Insurer Has Duty to Defend Georgia Hotel in Sex Trafficking Case Despite Exclusions for Assault or Battery and Abuse or Molestation
The United States District Court of the Northern District of Georgia recently examined whether an insurer had a duty to defend its insured hotel operator in a lawsuit filed by an alleged sex trafficking victim under the Trafficking Victims Protection Reauthorization Act (TVPRA). Narrowly applying policy exclusions for abuse or molestation and assault or battery, the Court held that the insurer had a duty to defend in Northfield Insurance Company v. Northbrook Industries, Inc. d/b/a United Inn and Suites and J.G.
How the Court Ruled in This Case
The Court first addressed the insurance policy’s Coverage A – Bodily Injury and Property Damage Liability. The insurer argued that plaintiff’s claims fell outside the scope of the insuring agreement for Coverage A because it interpreted the policy’s “bodily injury” requirement as requiring claims of physical injury. Although the insurer acknowledged that the plaintiff alleged she was trafficked for sex, the insurer claimed that the plaintiff did not allege that she was physically injured. The Court rejected this argument and found that the insurer’s view of what constituted “bodily injury” was too narrow. The Court stressed that the plaintiff alleged that she experienced substantial physical harm, including “physical deterioration” and “injuries.” The Court emphasized that Georgia case law requires that “bodily injury” involve “physical harm,” and “physical harm” may include physical discomfort.
Turning to the policy’s Coverage B – Personal and Advertising Injury Liability, the Court then addressed the insurer’s argument that the false imprisonment experienced by the plaintiff was not “committed by or on behalf of the insured.” The plaintiff claimed that the sex traffickers acted in the hotel operator’s financial interests and to its benefit when, in the course of being trafficked for sex, she was falsely imprisoned on the hotel’s premises, and that the insured assisted the traffickers in their operations on its premises. The Court determined that it was “at least arguable” from the plaintiff’s allegations that she was falsely imprisoned “on behalf of” the insured.
Then, the Court looked at the policy’s Abuse or Molestation Endorsement. In doing so, it rejected the insurer’s argument that plaintiff’s claims and injuries were excluded under the endorsement, which excluded coverage for any “[b]odily injury” or “[p]ersonal and advertising injury” “arising out of any act of ‘abuse or molestation’ committed by any person[.]” The Court found there would still be potentially covered claims against the hotel operator in the absence of any claims of abuse or molestation under Coverage A and Coverage B.
Under Coverage A, the Court said the plaintiff arguably suffered injuries from her “experience as an underage victim of trafficking” and “being forcibly kept in a hotel for extended periods” by dangerous individuals. Under Coverage B, the Court opined she also likely suffered emotional damages as the result of being trafficked, separate and apart from any abuse or molestation she experienced.
The Court further held that the policy’s Assault or Battery Endorsement did not preclude the insurer’s duty to defend. This endorsement had both an exclusion and a sublimit for injuries “arising out of an ‘assault or battery offense’ committed at the direction of the insured or that the insured knowingly allowed to happen.” The Court explained that the endorsement required allegations of “either an intentional act to inflict injury or an intentional or reckless use of force” for the endorsement’s exclusion and sublimit to apply. The Court explained the plaintiff did not claim that intentional physical force was used or threatened against her, even though she alleged she engaged in commercial sex with adult men as a minor. Therefore, the Court explained that the hotel operator may successfully argue that the exclusion and sublimit in the policy’s Assault or Battery Endorsement do not apply.
What Does This Mean for Georgia Insurers?
This decision exemplifies a broad reading of an insuring agreement coupled with a narrow interpretation of policy exclusions. As always, an insurer’s duty to defend will be based on the allegations of the complaint as compared to the language of the policy. In light of this decision, insurers faced with the question of whether to defend an insured against a TVPRA claim in Georgia should carefully consider the specific allegations against an insured and the particular wording of any coverage limitations or exclusions. Our firm is monitoring this case for an appeal.
Please contact Katie Whitman Myers, Christy Maple or any member of the Phelps Insurance team if you have questions or need advice or guidance.
Special thanks to our contributing author, April Alex, an associate who joined Phelps this month.