Documentation for JIRA 4.3. Documentation for other versions of JIRA is available too.

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When using named instances you will need to specify the URL slightly differently in the connection properties.

First off, try:

url="jdbc:jtds:<server_type>://<server>[:<port>][/<database>];instance=<instance_name>"

This is specified at the JTDS FAQ

If this doesn't work, try dropping the instance name, and changing the port to the port used by the named instance:

url="jdbc:jtds:<server_type>://<server>[:<instance_port>][/<database>]"

Note. This port is different to the normal SQL Server port as each instance listens on a different port.