November 28, 2021

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Nevada Supreme Court Recognizes an Insurer’s Reimbursement Claim – Payne & Fears – JDSupra

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The Nevada Supreme Court held that insurers may seek reimbursement of defense costs if a court determines that it owed no duty to defend and the insurer reserved reimbursement rights.

In Nautilus Insurance Company v. Access Medical, LLC, et al., 137 Nev. Adv. Op. 10 (March 11, 2021), the Nevada Supreme Court was asked by the Ninth Circuit Court of Appeals to decide whether “an insurer is entitled to reimbursement of costs already expended in defense of its insured where a determination has been made that the insurer owed no duty to defend and the insurer expressly reserved its right to seek reimbursement … but where the insurance policy contains no reservation of rights?”

A closely divided court in a 4-3 decision answered in the affirmative. Nautilus agreed to defend under a reservation of rights and simultaneously filed a declaratory-relief action asserting that it owed no duty to defend. Two federal courts agreed that Nautilus never owed a duty to defend. Nautilus sought reimbursement from the insured for all defense costs that it incurred while the declaratory-relief action was pending. In permitting the insurer to seek reimbursement, the Nevada Supreme Court relied on the Restatement (Third) of Restitution & Unjust Enrichment, while explaining that its decision is consistent with the majority rule in state courts. In one of the first judicial tests of the American Law Institute’s  Restatement of Liability Insurance, the Nevada Supreme Court rejected ALI’s proposed rule that prevents an insurer from seeking reimbursement of defense costs absent express policy language granting the insurer this right. 

Nautilus is an important decision for policyholders who do business in Nevada. Moving forward, insurers will be able to recoup defense costs paid to defend a case in which they never owed a duty to defend.  The more difficult question that Nautilus does not answer is whether Nevada insurers can seek reimbursement in mixed actions where some, but not all, causes of actions are covered. Nautilus also questions whether Nevada will adopt any portion of ALI’s new Restatement of Liability Insurance, which the insurance industry has heavily criticized.

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