The Insured has the Duty to Prove Coverage for Defense: Insured Obligated to Prove Exception to an Exclusion.

• Author: Zalma, Barry
• Position: [ON MY RADAR]

* In Zurich American Insurance Company v. Ironshore Specialty Insurance Company, 137 Nev.Adv. Op. 66, No. 81428, Supreme Court of Nevada, En Banc (October 28, 2021) the Supreme Court was asked to answer inquiries from the Ninth Circuit because two federal district courts issued conflicting decisions regarding whether, in Nevada, the insured or the insurer has the burden of proving that an exception to an exclusion of coverage provision applies. The Ninth Circuit certified the following questions to the Supreme Court of Nevada:

1 Whether, under Nevada law, the burden of proving the applicability of an exception to an exclusion of coverage in an insurance policy falls on the insurer or the insured?

2. Whichever party bears such a burden, may it rely on evidence extrinsic to the complaint to carry its burden, and if so, is it limited to extrinsic evidence available at the time the insured tendered the defense of the lawsuit to the insurer?

   FACTS

   Throughout the 2000s, thousands of homes in Nevada were built by subcontractors under the direction of several development companies. During that period, these subcontractors were insured by appellants Zurich American Insurance Company and American Guarantee and Liability Insurance Company (collectively, Zurich). After the work on the homes was completed, the subcontractors switched insurers, obtaining insurance from respondent Ironshore Specialty Insurance Company (Ironshore). Ironshore's policy insured the subcontractors against damages attributed to bodily injury or property damage that occurred during the new policy period. The policy provides that if the insured becomes legally obligated to pay damages because of bodily injury or property damage that qualifies under the policy, Ironshore will pay those sums. It further provides that Ironshore will have the right and duty to defend the insured if the suit seeks damages to which the policy applies. The policy applies only if the bodily injury or property damage is caused by an occurrence within the coverage territory and applicable policy period.

   The Ironshore policy contains a "Continuous or Progressive Injury or Damage Exclusion" that modifies the insurance coverage provided under the policy. The exclusion provides that the policy does not apply to any existing bodily injury or property damage, except for "sudden and accidental" property damage:

   This insurance does not apply to any "bodily injury" or "property damage" . . . which first existed, or...