Case Explained: KNAACK, ET AL. V. ALLIED WORLD SPECIALTY INSURANCE COMPANY

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 Washington Insurance Fair Conduct Act (IFCA) claims, while affirming the dismissal of procedural-based claims and vacating the ruling on the Washington Consumer Protection Act (WCPA) claim. The court held that under Washington law, an insurer breaches its duty to defend when a complaint contains allegations that could conceivably be covered, even if other allegations are excluded. Applying the rule that insurance exclusions must be construed narrowly against the insurer and ambiguities resolved in favor of coverage, the court determined that the policy’s “Sexual Abuse Exclusion” did not bar coverage for all allegations in the underlying complaint because the terms “sexual molestation” and “sexual abuse” require sexual contact or force, which were absent from some plaintiffs’ allegations (such as verbal harassment or non-contact strip searches). Consequently, the court found that partial coverage was conceivable, rendering Allied’s total denial of defense unreasonable. On remand, the district court is instructed to grant partial summary judgment against Allied on liability for breach of contract and the IFCA claim, and full summary judgment on the common law bad faith claim. The court further ordered that Plaintiffs be entitled to the remedy of coverage by estoppel due to the insurer’s bad faith denial. Regarding the WCPA claim, the case is vacated and remanded because the plaintiffs failed to meaningfully argue they satisfied the specific elements required for partial summary judgment on that statute. Claims based solely on alleged procedural violations were affirmed as dismissed because Plaintiffs presented no evidence of injury or because the IFCA does not create an independent cause of action for regulatory breaches. Do It For The Case Law is a news reporting service. Nothing in this episode constitutes legal advice.