Strategies, Challenges, and Answers

Don’t Allow A Waiver To Destroy The Effect Of An Otherwise Valid Coverage Exclusion

This is a previously published Mills & Associates Newsletter. 

For more information on this or other Nevada Coverage Law subjects, please contact Mr. Mills by e-mail at mike@mcmillslaw.comor by phone at 702-240-6060.

In the case of Vitale v. Jefferson Insurance Company of New York, 116 Nev. Adv. Op. 70, 5 P.3d 1054 (2000) the Court examined the question of whether an automobile exclusion included in a general liability policy was valid. Following the precedent set in Senteney v. Fire Insurance Exchange, 101 Nev. 654, 707 P.2d 1149 (1985) the Nevada Supreme Court found that an unambiguous automobile exclusion was valid whether that exclusion was found in a homeowner’s policy or a general liability policy. However, in addition to arguing that the exclusion was completely invalid, the Appellants argued that the carrier had waived its opportunity to deny coverage. Ultimately, the Nevada Supreme Court decided that there had been no waiver. This newsletter will discuss how the carrier in the Vitale case successfully dodged the waiver argument. Hopefully, this discussion will help the reader see potential waiver situations and avoid them.


In the case of Vitale v. Jefferson Insurance Company of New York, 116 Nev. Adv. Op. 70, 5 P.3d 1054 (2000), the insured, Clara Moor, had purchased general liability coverage for her child day care business d.b.a. “Second Mom”. In 1992, Mrs. Moor’s husband was involved in a motor vehicle accident while in the course and scope of his employment with the day care business. The relevant auto policy paid its limits. The injured plaintiff took an assignment of the insured’s rights against Jefferson and then demanded further recovery from its general liability policy. Jefferson filed a declaratory relief action claiming that the automobile exclusion in the policy was valid and that it did not have to pay for any loss.

In construing the policy, the Court looked at the language in its plain and ordinary sense and from a viewpoint of one not trained in law. The Court said that any language of exclusion would need to clearly and distinctly communicate to the insured the nature of the limitation and that any ambiguity would be construed against the insurer.

Applying those rules of construction, the Court found the automobile exclusion to be valid. The policy said that there was no automobile coverage for “persons insured”. Because Mr. Moor was the spouse of the named insured, and because he was working for the business at the time of the accident, the auto coverage exclusion applied to him in the same manner as it applied to Mrs. Moor. Thus, Mr. Moor was found to be a “person insured” under the policy.

However, the argument did not stop there. It appears that the carrier failed to raise the question of Mr. Moor’s status as a “persons insured” in its denial letter. The argument was that since the issue was not raised in the denial letter, it was too late to raise it now. In other words, the carrier had waived the “person insured” issue. So how then did Jefferson avoid the waiver issue? Let’s find out


In Vitale, the Nevada Supreme Court relied on the case of Intel Corp. v. Hartford Accident & Indemnity Co., 952 F.2d 1551, 1561 (9th Cir. 1991). In that case, Hartford sent a denial letter to Intel in which Hartford claimed a that there was no coverage for the loss based upon a standard and unambiguous “pollution exclusion”. The Ninth Circuit said Hartford was not precluded from later citing to a different exclusion where the new exclusion was valid.

The next question is, under what circumstances does a carrier waive the right to claim a particular exclusion that was not mentioned in the denial letter? The answer to that question is complex.


The Nevada Supreme Court cited to at least two exceptions to the general rule. The court said that it might find a waiver of the coverage exclusion if the insurance company was guilty of misconduct, such as “sandbagging” or failing to properly investigate the claim. Second, the court said that it might find a waiver of the coverage exclusion if the insurance company misrepresented facts related to the exclusion and then the insurer relied on that misrepresentation to its detriment. This standard of waiver seems to be more difficult for the insured to prove than the previous standard enunciated in the case of McLaughlin v. Connecticut General Life Insurance Co.¸565 F.Supp. 434 (N.D. Cal 1983). In that prior case, the court seemed to say that simple negligence on the part of the insurer was enough to cause a waiver. The Nevada Supreme Court adopted the standard that is more difficult for the insured to meet when it said:

We agree with the Intel court that an insurer does not waive its right to assert an exclusion where it has provided its insured with adequate notice of an unambiguous exclusion.

Although it is not perfectly clear, it seems that Nevada’s standard will be that if the insured received sufficient notice of an effective exclusion, the court will deny the insured’s claim of waiver even though later, an additional exclusion is claimed. Thus it appears that waiver will occur only where, by the intentional or negligent failures on the part of the insurer on which the insured relied and thereby was subsequently injured. Notice of a denial of coverage based on one valid exclusion versus a later denial based upon a different valid exclusion will not result in a waiver where no detrimental reliance had occurred.


Even though the general rule will be that exclusion waivers will be more difficult to prove, a carrier must still be vigilant in its investigation of coverage issues and must be as thorough as possible when it identifies the exclusions on which it is relying to deny coverage. To do otherwise will be inviting a battle regarding a claim of waiver that does not need to be fought.

However, if by chance a significant but valid exclusion provision was overlooked in the denial letter, the carrier can still strongly argue that there was no waiver, especially where it did a thorough investigation and where there has been no prejudice to the insured.

Prepared by Michael C. Mills, Esq. Mr. Mills is a trial attorney with the firm, Mills & Associates. His practice focuses on defense of civil litigants and coverage issues.

If you have any questions about this or other coverage issues please feel free to call Mr. Mills at (702) 240-6060