Liberty Mutual Fire Insurance Company v. Michael William Lyons

UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
_________________________________
LIBERTY MUTUAL FIRE INSURANCE
COMPANY,
Plaintiff Counter Defendant –
Appellee,
v.
MICHAEL WILLIAM LYONS,
Defendant Counter Plaintiff –
Appellant,
and
LINDSAY LYONS,
Defendant.
No. 20-2152
(D.C. No. 1:19-CV-01053-JAP-SCY)
(D. N.M.)
_________________________________
ORDER AND JUDGMENT*
_________________________________
Before TYMKOVICH, Chief Judge, LUCERO, Senior Circuit Judge, and
MATHESON, Circuit Judge.
_________________________________
Liberty Mutual Fire Insurance Company filed a declaratory judgment
action seeking a declaration as to whether it owed a duty to defend or indemnify
Michael Lyons in a New Mexico state court lawsuit involving allegations of
* This order and judgment is not binding precedent, except under the doctrines of
law of the case, res judicata, and collateral estoppel. It may be cited, however,
for its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R.
32.1.
FILED
United States Court of Appeals
Tenth Circuit
October 6, 2021
Christopher M. Wolpert
Clerk of Court
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sexual molestation. The district court granted summary judgment to Liberty
Mutual because Michael’s insurance policy excluded coverage for claims based
on bodily injury arising out of sexual molestation. Exercising jurisdiction under
28 U.S.C. § 1291, we affirm.
I. Background
In early 2019, Lindsay Lyons sued her father, Michael Lyons, in New
Mexico state court. Lindsay alleged that her father sexually abused her over a
period of eight years at his primary residence in Albuquerque, New Mexico, and
his vacation home in Pagosa Springs, Colorado. The complaint included
allegations that Michael breached his duty as a homeowner and parent to keep his
premises safe for Lindsay.
Several months later, Lindsay amended her complaint. The amended
complaint presented the same claim and sexual molestation allegations as the
original complaint, but with one significant difference—the complaint no longer
contained allegations that it was Michael who committed the sexual abuse.
Lindsay still alleged that she was molested at Michael’s residences and that
Michael breached his duty as a homeowner and parent, but she did not identify
him as the perpetrator.
At the time of the alleged acts, Michael’s Albuquerque residence was
insured by Liberty Mutual under a LibertyGuard Deluxe Homeowners Policy.
After Lindsay filed her initial complaint, Michael’s attorney contacted Liberty
Mutual to request that Liberty Mutual defend Michael in the lawsuit.
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Liberty Mutual denied Michael’s request and filed suit in federal court
seeking a declaratory judgment that it has no duty to defend or indemnify
Michael against Lindsay’s suit. 1 Liberty Mutual argued that Lindsay’s alleged
injuries were not caused by an “occurrence” as defined in Michael’s policy and
several policy exclusions precluded coverage for Lindsay’s claim—particularly
Exclusion 1.k, which excludes coverage for bodily injury arising out of sexual
molestation. Michael filed several counterclaims and both parties moved for
summary judgment on the question of whether Liberty Mutual had a duty to
defend or indemnify.
The district court granted summary judgment for Liberty Mutual. The
court concluded that Lindsay’s allegations constituted an “occurrence” under
Michael’s policy, but that the sexual molestation exclusion precluded coverage
for Lindsay’s claim.
II. Discussion
We review a grant of summary judgment de novo, applying the same
standard as the district court. Sabourin v. Univ. of Utah, 676 F.3d 950, 957 (10th
Cir. 2012).
New Mexico substantive law applies in this diversity case. To determine
whether an insurer has a duty to defend under New Mexico law, we compare the
allegations in the complaint with the terms of the insurance policy. Carolina
1 Shortly after Liberty Mutual filed its complaint, Michael and Lindsay settled the
underlying state court case during a court-ordered mediation.
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Cas. Ins. Co. v. Burlington Ins. Co., 951 F.3d 1199, 1209 (10th Cir. 2020) (citing
Lopez v. N.M. Pub. Schs. Ins. Auth., 870 P.2d 745, 747 (N.M. 1994)). An insurer
has a duty to defend if the complaint contains allegations of an occurrence that
potentially falls within the scope of the policy’s coverage. See Miller v. Triad
Adoption & Counseling Servs., Inc., 65 P.3d 1099, 1103 (N.M. Ct. App. 2003).
But an insurer has no duty to defend when a policy exclusion clearly applies.
W. Heritage Ins. Co. v. Chava Trucking, Inc., 991 F.2d 651, 656 (10th Cir. 1993)
(citing Ins. Co. of N. Am. v. Wylie Corp., 733 P.2d 854, 857 (N.M. 1987)).
In her amended complaint, Lindsay alleges the following facts to support
her claim that Michael breached his duty to keep his premises safe:
 “During Plaintiff’s childhood, beginning at a young age, Plaintiff was
repeatedly sexually molested at Defendant’s home in Albuquerque, New
Mexico and at Defendant’s vacation home in Pagosa Springs, Colorado”;
 “Plaintiff recalls these incidents of sexual molestation occurring over a
period of approximately eight years, from the time Plaintiff was five years-
old until she was twelve or thirteen years-old, approximately between the
years 2002 and 2010”;
 “Plaintiff was sexually molested at Defendant’s Albuquerque home
approximately two times per year, for eight years”;
 “Plaintiff was sexually molested at Defendant’s Colorado home once,
around 2009”; and
 “During each of these incidents Plaintiff was a child, and never did
Plaintiff initiate, invite or acquiesce to the sexual molestation.”
App., Vol. I at 204. The remaining paragraphs of the complaint do not contain
any factual allegations.
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Michael’s insurance policy with Liberty Mutual provides personal liability
coverage for certain claims based on bodily injury or property damage caused by
an “occurrence.” 2 Id. at 27. Relevant here, Exclusion 1.k of the policy excludes
coverage for bodily injury or property damage “[a]rising out of sexual
molestation, corporal punishment or physical or mental abuse[.]” Id. at 28.
Michael encourages us to read the amended complaint as alleging a stand-
alone negligence claim unconnected to the sexual molestation allegations. If the
complaint can be read as alleging a separate negligence claim, then Exclusion 1.k
would not preclude coverage because not all of Lindsay’s claims would arise out
of sexual molestation.
We decline to read the amended complaint this way. The only factual
allegations supporting Lindsay’s claim against Michael are those concerning
sexual molestation. Removing those allegations would leave us with only a bare
recitation of the elements of negligence, which is not enough to state a claim,
even under New Mexico’s generous notice pleading standards.
Because the only injuries described in the amended complaint are those
arising out of sexual molestation, Lindsay’s suit fits squarely within Exclusion
1.k of Michael’s insurance policy. Liberty Mutual therefore has no duty to
defend or indemnify Michael.
2 We assume without deciding that Lindsay’s alleged injuries were caused by an
“occurrence” as defined in Michael’s policy.
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Michael also contends that it was improper for the district court to hear this
case because the determination of whether an insurer has a duty to defend must be
made in the primary lawsuit and not in a collateral action, citing Lopez, 870 P.2d
at 746, as support. Michael’s reliance on Lopez is misplaced. In that case, the
New Mexico Supreme Court concluded the insurer had a duty to defend because
the court “cannot say as a matter of law that all of the personal injury claims in
the federal lawsuit arose from an act of sexual molestation that was excluded
from coverage.” Id.
The situation is different here. Lindsay’s only claim against Michael arises
from acts of sexual molestation. Thus, unlike the Lopez court, we can say as a
matter of law that all claims in the underlying lawsuit are excluded from
coverage.
III. Conclusion
We affirm the district court’s judgment.
Entered for the Court
Timothy M. Tymkovich
Chief Judge
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