Following significant backlash in reaction to the Nevada legislature’s new law prohibiting enforcement of any provisions in liability insurance policies dictating that defense costs are included within the limits of insurance, the Nevada Division of Insurance issued an emergency regulation further clarifying the law.1
The regulation modifies two key aspects of the original law:
- The term “policy of liability insurance,” as used in the statute, shall only mean those casualty insurance policies offered by insurers authorized 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.
- 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 defense costs limit. The defense costs limit may be $0 but must be listed on the declarations page.
Prior to 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 defense costs coverage in any way. Given the near-ubiquitous inclusion of eroding limits provisions in several lines of insurance – including, for example, professional liability, D&O/E&O, and cyber – the reaction to the statute was volatile. We fielded many calls in the several weeks following the statute’s initial passage indicating that many insurers were considering their options in light of the statute, with many seriously considering no longer issuing any insurance in Nevada in the example lines of insurance above.
While we do not know what ultimately would have happened in the marketplace if the statute had remained unclarified, it is clear that the emergency regulation restores some of the status quo and gives the marketplace significantly more flexibility with respect to coverage for defense costs.
Under the emergency regulation, non-admitted insurers are no longer subject to the new Nevada statute. For insurers who 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 defense costs, provided the sublimit is identified on the declarations page.2
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 discussed in our prior update. SDV will continue to monitor any further developments on this front.
For more information on this topic, please contact William S. Bennett at WBennett@sdvlaw.com.
1See https://sdvlaw.com/insights/nevada-legislature-burns-insurers-rights-to-offer-eroding-limits for further commentary on Nevada’s recent statute addressing liability insurance policies with “eroding limits” provisions.
2Insurers issuing policies in jurisdictions outside Nevada to cover multi-state risk that may include Nevada risk will need to be wary of this requirement. An attempt to avoid the statute’s effects via an endorsement providing a sublimit for Nevada only will need to be reflected on the declarations page to be effective.