In Nautilus Insurance Co. v. Motel Management Services, Inc., et al., the Court of Appeals for the Third Circuit analyzed whether the District Court’s judgment declaring that underlying sex trafficking actions fell within the scope of an insurance policy’s assault-or-battery exclusion. On de novo review, the Court of Appeals affirmed the lower court’s ruling.
Nautilus Insurance Company (“Nautilus”) issued a commercial general liability insurance policy to Neshaminy Inn and others (collectively “Inn”), in which Nautilus agreed to defend and indemnify the Inn for any liability incurred. However, the policy specifically excluded claims “any action or proceeding alleging damages arising out of any assault or battery.” The exclusion also included “[a]ny act or omission in connection with the prevention or suppression of such acts, including the alleged failure to provide adequate security.”
The Inn sought coverage for state court lawsuits alleging three women were trafficked for sex at the Inn and Nautilus agreed to defend the Inn pursuant to a strict reservation of rights letter. Based on certain evidence developed in discovery, Nautilus commenced a lawsuit in the U.S. District Court for the Eastern District of Pennsylvania seeking a declaration of no coverage based on the assault or battery exclusion. Nautilus moved for judgment on the pleadings in all three lawsuits arguing there was no coverage based on the exclusion and the District Court agreed.
The Third Circuit affirmed, holding that the plain language of the policy excluded all claims “arising out of any assault or battery.” The policy did not define the terms “assault” or “battery” so the court looked to Pennsylvania law for guidance. The cases defined an “assault” as “intentionally placing another person in imminent apprehension of a harmful or offensive bodily contact” and “battery” as a “harmful or offensive contact with the person of another absent the other’s consent.” Although the court recognized that policy exclusions are construed against the insurer, the court found that the exclusion applied because the victims alleged that their traffickers treated them in an aggressive or violent manner, which made them feel fear and anxiety while being trafficked. The court also noted that selling the victims for sex qualified as an assault because it placed them in imminent apprehension of a harmful or offensive bodily contact and that the force and drugs used to compel the victims’ participation subjected them to harmful or offensive bodily contact without their consent.
The Third Circuit rejected the Inn’s argument that the sex trafficking claims do not necessarily involve violence in light of the victim’s alleged consent to the conditions, holding that allegations of “modern-day slavery – facilitated by forced drug use, violent criminal aggression, physical injuries, and a climate of fear and anxiety” eliminated any basis for such an argument. Accordingly, the court held that the exclusion applied, and that Nautilus had no duty to defend or indemnify the Inn for the underlying lawsuits.
Please contact Lauren Berenbaum with any questions.