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Even the creative appeal for attempts to lose insurance money Sexual abuse is never covered



I Liberty Mutual Fire Insurance Company v. Lindsay Lyons and Michael William Lyons, 1: 19-cv-1053 JAP / SCY, U.S. District Court of New Mexico District (September 25, 2020) USDC faced a claim for coverage for defense and damages in substance that seeks damages for sexual assault – an act that can never be conditional or unintentional. The mutual fire insurance company ("Liberty Mutual") filed a complaint for declaratory judgment ("complaint") seeking a declaration that it has no obligation to defend or injure Michael William Lyons ("Mr. Lyons") in the state trial ("underlying trial") brought against Mr. Lyons by his daughter, Lindsay Lyons ("Lindsay"). Lyons contended that he was entitled to a declaratory judgment that Liberty Mutual had breached his obligation to defend him in the underlying trial and was therefore liable to pay him the costs of the defense and the full value of the settlement reached in it. underlying trial. Both parties filed for summary judgment.

Lindsay filed a personal injury complaint ("original complaint") against Mr. Lyons, her father, in New Mexico's Second District Court. Lindsay claimed that she “has repeatedly been sexually abused by Mr. Lyons from the time she was five years old until her teens. She claimed that she suffered "severe emotional distress and serious psychological and financial damage and injuries" as a result of Mr. Lyons actions. During the period in question, Mr. Lyons a LibertyGuard Deluxe Homeowner Policy ("Policy") with Liberty Mutual who insured their Albuquerque home.

Later, in the face of Liberty's unwillingness to provide coverage, Lindsay filed an Amended Complaint against Mr. Lyons. The amended complaint went on to claim that Lindsay was "sexually abused" repeatedly at Lyons' home in Albuquerque and Pagosa Springs, but dismissed allegations that it was Lyons who abused her.

Liberty eventually advised Mr. Lyon's lawyer that "based on the allegations in the complaint from Lindsay Lyons, the known facts at this time [,] and a review of applicable insurances," Liberty Mutual denied Mr. Lyons' request for defense and compensation in the underlying trial. Liberty Mutual stated that it was concluded that there was no coverage under the policy for the claims that Lindsay made in the underlying trial. It cited, among other things, the allegations of the applicability of an exclusion that "excludes coverage for" sexual abuse, corporal punishment or physical or mental abuse. Lyons participated in a court hearing in the underlying lawsuit and eventually reached an agreement with Lindsay and then requested from Liberty the settlement amount and defense costs.

DISCUSSION

The central question before the court is whether Liberty Mutual had an obligation to defend Mr. Lyons in the underlying trial. Liberty Mutual argued that even if coverage was triggered, any of several exceptions clearly took all potential claims outside policy coverage, thereby relieving Liberty Mutual of its obligation to defend.

The amended complaint alleged an "occurrence" within policy coverage [1
9659010] In the relevant part, the policy included coverage for personal liability for "bodily injury" caused by a covered "event [.]" The amended complaint generally and passively claims that Lindsay " was sexually abused "but does not identify any specific perpetrator.

Although it seemed to the Court that the amended complaint may have been revised as it was solely to cover the insurance revenue – a method of formulating that the Court found it questionable – Liberty Mutual still, erroneously, relied on facts which did not appeal its assertion that the amended complaint did not state an assertion of an "event" within policy coverage.

The Court concludes that the amended complaint alleges facts alleging bodily injury caused by a covered event, which means that Liberty Mutual had an obligation to defend Lyons unless an exception clearly takes the claim outside the scope of the policy.

Exclusion 1.k Applies to and excludes coverage for Lindsay's claims

Exception 1.k prescribes that coverage for personal liability "does not apply to" bodily injury ". . . [a] emerges from sexual abuse, corporal punishment or physical or mental abuse [.] ”(emphasis added) Neither party argues that exclusion 1.k is ambiguous or unclear. It clearly informs the insured about claims for “bodily injury. . . [a] rises out of sexual abuse ”- whether it is alleged to have been committed by the insured or any other party – is excluded from coverage.

The actual allegations underlying Lindsay's allegation relate to all sexual assaults. The amended complaint contains no other factual allegations, only legal conclusions that set out the elements of Lindsay's claim for damages against Mr. Lyons. Although the state's liberal rules on notice do not require specific evidentiary information to be alleged in the complaint, the court found that at least one actual predicate of a claim must be stated in the complaint in order to give the defendant a fair notice of the claim.

The only averages that provide sufficient factual detail to give a fair notice of a claim are all related to Lindsay's allegations of sexual assault.

Mr. Lyon's allegation that the amended complaint could be interpreted as a general allegation of negligence completely unrelated to Lindsay's allegations of sexual assault is not available. He has not pointed to any factual allegations that even possibly indicate that Lindsay had raised another claim of negligence against Mr. Lyons based on alleged bodily harm resulting from anything other than sexual assault.

While an insurance company has an obligation to defend where it knows of unprocessed facts that give a claim within the insurance coverage, the insurer may not be obliged to defend itself against a theoretical "claim" based on facts that are neither known to the insurer nor relied on in the complaint.

Since the alleged facts in the amended complaint were communicated to a single claim for damages as a result of alleged sexual abuse, Liberty Mutual had no obligation to defend as Exclusion 1.k clearly excludes such a claim from policy coverage. And since Liberty Mutual had no obligation to defend Lyons, it has no obligation to replace him either.

The Court noted that the amended complaint may have been revised because it was for the sole purpose of reaching the insurance company, it failed to rule based on the misconduct because it found a clear and unequivocal exclusion of sexual abuse, regardless of the allegations of the complaint and the changed the complaint, and tried to appeal the exclusion. In my humble opinion, the court should have sanctioned the lawyers who wrote about the pleadings with the obvious intention of deceiving the court. It seems that the court found that granting Liberty's draft summary judgment was a sufficient punishment. The defense was so obvious that the lawsuit would never have been filed. handling of insurance claims, fraud and insurance fraud almost equally for insurers and policyholders. He also acts as an arbitrator or mediator for insurance-related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims lawyer and more than 52 years in the insurance industry. He can be found at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine / ACE Legend Award.

For the past 52 years, Barry Zalma has devoted his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following libraries with books and other materials to enable insurers and their claims staff to become insured.

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