United Financial Casualty Company v. A&R Services, LLC et al

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
UNITED FINANCIAL CASUALTY COMPANY,
Plaintiff,
v.
Case No. 2:25-cv-01321-MIS-JHR
A&R SERVICES, LLC; TODD M. LOPEZ, as
Personal Representative of the Estate of Alberto
Alvarez, Jr., Decedent; SANDRA ANCHONDO,
Individually and as Next Friend of A.A., a minor;
ANAHY ALVAREZ ANCHONDO; SUSAN
PATTEN, as Personal Representative of the Estate
of Israel Martinez, Decedent; MARY
MARTINEZ, Individually and on behalf of M.M,
A.O.M, and I.M.J, minor children; NITTY
DANIELLA MARTINEZ; SPUR ENERGY
PARTNERS, LLC; MICHAEL BISHOP,
Individually and as agent for Spur Energy
Partners; DOUGLAS BORING, Individually and
as agent for Spur Energy Partners; KIPPER
FOLMAR, Individually and as agent for Spur
Energy Partners; RENE QUINTANA,
Individually and on behalf of SDS Petroleum
Consultants, LLC; SDS PETROLEUM
CONSULTANTS, LLC; JOHN DOES I-V; JANE
DOES VI-X; BLACK AND WHITE
CORPORATIONS XI-XV; ABC
PARTNERSHIPS XVI-XX; AND XYZ
ORGANIZATIONS XXI-XXV,
Defendants.
ORDER GRANTING IN PART AND DENYING IN PART WRONGFUL DEATH
DEFENDANTS’ MOTION TO DISMISS
THIS MATTER is before the Court on the Wrongful Death Defendants’ (“Defendants”)
Motion to Dismiss (“Motion”), ECF No. 20, filed February 17, 2026.1 Plaintiff United Financial
1 The “Wrongful Death Defendants” include A&R Services, LLC, Todd M. Lopez, Sandra Anchondo,
Anahy Alvarez Anchondo, Susan Patten, Mary Martinez, and Nitty Daniella Martinez.
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Casualty Company (“UFCC”) filed a Response on March 3, 2026 (“Response”), ECF No. 29, to
which Defendants filed a Reply on March 17, 2026 (“Reply”), ECF No. 34. Upon review of the
Parties’ submissions, the record, and the relevant law, the Court will GRANT IN PART AND
DENY IN PART the Motion.
I. Background
UFCC filed this lawsuit under the Declaratory Judgment Act, 28 U.S.C. § 2201(a), seeking
a declaration that it owes no duty to defend and indemnify Defendant Spur Energy Partners LLC
(“Spur”) in connection with the deaths of Alberto Alvarez, Jr. and Israel Martinez. See Compl. ¶¶
23, 34, ECF No. 1. It appears that the following facts are undisputed for purposes of the instant
Motion.
a. Facts
Spur leased frac tanks from Defendant Gravity Oilfield Services LLC (“Gravity”) at an
oilfield site near Lovington, New Mexico. Compl. ¶ 24; Mot. at 2. After completing its use of the
frac tanks, Spur contracted with non-party A&R Services, LLC (“A&R Services”) to clean the
tanks for return to Gravity. Compl. ¶ 24; Mot. at 2. It appears that Alvarez, Jr. and Martinez were
the individuals responsible for cleaning the frac tanks on behalf of A&R Services. See Compl. ¶
24; Mot. at 2. Tragically, on June 26, 2022, they were found dead of asphyxia by hydrogen sulfide
inhalation inside one of the frac tanks. Compl. ¶¶ 23-24; Mot. at 2.
b. Insurance Policy
Prior to Alvarez, Jr. and Martinez’s deaths, UFCC issued a commercial auto policy to A&R
Services for the policy period of December 20, 2021 to December 20, 2022 (“Policy”). Id. ¶ 27.
The Policy contains both general liability and commercial auto coverage parts. Id. ¶ 28. Under
the commercial auto part, UFCC promises to pay damages for “bodily injury” for which an insured
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becomes legally responsible because of an accident arising out of the ownership, maintenance or
use of an insured auto. Id. ¶ 29. The commercial auto coverage part contains certain exclusions
that may apply to avoid a duty of defense or indemnity in the underlying wrongful death lawsuit,
including:
2. Contractual
Any liability assumed by an insured under any contract or agreement, unless the
agreement is an insured contract that was executed prior to the occurrence of any
bodily injury…”
However, this exclusion does not apply to liability for damages that an insured
would have in absence of the contract or agreement.
…
5. Employee Indemnification and Employer’s Liability
Bodily injury to:
a. An employee of any insured arising out of or within the course of:
(i) That employee’s employment by any insured; or
(ii) Performing duties related to the conduct of any insured business;
…
This exclusion applies:
a. Whether the insured may be liable as an employer or in any other capacity;
and
b. Any obligation to share damages with or repay someone else who must pay
damages because of the injury.
. . .
6. Fellow Employee
Bodily injury to:
a. A fellow employee of an insured injured while in the course of their
employment or while performing duties related to the conduct of your
business.
…
10. Pollution
Bodily injury…resulting from or caused by the actual, alleged or threatened
discharge, dispersal, seepage, migration, release, or escape of any pollutants:
a. That are, or that are contained in any property that is:
(i) Being transported or towed by, handled, or handled for movement
into, onto or from the insured auto.
(ii) Otherwise in the course of transit by or on behalf of the insured; or
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(iii) Being stored, disposed of, treated or processed in or upon the insured
auto;
b. Before the pollutants or any property in which the pollutants are contained
are moved from the place where they are accepted by the insured for
movement into or onto the insured auto; or
c. After the pollutants or any property in which the pollutants are contained
are moved from the insured auto to the place where they are finally
delivered, disposed of, or abandoned by the insured.
The above paragraph a of this exclusion does not apply to fuels, lubricants,
fluids, exhaust gases, or other similar pollutants that are needed for or result
from the normal electrical, hydraulic, or mechanical functioning of the insured
auto if:
(1) The pollutants escape, seep, migrate, or are discharged, dispersed, or
released directly from an insured auto part designed by its manufacturer
to hold, store, receive or dispose of such pollutants and is a part that
would be required for the customary operation of the insured auto; and
(2) The bodily injury…does not arise out of the operation of any equipment
listed in paragraphs b and c of the definition of auto.
The paragraphs b and c of this exclusion do not apply to accidents that occur
away from premises owned by or rented to an insured with respect to pollutants
not in or upon an insured auto if:
(1) The pollutants or any property in which the pollutants are contained are
upset, overturned, or damaged as a result of the maintenance or use of
the insured auto; and
(2) With the discharge, dispersal, seepage, migration, release or escape of
the pollutants is caused directly by such upset, overturn, or damage.
…
13. Operations
Bodily injury…arising out of the operation of:
a. Any equipment listed in paragraphs b and c of the definition of auto; or
b. Machinery or equipment that is on, attached to, or part of a land vehicle that
meets the definition of mobile equipment.
Policy at 10-13, ECF No. 1-3 at 20-23. The commercial general liability part also contains certain
exclusions that may apply to avoid a duty of defense or indemnity in the underlying lawsuit,
including:
2. Contractual Liability
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Bodily injury for which the insured is obligated to pay damages by reason
of the assumption of liability in a contract or agreement. This exclusion does
not apply to liability for damages:
a. That the insured would have in the absence of the contract or agreement.
…
5. Employer’s Liability
Bodily injury to:
a. An employee of any insured arising out of or within the course of:
(i) That employee’s employment by any insured; or
(ii) Performing duties related to the conduct of any insured’s business; or
b. The spouse, child, parent, brother or sister of that employee as a
consequence of paragraph a above.
This exclusion applies:
a. Whether the insured may be liable as an employer or in any other
capacity; and
b. To any obligation to share damages with or repay someone else who must
pay damages because of the injury.
This exclusion does not apply to liability assumed by the insured under an
insured contract.
6. Aircraft, Auto or Watercraft
Bodily injury…arising out of:
a. The ownership, maintenance, use or entrustment to others of any
aircraft, auto or watercraft owned or operated by, or rented, leased or
loaned to, any insured; or
b. Any auto you do not own, lease, hire, rent or borrow that is used in
connection with your business.
…
10. Pollution
Bodily injury…that would not have occurred in whole or in part but for the
actual, alleged or threatened discharge, dispersal, seepage, migration,
release, or escape of pollutants at any time.
ECF No. 1-3 at 50-60.
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c. Master Service Agreement
On January 8, 2020, A&R Services’ predecessor company, AR Services, LLC (“AR
Services”), entered into a Master Service Agreement (“MSA”) with Spur for the provision of
certain services relating to Spur’s operations. See Mot. at 4; MSA, ECF No. 1-4. Pursuant to that
agreement, AR Services agreed to “[d]efend, indemnify, and hold harmless” Spur against all
personal injury or wrongful death claims brought by AR Services employees or subcontractors
arising under the MSA. Mot. at 4; MSA ¶ 8(b). The MSA also required AR Services to name Spur
as an additional insured on its commercial liability policy. Mot. at 4; MSA ¶ 6.
In 2021, Alvarez, Jr. and his wife, Sandra Anchondo, became the owners and operators of
AR Services and renamed it A&R Services, LLC. Mot. at 5. In 2022, Spur requested that A&R
Services enter into a new MSA. Id. The 2022 MSA contains the same terms as the 2020 MSA,
but the 2022 MSA was apparently never signed. Id.
d. Underlying New Mexico and Texas lawsuits
On November 10, 2022, the Defendants in this case filed a wrongful death lawsuit against
Spur, some of Spur’s employees, and others in the First Judicial District Court for the County of
Santa Fe, New Mexico, Case No. D-101-CV-2022-02140 (“New Mexico Wrongful Death
Lawsuit”). See ECF No. 20-3. UFCC is defending Spur under a reservation of rights in that
lawsuit. Compl. ¶ 26.
On November 23, 2022, Spur filed a declaratory judgment action in the 125th Judicial
District Court of Harris County, Texas, Case No. 2022-76819 (“Texas Declaratory Judgment
Action”), seeking a judicial determination that AR Services owes defense and indemnity
obligations to Spur in connection with the New Mexico Wrongful Death Lawsuit pursuant to the
parties’ MSA. Mot. at 4; see also Texas Decl. J. Action First Am. Compl., ECF No. 29-2.
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On May 6, 2025, UFCC filed a Motion to Intervene in the New Mexico Wrongful Death
Lawsuit to assert a declaratory action regarding whether it is contractually obligated to defend and
indemnify Spur in that case. Mot. at 5; N.M. Wrongful Death Lawsuit Mot. to Intervene, ECF No.
20-12. The New Mexico state court denied the motion, finding “that issue is already pending
before the 125th District Court in Harris County, Texas[,]” and therefore the Texas court “has
priority jurisdiction over the matters raised in the proposed Complaint-In-Intervention.” ECF No.
20-14 ¶¶ 2-3. The New Mexico state court stated that UFCC “should seek to intervene in the
Harris County action[,]” but “if the Harris County Court fails to determine the [coverage] issue . .
. [UFCC] may re-file its Motion to Intervene with this court.” Id. ¶¶ 4-5. It does not appear that
UFCC moved to intervene in the Texas Declaratory Judgment Action.
e. This lawsuit
On December 30, 2025, UFCC filed this lawsuit seeking a declaration that it owes no duty
to defend or indemnify Spur in the New Mexico Wrongful Death Lawsuit. ECF No. 1. The
Complaint asserts that UFCC owes no coverage to Spur as an additional insured under the Policy,
id. ¶ 22, and even if Spur is considered to be insured under the Policy, the Policy’s exclusions
“exclude coverage under the factual allegations and other circumstances in the underlying suit
such that any coverage for purposes of defense or indemnity would be void[,]” id. ¶ 33.
On February 17, 2026, the Defendants filed the instant Motion to Dismiss. ECF No. 20.
UFCC filed a Response, ECF No. 29, to which Defendants filed a Reply, ECF No. 34.
II. Legal Standard
The federal declaratory judgment statute provides that “[i]n a case of actual controversy
within its jurisdiction . . . any court of the United States . . . may declare the rights and other legal
relations of any interested party seeking such declaration.” 28 U.S.C. § 2201(a). “[D]istrict courts
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are ‘under no compulsion’ to grant declaratory relief but have discretion to do so.” United States
v. City of Las Cruces, 289 F.3d 1170, 1180 (10th Cir. 2002) (quoting Brillhart v. Excess Ins. Co.
of Am., 316 U.S. 491, 494-95 (1942)).
The question for a district court presented with a suit under the Declaratory
Judgment Act, the [Brillhart] Court found, is “whether the questions in controversy
between the parties to the federal suit, and which are not foreclosed under the
applicable substantive law, can better be settled in the proceeding pending in the
state court.”
Travelers Cas. Ins. Co. of Am. v. A-Quality Auto Sales, Inc., 98 F.4th 1307, 1316 (10th Cir. 2024)
(quoting Wilton v. Seven Falls Co., 515 U.S. 277, 282 (1995)). In State Farm Fire & Casualty Co.
v. Mhoon, the Tenth Circuit espoused five factors district courts should consider when deciding
whether to exercise jurisdiction to grant declaratory relief:
[1] whether a declaratory action would settle the controversy; [2] whether it would
serve a useful purpose in clarifying the legal relations at issue; [3] whether the
declaratory remedy is being used merely for the purpose of “procedural fencing” or
“to provide an arena for a race to res judicata”; [4] whether use of a declaratory
action would increase friction between our federal and state courts and improperly
encroach upon state jurisdiction; and [5] whether there is an alternative remedy
which is better or more effective.
31 F.3d 979, 983 (10th Cir. 1994) (citation omitted). The first two Mhoon factors are often
considered together. See, e.g., Mid-Continent Cas. Co. v. Vill. at Deer Creek Homeowners Ass’n,
Inc., 685 F.3d 977, 982 (10th Cir. 2012); see also St. Paul Fire & Marine Ins. Co. v. Jones, Civil
Action No. 20-cv-0389-WJM-GPG, 2021 WL 5415869, at *3 (D. Colo. Nov. 19, 2021) (stating
that the first two Mhoon factors “are best considered together”).
III. Discussion
Defendants argue that the Court should abstain from issuing a declaratory judgment
because whether UFCC owes Spur coverage requires a determination of facts that are disputed and
being litigated in the New Mexico Wrongful Death Lawsuit. Mot. at 9. For example, how Alvarez,
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Jr. and Martinez were exposed to hydrogen sulfide and who bears legal responsibility for it is
relevant to whether the Contractual Liability exclusion applies, id. at 10-11; Martinez’s
relationship with A&R Services and the allocation of comparative fault are relevant to whether the
Employer’s Liability and Fellow Employee exclusions apply, id. at 11; what role the vacuum
trucks—which are used to clean the frac tanks—played in Alvarez, Jr. and Martinez’s deaths is
relevant to whether their deaths arose out of the ownership, maintenance, or use of an insured auto
triggering coverage under the Auto Coverage Part or, conversely, the CGL Coverage Part, id. at
12; and the source, mechanism, and timing of the hydrogen sulfide exposure is relevant to whether
the Pollution Exclusion applies, id. at 13-14. Defendants further argue that allowing this action to
proceed will impose an undue burden on the litigants and the courts, id. at 14-15, that this lawsuit
constitutes procedural fencing and a race to res judicata, id. at 15-16, and any procedural
disadvantage to UFCC is substantially outweighed by the prejudices and harm that will be suffered
by Defendants, id. at 17. Thus, they ask the Court to dismiss the case or, alternatively, stay it until
the underlying lawsuits resolve the factual issues. Id. at 18.
UFCC argues that declaratory relief does not require resolution of factual disputes at issue
in the underlying lawsuits because an insurer’s duty to defend is determined by the facts alleged
in the underlying complaint, and “[i]f the allegations of a complaint clearly fall outside the
provisions of the policy, neither defense nor indemnity is required.” Resp. at 6 (quoting Bernalillo
Cnty. Deputy Sheriffs Ass’n v. County of Bernalillo, 845 P.2d 789, 791 (N.M. 1992)). UFCC
further argues that the Mhoon factors favor this Court’s exercise of jurisdiction. Id. at 7-10. It
notes that the New Mexico state court denied its motion to intervene in the wrongful death case,
id. at 10, that it is not a party to the Texas Declaratory Judgment Lawsuit, and in any event that
case does not involve whether UFCC owes coverage to Spur, id. at 11. UFCC argues that the New
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Mexico state court “mis-applied the principle of ‘Priority Jurisdiction’ relative to the Harris County
suit” because, for example, “[t]he Harris County suit does not address UFCC’s policy defenses,
nor does it even mention the UFCC policy language.” Id. at 11-12.
In their Reply, Defendants argue that the Court cannot determine UFCC’s coverage
obligations based on the underlying complaint alone. ECF No. 34 at 2. Specifically, they argue
that: (1) comparing the underlying complaint with the Policy can, at most, address the duty to
defend, but not the duty to indemnify; and (2) even as to the duty to defend the complaint is not
the sole source of information. Id. (citing Am. Gen. Fire & Cas. Co. v. Progressive Cas. Co., 799
P.2d 1113, 1116 (N.M. 1990)). They argue that the duty to defend “may evolve as litigation
progresses and as additional facts come to light.” Id. (citing Am. Gen. Fire & Cas., 799 P.2d at
1116; Pulte Homes of N.M., Inc. v. Ind. Lumbermens Ins. Co., 367 P.3d 869, 873 (N.M. Ct. App.
2015)); see also id. at 6-7. They argue that a coverage determination at this juncture would be
premature. Id. at 3 (citations omitted). Defendants further argue that the Texas Declaratory
Judgment Action provides a more appropriate forum for UFCC’s claims, id. at 3-4, and this Court
should not revisit the New Mexico state court’s determination that UFCC should seek to intervene
in that case, id. at 4. They further argue that this procedural posture supports a finding that UFCC
is engaging in procedural fencing, id. at 5, and that the fact that UFCC is not a party in the
underlying lawsuits is not dispositive under Mhoon. Id. at 7.
For the reasons that follow, the Court finds that the Mhoon factors weigh in favor of
exercising jurisdiction over this declaratory judgment action, but that the case should be partially
stayed to avoid friction with the New Mexico state court in the underlying wrongful death lawsuit.
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a. First Mhoon factor: A declaratory judgment would settle the controversy
As to the first Mhoon factor, this action will fully settle whether UFCC has a duty to defend
and/or indemnify Spur with regard to the claims asserted in the New Mexico Wrongful Death
Lawsuit. Whatever the outcome, the controversy between UFCC and Defendants will be resolved.
As such, this factor weighs in favor of exercising jurisdiction. See Liberty Mut. Pers. Ins. Co. v.
Prutsman, Civil Action No. 1:23-cv-02615-RMR-SBP, 2024 WL 3341002, at *6 (D. Colo. June
10, 2024) (finding that the first Mhoon factor favored exercising jurisdiction because “[w]hatever
the outcome, the controversy between Liberty Mutual and Defendants concerning the duties to
defend and indemnify in the Underlying Litigation will be resolved”); N.H. Ins. Co. v. TSG Ski &
Golf, LLC, Civil Action No. 21-cv-01873-CMA-NYW, 2022 WL 1184547, at *4 (D. Colo. Apr.
21, 2022) (finding that the first Mhoon factor favored exercising jurisdiction because “the instant
action would fully settle the controversy of whether Plaintiffs have a duty to defend or indemnify
Defendants from the claims asserted in the Underlying Complaint”).
b. Second Mhoon factor: A declaratory judgment would clarify the legal relations
at issue
For the same reason, the Court finds that the second Mhoon factor weighs in favor of
exercising jurisdiction: a determination regarding UFCC’s coverage obligations will undoubtedly
serve a useful purpose in clarifying the legal relations at issue. See Addison Ins. Co. v. Rippy,
Civil Action No. 08–cv–00237–PAB–MJW, 2009 WL 723322, at *5 (D. Colo. Mar. 18, 2009)
(finding that first two Mhoon factors weighed against dismissing or staying the case and
recognizing that “because determining the duties of insurers represents an intended and important
application of the Declaratory Judgment Act, adjudication by this Court of [the insurer’s] claims
would serve a useful purpose in clarifying the legal relations at issue in this case”); see also Jones,
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2021 WL 5415869, at *3 (finding that the first two Mhoon factors weighed against staying the
case); Prutsman, 2024 WL 3341002, at *6-7 (finding that the first two Mhoon factors weighed
against dismissing or staying the case).
3. Third Mhoon factor: No indication of procedural fencing
As to the third Mhoon factor, the Court is unpersuaded that the procedural posture of this
case supports a finding of procedural fencing. “[T]he court discerns no sinister motives on the part
of [UFCC] by its utilization of a declaratory action to establish nonliability under the Policy—an
approach long-recognized as ‘one of the prime purposes of the Declaratory Judgment Act.’”
Prutsman, 2024 WL 3341002, at *7 (quoting W. Cas. & Sur. Co. v. Teel, 391 F.2d 764, 767 (10th
Cir. 1968)). “There is no evidence that Plaintiffs are using the federal claim to avoid a negative
outcome in the state case, and a general assertion that Plaintiffs are trying to avoid further fact
development does not rise to the level of procedural fencing.” W. Am. Ins. Co. v. Atyani, 338 F.
Supp. 3d 1227, 1233 (D.N.M. 2018). Indeed, the fact that UFCC first attempted to intervene in
the underlying New Mexico Wrongful Death Lawsuit before filing this federal declaratory
judgment action undercuts the argument that UFCC is engaging in procedural fencing or seeking
an arena for the race to res judicata; it is simply looking for a forum to determine its coverage
responsibilities now that the New Mexico state court has declined to do so.
The fact that UFCC chose not to move to intervene in the Texas Declaratory Judgment
Action does not raise the Court’s suspicions. In this regard, the Court respectfully disagrees with
the New Mexico state court’s finding that the Texas state court has priority jurisdiction over
UFCC’s coverage obligations. The elements of priority jurisdiction are:
(1) the two suits must involve the same subject matter or the same cause of action,
(2) the two suits must involve the same parties, (3) the first suit must have been
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filed in a court of competent jurisdiction in the same state, and (4) the rights of the
parties must be capable of adjudication in the first-filed action.
Cruz v. FTS Constr. Inc., 142 P.3d 365, 368 (N.M. Ct. App. 2006). The Texas Declaratory
Judgment Action does not involve the same subject matter as asserted here (or in the proposed
complaint-in-intervention in the New Mexico Wrongful Death Lawsuit). See Mot. at 5 (stating
that the proposed complaint-in-intervention “is largely the same as the initiating complaint in this
action”). The Texas case involves only whether AR Services and/or A&R Services owe a duty to
defend and indemnify Spur under the terms of the MSA; it does not seek a declaration that UFCC
owes a duty to defend of indemnify Spur under the terms of the Policy. See Texas Decl. J. Action
First Am. Compl. ¶ 35, ECF No. 29-2. A determination that AR Services and/or A&R Services
owe a duty to defend and indemnify Spur under the MSA will not answer whether UFCC owes a
duty to defend and indemnify Spur under the Policy; the Texas court is not asked to determine
whether Spur is an additional insured under the Policy or whether certain exclusions preclude
coverage under the Policy. See id. Regardless, the Court finds nothing improper about UFCC
pursuing a coverage determination in a federal forum rather than moving to intervene in the Texas
action.
For these reasons, the Court cannot find that the third Mhoon factor weighs against
exercising federal jurisdiction.
d. Fourth Mhoon factor: A declaratory judgment may encroach upon state
jurisdiction
However, as to the fourth Mhoon factor, while the Court likely can determine UFCC’s duty
to defend Spur without creating friction with the New Mexico and Texas state courts, a
determination as to UFCC’s duty to indemnify would encroach upon the state court and is
premature.
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“The limitation that the fourth Mhoon factor places on the federal inquiry is that the federal
action may not unduly interfere with the underlying state court action.” Rippy, 2009 WL 723322,
at *5. “Under Mhoon, a federal district court should stay or dismiss an anticipatory declaratory
judgment action which requires the court to make a factual finding that likely will be made, and
will be material, in the underlying state court action.” Id. at *6.
“In New Mexico, the duty to defend is distinct from the duty to indemnify.” Atyani, 366
F. Supp. 3d at 1274 (citing Found. Reserve Ins. Co. v. Mullenix, 642 P.2d 604, 605 (1982)). “The
duty to defend is broader than the duty to indemnify and may exist ‘even if [an insurer] can show
in [a] collateral proceeding that it has no duty to pay under the terms of the policy.’” Id. (quoting
Mullenix, 642 P.2d at 605). “The duty of an insurer to defend arises from the allegations on the
face of the complaint or from the known but unpleaded factual basis of the claim that brings it
arguably within the scope of coverage.” Am. Gen. Fire & Cas., 799 P.2d at 1116.
However, “[a] court will ‘leave[] for later’ determination whether the insurer must
indemnify the insured, because that ‘ultimate determination is based on whether the insurer
became legally obligated to pay damages because of a bodily injury . . . that does, in fact, fall under
the policy coverage.’” Hartford Fire Ins. Co. v. Gandy Dancer, LLC, 864 F. Supp. 2d 1157, 1193
(D.N.M. 2012) (quoting 12 Couch on Insurance § 172:2 (Supp. 2011)). Indeed, the determination
of whether an insurer owes a duty to indemnify “requires the resolution of material facts by the”
trial court. City of Albuquerque v. BPLW Architects & Eng’rs, Inc., 213 P.3d 1146, 1155 (N.M.
Ct. App. 2009). Although “highly improbable[,]” a duty to indemnify may exist even if a duty to
defend does not. See Valley Improvement Ass’n v. U.S. Fid. & Guar. Corp., 129 F.3d 1108, 1126
(10th Cir. 1997) (citing Culp v. Nw. Pac. Indem. Co., 365 F.2d 474, 478 (10th Cir. 1966)); see also
Harbin v. Assurance Co. of Am., 308 F.2d 748, 750 (10th Cir. 1962) (observing that the New
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Mexico Rules of Civil Procedure track the Federal Rules of Civil Procedure, and under the Federal
Rules of Civil Procedure “the pleadings are not determinative of the issues, and . . . recovery may
be had on grounds not asserted in the complaint”; therefore, “[t]he possibility that recovery in the
state court action may be within the policy coverage cannot be ignored”)).2
The Court finds that it likely can determine whether UFCC owes the duty to defend Spur
without encroaching on the New Mexico or Texas state courts. Specifically, the Court can
determine—without resolving material facts at issue in the New Mexico Wrongful Death Lawsuit
or the Texas Declaratory Judgment Action—whether (1) Spur is an additional insured under the
Policy and, if so, (2) whether the allegations in the underlying complaint and the known, but
unpleaded, factual basis of the claims brings it arguably within the scope of coverage. The Court
is unpersuaded that additional facts may be discovered that affect UFCC’s duty to defend Spur.3
2 To the extent that the Tenth Circuit’s interpretation of New Mexico law in Harbin and Valley
Improvement are inconsistent with the Supreme Court of New Mexico’s statement in Bernalillo County Deputy
Sheriffs Association that “[i]f the allegations of the complaint clearly fall outside the provisions of the policy, neither
defense nor indemnity is required[,]” 845 P.2d at 791, this Court is bound by the Tenth Circuit’s interpretation of New
Mexico law. See Wankier v. Crown Equip. Corp., 353 F.3d 862, 866 (10th Cir. 2003) (stating that “when a panel of
this Court has rendered a decision interpreting state law, that interpretation is binding on district courts in this circuit,
and on subsequent panels of this Court, unless an intervening decision of the state’s highest court has resolved the
issue”). This Court observes that in Farmers, Inc. v. Dal Machine & Fabricating, Inc., the Supreme Court of New
Mexico cited Harbin with approval, stating: “The pleadings, however, are not dispositive of the issues, and recovery
may be founded on other grounds not specifically stated in the complaint.” 800 P.2d 1063, 1066 (N.M. 1990). Thus,
it appears that Harbin correctly interpreted New Mexico law. See also G & G Servs., Inc. v. Agora Syndicate, Inc.,
993 P.2d 751, 758 (N.M. Ct. App. 1999).
3 However, as this case progresses, the Court will revisit the appropriateness of a stay of the duty to
defend issue as necessary. See Liberty Mut. Fire Ins. Co. v. Qwest Corp., Civil Action No. 24-cv-02626-NYW-KAS,
2025 WL 2636547, at *8 (D. Colo. Sep. 12, 2025) (“As this case progresses, the Court will revisit the appropriateness
of a stay or dismissal of Liberty’s declaratory claims as necessary. For now, though, the Court finds that it can resolve
the threshold issues in this case and determine Liberty’s duty to defend without encroaching on state court
jurisdiction.”) (citation omitted); N.H. Ins. Co. v. TSG Ski & Golf, LLC, Civil Action No. 21-cv-01873-CMA-NYW,
2022 WL 1184547, at *6 (“[W]hile the fourth Mhoon factor weighs against Defendants’ requested relief at this stage,
the Court agrees with other courts from this district that reconsideration of dismissal or a stay may be warranted if the
case evolves such that the Court must make factual determinations that may affect the Underlying Case or prejudice
Defendants.”).
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However, in order to determine whether UFCC owes the duty to indemnify Spur, the Court
would have to determine whether certain Policy exclusions apply. To determine whether certain
exclusions apply, the Court would have to determine how Alvarez, Jr. and Martinez were exposed
to hydrogen sulfide and who bears legal responsibility for it. These findings will be made, and
will be material, in the New Mexico Wrongful Death Lawsuit. Consequently, this factor favors
abstaining until after the New Mexico Wrongful Death Lawsuit is resolved. See Valley
Improvement, 129 F.3d at 1126 (holding, under New Mexico law, that “the duty to indemnify must
be determined based on the facts as ultimately determined in the litigation against the insured”).
e. Fifth Mhoon factor: Best way to proceed is to stay duty to indemnify issue and
proceed with duty to defend issue
Having found that resolution of UFCC’s duty to defend would not improperly encroach on
the New Mexico and Texas state courts, but that resolution of the duty to indemnify would be
premature, the final Mhoon factor looks to whether there is an alternative remedy which is better
or more effective. 31 F.3d at 983. The Court finds that exercising jurisdiction but bifurcating this
action is the appropriate remedy. See C. H. Heist Caribe Corp. v. Am. Home Assur. Co., 640 F.2d
479, 483 (3d Cir. 1981) (holding that the insurer owed a duty to defend based on the allegations of
the underlying complaint but that a determination on the duty to indemnify would be premature
because “[a]ctual indemnification depends upon the existence or nonexistence of facts not yet
established”). The Court will permit UFCC to file a dispositive motion limited to its duty to
defend, and the Court will stay this action as to UFCC’s duty to indemnify until after the New
Mexico Wrongful Death Lawsuit has concluded.4
4 The Court’s Standing Order Regarding Motions for Summary Judgment and Motions in Limine—
which, inter alia, limits each party to filing one motion for summary judgment—is hereby vacated in part and solely
to permit UFCC to file separate motions for summary judgment on the duty to defend and the duty to indemnify, if
necessary after the New Mexico Wrongful Death Lawsuit has concluded.
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IV. Conclusion
Therefore, it is HEREBY ORDERED that:
1. The Wrongful Death Defendants’ Motion to Dismiss, ECF No. 20, is GRANTED
IN PART AND DENIED IN PART consistent with this Order;
2. UFCC shall have until and including May 15, 2026, to file a dispositive motion
regarding its duty to defend only; and
3. This action is STAYED with regard to UFCC’s duty to indemnify until the
underlying wrongful death lawsuit had been resolved.
………………………………………….
MARGARET STRICKLAND
UNITED STATES DISTRICT JUDGE
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