Title: Las Vegas Metro. Police Dep't v. Coregis Ins. Co.

State: nevada

Issuer: Nevada Supreme Court

Document:

LAS VEGAS METROPOLITAN POLICE

127 Nev., Advance Opinion 4477
IN THE SUPREME COURT OF THE STATE OF NEVADA

LAS VEGAS METROPOLITAN POLICE | No. 54502

DEPARTMENT,

Appellant, | FILED
vs. |

COREGIS INSURANCE COMPANY,

N/K/A WESTPORT INSURANCE

CORPORATION,
Respondent.

06 04 2011

eat

No. 56638

  
  
  
 

DEPARTMENT,
Appellant,

vs.
COREGIS INSURANCE COMPANY,
N/K/A WESTPORT INSURANCE,
CORPORATION,
Respondent.

Consolidated appeals from a district court summary judgment
in an insurance action and from a post-judgment order denying an NRCP
60(b) motion. Eighth Judicial District Court, Clark County; Linda Marie
Bell, Judge.

Santoro, Driggs, Walch, Kearney, Holley & Thompson and James E.

Whitmire, III, and Donna M. Wittig, Las Vegas,
for Appellant,

Lewis Brisbois Bisgaard & Smith, LLP, and Josh C. Aicklen, Las Vegas;
Banovetz, Tressler, Soderstrom, Maloney & Priess, LLC, and Mark
Banovetz, Chicago, Illinois,

for Respondent,

 

BEFORE THE COURT EN BANC.

MH A340

 

 
ne

PINION
By the Court, GIBBONS, J.:

‘These appeals raise important issues about insurance claim
notice provisions and whether an insurer may properly deny coverage to
an insured based on late notice of a claim in the absence of prejudice to the
insurer. Because we conclude that prejudice must be shown, we also
address the issue of who has the burden to demonstrate prejudice or lack
of prejudice and place that burden on the insurer. Before reaching those
issues, however, we first address whether summary judgment was
appropriately entered in favor of the insurer, when the parties dispute
whether the notice was timely, given the language of the insurance policy
and the facts present here.

Appellant Las Vegas Metropolitan Police Department
(LVMPD) was named as a defendant in a federal district court action
alleging civil rights violations. LVMPD had an insurance policy with
respondent Coregis Insurance Company to protect against liability for
police officer actions when the damages exceeded a certain amount.
Coregis denied LVMPD coverage for the civil rights claims because
LVMPD did not notify Coregis of LVMPD's potential liability until ten
years after the incident that led to the civil rights lawsuit. LVMPD settled

 

the civil rights action, incurring fees and costs in defending the case,
LVMPD then filed a declaratory-judgment action seeking a judicial
determination that Coregis was required to defend and indemnify LVMPD
for damages related to the civil rights claims. On Coregis's motion, the
district court entered summary judgment in favor of Coregis, concluding
that LVMPD's notice was clearly late and that Coregis was prejudiced by
the late notice.

‘Viewing the evidence in a light most favorable to LVMPD, we
conclude that there were genuine issues of material fact regarding the

2

 
 

timeliness of LVMPDs notice, such that summary judgment was not
appropriate here. With regard to the issues concerning denial of coverage
based on failure to comply with notice requirements, after considering the
parties’ arguments and persuasive caselaw, we conclude that when an
insurer denies coverage of a claim because the insured party failed to
provide timely notice of the claim, the insurer must demonstrate that
notice was late and that it was prejudiced by the late notice in order to
assert a late-notice defense to coverage. Accordingly, we reverse the
summary judgment and remand this case for proceedings consistent with
this opinion.
FACTS AND PROCEDURAL HISTORY

‘The civil rights action against LVMPD was filed by the Estate
of Erin DeLew on grounds that LVMPD acted to cover up evidence in the
Estate's 1994 wrongful death action against an LVMPD officer's wife,
Janet Wagner. According to the wrongful death action, on September 27,
1994, DeLew was riding her bicycle when Wagner struck DeLew with her
automobile, causing injuries to DeLew that ultimately led to her death.

In 1996, the DeLew Estate filed a separate civil rights cause of
action, under 42 U.S.C. § 1983, against LVMPD and the Nevada Highway
Patrol (NHP), arguing that the two organizations conspired and covered
up the true cause of the accident, which affected the Estate's ability to
prosecute its wrongful death action against Wagner. NHP removed the
civil rights case to the United States District Court and that court
dismissed the action. The Ninth Circuit Court of Appeals reversed the
dismissal, concluding that the Estate had a possible claim under 42 U.S.C.
§ 1983, but that the claim was premature because the wrongful death
cause of action had not been resolved. After the Estate settled the
wrongful death claim with Wagner, it filed a second civil rights action
against LVMPD and NHP on January 28, 2000, which was essentially

3

 
identical to the 1996 lawsuit. In 2002, the U.S. District Court granted
LVMPD and NHP summary judgment, but three years later, on November
15, 2005, it vacated LVMPD's summary judgment as a discovery sanction.
LVMPD had failed to provide the majority of the documents that the
DeLew Estate had requested by the discovery deadline and had failed to
comply with the discovery sanction order requiring it to provide those
documents.

In 1994, when the Estate filed its wrongful death action
against Wagner, LVMPD was self-insured up to $1 million dollars in
damages for liability related to police officer actions. Thus, it had no
primary insurer and would cover each occurrence up to $1 million dollars
itself, Through Coregis, LVMPD was insured for up to $10 million dollars
if police officer actions resulting in personal injuries, including violations
of civil rights, exceeded LVMPD's $1 million self-insured retention
amount.!' The insurance policy contained four different sections: (1) a
general liability section, (2) an automobile liability section, (3) a public
entity errors and omissions section, and (4) a law enforcement liability
section. Three of the sections contained the same notice requirement,
which mandated that LVMPD notify Coregis of a claim when a claimant's
demand totaled 60 percent or more of the self-insured retention amount.
‘The fourth section, the law enforcement liability section, required LVMPD
to provide Coregis notice of an occurrence that may result in a claim ai

soon as practicable and to immediately provide Coregis copies of any

 

demands or other legal documents. The law enforcement liability section

‘Technically, the named insured on the Coregis policy is Clark
County, Nevada, and the responsible insurer is Westport Insurance
Corporation. For ease of reference, we will refer to the insured as LVMPD
and the insurer as Coregis.

 
covers liability for bodily injury or property damage caused by a member
of LVMPD acting in his or her law enforcement capacity. That section
stated that LVMPD was “solely responsible for the investigation,
settlement, defense and final disposition of any claim made... against
{LVMPD] to which [the law enforcement liability section] would apply.”
‘The section further stated that LVMPD is financially responsible for such
defense, that LVMPD shall act diligently in defending claims, and that
LVMPD shall agree to a reasonable offer within their self-insured
retention amount. ‘The law enforcement liability section also provided
that LVMPD did not have a right to coverage “unless all of [this section's}
terms have been fully complied with.”

In August 2006, the DeLew Estate made its first settlement
demand against LVMPD in the civil rights action, seeking $4.5 million.
LVMPD notified Coregis of the DeLew Estate's civil rights lawsuit on
November 6, 2006. Coregis sent LVMPD a letter acknowledging notice of
the DeLew Estate lawsuit, reserving all rights concerning any coverage
issues, and denying coverage because LVMPD failed to provide timely
notice of the DeLew Estate lawsuit. Despite the denial of coverage,
LVMPD requested Coregis to reconsider and attend the settlement
conferences between LVMPD and the DeLew Estate, but Coregis declined
to participate in the settlement process. LVMPD settled with the DeLew
Estate in March 2007 for $1.475 million, LVMPD allegedly incurred
‘$803, 196.68 in foes and costs in defending the lawsuit.

Following the settlement, LVMPD filed a declaratory
judgment action secking a judicial determination that Coregis was
required to defend and indemnify LVMPD in the civil rights action under
the Coregis policy. Coregis filed a motion for summary judgment, which
the district court granted, finding that LVMPD failed to provide timely

 

eve coer notice of the claims against it, such that coverage was properly denied,
soon 5
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sees oa SEENON RPGS CETTE OSES
and finding that while Coregis did not need to show that it was prejudiced
by the late notice, it was able to do so because of the discovery sanction
overturning LVMPD's summary judgment in the civil rights cause of
action. LVMPD now appeals.
DISCUSSION

I. Standard of review

‘The interpretation of an insurance policy presents a legal
question, which we review de novo. Farmers Ins. Exch, v, Neal, 119 Nev.
62, 64, 64 P.8d 472, 473 (2003). We also review summary judgment de
novo. Wood v. Safeway, Inc., 121 Nev. 724, 729, 121 P.8d 1026, 1029
(2005). A court may grant summary judgment if the evidence does not
create a genuine issue of material fact. Id, In considering a motion for
summary judgment, the court must view the evidence and any reasonable
inferences in the light most favorable to the nonmoving party. Id, When
requesting summary judgment, the moving party bears the initial burden
of production to demonstrate the absence of a genuine issue of material
fact. Cuzze v. Univ, & Cmty, Coll. Svs, of Nev,, 123 Nev. 598, 602, 172
P.3d 131, 134 (2007), If the moving party meets its burden, then the
nonmoving party bears the burden of production to demonstrate that there

 

is a genuine issue of material fact. Id,

"Because LVMPD failed to provide any argument or citation to
authority on the issues of whether the district court erred in denying its
post-judgment motion under NRCP 60(b) and whether the district court
erred in denying its post-judgment motion to supplement the record, we
will not adross these issues. Soo Edwards v. Emperors Garden Rest
122 Nev. 317, 330 n.38, 130 P.3d 1280, 1288 n.38 (2006); NRAP
28(a)(8XA),

 

 
IL. sue of fact remains regarding wl timeh

LVMPD contends that the district court erred in granting
Coregis summary judgment because genuine issues of material fact
remained concerning whether LVMPD timely tendered its insurance claim
to Coregis.? We agree.

When an insurance policy explicitly makes compliance with a
term in the policy a condition precedent to coverage, the insured has the
burden of establishing that it complied with that term. Insurance Co. v.
Cassinelli, 67 Nev. 227, 244-45, 216 P.2d 606, 615 (1950); Lucini-Parish

Ins. v. Buck, 108 Nev. 617, 620, 836 P.2d 627, 629 (1992).

 

Under the facts present here, the district court erred in
concluding that notice was late as a matter of law. The civil rights action
was originally dismissed in 1997 and lay dormant until it was refiled in
2000. Then, LVMPD was granted summary judgment on the civil rights
‘action in 2002, and the case lay dormant again until 2005. Notice during
the years of dormancy would have been futile. Further, LVMPD sent
notice to Coregis on November 6, 2006, after it had received its first

settlement demand that was in excess of its self-insured retention amount.

SLVMPD also argues that the district court erred in concluding that
Coregis did not waive its late-notice claim defense. We disagree. By
including its late-notice defense in its first denial letter, along with the
other grounds for the denial, Coregis did not waive its late-notice defense
because it asserted it at the same time it denied the claim on other
grounds, See Havas v. Atlantic Insurance Co., 96 Nev. 586, 588, 614 P.2d
1, 2 (1980); 46 C.J.S. Insurance § 1190 (2007). Further, although LVMPD
contends that a Coregis insurance adjuster orally agreed to waive the late-
notice defense, the policy provides that “[t]he terms of this policy can be
amended or waived only by endorsement issued by [Coregis] and made a
part of the policy.”

 

 
Coregis refused to participate in the settlement negotiations, and LVMPD
did not settle until March 2007.

When considering these facts and the conflicting notice
provisions within the insurance policy in the light most favorable to
LVMPD, summary judgment was inappropriate here. Three sections of
the 75-page insurance policy contained notice provisions requiring
LVMPD to provide Coregis with notice of a claim once a demand was made
in excess of $500,000. LVMPD relied on these notice sections. When
Coregis originally denied LVMPD's claim, it cited to the law enforcement
liability section, which required notice as soon as practicable,* and it cited
to the public entity’s errors and omissions section, which required notice
after a demand of at least $500,000. Therefore, it was not unreasonable

“Even considering the facts in accordance with only the law
enforcement liability section, the district court could not conclude that
notice was late as a matter of law. First, the law enforcement liability
section states that LVMPD must notify Coregis of an occurrence that may
result in a claim as soon as practicable. Second, it states that LVMPD
must immediately send Coregis copies of any documents filed in
connection with the claim. Lastly, it states that LVMPD is “solely
responsible for the investigation, settlement, defense and final disposition
of any claim.” Requiring LVMPD to immediately send copies of documents
filed in connection with the defense of the claim creates the implication
that Coregis would want to be involved in defending the claim, which is
inconsistent with the requirement that LVMPD solely defend and settle
the claim. Additionally, the language “as soon as practicable” does not
mean immediate; instead, it “call[s] for notice within a reasonable length
of time under all facts and circumstances of each particular case.”
‘American Fidelity Fire Ins. v. Adams, 97 Nev, 106, 108, 625 P.2d 88, 89
(1981) (quoting Certified Indemnity Company v. Thun, 439 P.2d 28, 30
(Colo. 1968).

 

st 8
ne

 

 
for LVMPD to believe that it did not need to provide notice to Coregis until
a demand was made in excess of $500,000

LYMPD’s belief that it did not have to provide Coregis notice
until the $500,000 self-insured retention amount was exceeded is
supported by the notion that immediate notice of an insurance claim is not
required in the excess insurance context.’ See Lumbermens Mut. v.
Plantation Pipeline, 447 S.E.2d 89, 90-91 (Ga. Ct. App. 1994) (concluding
that a 15-year delay was reasonable because the insured did not think it
was likely that the damages would exceed the ceiling of its primary policy
until then); Morris Park Contr. Corp. v. National Union Fire, 822 N.Y.S.24
616, 619 (App. Div. 2006) (concluding that the issue of notice looks at
whether the insured reasonably believed that its primary insurance was

going to cover the damages up until it gave notice to its excess insurer)

°Coregis contends that LVMPD was a sophisticated party to the
insurance policy, and thus, it cannot argue that it was confused by the
policy. We disagree. Even if LVMPD is a sophisticated party, considering
the evidence in the light most favorable to LVMPD, summary judgment
was inappropriate. See National Union Fire Ins, v, Reno's Exec, Air, 100
Nev. 360, 365, 682 P.2d 1380, 1383 (1984). An insured party's status as a
sophisticated party does not overcome the purpose behind construing
unclear insurance provisions against the insurer without evidence that the
insured party was actually involved in drafting the policy provision in
question or participated in negotiations involving that policy provision.

  

See Pittston Co. Ultramar America v, Allianz Ins., 124 F.3d 508, 521 (3d
Cir. 1997).

®Coregis argues that because LVMPD did not have traditional
primary insurance as it was self-insured, Coregis was LVMPD’s primary
insurer, not an excess insurer. However, the Coregis policy specifically
states that it is an excess insurance policy to any other insurance
available to LVMPD, except for insurance purchased to cover excess
damages not covered by LVMPD’s self-insured retention. The policy’s title
includes the word “excess,” as does each section's title.

 

 
4

Excess insurers are generally only concerned with occurrences that may
involve their policies. Accordingly, summary judgment was inappropriate
here because the determination of whether notice was late is a much more
fact-intensive inquiry when an excess insurance policy is involved than it
is when a primary insurance policy is involved, and there were still
genuine issues of material fact present concerning whether LVMPD's
notice was timely under any of the notice provisions.

IM. When an insurer asserts a lates lefense, it must show ¢l
notice was late and that it was prejudiced by the late notice

LVMPD urges adoption of a notice-prejudice rule, which
requires that in order for an insurer to deny a claim based on late notice, it
must have been prejudiced by the late notice. We do so here and place the
burden to show prejudice on the insurer. It is more practical and
‘equitable to require the insurer to prove it has been prejudiced than it
would be to place that burden on the insured party and require him or her
to prove a negative, namely, that the insured had not been prejudiced.

In Insurance Co, v, Cassinelli, 67 Nev. 227, 216 P.2d 606
(1950), we considered whether the insured party's recovery was precluded
because he provided late notice of the claim to his insurer. Id, at 232, 216
P.2d at 609. Cassinelli was a passenger in a car that was owned and being
driven by his adult son when their car collided with Mabel Miller's car,
injuring Miller. Jd, Miller sued both Cassinelli and his son, serving
Cassinelli on September 19, 1946. Id, at 233, 216 P.2d at 609. Cassinelli
did not provide notice to his insurer until January 16, 1947, and the trial
was set for February 20, 1947. Id, Cassinelli claimed that he failed to

 

notify his insurer earlier because he thought his insurance had lapsed and
that he was then insured by a different insurer. Id, The insurance policy
provided that

10

 
 

[ulpon the occurrence of an accident written notice

shall be given by or on behalf of the insured to the

company or any of its authorized agents as soon as

practicable. . .. If claim is made or suit is brought

against the insured, the insured shall immediately

forward to the company every demand, notice,

summons or other process received by him or his

representative.

Id, at 232-33, 216 P.2d at 609. The policy further stated that the insured
cannot file an action against “the company unless, as a condition
precedent thereto, the insured shall have fully complied with all the terms
of this policy.” Id, at 233, 216 P.2d at 609.

‘The Cassinelli court surveyed other _ jurisdictions’
consideration of this issue and determined that the majority rule at the
time was that if an insurance policy explicitly required timely notice and
the insured party failed to provide timely notice, the insured party was
precluded from bringing a claim against the insurer, whether or not the
insurer was actually prejudiced by the late notice. Id, at 236-44, 216 P.2d
611-15. In coming to its conclusion, this court stated:

We may say frankly that upon our first reading of
the briefs prior to argument and at the conclusion
of the argument, we were strongly impressed with
the cases presented to the effect that right of
recovery under the policy would not be barred by
failure to give timely notice, unless the insurer
had been prejudiced by such failure. The
arguments in favor of such rule seemed plausible
and the rule itself appeared neither unfair nor
inequitable. ... It would be presumptuous on our
part to establish a rule of law in this state which
departs from the overwhelming majority of
decisions throughout the United States,

Id, at 245, 216 P.2d at 615. Thus, this court adopted the majority rule at

 

the time and rejected a rule that would require insurers to demonstrate
prejudice in the event they receive late notice. As a result, this court

nu

 
0

concluded that because a four-month delay in providing notice of a lawsuit
failed to comply with the policy's provision that notice be provided
immediately, the claim was precluded. Id, at 245-46, 216 P.2d at 615.

We acknowledge that Cassinelli has since been abrogated by
NAC 686A.660(4) and abrogated sub silentio by Las Vegas Star Taxi, Inc.
v. St. Paul Insurance, 102 Nev. 11, 714 P.2d 562 (1986). In 1980, the
Nevada Department of Commerce, Division of Insurance, adopted NAC
686.660(4), which states:

No insurer may, except where there is a time limit
specified in the insurance contract or policy,
require a claimant to give written notice of loss or
proof of loss within a specified time or seek to
relieve the insurer of the obligations if the
‘requirement is not complied with, unless the
failure to comply prejudices the insurer's rights.7

(Emphasis added.)

Following the enactment of NAC 686A.660, we considered

 

Star Taxi, in which an injured party sued a taxi company and the taxi
company failed to provide notice of the claim to its insurance company
until ten days before the trial date even though the policy explicitly
required prompt notice, 102 Nev. at 12-18, 714 P.2d at 563. The taxi
company settled the claim without first discussing the settlement with its
surance company, and when the insurance company denied coverage,

 

the taxi company sued, seeking to recover under the policy, Id, 11-12, 714
P.2d at 562. The district court entered summary judgment in favor of the
insurer, and the taxi company appealed. Id, On appeal, without

"Coregis argues that NAC 686A.660 does not overrule Cassinelli
because NAC 686A.660 does not apply to third-party claims. We are not

persuaded by Coregis’s argument because NAC 686A.660(4), which is at
issue here, applies to all claimants.

12

 
referencing Cassinelli or NAC 686A.660(4), this court first considered the
issue of notice and then, in passing, addressed the issue of prejudice, thus
implicitly abrogating Cassinelli. Id, at 13-14, 714 P.2d at 564.

‘The majority of jurisdictions since 1950 have adopted a notice-
prejudice rule. See Barry R. Ostrager & Thomas R. Newman, Handbook

on Insurance Coverage Disputes 197-267 (15th ed. 2011 Supp.); 16
Richard A. Lord Williston on Contracts § 49:109 (4th ed. 2000); 13 Couch

on Insurance 3D § 193:25 (2005). Further, the majority of jurisdictions
that require a showing of prejudice place that burden on the insurer. See
Ostrager & Newman, supra, at 205; Williston on Contracts, supra, §
49:109. Jurisdictions that place the burden to show prejudice on the
insurer recognize the difficulty the insured party would face in trying to
prove that the insurer was not prejudiced and recognize that the insurer is
in the better position to prove that it was prejudiced by the late notice.
See Campbell v. Allstate Insurance Company, 384 P.2d 155, 157 (Cal,
1963) (“Although it may be difficult for an insurer to prove prejudice in
some situations, it ordinarily would be at least as difficult for the injured
person to prove a lack of prejudice, which involves the proof of a
Jones v. Bituminous Cas. Corp., 821 S.W.2d 798, 803 (Ky.

1991) ([T]he insurance carrier is in a far superior position to be

negative,

 

knowledgeable about the facts which establish whether prejudice
exists... [I]t is difficult to imagine where the claimant would look for
evidence that no prejudice exists.”

Additionally, because insurance policies are generally
adhesion contracts, equity prineiples support placing the burden to prove
prejudice on the insurer because it is trying to deny its obligations under a
contract of adhesion, See State Farm Mutual Automobile Ins. Co, v.
Johnson, 320 A.2d 345, 347 (Del. 1974); Brakeman v, Potomac Ins. Co.
371 A.2d 193, 198 (Pa, 1977). Because the notice provision in an

13

 
nee

insurance policy is meant to protect the insurer “from being placed in a
substantially less favorable position than it would have been in had timely
notice been provided . .. [meaning] the function of a notice requirement is
to protect the insurance company’s interests from being prejudiced,” it is
equitable and practicable to place the burden on the insurer to
demonstrate that prejudice resulted from the insured giving late notice.
Co-Op. Fire Ins, v. White Caps, Inc,, 694 A.2d 34, 38-39 (Vt. 1997) (quoting
Brakeman, 371 A.2d at 197).

In accordance with the majority of jurisdictions and with the
express language of NAC 686A.660(4), we adopt a notice-prejudice rule: in
order for an insurer to deny coverage of a claim based on the insured
party's late notice of that claim, the insurer must show (1) that the notice
was late and (2) that it has been prejudiced by the late notice. Prejudice
exists “where the delay materially impairs an insurer's ability to contest
its liability to an insured or the liability of the insured to a third party.”
West Bay Exploration v. AIG Specialty Agencies, 915 F.2d 1030, 1036-37
(6th Cir. 1990) (internal quotation omitted). The issue of prejudice is an
jue of fact. See Mutual of Enumclaw Ins. Co. v. USF Ins, Co,, 191 P.3d
866, 876 (Wash. 2008).

 

{ONCLUSION
In conclusion, we reverse the district court’s summary

judgment and adopt a notice-prejudice rule. First, the district court erred

in granting Coregis

 

jummary judgment when there were still genuine

 

of material fact as to whether notice was late. Second, when an
late, the
insurer must show (1) that notice was late and (2) that it was prejudiced

insurer denies coverage of a claim because notice of the claim w:

 

by the late notice. Accordingly, we reverse the judgment of the district

“4

 

 
 
 
  
  
    

court and remand this matter for proceedings consistent with this opinion.

Gibbons

   
    

Pickering

Hardesty

Parraguirre

16

 

one