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A Chubb subsidiary says it is not obligated to cover a Ramada Inn franchise policyholder that has been ordered to pay $4.1 million to its parent company for a judgment in a sex trafficking case.

The Philadelphia motel franchisee, Eighty Eight, seeks indemnity for that judgment that came down against its parent company, Wyndham Hotels after Wyndham claimed Eighty Eight owed contractual indemnification obligations under their license agreement. The Philadelphia Court of Common Plea sided with Wyndham and agreed that that Eighty Eight owed contractual indemnification obligations to Wyndham. Eighty Eight then turned to its own insurance policies issued by Federal Insurance to cover its obligations to Wyndham.

However, Federal Insurance has asked a federal court in Eastern Pennsylvania to declare its excess insurance policies do not come into play for a number of reasons. One reason claimed by Federal is that the $4.1 million judgment is based on violations of the Pennsylvania Human Trafficking Law and such criminal activity is uninsurable as a matter of public policy.

Federal also argues that it is not obligated because its umbrella policies follow policies issued by Mt. Hawley Insurance Co. and Tower Insurance Co. and that all contain exclusions for assault and battery, actual or threatened abuse or molestation by anyone, and intentional or knowing conduct.

Also, the insurer maintains that in the license agreement, Eighty Eight did not clearly agree to indemnify Wyndham for Wyndham’s own liability.

The sex trafficking victim alleged that in 2008 and 2009 she was recruited into sex work by human traffickers and taken to the Ramada Inn on Roosevelt Boulevard to which the traffickers brought “johns” for commercial sex acts. She alleged that employees, servants, staff and/or agents of the Ramada Inn, and other hotels along Roosevelt Boulevard, exchanged cash tips from the traffickers for silence regarding the illegal activities occurring on the premises and warned them of impending police actions at the hotels. She suffered physical harm, mental anguish, humiliation, exploitation, degradation, mental distress, loss of the enjoyment of life and loss of life’s pleasures.

Her complaint brought counts against Wyndham regarding the Ramada property including negligence in violation of the Pennsylvania Human Trafficking Law; negligent infliction of emotional distress; intentional infliction of emotional distress; negligent hiring, training, and/or supervision; and punitive damages.

There have been a number of lawsuits involving insurance for hotels facing sex trafficking allegations. Courts have been split on the question of whether a hotel’s insurance liability insurance coverage applies in these cases.

This past July, a federal judge for the Eastern District of Virginia ruled against Peerless Indemnity Insurance and Ohio Security Insurance on their contention that they had no duty to defend or indemnify a Wyndham hotel in Chesapeake that was facing a sex trafficking lawsuit. A woman alleged that she was sex trafficked, that her traffickers used the hotel as a staging ground for their crimes, and that the hotel turned a blind eye to the trafficking. The insurers argued that Virginia public policy barred coverage for criminal activity. The judge ruled that public policy did not bar coverage for the allegations against the hotel and also found that the policies “unambiguously” covered liability for the hotel’s alleged conduct and none of the exclusions applied.

In 2022, the Third Circuit Court of Appeals ruled in a Pennsylvania case that allegations of sex trafficking, including rape and forced sexual acts, fell under the definition of assault and battery and were therefore excluded. The general liability policy issued by Nautilus Insurance Co. to the hotel management company contained a broad exclusion for any claims “arising out of any assault or battery.”

Topics Carriers