Nevada's Supreme Court just handed excess insurers new power: the right to sue primary carriers who refuse reasonable settlement offers.
In a January 29 ruling that addresses a previously unsettled question in Nevada law, the state's high court said excess carriers can pursue reimbursement from primary insurers even when cases ultimately settle within combined policy limits.
The case began with tragedy. In May 2017, a person was fatally shot at the Shelter Island Apartments in Las Vegas. The victim's estate sued Alhambra Place, the entity tied to the apartment complex, claiming negligence.
Two insurers covered Alhambra Place at the time. James River Insurance Company carried the primary policy with a $1 million limit. North River Insurance Company sat in the excess layer with a $10 million policy. Both policies listed Alhambra Place as an additional named insured and covered the Las Vegas property.
James River accepted the defense and retained counsel for Alhambra Place. Then came the settlement offers.
In March 2019, the estate demanded $1 million to settle. James River declined. In May 2021, the estate came back with $990,000. James River again said no. By November 2021, the demand had dropped to $975,000. James River still refused.
Fast forward to August 2022. The estate increased its demand to $5 million. Three months later, the case settled for that amount. James River paid its $1 million limit. North River, the excess carrier, contributed $4 million. But North River made clear it was paying under protest and reserving its rights to seek reimbursement.
In January 2023, North River sued James River in federal court in California, arguing the primary insurer had passed on multiple chances to settle the case for $1 million or less. By refusing those offers, North River claimed, James River breached its duty to act in good faith and forced the excess carrier to pay $4 million it should never have owed.
James River moved to dismiss. The primary insurer cited two unpublished Nevada Supreme Court decisions from different cases, arguing those decisions established that because the case settled within the combined $11 million in coverage, North River had no grounds to complain. The federal district court agreed and dismissed the case without leave to amend.
North River appealed to the Ninth Circuit Court of Appeals. After reviewing the arguments, the federal appellate court concluded Nevada law was unclear on this specific scenario. Rather than predict how Nevada courts would rule, the Ninth Circuit certified a question directly to the Nevada Supreme Court: Can an excess insurer seek subrogation against a primary insurer when the settlement stays within the total coverage available?
The Nevada high court accepted the question. In a unanimous decision by all seven justices, Chief Justice Herndon said yes.
The court explained the principle simply. When North River paid that $4 million, it stepped into the shoes of Alhambra Place. If Alhambra Place could have sued James River for refusing to settle within the primary limits, then North River can bring that same claim after paying on behalf of the insured.
The decision rested on a straightforward premise. Without North River's payment, Alhambra Place would have been liable for $4 million beyond its primary coverage. That meant Alhambra Place would have had a valid claim against James River for failing to accept reasonable settlement offers. North River, having eliminated that exposure by paying the excess amount, now has the right to pursue that claim.
The court rejected the argument that the insured must actually suffer out-of-pocket loss before subrogation applies. What matters is whether the insured would have suffered loss if the excess carrier had not stepped in. Here, without North River's contribution, Alhambra Place clearly would have faced liability.
Nevada law requires insurers to effectuate prompt, fair and equitable settlements when liability becomes reasonably clear. The statute creates a duty, and breaching that duty has consequences. The court said those consequences should fall on the insurer that refused reasonable settlement offers, not on the excess carrier or the insured.
The decision cited similar rulings from Hawaii, California, Missouri, Texas and Oregon. Courts in those states have allowed excess insurers to seek reimbursement from primary carriers who unreasonably refuse settlement offers within policy limits.
The Nevada justices also considered the practical effects. If primary insurers face no consequences for passing on reasonable settlements just because excess coverage exists, they have less incentive to settle. That shifts costs to excess carriers, which eventually means higher premiums. It also undermines one of the fundamental purposes of insurance, which is to resolve claims fairly and efficiently.
The court noted that when a primary insurer knows an excess carrier will cover any amount beyond its own policy limit, it might be tempted to take a harder line in settlement negotiations. Allowing subrogation removes that temptation by making the primary carrier financially responsible for its settlement decisions.
Chief Justice Herndon wrote that the ruling promotes fair settlement practices, disincentivizes primary insurers from rejecting reasonable settlement offers, and levels the playing field for policyholders who have obtained excess coverage. The decision makes clear that whether a case settles within combined policy limits is not relevant to the equitable subrogation inquiry. What matters is whether the primary insurer met its duty to settle reasonably within its own limits.
The case now returns to the Ninth Circuit, which will apply Nevada law as the state supreme court has clarified it. North River's subrogation claim can proceed.
For insurers operating in Nevada or dealing with Nevada risks, the implications are significant. Primary carriers cannot treat excess coverage as a safety net that excuses passing on settlement opportunities within their policy limits. The duty to settle in good faith remains, and excess carriers who pay the price for breaching that duty can seek reimbursement.
