“Bad Faith Duty to Defend” by a Nevada Insurer

Insurance companies in Nevada have a "duty to defend" and indemnify their policy holders against third party claims. This means that when someone makes a claim against a policy holder for a potentially covered risk, the insurer must:

  • Investigate the claim in good faith, and 
  • Provide the policy holder with a legal defense.

Failure to do either may be a “bad faith” breach of the insurer's "duty to defend” in Nevada.

Damages for “bad faith” by an insurer can include:

  • Costs of hiring a lawyer to defend the claim;
  • Damages for emotional distress; and
  • Punitive damages (in extreme cases).

To help you better understand Nevada's “bad faith insurance” laws, our Las Vegas personal injury lawyers discuss, below:

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1. The covenant of good faith and fair dealing

Insurance is a contract between the insurer and the policy holder. All contracts in Nevada contain an implied covenant of good faith and fair dealing.[1] 

Under Nevada law, “good faith” is defined as "honesty in fact and the observance of reasonable commercial standards of fair dealing."[2] This means that Insurance companies in Nevada must:

  • Pay claims when the policy holder experiences a “covered risk,”
  • Promptly and fairly investigate claims to determine who is liable,
  • Defend the policy holder against third party claims, and
  • Use good faith efforts to settle claims in appropriate cases.
Example: Barbara is involved in a car accident in Las Vegas. Each driver claims the accident resulted from the other's negligence.
Because the accident is potentially covered under Barbara's auto policy, the insurer must investigate it promptly and use good faith efforts to determine who is at fault. The insurer must also defend Barbara against the other driver's claim.

2. How does Nevada law define “bad faith” by an insurer?

Under Nevada law, an insurer acts in bad faith when:

  1. The insurer denies benefits to the policy holder, and 
  2. The insurer knows or should know that there is no reasonable basis for such a denial.[3]

Note that an inadvertent oversight or reasonable (though erroneous) determination that a risk isn't covered is probably not bad faith.

3. Examples of insurer bad faith

Acts that might constitute “bad faith” by an insurer include:

  • Not conducting a prompt and fair investigation of a claim.
  • Not having reasonable standards for investigating claims.
  • Misrepresenting what the policy covers.
  • Failing to communicate with the policy holder regarding a claim.
  • Failing to give adequate reasons for refusal to pay a claim.
  • Negatively affecting the policy holder's ability to defend against a third party claim.

4. When must an insurance company defend a policy holder?

In Nevada, an insurer has a duty to defend its policy holder as soon as notice of a potentially covered risk is made. The obligation to defend continues through any settlement discussions or lawsuit until final resolution of the claim.[4]

“Covered risks” are those set forth in the insurance policy documents. The court will look to the language of the policy to determine what the parties intended.

If there are any doubts, the court will resolve them in the policy holder's favor. Only where there is no potential for coverage is the insurer off the hook.[5]

Example: Ella's gardener is injured in a “slip-and-fall” accident while blowing leaves off of Ella's patio in Reno. He sustains a head injury and files a premises liability lawsuit against Ella for medical bills and lost wages.
Ella submits the claim to her homeowner insurer. However, Ella's policy was cancelled for non-payment several months earlier. The insurer has no duty to defend the claim.

Note however that when an insurer denies coverage because notice of the claim was late, the insurer must defend the policy holder unless the insurer can show that the delay materially impaired the insurer's ability to contest it.[6]

5. What damages can I recover if an insurer breaches its duty to defend?

Damages for an bad faith breach of the duty to defend and indemnify can include:

  • Amounts the policy holder had to pay out-of-pocket to defend a claim,
  • Lawyer's fees incurred in obtaining benefits under the insurance policy, and/or
  • Damages for the mental suffering and emotional distress caused by the insurer's bad faith.

6. Can I recover punitive damages for bad faith?

Nevada law allows the recovery of punitive damages in bad faith insurance cases. To win them, the insurer must have acted with fraud, malice or oppression.[7]

In the insurance context, this can occurs when an insurer acts with a conscious disregard of the harm that will result from its wrongful failure to pay or investigate a claim or defend its policy holder.[8]

And while Nevada law generally imposes a cap on punitive damages, there is no cap on the punitive damages in Nevada for bad faith by an insurer.[9]

Injured by an insurer's bad faith in Nevada? Call us for help…

male receptionist

If you suffered damages because your insurer wrongfully denied or failed to defend your claim, we invite you to contact us for a free consultation.

You pay us nothing unless and until we settle your case or obtain a judgement in your favor.

Call us at (855) 396-0370 or complete the form on this page to discuss your case with an experienced Las Vegas injury lawyer today.

We can also help you if an insurer breached its duty to defend in California.

Legal references:

  1. NRS 104.1304.
  2. NRS 104.1201(t).
  3. See, e.g., Guaranty National Ins. Co. v. Potter (1996) 912 P.2d 267.
  4. Allstate Ins. Co. v. Miller (2009) 125 Nev. 300, 309, 212 P.3d 318, 325 .
    Benchmark Ins. Co. v. Sparks, 254 P.3d 617, 620–21 (2011) (internal citation omitted); United Nat'l Ins. Co. v. Frontier Ins. Co., 120 Nev. 678, 687, 99 P.3d 1153, 1158 (2004).
  5. Bidart v. Am. Title Ins. Co. (1987) 103 Nev. 175.
  6. Las Vegas Metropolitan Police Dept. v. Coregis Ins. Co. (2011) 256 P. 3d 958.
  7. NRS 42.001.
  8. See Guaranty National Ins., note 3.
  9. NRS 42.005(2)(b).

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