Interpleading the Insurance Policy Limits in Nevada
By: Robert P. Mougin
It is not uncommon for an insurance company to be placed in a situation where multiple Plaintiffs initiate lawsuits based on injuries sustained from a single incident. For example, an insurer may be faced with a situation where it insured an at-fault driver in a motor vehicle accident involving multiple vehicles, resulting in multiple injured parties. If the insurance provider has made the determination that the damages may potentially equal or exceed the available insurance policy limits, an insurer may want to consider filing an interpleader action of the policy limits.
Essentially, an interpleader action allows the insurance company to deposit the insurance policy limits with the Court when multiple parties are claiming a right to those proceeds. This signals to the Court that the insurance company has offered up the policy limits and the only issue is how the funds should be distributed. An interpleader action can be helpful in the following situations:
- When multiple, separate, lawsuits are filed that create the potential for inconsistent results and damages in excess of the available proceeds;
- When the multiple injured parties cannot agree amongst themselves as to how the insurance policy limits should be divided.
One advantage of an interpleader action is that it signals to the fact finder the exact amount of the policy limits, which would otherwise be barred in most other cases by the collateral source rule. A second advantage is that it forces all parties into one lawsuit to be tried in one proceeding, when multiple parties have filed separate lawsuits. A third advantage is that it provides the insurance company with the same rights as a named party in the action, including the ability to file a Motion for a Mandatory Settlement Conference. Lastly, another benefit is that it evidences to the Court that the insurance company is negotiating in good faith. This may be beneficial in circumstances where the total damages clearly exceed the policy limits, and multiple injured parties have made policy limit demands but cannot agree as to how the insurance proceeds should be split.
It is important to note, however, that an interpleader does not terminate the insurance company’s duty to defend. In Benchmark v. Sparks, 127 Nev. Adv. Op. 33 (2011), the Court allowed the interpleader but did not release the insurer from its duty to defend. In reaching this conclusion, the Court determined that there was an ambiguity in the policy language, and the ambiguity was interpreted in favor of the insured. Essentially, the Benchmark case stands for the proposition that an insurance company cannot just relinquish its rights to the policy and run; it still has a duty to defend its insured.
An interpleader remains a good option for policy limits cases involving multiple claimants. It forces all of the parties into one action, where ideally one settlement conference can take place, and where a global resolution can potentially be reached.