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Nevada Division of Insurance Attempts to Fix the Prohibition of Defense Within Limits Policies

09.11.23 | INSIGHTS

By Andrew B. Downs
Shareholder, 415.352.2716

In early July we reported regarding Nevada Assembly Bill 398, which operated to prohibit the issuance of liability insurance policies containing defense within limits or “self-eroding” provisions.

The legislation was hardly a masterpiece of clarity and passed the Nevada legislature with no discussion or consideration of the ramifications of its enactment as demonstrated by the legislative hearing at which it was considered.

The Nevada Division of Insurance has addressed some of these issues by issuing an Emergency Regulation which took effect on July 31, 2023. Because that emergency regulation expires on November 21, the Division of Insurance is now in the final stages of issuing a permanent regulation.

Both regulations clarify that the prohibition of defense within limits provisions applies only to policies issued by admitted insurers and Nevada licensed captives. They do that by defining “policy of liability insurance” to be those issued by a person holding a certificate of authority pursuant to NRS 680A.060 or a license pursuant to NRS 694C.230, which refers to captive insurers. What this does is exempt non-admitted or Surplus Lines insurers from the requirement. Given that many of the policies which historically have included defense within limits provisions were issued in the Surplus Lines market this should mitigate the disruptive effects of this legislation to some degree.

This is unlikely to be the last episode in this story. We will continue to monitor developments relating to this legislation.

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