Nevada Coverage and Bad Faith Law

 

 

AN AUTO POLICY WILL COVER THE INSURED WHEN DRIVING SOMEONELSE’S CAR UNLESS THAT CAR IS AVAILABLE FOR THE INSURED’S “REGULAR USE”. WHETHER THE CAR IS AVAILABLE FOR THE INSURED’S REGULAR USE IS NORMALLY A QUESTION OF FACT. BUT . . .

 . . . EVEN THE SLIGHTEST RESTRICTION TO THE LIMITATION OF USE WILL GIVE RISE TO A DUTY TO DEFEND

Most auto policies provide an insured person coverage when driving another person's vehicle with that person’s permission.  There is however an exception to that rule.  The exception is that the "non owned" vehicle must not be "available or furnished for the regular use" of the insured person.  There have been two Nevada cases that have considered this issue.  Let’s explore both. 

The earlier case is Hartford Ins. Group v. Winkler, 89 Nev. 131, 508 P.2d 8 (1973).  In that case, a couple was in the process of getting a divorce.  The wife had left the husband and had moved in with her parents in Mesquite, Nevada.  During the pendency of the divorce she remained as a named insured on the automobile policy held by her husband.  However, when living with her parents, she would occasionally drive her parents' car.  The opinion suggested that the insured seldom used the car.  There was only one key to the car.  If the wife wanted to use the car she had to obtain her parents' permission. 

The Nevada Supreme Court looked to other states for the definition of the term regular.  First they looked at the case of Motorists Mutual Ins. Co. v. Sanford, N.E.2d 596, 597 (Ohio App. 1966) that defined the word regular as meaning "constant, systematic . . . steady and methodical."  The court also looked at a definition from Arizona from the case of Travelers Indemnity Co. v. Hudson, 488 P.2d 1008, 1012 (Ariz. App. 1971) which identified the phrase "regular use" as a term that denotes "continuous use; uninterrupted normal use for all purposes; without limitation as to use; and customary use as opposed to occasional use or special use…".

In the end, the Nevada Supreme Court upheld the jury’s decision that the parent’s car was not available for the wife’s regular use. Hartford had to indemnify the wife for injuries that she caused while driving her parent’s car. 

The more recent case is Allstate Ins. Co. v. Larimer, 433 F.Supp.2d 1195 (2005).  In the Allstate case, the driver was the son of the insured.  His parents were divorced and he lived at both houses.  The boy’s mother had given him a car on his sixteenth birthday and she provided insurance for the car.  However, in injured parties sought recovery from the father’s insurance as well. 

The father's insurance filed for declaratory relief seeking to avoid a duty to defend and indemnify the son.  Allstate made the argument that the car was available for the boy’s “regular use” and therefore, it should not have to defend or indemnify the son. 

Allstate argued facts to demonstrate regular use.  The mother did not use the car except to get it smogged and registered.  The son drove the car to and from school and sports practice on a daily basis.  He drove to friend's houses, ran errands and attended sporting events, the mall and other recreational activities.

On the other hand, the claimants argued that the car was not available for the boy’s regular use because the mother imposed restrictions.  She threatened to take away the car if he did not follow the rules.  He had to check with his mom any time he wanted to use the car.  He could not drink and drive.  He was not supposed to have friends in the car and he could not use his cellular phone as he drove.  He also had responsibility to wear his seat belt.  He also had a curfew and travel restrictions.

Using the definition of "regular use" found in the Hartford case, the court found that the allegation of coverage was enough to obligate Allstate to provide a defense to the boy.  Ultimately, the court would not say if the son’s use of the car constituted "regular use" so the question of whether Allstate had to indemnify was left to the trier of fact.

In summary, whether a non-owned vehicle is available for an insured’s regular use will most likely be a question of fact for a jury.  But even a hint of restriction on the use will likely give rise to a duty to defend. 

If you have question on coverage on non-owned vehicle, please contact us at Mills & Associates and we will do our best to help you with those questions.

AN INSURED CANNOT RECOVER UM AND UIM BENEFITS FROM THE SAME POLICY

In the case of Hall v. Farmers Ins. Exch., 105 Nev. 19, 768 P.2d 844 (1989) the Nevada Supreme Court considered the question of whether a claimant could recover both uninsured (UM) and underinsured (UIM) benefits from the same policy.  Ruby Hall was walking along minding her own business when two negligent drivers collided.  The cars struck Ruby causing her injury.  One of the drivers was uninsured and the other was underinsured. 

Ruby's father had foresight to buy an insurance policy that included bodily injury UM coverage of $15,000.00 per person/$30,000.00 per occurrence.  The plaintiff's attorneys hoped to recover $15,000.00 for the injury caused by the uninsured driver and an additional $15,000.00 for the injuries caused by the underinsured driver. 

In making its analysis the Nevada Supreme Court examined the law that requires UM coverage to be offered and the law that describes UM coverage.  NRS 690 B.020 and NRS 687 B.145(2).  The court found that the two statutes did not create a requirement that insurers provide two separate coverages, one for uninsured and the other for underinsured motorists.  Instead, the court explained that the laws anticipated that UIM coverage would be a component of the UM coverage.  In other words, UIM coverage does not exist separate from the UM policy.  The Nevada Supreme Court determined that because Ruby's father had purchased only one policy and paid only one premium, it was not unfair that Ruby would only be able to benefit from one UM recovery.

AN ACTIVIST SUPREME COURT PROHIBITS ENFORCEMENT OF BINDING ARBITRATION PROVISION THAT PREVENTS NEVADA CONSUMERS FROM JOINING CLASS ACTION SUIT

Auto insurance is not the only industry in which Nevada law provides protections to consumers.  In a previous POST, we pointed out that the legislature precluded the enforcement of compulsory arbitration provisions in auto insurance policies. 

Now the Nevada Supreme Court is getting into the act of refusing to enforce similar provisions in consumer sales contracts.  In the recent case of Picardi v. Eighth Judicial Dist. Court, 127 Nev. Adv. Op. 9, 251 P.3d 723 (Nev. 2011), the Court found that a contract provision which waived the consumer’s rights to compel arbitration and thereby prevent the consumer from joining a class action suit was void as against Nevada public policy. 

In Picardi, the Plaintiffs purchased an automobile, and subsequently sought to file a class action against Hyundai.  Hyundai wanted binding arbitration and hoped to enforce the waiver of participation in a class action suit. The District Court upheld the arbitration clause which waived the consumer’s right to participate in a class action either in the courts or in arbitration and ordered the parties to arbitrate. 

The dissatisfied Plaintiff filed a writ to the Nevada Supreme Court.  However, the Court found itself between a rock and a hard place.  In the past, the Court had said that it favored the idea of arbitration as a means to resolve disputes.  However, it obviously saw the benefits that came to consumers from class action status.  The Court reasoned that class actions were necessary where there may be numerous plaintiffs, similarly situated, but whose potential damages are too small to justify the expense of arbitration on a case by case basis. 

The Court had hoped for an escape valve that would allow them to reconcile these competing interests.  That escape valve would have been to require the parties to arbitrate but use the class action rules in the arbitration.  However, the contract prohibited such an event.  Because there was no escape valve, the Court found in favor of the consumer and struck down the arbitration clause altogether. 

The lesson learned for the insurance industry is clear.  Where a contract seeks to limit a consumer’s remedies, the language must be carefully crafted.  See State Farm Mut. Auto. Ins. v. Hinkel, 87 Nev. 478, 481, 488 P.2d 1151, 1153 (1971).  Otherwise, there is a risk that Nevada Supreme Court will step in and strike down the offending provision. 

If you have questions about the interpretation of insurance policy provisions, please contact Mills & Associates.

NO UM/UIM COVERAGE AVAILABLE TO PERSON INJURED BY CITY OWNED STREET SWEEPER

In White v. Continental Ins. Co., 119 Nev. 114, 65 P. 3d 1090 (2003), the Nevada Supreme Court faced a unique situation.  The question was whether an Uninsured / Underinsured Motorist (UM/UIM) carrier owed benefits to an insured who had been injured when his automobile was hit by a street-sweeping machine owned by the City of Reno.  The doctrine of Sovereign Immunity protected Reno.  Nevada’s Waiver of Sovereign Immunity Statute, N.R.S. 41.031 et seq. provides that recovery against any governmental entity is limited to $50,000.00 in damages.  The City insured itself for the $50,000.00 potential damages.  Thus the Court quickly dispensed with the argument that the street-sweeper was uninsured for purposes of UM coverage. 

The court did however reach a very interesting conclusion on the issue of UIM coverage.  The Nevada statute regarding UIM protection, N.R.S. 687B.145(2), specifically provides that UIM coverage must be made available to insureds who are "legally entitled to recover" from an adverse driver, when the adverse driver's liability limits are insufficient to extinguish that liability."  In this case, the statutory cap limited the amount of recovery to the $50,000.00.  What that means is if the plaintiff had taken the City to trial, the most he would have ever been legally entitled to recover was $50,000.00.  In light of that unique circumstance, the Supreme Court refused to expand the interpretation of N.R.S. 687B.145(2) to require UIM benefits, even though the tortfeasor could never have been legally obligated to pay them. 

If you have questions regarding UM/UIM coverage in Nevada, please bring those questions to Mills & Associates.  Allow us to help you find an answer.

IF A CAUSE OF ACTION IS NOT SPECIFICALLY EXCLUDED BY THE POLICY, YOU MAY HAVE TO LOOK TO THE PLEADINGS AND THE INJURIES ALLEGED THERE TO DECIDE IF COVERAGE EXTENDS TO THOSE ACTIONS

In the case of Versatility, Inc. v. Capitol Indemnity. Corp., 2:10-CV-1942 JCM (PAL) slip op. (D. Nev. 2011) the U.S. District Court for Nevada explained that if injuries alleged in an underlying complaint arise from an excluded event, that failure to prevent the injury due to alleged negligent hiring or supervision are not covered either.

Versatility was a drinking establishment. One of its patrons claimed that an employee assaulted him on the premises. The patron sued Versatility alleging intentional torts and negligent hiring / supervision of its employees.

At the time of the incident, Capitol Indemnity Corporation provided commercial liability coverage. However, Capitol refused to defend because the policy excluded coverage for any suit (including one founded on claims of negligence) arising out of or related to any assault, battery, and harmful or offensive contact or threat.

Versatility defended itself against the claims of the injured patron and ultimately prevailed. Versatility then turned around and sued Capitol Indemnity alleging breach of contract and bad faith for its failure to defend that underlying action. It argued that since the claims of assault / battery and negligence were unfounded that this was merely a nuisance suit that should have been defended under the policy.

Capitol Indemnity filed a motion to dismiss the suit. In resolving the motion, the court explained that the outcome of the case was not the determiner as to whether a duty to defend arose. Instead, that decision is made based on the allegations in the Complaint. See UMG Recordings, Inc. v. American Home Assur. Co., 321 F. Appx. 553, 554 (9thCir. 2008); Senteney v. Fire Ins. Exch., 707 P.2d 1149, 1150-51 (Nev. 1985) (stating the court will not increase an obligation to the insured where such was intentionally and unambiguously limited by the parties) (citation omitted). There was a specific assault and battery exclusion in the policy. Thus the court explained that because there was no coverage for the intentional torts that no duty to defend arose as to those claims.

As to the causes of action based in negligence the court said:

With regard to the underlying suit, the patron's negligence claims arose out of the alleged battery and assault damages that occurred between the patron and employee. The patron's negligence claim in his complaint states that "[patron]suffered injury to his body, and [experienced] severe pain and suffering," which occurred because of the "attack" by the employee (doc. #6-1). This claim is not independent of the alleged battery or assault. See Hernandez v. First Financial Ins. Co., 802 P.2d 1278 (Nev. 1990); Capitol Indem. Corp. v. Blazer, 51 F. Supp.2d 1080, 1087 (D. Nev. 1999) (stating for a claim or injury to "arise out of" an assault and battery, a causal connection must be established - a court must look to the resulting injuries which give rise to the claim against the insured).

By examining the underlying complaint, the court found that the injuries suffered from the alleged negligent hiring / supervision arose out of and were causally connected to the alleged assault. Thus there was no coverage for those claims either. The court dismissed Versatility’s suit.

Lesson learned is that to determine if there is a duty to defend, must one compare the policy and the pleadings. If the alleged injuries arise from an excluded activity, then any cause of action giving rise to those same injuries are not covered either.

SPEAKER AT DRI’S INSURANCE COVERAGE AND PRACTICE SYMPOSIUM SUGGESTS LOOKING “OFF-PANEL” FOR QUALIFIED LOCAL COVERAGE COUNSEL

I recently attended DRI’s Coverage and Practice Symposium in New York City.  As usual, the site was exceptional and the presenters were extremely knowledgeable.  Plus, who wouldn’t want to be in New York City during the Holiday Season?

One of the presenters, Michael M. Marrik, Esq. raised an interesting question.  He gave a top ten list of things that carriers should consider when handling coverage litigation nationwide.  He specifically questioned the wisdom of relying exclusively on “panel counsel” to act as the local counsel for a nationwide firm principally handling coverage litigation outside of their regular venues.  He wondered if it might be better to hire a strong “off panel” counsel for the benefits that that experienced person might bring to the mix.   Although this strategy may be little more expensive, he said that in the right case, it might be worth the investment. 

Mills & Associates works with nationwide firms as local counsel and is familiar with Nevada’s restrictive Pro Hac Vice rules as well as coverage and bad faith issues.  Please let us know if we can help your firm, even if we aren’t on your regular panel. 

LATE NOTICE BARS AN INSURANCE CLAIM ONLY IF THE CARRIER CAN PROVE PREJUDICE

Insurance carriers want the earliest possible notice of any claim.  Investigation of the claim will be most effectively done while memories are fresh and evidence is available.  In addition, an insurance company must financially account and plan for its expected losses by setting proper financial reserves.  So it is no wonder that virtually all insurance policies include provisions that obligate the insured to place the carrier on notice of a loss as soon as practicable. 

But what happens when the notice of claim arrives late?  Can the carrier escape the duty to indemnify by arguing that that the insured violated the contract by providing late notice? 

In an earlier blog post HERE, we anticipated that the Nevada Supreme Court would eventually have to face this issue and laid out the three options that the court could select.  We wrote about untimely notice explaining that:

courts generally take one of three views as to whether the claim should be paid.  One view is that timely notice is a condition precedent to coverage.  An unexcused delay automatically results in a loss of coverage.  See United Services Auto Ass’n v. Allstate Ins. Co., 662 P.2d 1102 (Colo. Ct. App. 1983).  The second view is that late notice generally avoids coverage unless the insured can show that the insurance company suffered no prejudice because of the late notice.  See Grinnell Mut. Reinsurance Co. v. Jungling, 654 N.W.2d 530 (Iowa 2002).  The third view is that unexcused untimely notice results in a loss of coverage only if the insurer can show that it has been prejudiced by the delay.  See Zuckerman v. Trans America Ins. Co., 133 Ariz. 139, 650 P.2d 441 (1982).

In its recent opinion of Las Vegas Metropolitan Police Dept. v. Coregis Ins. Co., 127 Nev. Adv. Op. 47, 256 P.3d 958 (2011), the Nevada Supreme Court selected option number three.  In the Metro case, LVMPD had been accused of violating an individual’s civil rights.  Metro had an insurance policy with Coregis Insurance.  Metro’s policy included a substantial self-insured retainer.  Thinking that the case would be resolved within the self-insured retainer, Metro did not get around to notifying the carrier until ten years after the occurrence that had led to the civil rights suit.  Coregis denied the claim based upon late notice. 

Metro defended the suit and settled the civil rights claim.  It then turned to Coregis for reimbursement of the defense costs and settlement amount, less the self-insured retainer.  In the declaratory relief action, the trial court granted summary judgment in favor of the insurance company citing the late notice provision of the policy. 

On appeal, the Nevada Supreme Court overturned the summary judgment finding that there were questions of fact.  The court pointed to NAC 686A.660(4) which states:

    4.  No insurer may, except where there is a time limit specified in the insurance contract or policy, require a claimant to give written notice of loss or proof of loss within a specified time or seek to relieve the insurer of the obligations if the requirement is not complied with, unless the failure to comply prejudices the insurer's rights.

The court enforced the above regulation and followed the majority of jurisdictions that require the insurer to show (1) notice was late and (2) the carrier had been prejudiced by the late notice.   The court explained that:

Prejudice exists “where the delay materially impairs an insurer’s ability to contest its liability to an insured or the liability of the insured to a third party.”  West Bay Exploration v. AIG Specialty Agnencies, 915 F.2d 1030, 1036-37 (6th Cir. 1990) (internal quotation omitted).  The issue of prejudice is an issue of fact See Mutual of Enumclaw Ins. Co. v. USF Ins. Co., 191 P.3d 866, 876 (Wash. 2008). 

The Supreme Court returned the case to the District Court for a trial on the issue of whether the carrier suffered the prejudice described by this definition.  At that trial, the Court said that it was the insurance company’s burden to demonstrate that it had been prejudiced citing Co-Op. Fire Ins. v. White Caps, Inc., 694 A.2d 34, 38-39 (Vt. 1997) and Brakeman v. Potomac Ins. Co., 371 A.2d 193, 198 (Pa. 1977). 

Therefore, if an insurance company is going to deny a claim based upon late notice, it needs to be prepared to come forward with specific evidence of prejudice caused by the delay.  Maybe a critical witness had died.  Perhaps physical evidence is missing or compromised because of the delay.  In an instance, if you have questions regarding delay related issues, Mills & Associates is prepared to advise on your options. 

RESPONDING TO THE ANTICIPATED FALLOUT OF THE HAYGOOD AND HOWELL OPINIONS

No one is surprised when people who are hurt in accidents go to the doctor’s office for care.  In the past, many went to doctors who provided them care through their group health insurance programs.  These group healthcare providers usually have pre-negotiated reimbursement agreements with the group health insurance carriers.  Those insurance carriers pay the providers a sum certain for each service provided.  The pre-negotiated reimbursement agreements normally prevent the doctors from charging the patient more than the agreed reimbursement rate. 

The question presented in the cases of Howell v. Hamilton Meats & Provisions, Inc., 52 Cal. 4th 541, 257, P.3d 81, 128 Cal Rptr. 3d 658 (2011) and Haygood v. Escabedo, Slip Op. No. 09-0377 (Tex. Sup. Ct. July 1, 2011) is whether a defendant should be obliged to compensate the plaintiff for that difference between the doctor’s negotiated rate and the higher reimbursement rate that the provider would charge to someone who didn’t have insurance.  Even though the two courts followed different lines of reasoning, both reached the same conclusion.  Both courts said that Plaintiffs could recover from Defendants no more than the rate the doctor had negotiated with the health carrier.  The Plaintiff could not recover the higher un-negotiated rate because the Plaintiff never paid that higher amount. 

While Defendant’s and their attorneys may be celebrating these opinions, the fallout from these cases is easy to anticipate.  Plaintiffs’ attorneys will now have even more reason to encourage their clients to get their care from providers that are in the business of treating people who are injured in accidents.  In other words, more Plaintiffs will be seeking care on liens.  And without a doubt, the price of the lien care is going to be higher than the negotiated reimbursement rates authorized under a group health contract. 

So how does a good Defense attorney challenge the Plaintiff’s decision to choose the higher priced care over lower priced care that is available to her?  Usually the collateral source rule will prevent the defense from arguing to the jury that the Plaintiff failed to get the lower priced care from her own lower priced health insurance provider.  One tried and true attack is to challenge the credibility of the lien care provider as biased.  But what else can the defense do where the charges are out of line?

One choice is to obtain a medical bill audit.  Medical bill audits can be basic or in depth.  Basic medical bill audits will look simply at the bills to make sure that there are no duplicate charges and will determine whether charged amounts were within the “usual and customary” range of charges in the geographic area where the services were provided.  More in depth audits could also include a review of the medical records to insure that the providers delivered the services for which they billed.  Depending on the amount you want to spend, the medical bill auditors can provide a great amount of information from their review of the medical bills and records. 

Obviously, the defense can use these audit reports as negotiating points, in arbitrations and mediations.  However, if the matter is headed to trial, the defense is going to need an auditor that has the willingness and ability to take the stand and testify in support of the work that the auditor has done.  Finding the right auditor should start with that fact in mind. 

With an increasing percentage of Plaintiffs receiving their care on liens, Mills & Associates predicts that medical bill audits will become even more useful than they have been in the past.  In a recent case that we handled, Plaintiff had presented past bills in excess of $725,000.  The auditors that we used found almost $300,000 in reductions in charges. 

Please contact Mills & Associates to discuss how best to select and use medical bill auditors in the defense of your claim.

SEASON'S GREETINGS

I really enjoy this time of year.  It means that I get to spend more time with my family and splurge eating some foods that I would otherwise shun. 

I hope that all of the readers of the Mills Law Blogs will also be sipping something warm, eating a little too much and staying safe out of the weather.  Most importantly, I hope that you all will be sharing this wonderful Season with those that you love. 

From all of us to all of you, have a Happy Holiday.

CAN PLAINTIFF DISCOVER AN INSURANCE COMPANY’S INVOLVEMENT IN A PRIOR BAD FAITH SUIT?

Evidence that an insurance company acted in bad faith in handling a specific claim may come from a variety of sources. Plaintiff’s attorneys may argue that the way the insurance company handled other claims is evidence that it acted in bad faith in the subject case. Those attorneys may point to other bad faith suits or verdicts against the company as evidence of bad faith in the way it handled this claim. Can such evidence be discovered? Is it admissible? The Nevada Supreme Court has not spoken on these issues. However, the case of North River Ins. Co. v. Greater New York Mut. Ins. Co.,872 F.Supp. 1411 (E.D. Pa. 1995) is instructive.

Greater New York Mutual was a primary carrier. Rather than paying its $1,000,000 policy limit to settle the claim against its insured, the company decided to fight. It took the case to trial. The insured lost when the jury returned a verdict of $5,796,000.

Greater New York then turned to the excess carrier North River asking it to make upthe shortfall. North River paid the excess verdict and with it got an assignment of the insured’s bad faith rights against Greater New York.

North River sued Greater New York for bad faith. During discovery, North River asked Greater New York to identify whether it had been a party to any other bad faith actions for the seven years prior. Greater New York objected alleging that the information sought was irrelevant. North River moved to compel a response to the discovery.

In deciding the motion to compel, the court found the evidence of prior cases to be irrelevant because each of those prior cases would involve different facts and circumstances. Those cases would not be instructive on whether the company acted in bad faith in the way it handled the underlying suit. The court did find though that reserves that Greater New York had set on the underlying claim were relevant to the question of Greater New York’s valuation of the loss and thus whether Greater New York acted in bad faith during the negotiation process.

Whether Nevada courts would handle these questions in the same way is up in the air. An analogy from a Nevada case that might work for the insurance company is found in the personal injury realm. For example, in Southern Pacific Co.. v. Harris, 80 Nev. 426, 395 P.2d 767 (1964), the plaintiff was injured at a railroad crossing when her car collided with a diesel engine. Plaintiff argued that prior accidents at the crossing should be allowed. However, the Nevada Supreme Court found otherwise:

2. Prior negligence of other train crews. In addition to receiving evidence concerning the occurrence of prior collisions at the same crossing, the lower court allowed witnesses to testify that, at prior times, locomotives of the defendant company had traversed the crossing without whistles being blown,bells rung, or engine lights turned on. It is not asserted that such occurrences were so frequent as to constitute a habit; to the contrary, it is conceded that “occasionally” such conduct happened. Citation of authority is unnecessary to support the proposition that the personal conduct of the employees in control of the locomotives at such prior times is not probative of the conduct of the employees (engineer and fireman) on the occasion in question. Such evidence should not have been received.
Id at 432.

This case may go to the question of whether the prior acts or allegations are admissible, but does not fully answer the question of whether they might be discoverable. As you may know, the Nevada Rules of Civil Procedure provide information is discoverable if it is relevant, or likely to lead to the discovery of admissible evidence. N.R.C.P. 26(b)(1). Will the Nevada courts opt to follow the conservative view of non-disclosure or adopt a morel iberal policy in permitting discovery of prior bad faith and then prior to trial decide if the facts are admissible?. Only time will tell.

Please contact Mills & Associates to get answers to all your Nevada Coverage and Bad Faith questions.