Virginia District Court Holds That Insurance Company Has Duty to Defend and Indemnify Hotel Operator in Underlying Sex Trafficking Lawsuit

A federal district court in Virginia held that two insurance companies have a duty to defend and indemnify a hotel operator in an underlying lawsuit alleging that the operator aided and abetted sex trafficking of a woman. In Peerless Indemnity Insurance Co. v. Tilma Inc., the court granted the hotel operator’s motion to dismiss the insurers’ coverage action, finding that the allegations in the underlying lawsuit were covered by the insurance policy between the insurers and the hotel operator.

In the underlying lawsuit, the hotel operator was accused of being a “staging ground” for sex trafficking crimes. It was also alleged that the hotel operator “turned a blind eye” to the trafficking. The victim, an unnamed woman, sought damages under the Trafficking Victims Prevention and Protection Reauthorization Act (TVPRA) of 2022.

The court found that the policy covered liability for the conduct alleged in the underlying suit. Furthermore, the court held that none of the exclusions that the insurers asserted applied. Moreover, the court also found that Virginia’s public policy does not bar coverage for the conduct alleged.

Under the insurance policy, the court found that the claims were covered under Coverage B, which covers “personal and advertising injuries.” This includes injuries arising out of “false arrest, detention, or imprisonment.” The underlying lawsuit alleged that the hotel operator knew or should have known that the victim was being detained. It was alleged that the hotel employees overheard the victim screaming while her trafficker caught her, dragged her back to her hotel room, and beat her following her attempt to escape. Therefore, the court found that because the underlying lawsuit alleged detention by force and intimidation, it alleged a personal and advertising injury covered by the insurance policy.

The insurance companies argued that exclusions for intentional torts, crimes, and contractual liability applied to preclude coverage. The court disagreed. In holding that the exclusion for intentional torts does not apply, the court reasoned that “even if [the hotel operator] created the environment in which Defendant Doe’s traffickers operated, [the hotel operator] itself did not commit the intentional tort.” In reference to the crime exclusion, the court stated it did not apply because Defendant Doe’s traffickers committed the crimes, not the operator. The court opined that, “[w]hile the underlying lawsuit asserts that Defendant Doe’s traffickers committed crimes, and that [the hotel operator] benefitted from that conduct, it does not allege that [the hotel operator] ‘committed’ or ‘directed’ the criminal conduct.” As to the contractual liability exclusion, the court found that it did not apply because the complaint “cites no contract or agreement in which [the hotel operator] assumed liability for sex trafficking.” Moreover, the court stated that this exclusion fails because the “allegations in the underlying complaint, if proven, would expose [the hotel operator] to liability under federal law — Section 1595(a) of the TVPRA — regardless of any contract.”