Nevada Property Policy Provisions

Nevada insurance law requires specific provisions in property insurance policies to protect consumers and ensure fair treatment.

Policy Cancellation and Non-Renewal

Cancellation by Insurer (Mid-Term)

Nevada restricts when insurers can cancel policies mid-term:

Permitted Cancellation Reasons:

1. Non-Payment of Premium

   • Most common cancellation reason
   • Notice: 30 days (for non-payment only)
   • Insured may reinstate by paying premium within notice period

2. Fraud or Material Misrepresentation

   • False statements on application
   • Concealment of material facts
   • Misrepresentation in claim
   • Notice: 30 days minimum

3. Substantial Increase in Hazard

   • Material change making property uninsurable
   • Examples: vacant property, criminal activity, extreme disrepair
   • Notice: 30 days minimum

4. Loss of Reinsurance

   • Insurer loses reinsurance backing policy
   • Rare circumstance
   • Notice: 30 days minimum

Prohibited Cancellation Reasons:

• ✗ Age of insured
• ✗ Sex, race, religion of insured
• ✗ Geographic location alone
• ✗ One claim (with exceptions for large claims)
• ✗ Disability of insured
• ✗ Credit score after initial issuance

Exam Tip: Nevada allows mid-term cancellation for only FOUR reasons: non-payment, fraud, substantial increase in hazard, and loss of reinsurance. All require 30 days' written notice except non-payment.

Non-Renewal at Expiration

Non-Renewal Requirements:

Notice Period:

• 60 days' notice required before expiration
• Written notice to named insured
• Sent to last known address
• Must state reason for non-renewal

Required Content of Notice:

• Specific reason for non-renewal
• Effective date of non-renewal
• Right to contact Division of Insurance
• Name and contact information of insurer

Prohibited Non-Renewal Reasons:

• Single claim in 3-year period (unless catastrophic or fraud)
• Age of insured
• Sex, race, religion, national origin
• Geographic location alone (redlining)
• Disability or health condition
• Lawful occupation

Permissible Non-Renewal Reasons:

• Multiple claims (pattern of losses)
• Non-payment history
• Failure to cooperate with underwriting requirements
• Property condition deterioration
• Loss of reinsurance
• Withdrawal from market segment

Exam Tip: 60 days' notice is required for non-renewal at expiration. This is longer than the 30 days required for mid-term cancellation. Know these different notice periods.

Insured's Right to Cancel

Policyholder Can Cancel Anytime:

• No notice period required to insurer (though courtesy notice helpful)
• Pro-rata refund of unearned premium
• Short-rate penalty generally NOT allowed in Nevada for homeowners
• Written cancellation request recommended

Common Reasons Insureds Cancel:

• Switching to different insurer
• Selling property
• No longer need coverage
• Found better rate

Loss Settlement Provisions

Replacement Cost vs. Actual Cash Value

Replacement Cost (RC):

• Cost to replace property with new property of like kind and quality
• No depreciation deducted
• Standard for Coverage A (dwelling)
• Optional for Coverage C (personal property)

Formula: $\text{Replacement Cost} = \text{Current Cost to Replace with New}$

Actual Cash Value (ACV):

• Replacement cost minus depreciation
• Accounts for age, wear, and condition
• Standard for Coverage C (personal property) unless RC endorsement purchased
• Some older properties insured on ACV dwelling basis

Formula: $\text{ACV} = \text{Replacement Cost} - \text{Depreciation}$

Example:

• 10-year-old roof needs replacement
• Replacement cost: $20,000
• Useful life: 20 years (50% of life used)
• ACV payment: $20,000 - (50% × $20,000) = $10,000

Exam Tip: Dwelling coverage (Coverage A) is typically REPLACEMENT COST. Personal property (Coverage C) is ACTUAL CASH VALUE unless the policyholder purchases replacement cost coverage endorsement.

Coinsurance Provisions

Some Nevada property policies include coinsurance clauses:

Purpose:

• Encourages adequate insurance limits
• Penalizes underinsurance
• Ensures fair premiums based on values

Typical Coinsurance Requirement:

• Insure property to at least 80% of replacement cost
• If underinsured, partial payment on losses
• Full payment only if insured to 80%+

Coinsurance Formula:

$\text{Amount Paid} = \frac{\text{Amount of Insurance Carried}}{\text{Amount Required (80\% of value)}} \times \text{Loss}$

(minus deductible, up to policy limit)

Example:

• Home replacement cost: $500,000
• Required insurance (80%): $400,000
• Actual insurance carried: $300,000
• Loss amount: $100,000

Calculation:

• $300,000 ÷ $400,000 = 0.75 (75% of required)
• Payment: 0.75 × $100,000 = $75,000
• Insured pays: $25,000 of the loss (plus deductible)

Avoiding Coinsurance Penalty:

• Insure to at least 80% of replacement cost
• Increase coverage as property values rise
• Consider inflation guard endorsement
• Update coverage limits annually

Exam Tip: Coinsurance penalties apply when property is insured for LESS than the required percentage (typically 80%). If insured for 80%+ of value, the coinsurance penalty does not apply.

Deductibles

Purpose:

• Reduces premium cost
• Eliminates small claims
• Insured retains portion of loss

Standard Deductibles:

• $500, $1,000, $2,500, $5,000 most common
• Higher deductibles = lower premiums
• Separate windstorm/hail deductibles in some policies
• Percentage deductibles for earthquake (10-20% of Coverage A)

How Deductibles Apply:

• Per occurrence (per loss event)
• Applies to property coverages (A, B, C)
• Does NOT apply to liability (E) or medical payments (F)
• Paid by insured before insurance pays

Example:

• Loss amount: $15,000
• Deductible: $1,000
• Insurance pays: $15,000 - $1,000 = $14,000
• Insured pays: $1,000 deductible

Insurable Interest Requirement

Definition

Insurable Interest:

• Legal or financial interest in property
• Would suffer financial loss if property damaged or destroyed
• Required at time of loss (not just at policy inception)

Who Has Insurable Interest:

• ✓ Property owner
• ✓ Mortgage holder (lienholder)
• ✓ Tenant (in contents and use of property)
• ✓ Life tenant (life estate holder)
• ✓ Contract purchaser
• ✓ Business with property interest

Who Does NOT Have Insurable Interest:

• ✗ General public
• ✗ Neighbor (no financial interest in your property)
• ✗ Person with no financial interest
• ✗ Former owner (after sale closes)

Mortgage Holder Interest

Mortgagee Clause (Loss Payable Clause):

• Protects mortgage holder (lender)
• Lender named on policy
• Loss payments made jointly to insured and mortgagee
• Mortgagee retains rights even if insured violates policy

Mortgagee Rights:

• Notified of policy cancellation
• Separate protection even if insured voids coverage
• Can pay premiums if insured doesn't
• Loss payments include mortgagee name on check

Exam Tip: A mortgagee (lender) must be listed on the homeowners policy to protect their interest. Loss payments are made jointly to the insured and the mortgagee.

Nevada Anti-Discrimination Provisions

Prohibited Rating Factors

Nevada prohibits discrimination based on:

Protected Classes:

• Race, color, national origin
• Religion or creed
• Sex or gender
• Age (cannot refuse coverage or rate solely on age)
• Marital status
• Disability
• Sexual orientation

Prohibited Practices:

• Redlining (denying coverage by geographic area alone)
• Charging different rates for same risk profile based on protected class
• Steering insureds to higher-cost products based on protected class

Permitted Rating Factors

Nevada allows actuarially justified rating factors:

Acceptable Rating Factors:

• Property characteristics (age, construction, size, condition)
• Location (fire protection class, theft rates, weather exposure)
• Coverage amount and deductible selected
• Claims history (number and severity of claims)
• Credit-based insurance score (at initial underwriting)
• Protective devices (alarm, sprinkler, fire extinguisher)
• Bundling discounts (auto + home)

Exam Tip: Credit-based insurance scores CAN be used at initial underwriting in Nevada, but cannot be the sole reason for cancellation or non-renewal after the policy is issued.

Policy Conditions

Duties After a Loss

Nevada property policies require insureds to:

Immediate Duties:

1. Give Prompt Notice

   • Notify insurer as soon as practicable
   • Provide details of loss
   • Typically call agent or insurer claims department

2. Protect Property

   • Take reasonable steps to prevent further damage
   • Cover broken windows, roof holes
   • Costs of protection covered by policy

3. Prepare Inventory

   • List damaged or destroyed property
   • Document values
   • Provide receipts if available

4. Cooperate with Investigation

   • Answer questions truthfully
   • Provide access to property
   • Submit to examination under oath if requested

5. Submit Proof of Loss

   • Within 60 days (typically)
   • Sworn statement of loss
   • Itemized list of damages

Failure to Comply:

• Can result in claim denial
• Breach of policy conditions
• Insurer released from obligation

Exam Tip: The duty to protect property from further damage is critical. If the insured fails to take reasonable protective measures and additional damage results, the insurer may not cover the additional damage.

Appraisal Provision

Purpose:

• Resolves disputes over amount of loss
• Both parties hire appraisers
• Neutral umpire breaks ties
• Binding decision on amount (not coverage)

Appraisal Process:

1. Disagreement: Insured and insurer disagree on loss amount
2. Demand: Either party demands appraisal
3. Select Appraisers: Each party selects competent appraiser
4. Select Umpire: Appraisers select impartial umpire
5. Submit Values: Each appraiser submits loss valuation
6. Agreement: If appraisers agree, that's the binding amount
7. Disagreement: If appraisers disagree, umpire decides
8. Award: Decision of any two (appraiser + appraiser, or appraiser + umpire) is binding

Costs:

• Each party pays own appraiser
• Umpire fees split equally
• Generally less expensive than litigation

Important Limitations:

• Appraisal determines AMOUNT of loss only
• Does NOT determine coverage (what's covered)
• Coverage disputes still subject to policy terms and may require litigation

Exam Tip: The appraisal provision resolves disputes over the AMOUNT of loss, not whether the loss is covered. Coverage disputes are not resolved through appraisal.

Nevada-Specific Requirements

Required Disclosures

At Application:

• Coverage limits and types
• Deductible amounts
• Exclusions and limitations
• Right to cancel (free look period if offered)
• Complaint process

At Renewal:

• Any changes in coverage or premium
• Non-renewal notice (60 days if not renewing)
• Right to request explanation of premium increase

Fair Claims Practices

Nevada law requires insurers to handle claims fairly:

Required Practices:

• Acknowledge claim within reasonable time
• Begin investigation promptly
• Affirm or deny coverage within reasonable time
• Pay undisputed amounts promptly
• Provide explanation for denials

Prohibited Practices:

• Misrepresenting policy provisions
• Failing to acknowledge claims
• Unreasonable delays in settlement
• Not attempting good faith settlement
• Forcing insured to litigate to recover

Exam Tip: Nevada's unfair claims practices laws apply to ALL insurers doing business in Nevada, including out-of-state insurers. These laws protect Nevada policyholders regardless of where the insurer is based.