Is an Insurer Responsible for Pre-Tender Defense Costs? [Infographic]

In most Nevada bad faith insurance cases, an insurer is not liable for pre-tender defense costs that were voluntarily incurred by an insured party but may be liable to a co-insurer for pre-tender costs incurred before the defense was tendered to the insurer.

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What are Pre-Tender Defense Costs?

Pre-tender defense costs are costs incurred by an insured policyholder to defend a bad faith claim before he/she tenders the claim to the insurance company. In most jurisdictions, the insured pays for pre-tender defense costs. Most insurance policies state that pre-tender defense costs are outside of the realm of policy terms and coverage. Many insurance general liability policy conditions state the following provisions for an insured’s responsibilities in the event of an occurrence, offense, claim or lawsuit:

  • The insured must notify the insurer as soon as practicable of an occurrence or an offense that may result in a claim.
  • If a claim or lawsuit is filed against the insurer, the insured must notify the insurer in writing of such notice of a claim or lawsuit as soon as practicable.
  • The insured policyholder and any other involved parties must immediately send copies of any demands, notices, legal papers, and summons related to the claim or lawsuit to the insurance company.
  • No insured policyholder will assume any obligation, incur any expense, make voluntary payments for anything other than for first aid, without the consent of the insurer. If so, all costs will be the sole responsibility of the insured.

Insurance policies are written in the best interest of the insurer, not the insured. Because policy language that defines coverage and limitations is quite complex, a bad faith insurance attorney is necessary to interpret the policy language before filing a claim or lawsuit.

The Nevada Supreme Court has not reached a decision on whether an insurance company is obligated to reimburse policyholders for pre-tender defense costs. In many cases where Nevada law is silent, Nevada relies on the California Supreme Court’s interpretation of California statute when interpreting a similar Nevada statute.

In Nevada, an insurance company can face a wide array of possible damages if it breaches its duty to defend. Improper cancellation of a policy may constitute a violation of Nevada’s Unfair Claims Settlement Practices Act. Denial of claims without a reasonable basis can result in a bad faith insurance attorney filing a lawsuit against the insurance company on behalf of the policyholder.