Insured v. Insured Exclusion

Exclusion Applies Burden Falls on Insured to Prove Exception

Appellate courts often write opinions that require a wheel barrow to carry. However, when a case gets to a straight-forward point an appellate court will fool the parties and the nation by writing an opinion that is brief, clear, and easy to understand.

AMERCO, Plaintiff  v. National Union Fire…, United States Court of Appeals, Ninth Circuit,Fed.Appx. —-, 2016 WL 3157301 (June 06, 2016) is just such a case where the Ninth Circuit wasted no time or effort to reach a decision.


Five plaintiffs filed five shareholder derivative lawsuits against AMERCO and its directors and officers in Nevada state court, and the state court consolidated the cases. AMERCO sought coverage for costs associated with the consolidated action under its directors and officers liability policy (“D & O policy”). Its insurer, National Union Fire Insurance Company of Pittsburgh, PA (“NUF”), denied coverage because one of the plaintiffs in the consolidated action, Paul Shoen, was an “Insured” under the D & O policy. AMERCO sued for breach of the insurance contract. The district court granted NUF’s motion to dismiss.


The district court properly dismissed AMERCO’s complaint because AMERCO did not allege that the non-Shoen plaintiffs instigated and continued their claims totally independent of Paul Shoen, an Insured under the policy. The “Insured v. Insured” exclusion in the D & O policy barred coverage for security holders’ claims except when “such security holder’s claim is instigated and continued totally independent of” any Insured. [Biltmore Assocs., LLC v. Twin City Fire Ins. Co., 572 F.3d 663, 666 (9th Cir. 2009)] Biltmore interpreted a similar exclusion under Arizona law and explained that “the [shareholder derivative suit] exception to the exclusion only applies if the claims are ‘instigated and continued totally independent of’ the corporation”. Under Arizona law, the insurer has the burden of proving that a policy exclusion is applicable, but the insured carries the burden of proving that his claim falls within an exception to that exclusionary clause.

Here, AMERCO stated in its complaint that the five plaintiffs in the consolidated action were security holders, but it did not allege that the non-Shoen plaintiffs filed or maintained their claims independent of Paul Shoen. AMERCO conceded in its complaint (and in its briefing to the Ninth Circuit) that Shoen participated in the underlying lawsuit.

AMERCO therefore failed to carry its burden of alleging that the non-Shoen claims fell within the exception to the “Insured v. Insured” exclusion, and, therefore, affirmed the district court’s dismissal of AMERCO’s complaint on that ground.


No insurer is willing to take the risk the potentiality of colussion when an insured sues an insured. For that reason insured vs insured exclusions exist in almost every liability insurance policy and must be applied. Perhaps that is why the Ninth Circuit wrote such a brief and intelligent opinion.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.  He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

Mr. Zalma is the first recipient of the alma will be recognized with the first annual Claims Magazine/ACE Legend Award.

Check in on Zalma’s Insurance 101 – a Videoblog – that allows your people to learn about insurance in three to four minute increments at

Look to National Underwriter Company for the new Zalma Insurance Claims Libraryat  The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at

Mr. Zalma’s new e-books  are available at

Mr. Zalma’s reports can be found on Tumbler at,  on Facebook at and you can follow him on Twitter at

Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
This entry was posted in Zalma on Insurance. Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.