As most insurance companies understand, Nevada will impose its own regulations and literally re-write an insurance policy so that it complies with its own statutory requirements. One of the areas where Nevada strictly interferes is in relation to when and how an insurance company can cancel an insurance policy.
NRS 687B.360 reads in full as follows:
If a notice of cancellation or nonrenewal under NRS 687B.310 to 687B.420, inclusive, does not state with reasonable precision the facts on which the insurer’s decision is based, the insurer shall supply that information within 6 days after receipt of a written request by the policyholder. No notice is effective unless it contains adequate information about the policyholder’s right to make such a request.
Accordingly, as a matter of law, if a carrier issues a notice of cancellation or nonrenewal, it must contain the special language in this statute, otherwise “no notice is effective.”
This statute was of particular importance to the owners of the Original House of Pancakes (OPH), a local business. It retained an insurance broker and purchased a business owner policy with monthly payments for coverage from December, 2011 to December, 2012. In mid-July, 2012, the restaurant defaulted on insurance payments and the carrier issued a written notice the policy would be cancelled effective August 16, 2012 if payment was not received by August 15, 2012. The notice to the restaurant did not contain the mandatory Nevada language regarding a six-day extension. The restaurant burned to the ground on August 17, 2012. The restaurant submitted a claim and the carrier denied it based on the failure to pay the premium the day before.
The Nevada Supreme Court resolved the litigation resulting from the denial of coverage in O.P.H. of Las Vegas, Inc., v Oregon Mutual Insurance Company, 133 Nev. 430, 401 P.3d 218 (2017). Originally, the restaurant sued its broker and the insurance company for breaches of contract and fiduciary duties. The trial court ruled against the restaurant and granted motions for summary judgment by the carrier and the broker. The restaurant appealed and the Nevada Supreme Court agreed with the restaurant as to the insurance carrier that, even if they had not paid, the notice to cancel by the insurance carrier was not effective by operation of law.
The insurance carrier argued the ruling was unfair because the cancellation notice was clear. The notice unequivocally stated the carrier would cancel the policy due to failure to pay its premium. The notice otherwise complied with NRS 687B.310 through NRS 687B.420. The insurance carrier argued it was illogical to void the notice due to omission of the statutory language which referred to the right to request more information when the notice, itself, contained all known information and the insured, OPH, denied receiving the notice. It also seemed unfair to the insurer, since the loss occurred before it could send a second, properly worded notice.
But the Nevada Supreme Court ruled the arguments in favor of strict compliance are compelling. Judicially relaxing the statute’s literal requirements and accepting substantial compliance as “good enough” would not honor the plain text of NRS 687B.360’s and would invite litigation with its attendant uncertainty. NRS 687B.310 through NRS 687B.420 are “designed to protect individuals from the arbitrary actions of insurers who cancel insurance policies without [adequate] notice to their insureds” and reflect the “state’s overriding concerns of protecting its citizens and insuring that they are afforded fair and equitable treatment by insurers.” Daniels v. Nat’l Home Life Assurance Co., 103 Nev. 674, 677, 747 P.2d 897, 899 (1987). For these and related reasons, most states hold that statutes imposing requirements on cancellation notices “are to be strictly construed” such that “[n]otices not conforming to the statutory requirements [are] ineffective to terminate the insurance contract for nonpayment of premiums. O.P.H., at 434.
Insurers operating in Nevada should review their policies and procedures to be certain their notices of cancellation advise any insured whose policy is cancelled of their right to request information regarding the basis for the cancellation. Careful adherence to the statute’s requirements will help ensure the notices are effective and enforceable in Nevada courts.