The Ninth Circuit certified a question to the Nevada Supreme Court, asking whether the insurer can seek reimbursement of defense costs if it is determined the insurer has no duty to defend. Nautilus Ins. Co. v. Access Medical, LLC, 2019 U.S. App. LEXIS 19777 (9th Cir. July 2, 2019). 

    The insured, Access Medical, was sued by Ted Switzer due to alleged interference with relationships Switzer had with hospitals. For example, Access Medical advised a hospital that it wanted to contract to sell spinal implants to the hospital because its former distributor was banned from selling such implants. Switzer alleged he was the distributor referred to.

    Insured tendered its defense to Nautilus. The policy promised a defense in any suit seeking damages because of a "personal and advertising injury, " "arising out of . . . oral or written publication . . . that slanders or libels a person or organization or disparages a person's or organization's goods, products or services." After many refusals, Nautilus agreed to defend under a reservation of rights. Nautilus reserved its right to disclaim coverage, withdraw from the defense, and obtain a reimbursement of defense fees following a determination that no potential for coverage existed for Access Medical. 

    Nautilus filed suit for a declaratory judgment in Nevada federal district court that Nautilus never had a duty to defend or indemnify the insured. On a motion for summary judgment, the court determined Nautilus had no duty to defend under Nevada law because Switzer's complaint did not allege a false statement that would support a claim for defamation, libel or slander. Judgment was entered for Nautilus.

    Nautilus then brought a motion for further relief under 28 USC 2202 seeking reimbursement of defense costs. Nautilus' motion for further relief was denied. The court held Nautilus did not show it was entitled to further relief under 2202 and did not establish it was entitled to reimbursement under Nevada law. 

    Nevada state courts had not spoken directly on the issue of reimbursement. Courts had held that a unilateral reservation of rights letter could not itself create rights not contained in the policy. Decisions finding that an insurer was entitled to reimbursement of defense costs were based on a finding that there was a contract implied in fact or law, or a finding that the insured was unjustly enriched when its insurer paid defense costs for claims that were not covered by the policy. On the other hand, in paying defense costs pursuant to a reservation of rights, the insurer was protecting itself at least as much as it was protecting its insured. Thus, the court could not say that an insured was unjustly enriched when its insurer accepted a defense in order to protect its own interests, even if it was later determined that the insurer did not owe a defense. 

    Because the Nevada Supreme Court had not spoken directly on the issue of an insurer's entitlement to reimbursement of defense costs under a reservation of rights, the following question was certified to the court: 

Is an insurer entitled to reimbursement of costs already expended in defense of its insureds where a determination has been made that the insurer owed no duty to defend and the insurer expressly reserved its right to seek reimbursement in writing after defense had been tendered but where the insurance policy contains no reservation of rights?