Nevada Insureds Bear Burden of Proving Exceptions to Exclusion Provisions

Exclusion provisions in a policy work to limit the range of coverage by restricting certain events or losses; often serving as a basis to deny a claim. Nevada case law has long held the burden is on the insured to prove a claim falls within the scope of coverage, and the insurer bears the burden to prove the applicability of an exclusion. However, for the first time the Supreme Court for the State of Nevada was faced with the question of who bears the burden to prove an exception to a policy’s exclusion provision, essentially restoring coverage.¹

Zurich American Insurance Co. v. Ironshore Specialty Insurance Company arose from two related construction defect claims relying on the policy’s “sudden and accidental” damage exception.² Adopting the majority approach, the Nevada Supreme Court concluded the burden to prove the applicability of an exception to an exclusion is on the insured, not the insurer. The court also held insureds may use extrinsic facts available to the insurer when establishing the insurer’s duty to defend.

In pointing to neighboring states and similar Nevada case law, the court reasoned because insureds bear the burden to prove the loss falls within the scope of coverage, insureds must prove the coverage is revived in applying an exclusion’s exception. he court was careful to clarify that in the context of the insurer’s duty to defend, the insured is only required to establish there is a potential for coverage per the exception.

While this decision provides more latitude in establishing an insurer’s duty to defend, it nevertheless presents challenges to Nevada insureds seeking to prove an exception to an exclusion provision.
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¹ See Zurich American Ins. Co. v. Ironshore Specialty Ins. Co., 137 Nev. Adv. Op. 66 (Nev.  Oct. 28, 2021) (answering certified questions brought by the Ninth Circuit Court of Appeals).
² https://www.propertyinsurancecoveragelaw.com/2020/08/articles/insurance/who-has-the-burden-to-prove-an-exception-to-an-exclusion-of-coverage-in-an-insurance-policy/