Trying to Buy Insurance in Nevada? Maybe not...

As the insurance market continues to be disrupted by losses (litigation financing, auto, wildfire, California in general), large verdicts and inflation risk - regulators continue to make things challenging for their business constituents. Bills like California AB371, as an example, make finding insurance solutions nearly impossible. And the worst part is, most of these regulators seem to have little knowledge of the coverage possibilities that the market can bring to address the legislation they've enacted.

A new bill in Nevada epitomizes this in Assembly Bill 398. Here is an overview of the bill:

Assembly Bill No. 398:

• This bill prohibits an insurer from issuing or renewing a policy of liability insurance that contains a provision that?reduces the limit of liability stated in the policy by the costs of defense, legal costs and fees and other expenses for?claims.
• The bill also prohibits an insurer from issuing or renewing a policy of liability insurance that otherwise limits the availability of coverage for the costs of defense, legal costs and fees and other expenses for claims.
• The bill does not apply to any contract for liability insurance existing on the effective date of the bill.

In other words, this bill would prevent insurers from issuing claims-made policies or any policies where defense erodes the limit of insurance.

It is unclear whether this bill applies to non-admitted (Surplus Lines) policies. Normally, such form restrictions, do not typically apply to surplus lines insurers. However, this bill is extremely broad and vague with respect to its application so it is quite possible a ruling could go either way.

If this bill does apply to surplus lines carriers, some industries within Nevada, may become uninsurable. All management liability policies are written on a claims-made basis with defense eroding the limit (Directors and Officers, Employment Practices, Crime, Professional Liability). And many General Liability policies in areas of high-hazard risk are also placed on claims-made policies with the same restrictions.

Without the optionality of this form, Nevada policyholders will be (potentially) out of luck when it comes to these coverages.

The idea here, I'm sure, was to make coverage more transparent and more robust. In actuality, it will severely hinder policyholders from obtaining coverage. And this could apply in pretty dramatic ways. As an example: if you are a product manufacturer and you sell dynamite across the country through retailers; as a seller of dynamite, you are likely unable to obtain an occurrence policy. So you procure a claims-made policy with defense eroding the limit. And you sell your product in Nevada (among other states).

In the above situation, how does this impact the insured? The insurer? The broker? All questions with no answers yet (at least published answers). But as the bill is currently written, there could very easily be some big consequences for all parties. Thereby making this bill completely useless and excessively draconian. Where I'm certain that was not the intention. This is an example of government overstepping their role and outkicking their knowledge cover.

Writing a bill that complies with the "letter of the law" is one thing, knowing its impact is another.

Bills like this are being written all over the United States. In New York (let's not start counting the ways New York hinders business) there is legislation that requires car share and ride share to be on admitted paper. In theory, this is great for policyholders. In reality, there are no insurance carriers to write auto coverage in New York. I just saw Oppenheimer last weekend - a constant theme in the movie was theoretical vs. reality. They often are polarizing in science (and apparently in law too).