Insurers in Nevada Are Entitled to Reimbursement of Defense Costs Paid to Defend Non-Covered Claims

By: Dominica C. Anderson and Daniel B. Heidtke

In a 4-3 decision filed on March 11, the Nevada Supreme Court responded to a certified question from the United States Court of Appeals for the Ninth Circuit.  In Nautilus Insurance Company v. Access Medical, LLC; Robert Clark Wood, II; and Flournoy Management LLC, 137 Nev. Adv. Op. 10 (Nev. 2021), the court held that an insurer that reserves its right to seek reimbursement of defense costs paid to defend an insured may recover those defense costs from the insured upon a showing that the claim was not covered.  The court held, “when a court finally determines that the insurer had no contractual duty to defend, the insurer may ordinarily recover in restitution if it has clearly reserved the right to do so in writing.”

The coverage dispute arose out of underlying litigation between former business partners that worked together selling medical devices.  “After the partnership soured,” one of the former business partners alleged in a lawsuit that his former business partners (the insureds, in the coverage dispute) intentionally interfered with his new business, including by allegedly telling a prospective client that he was “banned” from selling medical devices.  The former business partner-insureds tendered the intentional interference claim to their insurance carrier.

Continue reading “Insurers in Nevada Are Entitled to Reimbursement of Defense Costs Paid to Defend Non-Covered Claims”

Rejection of Reasonable Settlement in Third Party Insurance Claim Not Per Se Unreasonable

In an opinion filed on March 8, the California Court of Appeal, Second District, reversed a jury verdict against an insurer because the jury failed to make an explicit finding that the insurer acted unreasonably in some respect.  In Alexander Pinto v. Farmers Ins. Exch., Case No. B295742, the court held that a bad faith claim requires a finding that the insurer acted unreasonably in some respect.  Because the jury made no such finding (because the verdict form lacked any question asking the jury to make such a finding), the court vacated the verdict in favor of the insured and remanded the case for further proceedings.

The coverage dispute arose out of a single-car traffic accident.  The victim offered to settle his claim against the vehicle owner in exchange for payment of the vehicle owner’s insurance policy limits.  The offer lapsed before the insurer accepted it.  The victim then obtained a judgment in excess of the vehicle owner’s insurance policy limits.  The vehicle owner then assigned her claims against the insurer to the victim.  The victim then sued the insurer alleging that the insurer should be held liable for its alleged bad faith failure to settle.  The victim prevailed at trial against the insurer.

At issue in the appeal was the lack of an express finding by the jury that the insurer had acted unreasonably (again, the lack of an express finding was because the jury had not been asked this question on the verdict form).  The court explained, “[t]he issue is whether, in the context of a third party insurance claim, failing to accept a reasonable settlement offer constitutes bad faith per se.  We conclude it does not.”

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An Update on Congressional Efforts to Compel Coronavirus Business Interruption Insurance

By Dominica C. AndersonPhilip R. Matthews and Daniel B. Heidtke

We previously wrote about the growing number of lawsuits by insureds seeking business interruption insurance coverage for business losses in response to the novel coronavirus (here and here), and the constraints that state and federal governments should face were they to compel such coverage. We also previously detailed nationwide efforts aimed at enacting legislation compelling business interruption and contingent business interruption insurance for COVID-19 losses.

As of the date of this update, eight states have proposed a number of bills relating to business interruption insurance. Continue reading “An Update on Congressional Efforts to Compel Coronavirus Business Interruption Insurance”

Coronavirus Business Interruption Litigation Ramping up to Include Several Class Action Suits Against Single Insurers

By Dominica C. Anderson, Philip R. Matthews and Daniel B. Heidtke

As the coronavirus cases start peaking in at least some parts of the United States, the American courts are beginning to experience mounting cases relating to claims against businesses for coronavirus infections and against insurers for alleged business interruption coverage. A few weeks ago, some well-known restaurants in the United States commenced litigation against their insurers over claims for insurance coverage stemming from business interruption. These individual cases will raise a number of issues whether there is direct physical loss to covered property and whether the virus exclusions in the policies bar coverage. As a host of other types of businesses have followed by filing a number of individual suits in several states against their insurers. Last week, however, a new form of litigation has been filed with multiple class action insurance coverage lawsuits being brought by alleged representatives against single insures who are claimed to have written business interruption policies to a number of businesses in given areas or nationwide. Continue reading “Coronavirus Business Interruption Litigation Ramping up to Include Several Class Action Suits Against Single Insurers”

Congress Proposes Bill for Coronavirus Business Interruption Insurance Coverage

As we wrote earlier this week, legislators continue their efforts to address the enormous cost of business continuity losses. Most recently, Representative Mike Thompson of California, introduced H.R.6494, labeled the “Business Interruption Insurance Coverage Act of 2020”. Continue reading “Congress Proposes Bill for Coronavirus Business Interruption Insurance Coverage”

Lawmakers Continue Efforts to Compel Coronavirus Business Interruption Insurance

By Dominica Anderson, Philip Matthews and Daniel Heidtke

We previously wrote about the growing number of lawsuits by insureds seeking business interruption insurance coverage for business losses in response to the novel coronavirus and ways that state and federal governments were beginning to consider ways that they might compel such coverage.

The potential cost of business continuity losses is enormous. The Congressional Research Service issued a report to Congress on the financial impact to insurers for the cost of covering business interruption claims. The report explains that some industry sources estimate that the cost of covering business interruption claims ranges from $110 billion to $290 billion per month.  In a more recent letter, insurance industry leaders explained, “recent estimates show that business continuity losses just for small businesses of 100 or fewer employees could amount to between $220 billion to $383 billion per month.  Meanwhile, the total surplus for all of the U.S. home, auto, and business insurers combined to pay all future losses is only $800 billion.” Continue reading “Lawmakers Continue Efforts to Compel Coronavirus Business Interruption Insurance”

Statutes Compelling Coronavirus Business Interruption Insurance Should Face Constitutional Constraints

We previously wrote about the growing likelihood that insurance companies would face claims for business interruption and contingent business interruption insurance claims as their insureds looked to cope with the broad effects of the novel coronavirus outbreak and response. Heating Up: New Orleans-Based Oceana Grill Seeks Insurance Coverage for Coronavirus-Caused Business Interruption.  Now, state and federal governments are beginning to consider ways that they might compel such coverage.

Last week, members of the federal government wrote to insurance industry leaders urging them to expand commercial business interruption coverage for COVID-19 losses.  In response, the insurance industry leaders replied, “Standard commercial insurance policies offer coverage and protection against a wide range of risks and threats and are vetted and approved by state regulators. Business interruption policies do not, and were not designed to, provide coverage against communicable diseases such as COVID-19.” Continue reading “Statutes Compelling Coronavirus Business Interruption Insurance Should Face Constitutional Constraints”

California Court of Appeal: Third Party, Additional Insured Bound by Policy’s Arbitration Clause

By Daniel B. Heidtke

In an opinion filed on the last day of 2019, the California Court of Appeal, Third District, reversed a trial court’s holding that an additional insured was not bound by an arbitration agreement in an insurance policy.  In Philadelphia Indemnity Insurance Company v. SMG Holdings, Inc., Case No. C082841 (certified for publication on January 28, 2020), the court held that an arbitration agreement in a commercial general liability policy (“CGL”) issued by Philadelphia Indemnity Insurance Company (“Philadelphia”) bound SMG Holdings, Inc. (“SMG”), a “third party beneficiary” under the policy that was also “equitably estopped” from avoiding the arbitration clause.  The court reversed the trial court, vacated its order denying Philadelphia’s petition to compel arbitration, and directed the trial court to order arbitration of the coverage dispute. Continue reading “California Court of Appeal: Third Party, Additional Insured Bound by Policy’s Arbitration Clause”

Nevada Supreme Court Holds That California Cumis Rule Applies In Nevada, But An Actual Conflict Is A Prerequisite For Independent Counsel

By Dominica C. Anderson and Daniel B. Heidtke

In a 6-0 decision issued on September 24, 2015, the Nevada Supreme Court held that the California rule first announced in San Diego Fed. Credit Union v. Cumis Ins. Soc’y, 162 Cal. App. 3d 358 (1984), and the analysis of the California Court of Appeal’s decision in Fed. Ins. Co. v. MBL, Inc., 160 Cal. Rptr. 3d 910, 920 (Ct. App. 2013), a case in which Duane Morris LLP represented the insurer, also applies in Nevada.  With its decision in State Farm Mutual Automobile Ins. Co. v. Hansen, 131 Nev. Adv. Op. 74, Case No. 64484 (2015), the Nevada Supreme Court held Nevada law requires an insurer to provide independent counsel for its insured when an actual conflict of interest arises between the insurer and the insured.  Consistent with California law on the matter, the Court also held that a reservation of rights does not create a per se conflict of interest between insurer and insured. Continue reading “Nevada Supreme Court Holds That California Cumis Rule Applies In Nevada, But An Actual Conflict Is A Prerequisite For Independent Counsel”