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Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

JAMES NALDER, Guardian

Ad Litem on behalf of

Cheyanne Nalder; GARY

LEWIS, individually,

Plaintiffs-Appellants,

v.

UNITED AUTOMOBILE

INSURANCE COMPANY,

Defendant-Appellee.

No. 13-17441

D.C. No.

2:09-cv-01348-RCJ-GWF

ORDER

Filed June 1, 2016

Before: Alex Kozinski, John T. Noonan

and Diarmuid F. O’Scannlain, Circuit Judges.

Order

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2 NALDER V. UNITED AUTOMOBILE INS. CO.

SUMMARY*

Certification to Nevada Supreme Court

The panel certified the following question of law to the

Nevada Supreme Court:

Whether, under Nevada law, the liability of an

insurer that has breached its duty to defend,

but has not acted in bad faith, is capped at the

policy limit plus any costs incurred by the

insured in mounting a defense, or is the

insurer liable for all losses consequential to

the insurer’s breach?

* This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

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NALDER V. UNITED AUTOMOBILE INS. CO. 3

ORDER

Pursuant to Rule 5 of the Nevada Rules of Appellate

Procedure, we certify to the Nevada Supreme Court the

question of law set forth in Part II of this order. The answer

to this question may be determinative of the cause pending

before this court, and there is no controlling precedent in the

decisions of the Nevada Supreme Court or the Nevada Court

of Appeals.

Further proceedings in this court are stayed pending

receipt of an answer to the certified question. Submission is

withdrawn pending further order. The parties shall notify the

Clerk of this court within one week after the Nevada Supreme

Court accepts or rejects the certified question, and again

within one week after the Nevada Supreme Court renders its

opinion.

I. The Parties

Plaintiffs-appellants, James Nalder, guardian ad litem for

Cheyanne Nalder, and Gary Lewis will be the appellants

before the Nevada Supreme Court. Defendant-appellee,

United Automobile Insurance Company (UAIC), a Florida

corporation with its principal place of business in Florida,

will be the respondent.

The names and addresses of counsel for the parties are as

follows:

Thomas Christensen, Christensen Law Offices, LLC,

1000 S. Valley View Blvd., Las Vegas, Nevada 89107, for

appellants.

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4 NALDER V. UNITED AUTOMOBILE INS. CO.

Thomas E. Winner, Susan M. Sherrod and Matthew J.

Douglas, Atkin Winner & Sherrod, 1117 South Rancho

Drive, Las Vegas, Nevada 89102, for respondent.

II. Question of Law

The question of law to be answered is:

Whether, under Nevada law, the liability

of an insurer that has breached its duty to

defend, but has not acted in bad faith, is

capped at the policy limit plus any costs

incurred by the insured in mounting a defense,

or is the insurer liable for all losses

consequential to the insurer’s breach?

The Nevada Supreme Court may rephrase the question as

it deems necessary.

III. Background

On July 8, 2007, Gary Lewis ran over Cheyanne Nalder. 

Lewis had taken out an auto insurance policy with UAIC,

which was renewable on a monthly basis. Before the

accident, Lewis had received a statement instructing him that

his renewal payment was due by June 30, 2007. The

statement also specified that “[t]o avoid lapse in coverage,

payment must be received prior to expiration of your policy.” 

The statement listed June 30, 2007, as the policy’s effective

date and July 31, 2007, as its expiration date. Lewis didn’t

pay to renew his policy until July 10, 2007, two days after the

accident.

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NALDER V. UNITED AUTOMOBILE INS. CO. 5

James Nalder (Nalder), Cheyanne’s father, made an offer

to UAIC to settle her claim for $15,000, the policy limit. 

UAIC rejected the offer, arguing Lewis wasn’t covered at the

time of the accident because he didn’t renew the policy by

June 30. UAIC never informed Lewis that Nalder was

willing to settle.

Nalder sued Lewis in Nevada state court and obtained a

$3.5 million default judgment. Nalder and Lewis then filed

the instant claim against UAIC in state court, which UAIC

removed to federal court. Plaintiffs alleged breach of

contract, breach of the implied covenant of good faith and fair

dealing, bad faith, fraud and breach of section 686A.310 of

the Nevada Revised Statutes. UAIC moved for summary

judgment on the basis that Lewis had no insurance coverage

on the date of the accident. Plaintiffs argued that Lewis was

covered on the date of the accident because the renewal

notice was ambiguous as to when payment had to be received

to avoid a lapse in coverage, and that this ambiguity had to be

construed in favor of the insured. The district court found

that the contract could not be reasonably interpreted in favor

of plaintiffs’ argument, and granted summary judgment in

favor of UAIC.

We held that summary judgment “with respect to whether

there was coverage” was improper because “[p]laintiffs came

forward with facts supporting their tenable legal position.” 

Nalder v. United Auto. Ins. Co., 500 F. App’x 701, 702 (9th

Cir. 2012). But we affirmed “[t]he portion of the order

granting summary judgment with respect to the [Nevada]

statutory arguments.” Id.

On remand, the district court granted partial summary

judgment to each party. First, the court found the renewal

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6 NALDER V. UNITED AUTOMOBILE INS. CO.

statement ambiguous, so it construed this ambiguity against

UAIC by finding that Lewis was covered on the date of the

accident. Second, the court found UAIC didn’t act in bad

faith because it had a reasonable basis to dispute coverage. 

Third, the court found UAIC breached its duty to defend

Lewis, but awarded no damages “because [Lewis] did not

incur any fees or costs in defending the underlying action” as

he took a default judgment. The court ordered UAIC “to pay

Cheyanne Nalder the policy limits on Gary Lewis’s implied

insurance policy at the time of the accident.” Plaintiffs

appeal.

IV. Discussion

Plaintiffs claim they should have been awarded

consequential and compensatory damages resulting from the

Nevada state court judgment because UAIC breached its duty

to defend. Thus, assuming that UAIC did not act in bad faith

but did breach its duty to defend Lewis, the question now

before us is how to calculate the damages that should be

awarded to plaintiffs. Plaintiffs claim they should have been

awarded the amount of the default judgment ($3.5 million)

because, in their view, UAIC’s failure to defend Lewis was

the proximate cause of the judgment against him.

The district court, however, denied damages because

Lewis chose not to defend and thus incurred no attorneys’

fees or costs. The district court interpreted two Nevada

Supreme Court cases to hold that “[i]f an insurer breaches the

duty to defend, damages are limited to attorneys’ fees and

costs incurred by the insured to defend the action.” See

Reyburn Lawn & Landscape Designers, Inc. v. Plaster Dev.

Co., 255 P.3d 268, 278 (Nev. 2011); Home Savings Ass’n v.

Aetna Cas. & Sur. Co., 854 P.2d 851, 855 (Nev. 1993). 

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NALDER V. UNITED AUTOMOBILE INS. CO. 7

Home Savings Ass’n addressed whether a trial court properly

dismissed with prejudice a claim raised by an insured against

an insurer that had breached its duty to defend. 854 P.2d at

854–55. The Nevada Supreme Court reversed, holding that,

because an insurer’s duty to defend “continues throughout the

course of the litigation against the insured[,] [t]he statute of

limitations on a claim against an insurer for breach of its duty

to defend commences when a final judgment in the

underlying litigation against the insured is entered.” Id. at

855 (citations omitted). In deciding that the insured wasn’t

barred from continuing to seek fees and costs incurred in

defending an action, the Nevada Supreme Court didn’t

address the amount that could be recovered as a consequence

of an adverse judgment against the insured. See id. at

854–56.

In Reyburn Lawn & Landscape Designers, the Nevada

Supreme Court considered the scope of an indemnification

clause in a construction contract between a general contractor

and a subcontractor. 255 P.3d at 270–71. Largely based on

its interpretation of the language in the indemnification

clause, the Nevada Supreme Court held that “an indemnitor’s

duty to defend an indemnitee is limited to those claims

directly attributed to the indemnitor’s scope of work and does

not include defending against claims arising from the

negligence of other subcontractors or the indemnitee’s own

negligence.” Id. at 278. Moreover, the indemnity clause in

that case “expressly authorize[d] attorney fees.” Id. at 279

n.11. Again, the Nevada Supreme Court didn’t address the

appropriate measure of damages for a breach of an insurer’s

duty to defend. See id. at 277–80.

In two recent orders, the U.S. District Court for the

District of Nevada addressed the “proper measure of

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8 NALDER V. UNITED AUTOMOBILE INS. CO.

damages” under Nevada law for an insurer’s breach of the

duty to defend. In its first order, the court recognized that the

Nevada Supreme Court has never “articulated the measure of

damages for an insurer’s mere breach of the duty to defend

absent bad faith.” Andrew v. Century Sur. Co., No. 2:12-cv00978, 2014 WL 1764740, at *9 (D. Nev. Apr. 29, 2014). 

The court then looked to California law because the Nevada

Supreme Court has “relied on [California law] in articulating

the duty to defend.” Id. (citing United Nat’l Ins. Co. v.

Frontier Ins. Co., 99 P.3d 1153, 1158 (Nev. 2004)). In

California, “[w]here there is no opportunity to compromise

the claim and the only wrongful act of the insurer is the

refusal to defend, the liability of the insurer is ordinarily

limited to the amount of the policy plus attorneys’ fees and

costs.” Comunale v. Traders & Gen. Ins. Co., 328 P.2d 198,

201 (Cal. 1958). Relying on Comunale, the Andrew court

“conclude[d]that the Nevada Supreme Court would not allow

for extra-contractual damages if the insurer did not act in bad

faith.” Andrew, 2014 WL 1764740, at *9.

The Andrew court, however, reconsidered and modified

its ruling, relying on Nevada contract law. Andrew v.

Century Sur. Co., No. 2:12-cv-00978, 2015 WL 5691254, at

*3 (D. Nev. Sept. 28, 2015). The court held: “There is no

special rule for insurers that caps their liability at the policy

limits for a breach of the duty to defend.” Id. at *6. Under

Nevada law, upon a breach of contract, a plaintiff may seek

compensatory damages, which include expectancy damages. 

Id. at *3 (citing Rd. & Highway Builders v. N. Nev. Rebar,

Inc., 284 P.3d 377, 382 (Nev. 2012)). Nevada courts

calculate expectancy damages pursuant to section 347 of the

Restatement (Second) of Contracts. Rd. &Highway Builders,

284 P.3d at 382. This section provides:

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NALDER V. UNITED AUTOMOBILE INS. CO. 9

Subject to the limitations stated [elsewhere],

the injured party has a right to damages based

on his expectation interest as measured by

(a) the loss in the value to him of the other

party’s performance caused by its failure

or deficiency, plus

(b) any other loss, including incidental or

consequential loss, caused by the breach,

less

(c) any cost or other loss that he has

avoided by not having to perform.

Restatement (Second) of Contracts § 347 (1981). Thus, the

Andrew court found that “[u]nder § 347(b), [an insured] . . .

is entitled to consequential damages for [an insurer’s] breach

of the duty to defend.” Andrew, 2015 WL 5691254, at *3. 

“Consequential losses are those damages that ‘aris[e]

naturally, or were reasonably contemplated by both parties at

the time they made the contract.’” Id. (alteration in original)

(quoting Hornwood v. Smith’s Food King No. 1, 772 P.2d

1284, 1286 (Nev. 1989)).

Andrew then concluded: “When the insurer breaches the

duty to defend, a default judgment is a reasonably foreseeable

result because, in the ordinarycourse, when an insurer refuses

to defend its insured, a probable result is that the insured will

default.” Id. (citing Hamlin Inc. v. Hartford Accident &

Indem. Co., 86 F.3d 93, 94 (7th Cir. 1996)). Accordingly, “if

the default judgment was a reasonably foreseeable

consequence of [the insurer’s] breach, then [the insurer] is

liable for the entire amount of the default judgment as

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10 NALDER V. UNITED AUTOMOBILE INS. CO.

consequential damages resulting from the breach of its duty

to defend, regardless of the policy limits.” Id. at *5. Thus,

Andrew’s interpretation of Nevada law is directly contrary to

the interpretation rendered by the district court in this case.

V. Conclusion

It appears to this court that there is no controlling

precedent of the Nevada Supreme Court or the Nevada Court

of Appeals with regard to the issue of Nevada law raised by

this case. We thus request the Nevada Supreme Court accept

and decide the certified question. “The written opinion of the

[Nevada] Supreme Court stating the law governing the

question[] certified . . . shall be res judicata as to the parties.” 

Nev. R. App. P. 5(h).

The clerk of this court shall forward a copy of this order,

under official seal, to the Nevada Supreme Court, along with

copies of all briefs and excerpts of record that have been filed

with this court.

IT IS SO ORDERED.

Respectfully submitted, Alex Kozinski, John T. Noonan,

Jr. and Diarmuid F. O’Scannlain, Circuit Judges.

____________________

Alex Kozinski

Circuit Judge

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