Strategies, Challenges, and Answers

Nevada Casualty Insurers Do Not Owe A Fiduciary Duty To Their Insureds

Fiduciary DutyMr. Martin was hurt in an auto accident.  The opposing driver had no insurance.  Mr. Martin turned to his own auto policy for uninsured motorist benefits.  Mr. Martin felt that his insurer, State Farm, didn’t promptly investigate his claim and made inadequate offers to settle. He sued State Farm for breach of contract, bad faith, unfair claims settlement practices, breach of fiduciary duty and infliction of emotional distress.

State Farm filed a Motion to Dismiss.  In the case of Martin v. State Farm Mutual Auto. Ins. Co., 960 F.Supp. 233 (D. Nev. 1997), the court found among other things that there could be no claim for breach of a fiduciary duty because in Nevada, a casualty insurer is not in a fiduciary relationship with its insured.

The court pointed out that if there were a fiduciary relationship, the insurance company would have the duty to place its insured’s interest above its own.  In Nevada, there is no such obligation.  960 F.Supp. at 235.  While the relationship between the insured and the insurer is a special relationship, it is not a fiduciary relationship.  The court followed the cases of Love v. Fire Ins. Exch., 221 Cal.App.3d 1136, 1149, 271 Cal.Rptr. 246 (1990) and Beck v. Farmers Ins. Exch., 701 P.2d 795 (Utah 1985) in reaching its conclusion.

The court explained that an insurance company owes a duty to every one of its insureds to pay only meritorious claims.  Thus a conflict can arise between that duty and the duty owed to the individual insured.   The court concluded:

Since the interests of the insurer and insured can possibly conflict, Nevada courts have never gone so far as to classify the relationship between an insurer and insured as a fiduciary duty. For these reasons, this Court finds that under Nevada law a fiduciary duty between an insurer and insured does not exist.

Id.  If you have questions about the duty that your insurance company owes to its insured, contact Mike Mills at Mills & Associates.  He will gladly speak with you about your company’s individual situation.