Insurance Law Posts

Hotel Operator's Negligent Failure to Prevent Sex Trafficking Precludes it from Liability Coverage

June 13, 2018

As sex trafficking continues to raise significant concerns for the hospitality industry, operators will have to weigh the sometimes competing business and legal interests of protecting consumer/customer privacy, while also helping to combat trafficking and assault in the industry.

A recent opinion of the U.S. District Court of the Eastern District of Pennsylvania illustrates this conflict for operators. The judge in the case granted a motion for judgment on the pleadings filed by a commercial general liability insurer (“the CGL insurer”) seeking a declaration that it had no duty to provide commercial general liability coverage to its motel owner and operator policyholder for the negligent failure to prevent human sex trafficking from occurring on its property. The basis for the Court’s denial of coverage was twofold:

1. Application of the assault and battery exclusion in the business liability policy issued by the CGL insurer and;
2. A grant of coverage would violate public policy by allowing the motel to financially benefit from sex trafficking.

The underlying facts of the case stem from a series of events in which a minor female alleged that she was “recruited, enticed, solicited, harbored and/or transported to engage in commercial sex acts” at a motel owned and operated by the CGL insurer’s policyholder, a hospitality management company (“the operator”). The minor female’s claims against the operator sounded in negligence; negligence per se; negligent infliction of emotional distress; and intentional infliction of emotional distress. Her claims were premised on allegations that the operator’s employees routinely directed the minor female and traffickers to the same room in the back of the property where she was forcibly compelled to engage in commercial sex acts. She was also allegedly held at gunpoint and threatened to engage in sex acts with multiple traffickers. The crimes that she alleged were committed against her included: trafficking of a minor, rape, sexual assault, and indecent assault.

While the operator contended that the assault and battery exclusion did not preclude coverage because the claims against it sounded in negligence, the Court held that the exclusion in the CGL insurer’s policy applied to preclude coverage for all of the conduct alleged by the plaintiff. In pertinent part, the exclusion provided: “[r]egardless of the culpability or intent of any person, this insurance does not apply to ‘bodily injury’ . . . arising out of any 3. ‘act or omission in connection with the prevention or suppression of such acts, including the alleged failure to provide adequate security.’” The exclusion also applied to claims for emotional distress arising out of an assault and battery, or out of physical altercations, including but not limited to, “allegations of negligent hiring, placement, training or supervision, or to any act, error or omission relating to such an assault or battery, or physical altercation.” The Court interpreted this language to mean that negligent conduct contributing to an assault and battery falls squarely within the exclusion.

In addition to concluding that the specific language of the assault and battery exclusion in the CGL insurer’s policy served as a complete bar to coverage, the Court determined that it would be against public policy to insure the operator against the plaintiff’s claims for intentional torts and/or criminal acts. To extend coverage to the CGL insurer would be to allow the operator to financially benefit from human sex trafficking—a benefit the Court was not willing to confer upon the operator. 

This opinion serves as an eye-opening reminder to business owners and operators within the hospitality industry of the competing business interests of protecting the privacy of clientele and combating sex trafficking and other forms of assault and battery.