UNITED STATES COURT OF APPEALS December 30, 2022

Christopher M. Wolpert FOR THE TENTH CIRCUIT Clerk of Court _________________________________

EVANSTON INSURANCE COMPANY,

Plaintiff - Appellant,

v. No. 21-2145

DESERT STATE LIFE MANAGE- MENT; CHRISTOPHER MOYA, in his capacity as Receiver for the receiver- ship estate of Desert State Life Man- agement; PAUL A. DONISTHORPE; L. HELEN BENNETT; LIANE KERR; AYUDANDO GUARDIANS, INC., a New Mexico nonprofit corporation, on behalf of seven protected persons; JO- SEPH PEREZ; CHRISTINE GALLEGOS, individually and as Guardian of Victor Baldizan, an inca- pacitated adult; SCOTT K. ATKIN- SON, as Guardian ad Litem for Vin- cent Esquibel, Jr., an incapacitated person; CHARLES REYNOLDS, as Conservator for J.W., an incapacitated person; CAMERON GRAHAM, as Trustee for Andrew Graham; AS- CENDING HOPE, LLC; CNRAG, INC.; DECADES, LLC,

Defendants - Appellees. _________________________________

Appeal from the United States District Court for the District of New Mexico (D.C. No. 1:18-CV-00654-JB-KK) _________________________________ Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 2

Thomas C. Bird of Jennings Haug Keleher McLeod, Albuquerque, New Mexico (Ann Maloney Conway and Julianna T. Hopper of Jennings Haug Keleher McLeod, Albuquerque, New Mexico; Joseph J. Borders of McJessy, Ching & Thompson, Chicago, Illinois, with him on the brief) for Plaintiff-Appellant.

Maureen A. Sanders of Sanders & Westbrook, Albuquerque, New Mexico, for Defendant-Appellee L. Helen Bennett; Frank T. Davis of Harrison Hart & Davis, Albuquerque, New Mexico, for Defendants-Appellees Joseph Perez, Christine Gallegos, Scott K. Atkinson, Charles Reynolds, and Cameron Graham. _________________________________

Before TYMKOVICH, BRISCOE, and PHILLIPS, Circuit Judges. _________________________________

PHILLIPS, Circuit Judge. _________________________________

Evanston Insurance Company appeals from a bench trial on an

insurance-coverage dispute. After determining that Evanston failed to timely

rescind the policy and that a policy exclusion did not apply, the district court

required Evanston to continue defending Desert State Life Management against

a class action arising from its former CEO’s embezzlement scheme. Though we

agree with the district court that rescission was untimely, we disagree about the

likely application of New Mexico law on applying policy exclusions. For the

following reasons, we affirm in part, reverse in part, and remand for the court

to enter judgment for Evanston.

2 Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 3

BACKGROUND

I. Factual Background 1

Four things underlie this appeal: Paul Donisthorpe’s application for the

Evanston insurance policy, his embezzlement scheme, the former clients’ class

action, and Evanston’s response to Donisthorpe’s misconduct.

Desert State Life Management was a New Mexico trust corporation that

acted as a trustee for disabled individuals. From 2008 to March 2017,

Donisthorpe served as its CEO. In October 2016, Donisthorpe applied for an

Evanston professional-liability insurance policy on Desert State’s behalf.

Donisthorpe answered “no” to the following application question:

Is the applicant [Desert State] or any principal, partner, owner, of- ficer, director, employee, manager or managing member of the Ap-