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Andrew v. Century Surety Co.

United States District Court, D. Nevada

August 14, 2017

DANA ANDREW, as legal guardian on behalf of Ryan T. Pretner, and RYAN T. PRETNER, Plaintiffs,
v.
CENTURY SURETY COMPANY, Defendant.

          ORDER CERTIFIYING QUESTION TO THE SUPREME COURT OF NEVADA

          ANDREW P. GORDON UNITED STATES DISTRICT JUDGE.

         Pursuant to Rule 5 of the Nevada Rules of Appellate Procedure, this Court seeks guidance from and respectfully certifies to the Supreme Court of Nevada the following question of law that may be determinative of matters before this Court and as to which there is no clearly controlling precedent in the decisions of the Supreme Court or Court of Appeals of Nevada:

Whether, under Nevada law, the liability of an insurer that has breached its duty to defend, but has not acted in bad faith, is capped at the policy limit plus any costs incurred by the insured in mounting a defense, or is the insurer liable for all losses consequential to the insurer's breach?

         I. BACKGROUND

         Plaintiff Ryan Pretner suffered catastrophic brain injuries after he was struck from behind by the side-view mirror of a truck while he was riding his bicycle on the shoulder of a road. The truck was driven by Michael Vasquez. Vasquez worked for Blue Streak, a mobile auto detailing business. Vasquez was personally insured by non-party Progressive Insurance. Blue Streak was insured by Century. Prior to any lawsuit being filed, Century declined to defend Blue Streak on the ground that Vasquez was not working in the course and scope of his employment for Blue Streak at the time of the accident. Century based its decision on Vasquez's statements to the police and to Century's employee that he was not working at the time of the accident.

         Pretner sued Vasquez and Blue Streak in state court. The complaint alleged that Vasquez was driving in the course and scope of employment for Blue Streak at the time of the accident. Pretner's attorney forwarded the lawsuit to Century, but Century again declined to defend Blue Streak. Vasquez and Blue Streak then defaulted in the state court action. Pretner's attorney forwarded the entry of default to Century. Century responded that the claim was not covered. Pretner, Vasquez, and Blue Streak then entered into a settlement agreement. Vasquez and Blue Streak agreed to allow Pretner to pursue a default judgment against them, and Blue Streak assigned to Pretner all of its claims against Century. In exchange, Pretner agreed to not execute against Vasquez and Blue Streak. Additionally, Progressive agreed to tender the $100, 000 limits of its policy covering Vasquez.

         Pretner moved for a default judgment in the state court action. After a hearing, the state court entered a default judgment against Vasquez and Blue Streak. The default judgment set forth factual findings that were deemed admitted by the default. Those findings include that Vasquez negligently injured Pretner, that Vasquez was working in the course and scope of his employment with Blue Streak at the time, and that consequently Blue Streak was also liable. The default judgment entered against both Vasquez and Blue Streak was for over $18 million. Pretner, as assignee of Blue Streak, then filed this lawsuit against Century for breach of contract, breach of the implied covenant of good faith and fair dealing, and unfair claims practices.

         I previously ruled that Century breached its contractual duty to defend Blue Streak as a matter of law because the underlying complaint alleged facts that potentially fell within the policy's coverage, thereby triggering the duty to defend. ECF No. 168. As to the parties' dispute about whether Century was bound by the default judgment against its insured, I reviewed a line of decisions issued by the Supreme Court of Nevada that hold an insurer is bound by a judgment if it has notice of a lawsuit that implicates coverage but does not intervene. I predicted the Supreme Court of Nevada would not extend this line of cases beyond the uninsured motorist context. I therefore concluded Century was not bound by the default judgment. Finally, I set forth the measure of damages for breaching the duty to defend as the reasonable costs of defense in the underlying action plus the damages reasonably foreseeable at the time of the contract, capped at the policy limit of $1 million. I concluded the recoverable damages were capped at the policy limit because Century did not act in bad faith.

         The parties agreed that the issue of damages could be resolved without a jury trial. Accordingly, they filed motions for summary judgment on the damages arising from Century's breach of its duty to defend.

         An insured is entitled to recover its costs of defense when an insurer breaches its duty to defend, but it is undisputed that Blue Streak did not incur any defense costs because it defaulted in the underlying personal injury lawsuit. The only other evidence of damages is the default judgment entered against Blue Streak after Century refused to defend it. The parties thus disputed whether this judgment constituted recoverable damages caused by Century's breach of the duty to defend. They also disputed what preclusive effect the underlying default judgment should have.

         In ruling on the cross motions for summary judgment, I reconsidered my prior ruling that recovery was capped at the policy limit. ECF No. 210. I predicted that the Supreme Court of Nevada would allow Blue Streak to recover consequential damages for Century's breach of the duty to defend, and that a default judgment is a reasonably foreseeable result of a breach of the duty to defend. I also predicted that the Supreme Court of Nevada would rule that in the context of a breach of the duty to defend, bad faith is not required to impose liability on the insurer in excess of the policy limits.

         Century moved for reconsideration of my ruling. ECF No. 218. Shortly thereafter, the United States Court of Appeals for the Ninth Circuit certified to the Supreme Court of Nevada the following question of law:

Whether, under Nevada law, the liability of an insurer that has breached its duty to defend, but has not acted in bad faith, is capped at the policy limit plus any costs incurred by the insured in mounting a defense, or is the insurer liable for all losses consequential to the insurer's breach?

Nalder v. United Automobile Ins. Co., Ninth Cir. Case No. 13-17441. Given the similarities between the question certified in Nalder and the issues present in this case, I stayed this case in anticipation of the Supreme Court of Nevada ...


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