In Allstate Insurance Company v. Miller, the Nevada Supreme Court clarifies issues regarding the relationship between insurance companies and the insured. 125 Nev. Adv. Op. No. 28, July 30, 2009.
Miller sued Allstate alleging, among other things, a claim of bad faith. Miller alleged that Allstate breached the covenant of good faith and fair dealing by failing to file an interpleader complaint, failing to adequately inform Miller of a settlement offer, and refusing to agree to a stipulated judgment in excess of Miller’s policy limits.
The Court has defined bad faith as “an actual or implied awareness of the absence of a reasonable basis for denying benefits of the insurance policy. In Miller, the court held that Allstate breached the covenant of good faith and fair dealing by failing to inform Miller of settlement offers.
Because a primary insurer’s duty to defend includes settlement duties and an insurer must give equal consideration to the insured’s interest, the court held that the covenant of good faith and fair dealing includes a duty to adequately inform the insured of settlement offers. This includes reasonable offers in excess of the policy limits. Failure to adequately inform an insured is a factor to consider in a bad-faith claim and, if established, can be a proximate cause of any resulting damages. They concluded that whether Allstate violated its duty to adequately inform Miller of the settlement opportunities that existed in this case presented a question of fact for the jury.
Miller’s two alternative theories of bad faith fail. Unless the policy says otherwise, an insurer does not have an independent duty to file an interpleader action on behalf of an insured. Nor is an insurer required to agree to a proposed stipulated judgment between the insured and the claimant if that stipulated judgment is beyond the policy limits.
In conclusion, a primary insurer’s duty to defend attaches upon notice of a demand against its insured. Thus, an insurer’s duty to adequately inform the insured begins upon receipt of a settlement demand and continues through litigation to final resolution of that claim. As a result, if an insurer fails to adequately inform an insured of a known reasonable settlement opportunity prior to the filing of a claimant’s lawsuit, the insurer may breach its duty of good faith and fair dealing. If the insurer fails to adequately inform an insured of such an opportunity after the filing of a claimant’s lawsuit, then the insurer has breached its duty to defend the insured against lawsuits.
Steve is the Managing Shareholder of Steven J. Klearman & Associates, a civil litigation law firm located in Reno, Nevada. He practices primarily in the areas of civil litigation and injury law, and has authored one of the definitive guides to Nevada civil law that is widely used by Nevada judges and attorneys, his book entitled Elements of Nevada Legal Theories.