Nevada recently passed a law, Assembly Bill 398, that will prohibit insurers from issuing “liability policies” containing provisions that reduce the limit of liability by costs of defense (i.e., defense within limits or DWL provisions). The law is set to become effective on October 1, 2023.
The bill's broad language and legislative history suggest that a wide range of policies may be affected by the Defense Inside the Limits prohibition. The Department of Insurance expects that the legislation would materially affect the following lines of insurance: Medical Malpractice, Errors and Omissions and other professional liability policies, Directors & Officers Liability, Cyber Liability, Employment Practices Liability, Pollution and Environmental Impairment, Fiduciary Liability, Construction Defect, Products and Clinical Trial Liability, and Excess/Umbrella policies.
The exact scope of the new law remains uncertain. If applied as written, policies that historically have had their defense within the limits – meaning defense costs erode the limit of liability – would now have defense costs not count against the limit of liability. Defense costs would be “outside” the limits of liability.
As a result, numerous businesses and insurance industry groups have expressed concerns to the Nevada governor and the Nevada Insurance Commissioner that this new law could make liability coverage difficult to obtain due to its high cost and potential unavailability. Members of the insurance industry are digesting the news and analyzing how this new legislation would affect them and their policyholder clients. There is a request by Nevada's Division of Insurance to provide clarity, including whether surplus lines policies are exempt and which businesses will be subject to the new law.
The Division of Insurance is expected to provide clarifying guidance soon. Companies impacted by AB 398 are advised to keep track of any updates and collaborate with NFP and carriers to prepare for changes in policies issued or renewed starting on and after October 1, 2023.
It's important to note that the Nevada legislature meets every other year, with the next regular session scheduled for February 3, 2025. Unless the governor calls a special legislative session, any potential changes to the law might not take place anytime soon.
NFP is actively monitoring the situation and collaborating with carriers and other stakeholders to ensure that affected clients can obtain their required coverage in a cost-effective manner.
Should you have any questions please feel free to reach out to the following contacts:
- Management, Cyber & Professional Liability – Matt Schott (Matthew.Schott@nfp.com), Jon Franznick (Jonathan.Franznick@nfp.com)
- Financial Institutions – Lauren Kim (Lauren.Kim@nfp.com)
- Property and Casualty – Sean Hickey (Sean.Hickey@nfp.com)