PUBLISH
UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT

________________ _________________ EVANSTON INSURANCE COMPANY, Plaintiff - Appellant,

v.DESERT STATE LIFE MANAGEMENT; CHRISTOPHER MOYA, in hiscapacity as Receiver for the receivership estate of Desert State Life Management; PAUL A. DONISTHORPE; L. HELEN BENNETT ; LIANE KERR; AYUDANDO GUARDIANS, INC., a New Mexico nonprof it corporation, onbehalf of seven protected persons; JOSEPH PEREZ; CHRISTINE GALLEGOS, individually and as Guardian of Victor Baldizan, an incapacitated adult; SCOTT K. ATKINSON, as Guardian ad Litem for Vincent Esquibel, Jr., an incapacitated person; CHARLES REYNOLDS, as Conservator for J.W., an incapacitated person; CAMERON GRAHAM, asTrustee for Andrew Graham; ASCENDING HOPE, LLC; CNRAG, INC.; DECADES, LLC, Defendants - Appellees. No. 21-2145

________________ _________________ Appeal from the United States District Court for the District of New Mexico (D.C. No. 1:18 -CV-00654-JB-KK)

________________ _________________ FILED United States Court of Appeals Tenth Circuit 

### December 30, 2022 Christopher M. Wolpert Clerk of Court Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 12 Thomas C. Bird of Jennings Haug Keleher McLeod, Albuque rque, New Mexico (Ann Maloney Conway and Julianna T. Hopper of Jennings Haug Keleher McLeod, Albuquerque, Ne w Mexico; Joseph J. Bord ers of McJessy, Ching & Thompson, Chicago, Illinois, with hi m on the brief) for Plaintiff-Appellant. Maureen A. Sanders of Sanders & West brook, Albuquerque, New Mexico, for Defendant-Appellee L. Hele n 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 app eals from a bench trial on an insurance-coverage dispute. After dete rmining that Evanston failed to timely rescind the policy and that a policy exclus ion did not apply, the district court required Evanston to con tinue 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 resci ssion 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. Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 23 BACKGROUND
I. Factual Background 1 Four things underlie th is appeal: Paul Donistho rpe’s application for the Evanston insurance policy, his embezzlement scheme, th e former clients’ class action, and Evanston’s respons e 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, Donist horpe applied for an Evanston professional-liab ility 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, officer, director, employee, manager or managing member of the Applicant or any person(s ) or organization(s) proposed for this insurance aware of any fact, circumstance, situation, incident or allegation of negligence or wrongdoing, which mi ght afford grounds for any claim such as would fall und er th[e] proposed insurance?
Evanston , 484 F. Supp. 3d at 1001. The application also contained the following notice:
NOTICE TO THE APPLICANT – PLEASE READ CAREFULLY No fact, circumstance or situati on indicating the probability of a claim or action for which coverage may be afforded by the proposed insurance is now known by any pers on(s) or entity(ies) proposed for

1 These facts come mos tly from the district court’s order denying Evanston’s motion for summary judgment and its findings of fact and conclusions of law af ter the bench trial. Evanston Ins. Co. v. Desert State Life Mgmt. , 434 F. Supp. 3d 1051 (D.N .M. 2020) (summary judgment); Evanston Ins. Co. v. Desert State Life Mgmt. , 484 F. Supp. 3d 987 (D.N.M . 2020) (bench trial). Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 34 this insurance othe r than that wh ich is disclosed in this application. It is agreed by all co ncerned that if there be knowledge of any such fact, circumstance or situation, any claim subsequently emanating therefrom shall be excluded from coverage under the proposed [insurance].

⁎ ⁎ ⁎ This application, information subm itted with this application and all previous applications and material changes thereto of which the underwriting manager, Co mpany [Evanston] and/or affiliates thereof receives notice is on file with the underwriting manager, Company and/or affiliates thereof and is cons idered physically attached to and part of the policy if [issued]. The underwriting manager, Company and/or affiliates thereof will have relied upon this application and all such attachments in issuing the policy.

⁎ ⁎ ⁎ WARRANTY I/We warrant to the Co mpany, that I/We und erstand and accept the notice stated above and th at the information contained herein is true and that it shall be the basis of the policy []and deem ed incorporated therein, should the Company evidence its accep tance of this application by issuance of a policy. I/We authorize the release of claim information from any prior insure r to the underwriting manager, Company and/or affiliates thereof. Id. at 1001–02. Based on Donisthorpe’s application re sponses, Evanston issued Desert State a professional-lia bility insurance policy. Under the policy, “Insureds” included (1) Desert State (a s the Named Insured); (2) past and present Desert State officers and directors, plus their spouses; and (3) past and present Desert State employees. The policy’s insuring ag reement, “Coverage A,” outlined Desert State’s
coverage: Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 45 The Company shall pay on behalf of the Insured all sums in excess of the Deductible amoun t stated in Item 5.A. of the Declarations, which the Insured shall become lega lly obligated to pay as Damages as a result of a Claim [2] first made against th e Insured during the Policy Period or during the Extended Re porting Period, if exercised, and reported to the Company pursuant to the Section Claims A., Claims Reporting Provision, By reason of: 1. A Wrongful Act; [3] or 2. A Personal Injury; In the Performance of Specified Pr ofessional Services rendered or that should have been rendered by the Insured or by any person for whose Wrongful Act or Personal Inju ry the Insured is legally responsible, Provided: a. The entirety of such Wrongful Act(s) or Pe rsonal Injury(ies) happens during th e Policy Period or on or after the applicable Retroactive Date stated in Item 5.A. of the Declarations and before the end of the Policy Period; and b. Prior to the effective date of this Coverage Part the Insured had no knowledge of such Wrongful Act(s) or Personal Injury(ies) or any fact, circumst ance, situation or incident, which may have led a reasonable person in the Insured’s position to conclude that a Claim was likely. Id. at 1004–05. The policy also contained several co verage exclusions. Among them was Exclusion P, which excluded coverage for claims “[b] ased upon or arising out

2 The policy defined “Cla im” to include “[a] wr itten demand for money damages” and “service of suit.” Id. at 1004.

3 The policy defined “Wrongful Act” as “a negligent act, error or omission in Specified Pr ofessional Services.” Id. “Specified Professional Services” included “Financi al Case Management Services to Trust Accounts and Conservatorships.” Id. Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 56 of any conversion, misappropriation, co mmingling [of] or defalcation of funds or property.” Evanston , 434 F. Supp. 3d at 1066 (first alteration in original). Despite the notices, coverages, and exclusions, Donisthorpe completed Evanston’s application while running an embezzlement sche me that exposed Desert State to liability. Donisthorpe intentionally misappropriated and commingled over $4.9 million of Desert State’s client funds for his own use. Donisthorpe hid his scheme by presenting fraudulent reports to Desert State’s board of directors and to New Mexico regulators. After a March 2017 investigation, regulators declared Desert State financially unsound. Also in March, L. Helen Benn ett, a Desert State director, told Evanston about Donisthorpe’s misconduct. Evanston also began receiving claims from Desert State clients that confirmed Bennett’s report. Evanston ultimately opted not to resc ind the policy; in stead, it notified Desert State that it wouldn’t be renewing the policy. In August, Christophe r Moya was appointed Desert State’s receiver. In November 2017, Doni sthorpe pleaded guilty to a two-count federal felony information chargi ng him with wire fraud and money laundering. He was sentenced to 144 months in prison and was ordere d to pay $6.8 million in restitution and a $4.8 m illion money judgment. Donisthorpe’s criminal case trigge red demands for restitution among former Desert State clients. These former clients sued Desert State, Donisthorpe, Liane Kerr (Donisthorpe’ s ex-wife), Bennett, and others; the Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 67 clients’ cases were consolidated into a class action. Their class-action complaint incorporated admissions from Donisthorpe’s guilty plea and contained ten claims, including

 Claim 1: Negligence and Gross Ne gligence (against Desert State, Donisthorpe, and Bennett);

 Claim 2: Breach of Fi duciary Duty (against Desert State, Donisthorpe, and Bennett);

 Claim 3: Conversion (against Desert State and Donisthorpe);

 Claim 4: Violations of New Mexi co Uniform Trust Code (against Desert State, Donisthorpe, and Bennett);

 Claim 5: Violations of New Mexico Unfair Practices Act (against Desert State, Donisthorpe, and others); and

 Claim 6: Violations of New Mexico Uniform Voidable Transactions Act (against Desert State, Donisthorpe, Kerr, and others). 4 Moya asked Evanston to defend and i ndemnify Desert Stat e, including against the class-action claims. As discussed below, Evan ston did not respond until January 2018. By mid-December 2017, Evanston lear ned that Donisthorpe had pleaded guilty. And based on statements during his plea hearing, Evanston determined that Donisthorpe had made material mi srepresentations when applying for insurance on Desert State’s behalf. Evanston had no evidence that any Insured besides Donisthorpe had participated in the scheme, so Evanston assumed

4 Claims 7, 8, and 9 alleged prof essional negligence and aiding and abetting breach of fiduciar y duty against Desert State’s certified public accountant and the broker–d ealer that held the fo rmer clients’ managed investment accounts. Claim 10 alleged un just enrichment against Kerr. These claims aren’t at issue in this appeal. Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 78 (correctly) that no Insured other th an Donisthorpe had made material misrepresentations on th e insurance application. In January 2018, Evanst on sent a reservation-of-rights letter to Moya. Evanston agreed to defend Desert State against th e class action but reserved all its rights, including its ri ght to rescind the policy. The company also warned that it could deny coverage based on th e Insured’s knowle dge of “Wrongful Acts, facts, circumstances, or incidents th at would lead a reas onable person to conclude that a Claim was likely.” Evanston , 484 F. Supp. 3d at 1013. And Evanston reserved its right to deny coverage based on policy exclusions. In June—six months after learni ng of Donistho rpe’s guilty plea— Evanston sent Moya a letter of fering to rescind the policy. The company cited Donisthorpe’s misrepresentations on Desert State’s application. Evanston also refunded Desert State for the premiums paid under the policy. But Desert State did not accept the offer to rescind.
II. Procedural Background In July 2018, Ev anston sued Desert State, Donisthorpe , Kerr, and Bennett in the U.S. District Court for the District of New Me xico. Evanston also sued victims of Donisthorpe’s scheme and form er Desert State clients, given their interest in the dispute. In Count One, Evanston s ought to rescind the policy. In Count Two, as an alternat ive to rescission, Evanston sought a declaration that Desert State, Donisthorpe, Kerr, and Benne tt weren’t entitled to coverage under Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 89 the policy and that Ev anston had no duty to defend against claims arising from Donisthorpe’s criminal conduct. Evanston moved for summary judgme nt, but the case proceeded to a bench trial without a ruling on the motion. Afte r the October 2019 trial, the district court denied summary judgment. It concluded that (1) the defendants had satisfied all conditions preceden t for coverage under the policy, (2) Exclusion P did not exclude coverage for claims alleged in the class-action complaint, and (3) Evanston wasn’t en titled to rescission because it failed to promptly rescind. Evanston , 434 F. Supp. 3d at 1120, 1124–25. 5 After the trial, the district court issued its findings of fact and conclusions of law. It concluded that (1) the policy did not insure Donisthorpe and Ke rr against claims arising from the embezzlement scheme; but (2) th e policy did insure Moya and Bennett for such claims, including those in the class-action complaint. Evanston , 484 F. Supp. 3d at 1040–45. The district court entered final judgme nt by separate order, and Evanston timely appealed.

5 Moya and Desert State’s former clients also moved for summary judgment. Their motions were grante d in part and denied in part. See Evanston Ins. Co. v. Desert State Life Mgmt. , No. 1:18-CV-00654-JB-KK, 2020 WL 3448253 (D.N.M. Mar. 23, 2020). In an or der that overlappe d with its order denying Evanston’s motion , the court concluded that (1) Evanston had waited too long to rescind the policy and (2) th e policy provided co verage to “innocent insureds.” Id. at *3–4. Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 910 STANDARD OF REVIEW In an appeal from a bench trial, we review de novo the district court’s legal conclusions. Sw. Stainless, LP v. Sappington , 582 F.3d 1176, 1183 (10th Cir. 2009) (citing Weyerhaeuser Co. v. Brantley , 510 F.3d 1256, 1260 (10th Cir. 2007)). We also review de novo the dist rict court’s denial of summary judgment on a legal issue . Kelley v. City of Albuquerque , 542 F.3d 802, 820 (10th Cir. 2008) (citations omitted). And we review de novo the district court’s interpretation of state law. Genzer v. James River Ins. Co. , 934 F.3d 1156, 1164 (1 0th Cir. 2019) (citing Wade v. EMCASCO Ins. Co. , 483 F.3d 657, 666 (10th Cir. 2007)). If the state’s high est court has not decided an issue, we predict how the court would rule by “cons ulting persuasive state authority, such as dictum by the state’s highest cour t and precedential decisions by a state’s intermediate appellate courts.” Jordan v. Maxim He althcare Servs.,
Inc. , 950 F.3d 724, 730–31 (10t h Cir. 2020) (cleaned up).
DISCUSSION On appeal, Evanston argues that th e district court erred by denying rescission and by concluding that the po licy requires Evanston to defend Moya and Bennett against the class-action claims. It raises four issues:
1. Did the district court err by concluding that Evanston’s attempted rescission was untimely? 2. Did the district court err by re fusing to impute Donisthorpe’s knowledge to Desert State, base d on agency law’s adverse-interest exception? 3. Did the district court err by concluding that Bennett satisfied the no-prior-knowledge cond ition in Coverage A? Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 1011 4. Did the district court err in making its Erie prediction that the New Mexico Supreme Court would not enforce the unambiguous Exclusion P? Because the first and fourth issues resolv e the appeal, we cons ider only whether rescission and Exclusion P apply. And exercising jurisdiction under 28 U.S.C. § 1291, we affirm in pa rt and reverse in part.
I. Rescission We begin by reviewing whether Evanston’s attempted rescission was untimely. We hold that it was and affirm the district court on this issue. Rescission is an equitable remedy th at results in the cancellation of a

contract. Branch v. Chamisa Dev. Corp. , 223 P.3d 942, 946 (N.M. Ct. App. 2009). It’s available “where there has be en a misrepresentation of a material fact, the misrepresentation was made to be relied on, and has in fact been relied
on.” Prudential Ins. Co. of Am. v. Anaya , 428 P.2d 640, 643 (N.M. 1967). But a party seeking to rescind “m ust promptly exercise it or [the] same will be waived.” Yucca Mining & Petrol. Co. v. Howard C. Ph illips Oil Co. , 365 P.2d 925, 928 (N.M. 1961); see also Putney v. Schmidt , 120 P. 720, 7 23 (N.M. 1911) (“[I]f [a party] seeks to rescind the [con tract] upon the ground of fraud, he must immediately, upon discoveri ng the fraud, restore, or offe r to restore, all that he has received under the contract, as a cond ition precedent to hi s right to rescind Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 1112 the same.”). 6 To be prompt is to act “immediate[ly].” Prompt , Black’s Law Dictionary (11th ed. 2019). The district court concluded that “b ecause Evanston Insu rance did not act ‘immediately’ to rescind the Insuran ce Policy, it was no t entitled to this remedy.” Evanston , 484 F. Supp. 3d at 1016. The court noted that in other states, “insurance companie s are entitled to a reasonab le time to investigate before rescinding an insurance policy.” Evanston , 2020 WL 3448253, at *3 (citing California cases). These states “rep resent the majority rule that, ‘[i]f an insurer decides to rescind a contract, it is required to act with reasonable promptness after discovery of grounds for rescission.’” Id. (quoting 2 Steven Plitt et al., Couch on Insurance § 31:98 (2019)). “By contrast,” the district court reasoned, “rather than affording insurers a r easonable amount of time, New Mexico requires th at those seeking rescission ‘immediately, upon discovering the fraud, restor e, or offer to restore’ all that was received under the contract.” Id. (quoting Putney , 120 P. at 723). The district court thus concluded that “the Supreme Court of New Mexico would hold that an insurance company in Evanston Insuranc e’s position delayed too long before seeking rescission.” Id.

6 Evanston argues that we shouldn’t rely on this principle from Putney given the case’s age. But the principle that rescission must be prompt has been recognized in more recen t New Mexico cases. In 20 09, for example, the New Mexico Court of Appeals acknow ledged this principle from Putney

. See Branch , 223 P.3d at 947 (quoting Putney , 120 P. at 723). Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 1213 Based on Putney ’s touchstone language—which has never been overruled—we agree. The district court’ s factual findings belie any suggestion that Evanston acted prompt ly in seeking to rescind the policy. In March 2017, New Mexico regulators began investigatin g Desert State’s finances, and by the end of the month, they declared the corporation to be financially unsound. That same month, Bennett notified Evan ston about Donisthorpe’s alleged misconduct. Though Evanston considered whether to rescind the policy in March, it ultimately chose on ly to issue a letter of nonrenewal in July, with Donisthorpe’s embezzlement co ntributing to that deci sion. In August, Desert State was in receivers hip. Still, Evanston didn’t try to rescind. In November, Donisthorpe pleaded gu ilty to wire fraud and money laundering. Evanston knew about this guilty plea by mid-December. Still, no rescission. In January 2018, months after Moya timely requested that Evanston defend and indemnify Desert State against the class-action claims, Evanston sent the reservation-of-rights letter. There, Evanston reserved its right to rescind th e policy. Yet not until June did Evanston try to rescind. And it cited Donisthorpe’s misrepresentations on the insurance applicatio n—which it knew or shou ld’ve known a bout months earlier—as its reason for rescinding. The concurrence describes the timing of Evanston’s disc overing the fraud as something about which “reasonable mi nds might differ” and ultimately fixes the Putney point of no return in December 2017, when Evanston learned of Donisthorpe’s guilty plea. Concurrence at 5. In the concurrence’s view, Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 1314 Evanston’s January rese rvation-of-rights letter b ought the insurer time to investigate “whether Donisthorpe’s plea gave sufficient grounds for rescission.” Id. And citing Agnew v. Landers , 278 P.2d 970 (N.M. 1954 ), in which the New Mexico Supreme Court excused a six-mo nth rescission delay, the concurrence finds Evanston’s Ju ne 2018 rescission to be timely. As we see it, this logical chain sn aps at each link. Evanston was on notice of its right to rescin d as early as March 2017, when Bennett first relayed Donisthorpe’s misconduct to the insurer. Indeed, Evanston contemplated rescinding the policy then, though it stopped short and only issued a nonrenewal letter. But as the district court fo und, Donisthorpe’s embezzlement undergirded Evanston’s nonrenewal decision. Evanston , 484 F. Supp. 3d at 1012. It’s unclear why this actual k nowledge of its insure d’s fraud wouldn’t trigger Putney ’s immediacy requirement—or at le ast Evanston’s ne ed to reserve its rescission right (as the concurrence would allow). The concurrence would ho ld that a “promptly issued” reservation-ofrights letter followed by a “reasonable investigation (if necessary)” is immediate enough under Putney . Concurrence at 2. Yet even giving effect to Evanston’s reservation of rights and accepting that the letter was “promptly issued,” the concurrence offers no limiting prin ciple when the insurer completes its investigation before reserving its rights. Evanston began investigating Donisthorpe’s misc onduct back in March 2017, not when it reserved its rights in Janua ry 2018. In other words, it did not need the ensuing Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 1415 five months to continue exploring its op tions. The record is silent about what Evanston did between January and June, but to us, that fi ve-month delay looks like “meander[ing],” “dragg [ing] its feet,” and “sleep[ing] on its rights.” Concurrence at 3–4, 6. So the attempted rescission wa s still inexplicably late. Nor does Agnew draw a bright line about how much delay is permissible. The Agnew plaintiffs faced signif icant obstacles in thei r quest to rescind a warranty deed. By the time the plain tiffs learned about the defendants’ misrepresentations, the plaintiffs had left New Mexico and were “concerned with [other] affairs.” Agnew , 278 P.2d at 67. And the pl aintiffs had to wait for a third party to default on a promissory note be fore they could even take over the property. Id. The court thus concluded that these obstacles, along with the nature of the defendants’ misrepresent ations, excused the six-month delay: [T]he [defendants’] misrep resentations of fact . . . by their very nature placed plaintiffs in a positio n so complex and so difficult to evaluate that the time required by them to return to New Mexico, employ counsel and explore the possi bilities of salvaging this transaction cannot be deemed an inordinate delay in the exercise of their right to rescission. Id. We read Agnew to hold that circ umstances outside a party’s control can excuse a delayed rescission. Here, by contrast, Evanston faced few (if any) obstacles in rescinding, especially once it learned in Decembe r 2017 that Donist horpe had pleaded guilty. Perhaps Donisthorpe’ s misconduct was also “com plex” and “difficult to evaluate.” Id. But this doesn’t explain the delay after Evanston sent the Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 1516 reservation-of-rights letter—by then, Evan ston had all the info rmation it needed to rescind. Putney ’s immediacy requirement required Evanston to promptly exercise its rights no later than when it “discover[ed] the fraud.” Putney , 120 P. at 723. Still, Evanston did not try to rescind until June 2018, five months later. Putney and common sense tell us that this was too late. Because the undisputed facts establis h that Evanston waited too long to rescind the policy, we hold that the distri ct court did not err in concluding that Putney effectively barred Evanston’s rescission claim. 7

II. Exclusion P
We turn now to Ex clusion P and whether the di strict court erred by not applying it according to its unambiguous ly broad terms. We hold that the district court so erred. In New Mexico, unambiguous contract provisions are applied, not interpreted. Richardson v. Farmers Ins. Co. , 811 P.2d 571, 572 (N.M. 1991) (citing McKinney v. Davis , 503 P.2d 332, 333 (N .M. 1972)). Though New Mexico courts generally interpret exclus ionary language narr owly, they do not apply this principle “to override th e clear and unambiguous terms of an exclusion.” Grisham v. Allstate Ins. Co. , 992 P.2d 891, 894 (N.M. Ct. App. 1999) (citations omitted). Insurance cl auses are ambiguous only if they are

7 At oral argument, Evanst on’s counsel conceded th at the adverse-interest exception is moot if Evan ston’s rescission was untime ly. Because we hold that rescission was untimely, we do not reach this exception. Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 1617 “reasonably and fairly susceptibl e of different constructions.” Knowles v. United Servs. Auto. Ass’n , 832 P.2d 394, 396 (N.M. 1992) (quoting Sanchez v.
Herrera , 783 P.2d 465, 469 (N .M. 1989)). The New Mexico Supreme Court has twice read “arising from” in an excl usionary clause to be unambiguous. Lopez v. N.M. Pub. Sch. Ins. Auth. , 870 P.2d 745, 747 (N.M. 1994); Askew v. Miller Mut. Fire Ins. Co. of Tex. , 522 P.2d 574, 575 (N.M. 1974). Applying these straightforward princi ples of New Mexico law, Exclusion P is unambiguous. The excl usion bars coverage for an y claim “[b]ased upon or arising out of any conversion, misappropriation, commingling [of] or defalcation of funds or property.” Evanston , 434 F. Supp. 3d at 1066. The only phrase susceptible to potential ambiguity is “arising out of.” 8 But as stated above, New Mexico courts provide a clear answer about that phrase’s meaning: “[T]he words ‘arising out of’ are very broad, general and comprehensive terms, ordinarily understood to mean ‘origina ting from,’ ‘having its origin in,’ ‘growing out of’ or ‘flowing from.’” Krieger v. Wilson Corp. , 131 P.3d 661, 666 (N.M. Ct. App. 2005) (citing Baca v. N.M. State Highway Dep’t , 486 P.2d 625, 628 (N.M. Ct. App. 1971)). This broad reading of “arising out of” applies equally to exclusionary clauses. See, e.g. , Baca , 486 P.2d at 628; see also Am. Nat’l Prop. & Cas. Co. v. United Specialty Ins. Co. , 592 F. App’x 730, 742

8 The parties do not di scuss whether Exclusion P’s other phrasal verb, “based upon,” applies here. Because we ne ed not define “bas ed upon” to reach our conclusion, we express no opinion on its plain meaning. Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 1718 (10th Cir. 2014) ( unpublished) (“[W]e have every reason to suppose that New Mexico law applies the same broad de finition of ‘arising out of’ in the exclusion context as in the coverage context.”). True, the New Mexico Supreme Court ha s not weighed in on that phrase’s precise meaning. But we expect that the New Mexico Supreme Court would adopt the meaning uniformly used by the New Mexico Court of Appeals. E.g. , Krieger , 131 P.3d at 666; City of Albuquerque v. BPLW Architects & Eng’rs,
Inc. , 213 P.3d 1146, 1153 (N.M. Ct. App. 2009). Indeed, we have noted the same when sitting in diversity and applyi ng New Mexico law. See Am. Nat’l Prop. & Cas. Co. , 592 F. App’x at 741 (remarki ng that under New Mexico law, “‘arising out of’ is not facially am biguous just because it appears in an exclusion”). We conclude that Exclusion P is unambiguous. Because the unambiguous plain langua ge controls, we apply Exclusion P as written. Richardson , 811 P.2d at 572. Here, the class-action negligence claims arose out of Donisthorpe’s commingling. “In determining the applicability of [an] exclusion, [the] fo cus must be on the origin of the damages, not the legal theory asserted for recovery.” Lopez , 870 P.2d at 747 (citations omitted). Within their negligence claims, th e class-action plaintiffs incorporate allegations that track th e admissions from Donisthorpe’s guilty plea. They allege that Desert State an d Bennett mismanaged client accounts and failed to monitor the company’s financia l health, in turn causing the former clients to suffer financial damage. And they accuse Bennett of “exercis[ing] Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 1819 little to no oversigh t of” Donisthorpe. App. vol. 1, at 76. The legal theory undergirding the class-action claims is Bennett’s alleged negligence, but the origin of the damages arises out of Doni sthorpe’s commingling. In other words, the claims “originate from, have their origin in, grow out of, [or else] flow from” Donisthorpe’s misconduct. Krieger , 131 P.3d at 666 (cleaned up). Exclusion P must apply, excluding co verage for the class-action negligence claims against Moya and Bennett. In concluding otherwise, the distri ct court exceeded its authority by looking beyond Exclusion P’s text. It began by correctly finding Exclusion P unambiguous. This conclusion shou ld have ended the court’s analysis, and it should have applied the excl usion as written. Yet it pr essed on, noting that New Mexico courts hadn’t specifically addressed whether exclusions like Exclusion P “reach[] the type of neg ligence which [Deser t State’s former] clients have alleged” in the class-action complaint. Evanston , 434 F. Supp. 3d at 1105. It proceeded to survey ho w courts in other jurisdictions had approached the question. A clear major ity view emerged: Similarly drafted provisions exclude coverage for neglig ence claims arising out of intentional misconduct, even if the ne gligent individuals did no t commit that misconduct. The minority approach, adopted by only New York and Pennsylvania, provides that “negligence claims agai nst insureds do not necessa rily ‘arise out of’ other insureds’ related and excluded acts.” Id. at 1112 (citation omitted). Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 1920 In predicting that the New Mexico Supreme Court would join the minority, the district court cited the principle that policy exclusions are generally read narrowly. It relied on four cases —each involving ambiguities— to conclude that New Mexico wouldn’t read Exclusion P “broadly to cover claims that Evanston Insu rance could have foreseen and could have expressly disclaimed.” Id. (citing Rummel v. Lexington Ins. Co. , 945 P.2d 970 (N.M. 1997); United Nuclear Corp. v. Allstate Ins. Co. , 285 P.3d 644 (N.M. 2012); King v. Travelers Ins. Co. , 505 P.2d 1226 (N.M. 1973); and Knowles , 832 P.2d 394). And the court faulted Evanston for writing “stronger exclusionary clauses in other insurance contracts,” which pr oved that Evanston could “clarify the issue, if [it] wanted, w ith the stroke of a pen.” Id. at 1112 & n.42 (citing Thames v. Evan ston Ins. Co. , No. 13-CV-425-PJC, 2015 WL 7272214 (N.D. Okla. Nov. 17, 2015)). 9

9 That Evanston has drafted a different exclusionary clause does not show that the Desert State clau se is somehow deficient. See O’Brien v. Progressive N. Ins. Co. , 785 A.2d 281, 290 (Del . 2001) (“The fact that Progressive chose to make a clear policy provision [clearer] as a remedial measure to this litigation may not be used as eviden ce of an admission of either ambiguity or acceptance of Appellants’ interpre tation of the policy.”); Tzung v. State Farm Fire & Cas. Co. , 873 F.2d 1338, 13 41 (9th Cir. 1989) (“We rej ect the Tzungs’ reliance on the revised policy for its negative inferences. Not on ly do we believe that accepting such an argument would discourage reme dial action and thereby violate public policy, but we also believe that even though the revised policy excludes all forms of third-party ne gligence[,] it does not mean that the former policy does not exclude some forms of third-party neg ligence . . . .” (citation and footnote omitted)). Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 2021 The district court made four mistakes by choosing this course. First, the four cases on which the court relied involved ambiguous contract terms. Unlike for unambiguous terms (lik e in Exclusion P), which courts apply without interpreting, Richardson , 811 P.2d at 572, courts “construe ambiguous language and . . . give it sensible construction.” State v. Johnson , 954 P.2d 79, 85 (N.M. Ct. App. 1997) (citations omitted). Because those four cases ap plied the distinct analytical framework for ambiguous terms, the district court erred in basing its
Erie prediction on them. Sec ond, the court applied the narrow-construction principle “to override the clear and unambiguous terms of an exclusion”— exactly what Grisham instructs New Mexico courts not to do. 992 P.2d at 894 (citations omitted). Third, the court also cited Baca and American National Property & Casualty Co. , yet seemingly neglected bo th when predicting that the New Mexico Supreme Court would na rrowly read Exclusion P. Finally, though the court recognized that Exclusion P was un ambiguous and “arising out of” was broad, it abandoned Exclusion P’s plain language by refusing to apply it as written. We predict that, consistent with the majority view, the New Mexico Supreme Court would construe Exclusio n P as applying to the class-action Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 2122 negligence claims. Thus, Evanston does not have a duty to defend Moya and Bennett under the policy. 10
CONCLUSION On rescission, we affirm the district court. But we reverse the district court’s ruling on Exclusion P and remand the case with inst ructions to enter judgment for Evanston and against Moya and Bennett.

10 Because we conclude that Exclus ion P applies, we do not address whether the no-prior-knowle dge condition also preclud es coverage for Moya and Bennett. Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 2221-2145, Evanston Insurance Company v. Desert State Life Management, et al.
TYMKOVICH , Circuit Judge, concurring. I am pleased to join the bulk of the majo rity opinion. But I would conclude that Evanston properly rescinded the insurance c ontract after timely notice and investigation of the underlying facts and circumstances. The district court held that Evanston wa ited too long to rescind its insurance policy. The court relied on Putney v. Schmidt , where the New Mexico Supreme Court held that a party seeking contract rescis sion must “immediately, upon discovering the fraud,” return whatever it received under the contract. 120 P. 720, 723 (N.M. 1911). If a party fails to act immediately, it affirms the contract despite the fraud. Id. Since Evanston waited six months afte r learning of Donisthorpe’s fra ud to return Desert State’s insurance premium and rescind the insurance policy, the district court found it flunked the immediacy requirement. But importantly, Evanston also sent Desert State a “reservation of rights” letter shortly after discovering evidence of the fraud in late 2017. In a letter dated January 5, 2018, Evanston stated, After careful consideration, Evanston has agreed to provide you a defense for claims asserted against you in the lawsuits filed by DSLM’s clients, under a full and complete reservation of rights . . . It appears from the Plea Agreement that Mr. Donisthorpe knew of f acts, situations or incidents that might afford grounds for a claim against DSLM at the time he applied for the insura nce on behalf of DSLM. Based on these admissions, his res ponses on the application constitute material misrepresen tations that could provide grounds to rescind the Polic y entirely. Evanston will continue to investigate this ma tter, as indicated above, under Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 232 a full and complete reservation of rights. Evanston reserves all rights, terms and conditions of the Policy referred to above including, but not limited to, the right to deny coverage based upon the Policy provisions quoted above or seek rescission of the Policy based on fraud or ma terial misrepresentation. Evanston’s Reservation of Rights, Evanston Ins. Co. v. Desert State Life Mgmt. , No. 1:18-cv-00654-JB-KK (D.N.M.), ECF # 106-1 at 1–12 (filed Aug. 9, 2019) (emphasis supplied). Evanston maintains this was en ough to satisfy the immediacy requirement, but the district court did not address the argument . New Mexico courts have not addressed it either. In my view, a reservation of rights le tter promptly issued and followed by a reasonable investigation (if necessary) satis fies the immediacy requirement. The investigation must last no longer than necessary to establish a firm basis for rescission. If the investigating party needle ssly stretches its investigati on, it would fail the immediacy requirement. In New Mexico, a “[m]isrepresentation of a material fact, even if innocently made, will entitle the party who has justifiably re lied thereon to rescind the contract.” Ledbetter v. Webb , 711 P.2d 874, 877 (N.M. 1985). But wh en a party discovers the fraud, it must “immediately” restore the value received (her e, the insurance premiu m) to preserve the right to rescind. Putney , 120 P. at 720. If it does not ac t immediately and “play[s] fast and loose,” New Mexico law tr eats its behavior as affirm ing the contract instead. Reed v. Rogers , 141 P. 611, 613 (N.M. 1914) (quoting Grymes v. Sanders , 93 U.S. 55, 62 (1876)). Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 243 The term “immediately,” however, does not accurately describe what the requirement demands. The New Mexico Supreme Court applies Putney ’s “immediacy” requirement in a fact-sensitive manner. Fo r example, the Supreme Court found a sixmonth delay between a party’s discovery of fraud and its re scission attempt sufficiently immediate. The court recognized that the party needed to “emplo y counsel and explore the possibilities of salvaging th is transaction,” and noted th e party was “in a position . . . complex and difficult to evaluate.” Agnew v. Landers , 278 P.2d 970, 978 (N.M. 1954). I see one primary justification for th e immediacy requirement: the doctrine encourages prompt investigation and resoluti on of conflicts arising from contract fraud. Put differently, it vindicates the principle that “[t]he law will not permit a party to sit idly by and await the results which, if favorable , he will receive the benefit of, but if unfavorable, ask rescission.” Yucca Min. & Petroleum Co. v. Howard C. Phillips Oil
Co. , 365 P.2d 925, 928 (N.M. 19 61). When a party sleeps on its rights, the immediacy requirement takes them away. The common law of various other stat es also establishes an immediacy requirement, or something close to it. Courts in these states also treat the requirement as fact sensitive. See, e.g. , Danto v. Charles C. Robbins, Inc. , 230 N.W. 188, 190 (Mich. 1930) (“[A] person claiming to be defrauded mu st elect to rescind, or not, immediately after he discovers the fraud. By waiting more than a reasonable length of time after he discovers the fraud, he condones it.”); Long v. Int’l Vending Mach. Co. , 139 S.W. 819, 820 (Mo. Ct. App. 1911) (the immediacy requi rement allows for “a reasonable time . . . to do the things necessary in order to rescind”); Cont’l Cas. Co. v. Marshall Granger & Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 254 Co. , 6 F. Supp. 3d 380, 394 (S.D.N.Y. 2014) (“An insure r need not, however, make a rushed and uninfor med decision; it is entitled to a reas onable period of time in which to investigate the potential basis for rescission.”). In my view, a timely reservation of rights letter paired with a prompt investigation satisfies the immediacy requirement under Ne w Mexico law. It encourages prompt investigation and resolution of contract fra ud, and it punishes those who sleep on their rights. It follows that the requirement shoul d reward a reservation of rights: such notice invites the scrutinized party in to the process of resolving a simmering dispute and brings the conflict—and perhaps other rele vant facts—to the surface. The immediacy requirement also necessar ily mitigates potential prejudice to the party suspected of fraud. By requiring a prom pt investigation, the requirement makes it more likely that exonerating facts will be brought to the surfa ce, either by the investigating party or the suspected party. And it prevents the suspected party from falling into a false sense of security. See, e.g. , Illinois State Bar Ass’n Mut. Ins. Co. v. Corgeis Ins. Co. , 821 N.E.2d 706, 717–18 (Ill. App. Ct. 2004) (“As stated above, the right of rescission must be ex ercised promptly . . . This re servation-of-rights letter made [the insured] aware . . . that [the insurer] was not waiving anything.”) (internal citations and quotations omitted). Of course, a reservation of rights is not a blank check for the i nvestigating party to meander. Nor will a late-arriving reservati on of rights letter do the trick. Finding otherwise would cut against the goal of sw iftly resolving fraud di sputes and preventing the suspected party from falling into a false sens e of security. That is why the reservation Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 265 must be issued quickly and the subsequent investigati on must last no longer than necessary. And in keeping w ith common law developments, “quickly” and “no longer than necessary” must be interpreted with an ey e to the relevant facts of each case. These facts include, but are not limited to, the comp lexity of the underlying fraud, external circumstances bearing on the investigation’s timeliness, and a showing of prejudice due to the delay by the party suspected of fraud. Based on the record in this case, I have little trouble concludi ng Evanston satisfied the immediacy requirement. According to the district court, the Dese rt State clients offered as an undisputed material fact (and Evanston did not object) that Evanston concluded Donisthorpe made material misrepresentations on the applica tions when it discovered Donisthorpe’s guilty plea. Summary Judgment Order, Evanston Insurance Co. v. Desert State Life Mgmt. , No. 1:18-cv-00654-JB-KK (D.N .M.), ECF # 180 at 5 (filed Mar. 23, 2020). While I recognize that reasonable minds might differ on when Evanston “discovered the fraud,” I read the district court’s order to find that Evanston “discovere d the fraud” in early December and accept that finding.
From there, I have little trouble conc luding that Evanston satisfied the requirement. The immediacy requirement was triggered in early December. Evanston issued its reservation of rights about one m onth later and began to investigate whether Donisthorpe’s plea gave sufficient grounds for rescission. And about five months after tolling the requirement, it rescinded. Like the New Mexico Supreme Court, I find that Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 276 length of time unremarkable. See Agnew , 278 P.2d at 978 (finding that a six-month delay between a party’s discovery of fraud a nd its rescission passed the immediacy requirement). Here, the facts do not suggest that Evan ston dragged its feet and there is no showing of prejudice from the investigation. I therefore would have accepted Evanston’s rescission of the insurance contract. Appellate Case: 21-2145 Document: 010110791268 Date Filed: 12/30/2022 Page: 28