HNRK Coverage Corner

On April 6, 2026, the Ninth Circuit issued a decision in Bramblett v. Allied World Specialty Ins. Co., Case No. 25-489, holding that Allied World acted in bad faith in denying a defense to its insured based on a Sexual Abuse Exclusion, where “a conceivable basis for coverage existed” as to at least some claims asserted in the compliant.

In Bramblett, the plaintiffs alleged they were the victims of sexual misconduct by an employee of the insured, including both verbal harassment and physical misconduct.  The insured’s policy expressly covered losses arising from claims alleging “sexual harassment, unwelcome sexual advances, and requests for sexual favors or other misconduct of a sexual nature.”  However, the policy also contained a Sexual Abuse Exclusion, barring coverage for “any Loss in connection with any Claim . . . alleging, arising out of, based upon, attributable to or in any way relating to any actual or alleged sexual molestation or sexual abuse.” 

Allied World denied coverage based on this exclusion.  Following a settlement in the underlying action, the insured assigned its rights under the policy to the plaintiff who filed suit against the insurer.  The district court granted summary judgment to Allied World, but the Ninth Circuit reversed in an unpublished order.

The panel noted that under Washington state law, the duty to defend attaches whenever “the policy could conceivably cover allegations in a complaint,” and the insurer must “give the insured the benefit of the doubt when determining whether the insurance policy coverage allegations in the complaint.”  While AWAC initially argued that “any complaint containing allegations of sexual abuse is excluded from coverage in its entirety because the entire complaint ‘relates to’ the sexual abuse allegations,” on appeal it conceded that “the Policy may provide for partial coverage of a complaint even if it contains some excluded allegations of sexual abuse.”  AWAC argued that the covered and excluded portions of the underlying complaint were “too intertwined” to be treated separately.  But the Court disagreed, holding that “a trier of fact could impose liability for some causes of action based on covered allegations only”:  For example, “a jury could impose liability under the First Cause of Action in the Underlying Complaint for gender discrimination in violation of the Washington Law Against Discrimination (“WLAD”) based only on the allegations of verbal harassment.”  Further, the Court held that the undefined terms “sexual molestation” and “sexual abuse” in the exclusion could “conceivably” be interpreted to require “sexual contact and force.”  Applying that interpretation, the allegations by one of the plaintiffs, including “allegations of unwanted sexual advances that were verbal in nature . . . remain covered under the Policy because they do not involve either sexual contact or use of force.”

The Court held:  “Because the Policy conceivably covers the Underlying Complaint in part, and the Policy imposes on [AWAC] the ‘duty to defend any Claim which is covered in whole or in part,’” Allied World is liable for breach of contract for failing to provide a defense to its insured.  Accordingly, the Court remanded the case with instructions to enter summary judgment as to liability with the trier of fact to determine the amount of damages.

The Court also granted summary judgment to the plaintiffs’ on their bad faith claim, finding that AWAC “‘put its own interest ahead of its insured’ because it denied a defense when a conceivable basis for coverage existed.”  Under Washington law, “[w]hen an insurer breaches in bad faith, it is estopped from denying coverage.”  See Robbins v. Mason Cnty. Title Ins. Co., 462 P.3d 430, 438 (Wash. 2020).  Accordingly, the Court held that “Plaintiffs are entitled to the remedy of coverage by estoppel for the full amount of the settlement in the original state court lawsuit.”