.,886 F.Supp. 837, 841-42 (N.D.Fla.1995).  Some states obligate the policyholder to go through arbitration before the bad faith claim can proceed.

Pemberton in Nevada Supreme Court, Nevada Coverage Law, Nevada Bad Faith Law, Mills & Associates Nevada Insurance and Coverage Lawyers, Las Vegas Insurance and Coverage Lawyers 702-240-6060However, many Nevada judges allow policyholders to proceed with claims for breach of contract and extra-contractual simultaneously.  This Nevada trend began with the case of Pemberton v. Farmers Ins. Co., 109 Nev. 789, 858 P.2d 380 (1993).  In that case, the policyholder filed a breach of contract action and bad faith action in the same complaint.   The insurance company argued that the policyholder had to obtain a judgment against the tortfeasor before any claim could move forward.

In Pemberton, the Nevada Supreme Court said:

We agree that an insured must demonstrate fault by the tortfeasor and the extent of damages before a claim for bad faith will lie. But, an insured is not required to obtain a judgment against the tortfeasor before he or she is entitled to receive proceeds under a UM policy. Brown v. USAA Casualty Ins., 840 P.2d 1203, 1204 (Kan.Ct.App. 1992).

Accordingly, we hold that an insured may institute a bad faith action against his or her insurer once the insured establishes “legal entitlement” and unreasonable conduct by the insurer concerning its obligations to the insureds.

Pemberton, 109 Nev. 789.

The fall out of the imprecise language of Pemberton has been that the policyholders have felt free to bring breach of contract and extra-contractual suits at the same time.  It is rare to see a UM / UIM breach of contract complaint without extra-contractual causes of action tacked on.

Obviously, insurance companies have attempted to get clarity regarding what “legal entitlement” means, particularly where the only dispute that exists is the value of the claim.  There are decisions out of the U.S. District Court for Nevada that hold that extra-contractual claims should be held in abeyance or if nothing else, bifurcated from the contract claims until the latter are resolved.  See for example see, Carter v. State Farm Mut. Auto. Ins. Co., 1996 WL 901286 (D. Nev. 1996) and Martin v. State Farm Mut. Auto, Ins. Co., 960 F.Supp. 233 (1997).  However, the Nevada Supreme Court has not made any attempt to clarify itself and many judges read Pemberton as an open door to allow contract and extra-contractual claims to move forward together.

Practically speaking, contact and extra-contractual suits that move forward together are not only difficult to manage, they are also expensive from a discovery and trial standpoint.  Not only is the company forced to litigate the value of the injury claim, it must also simultaneously conduct discovery on its claims practices and do its best to justify its claims decisions.  This practice requires twice as many experts as one would normally expect in a contract action alone.  The company must have experts regarding the extent of the injuries.  But it must have experts regarding the claims handling as well.  Often, it is difficult to even convince the court to bifurcate the trial of the two issues.

Defense counsel can employ a number of strategies to attempt to mitigate the costs and the complexity of such cases.  Each of the strategies can have its own risks.  But until the Nevada Supreme Court finally clarifies what it meant in Pemberton, there will continue to be confusion and expense.

If you have a question about Nevada’ UM / UIM claims and whether a bad faith claim can be brought at the same time, please feel free to contact Mike Mills at or 702-240-6060.

Mills & Associates Nevada Coverage Lawyers 702-240-6060