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Insured obliged to prove exemption from an exemption



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n 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 respond to requests from the Ninth Circuit because two federal district courts issued conflicting decisions as to whether, in Nevada, the insured or insurer has the burden of proof to exempt from an exemption provision. from coverage applies. The Ninth Circuit affirmed the following questions to the Supreme Court of Nevada:

  1. Whether, according to Nevada law, the burden of proof for the applicability of an exemption from the exclusion of coverage rests with the insurer or the insured?
  2. its burden, and if so, is it limited to external evidence that was available at the time the insured filed his defense of the lawsuit with the insurer?

FACTS

In the 2000s, thousands of homes in Nevada were built of subcontractors under the management of several development companies. During this period, these subcontractors were insured by the complainants Zurich American Insurance Company and American Guarantee and Liability Insurance Company (collectively Zurich). After the work on the homes was completed, the subcontractors changed insurance companies and obtained insurance from the defendant Ironshore Specialty Insurance Company (Ironshore). Ironshore's insurance insured the subcontractors against damages attributable to bodily or property damage that occurred during the new insurance period. The insurance stipulates that if the insured becomes legally liable to pay damages due to bodily injury or property damage covered by the insurance, Ironshore will pay these amounts. It further provides that Ironshore will have the right and obligation to defend the insured if the action relates to damages to which the insurance applies. The insurance only applies if the bodily injury or property damage has been caused by an event within the coverage area and applicable insurance period. The exemption stipulates that the insurance does not apply to existing bodily injury or property damage, with the exception of "sudden and unintentional" property damage:

This insurance does not apply to any "bodily injury" or "property damage". . . which first existed, or is alleged to have existed first, before this policy was initiated. "Property damage" from "your work [, ]" … or work by any additional insured, performed before the entry of the insurance will be considered to have existed only before the beginning of the insurance, unless such "property damage" is sudden and unintentional and occurs within the insurance period

Between 2010 and 2013, homeowners who had purchased homes within these development projects filed 14 construction defect lawsuits against the developers in the Nevada state court, claiming that the properties had been damaged due to design defects. Zurich settled claims against the subcontractors and then sued, in Nevada Zurich I, Ironshore in federal court, claiming compensation and reimbursement for the defense and settlement costs, as well as a declaration that Ironshore had an obligation to defend subcontractors against the underlying lawsuits. . [ Assurance Co. of Am. v. Ironshore Specialty Ins. Co. (Nevada Zurich I, No. 2: 15-cv-00460-JAD-PAL, 2017 WL 3666298, at * 1 (D. Nev. Aug. 24, 2017).] Ironshore moved for summary judgment, claiming that it had no obligation to defend because there was no potential for coverage under the terms of the policy.

The Federal District Court granted summary judgment in favor of Ironshore . The court rejected the argument that "sudden and unintentional" exemption from the exclusion of the coverage, on the grounds that none of the complaints in the underlying trials claimed that the damage occurred suddenly, and that Zurich could not bear its burden without any evidence to support such a claim. the insured has the burden of determining that an exemption from an exemption applies.The court also assumed that Zurich could have put in external evidence to meet its burden, but it did It did not directly address the issue. [19659009] Around the same time, another federal district court, in Assurance Co. of America v. Ironshore Specialty Insurance Co. (Nevada Zurich II, No. 2: 13-cv-2191-GMN-CWH, 2015 WL 4579983 (D. Nev. 29 July 2015), reached a different conclusion in a substantially identical case. The judge in that case drew the conclusion that Ironshore was liable to defend because the underlying complaints "did not specify when the alleged property damage occurred and did not contain sufficient allegations to conclude that the damage was not sudden and unintentional."

Court Nevada Zurich II concluded that Ironshore did not fulfill its burden of proof that the exemption from the exemption did not apply, and implicitly concluded that the insurer had the burden of proof not to have the burden of proof exempted from the exemption. The Court Nevada Zurich II also that external evidence was admissible but did not address the issue directly.

DISCUSSION

In Nevada, insurance is treated as other agreements, and thus legal principles apply. ga. to contracts are generally applicable to insurance. When reading a provision in an insurance, the court's interpretation must include reference to the entire insurance, which will be read as a whole to give a reasonable and harmonious meaning to the entire insurance. According to an insurance policy, the insurer has two contractual obligations towards the insured: the obligation to defend and the obligation to compensate. Only the obligation to defend is in question.

The insurer has an obligation to defend its insured whenever it finds facts that give rise to the risk of liability under the insurance. Conversely, there is no defense obligation where there is no potential for coverage. If there is any doubt as to whether military service arises, this doubt shall be resolved in favor of the insured. However, the obligation to defend is not absolute. A potential for coverage exists only when there is arguable or possible coverage.

Courts in many jurisdictions have concluded that the insured bears the burden of proof of the sudden and unintentional exemption from the exclusion of coverage. The trend seems to clearly place the burden on the insured to prove that an exemption from an exemption applies to restore coverage. Some courts do not agree.

Nevada law stipulates that an insurance policy must be read according to general contractual principles. In addition, Nevada law requires the insured to establish coverage under an insurance policy, regardless of whether they are claiming an obligation to reimburse or an obligation to defend. The majority's approach is in accordance with the basic principles of evidence law in Nevada. The party bearing the burden of production must establish a prima facie case. The burden of persuasion rests on a party throughout the case and determines which party must present sufficient evidence to convince a judge that a fact has been established. In Nevada, the burden of production and persuasion rests with the insured, who has the initial burden of proving that the claim falls within the insurance coverage.

The duty to defend arises when there is a potential for coverage. , while the liability arises when the insured's business and the resulting damage actually fall within the insurance coverage.

The insured may use external facts available to the insurer to prove the insurer. Had an obligation to defend

An insurer has an obligation to defend its insured whenever it establishes facts that give rise to the risk of liability under the insurance. Thus, under Nevada law, an insured person may present such external facts to the insurer and rely on them to claim that the insurer is obligated to defend itself as an exception to an exception.

Neighboring California has considered that the “[a] insurer's obligation to defend must be analyzed and determined on the basis of any potential liability arising from facts available to the insurer from the complaint or other sources available to it. at the time of the tender of defense. " Waller v. Truck Ins. Exch., Inc., 900 P.2d 619, 632 (Cal. 1995) (quoting CNA Cas. of Cal. v. ., Seaboard Sur. Co., 222 Cal.Rptr. 276, 278-79 (Ct. App. 1986)). for the insurer, the Supreme Court of Nevada held that the insured could use external facts that were available to the insurer at the time it submitted its tender.

The certified questions were therefore answered as follows:

  1. the burden of proving the exemption from an exemption rests with the insured, not with the insurer; and
  2. in order to fulfill its burden of proof that the exemption from an exemption applies, the insured may use all external facts that were available to the insurer at the time when the insured submitted his defense to the insurer.

Accept the rule followed by the majority of courts of the United States and fundamental common sense, the Supreme Court of Nevada applied the basic rule of law that it is the insured who is required to prove that the coverage is valid and can use external evidence to determine the coverage. So, in this one, which is on the first routine, the insured is the first to prove that an exemption from an exemption applies and if it succeeds, the burden passes to the insurer to prove the opposite.


© 2021 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his internship to the position of insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.

He also acts as an arbitrator. insurance-related disputes. He practiced law in California for more than 44 years as a lawyer for insurance coverage and claims management and more than 54 years in the insurance industry.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

He is available at http://www.zalma.com and zalma@zalma.com. Zalma is the first recipient of the first annual Claims Magazine / ACE Legend Award. For the past 53 years, Barry Zalma has devoted his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to enable insurers and their claimants to become professionals in insurance claims.

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