In Las Vegas Metropolitan Police Dep’t. v. Coregis Ins. Co., 2011 Nev. LEXIS 52 (Aug. 4, 2011), the Supreme Court of Nevada addressed whether an insurer must be prejudiced in order to disclaim coverage based on late notice, and if so, which party has the burden of demonstrating prejudice or the lack thereof.
The insured, Las Vegas Metropolitan Police Department, was named as a defendant in an underlying civil rights lawsuit. The Department did not give notice to Coregis of its potential liability until ten years after the incident giving rise to the litigation. Coregis denied coverage for the matter on the basis of the insured’s late notice. In subsequent coverage litigation, the lower court granted summary judgment in favor of Coregis, concluding that the Department’s notice was late and that Coregis was prejudiced as a result.
On appeal, the Supreme Court of Nevada initially concluded that there was a genuine issue of material fact as to whether the Department’s notice was late, since there was a question as to which of the policy’s notice requirements applied. More significantly, the court addressed which standard should apply for late notice disputes under Nevada law. Citing to what it considered the “majority rule,” the court held that an insurer must be prejudiced in order to deny coverage based on late notice and that it is the insurer’s burden to demonstrate prejudice. Prejudice, explained the court, exists “where the delay materially impairs an insurer’s ability to contest its liability to an insured or the liability of the insured to a third party.” The court further noted that prejudice is necessarily an issue of fact.