Nevada Insurers Facing Restrictions on Liability Limits With New Legislation

Nevada’s insurance commissioner has ‘grave concerns’ about insurers leaving the state because of recent legislation that prohibits them from issuing policies that reduce liability limits by defense costs.

Assembly Bill 398, which Nevada Gov. Joe Lombardo signed in June and takes effect Oct. 1 for all new and renewed policies, caught many in the industry by surprise.

On Friday, the Nevada Department of Business and Industry’s Division of Insurance issued an emergency regulation in response to the law that took effect on Friday and expires Nov. 21, 2023.

Insurance commissioner Scott J. Kipper sent a letter Thursday to Gov. Lombardo expressing concerns about the law’s impact, and the department has also issued guidance to insurers. According to the letter, the legislation is expected to impact lines including but not limited to medical malpractice; errors and omissions and other professional liability policies; directors and officers; cyber liability; employment practices liability; pollution and environmental impairment; fiduciary liability; construction defect; products and clinical trial liability; and excess and umbrella policies.

The Kansas City, Missouri-based Wholesale & Specialty Insurance Association said in a legislative update on Friday that the guidance indicates that AB 398 applies to policies issued by authorized insurers, ‘therefore nonadmitted insurance policies are not subject to the law.’ It said it, along with others including the Council of Insurance Agents & Brokers, have held discussions on the issue with the insurance division.

Discussing his concerns, Mr. Kipper said in his letter to the governor that as insurers leave the state, ‘there is a potential for a lack of adequate capacity remaining with the carriers that choose to continue selling liability insurance in this state.

‘Additionally, this new legislation will most likely lead to significant increases in the cost of insuring businesses and, without clarification, the division is projecting even higher costs for liability insurance.’

It states the division believes that promulgating an emergency regulation, ‘will provide some necessary assurance to insurers to try to minimize disruption to Nevada insurance consumers.’

The regulation provides that insurers that decide to no longer offer coverage must give policyholders 60 days’ notice.

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