Like other states, most liability insurance companies have what is called the duty to defend their Nevada customers from certain lawsuits. Usually, an insurance policy will describe this duty to defend.
The duty to defend is a complicated area of the law. However, basically, it means that an insurance company has to pay for a legal defense if one of its policyholders gets sued.
The duty to defend does not apply to every single lawsuit but only those suits that could result in the insurance company paying a claim under the terms of the policy. Different states have different standards which insurance companies must use when deciding whether to defend a suit.
An example of the duty to defend commonly arises in car accident cases
An insurance company may refuse to pay a person who claims to have been in accident with the insurance company’s policyholder, especially if it looks like the accident was not the policyholder’s fault.
However, if the other person then sues the policyholder, the insurance company will likely have to pay for the cost of the policyholder’s defense, including the fee for an attorney to represent the policyholder.
An insurance company may have to pay additional damages if it does not defend
Nevada’s courts have made it clear that Nevada’s insurers must take the duty to defend seriously.
Even if an insurance company does so in good faith, it may wind up having to pay what the law calls consequential damages to its customer if it improperly declined to defend a lawsuit.
This means that it will likely have to pay whatever the court said the customer owed following an accident. The insurance company may wind up paying considerably more than the limits it had offered on its policy.