United States District Court, E.D. Pennsylvania
Insurance Company seeks a declaration that it has no duty to
defend and indemnify its insured, Motel Management Services
(MMS), in a pending state court action alleging MMS was
negligent in failing to prevent human sex trafficking from
occurring on its property. Moving for judgment on the pleadings,
Nautilus argues that coverage is excluded by the assault and
battery exclusion because the claim in the underlying action
is for assault. It also argues that as a matter of public
policy, it has no duty to defend or indemnify an insured for
allegations of human trafficking.
reviewing the policy and the plaintiff's complaint in the
underlying action, we conclude that because the claims are
for the negligent failure to prevent an assault or battery,
they are not covered. Therefore, we shall grant
Nautilus's motion and declare that it has no duty to
defend and indemnify MMS.
in 2014, E.B., a minor female, alleges that she was
“recruited, enticed, solicited, harbored and/or
transported to engage in commercial sex acts” at a
motel owned and operated by MMS. Traffickers advertised
online that E.B.'s services were available at the
motel. She alleges the traffickers took her to
the motel and checked into a room where she was forced to
engage in commercial sex acts. The motel employees consistently
directed E.B. and the traffickers to the same room towards
the back of the property each time. The room was always paid for
in cash from the money E.B. earned from engaging in
commercial sex activity.
alleges she was “visibly treated in an aggressive
manner” by her traffickers.Indeed, she claims she was
held at gunpoint and threatened to engage in sex acts not
only with her paying customers, but also with her
traffickers. And while she was engaged in forced sexual
activity, men and other minors entered and exited the
claims that MMS facilitated her exploitation by knowingly
permitting the traffickers' activity on its
property. E.B. also contends that MMS failed to
intervene or stop human sex trafficking, and to report the
traffickers' illegal conduct to the
authorities. She also claims that MMS financially
profited from her being exploited for sex trafficking by
renting motel rooms to her traffickers.
brings claims for negligence, negligence per se,
negligent infliction of emotional distress, and intentional
infliction of emotional distress. As to the negligence
per se claim, she avers that MMS's conduct
violated Pennsylvania's Human Trafficking Law, 18 Pa.
Cons. Stat. § 3001 et seq., which criminalizes
the recruitment, enticement, harboring or transporting of a
minor for the purpose of the minor engaging in any commercial
time of the alleged sex trafficking incidents, MMS was
covered by an insurance policy issued by Nautilus. We must
decide whether Nautilus has a duty to defend and indemnify
MMS in the state court action. In other words, we must
determine whether any of the claims in the underlying
complaint are potentially covered by the policy.
interpretation of an insurance contract is a question of law.
Am. Auto. Ins. Co. v. Murray, 658 F.3d 311, 320 (3d
Cir. 2011). Whether a claim is within a policy's coverage
or is barred by an exclusion may be determined on a motion
for judgment on the pleadings. Allstate Fire & Cas.
Ins. Co. v. Hymes, 29 A.3d 1169, 1171 (Pa. Super. 2011).
All the well-pleaded factual assertions in the underlying
complaint against the insured are accepted as true. 5C
Charles Alan Wright & Arthur R. Miller, Fed. Prac. &
Proc. Civ. § 1368 (3d ed., Apr. 2016) (citing Allah
v. Al-Hafeez, 226 F.3d 247, 249-50 (3d Cir. 2000)).
Applying these principles, we examine the insurance policy
and the allegations in the underlying state court complaint.
of Insurance Contracts
the insurer relies on a policy exclusion as the basis for
denying coverage, it has the burden of proving that the
exclusion applies. State Farm Fire & Cas. Co. v.
Estate of Mehlman, 589 F.3d 105, 111 (3d Cir. 2009);
Wolfe v. Ross, 115 A.3d 880, 884 (Pa. Super. 2015).
Policy exclusions are strictly construed against the insurer
and in favor of the insured. QBE Ins. Corp. v.
Walters, 148 A.3d 785, 788 (Pa. Super. 2016); see
also Mut. Benefit Ins. Co. v. Politsopoulos, 115 A.3d
844, 852 n.6 (Pa. 2015) (citing Madison Constr. Co. v.
Harleysville Mut. Ins. Co., 735 A.2d 100, 106 (Pa.
1999)); Peters v. Nat'l Interstate Ins. Co., 108
A.3d 38, 43 (Pa. Super. 2014).
insurance carrier's duty to defend is distinct from its
duty to indemnify. It is interpreted more broadly than the
duty to indemnify. QBE Ins. Corp., 148 A.3d at 788
(quoting Kvaerner Metals Div. of Kvaerner U.S., Inc. v.
Commercial Union Ins. Co., 908 A.2d 888, 896 n.7 (Pa.
2006)). An insurer may have a duty to defend even though it
may have no duty to indemnify. Id. (quoting
Selective Way Ins. Co. v. Hosp. Grp. Servs., Inc.,
119 A.3d 1035, 1046 (Pa. Super. 2015) (en banc)). A duty to
indemnify does not arise until the insured is found liable
for a covered claim. Id.
the duty to defend is broader than the duty to indemnify, the
complaint in the underlying action must be construed
liberally. The factual allegations must be accepted as true,
and all doubts as to coverage resolved in favor of the
insured. Id. (citing Donegal Mut. Ins. Co. v.
Bauhammers, 938 A.2d 286, 290 (Pa. 2007)). To prevent
artful pleading designed to avoid policy exclusions, it is
necessary to look at the factual allegations in the
complaint, not how the plaintiff in the underlying action
frames the request for relief. Id. (citing
Donegal, 938 A.2d at 291). In other words, the focus
of the coverage inquiry is on the substance, not the form, of
the complaint sets forth facts raising claims that could
possibly come within the policy's coverage, the
insurer's duty to defend is triggered. Id.;
Erie Ins. Exch. v. Muff, 851 A.2d 919, 931 (Pa.
Super. 2004). Consequently, an insurer is obligated to defend
the insured against any suit arising under the policy even if
the suit is “groundless, false, or fraudulent” so
long as there is a possibility of coverage. Selective Way
Ins. Co., 119 A.3d at 1046 (citation omitted). If a
single claim in a multiple-claim complaint is potentially
covered, the duty to defend attaches until the underlying
plaintiff can no longer recover on a covered claim. Frog,
Switch & Mfg. Co. Inc. v. Travelers Ins. Co., 193
F.3d 742, 746 (3d Cir. 1999) (citing Erie Exch. v.
Transam. Ins. Co., 533 A.2d 1363, 1368 (Pa. 1987)).
policy provides that Nautilus “will pay those sums that
the insured becomes legally obligated to pay as damages
because of ‘bodily injury' or ‘property
damage' to which this insurance
applies.” However, Nautilus “will have no
duty to defend the insured against any ‘suit'
seeking damages for ‘bodily injury' or
‘property damage' to which this insurance does not
apply.” The policy explains that it applies
“to ‘bodily injury' and ‘property
damage' only if . . . [t]he ‘bodily injury' or
‘property damage' is caused by an
‘occurrence.' ” “Occurrence”
is defined as “an accident, including continuous or
repeated exposure to substantially the same general harmful
argues that because the allegations of sex trafficking state
a cause of action arising out of an assault, it has no duty
to defend or indemnify MMS because assault and battery are
explicitly excluded from coverage. Under the All Assault or
Battery Exclusion, the policy excludes coverage for bodily
injury that is “[a]ctual or alleged assault or battery,