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In 2019, Nevada Coverage Law asked whether Nevada would follow the California case of Buss v. Superior Court, 16 Cal. 4th 35, 49, 939 P.2d 766 (1997) and allow Nevada insurance companies the right to seek reimbursement for uncovered defense cost. We said that Nevada often looks to California for direction on topics of law not yet addressed in Nevada. See Zurich Am. Ins. Co. v. Coeur Rochester, Inc., 720 F. Supp. 2d 1223, 1234 n. 11; see also Commercial Standard Ins. Co. v. Tab Constr., 94 Nev. 536, 539, 583 P.2d 449, 451 (relying upon the California Supreme Court’s interpretation of a similar statute). In the case of Nautilus Ins. Co. v. Access Med., LLC, 482 P.3d 683 (Nev. 2021), the Nevada Supreme Court answered this question in the affirmative.
The underlying facts involve a dispute between former business partners. Mr. Switzer alleged among other things that Access Medical had “interfered with his prospective economic advantage” based on its interference with Switzer’s business relationship with various hospitals.
During discovery, the parties uncovered an email sent by Weide, the representative of Access Medical. The email claimed that a “California distributor” had been banned from selling certain medical implants. Switzer was not named in the email but it was learned that the California distributor that Weide was referencing was Switzer. The email was not mentioned in the pleadings.
Nevertheless, Access Medical tendered the defense of the suit to the insurance company Nautilus Insurance. Access Medical’s argument was that it was being accused of defaming Switzer and that it was owed a defense under Coverage B of the policy. The policy language said that the company would defend any action “arising out of . . . [o]ral or written publication, in any manner, of material that slanders or libels a person or organization.”
Initially, Nautilus refused to defend the insured. But eventually it took up the defense under a reservation of rights. In the reservation of rights letter, Nautilus reserved its claim for reimbursement of the funds that it expended. Concurrently, Nautilus brought a declaratory relief action claiming that it had no duty to defend or indemnify. The action also asked for recovery of the defense costs that it expended in the underlying case.
The trial court entered declaratory judgment in favor of the insurance company but denied the insurance company’s request for reimbursement of the defense costs. The insurance company appealed that denial. Nautilus Ins. Co. v. Access Med., LLC, 780 F. App’x 457, 459 (9th Cir. 2019). The Ninth Circuit realized that the question of reimbursement had not been answered by the Nevada Supreme Court and certified the question. The Ninth Circuit asked:
Is an insurer entitled to reimbursement of costs already expended in defense of its insureds where a determination has been [*686] made that the insurer owed no duty to defend and the insurer expressly reserved its right to seek reimbursement in writing after defense has been tendered but where the insurance policy contains no reservation of rights?
Nautilus Ins. Co. v. Access Med., LLC, 482 P.3d 683, 685-86 (Nev. 2021).
The Nevada Supreme Court said that an insurance company’s right to reimbursement does not emanate from the insurance policy. Instead, it arises based upon the company’s claim of unjust enrichment. The Court pointed out that a failure to defend can result in serious economic consequences, citing to Century Sur. Co. v. Andrew, 134 Nev. 819, 432 P.3d 180 (2018). The court determined to follow the law cited in the Restatement (Third) of Restitution and Unjust Enrichment § 35 which states:
If one party to a contract demands from the other a performance that is not in fact due by the terms of their agreement, under circumstances making it reasonable to accede to the demand rather than to insist on an immediate test of the disputed obligation, the party on whom the demand is made may render such performance under protest or with reservation of rights, preserving a claim in restitution to recover the value of the benefit conferred in excess of the recipient’s contractual entitlement.
Nautilus, 482 P.3d at 689
In conclusion, the court said that this solution was fair because it would rather have insurance companies defending and sorting out who was to pay later, than not defending at all. The Court said:
As our law has more forcefully encouraged insurers to offer to defend doubtful claims, see Century Sur., 134 Nev. at 822 n.4, 432 P.3d at 184 n.4, it is only fair to permit those insurers to recover costs that they never agreed to bear.
Nautilus, 482 P.3d at 690.
The Court concluded that the right to reimbursement is available only where an insurer defends and the court determines that a duty to defend was never owed.
In a lively dissent, three justices stated that the right to recoupment should only be allowed where it is explicitly provided for in the insurance policy.
If you have questions about Nevada Coverage or Insurance Law, please contact Mike Mills at 702.240.6060×114 or email him at mmills@blwmlawfirm.com.
