Duty to Defend: Century Surety Co. v. Andrew

In a case stemming from an automobile accident, the Nevada Supreme Court recently held that an insurer that breaches its duty to defend a policyholder can be held liable for “consequential damages,” amounting beyond the policy limits. The Court further concluded that determinations of good faith are irrelevant for determining damages upon such a breach. At the time of the accident, the driver, Vasquez was covered under a personal liability policy which had a $100,000 limit, in addition to his commercial policy, issued by Century Surety Company (Century), with a $1 million policy limit.

Despite Century’s argument, in line with the majority view, that a breaching insurer’s liability is capped at its policy limits, plus defense costs, the court allowed the plaintiff to proceed with a claim that Century must cover an $18 million judgment against Century’s insured. The court found that damages for an insurer’s breach of its defense duty are not “automatically limited” to the amount of the policy, and instead depend on the specific facts of each case. Ultimately, the court founds that a breaching insurer can be held liable for consequential damages” when they take the risk in refusing to defend their policyholder.