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Regular readers of this blog may want to jump in and immediately answer that an insurance company cannot rescind auto coverage post-accident. We learned that principle in the blog post HERE about Torres v. Nev. Direct Ins. Co., 131 Nev. 531, 353 P.3d 1203, 2015 Nev. LEXIS 61 (2015). That is because Nevada’s Financial Responsibility Law , NRS 485.3091 imposes compulsory coverage after the accident has happened. In the Torres case, the court ruled that the breach of the insured’s duty to cooperate was not enough to allow the insurance company to escape responsibility under the policy.
But can an insurance company step down the amount of coverage if the policy involved offers limits in excess of the $25,000 / $50,000 minimum required? That question has yet to be answered in Nevada. So let’s look at that question.
NRS § 485.3091(6) seems to suggest that partial rescission might be possible. The statute reads:
- Any policy which grants the coverage required for a motor vehicle liability policy may also grant any lawful coverage in excess of or in addition to the coverage specified for a motor vehicle liability policy, and the excess or additional coverage is not subject to the provisions of this chapter.
When faced with this question, courts in other states have allowed this type of partial rescission or step down. Where there are breaches of the policy, courts have allowed insurance companies to disclaim coverage above minimum limits in spite of frozen coverage laws. Take for example the case of Harris v. Prudential Property & Casualty Ins. Co., 632 A.2d 1380, 1993 Del. LEXIS 439. In that case, the Delaware Supreme Court found that Delaware’s Financial Responsibility Law required absolute coverage for the minimum limits of the law. However, the Court said that for the amounts of coverage in excess of the minimum limits, the insurer would be allowed to prove that the insured breached his obligations under the policy and to preclude coverage for the excess limits. Other cases that have allowed a reduction of limits are Prudential v. Estate of Rojo-Pacheco, 192 Ariz. 139, 962 P.2d 213, 1997 Ariz. App. LEXIS 236, 259 Ariz. Adv. Rep. 59 (Appeals Court approved trial court’s grant of declaratory relief that insurer could rescind its liability coverage in excess of the minimum amount required by the Motor Vehicle Safety Responsibility Act upon proof of legal fraud); Behaney v. Travelers Ins. Co., 121 F.2d 838, 842 (The judgment of the trial court in favor of the plaintiff should have been limited to $5,000 exclusive of costs and interest since this is the limitation imposed by the state’s Financial Responsibility Act); Progressive N. Ins. Co. v. Corder, 15 S.W.3d 381, 384 (Although Corder must be allowed to recover damages under the Stinnett policy, she may recover only up to the minimum amount of liability coverage required by the MVRA.); Odum v. Nationwide Mut. Ins. Co., 101 N.C. App. 627, 401 S.E.2d 87, 1991 N.C. App. LEXIS 150 (any coverage in excess of the statutory minimum, the insurer is not precluded by statute or public policy from asserting the defense of fraud).
Another argument favoring such a step down or partial rescission is that Nevada has used this step down tool in other instances.
For example the cases of Estate of Neal v. Farmers Ins. Exch., 93 Nev. 348, 566 P.2d 81 (1977) allowed a reduction of coverage to minimum limits for a family member exclusion and Zobrist v. Farmers Ins. Exchange, 103 Nev. 104, 734 P.2d 699 (1987) allowed a reduction of coverage to minimum limits for an owned but uninsured exclusion.
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.
