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Affected insurance industry participants will shudder to recall that, two years ago, Nevada passed a controversial law that prohibited liability insurers from issuing policies in which legal defense costs would erode the policy limits. Industry participants feared that, far from advancing insureds’ interests, the law instead would do the opposite by causing Nevada insurers to respond by charging higher premiums, reducing capacity or other aspects of coverage, or abandoning the Nevada market altogether, which is what happened in response to a similar law in Quebec years earlier.
A vociferous outcry from insureds and insurers thus ensued, with various constituencies lobbying the Nevada Department of Insurance (DOI) for a solution. In response, the DOI issued regulations to narrow the law’s scope and impact. Among other key carveouts, the DOI exempted from the new law policies issued by non-admitted insurers and most lines of commercial/casualty insurance. Importantly, however, these regulations were only a temporary fix, not actual amendments to the law. And industry participants had to wait two years for the Nevada legislature to reconvene and address the issue. In the meantime, insureds adopted various strategies: e.g., some extended, or canceled and rewrote, policies for longer terms, hoping for legislative reversal; and others maintained their existing policies, navigating the uncertain environment.
The wait is finally over. The Nevada legislature has passed AB 512, and the governor has signed it into law. Effective October 1, 2025, AB 512 will codify the Department of Insurance’s exemptions. While commercial general liability and commercial auto insurance are covered, most commercial insurance policies will not be subject to the "defense outside the limits" requirement. This includes policies for directors’ and officers’ liability, employment practices liability, fiduciary liability, and cyber liability.
Insureds should collaborate with a sophisticated broker to navigate these changes, particularly if their policies are up for renewal before the new law takes effect. An experienced broker can provide valuable insights into current regulations and upcoming legislative changes, ensuring informed decisions about coverage.
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