c ir-641.—if 

DA 21-0273

IN THE SUPREME COURT OF THE STATE OF MONTANA

2022 MT 68

R.S. and D.S.,

 Plaintiffs and Appellants,

 v.

UNITED SERVICES AUTOMOBILE

ASSOCIATION,

 Defendant and Appellee.

APPEAL FROM: District Court of the Thirteenth Judicial District,

In and For the County of Yellowstone, Cause No. DV 20-0846

Honorable Jessica T. Fehr, Presiding Judge

COUNSEL OF RECORD:

For Appellants:

Jonathan McDonald, McDonald Law Office, PLLC, Helena, Montana

John Heenan, Joseph P. Cook, Heenan & Cook, Billings, Montana

For Appellee:

David M. McLean, Ryan C. Willmore, McLean & Associates, PLLC, 

Missoula, Montana

Submitted on Briefs: March 16, 2022

 Decided: April 5, 2022

Filed:

__________________________________________

Clerk

04/05/2022

Case Number: DA 21-0273
2

Chief Justice Mike McGrath delivered the Opinion of the Court.

¶1 R.S. and D.S. appeal a May 28, 2021 order from the Thirteenth Judicial District 

Court in Yellowstone County denying their motion for summary judgment and granting 

summary judgment to United Services Automobile Association (USAA). R.S. and D.S. 

(Appellants) had filed a complaint alleging USAA violated its duty to defend one of its 

insured policy-holders, Shawn Conrad, against whom Appellants had obtained a judgment. 

¶2 We restate the issue on appeal as follows:

Did the District Court err in finding that Conrad’s insurance policy with USAA 

created no duty for USAA to defend him against Appellants’ claims?

¶3 We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

¶4 R.S. is a minor. At Conrad’s home, she took a shower and discovered hidden 

cameras that Conrad had placed to film her doing so. Her mother, D.S., reported the matter 

to law enforcement, and the federal government later charged Conrad with child sexual 

exploitation and possession of child pornography. Conrad pleaded guilty to the latter 

charge and was incarcerated.

¶5 Appellants subsequently filed a civil case against Conrad. They alleged that Conrad 

invaded R.S.’s privacy, and they alleged that Conrad negligently or intentionally inflicted 

emotional distress on both R.S. and D.S. In that proceeding, Appellants secured a $500,000 

judgment against Conrad. Conrad lacked assets to satisfy the whole judgment. 

¶6 Conrad did have a homeowners insurance policy with United Services Automobile 

Association (USAA). The policy included some personal liability coverage. In the civil 
3

case, Conrad had asked USAA to defend him against the invasion of privacy and emotional 

distress claims. USAA declined. The insurance company sent Conrad a letter detailing 

several reasons for the denial. It noted that Conrad’s policy described coverage for any 

“occurrence” that led to “bodily injury.” The policy explicitly defined an “occurrence” as 

“an accident,” and the clause defining “bodily injury” stated that it “does not include mental 

injuries such as[] emotional distress.” USAA explained that its denial was based in part 

on the fact that Conrad’s conduct surreptitiously filming the child was intentional—and 

thus was not an “accident” or “occurrence”—and that the emotional distress claims from 

Appellants would not count as “bodily injury.”

¶7 Furthermore, USAA noted that Conrad’s policy contained a sexual misconduct 

exclusion. This section of the policy excluded personal liability and medical payments 

coverage for bodily injury “arising out of any actual, alleged, or threatened: (1) sexual 

misconduct; or (2) sexual harassment; or (3) sexual molestation.” USAA noted that this 

exclusion would also eliminate its duty to defend against injuries alleged in Conrad’s case.

¶8 As part of the $500,000 consent judgment, Conrad assigned any claims he might

have against USAA to Appellants. Appellants then sued USAA to collect from it on their 

judgment against Conrad. They alleged that USAA had violated its duty to defend Conrad 

in the earlier lawsuit. Noting that the facts were not in dispute and the case turned on purely 

questions of law regarding the duty to defend and the interpretation of USAA’s policy, 

Appellants moved the District Court for summary judgment. 

¶9 USAA also moved for summary judgment, citing the same reasons it had provided 

in its letter denying Conrad’s request for a defense. Appellants raised several arguments 
4

for why the District Court should find USAA’s interpretation incorrect. They asserted that 

USAA did have a duty to defend because the quoted sections of the policy did not 

unequivocally demonstrate that Conrad’s conduct was beyond the scope of coverage. 

Appellants argued that since Conrad did not intend for the camera to be discovered, he did 

not intend their resulting emotional distress, making it an “accident” and thus a covered 

“occurrence.” They noted that their amended complaint described physical symptoms 

resulting from the emotional distress, which would count as bodily injury. They also 

argued that it was ambiguous whether the phrase “arising out of sexual misconduct” would 

apply to Conrad’s situation and that considering this ambiguity, USAA had a duty to appear 

in his defense. 

¶10 The District Court analyzed each of these arguments, and it granted summary 

judgment to USAA, determining that USAA had no duty to defend Conrad because his 

conduct against Appellants did not fall within the scope of the policy’s coverage. R.S. and 

D.S. appeal.

STANDARD OF REVIEW

¶11 We review summary judgment rulings de novo, taking up the district court’s task 

anew and applying the same criteria. Lucas v. Stevenson, 2013 MT 15, ¶ 12, 368 Mont. 

269, 294 P.3d 377. For summary judgment to be appropriate, there must be no genuine 

issues of material fact in dispute, and one party must be entitled to judgment as a matter of 

law. M. R. Civ. P. 56(c)(3).
5

DISCUSSION

¶12 Did the District Court err in finding that Conrad’s insurance policy with USAA 

created no duty for USAA to defend him against Appellants’ claims?

¶13 We conclude that the sexual misconduct exclusion in the policy resolves the 

question and eliminates the need to address Appellants’ other arguments. The clause 

excluding coverage for claims “arising out of sexual misconduct” is not ambiguous. The 

presence of this clause in Conrad’s policy unequivocally demonstrates that the factual 

allegations in Appellants’ civil case against him would fall within the policy’s exclusion, 

precluding any duty for USAA to defend Conrad.

¶14 Montana law permits parties to an insurance contract to include provisions that 

exclude certain coverages. Newbury v. State Farm Fire & Cas. Ins. Co., 2008 MT 156, 

¶ 36, 343 Mont. 279, 184 P.3d 1021. As long as the exclusion applies to coverage that is 

not mandatory—like certain motor vehicle liability coverages are—it falls within the 

discretion of the parties whether to include it. Newbury, ¶ 36. Here, the extent of the 

personal liability coverage in Conrad’s homeowners policy with USAA falls within the 

discretion of the parties to the insurance contract.

¶15 When a legal complaint against an insured alleges facts that would result in coverage 

if proven true, the insurer has a duty to defend the insured. Tidyman’s Mgmt. Servs. v. 

Davis, 2014 MT 205, ¶ 22, 376 Mont. 80, 330 P.3d 1139. This duty is independent of any 

potential obligation to indemnify the insured, and it can arise when the insurer receives 

notice that a covered risk is alleged to have occurred, as with Conrad’s letter requesting a 

defense from USAA here. Tidyman’s, ¶ 22; Farmers Union Mut. Ins. Co. v. Staples, 2004 
6

MT 108, ¶ 21, 321 Mont. 99, 90 P.3d 381. The duty to defend incurs when coverage under 

a policy is “potentially implicated,” and to avoid the duty, an insurer must provide an 

“unequivocal demonstration that the claim against the insured does not fall under the 

policy’s coverage.” Tidyman’s, ¶¶ 23, 27 (citing Staples, ¶¶ 20-24); Farmers Union Mut. 

Ins. Co. v. Rumph, 2007 MT 249, ¶ 14, 339 Mont. 251, 170 P.3d 934. 

¶16 When interpreting an insurance policy, we read the policy as a whole and attempt 

to give each part its meaning and effect. Newbury, ¶ 19. We read the terms and words by 

giving them their usual meaning and construing them using common sense. Mitchell v. 

State Farm Ins. Co., 2003 MT 102, ¶ 26, 315 Mont. 281, 68 P.3d 703. “Policy exclusions 

must be construed narrowly in recognition of the fundamental protective purpose of an 

insurance policy and the obligation of the insurer to provide a defense.” Tidyman’s, ¶ 23. 

“If the parties dispute the meaning of a term, we determine whether the term is ambiguous 

by viewing the policy from the viewpoint of a consumer with average intelligence not 

trained in the law or insurance business.” Newbury, ¶ 19 (citing Montana Petroleum Tank 

Release Comp. Bd. v. Crumleys, Inc., 2008 MT 2, ¶ 34, 341 Mont. 33, 174 P.3d 948). 

¶17 Appellants argue that the sexual misconduct exclusion in Conrad’s policy does not 

provide an unequivocal demonstration that their claims are beyond the policy’s scope of 

coverage. First, they contend that it is ambiguous whether hiding cameras in showers is 

the kind of “sexual misconduct” the clause works to exclude. Second, they argue that the 

phrase “arising out of” is ambiguous and leaves room for the facts of this case to be covered 

by the policy. 
7

¶18 Appellants’ first argument hinges on the fact that USAA did not specifically define 

“sexual misconduct” in its policy. They cite to insurance policies that were the subject of 

litigation in other jurisdictions and that explicitly defined “sexual misconduct” in physical

terms or in terms of leading to a “sexual act.”1 Appellants argue that if some insurers define 

the exclusion in those ways, while USAA argues for a broad definition that would include 

secretly videotaping a child, then it must at least be ambiguous. 

¶19 Using common sense and giving the words their usual meaning, however, we 

conclude that what Conrad did was unambiguously “sexual misconduct.” Secretly 

recording video of a minor showering is creating child pornography—an act 

unquestionably sexual in nature. And Conrad was criminally charged for the act, which 

certainly places it within the ordinary meaning of misconduct. Furthermore, as USAA 

points out, Appellants’ complaint against Conrad made clear his attempt to obtain the 

recording in secret, which even in the absence of criminal liability exemplifies his own 

awareness that what he was doing was transgressive and would be viewed, in ordinary 

terms, as misconduct if discovered. Even though USAA used the term “sexual 

misconduct” in its policy exclusion without further explanation or text narrowing its reach, 

we can easily conclude that “from the viewpoint of a consumer with average intelligence 

not trained in the law or insurance business,” the phrase unambiguously encompasses an 

act like Conrad’s surreptitious recording. Crumleys, ¶ 34.

 

1

See Am. Nat’l Prop. & Cas. Co. v. Rosenschein, 2020 U.S. Dist. LEXIS 112776, *5 (D. N.M. 

2020) (with a policy defining sexual misconduct as “physical or mental harassment or assault of a 

sexual nature”); Scottsdale Ins. Co. v. Roumph, 18 F.Supp.2d 730, 732 (E.D. Mich. 1998) (with a 

policy defining sexual misconduct as “intended to lead to, or which culminates in a sexual act”).
8

¶20 Appellants’ second argument relies on their interpretation of previous cases that 

have turned on the phrase “arising out of.” They note that certain claims might arise out 

of something other than the excluded conduct. Bill Cosby, for example, had an insurance 

policy with an exclusion similar to Conrad’s. Cosby’s insurer nonetheless had a duty to 

defend him in a civil case in federal court because his victims had alleged injuries from 

defamatory statements Cosby made about them after they accused him—these injuries did 

not arise out of Cosby’s sexual misconduct but arose out of his other acts that the insurer 

did not exclude. See AIG Prop. Cas. Co. v. Cosby, 892 F.3d 25 (1st Cir. 2018). In another 

case, which came before this Court, we held that even though an insurance policy excluded 

claims “arising out of” the use of automobiles and mobile equipment, an insurer had a duty 

to defend against liability for injuries in a truck wreck because the plaintiffs had alleged it 

resulted from negligent hiring and supervision—in other words, there was a possibility of 

liability “arising out of” something other than what was excluded. See Pablo v. Moore, 

2000 MT 48, ¶ 24, 298 Mont. 393, 995 P.2d 460.

¶21 Appellants contend that we should view their case as raising claims similarly 

attenuated from any sexual misconduct by Conrad. D.S.’s emotional distress injury, they 

assert, did not arise out of Conrad’s sexual misconduct but instead arose out of learning 

from her daughter about the misconduct. Appellants’ framing, however, twists the ordinary 

meaning of “arising out of” and does not survive closer scrutiny. For example, the alleged 

negligent hiring in Pablo stood as an independent source of the plaintiffs’ injuries. The 

harm arose out of that act by the insured and reached the plaintiffs through a subsequent 

wreck that without the negligence in hiring may have been excluded from coverage. The 
9

Cosby example is similar; the defamatory injuries Cosby’s victims claimed did not arise 

from his sexual misconduct but depended on another independent act, his public 

statements, as their cause. Here, Conrad’s sexual misconduct is the only act alleged from 

which liability for D.S.’s emotional injury could arise.

¶22 We find no ambiguity regarding whether the USAA policy excluded coverage of 

Conrad’s conduct setting up the recording device. Because the plain meaning of the 

exclusion was clear, we conclude that Appellants’ claims against Conrad were beyond the 

scope of coverage in USAA’s policy. USAA did not have a duty to defend Conrad.

CONCLUSION

¶23 We affirm the District Court’s May 28, 2021 order granting USAA’s summary 

judgment motion by determining that USAA did not violate a duty to defend its insured.

/S/ MIKE McGRATH

We Concur: 

/S/ JAMES JEREMIAH SHEA

/S/ BETH BAKER

/S/ DIRK M. SANDEFUR

/S/ JIM RICE