Defense Within the Limits – No More in Nevada. Will Insurance Carriers Leave Las Vegas?
By Alliant Specialty / October 12, 2023
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Nevada is the first state to pass a law, effective 10/1/23, that prevents insurers from issuing various liability policies with an eroding limits provision. For policyholders, this means that insurance companies can no longer use allocated loss adjustment expenses (ALAE) to erode/reduce policy limits on any impacted liability policies (commonly referred to as “ALAE within the limits”). Therefore, all the purchased limits will be preserved for settlements and payments of judgments for claims (commonly referred to as “ALAE outside the limits”).
While this law is positive for insureds who are managing their claim exposure, there are voiced concerns it could make liability policies more difficult and more expensive to obtain. Alliant is confident that despite these concerns, we can continue to provide insurance programs that meet our clients’ needs.
Alliant typically seeks policies for our clients where the ALAE does not erode limits. However, certain lines of business are commonly quoted and issued with ALAE within the limits (i.e., professional liability, pollution liability, D&O, high-risk general liability coverages). In construction, high-risk/frequent exposure projects may have liability or wrap GL policies that have ALAE within the limits. In the past, policyholders and program sponsors have chosen these options to align with their risk tolerance and construction budgets.
Claims Management Impacts
From a claims management perspective, claims professionals working with policies where ALAE is outside the limits will strategically manage claims with a focus on ALAE budgets and not just the value of the loss. There is a tendency for claims professionals to move more efficiently toward a resolution strategy rather than abandoning the claim to be litigated by counsel. While this can offend the sensibilities of professionals/policyholders who are defending matters of disputed liability, it also makes for more proactive claims handling focused on resolution. More proactive claim handling leads to mitigation of overall claims loss experience and thus insurance costs.
Recommended Next Steps
With the advent of this new law, it is advisable to take a closer look at both initial construction insurance budgets and pre-construction estimates within Nevada. Parties may experience higher costs, and we recommend working with your broker early in the process as programs may be challenging to structure if some markets choose to leave the jurisdiction. Some parties may have to consider taking on larger deductibles and retentions when they have not done so in the past. This underscores the importance of aligning with a robust construction specialty broker at Alliant Construction Services Group, with extensive service offerings in risk management, loss prevention and claims/litigation management.
Please don’t hesitate to reach out with any questions.
