Human trafficking is a serious problem. The current news cycle is filled with stories about human trafficking in the context of immigration and with recent criminal proceedings accusing the rich and famous of underage sex and sex trafficking. In the mundane world of insurance, sex trafficking has become a coverage issue for insurance companies when faced with an insured’s request to defend and indemnify against sex trafficking claims. In a recent case, the Third Circuit Court of Appeals had to address a coverage dispute over whether an insurance company had a duty to defend a hotel management company accused of allowing sex trafficking in its motel.
In Nautilus Insurance Co. v. Motel Management Services, Inc., No. 18-2290 & 18-3436 (3rd Cir. Jul. 22, 2019) (Not Precedential), motel operators were sued by a minor female for allowing her to be trafficked at their motels. The allegations of physical harm, threats, being held at gun point and failure to intervene were wrapped up into claims ranging from negligence per se to intentional infliction of emotional harm. One of the motel operators sought a defense from its insurer. The insurance company brought a declaratory judgment action and within the case a motion for judgment on the pleadings based on an exclusion for claims arising out of assault or battery, including the failure to prevent or suppress an assault or battery. The district court granted the insurance company’s motion declaring that the insurance company had no duty to defend and indemnify the motel operator because the underlying claims arose from facts alleging negligent failure to prevent an assault or battery and was, therefore, not covered by the insurance policy.
On appeal, the Third Circuit affirmed. The court noted that the policy exclusion specifically omitted from the policy’s coverage “[a]ll causes of action arising out of any assault or battery” or “any act, error, or omission relating to such an assault or battery.” The court held that the alleged injuries in the underlying complaint were the result of exploitation and assault by traffickers and customers with whom the underlying plaintiff engaged in commercial sex acts. The court also found that the assault and battery were the “but for” causes of her injuries, and that she never alleged that the motel operator’s negligence directly caused her injuries or caused an independent harm. The underlying allegations, stated the court, were that the motel operator failed to intervene or report the traffickers’ activities and the motel operator benefited financially from her abuse. The court held that the language of the exclusion–which encompassed claims arising from both assault or battery and from the failure to prevent or suppress an assault or battery–unambiguously barred coverage for the underlying claims.