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The Nevada Supreme Court was asked by the United States Court of Appeals for the Ninth Circuit to answer a certified question in a bad faith case pending before it. The question involved whether or not State Farm’s policy, which contained an exclusion allowing the carrier to deny medical payment benefits for bodily injury when the insured’s medical bills had been already paid by workers compensation benefits, was applicable. The Nevada Supreme Court first noted that the exclusionary language in the State Farm policy met the Courts previously accepted tests for determining whether ambiguities existed in the insurance policy. Those tests include construing policy language from a laypersons viewpoint, using language that clearly communicates the scope of the limitation and that any ambiguity must be construed in favor of coverage. When the State Farm exclusionary language was initially examined against these tests, the Court noted its approval. However, the Court found a latent ambiguity existed, which arose only under the peculiar circumstances of the case before it. Instead of the ordinary situation where the workers compensation carrier had the sole obligation to pay medical benefits, this case involved third parties to whom the workers compensation insurer then subrogated its statutory lien against. When the insured settled with the third party tortfeasors, she paid a significant percentage of the workers compensation carrier’s lien to satisfy that obligation. Thus arose a question requiring clarification and certification. Although the State Farm exclusionary policy language was clear on its face, the question really before the Court was whether the insured received payment from the workers compensation insurer or merely an advance upon payment due to the workers compensation carriers right of statutory subrogation. The Nevada Supreme Court found in favor of the insured and against State Farm. The Court found the exclusion contained a latent ambiguity, i.e.: one that exists when the exclusion as applied to the facts at issue cause an uncertainty to result. Because the exclusion contained the term “payable” the Court found that, for purposes of analyzing the facts before it, State Farm’s position that once the benefits were payable the exclusion applied was just as reasonable a contrasted interpretation as the insured’s claim that benefits were “not payable” since Rubin did not retain them once the workers compensation carrier was reimbursed from her third party settlement. Because more than one reasonable interpretation existed, the “latent ambiguity” so created defeated the force of the exclusionary language. In so holding, the Court noted a division among jurisdictions under similar factual scenarios. In siding with the insured, the Court stated that Rubin’s unique factual circumstances placed her in the same situation as one who never received workers compensation benefits. Thus, having so concluded, the Court answered the certified question before it in the negative, ruling against the insurers enforceability of the exclusionary language.
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