Nevada’s high court recently gave policyholders a potent weapon when it ruled that an insurance company can be held liable for “consequential damages” beyond the policy limits if it breaches its duty to defend, according to Law360.
Answering a certified question from a Nevada federal court in a coverage dispute stemming from a traffic accident, the state justices refused to adopt the majority view taken by courts across the country: that a breaching insurer’s liability is generally capped at its policy limits, plus any defense costs that a policyholder paid out of pocket due to the breach.
Instead, the Nevada high court endorsed the minority view: that damages for an insurer’s breach of its defense duty are not “automatically limited” to the amount of the policy, but rather depend on the facts of each case.
Under that approach, the damages total may include consequential damages — that is, damages that are the “reasonably foreseeable” result of the insurer’s breach. Consequential damages may include a judgment against the policyholder that exceeded policy limits, the justices found.
According to attorneys who represent policyholders, the Nevada justices' ruling will likely deter insurance companies from refusing to defend their insureds out of hand, lest they face liability for judgments far exceeding their policy limits.
Pillsbury senior counsel Joan Cotkin, who represents policyholders, said the Nevada justices properly spurned what she characterized as a concerted effort by insurers to use courts to limit the consequences of their policy breaches.
"As this case shows, the insurance industry tries hard to attack basic premises over and over to try to avoid the consequences of wrongful actions on their part,” Cotkin said.