In Nautilus Insurance Co. v. Motel Management Services Inc., the Third Circuit Court of Appeals held that a commercial general liability policy’s assault or battery exclusion barred coverage for claims involving alleged sex trafficking.
Motel Management was a declaratory judgment action filed by an insurer against its insured, a motel, under a CGL policy issued by the insurer to the motel. The policy provided defense and indemnity coverage for certain bodily injury claims against the motel. The policy had an assault or battery exclusion, which stated: “[T]his insurance does not apply to ‘bodily injury’ … arising out of any … [a]ctual or alleged assault or battery.”
The insurer sought a judgment declaring that the assault or battery exclusion barred coverage for three underlying lawsuits against the motel brought by women, two of whom were teenagers, who were allegedly trafficked for sex at the motel. The women sought compensatory and punitive damages for the motel’s alleged negligence in failing to prevent or disrupt the alleged human trafficking and for alleged violations of the motel’s statutory duties under Pennsylvania’s human trafficking law, 18 Pa. Cons. Stat. § 3051.
Two of the women alleged in their complaints that they “were recruited as prostitutes by a now-convicted sex trafficker who advertised them online and arranged for them to have sex with several men a day in rooms he rented at the [motel].” The women alleged that the trafficker kept them “dependent on him by shooting them up with heroin and forcing them to smoke crack cocaine in between their customers, causing them to show outward signs of impairment while on the premises.” The women also alleged that the trafficker “treated them in a ‘visibly … aggressive manner’ that further instilled a sense of fear and anxiety in them.”
The third woman’s complaint “alleged a similar pattern of victimization at the hands of a sex trafficker who advertised her online and sold her for sex several times a day at the [motel].” Her complaint “described her experience as ‘modern day slavery,’ claiming that she was the victim of violent criminal acts, ‘suffer[ed] serious bodily harm,’ and ‘exhibited fear and anxiety.’”
In Motel Management, the insurer moved for judgment on the pleadings ruling that the assault or battery exclusion barred coverage for the three underlying lawsuits. The district court granted the motion and entered judgment for the insurer. On appeal, the Third Circuit affirmed, holding that, under Pennsylvania law, the assault or battery exclusion unambiguously applied to the allegations in the underlying complaints and thus barred coverage.
The Third Circuit explained that Pennsylvania follows the “four corners rule” under which the duty to defend is determined by evaluating whether the allegations in the four corners of the complaint are covered by terms in the four corners of the policy. The court further explained that, if there is no duty to defend under the four corners rule, there is no duty to indemnify.
The Third Circuit stated that, although the policy did not define the terms “assault” or “battery,” those terms “are legal terms of art that receive their well-defined meanings under Pennsylvania law.” The court stated, “An ‘assault’ involves intentionally placing another person in ‘imminent apprehension of a harmful or offensive bodily contact.’ And the term ‘battery’ refers to ‘a harmful or offensive contact with the person of another’ absent the other’s consent.”
The court then explained that the claims in the underlying lawsuit arose out of assault or battery such that the assault or battery exclusion unambiguously barred coverage:
Each victim alleged that their traffickers treated them in an aggressive or violent manner and made them feel a sense of fear and anxiety while being trafficked. Selling the women for sex under these circumstances qualified as assault because it placed them in imminent apprehension of a harmful or offensive bodily contact. Similarly, the allegations in each of the complaints 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 Third Circuit rejected the motel’s argument “that sex trafficking may occur without violence, and thus allegations of sex trafficking alone do not establish an assault or battery.” The Third Circuit explained that, under the four corners rule, the court does not consider what factual allegations could potentially satisfy the elements of the cause of action asserted in the underlying lawsuit. Rather, the court “assesses whether the particular factual allegations in a specific case fall within the precise terms of [the] insurance policy.” The court explained that, since the underlying complaints alleged injuries arising out of assault or battery, the exclusion applied to bar coverage.
The Third Circuit also rejected the motel’s argument “that the women could not have been battered because they consented to their role in the sex trade,” and therefore the exclusion should not apply. The Third Circuit explained:
[T]he term ‘consent’ in this context is best understood as consisting of more than mere assent, or the act of agreeing; it requires the agreement to be both voluntary and intelligent. And here 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.
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