A liability insurer need not defend or indemnify an insured hotel accused of negligently allowing sex trafficking on its premises where the policy excludes claims arising out of assault or battery, the Third Circuit Court of Appeals recently ruled. In Nautilus Ins. Co. v. Motel Mngt. Servs. Inc., 2022 WL 15722613 (3rd Cir. Oct. 28, 2022), in consolidated appeals from three Pennsylvania District Court cases, the Third Circuit ruled that an assault or battery exclusion “unambiguously applies” to allegations of sex trafficking.
The ruling is important for liability insurers who have issued policies in the hotel space or who intend to do so. Over the past several years, sex trafficking litigation has skyrocketed around the country, with dozens of such cases being filed here in Atlanta-area courts. The Third Circuit’s opinion offers guidance to courts grappling with whether such allegations are covered under liability policies and counsels that they are not, if such policies contain assault or battery exclusions. Insurers issuing policies to hotels or hotel management companies, particularly here in Georgia, should strongly consider including assault, battery, or sex trafficking-specific exclusions in their liability policies.
In Nautilus, the insurer issued a general commercial liability policy to a chain of hotels that were later accused of negligently failing to prevent sex trafficking on their premises. The policy contained an exclusion for claims “arising out of any assault or battery.” The policy did not define those terms, but the Third Circuit determined that under their common law meanings, allegations of sex trafficking were unambiguously excluded. The court reasoned that “[s]elling the women for sex… qualified as an assault because it placed them in imminent apprehension of a harmful or offensive bodily contact.” Under the allegations set forth in the consolidated cases, the court likewise determined that the allegations “suffice for battery: by using force and drugs to compel the women’s participation in the sex trade, the traffickers subjected the women to harmful or offensive bodily contact without their consent.” The court emphatically rejected the insured’s argument that the women could have participated voluntarily and with consent, reasoning that “the underlying allegations of modern-day slavery – facilitated by forced drug use, violent criminal aggression, physical injuries, and a climate of fear and anxiety – eliminate any possibility that the women voluntarily and intelligently agreed to the conditions of their own trafficking.”
With the rapid rise of sex trafficking litigation around the country, especially here in Georgia, disputes over insurance coverage are sure to follow. The Third Circuit’s ruling in Nautilus represents an important early ruling that so long as the underlying policy contains an assault or battery exclusion, allegations of sex trafficking are excluded from coverage.
If you have coverage questions about sex trafficking allegations involving your hotel/management company insureds, please contact Seslee Smith or Ryan Burke.