In Nevada, a notable legislative move has been made that will significantly affect the landscape of liability insurance. On June 3, 2023, the Nevada legislature has enacted a law which prohibits insurance companies from issuing or renewing policies of liability insurance containing defense-within-limits provisions. These policies are informally referred to as “burning limits” policies and are sometimes also termed as “depleting limits,” “wasting limits,” “self-eroding limits,” or “self-liquidating” policies.
In essence, these policies incorporate provisions that reduce the policy’s applicable limit of insurance coverage by whatever amounts are used for policy defense costs. As a result, the real substance of coverage alterable in a “burning limits” policy can quickly diminish, creating potential pitfalls for policyholders who may not fully anticipate the consequences of their coverage limits eroding.
The Nevada legislature’s new law prohibiting such policies will radically change how insurance policy is written and renewed, compelling insurers to reassess their coverage offerings and pricing – particularly for liability insurance.
A more detailed analysis of this legislative development is provided here by the law firm Snell & Wilmer. Lawyers and corporate counsel should consider reviewing this extensively, as this law can potentially have a broad effect on the management of liability risks and insurance practices.
Change is certainly afoot in the insurance industry, particularly in Nevada, and the legal profession must keep an attentive watch on these dynamics. While this new law is specific to Nevada at present, other states could consider implementing similar alterations in their local insurance legislation, spawning a fresh wave of reform in this space on a larger scale.
Ultimately, staying abreast of these trends and understanding their implications will be crucial for legal professionals, especially those managing corporate liabilities and risks.