(Article from Insurance Law Alert, July/August 2019)
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The Ninth Circuit asked the Nevada Supreme Court to decide whether an insurer that defends under a reservation of rights is entitled to reimbursement of defense costs following a ruling that the insurer had no duty to defend. Nautilus Ins. Co. v. Access Medical, LLC, 2019 WL 2812407 (9th Cir. July 2, 2019).
Nautilus defended its insured under a reservation of rights that expressly referenced its right to seek reimbursement of defense costs. While the underlying litigation was pending, Nautilus sought a declaration that it had no duty to defend. Neither the pleading nor a subsequent summary judgment motion referenced defense cost reimbursement. A Nevada federal district court ruled in Nautilus’ favor and closed the case. Thereafter, Nautilus moved for further relief seeking reimbursement of defense costs. The court denied the motion based on the insurer’s failure to include a claim for reimbursement in its complaint and the absence of Nevada law requiring such reimbursement.
On appeal, the Ninth Circuit noted a split across other jurisdictions regarding an insurer’s right to reimbursement of defense costs following a no-duty-to-defend ruling. The Nevada Supreme Court has not directly addressed the issue and while some Nevada courts have held that insurers have a right to reimbursement if there is an “understanding” between the parties as to reimbursement, Nevada law is unclear as to whether and under what circumstances an insurer’s reservation of rights establishes such understanding. Therefore, the Ninth Circuit certified the following question of law to the Nevada Supreme Court:
Is an insurer entitled to reimbursement of costs already expended in defense of its insureds where a determination has been made that the insurer owed no duty to defend and the insurer expressly reserved its right to seek reimbursement in writing after defense has been tendered but where the insurance policy contains no reservation of rights?
We will keep you apprised of further developments in this matter.