Maximizing Recovery. Minimizing Risk.

Leveraging Opportunity

Hotels, Human Trafficking and CGL Policies: What You Need to Know About Your Insurance Coverage

On Behalf of | Mar 7, 2023 | Insurance Coverage Planning, Insurance Recovery, Litigation And Counseling |

The sad reality of life is that hotels have become common places where human trafficking occurs. The traffickers often pick these places to provide their services to escape detection. Human trafficking is a major concern for law enforcement. When victims can escape their tragic situations, whether through police intervention, the assistance of charitable organizations, or through the victims’ own endeavors, the victims sometimes make claims against the involved hotels or other hospitality providers, alleging that these businesses were negligent or otherwise liable for failing to detect or prevent such activities.

From the perspective of the hotel operators and owners, these circumstances represent a new liability exposure, one that is challenging to address from a security perspective, a risk management perspective, and an insurance perspective. These businesses typically have insurance programs, including particularly CGL programs, to which they turn when claims are made or suits are filed, arising out of alleged human trafficking incidents. There have been several recent cases regarding insurance coverage for claims arising out of alleged human trafficking.

One of the first issues is whether the CGL policy even applies. CGL insurers often cite an assault and battery exclusion that is frequently included in certain liability policies. However, ever where assault and battery are defined by the policy, human trafficking is seldom explicitly addressed, so there can be additional litigation regarding the insurer’s duty to defend the insured in such human trafficking-related lawsuits.

Split In How Previous Cases Have Been Decided

Two cases have recently analyzed the potential coverage under a CGL policy in the content of human trafficking. The first, Mesa Underwriters Specialty Insurance Co. LLC v. Khamlai Lodging LLC, was a declaratory judgment action in the US District Court, Northern District of Georgia. In this matter, Khamlai Lodging owned some Red Roof Inn locations that were alleged to have been used for the sex trafficking of minors. Khamlai submitted claims to its insurers, Mesa Underwriters, who agreed to defend the claim under the CGL policy, but also reserved its rights to refuse coverage if the actions were determined to be outside of the scope of the CGL policy.

The issue before the court was the definitions of assault and battery and specifically whether a finding of intentional infliction of bodily harm was necessary for liability to attach. The insurer argued that there was no set of facts under which the insured could be liable which was not embraced by the assault and battery exclusion. The court disagreed, finding that there were facts alleged against the insured which were not necessarily embraced by the exclusion.  Accordingly, the court denied the insurer’s motion for declaratory judgment.

The second case, Nautilus Insurance Co. v. Motel Management Services, Inc., Motel Management Services, in the Third Circuit, also dealt with the battery and assault exclusion in a CGL policy. In this case, Motel Management was sued by three women who were subject to human trafficking at the time the CGL policy was in effect. The victims claimed that the insured’s hotels were used as sort of a home base by the sex traffickers. The victims stated that the traffickers also beat and abused them during the time they were at the hotels.

The insurer in this case, Nautilus, also agreed to provide coverage with a reservation of rights. It later determined that the alleged actions fell within its assault and battery exclusion. It filed for a declaratory judgment action in the Eastern District of Pennsylvania on the issue of the application of the assault and battery exclusion. The district court held that the exclusion applied, and the insurer would not be responsible to continue providing a defense. The Third Circuit affirmed.

What This Means for You

The split here means that there are many possible factors that can influence whether an insurance policy will cover claims arising out of alleged human trafficking. The language of the policy, the laws that are in effect in the governing jurisdiction, the notice provided to the insurer, as well as the allegations in question in the complaint, are just a small sample of the issues that can affect the coverage status in a particular case.

If you have questions about your current policies in place, or wish to review the coverages you have, we invite you to reach out to McLeod Law Group to discuss your coverage with our experienced team.