The court considered the shifting burdens of proof regarding the liability policy's exclusions and exceptions to the exclusions. Ment Bros. Iron Works Co. Inc. v. Interstate Fire Cas. Co., 2012 U.S. App. LEXIS 25310 (2nd Cir. Dec. 11, 2102). 

   The building owner and developer hired a general contractor, who hired the insured as a subcontractor for welding. The insured completed its work between April and July 2006. At that time the owner/developer was the sole fee owner of the building.

   Subsequently, damage to the penthouse windows was discovered, allegedly caused by welding sparks. The general contractor sued the insured. The insurer, Interstate, defended, but under a reservation of rights. The policy excluded property damages "arising out of the construction of residential properties, except apartments." "Residential properties" was defined to included condominiums. "Apartments" were units in a multi-unit residential building where all units were owned by and titled to a single person or entity. Interstate reserved its rights on the ground that the damage had occurred during the construction of a condominium, citing the residential construction exclusion.

   The district court granted summary judgment to Interstate, dismissing the complaint, because the residential construction exclusion applied. 

   The Second Circuit noted that under New York law, an insurer bore the burden of proving that an exclusion applied. Once the insured met its burden, the insured had to establish the applicability of an exception to the exclusion.

   There was no dispute that the building was a new construction of a "residential property" at the time the damage occurred. The court decided that in 2006, the building was an apartment building rather than a condominium. There was one building owner and no unit had been transferred when the insured finished its welding subcontract in the summer of 2006. 

   Since the building met the definition of "apartment" at the relevant time, the insured had sustained its burden to show that the apartment exception to the residential construction exclusion applied and was therefore entitled to coverage for the loss.