(Article from Insurance Law Alert, February 2026)
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Holding
The Nevada Supreme Court ruled that an excess insurer may seek equitable subrogation against a primary insurer that declined reasonable settlement offers within the primary insurer’s policy limits and ultimately settled within the total limits of the primary and excess policies combined. N. River Ins. Co. v. James River Ins. Co., 2026 Nev. LEXIS 8 (Nev. Jan. 29, 2026).
Background
In the course of defending an underlying lawsuit against an insured, primary insurer James River Insurance Co. declined three settlement offers at or below its $1 million policy limit, and the case ultimately settled for $5 million. Because the settlement exceeded James River’s policy limit, James River contributed its $1 million limit and excess insurer North River Insurance Co. funded the remaining $4 million under protest.
North River then sued James River in California federal court for equitable subrogation, alleging that James River violated its duty of good faith and fair dealing by rejecting reasonable settlement offers within the primary policy limits, and sought $4 million in damages. Relying on two unpublished Nevada Supreme Court orders, the district court dismissed the case, concluding that North River had no equitable subrogation claim because the underlying suit settled within the total limits of the primary and excess policies combined, and, therefore, North River could not assert damages on behalf of its insured.
North River appealed to the Ninth Circuit, which determined that the unpublished orders did not constitute binding precedent and certified the following question to the Nevada Supreme Court: “Under Nevada law, can an excess insurer state a claim for equitable subrogation against a primary insurer where the underlying lawsuit settled within the combined policy limits of the insurers?”
Decision
The Nevada Supreme Court answered that “an excess insurer may seek equitable subrogation against a primary insurer who fails to settle within primary policy limits when the insured, but for the excess insurer’s contribution to the settlement, would have had a claim against the primary insurer for its failure to reasonably settle.” The court further explained that “equitable subrogation allows the excess insurer to stand in the shoes of the insured and assert all claims against the primary insurer that the insured itself could have asserted.”
The court reasoned that “[a]n insurer's duty to act in good faith does not simply disappear when a prudent insured has obtained excess coverage.” Because James River would face $4 million in liability in an action brought by the insured for its alleged bad faith failure to settle, the court held that James River faces the same liability in a suit brought by North River. The court also explained that “[i]t is not a prerequisite to equitable subrogation that the subrogor suffered actual loss; it is required only that he would have suffered loss had the subrogee not discharged the liability or paid the loss.”
Comments
The decision establishes binding precedent in Nevada on previously unsettled issues concerning equitable subrogation rights between insurers. The court also addressed fairness and public policy concerns that could arise if excess insurers lacked subrogation rights:
[I]f the primary carrier is relieved of its duty to accept reasonable offers by the existence of excess insurance, it would put an additional financial liability on the excess carrier which would be reflected in increased premiums. It would also have the effect of reducing the incentive of a primary insurer to settle when the settlement offer is near or over its policy limits. This is contrary to the interests of the public and the insured in obtaining prompt and just settlement of claims.
The decision aligns Nevada with other jurisdictions—California, Hawaii, Missouri, Oregon and Texas—that have allowed excess insurers to seek equitable subrogation from primary carriers that unreasonably refuse settlement offers within policy limits.