Nautilus Ins. Co. v. Access Med., LLC

• Court: Nevada Supreme Court
• Writing for the Court: By the Court, STIGLICH, J.
• Citation: Nautilus Ins. Co. v. Access Med., LLC, 482 P.3d 683 (Nev. 2021)
• Decision Date: 11 March 2021
• Docket Number: No. 79130,79130
• Parties: NAUTILUS INSURANCE COMPANY, Appellant, v. ACCESS MEDICAL, LLC; Robert Clark Wood, II; and Flournoy Management LLC, Respondents.

482 P.3d 683

NAUTILUS INSURANCE COMPANY, Appellant,

v.ACCESS MEDICAL, LLC; Robert Clark Wood, II; and Flournoy Management LLC, Respondents.

No. 79130

Supreme Court of Nevada.

FILED MARCH 11, 2021

OPINION

By the Court, STIGLICH, J.:

Under most standard liability insurance policies, the insurer owes a duty to defend its policyholder against suits by third parties seeking damages covered by the policy. Insurers and policyholders sometimes disagree as to whether the insurer's duty to defend is triggered by a particular suit. As a practical matter, those coverage disputes can rarely be resolved before it becomes necessary to actively defend the third party's suit. Accordingly, an insurer often offers to pay for the defense, while reserving its right to seek relief from the duty to do so.

In this case, the Ninth Circuit Court of Appeals certified the following question to this 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?

We conclude that the answer is yes. When a party to a contract performs a disputed obligation under protest and a court later determines that the contract did not require performance, the party may ordinarily recover in restitution. This rule gives effect to the terms of the parties’ bargain. It applies to an insurance policy as it would to any other contract.

FACTS AND PROCEDURAL BACKGROUND

The following facts are drawn from the Ninth Circuit's order certifying this question. See Nautilus Ins. Co. v. Access Med., LLC, Docket No. 79130 (Order Certifying Question to the Nevada Supreme Court, July 10, 2019). "[T]his court's review is limited to the facts provided by the certifying court, and we must answer the questions of law posed to us based on those facts." In re Fontainebleau Las Vegas Holdings, LLC, 127 Nev. 941, 953, 267 P.3d 786, 793 (2011).

Ted Switzer and respondents were former business partners who worked together to sell medical devices. After the partnership soured, Switzer filed a cross-complaint against respondents in California state court. Among Switzer's thirty-one claims was one for "interference with prospective economic advantage," based on respondents’ alleged interference with Switzer's business relationships with hospitals. During discovery, respondents uncovered an email that was not mentioned in the complaint. In the email, Jacqueline Weide, respondents’ representative, approached a hospital administrator to discuss the sale of certain spinal implants. Weide stated that the current California distributor had been "banned from selling [those] implants." Switzer was the referenced distributor, but he was not named in the email.

Respondents tendered defense of the suit to their insurer, Nautilus. Under the insurance policy, Nautilus is required to defend respondents against "any ‘suit’ seeking ... damages" because of a "personal and advertising injury," "arising out of ... [o]ral or written publication, in any manner, of material that slanders or libels a person or organization." Nautilus initially declined to defend, but eventually decided to defend the suit while expressly reserving its rights. In particular, in multiple letters, it reserved the right to disclaim coverage, withdraw from defense, and obtain a reimbursement of defense fees if a court determined that no potential for coverage existed for the claims. Respondents did not object, and Nautilus began to defend respondents against Switzer's suit. Simultaneously, Nautilus sought a declaratory judgment in a Nevada federal district court, stating that it had no duty to defend respondents.

Nautilus eventually obtained the declaratory judgment it sought. The federal court found that Nautilus's duty to defend under the insurance policy was never triggered because Switzer's cross-complaint did not allege—and the Weide email did not contain—a false statement that would support a claim for defamation, libel, or slander under California law.¹

Nautilus then moved for further relief under the Declaratory Judgment Act, 28 U.S.C. § 2202, seeking reimbursement of the expenses it had already incurred defending the original California suit. The district court concluded that Nautilus was not entitled to further relief because Nautilus did not (1) include a claim for reimbursement or damages in its complaint, (2) show it was entitled to relief under 28 U.S.C. § 2202, or (3) establish that it was entitled to reimbursement under Nevada law.²

On appeal, the Ninth Circuit Court of Appeals affirmed that Switzer's suit did not trigger a duty to defend. Nautilus Ins. Co. v. Access Med., LLC, 780 F. App'x 457, 459 (9th Cir. 2019). However, it reserved judgment on whether Nautilus could seek further relief. It explained that Nautilus's entitlement to further relief turned on an unresolved issue of Nevada state law, because this court has not spoken directly on the issue of an insurer's entitlement to reimbursement under these circumstances. Id. at 459-60. The Ninth Circuit noted a split of authority among other state courts. Order Certifying Question, at 6-8 (citing Scottsdale Ins. Co. v. MV Transp., 36 Cal.4th 643, 31 Cal.Rptr.3d 147, 115 P.3d 460, 468 (2005) (providing that "the insurer, having reserved its right, may recover from its insured the costs it expended to provide a defense, which, under its contract of insurance, it was never obliged to furnish"); Gen. Agents Ins. Co. of Am. v. Midwest Sporting Goods Co., 215 Ill.2d 146, 293 Ill.Dec. 594, 828 N.E.2d 1092, 1103 (2005) (concluding that an insurer cannot obtain reimbursement because, by paying defense costs, "the insurer is protecting itself at least as much as it is protecting its insured"); and Shoshone First Bank v. Pac. Emp'rs Ins. Co., 2 P.3d 510, 515-16 (Wyo. 2000) (holding that the "insurer is not permitted to unilaterally modify and change policy coverage" by seeking reimbursement)).

The Ninth Circuit therefore certified the question to this court. We accepted the certified question because we agree that it presents an issue of first impression in this state.

DISCUSSION

Standard of review

We only accept certification of "questions of law." NRAP 5. We decide those questions of law de novo, see, e.g., Nev. Dep't of Corrs. v. York Claims Servs. Inc., 131 Nev. 199, 203, 348 P.3d 1010, 1013 (2015), in accordance with the purpose of a certified question, which is to clarify our state's law "when there is no controlling precedent," see NRAP 5(a). However, our "role is limited to answering the question[ ] of law posed" to us. Fontainebleau , 127 Nev. at 955, 267 P.3d at 794-95. Accordingly, we do not revisit the certifying court's factual determinations. Id. at 953, 267 P.3d at 793.

No contract governs the right to reimbursement here

Nautilus contends that it is entitled to reimbursement under a theory of unjust enrichment or quasi-contract. However, respondents answer that "unjust enrichment is not available when there is an express, written contract" covering the same subject matter. Leasepartners Corp. v. Robert L. Brooks Tr., 113 Nev. 747, 755, 942 P.2d 182, 187 (1997). Respondents contend that the insurance policy, and only the insurance policy, governs this dispute. We disagree.

Insurance policies are, of course, contracts, and they are treated like other contracts. Century Sur. Co. v. Andrew, 134 Nev. 819, 821, 432 P.3d 180, 183 (2018). "An insurance policy [typically] creates two contractual duties between the insurer and the insured: the duty to indemnify and the duty to defend."³ Id. at 822, 432 P.3d at 183. These duties are distinct, but related. "[A]n insurer's duty to defend is triggered whenever the potential for indemnification arises, and it continues until this potential for indemnification ceases." Benchmark Ins. Co. v. Sparks, 127 Nev. 407, 412, 254 P.3d 617, 621 (2011). There is a potential for indemnification when the allegations in the third party's complaint show that there is "arguable or possible coverage," United Nat'l Ins. Co. v. Frontier Ins. Co., 120 Nev. 678, 687, 99 P.3d 1153, 1158 (2004), or when the insurer "ascertains facts which give rise to the potential of liability under the policy," Century Sur., 134 Nev. at 822, 432 P.3d at 183 (internal quotation marks omitted).

"However, ‘the duty to defend is not absolute." ’ United Nat'l, 120 Nev. at 687, 99 P.3d at 1158 (quoting Aetna Cas. & Sur. Co. v. Centennial Ins. Co., 838 F.2d 346, 350 (9th Cir. 1988) ). If neither the allegations of the complaint nor the facts known to the insurer show any possibility of coverage, then there is no duty to defend. In such a case, the insurance policy simply does not apply.

In this case, the federal district court held, and the Ninth Circuit affirmed, that the duty to defend was "not triggered," as the Weide email did not contain a false statement that would support a claim for defamation, libel, or slander. Order Certifying Question, at 4; see Nautilus, 780 F. App'x at 459. Because this case is a certified question, not an appeal, we are not concerned with whether we would have reached the same conclusion. We accept the judgment of the federal courts that there was never even "arguable or possible coverage." See United Nat'l, 120 Nev. at 687, 99 P.3d at 1158. We are concerned here only with the consequences of that judgment.

Accordingly, we give no weight to respondents’ arguments concerning the scope of the insurer's duty to defend in the first instance. To be sure, it is true that insurance policies are "broadly interpreted," United Nat'l, 120 Nev. at 684, 99 P.3d at 1156 ; that doubts regarding coverage should be resolved in favor of the policyholder, id. at 687, 99 P.3d at 1158 ; and that policies should be construed to achieve the policyholder's reasonable expectations, ...