Following an outcry from Nevada businesses over a little-noticed state law adopted this year that they feared could sharply reduce the availability of liability insurance and increase costs for policies covering medical malpractice, construction defects and more, state lawmakers approved a regulation “to provide clarity.”

Lawmakers adopted the regulations guiding AB398 on Thursday during a meeting of the Legislative Commission, just days before the law will take effect on Oct. 1. The updated regulations define liability insurance, specify the types of insurers and policies the bill applies to, and clarify how insurers should make legal defense costs available in liability insurance policies.

“As amended, this [regulation] will add additional clarity to make it define what is included and what is not included, and so we’re very appreciative of the amendment,” said Virginia Valentine, the head of a trade group representing Nevada’s largest casino resorts.

Because the regulation had been amended after a public workshop and the public has not had time to weigh in on the updated guidelines, the Division of Insurance will need to hold another public workshop on the regulation. If the division approves the regulation in its identical form, then it will take effect. If the division makes any changes to the regulation, it will need to return to the Legislative Commission for final approval.

The new law forbids insurance companies from using the cost of defense, legal costs or fees to limit liability insurance coverage. The practice of subtracting legal defense costs from the liability limit is known as a “Defense Inside the Limits” policy, whereby the amounts paid by an insurance company to defend the insured party in a lawsuit will decrease the policy limit amount. 

It differs from a “Defense Outside the Limits” coverage, which means the insurer pays all defense costs, and those do not erode or affect the policy limit amount or claim. 

Businesses and other organizations have voiced fears that the law would lead to large rate increases and reduced availability of certain liability insurance policies, potentially costing millions of dollars and driving certain types of insurance out of the state.

The adopted regulations follow an emergency regulation Nevada's Division of Insurance proposed in July — and Gov. Joe Lombardo signed — that sought to “provide some necessary assurances to insurers to try to minimize disruption.”

The emergency regulation is in effect for 120 days (until Nov. 18) and cannot be renewed. To adopt a permanent regulation to provide guidance to AB398, the agency had to go through a multistep process that included soliciting community feedback. 

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 on June 3. 

The bill was originally presented by Justin Watkins, a former lawmaker and attorney who now lobbies on behalf of the Nevada Justice Association, a statewide trade organization for trial lawyers. Watkins is also a managing partner at Battle Born Injury Lawyers, where Assembly Speaker Steve Yeager (D-Las Vegas) is also a partner.