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Insurance law change could cost millions of dollars, casinos and businesses tell regulators

Businesses fear insurers could be driven out of state by overlooked 2023 insurance liability law
Tabitha Mueller
Tabitha Mueller
State Government

The head of a trade group representing Nevada’s largest casino resorts led a chorus of businesses in telling state regulators Thursday that a little-noticed 2023 bill amending the state’s liability insurance laws could cost millions of dollars and drive certain types of insurance out of the state.

The fears were raised during a public workshop hosted by Nevada’s Division of Insurance to adopt a permanent regulation guiding AB398, a bill forbidding insurance companies from using the cost of defense, legal costs or fees to limit liability insurance coverage. 

Gov. Joe Lombardo signed an emergency regulation proposed last month by the Division of Insurance to address “grave concerns” presented by the law, and the division on Thursday emphasized the desire to quickly address a lack of clarity within the law through a permanent regulation.

But businesses and insurers indicated it might not be enough.

“We’re looking at just the tip of the iceberg … a ripple effect across all of the businesses that we do business with,” Nevada Resort Association President Virginia Valentine said during the Thursday workshop.

Under the bill, Valentine said she anticipated that resorts may need to cancel and rewrite policies to come into compliance with the law, which would likely come with increased costs. She said some initial cost estimates indicate tens of millions of dollars in cost to resorts represented by the association, not to mention similar rising insurance costs for vendors, contractors and other business partners.

If those contractors and vendors cannot get the insurance they need to do business with the resorts, Valentine said the association members would likely have to go out of state to look for other companies to partner with or pay higher costs. 

“We appreciate the regulation will provide some options, but I don’t think they’d fully mitigate the impact on the cost or the availability of insurance or address some of the ripple effects,” Valentine said.

As written, AB398 bans a policy known as “Defense Inside the Limits.” The policy typically applies to professional liability insurance holders to cover instances of malpractice, errors or omissions. It stipulates that the amounts paid by an insurance company to defend the insured in a lawsuit will decrease the policy limit amount. It differs from a “Defense Outside the Limits” coverage, meaning the insurer pays all defense costs that do not erode or affect the policy limit amount or claim. 

For example, if a policy will cover up to $2 million in expenses, then under a “Defense Inside the Limits” plan, an insurer would subtract any legal fees incurred while defending the policyholder before paying out the settlement. Any remaining settlement fees would need to be paid by the policyholder.

Set to become effective Oct. 1, the bill passed through the Assembly on a 29-11 vote (one Democrat and 10 Republicans were in opposition) and the Senate via a 19-1 vote, with Sen. Pete Goicoechea (R-Eureka) as the lone opposition vote. Lombardo signed the bill June 3. 

Ahead of the two hearings on the bill, only one organization submitted a letter of opposition and no public commenters testified in opposition. 

The proposed regulation clarifies what policies qualify as liability insurance under AB398, the types of insurers that the bill does not apply to, based on existing state and federal law, and how defense coverage must be made available by insurers in liability insurance policies.

Andy Durling, vice president and managing director of the engineering firm Wood Rodgers, said during the workshop that the firm carries “Defense Inside the Limits” policies to protect themselves, the industry and its clients. He said the Reno-based company's insurance carrier had already informed the firm that the law would likely affect coverage and premiums.

“If there are limited coverage options or if firms are priced out of the insurance market, Nevada should expect engineering firms to leave the state and be forced to close their doors,” Durling said. “This will be catastrophic for our communities [to] deliver the necessary public infrastructure and housing to ensure a prosperous Nevada.”

Durling wasn’t alone in hearing from insurers. Paul Moradkhan with the Las Vegas Chamber said members across the 70 industry sectors the chamber represents are facing “significant” rate increases or even cancellations of plans.

“We do of course appreciate the regulatory approach today that’s been brought forward by the division,” Moradkhan said. “But we do recognize that the long-term approach and solution will be a legislative fix that we will need to address as a business community.”

Insurance agent, broker and risk manager Rachael Rizzi echoed Moradkhan. Speaking on behalf of Branch Benefits Consultants and the Nevada Independent Insurance Agents Association, Rizzi said Thursday’s testimony was not anecdotal. She said member agents are already seeing a growing tide of nonrenewals, cancellations, carriers threatening to pull out of the market and double-digit price increases.

Rizzi added that the efforts to provide regulation and stability are appreciated, and she can empathize with the desire to properly fund defense insurance or modernize policy language, but moving forward without this permanent regulation would be “catastrophic” to Nevada. 

“The availability of all kinds of insurance for our businesses or individuals would be significantly and severely limited,” Rizzi said. “This will be only step one in that, really what is needed is further clarification in the language of the law that will need to come through the legislative process.”

The next workshop as part of the multistep process to adopt a permanent regulation to guide AB398 is scheduled for Aug. 31. 


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