Insurance companies cannot invoke “overriding public policy” in order to refuse to defend insured hotel owners and managers accused of enabling and profiting off of sex trafficking of minors, even though the state has criminalized such trafficking.
“[N]either an insurer’s duty to defend nor its duty to indemnify is abrogated on the basis of public policy when the insured is alleged to have enabled or profited from sex trafficking,” the Pennsylvania Supreme Court declared last month.
The state Supreme Court said that insurers could have created exclusions in their insurance policies for such behavior but did not and it was not appropriate for the court to act as a “super-scrivener” to insert coverage exclusions for the insurers.
The high court explained that while the General Assembly has expressed the Commonwealth’s policy against sex trafficking by criminalizing it, the criminal statute “does not provide a justification for the judicial crafting of an exception to insurance coverage in a policy otherwise silent on the subject.”
The high court added that adopting the insurers’ position to abrogate insurance coverage would require it to divine an “overriding” public policy. “We do not believe it is within the purview of this Court to rank the magnitude of the public policy underlying the various crimes defined in the Crimes Code,” the opinion states.
Emphasizing the breadth of an insurer’s duty to defend, the court said an insurer may not justifiably refuse to defend a claim against its insured “unless it is clear from an examination of the allegations in the complaint and the lang
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uage of the policy that the claim does not potentially come within the coverage of the policy.” This duty even extends to claims that are “groundless, false, or fraudulent” so long as the allegations possibly implicate coverage.
The case arose out of four civil complaints by plaintiffs who alleged that, as minors, they were victims of human sex trafficking at various hotels in Philadelphia, including the Roosevelt Inn. Each plaintiff filed suit against UFVS Managem
ent Co., Roosevelt Motor Inn, Inc., and Roosevelt Inn, as the owners, operators, and managers of the Roosevelt Inn. The plaintiffs alleged that policyholders were negligent in failing to stop sex trafficking from occurring at the inn.
The hotels maintained primary-layer commercial general liability insurance for the Roosevelt Inn through various insurers, including Harleysville Preferred Insurance Co., Nationwide Mutual Insurance Co., and Samsung Fire a
nd Marine Insurance Co. Harleysville, Nationwide, and Samsung each initially defended the policyholders in the underlying lawsuits subject to reservations of rights.
In 2018, Samsung sought a declaratory judgment in the federal district court that it had no legal duty to either defend or indemnify the policyholders in the underlying actions. Samsung argued that because the allegations against the policyholders, if true, would establish that they violated the state’s human trafficking law, it would be against public policy for Samsung to be forced to defend or indemnify them.