Delgado v. American Family Ins. Group: Permissible Stacking of Liability and UIM Benefits Under a Single Insurance Policy

In its recent decision, Delgado v. Am. Family Ins. Group, __ Nev.__, 217 P.3d 563 (2009), the Nevada Supreme Court, for the first time, addressed the issue of whether an injured passenger is entitled to recover liability benefits under a permissive driver’s insurance policy based on the permissive driver’s negligence and underinsured ("UIM") motorist benefits under the same insurance policy based on another negligent driver’s underinsured status. Historically, two Nevada cases have precluded claimants from "stacking" liability benefits and UIM benefits under a single insurance policy. See Peterson v. Colonial Ins. Co., 100 Nev. 474, 686 P.2d 239 (1984) and Baker v. Criterion Ins., 107 Nev. 25, 805 P.2d 599 (1991). However, in distinguishing Peterson and Baker factually, the Delgado court held the prohibition against stacking bodily injury and UIM policies inapplicable in situations where a passenger’s injuries are caused by the joint negligence of a permissive driver and an underinsured third-party driver.

Summary of the facts
In December 2004, Dionicia Delgado, a passenger in Eunice Marcelino’s vehicle, was severely injured when Marcelino’s vehicle collided with a vehicle driven by Toquanda Dean. Dionicia alleged both drivers were negligent. Marcelino was insured for liability coverage up to $50,000 per person and UIM coverage up to $25,000 per person. Dean maintained a $15,000 bodily injury policy limit.

Prior to litigation, Dionicia made an offer to Marcelino’s insurer for his policy’s bodily injury and UIM limits. Marcelino’s insurer rejected the demand, causing Dionicia and her husband to file a lawsuit for breach of contract against the insurer.

At trial, the district court granted Marcelino’s insurer’s motion for summary judgment, concluding, in pertinent part, that Peterson and Baker precluded recovery for both liability and UIM benefits under a single insurance policy. The Delgados appealed.

Analysis of the opinion
Chief Justice Hardesty delivered the opinion of the three justice panel, which included Justices Parraguirre and Douglas. In resolving this appeal, the court reached several critical holdings: (1) that Peterson and Baker did not control the Delgados’ breach of contract claim; (2) that allowing the Delgados to recover liability and UIM benefits under a single insurance policy comports with the purpose of UIM coverage; and (3) that, in a matter of first impression, an injured passenger could recover under the permissive driver’s UIM policy for a another driver’s negligence if both drivers were jointly negligent.

The primary issue on appeal was whether a passenger who is injured by two concurrently negligent drivers is entitled to liability benefits under the permissive driver’s insurance policy based on the permissive driver’s negligence, as well as UIM benefits under the same insurance policy based on the other driver’s negligence and underinsured status. In reaching its decision, the court concluded that Peterson’s and Baker’s prohibition against stacking liability and UIM policies were inapplicable to the facts in Delgado.

In Peterson, a motorcycle passenger was injured when the motorcycle collided with another vehicle. Alleging that the permissive driver of the motorcycle was negligent, the passenger sought recovery under the permissive driver’s liability and UIM policies based entirely on the permissive driver’s negligence. The passenger argued that because her damages exceeded the policy’s $15,000 bodily injury limits, she was entitled to additional UIM benefits under that same policy. The Nevada Supreme Court disagreed, holding that, in conformance with NRS 687B.145(2), UIM coverage could not be added to third-party liability coverage under the same policy in order to increase liability coverage under that policy.

The court again considered the issue of stacking bodily injury and UIM policies in Baker. Unlike in Peterson, the passenger in Baker, who owned the subject vehicle, sought to recover liability and UIM benefits under her own insurance policy, as opposed to the permissive driver’s policy. The court found the distinction inconsequential, concluding again that once a passenger has recovered under the vehicle owner’s liability insurance policy, the passenger is precluded from recovering under the vehicle owner’s UIM policy. Thus, it makes no difference whether the policy is held by the permissive driver or the passenger.

Peterson and Baker, however, fail to address the situation where a passenger seeks recovery under a single policy’s liability and UIM coverage when the passenger’s injuries are attributable to jointly negligent drivers. Rather, the claims in Peterson and Baker were based on the sole negligence of the permissive driver, not the concurrent negligence and underinsured status of the driver of the second vehicle. Accordingly, the court determined that neither Peterson nor Baker preclude recovery of UIM benefits under the facts presented in Delgado. As such, the prohibition against stacking set forth in Peterson and Baker is inapplicable in Delgado, or factually similar cases.

The court specifically noted that its opinion is consistent with the purpose of UIM coverage and with holdings in other jurisdictions. As the purpose of UIM coverage is to compensate an insured for "damages upon the tort liability of an uninsured, underinsured, or hit-and-run driver," a passenger who is injured by the joint negligence of an underinsured motorist should be permitted to recover both liability and UIM benefits under a single insurance policy. See St. Paul Fire v. Employers Ins. Co. of Nev., 122 Nev. 991, 993, 146 P.3d 258, 260 (2006).

In sum, a passenger may recover UIM benefits under the permissive driver’s insurance policy for injuries caused by the joint negligence of the permissive driver and an underinsured third party driver so long as the permissive driver’s policy extended coverage to the passenger. Indeed, stacking prohibitions, such as those set forth in Peterson and Baker, are inapplicable to situations where a passenger’s injuries are attributable to jointly negligent driver, because the passenger’s entitlement to UIM benefits under the permissive driver’s policy is triggered by the negligence and underinsured status of the third-party driver.

Impact of Delgado
By concluding that anti-stacking laws are inapplicable in cases where two drivers are jointly negligent drivers and the third-party driver is underinsured, Delgado permits injured passengers to side step the prohibition against stacking bodily injury and UIM policies previously set forth in Peterson and Baker. Thus, an injured passenger may be permitted to recover damages under a permissive driver’s UIM insurance policy, above and beyond any recovery under the permissive driver’s liability policy, for another driver’s joint negligence if that driver’s vehicle is underinsured.

Ashlie L. Surur is an associate at Hall Jaffe & Clayton, LLP. Her practice is focused on civil defense litigation. Contact Ashlie at (702) 316-4111 or This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

Allstate v. Miller: Clarifying an Insurance Carrier’s Duties in the Third-Party Liability Context

Although the Nevada Supreme Court has recognized a claim for bad faith in a first-party context, it has not squarely addressed the issue of whether an insurance carrier can potentially be liable for bad faith in a third-party context when a carrier’s duty to defend and duty to settle arise. See Guaranty Nat’l Ins. Co. v. Potter, 112 Nev. 199, 206, 912 P.2d 267, 272 (1996). In reality, however, Nevada practitioners and trial courts have operated under the auspice that an insurance carrier may be liable for an excess judgment against its insured where the carrier, in bad faith, fails to settle a claim within policy limits. Nevertheless, a finding of bad faith in Nevada depends on whether an insurer acts unreasonably and with knowledge that there is no reasonable basis for its conduct. Am. Excess Ins. Co. v. MGM, 102 Nev. 601, 605, 729 P.2d 1352, 1354-55 (1986). Fortunately, the Nevada Supreme Court’s recent opinion, Allstate Ins. Co. v. Miller, 125 Nev. ___, 212 P.3d 318 (2009) (en banc), provides guidance concerning a carrier’s potential duties and obligations in the duty to defend and duty to settle context and potentially exposes a carrier to extra-contractual liability if these duties are not fulfilled. This article summarizes the court’s opinion and holding which clarifies an insurance carrier’s duty to defend and potentially settle third-party liability claims against its insured.

The facts
William Miller struck and injured motorcyclist, Mark Hopkins, with his automobile. At the time of the accident, Miller had an Allstate automobile insurance policy with a bodily injury liability limit of $25,000. Allstate quickly determined that liability was adverse to Miller and that the reasonable value of Miller’s claim exceeded Miller’s $25,000 policy limits. Allstate notified Miller of the potential for damages in excess of his policy limits and that he had the right to retain his own counsel at his own expense. Allstate then (within thirteen days of the accident) offered its $25,000 policy limits, but Hopkins’s attorney rejected the offer. Later, through new counsel, Hopkins demanded the $25,000 policy limits. Due to a substantial medical lien for Hopkins medical care, and Hopkins’s prior attorney’s fee lien, Allstate informed Hopkins’s counsel that it would include the lien holders as joint payees on the settlement check along with plaintiff and his new counsel. Hopkins’s counsel objected to the listing of the lien holders on the settlement check and told Allstate that he would not accept such a check. Despite the objection, Allstate issued a settlement check made payable to plaintiff, his new counsel and the lien holders.

As he had warned, Hopkins’s counsel rejected the multi-party joint settlement check. In a subsequent effort to resolve the claim, Hopkins’s counsel then agreed to release Miller from all liability if Allstate would file an interpleader action to determine the rights of Hopkins, his lawyers and the medical providers to the settlement funds. Without discussing Hopkins’s interpleader offer with Miller, Allstate rejected the offer.

Several weeks later, Allstate changed its position and agreed to file an interpleader action. Because the interpleader offer had expired, however, Hopkins’s attorney refused to honor Allstate’s acceptance of the offer. Instead, Hopkins’s attorney made a new offer: if Miller agreed to execute an excess stipulated judgment, Hopkins would release Miller from execution of the judgment if Miller pursued a bad-faith lawsuit against Allstate. Allstate rejected the proposal and also cautioned Miller that without its consent, the stipulated judgment could not bind Allstate. Subsequently, the case proceeded to trial and Hopkins received a verdict against Miller for $703,619.88.

Miller then filed a bad faith lawsuit against Allstate, alleging that Allstate had breached the covenant of good faith and fair dealing when it: (1) failed to file an interpleader complaint; (2) failed to adequately inform Miller of Hopkins’s settlement options; and (3) refused to consent to Hopkins’s stipulated excess judgment. Without instruction to identify which of Miller’s three theories of bad faith violated the covenant of good faith and fair dealing, a jury awarded Miller damages against Allstate in the amount of $1,079,784.88. Allstate then appealed.

The law
The Nevada Supreme Court held that Allstate had a duty to advise Miller of the settlement options, thus giving Miller the opportunity to make an informed decision. The court reasoned that an insurer’s duty to defend includes settlement duties and an insurer must give equal consideration to the insured’s interest. In other words, the covenant of good faith and fair dealing necessarily includes a duty to adequately inform the insured of all settlement offers. The court, however, rejected Miller’s additional theories that an insurer has an independent duty to file an interpleader action on behalf of an insured or that an insurer is required to agree to a proposed stipulated judgment between the insured and the claimant if that stipulated judgment is beyond the policy limits.

The court began its analysis by defining the duty to defend. The court explained that the duty to defend contains two potentially conflicting rights: (1) the insurer’s right to control settlement discussions; and (2) its right to control the litigation against the insured. The court cautioned, however, that each of these rights gives rise to additional duties for the insurer. For instance, the right to control settlement discussions creates the duty of good faith and fair dealing during negotiations. The right to control litigation creates the duty to defend the insured from lawsuits within the insurance policy’s coverage.

Because an insurer’s duties arise upon notice of a claim against its insured, the court clarified that an insurance carrier must inform its insured upon receipt of any settlement demand and that it must continue to advise of other settlement demands throughout litigation until there is a final resolution of the claim. As a result, the court held that if the insurer fails to adequately inform an insured of a known settlement opportunity, either prior to or during the pendency of litigation, the insurer may have breached the covenant of good faith and fair dealing. At trial, Miller testified that Allstate informed him that Hopkins had made a settlement offer, but was told that "Hopkins’s attorney was asking [Allstate] to do things that they don’t do." Miller also testified that Allstate told him that Hopkins had not rejected Allstate’s policy limit offer, but he was never informed that Hopkins had conditionally rejected the offer unless Allstate agreed to file an interpleader complaint. Miller testified that he was not given the option of paying for or initiating the interpleader action himself, nor was he given the option of contributing to the settlement on top of the policy limits to get the case settled.

Relying on precedent from other jurisdictions, the court then honed the scope of an insurance carrier’s duty. Because Allstate failed to adequately disclose Hopkins’s settlement offer to Miller, the court joined other jurisdictions in holding that an insurer’s failure to adequately inform an insured of a settlement offer may constitute grounds for bad faith and is an additional factor for the trier of fact to consider when evaluating a bad faith claim. The court reasoned that a carrier’s duty to defend includes the duty to discuss all phases of the settlement process (at the very least, all demands and all offers) with its insured, that the carrier must advise the insured of potential liability in excess available coverage, and that the carrier must advise the insured of its ability to contribute to the settlement if the insured desires.

The court found that Allstate’s recognition of the potential excess liability, coupled with the failure to adequately inform Miller of the opportunity to settle, "may have prevented" Miller from obtaining a release from Hopkins and was the proximate cause of the $703,619.88 judgment against him. The court based its findings on Miller’s testimony at trial, where he stated that had he been informed of his options, he would have paid the costs of the interpleader (even though he testified that he had no idea how much those costs could have been). The court held that even if Miller did not have the financial resources to fund the interpleader action (and, presumably could not have contributed to the settlement and bridge the gap the settlement demand and his available policy limits), the obligation to notify the insured and give the insured a chance to make an informed decision still rests with the carrier, and, if not done, may open the carrier up to bad faith liability. Thus, the court clarified that a carrier has a duty to adequately inform its insured of all settlement offers, and potentially invite the insured to contribute or take other steps when there is a possibility that the claim may exceed the policy limits.

The impact of Allstate v. Miller
As relayed above, Allstate v. Miller clarified that an insurer’s failure to adequately inform an insured of a settlement offer may constitute grounds for bad faith and is an additional factor for the trier of fact to consider when evaluating whether a carrier breached the duty to defend. Following Allstate v. Miller, therefore, an insurance carrier may want to take steps to ensure that (1) it adequately (and timely) informs its insureds of all settlement offers, whether before or after a suit is filed; (2) gives equal considers to its insured’s interests and its own; (3) invites its insured to contribute to settlements or take other steps with respect to the offers that are in excess of the policy limits; and (4) communicates all offers, including those with atypical conditions (such as a request to file an interpleader action) to its insured.

Importantly, even if an insured has no desire to settle a case because of financial inability or otherwise, the carrier’s duty to inform its insured of his options continues to exist from the date of notice of claim through the end of the litigation. As in Allstate v. Miller, the duty exists even though the carrier initially informed its insured of the potential for an excess judgment, advised its insured of his right to retain independent counsel, and even offered its policy limits within thirteen days of the accident.

James E. Harper is an associate at Hall Jaffe & Clayton, LLP. He practices primarily in the area of litigation defense, including insurance coverage, bad faith, and appeals. Contact James at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it or (702) 316-4111.