December 17, 2018

Upolding $18M Verdict, Insurance Company is Liable For Consequential Damages for Failure to Defend

In a landmark ruling, the Nevada Supreme Court upheld an $18 million default judgment against Century Surety Company for failing to defend a commercial policyholder who hit the plaintiff with his truck. The court ruled that an insurance company’s liability for the breach of the duty to defend is not capped at the policy limits, even in the absence of bad faith.

Adopting a minority view among courts, the Nevada court ruled that “an insurer may be liable for any consequential damages caused by its breach. We further conclude that good-faith determinations are irrelevant for determining damages upon a breach of this duty. ” Century Surety v. Dana Andrew and Ryan Pretner, 134 Nev. Advance Opinion 100.

“We conclude that the minority view is the better approach. Unlike the minority view, the majority view places an artificial limit to the insurer’s liability within the policy limits for a breach of its duty to defend,” it ruled. “Indeed, the
insurance policy limits ‘only the amount the insurer may have to pay in the
performance of the contract as compensation to a third person for personal
injuries caused by the insured; they do not restrict the damages recoverable
by the insured for a breach of contract by the insurer.”

Dennis M. Prince of Eglet Prince and in Las Vegas represented the plaintiffs in the widely-covered case.

Plantiff Ryan T. Pretner of Las Vegas
Plaintiff Ryan T. Pretner of Las Vegas

Hit from behind

Ryan T. Prener was doing errands on his bicycle in Las Vegas in 2009 when a truck driven by Michael Vasquez came up from behind and its side mirror struck Pretner in the back of the head, catapulting him to the side of the road. He was in a coma for 63 days and suffered significant brain injuries.

Vasquez used the truck for personal and also business use for Blue Streak Auto Detailing. The personal auto liability company, Progressive Casualty, settled for its $100,000 policy limit.

Blue Streak had a commercial liability policy issued by Century Surety which had a policy limit of $1 million.  Century concluded that Vasquez was not driving in the course of his employment with Blue Streak and refused to defend Blue Streak.

Pretner and his guardian Dana Andrew filed an unopposed default judgment against Vasquez and Blue Streak for $18,050,183. The judgment stated that Vazquez was working the court of his employment.

The case was removed to federal court, which found that Century did not act in bad faith but it did breach its duty to defend Blue Streak. The federal court concluded that Blue Streak was entitled to recover consequential damages that exceeded the policy limit for appellant’s breach of the duty to defend, and
that the default judgment was a reasonably foreseeable result of the breach
of the duty to defend.

The federal district court certified the question to the Nevada Supreme Court:

  • Appellant argues that the liability of an insurer that breaches
    its contractual duty to defend, but has not acted in bad faith, is generally
    capped at the policy limits and any cost incurred in mounting a defense.
  • Conversely, respondents argue that an insurer that breaches its duty to
    defend should be liable for all consequential damages, which may include a judgment against the insured that is in excess of the policy limits.

Amicus briefs werer filed supporting the insurance company by The Federation of Defense & Corporate Counsel, Complex Insurance Claims Litigation Association, American Insurance Association, and Property Casualty Insurers Association of America.

Relying on a 2016 Wisconsin opinion,  stating, “Thus, “[a] party aggrieved by an insurer’s breach of its duty to defend is entitled to recover all damages naturally flowing from the breach.”

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