Legal Update

In a recent opinion, the District Court for the Northern District of Georgia has ordered an insurer to defend an insured hotel from allegations that it negligently or intentionally permitted a minor to be trafficked for sex on its premises, notwithstanding exclusions in the hotel's liability policy for abuse or molestation and assault or battery. While acknowledging that the case involves "thorny" coverage issues, this order and others like it have put the Northern District of Georgia at odds with other jurisdictions, such as the Third Circuit, that have held that allegations concerning sex trafficking are excluded from coverage under similar circumstances.

In Northfield Insurance Co. v. Northbrook Industries, Inc., Case No. 1:23-cv-3596, the Northern District of Georgia evaluated insurance coverage for a hotel facing allegations that it negligently or intentionally permitted a minor to be trafficked for sex on its property. In the underlying action, the claimant alleged she was trafficked while underage, was forcibly held by her traffickers, and that she suffered physical and emotional injuries. Relevant to the coverage analysis, the hotel's liability policy excluded injuries arising from (i) abuse or molestation and (ii) intentional assault or battery (as well as setting low limits for unintentional assault or battery). The insurer filed a declaratory judgment action seeking a ruling that the claimant's injuries were excluded (or subject to low limits) and sought to be excused from defending the hotel in the underlying action. The hotel moved to dismiss.

The Court granted the hotel's motion to dismiss, finding that the insurer has a duty to defend. The Court focused on the standard for the duty to defend, noting that if any of the claimant's allegations are within coverage, the insurer must defend all allegations. Within that framework, the Court determined that neither exclusion fully excuses the insurer from defending the hotel because at least some of the claimant's allegations are within coverage.

In arriving at this conclusion, the Court considered whether the scope of the exclusions applied to each and every allegation made by the claimant in the underlying case. As to abuse or molestation, the policy excluded coverage for any injury "arising out of any act of … any intentional, reckless or offensive physical contact of a sexual nature with a person without his or her consent that inflicts some injury, regardless of whether the resulting injury inflicted is intended or expected." The assault or battery exclusion precluded coverage 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." Noting that the claimant had surely alleged that she suffered some injuries within the exclusions as a result of being trafficked for sex, the Court determined that she also alleged injuries resulting from other, independent acts outside of the exclusions. For example, the claimant alleged she was falsely imprisoned and held by men with weapons, which caused her to suffer physical deterioration and emotional damage. Those injuries, the Court decided, could have taken place "even in the absence of abuse or molestation" or assault or battery.

Notably, the Court only ruled that the insurer had a duty to defend. Whether the insurer must indemnify will turn on what allegations, if any, are ultimately proven and any judgment entered against the insured hotel.

With that said, reasonable people could disagree with the Court's conclusion on the duty to defend. For instance, while the Court determined that the claimant's allegations of false imprisonment are separate from her allegations of sex trafficking, the claimant had alleged that she was falsely imprisoned for the purpose of being trafficked for sex. One could conclude that the claimant's two allegations - being trafficked and being falsely imprisoned - are so inherently intertwined that any injuries resulting from false imprisonment "arise out of" her alleged trafficking, which would render them excluded. If the order is appealed to the Eleventh Circuit, that may be an issue the appellate court will need to consider.

If you have questions about this article or insurance coverage in cases involving trafficking, please do not hesitate to contact Seslee Smith, Ryan Burke, or Nathan Miles with Morris, Manning & Martin's Insurance Coverage Team.