The U.S. Court of Appeals for the Ninth Circuit has asked the Supreme Court of Nevada to decide whether an insurer was entitled to reimbursement of costs expended in defense of its insureds where a determination had been made that the insurer owed no duty to defend and the insurer had expressly reserved its right to seek reimbursement in writing after defense had been tendered but where the insurance policy contained no reservation of rights provision.
The Case
As the Ninth Circuit explained, after a business partnership went sour, Ted Switzer filed a cross-complaint against Access Medical, LLC, Flournoy Management, LLC, and Robert Clark Wood II (collectively, the “Insureds”) in a California state court. In the cross-complaint, Mr. Switzer brought 31 claims, including a purported claim for interference with prospective economic advantage because of the Insureds' alleged interference with relationships with hospitals with which Mr. Switzer “enjoyed a long-standing and mutually beneficial relationship.”
Specifically, Mr. Switzer alleged that:
(1) The Insureds had “acted to disrupt the relationship” between Mr. Switzer and various hospitals;
(2) The wrongful acts had “resulted in injury to the personal and business reputation” of Mr. Switzer;
(3) The wrongful acts had caused various vendors to stop using Mr. Switzer's business and to use Access Medical's instead; and
(4) The wrongful acts were malicious and done with the intent to injure Mr. Switzer's professional and business well-being.
The Insureds tendered defense of the Switzer cross-claim to their insurance provider, Nautilus Insurance Company.
Nautilus agreed to defend the Insureds, but it reserved its right to disclaim coverage, withdraw from defense, and obtain a reimbursement of defense fees following a determination that no potential for coverage existed for the Insureds.
Thereafter, Nautilus sought a declaratory judgment in a Nevada federal district court that it never had a duty to defend or indemnify the Insureds. The district court entered judgment in favor of Nautilus.
Nautilus subsequently brought a motion for further relief under 28 U.S.C. § 2202 seeking reimbursement of the defense costs it had incurred defending the Insureds in the Switzer cross-complaint.
The district court denied the motion and Nautilus appealed to the Ninth Circuit.
The Ninth Circuit's Decision
The Ninth Circuit explained that although the district court determined that Nautilus was not entitled to reimbursement under Nevada law, the Nevada Supreme Court had not spoken directly on the issue of an insurer's entitlement to reimbursement of defense costs under a reservation of rights.
It then certified the following question of law to the Nevada Supreme Court:
Is an insurer entitled to reimbursement of costs already expended in defense of its insureds where a determination has been made that the insurer owed no duty to defend and the insurer expressly reserved its right to seek reimbursement in writing after defense has been tendered but where the insurance policy contains no reservation of rights?
The case is Nautilus Ins. Co. v. Access Medical, LLC, Nos. 17-16265, 17-16272, 17-16273 (9th Cir. July 2, 2019). Attorneys involved include: For NAUTILUS INSURANCE COMPANY, Plaintiff & Appellant (17-16265): Linda Sharon Wendell Hsu, Esquire, Selman Breitman LLP, San Francisco, CA. For ACCESS MEDICAL, LLC, ROBERT CLARK WOOD II, Defendant – Appellees (17-16265): Jordan P. Schnitzer, Esquire, The Schnitzer Law Firm, Las Vegas, NV; L. Renee Green, Esquire, Kravitz, Schnitzer & Johnson, Chtd., Las Vegas, NV. For FLOURNOY MANAGEMENT, LLC, Defendant – Appellee (17-16265): James E. Harper, Esquire, Attorney, Harper Selim, Las Vegas, NV. For NAUTILUS INSURANCE COMPANY, Plaintiff – Appellee (17-16272): Linda Sharon Wendell Hsu, Esquire, Selman Breitman LLP, San Francisco, CA; Jennifer Naomi Wahlgren, Esquire, Gordon Rees Scully Mansukhani, LLP, San Francisco, CA. For ACCESS MEDICAL, LLC, ROBERT CLARK WOOD II, Defendant – Appellants (17-16272): Martin J. Kravitz, Kravitz, Schnitzer, Sloane and Johnson, Las Vegas, NV; Jordan P. Schnitzer, Esquire, The Schnitzer Law Firm, Las Vegas, NV; L. Renee Green, Esquire, Kravitz, Schnitzer & Johnson, Chtd., Las Vegas, NV. For FLOURNOY MANAGEMENT, LLC, Defendant (17-16272): James E. Harper, Esquire, Attorney, Harper Selim, Las Vegas, NV. For NAUTILUS INSURANCE COMPANY, Plaintiff – Appellee (17-16273): Linda Sharon Wendell Hsu, Esquire, Selman Breitman LLP, San Francisco, CA; Jennifer Naomi Wahlgren, Esquire, Gordon Rees Scully Mansukhani, LLP, San Francisco, CA. For ACCESS MEDICAL, LLC, ROBERT CLARK WOOD II, Defendant – Appellants (17-16273): Martin J. Kravitz, Kravitz, Schnitzer, Sloane and Johnson, Las Vegas, NV; Jordan P. Schnitzer, Esquire, The Schnitzer Law Firm, Las Vegas, NV; L. Renee Green, Esquire, Kravitz, Schnitzer & Johnson, Chtd., Las Vegas, NV. For FLOURNOY MANAGEMENT, LLC, Defendant (17-16273): James E. Harper, Esquire, Attorney, Harper Selim, Las Vegas, NV.
Insurance Coverage Law Center Comment
We will discuss developments in this case as warranted.
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].