Court: United States Court of Appeals for the Ninth Circuit

Filed: 2026-07-23

Docket: 2:23-cv-01679-BJR

The ninth-circuit reversed the district court’s grant of summary judgment in favor of Allied World Specialty Insurance Company on breach of contract, common law bad faith, and Insurance Fair Conduct Act (IFCA) claims; vacated the summary judgment on the Washington Consumer Protection Act (WCPA) claim; affirmed summary judgment on procedural-based bad faith and WCPA claims; and remanded for further proceedings. The court applied de novo review to the district court’s interpretation of the insurance policy under Washington law, which requires construing exclusions narrowly against the insurer and giving the insured the benefit of the doubt when coverage is conceivable. The court held that Allied breached its duty to defend because the underlying complaint contained allegations of sexual harassment (covered) that could be separated from allegations of sexual molestation or abuse (excluded). Under Washington law, an insurer must defend a claim if it is covered in whole or in part, and the policy’s “relating to” language did not preclude partial coverage. Because Allied denied defense despite a conceivable basis for coverage, its conduct was unreasonable as a matter of law, establishing liability for breach of contract, common law bad faith, and violation of the IFCA. Consequently, Plaintiffs are entitled to the remedy of coverage by estoppel. Regarding the WCPA claim, while the district court’s reasoning was flawed due to the reversal on the underlying contract claim, the record did not support partial summary judgment for Plaintiffs on WCPA liability elements; thus, that issue was remanded. Claims based solely on procedural violations were affirmed as dismissed because Plaintiffs failed to prove injury or damages required under Washington law and the IFCA does not create an independent cause of action for regulatory violations. On remand, the district court must grant partial summary judgment in favor of all Plaintiffs on liability for breach of contract, common law bad faith, and IFCA violations, determine appropriate damages, and conduct further proceedings regarding the WCPA claim. The court also instructed that costs be allocated against the Defendant-Appellee.

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