Nevada Coverage and Bad Faith Law

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.

A NEVADA COURT CAN JUDICIALLY ASSIGN A JUDGMENT DEBTOR’S BAD FAITH RIGHTS AGAINST HIS INSURANCE CARRIER TO THE PLAINTIFF VIA POST JUDGMENT EXECUTION

The recent opinion of Gallegos v. Malco Enterprises of Nevada, dba Budget Rent A Car, 127 Nev. Adv. Op. 51 (Aug. 4, 2011) may be the most significant bad faith case issued by the Nevada Supreme Court in a decade.  To understand the case, you’ve got to know the facts. 

The driver of a Budget rental car injured Gallegos.  Gallegos sued the driver who subsequently defaulted.  The District Court entered a default judgment in favor of Gallegos for $400,000.00. 

Gallegos unsuccessfully tried to collect.  The driver did not appear for his judgment debtor’s examination.  Gallegos then asked the District Court to assign the driver’s right to pursue a bad faith case against the rental car company and the insurance company to him.  Like any other asset of the Judgment Debtor, Plaintiff would have to apply any recovery from that bad faith suit against the $400,000.00 default judgment.  The Court, acting under NRS 21.320, granted the involuntary assignment the right of action to Gallegos. 

Gallegos, having stepped into the shoes of the defaulting driver, brought a bad faith suit against the rental car company and the rental driver’s insurance company.  However, the new judge in the bad faith suit didn’t see things the same way as the judge in the earlier third-party suit.  The bad faith judge found that the right of action could not be legally assigned and granted the insurance company / rental car company’s Motion for Summary Judgment.  Gallegos appealed to the Nevada Supreme Court. 

The Court was asked to decide whether a District Court could assign the judgment debtor’s right to proceed in a bad faith suit (or in any suit for that matter) to a Plaintiff 

In the past, it was thought that a Plaintiff could not step into the judgment debtor’s shoes and pursue the judgment debtor’s bad faith rights until the judgment debtor gave a voluntary assignment of the right to proceed.  See Wilson v. Bristol West Ins. Group, No. 2:09-cv-00006-KJD-GWF, 2009 WL 3105602 (D. Nev. 2009) at *2.  However, following the lead set in Denham v. Farmers Inc. Co., 262 Cal. Rptr. 146 (Ct. App 1989) and Kelly v. CSE Safeguard Ins. Co. No. 2:08-cv-00088-KJD-RJJ, 2010 WL 3843777 at 2 (D. Nev. Sept. 28, 2010), the Nevada Supreme Court found an involuntary post-judgment assignment, like the one obtained by Gallegos, to be equally as effective as a voluntary assignment to transfer the debtor’s rights against his own carrier to the Plaintiff.  The basis for its decision was that the law subject to execution “must be liberally construed.  See, Sportsco Enter. v. Morris, 112 Nev. 625, 630, 917 P.2d 934, 937 (1997).  The court said:

In Denham, the court analyzed whether Nevada law permitted “a judgment creditor [to] execute upon a judgment debtor’s cause of action against its insurer,” and concluded that “Nevada law permits execution upon a cause of action.”  262 Cal. Rptr. at 149, 152.  We approve of the Denham court’s reasoning and conclusion. 

The impact of this case is monumental.  In any case involving an excess verdict, there will be no question of how to coerce the judgment debtor to give a voluntary assignment of the bad faith rights.  Plaintiff will simply file a post-judgment execution action in which the Plaintiff obtains the involuntary assignment.  Automatically thereafter, Plaintiff will file the bad faith suit against the carrier’s insurance company based upon whatever theory Plaintiff can identify. 

Will Gallegos prevail in the bad faith action he brought against the driver’s carrier and the rental car company?  That is currently unknown.  However, it is irrelevant to the effect that this case will have.  The threat of such bad faith actions and the cost of defense of the same could be huge.  With this case in play, an insurance company will have to think twice as to whether it wants to take a case to trial and thereby risk an excess verdict.  However, it will want to think three times as decides whether it will just pay the excess verdict or fight the bad faith suit brought by the Plaintiff as he stands in the shoes of the insured. 

Plaintiff is not going to go without challenges though.  Plaintiff will have to prove that the judgment debtor is damaged somehow by the excess verdict.  If the judgment debtor can’t be located or is judgment proof anyway, is that person significantly damaged by the verdict?  This will be interesting as it all plays itself out in the future. 

If you have a question about an excess verdict against one of your insureds, Mills & Associates will be glad to speak with you about the ramifications of the Gallegos opinion.  

 

AUTO INSURANCE CARRIERS CANNOT COMPEL ARBITRATION, BUT IT NEVER HURTS TO ASK

Most auto insurance policies include a provision that allows the insurance company and the insured to arbitrate first party disputes.  However, attempts to compel arbitration under auto insurance contracts are forbidden in Nevada:

NRS 690B.017 provides:

 

NRS 690B.017  Provisions for arbitration not binding.  No provision for arbitration contained in an automobile liability or motor vehicle liability insurance policy delivered, issued for delivery or renewed in this State is binding upon the named insured or any other person who makes a claim under the policy.

 

Note that this provision does not forbid arbitration.  It simply prevents carriers from compelling arbitration under the auto policy.  Even so, many first-party auto cases will end up in arbitration anyway under Nevada’s Court-Annexed Arbitration Program for claims of a value of $50,000 or less.  Note however that those court annexed arbitrations are non-binding. 

 

Whether voluntary binding arbitration under the policy is the best solution to resolving the dispute will depend on the facts of the particular claim.  Factors to consider might include the policy limit, the company’s valuation of the claim and the comparative costs of litigation. 

 

Another important factor to consider is the risk of “bad faith” exposure.  If that is a threat, evidence of reasonableness in the claims handling process will be examined by that trier of fact.  While the company cannot force arbitration, the offer of arbitration to an insured can be evidence that supports the argument that the company was trying its best to avoid costly litigation.  If you have questions about arbitration under the policy and whether it is a good option in your case, please email mike@mcmillslaw.com. We will be glad to discuss your claim with you.

 

A DISPUTE AS TO THE VALUE OF A UM/UIM CLAIM DOES NOT CONSTITUTE A BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING

Insurance companies have felt the burden of the economic downturn as insured’s have reduced their liability coverage or eliminated their coverage completely. Where the coverage of  a tortfeasor is insufficient to compensate an injured party, that party often turns to his/her own insurer’s UM/UIM policy to close the gap. It is this relationship which has increasingly given rise to claims for breach of the implied covenant of good faith and fair dealing, commonly referred to by Plaintiff’s counsel as “bad faith”.

How does an insurer protect itself from this growing trend? Mills & Associates addresses this issue:

Nevada recognizes that the duty of good faith and fair dealing is implied in every contract of insurance.  See, Ainsworth v. Combined Insurance Co., 104 Nev. 587, 592, 763 P.2d 673, 676 (1988). In Nevada, insurance bad faith arises when a carrier denies policy benefits and the carrier knows or should know that there is no reasonable basis for such a denial.  See Schumacher v. State Farm Fire & Cas. Co., 467 F.Supp.2d 1090 (D. Nev. 2006); Falline v. GNLV Corp., 107 Nev. 1004, 1009, 823 P.2d 888 (1991); Farmers Home Mutual Ins. v. Fiscus, 102 Nev. 371, 374, 725 P.2d 234, 235 (1986) and Am. Excess Ins. Co. v. MGM, 102 Nev. 601, 605, 729 P.2d 1352, 1654-55 (1986). 

However, in Nevada, an insurance company is not in bad faith for making an erroneous estimate of value.  See supra, Schumacher at 1095 (D. Nev. 2006)(citing U.S. Fidelity & Guar. Co. v. Peterson, 540 P.2d 1070 (Nev. 1975)).  Schumacher involved a claim for water damage.  There, the court entered Summary Judgment in favor of the insurance company on the cause of action for bad faith by explaining:

The record reveals that State Farm did not deny Schumacher's claims without a reasonable basis or that it denied the claims with the knowledge that it had no reasonable basis to deny coverage or that it recklessly disregarded the unreasonableness of the denial, State Farm did not deny the claim, it just paid a different value than Schumacher requested. Under the reasoning of Pioneer, (Pioneer Chlor Alkali Co., Inc. v. Nat’l Union Fire Ins. Co., 863 F.Supp. 1237, 1244 (D.Nev.1994)) this makes the complaint more of one based upon statutory violations of NRS 686A.310 than it does a bad faith action.

Id. at 1095.

In an uninsured / underinsured motorist setting, the court in Wilson v. State Farm Mut. Auto. Ins. Co., 795 F.Supp. 1077 (D. Wyo. 1992) explained the rationale behind a similar conclusion:

[The plaintiff] Wilson has the burden of proving the amount of the liability, and until he does the amount is “fairly debatable.”  State Farm is entitled to pursue that debate without being subjected to a claim of the violation of the duty of good faith and fair dealing.  Further, the insurer was not obligated under its duty of good faith to pay the policy limits where the precise amount of its liability was debatable. 

Id. at 1081. 

In the UM / UIM context, the issue of whether a dispute as to value constituted bad faith came before the court in Nelson v. Safeco Ins. Co., No. 2:10-CV-241 JCM (LRL) (D. Nev. filed March 8, 2011).  In that order, the court, citing Schumacher, granted the Defendant insurance company’s Motion for Summary Judgment on the bad faith claim stating:

Here, there is no evidence of bath faith because the defendant did not deny plaintiff's claim. Rather, plaintiff alleges that the amount paid under the policy was less than what it should have been, which is insufficient to show bad faith. See id. at 1096 (finding that such an allegation "makes the complaint more of one based upon statutory violations of NRS 686A.310 than it does a bath faith action"). Accordingly, defendant's motion for summary judgment is granted as to this claim for relief.
Id. at 3.

Keep in mind that it is rare to never that the Plaintiff alleges bad faith as its only cause of action.  As was done in Schumacher, the Plaintiff usually bundles up the bad faith cause of action with other claims, including allegations of violation of the fair claims practices act and breach of contract.  So success on this issue is usually not dispositive of the entire suit.  However, absent an outright denial of the claim or a delay sufficient to amount to a constructive denial, it appears that Nevada courts have not and will not uphold a claim for breach of implied covenant of good faith and fair dealing.  As Schumacher demonstrates, a dispute over the value of a claim is simply not enough to support such a cause of action.

WHEN MUST INSURANCE COMPANIES INVOLVE THE INSURED IN SETTLEMENT NEGOTIATIONS?

Most insurance contracts provide insurance companies with the right to negotiate and settle disputed liability claims.  In most cases, negotiations and settlements happen without the involvement of the insured.  Many times, a single initial contact with the insured may be all that is needed by the insurance company to open, process and settle a claim.  In fact, it is my guess that in most cases, the insured is only a peripheral part of any settlement.  However, there are circumstances when the insured must be closely involved in the negotiations.  If they are not involved, the consequences can be substantial.

An example of the problems that can arise is found in the Nevada Supreme Court case of Allstate v. Miller, 125 Nev. Adv. Op. 28, 212 P.3d 318 (2009).  Underlying this bad faith case is a claim gone awry. 

That claim began like most others.  Allstate’s insured, Mr. Miller, caused an auto accident that seriously injured the claimant.  The claimant’s trauma center bill was $67,564.84.  As is often the case in these types of claims, the insured had a relatively small, $25,000.00 per person, auto policy liability limit.

When reports began arriving that the auto liability limits may not be enough to satisfy a judgment, Allstate notified its insured of the excess potential and advised him of his right to hire an attorney.

Claimant’s attorney then agreed to accept the policy limit of $25,000.00.  However, the Plaintiff would only accept if Allstate did not name the Hospital as a payee on the settlement check.

Claimant’s attorney rejected a check that included the Hospital as a named payee.  Claimant’s attorney then proposed that if Allstate would interplead the funds, the Plaintiff would give a full release.

Allstate balked.  It said that it couldn’t interplead.  But then it changed its mind and started the interpleader action.  By then it was too late.  The offer to settle had expired.  Matters went from bad to worse.  Claimant’s attorney went to trial and obtained a judgment in the amount of $703,619.88.

Obviously, Allstate’s insured was unhappy about the outcome.  He was even more displeased when Allstate refused to pay the judgment against him.  He filed a Bad Faith suit against Allstate.  He was awarded damages in the amount of $1,079,784.88.  Allstate appealed the Bad Faith verdict.

Without reaching a final decision, the Nevada Supreme Court made several rulings important to the development of bad faith law in Nevada.  Probably the most important lesson taught by the Nevada Supreme Court was that an insurance company can be liable for Bad Faith if it fails to inform the insured of settlement options that will affect him.  The court said that it would join jurisdictions in which followed the rule that a failure to adequately inform an insured of a settlement offer is a factor in deciding whether the insurance company acted in Bad Faith.  The Court went on to say:

we conclude that Miller's failure-to-inform theory is a viable basis for bad faith by itself, regardless of whether Allstate had a duty to file an interpleader complaint. Miller's allegation that Allstate did not adequately inform him of Hopkins' settlement offer is a question of fact. . Allen, 656 F.2d at 489 (recognizing that under California law “What is ‘good faith' or ‘bad faith' on an insurer's part has not yet proved susceptible to [definitive] legal definition. An insurer's ‘good faith' is essentially a matter of fact.”). Thus, the district court did not abuse its discretion when it submitted this issue to the jury. Id.

The court said that in a failure to inform case, that it would look at six factors in deciding whether Bad Faith was involved:

(1) the probability of the insured's liability;
(2) the adequacy of the insurer's investigation of the claim;
(3) the extent of damages recoverable in excess of policy coverage;
(4) the rejection of offers in settlement after trial;
(5) the extent of the insured's exposure as compared to that of the insurer; and
(6) the nondisclosure of relevant factors by the insured or insurer.

The court concluded that the facts proved by Miller at the Bad Faith trial were sufficient to support a claim of failure to inform him of his settlement options.  The court specifically said if there was no communication of the options to settle that the insurance company would have the burden of showing that the insured would not have made any personal contribution to a settlement above that amount.

To the insurance company’s benefit, the court found that Allstate had no independent duty to file an interpleader action.  However, it did say that Allstate’s decision not to timely file an interpleader may be a factor to consider in whether in the end it acted in Bad Faith.  It also told the insurance company that it could have deposited the funds with the court and obligated the claimant to file an interpleader to get the funds.  Finally, the insurance company had no duty to stipulate to judgment against its insured.

The final word taught by this opinion is that insurance companies need to be very careful when they find themselves negotiating settlement that involves a risk of excess verdict to the insured.  The insured needs to be involved all along the way and informed of options so that he or she can determine their part of the course of negotiations.  Unless they do, insurance companies will find themselves in the same hot water as Allstate.

MILLS & ASSOCIATES ACCEPTS INVITATION TO JOIN COUNCIL ON LITIGATION MANAGEMENT

Mills & Associates is proud to announce that it has accepted the nomination to join the Council on Litigation Management. 

For those unfamiliar with the organization, CLM is dedicated to improving the principles and practices of litigation management.  Members and Fellows of the Council include representatives of the insurance industry as well as nominated attorneys .

Some of the areas of interest of the organization include Alternative Dispute Resolution, Commercial Litigation, Transportation, Premises Liability and Insurance Fraud, all good fits with Mills & Associates and its area of practice. 

In addition, Michael C. Mills has also accepted the invitation to be the Nevada representative on the Council’s Insurance Bad Faith committee.  We see this affiliation as a great opportunity to share our experience in Nevada coverage and bad faith issues as well as to learn from the experience of others in the industry.  We will keep you updated with information we learn through this experience via future posts here. 

As always, please let us know if you have issues that you would like raised on this blog and we will do our best to provide an accurate, timely answer. 

GOT QUESTIONS?

These posts on the Mills & Associates Nevada Coverage & Bad Faith Law blog are published to provide useful insights on Nevada insurance law to our clients and other subscribers. Many times the topics are suggested by recent case law, or issues raised by litigation.

As part of our ongoing effort to provide both timely and helpful information, we invite all our readers to submit issues which they would like to see addressed in future blog posts. 

Likewise, please submit questions concerning prior posts.  We will do our best to provide additional information or updates on those topics.

If you would like to submit a question, or a suggestion for a future blog post, please contact us at Mail@MCMillsLaw.com.

 

BREACH OF INSURANCE CONTRACT AND BAD FAITH CLAIMS DO NOT HAVE TO BE BROUGHT IN THE SAME LAWSUIT . . . SOMETIMES

Often we see breach of insurance contract and bad faith claims included in the same complaint.  However, have you ever wondered if the two causes of action must be brought together?  The case of Pulley v. Preferred Risk Mut. Ins. Co., 111 Nev. 856, 897 P.2d 1101 (1995) tells us that that breach of contract and bad faith suits are distinct and can be brought either together or separately. 

In Pulley, the Plaintiffs filed their UM claims with the insurance carrier.  They were unable to reach a settlement and the Plaintiffs filed suit alleging breach of the UM portion of the insurance contract.  Rather than go to trial, the parties decided that they wanted to arbitrate their dispute.  The arbitrator awarded $10,716.20 to Pulley and $7,216.35 to the second plaintiff.  The Plaintiffs demanded immediate payment of the awards. 

When, 50 days later, the awards had not been satisfied, the Plaintiffs filed a second suit alleging bad faith.  The next day, the checks were tendered to the Plaintiff.  A Motion to Dismiss the bad faith claim was filed.  The insurance carrier argued that the Plaintiffs had a duty to bring the breach of contract suit and the bad faith suit together in the same action.  The carrier argued that by litigating the first case without raising the bad faith claims foreclosed the bad faith action under a theory of res judicata.  The trial court agreed with the insurance company and dismissed the bad faith suit. 

The Nevada Supreme Court disagreed with the District Court’s decision.  It found that the duty to act in good faith arises not from the terms of the insurance contract.  Instead, the duty of good faith and fair dealing is imposed by law.  See United States Fidelity v. Peterson, 91 Nev. 617, 620, 540 P.2d 1070, 1071 (1975).  The court explained that the first suit was a contract action.  In contrast, the bad faith suit was a tort action.  The bad faith suit did not arise until after Preferred Risk delayed payment of the arbitration award.  Therefore, there was no bad faith suit until after the delay in payment.  The two causes of action could not have been brought together.  The court sent the case back to the District Court to be tried on the issue of whether the delay in payment constituted “bad faith”. 

There are specific instances where the contract action and the bad faith action must be brought together.  However, in Pulley, the Nevada Supreme Court clearly distinguishes the two types of suits and indicates that where the bad faith happens after the contract action is over, the bad faith action can be brought separately.  The practice tips learned here are when settling a contract case, keep the lines of communication open with the Plaintiffs’ attorney, expedite handling of the settlement check and if possible, reach a settlement that includes not only the contract claim, but also any related extra-contractual claims.

For a different perspective with a different result, read our May 21, 2009 blog post by clicking HERE.

 

NEVER SAY NEVER

Why it may be ill advised for an insurance company to say that it will never go off panel to assign work to insurance defense attorneys...

Recently, Mills & Associates logged into a webcast sponsored by an insurance industry organization.  The webcast’s expert panel was convened to discuss how defense attorneys could better improve the “insurance defense relationship”. 

As I listened to the panel members, it was reinforced to me how much insurance companies like to follow predetermined guidelines, directives and procedures.  This is especially true when it comes to selecting and using insurance defense counsel.  Generally, insurance companies use the attorneys with whom they have tried and true relationships.  Once they develop a panel, they want to stick with it and usually their rules forbid the use of attorneys not on the panel. 

I know that I will never convince insurance carriers to change their stripes regarding how they select their attorneys.  However, I know that insurance companies paint themselves into a corner when they say that they will “never use anyone but panel counsel” to handle their assignments.  There are just too many situations where a panel attorney is not going to work out. 

The first instance is where there are conflicts of interest.  Since insurance companies and the attorneys are both renowned for their litigiousness, there are bound to be circumstances where the panel firms find themselves in a conflict.  The conflict might exist between two insureds, two insurance companies or between the carrier and its insured.  There are a number of times when insurance companies with whom I have had no prior relationship have approached me to represent their insured because of conflicts. 

A second situation where the insurance company may consider going off-panel to find an attorney would be where the company is reviewing and possibly expanding its panel list.  Carriers have approached Mills & Associates with one or two cases saying that they are looking to expand their panel and want to find out how we would work out.  This situation is good for both the attorneys and the carriers.  Opening up the list to "new blood" gives both parties the chance to see if the relationship is a good fit and to find out if current panel counsel is delivering sufficient value to the company.

A third example is where the carrier finds that the panel counsel lacks knowledge or experience in a particular area of the law or in the local rules and customs to adequately represents their interest.  Mills & Associates has been approached on a number of occasions to represent parties, where panel counsel was an out of state firm and insight into Nevada customs and practices was absolutely necessary. 

Like many other industries, the insurance world is changing and evolving.  The insurance companies with whom we work expect its attorneys to be flexible and meet these changes head on.  We would only ask that the insurance industry recognize that it too should prepare for situations where panel counsel just won’t do.  Perhaps it will take the creation of a “conflicts” panel from which the company can draw when conflicts arise.  Perhaps during its periodic review of the current panel the company can allow for a “test drive” of new attorneys who may be able to deliver better value than the current panel.  Or finally, it may just be that companies need to be open to the idea that there are attorneys out there that have gained experience that the current “panel attorneys” do not have. 

Insurance companies with whom we have dealt have recognized the wisdom in these ideas and have given us the chance to prove how we can deliver valuable services and information to them.   We would like to do the same for your insurance company.

PLAIN VANILLA NEVADA BAD FAITH

Farmers Home Mutual Ins. v. Fiscus, 102 Nev. 371, 725 P.2d 234, (1986) is a text book example of a straightforward bad faith suit.  It all started out simply enough.

The Fiscus family used an evaporative cooler to keep their Boulder City home tolerable during the long, hot Nevada summers.  The cooler’s water supply line hooked into the pipe under the kitchen sink and ran up to the roof.  While the Fiscus family was away on a three-week summer vacation, the cooler’s supply line became disconnected somehow.  They returned to find a flooded house.  Not only did the house need repairs, but the water damaged their personal property too.

Farmers Home denied the claim for repair of the structure because of a policy exclusion for “continuous or repeated seepage or leakage of water or steam over a period of time from within a plumbing, heating or air conditioning system.”  However, the insurance company got into trouble when it denied coverage for damage to the personal property.  The policy said that the company would pay for damage to personal property caused by “accidental discharge or overflow of water or steam from within a plumbing, heating or air conditioning system.” 

The Nevada Supreme Court had no trouble reaching its decision.  The court approved the trial court’s awards for loss and damage to the personal property, as well as damages for the emotional distress caused by the bad faith denial.  Not only did the court approve of the award of prejudgment interest, the court tacked on an additional $5,000.00 in attorney’s fees to supplement the $5,000.00 that the trial court had awarded.  The court did this because of the “continued bad faith denial of the respondents’ claim by bringing this appeal”. 

This opinion is a clean and clear example of the elements in a bad faith suit.  The facts are not complicated by a supplemental claim of delayed processing or mishandling under the “Unfair Claims Practices Act”  N.R.S. 686A.310.  Rather, the elements of the cause of action for bad faith are presented in a straightforward fashion:  (1) A denial of the claim where payment should have been made and (2) A knowing or reckless disregard of a lack of a reasonable basis for denying the claim.  See American Excess Ins. Co. v. MGM Grand Hotels, Inc., 102 Nev. 601, 729 P.2d 1352 (1986).