An Insured Can Seek A Broad Range Of Damages If An Insurer Wrongfully Fails To Defend

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In Nevada, if an insurance company breaches its duty to defend, it can expect to face a wide array of possible damages

If the insured takes up its own defense, the insurer can expect to pay the reasonable costs incurred by the insurer in the defense of the underlying action.  Jaynes Corp. v. Am. Safety Indem. Co., 925 F. Supp. 2d 1095, 1111 (D. Nev. 2012) vacated due to settlement, No. 2:10-CV-00764-MMD, 2014 WL 8735102 (D. Nev. Dec. 3, 2014); see also Reyburn Lawn & Landscape Designers Inc. v. Plaster Dev. Co., 127 Nev. Adv. Op. 26, 255 P.3d 268, 279 (2011) (citing Crawford v. Weather Shield Mfg., Inc., 44 Cal. 4th 541, 187 P.3d 424 (2008) (holding that when an indemnitor has breached its obligation to defend, an indemnitee who was thereby forced, against its wishes, to defend itself is entitled to reimbursement of the costs of defending those claims that are directly attributable to the indemnitor’s negligence).

But what should the insurer expect if the insured does not defend itself?  Obviously, the Plaintiff would gain a default judgment against the insured.  Would Nevada require the insurer to pay the judgment?

A failure to defend based on an improper cancellation of the policy may amount to a violation of Nevada’s Unfair Claims Settlement Practices Act.  Nev. Rev. Stat. § 686A.310 (1991).  If the denial of the duty to defend is found to be without a reasonable basis, it may amount to a common law bad faith claim.  Pioneer Chlor Alkali Co. v. Nat’l Union Fire Ins. Co., 863 F. Supp. 1237, 1244 (D. Nev. 1994).

So what damages might be expected?  Nevada does not have case on this topic.  Assuming Nevada courts would apply California law, an unjustified failure to defend can result in an award of consequential damages.  Amato v. Mercury Cas. Co., 53 Cal. App. 4th 825, 833, 61 Cal. Rptr. 2d 909, 914 (App. 1997) (holding that “where the insurer tortiously refuses to defend and as a consequence the insured suffers a default judgment, the insurer is liable on the judgment and cannot rely on hindsight that a subsequent lawsuit establishes noncoverage”).  Under Nevada law, if the failure pay a legitimate claim was considered tortious or in bad faith, damages could include emotional distress.  Farmers Home Mut. Ins. Co. v. Fiscus, 102 Nev. 371, 725 P.2d 234 (1986).

If you have questions about the duty to defend in Nevada, please contact Mike Mills at Bauman Loewe Witt & Maxwell either by phone at 702-240-6060 or by email at mmills@blwmlawfirm.com