An insurer that paid defense costs for a policyholder involved in a liability dispute can recoup those costs if it is later determined that it was not required to defend the case, a divided Supreme Court in Nevada ruled Thursday.
Judgment of the Supreme Court of Nevada Nautilus Insurance Co. v. Access Medical LLC et al derived from a certification decision of the 9th U.S. Circuit Court of Appeals, which noted that the Nevada Supreme Court had not ruled on the matter and that other state courts were inconsistent on the issue of compensation for defense costs.
In the underlying case, filed in a federal court in Nevada, Nautilus, a surplus and surplus insurance entity of WR Berkley Inc. in Scottsdale, Arizona, tried to recover the defense costs they had paid in a dispute over an acid business partnership. Chicago-based Access Medical was facing allegations that it had disrupted the business relationships of a former medical technology sales partner. compensation for defense fees if a court later ruled that it is not liable to cover the underlying claim. A federal court later ruled that coverage was not triggered under the policy. A lower court then ruled that Nautilus would not be reimbursed for defense costs because, among other things, it could not determine that it was entitled to reimbursement under Nevada law.
In its 4-3 decision on the refund issue, the Nevada Supreme Court noted that an insurance company that refuses to defend a claim and then loses a coverage dispute may be subject to significant liability.
"This creates a significant deterrent for the insurer to directly deny a defense when there is any possibility ̵
When there is limited time available "it makes sense for the parties to quickly decide what to do and to later decide who has to pay," the court said. "In these circumstances, we conclude that when a court determines that the insurer never had an obligation to defend and the insurer clearly and expressly reserves the right to claim compensation, it is fair to require the policyholder to pay. "
The three dissenting judges said that the insurance policy provided by Nautical to Access Medical covered their" entire insurance policy relationship ", says court documents.
did not contain any provision that allowed for reimbursement of expenses if a court see decided that Nautilus never had an obligation to defend Access Medical, says the dissenting opinion.