Legal Focus: Backlash results in changes to Nevada insurance rules
Under the emergency regulation, non-admitted insurers are no longer subject to the new Nevada statute
State regulator enacts emergency regulation to provide clarity over coverage of defence costs
Following significant backlash in reaction to its enactment of legislation prohibiting enforcement of any provisions in liability insurance policies dictating defence costs are included within the limits of insurance, the Nevada Division of Insurance has issued an emergency regulation further clarifying the law.
The regulation modifies two aspects of the original law. First, the term policy of liability insurance, as used in the statute, shall only mean casualty insurance policies offered by insurers authorised under NRS 680A.060 and NRS 694C.230 to issue third-party liability insurance. In other words, the statute’s restrictions on eroding limits will no longer apply to non-admitted insurers.
The other modification is admitted insurers issuing policies of liability insurance in Nevada will still be governed by the restrictions of the statute but will be permitted to issue policies subject to a defence costs limit. The defence costs limit may be zero but must be listed on the declarations page.
Before the emergency regulation, the statute appeared to apply to all insurers, regardless of whether they were admitted in Nevada or not. It also apparently barred insurers from restricting availability of defence costs coverage in any way. Given the near-ubiquitous inclusion of eroding limits provisions in several lines of insurance – including, for example, professional liability, directors’ and officers’/errors and omissions and cyber – the reaction to the statute was volatile.
We fielded many calls in the several weeks following the statute’s initial passage indicating many insurers were considering their options in light of the statute, with many considering no longer issuing any insurance in Nevada in the example lines of insurance above.
While we do not know what would have happened in the marketplace if the statute had remained unclarified, it is clear the emergency regulation restores some of the status quo and gives the market significantly more flexibility with respect to coverage for defence costs.
Under the emergency regulation, non-admitted insurers are no longer subject to the new Nevada statute. For insurers that are admitted in Nevada, regardless of whether the policy at issue is issued in Nevada, they will still be subject to the statute. Admitted insurers are still prohibited from enforcing eroding limits provisions in Nevada but will be permitted to issue a dedicated sublimit for defence costs, provided the sub-limit is identified on the declarations on page.
Between the original statute and the emergency regulation, there is reasonable clarity regarding how this will affect the marketplace. The outstanding question is how the second prong of the statute will be applied by the Nevada courts to the inevitable broad arguments.
William Bennett is an attorney at Saxe Doernberger & Vita