A Nevada federal district judge ruled on March 31 that notice to an insured of his right to independent counsel, where a conflict of interest existed between him and his insurer, did not satisfy the insurer’s contractual duty to defend. Rather, the insurer was required to obtain from the insured an express waiver of independent counsel.
Starr Indemnity and Liability Company accepted the defense of its insured, Young, under a General Liability Policy and sent him a reservation of rights letter informing him of Starr’s coverage defenses. Among the defenses to coverage were 1. The absence of an “occurrence,” 2. the Assault & Battery exclusion and 3. the Expected or Intended Injury exclusion. Starr retained attorney Stephenson to represent Young and Starr in the lawsuit and retained separate coverage counsel for itself. The letter to Young stated in relevant part,
“[T]here is a conflict of interest between your interests and those of Starr . . . You have the right to be defended in the [lawsuits] by counsel of your own choice under which Starr will pay for the reasonable costs incurred in your defense in the [lawsuits].”
This notice was not enough. Grounding its decision in State Farm Mut. Auto. Ins. Co. v. Hansen, 357 P.3d 338 (Nev. 2015), the Court found that “Starr breached its contractual duty to defend by not obtaining an explicit waiver from Young as to his right for independent counsel since Starr understood that an actual conflict of interest existed between itself and Young . . . Nevada law requires that an insurer obtain an explicit waiver of the right to independent counsel from an insured before it can proceed with dual or concurrent representation in an action in which an actual conflict of interest between the insurer and insured exists or has arisen.”
The Court granted Young’s motion for summary judgment on breach of contract and addressed several other interesting issues in the full Order at the following citation: STARR INDEMNITY & LIABILITY COMPANY, Plaintiff, v. LIMMIE YOUNG, III, et al., Defendants. Additional Party Names: Audra Duvall, Massage Envy, Michael Duvall, No. 214CV00239RFBNJK, 2019 WL 1442166 (D. Nev. Mar. 31, 2019).
