The state of Nevada has recently undertaken significant legal changes with respect to the types of liability policies that can be offered within its boundaries. The pioneering reform was initiated when Gov. Joe Lombardo signed AB 398 (the Act) into law on June 3, 2023. This amendatory Act has precipitated the end of eroding limits policies in the state, giving rise to a definitive shift in the legal climate.
Eroding limits policies, also referred to as wasting, diminishing, or defense within limits policies, are a type of liability insurance. Under these policies, legal defense costs erode or reduce the policy’s limits of liability. The passing of AB 398 has effectively restricted the issuance of such policies.
This development carries significant implications not only for insurance companies but also for legal professionals and other organizations in Nevada. Specifically, insurance providers now have to adjust their business models and re-evaluate their liability coverage options in light of the new Act. In parallel, law firms and legal departments in corporations need to review the insurance-provided liability protection for their clients, in an effort to align with the altered legislation.
This legal modification of Nevada’s insurance code marks an interesting beginning for a much broader conversation on balancing policyholder protections against insurance underwriting interests. With the eroding limits policies now off the table, it sets a precedence that may inspire similar legislative pursuits in other states.