In the ongoing matter of North River Insurance Company v. James River Insurance Company, the Ninth Circuit recently turned to the Nevada Supreme Court to resolve an important legal question that could determine the outcome of a recurring dispute between insurers. The case arises from a wrongful death lawsuit following a murder at a Las Vegas apartment complex. The settlement exceeded the primary insurer’s policy limits, but it remained within the combined limits of both the primary and excess insurers. The excess insurer, after covering the remainder of the settlement, filed suit against the primary insurer in California federal court, claiming a breach of its duty to settle as well as the implied covenant of good faith and fair dealing. The primary insurer moved to dismiss the claims on the grounds that Nevada does not recognize equitable subrogation as between a primary insurer and excess insurer, and the district court (Central District of California) granted the motion. The excess insurer appealed to the Ninth Circuit Court of Appeals, who in turn, sought clarity on whether Nevada law permits equitable subrogation between insurers in such cases. Specifically, the Ninth Circuit certified the following question to the Nevada Supreme Court pursuant to Nev. R. App. P. 5(a), stating that the answer to the certified question is essential to the outcome of the case:
Under Nevada law, can an excess insurer state a claim for equitable subrogation against a primary insurer where the underlying lawsuit settled within the combined policy limits of the insurers?
Choice of Law Analysis
Nevada allows federal courts to certify state law questions when those questions are essential to the outcome of the case and there is no clear precedent from Nevada’s courts.
The court considers the following factors in deciding whether to certify:
- "Whether the question presents important public policy ramifications yet unresolved by the state court.
- Whether the issue is new, substantial, and of broad application.
- The state court’s caseload; and
- The spirit of comity and federalism.”
Murray v. BEJ Mins., LLC, 924 F.3d 1070, 1072 (9th Cir. 2019).
The court emphasized that certification is appropriate when unresolved legal questions could have significant real-world implications. In the case at hand, the issue involves the duties of insurance companies in settlement negotiations and whether an excess insurer can bring an equitable subrogation claim against a primary insurer. The first issue required the court to determine whether a material conflict exists between Nevada and California law, necessitating a choice-of-law analysis. Under California’s governmental interest test, the court must first determine if the laws of both states are the same. McCann v. Foster Wheeler LLC, 48 Cal. 4th 68, 83, 105 Cal.Rptr.3d 378, 225 P.3d 516 (2010). If so, California law applies. If there is a material difference, a more in-depth analysis must be completed by the court to determine which state’s law should be employed. Hairu Chen v. L.A. Truck Ctrs., 7 Cal. 5th 862, 867-68, 249 Cal.Rptr.3d 594, 444 P.3d 727 (2019).
Equitable Subrogation in Nevada
Nevada has applied the doctrine of equitable subrogation in certain circumstances, such as worker’s compensation, negotiable instruments, surety, and mortgages. In re Fountainbleau Las Vegas Holdings, 128 Nev. 556, 576 n.8, 289 P.3d 1199 (2012). Although Nevada often looks to California law for guidance in areas where its own law is less developed, Nevada has not as yet adopted California law on the issue of equitable subrogation between a primary and secondary insurer. The Central District of California’s decision relied on two unpublished Nevada Supreme Court decisions that “prohibited an excess insurer from bringing an equitable subrogation claim against a primary insurer when the underlying settlement fell within the insurers’ collective policy limits.” The two unpublished decisions are St. Paul Fire & Marine Ins. Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA., 521 P.3d 418, 2022, WL 17543613 (Nev. 2022), and Aspen Specialty Ins. Co. v. Eighth Judicial Dist. Ct. in & for Cnty. Of Clark, 528 P.3d 287, 2023 WL 3185274 (Nev. 2023).
As the Nevada Supreme Court chose not to publish these two decisions, they did not become “mandatory precedent” under Nevada law. Nev. R. App. P. 36(c )(2). Thus, although these two unpublished opinions may be cited as a persuasive authority, the Ninth Circuit noted that they are not “mandatory precedent and have no compulsory binding effect on this case.” Thus, certification was warranted to resolve the issue as it has potentially broad implications across the insurance and legal industry landscapes.
Conclusion
The ruling on the certified question by the Nevada Supreme Court could result in significant implications for the insurance industry in Nevada and beyond. If the Nevada Supreme Court recognizes equitable subrogation under these circumstances, it will affect how insurers should approach settlement negotiations, especially as to the balance of risk and responsibility between primary and excess insurers. The answer to this certified question will not only clarify equitable subrogation principles in Nevada but may also shape the broader landscape of best settlement practice for insurers moving forward.