Who Controls The Defense Of The Case? The Insured Or The Insurance Company?

In the case of State Farm Mut. Auto. Ins. Co. v. Hansen, 131 Nev. 743, 357 P.3d 338 (2015), the Nevada Supreme Court determined that where the assigned insurance defense attorney encountered a conflict of interest between the duties owed to the insured and to the insurance company, the insured had the right to request independent counsel who, going forward, would be allowed to control the defense.  

But shy of pulling that trigger, how much say does the insured have regarding the control the defense provided by an insurance defense attorney under the duty to defend found in an insurance policy?  There is sparse Nevada Supreme Court law on the topic.   

Take for example the case of Campbell v. Maestro, 116 Nev. 380, 996 P.2d 412 (2000).  In that case, the Plaintiff successfully argued that the defense presented at arbitration by an assigned defense attorney was in bad faith and that the insured could not proceed to a trial de novo post arbitration.  

The Defendant appealed the trial court’s ruling to the Nevada Supreme Court.  

In a footnote to its decision, the Nevada Supreme Court recognized that it was not the Defendant insured that was making the decisions regarding how good or bad the defense was.  Instead the control of the case rested with the insured’s auto insurance carrier.  Id., 116 Nev. at 382 n.3, 996 P.2d at 413.  

In the end, the Supreme Court overturned the trial court’s ruling sending the matter back to a trial de novo. 

While this controlling precedent is thin, this issue has come up before at least a couple of trial courts.  Take for example a decision leading up to the Hansen case.  In that decision, the court said that "The right and duty to defend affords an insurer the right to control the defense."  Hansen v. State Farm Mut. Auto. Ins. Co., No. 2:10-cv-01434-MMD-RJJ, 2012 U.S. Dist. LEXIS 176057, at *14 (D. Nev. Dec. 12, 2012)

A state trial court has also faced this issue.  In the case of Lamplight Vill. @ Centennial Springs Homeowners Ass'n v. QBE Ins. Corp., 2021 Nev. Dist. LEXIS 1553 (Sept. 21, 2021), the insured fired defense counsel assigned by the insurance company and then on its own dismissed an appeal.  The trial court said:

Upon being provided a defense, the insured has no right to interfere with the insurer's right to control the defense. Safeco Ins. Co. v. Super. Ct., 71 Cal.App.4th 782, 787, 84 Cal.Rptr.2d 43 (Cal. Ct. App. 1997). The right to control the defense imposes upon an insured the duty to cooperate with the insurer with regards to its defense. Truck Ins. Exch. v. Unigard Ins. Co., 79 Cal.App.4th 975, 979 (Cal. Ct. App. 2000). Failure to comply with a policy's cooperation clause constitutes breach of the insurance contract. See Hall v. Travelers Ins. Cos., 15 Cal.App.3d 304, 308–09, 93 Cal.Rptr. 159 (Cal. Ct. App. 1971). Under the terms of the QBE Policy, and as a matter of law, QBE had not just the duty, but also the right to defend and control the defense of the Thompson lawsuit.

In addition to the fact that QBE had the right to control the defense of the Thompson lawsuit, the policy obligated Lamplight to cooperate with QBE in that defense, which included appealing the judgment. An insurance policy’s cooperation clause is intended to permit an insurer to present a complete defense of its insured. See Vallado v. Fireman's Fund Indem. Co, 13 Cal. 2d 322, 328-30 (Cal. Ct. App. 1939); Rockwell Int'l Corp. v. Superior Ct., 26 Cal. App. 4th 1255, 1262 (Cal. Ct. App. 1994).

Therefore, when Lamplight refused to allow QBE to control the defense, by firing the attorneys and dismissing the appeal, Lamplight breached its duty to cooperate and is no longer entitled to coverage. Travelers Prop. v. Centex Homes, 2011 WL 1225982, at *6 (N.D. Cal. Apr. 1, 2011) (“The right to control the defense imposes upon an insured the duty to cooperate with the insurer with regards to its defense. Failure to comply with a policy's cooperation clause constitutes breach of the insurance contract.”). When an insurer is defending the insured with no reservation of rights, as QBE did here, the insurer’s breach of the duty to settle does not excuse the insured from complying with its contractual obligation to cooperate in the defense.  

If the insurance policy provides a right and duty to defend, it appears that Nevada Court are going to give the control of the defense to the insurance company and its assigned defense counsel.  

If you have questions about Nevada Coverage or Insurance Law, please contact Mike Mills at 702.240.6060x114 or email him at mmills@blwmlawfirm.com.  

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