The Nevada Supreme Court, in a 4-3 decision, has concluded a liability insurer is entitled to reimbursement of defense costs when there is no overage and the insurer reserved in writing its right to seek reimbursement. Nautilus Ins. Co. v. Access Medical, LLC, 137 Nev. Adv. No. 10 (3/11/2021) was a case in which the policyholder had been sued for interference with prospective economic advantage. The insurer defended the underlying action with written reservation of rights which included a reservation of the right to obtain reimbursement for defense fees.
When time is precious, it makes sense for the parties to decide quickly what to do, and to litigate later who must pay. Because an insurer risks unbounded liability if it loses the coverage dispute after refusing to defend a suit, it is generally “reasonable for the insurer to accede to the demand rather than to insist on an immediate test of the disputed obligation.” [citation om., cleaned up].
The court concluded that if there is a final determination that the insurer had no contractual duty to defend, the insurer may recover the defense costs paid as restitution, provided there is a clear written reservation of that right by the insurer. Finding the Buss approach from California represented the majority rule, the Nevada court concluded reimbursement is appropriate.
AUTHOR: Andrew B. Downs
Shareholder, San Francisco Office
Direct Dial: 415.352.2716