Breaking Coverage Cases—CGL Insurers Owe Coverage for Sex Trafficking Suits
Jes Alexander | December 6, 2024
An emerging exposure for companies are lawsuits seeking to hold them liable for benefiting from sex trafficking. For examples, hotel operators nationwide have been sued by victims under the Trafficking Victims Protection Reauthorization Act (TVPRA) and similar state statutes based on claims that the hotels violated the statute by benefitting from sex trafficking. Similar sex trafficking lawsuits have been used to sue software companies that allegedly assisted sex trafficking.
Two recent coverage cases addressed whether commercial general liability (CGL) coverage is available for these lawsuits. First, a federal district court in Georgia held that the CGL insurer owed a duty to defend a hotel operator sued under the TVPRA. Interestingly, the court ruled that the underlying suit triggered Coverage A and Coverage B under the standard Insurance Services Office, Inc. (ISO), Commercial General Liability Coverage Form (CG 00 01 12 07). According to the court, the allegations alleged bodily injury under Coverage A and the offense of false imprisonment under Coverage B. Also, the court ruled that nonstandard abuse or molestation endorsements did not bar coverage—at least for purposes of the duty to defend.
In the second ruling, Salesforce.com was sued under two Texas statutes that outlaw the promotion of sex trafficking. The underlying suit was based on Salesforce providing customer relationship management (CRM) software to another website, Backpage.com, which is a website known for facilitating illegal prostitution. The underlying suit alleged that Salesforce's sale of CRM software to Backpage.com contributed to the facilitation of sex trafficking under the Texas statutes.
The insurer denied coverage for the underlying suit because the allegations constituted intentional conduct. It further contended that these allegations did not meet the standard ISO Commercial General Liability Coverage Form (CG 00 01 10 01) requirement of an "occurrence" or accident.
However, the court ruled that it was possible that Salesforce could have violated the Texas statutes without acting intentionally or knowingly. Also, the court concluded that the allegations were not excluded by the intentional act exclusions in Coverage B. Thus, the Ninth Circuit Court of Appeals held that the insurer owed a duty to defend under California law. This case is the second ruling in the past few weeks that concluded coverage was owed for allegations against a business related to broad sex trafficking statutes. It is significant because it is an appellate decision from the Ninth Circuit. It will be interesting to see if other similar cases involving claims of promoting or facilitating sex trafficking reach the same result as these two early decisions on the issue.
Below, you will find the full summary of each of these significant court rulings, along with the policy forms that first appeared in IRMI's Insurance Law Essentials product. These court rulings are significant because they set early legal precedents that can redefine the scope of coverage, exclusions, and conditions within a policy.
Want to know more about emerging exposures and significant coverage rulings? IRMI's Insurance Law Essentials product summarizes the most important cases in the industry and delivers them in an e-newsletter directly to your inbox. Many of the summaries include the actual policy forms that the court analyzed, which is a feature not available anywhere else. Now, you can see the actual policy containing the form number and the complete text of the actual endorsement or policy that brought the case to the court. We alert you semimonthly* to breaking coverage decisions organized by coverage line and jurisdiction, so you can quickly find the cases that are important to you.
If you are not a subscriber, subscribe today!
*Except for November and December, when the newsletter is sent monthly.
First Case: Insurer Owes a Duty To Defend Hotel Operator for Sex Trafficking Suit
Ruling: Interpreting nonstandard abuse or molestation endorsements, the court ruled that the exclusions did not bar coverage for a minor's claims that a hotel was liable for sex trafficking under the TVPRA. This is one of the nation's first coverage rulings on this issue.
Citation: Northfield Ins. Co. v. Northbrook Ind., Inc., No. 1:23-cv-03596 (N.D. Ga. Sep. 17, 2024)
Policy Forms Analyzed
| Drafter | Form Name | Form Number |
|---|---|---|
| Travelers | Exclusion—Abuse or Molestation | S40-CG (2/16) |
| Travelers | Limited Assault or Battery Liability Coverage | S2816-CG (2/16) |
| ISO | Commercial General Liability Coverage Form | CG 00 01 12 07 |
Underlying Facts and Coverage Dispute
A hotel operator was sued in an underlying suit under the TVPRA—a statute that gives individuals who have been trafficked for sex at hotels the right to sue hotel operators. The underlying suit alleged that a minor was trafficked for sex and that the hotel "knew or should have known" that she was trafficked for sex. It further alleged that the hotel "participated in, facilitated, condoned, or ignored the sex trafficking." Further, it was alleged that the hotel knowingly benefited from participating in a sex trafficking venture with the minor's alleged traffickers.
The hotel operator sought coverage under its CGL policy issued by Northfield Insurance, which included a standard ISO Commercial General Liability Coverage Form (CG 00 01 12 07). The policy contained two coverage sections: Coverage A for bodily injury and Coverage B for personal and advertising injury. Personal and advertising injury was defined to include coverage for "[f]alse arrest, detention, or imprisonment."
Moreover, the policy included the following two endorsements.
- Exclusion—Abuse or Molestation endorsement. Excluded coverage for claims "arising out of any act of 'abuse or molestation' committed by any person, including any act or omission in connection with the prevention or suppression of such 'abuse or molestation.'" The endorsement defined "abuse or molestation" as "any intentional, reckless, or offensive physical contact of a sexual nature with a person without his or her consent that inflicts some injury, regardless of whether the resulting injury inflicted is intended or expected."
- Limited Assault or Battery Liability Coverage endorsement. A separate endorsement excluded from coverage claims "arising out of an 'assault or battery offense' committed at the direction of the insured or that the insured knowingly allowed to happen."
The insurer filed a coverage suit against the hotel, arguing that it did not owe coverage under the insuring agreements for Coverage A and B. Moreover, it relied on the two exclusions contained in the separate endorsement.
Court's Ruling
The Georgia federal district court ruled that the insurer owed a duty to defend the underlying suit against the hotel, asserting claims under the TVPRA. In reaching this result, the court addressed four separate issues.
Coverage A under the CGL Policy Is Triggered
First, the court analyzed Coverage A of the insuring agreement, which stated that the insurer "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." "Bodily injury" was defined in the policy as "bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time." Based on these provisions, Northfield argued that, although the minor alleged that "she [was] trafficked for sex," "she does not claim to have been physically injured as required for there to be 'bodily injury' under the policy."
The court rejected this argument. First, it pointed out that the underlying suit explicitly alleged that the minor "suffered substantial physical … harm[,]" including, among other harms, "physical deterioration" and "injuries[.]" The court further criticized Northfield for taking "too narrow of a view" of what constitutes "bodily injury" under the CGL policy. Thus, construing the allegations liberally in favor of coverage as required by Georgia law, the court ruled that the underlying suit alleged bodily injuries that fell within the scope of Coverage A.
Coverage B Is Triggered Regarding False Imprisonment
Next, the court addressed whether a duty to defend was owed concerning Coverage B. Coverage B provided insurance coverage for "those sums that the insured becomes legally obligated to pay as damages because of 'personal and advertising injury' to which this insurance applies." A "personal and advertising" injury was defined as an "injury caused by one or more of the following offenses committed by or on behalf of the insured: … False … imprisonment[.]" Northfield argued that this provision did not apply because the minor's alleged false imprisonment was not committed by or on behalf of the hotel operator.
The court ruled against the insurer, holding that the underlying suit's allegations "concerning its participation in and benefit from her sex trafficking arguably bring her claims within the scope of Coverage B." The court relied on the following allegations in the underlying lawsuit in determining that Coverage B was triggered.
- "[The hotel operator] chose to profit from the sex trafficking ventures in which it participated, including the trafficking of Plaintiff, rather than to take reasonable and known steps to prevent, identify, and deter sex trafficking at the [hotel]. In doing so, [the hotel operator] participated in, facilitated, condoned, or ignored the sex trafficking of Plaintiff.
- "[The hotel operator] participated in a sex trafficking venture by providing to Plaintiff's traffickers the necessary venue for Plaintiff's minor sex trafficking. In the course of this venture, multiple men paid to have sex with [the minor] at the [hotel]. For a fee, [the hotel operator] provided the crime scene, a room at the [hotel], where Plaintiff was sold for sex.
- "[The hotel operator] knowingly benefited from Plaintiff's sex trafficking by receiving a percentage of the revenue generated by the operation of the [hotel], including a percentage of the revenue generated from the rate charged and paid for the rooms in which Plaintiff was trafficked.
"On information and belief, [the hotel operator's] employees, agents, and/or representatives allowed, condoned, assisted, and facilitated Plaintiff's minor sex trafficking at the [hotel] by, among other things, acting as lookouts for Plaintiff's traffickers and informing the traffickers of police activity at the hotel as well as warning Plaintiff's traffickers about guest complaints and high visitor traffic drawing unwanted attention."
[Citations omitted.]
After highlighting these allegations, the court noted that the phrase "on behalf of" was undefined in the policy. After analyzing dictionary definitions, it determined "that the phrase 'on behalf of' may describe (a) an agency/representative relationship or (b) a circumstance in which one acts in the interest of another." The court then applied this definition to the underlying allegations and held:
In this case, there are no allegations that [the minor's] traffickers acted as [the hotel operator's] agents or representatives; but there certainly are allegations that the traffickers acted in [the hotel operator's] interest and for [the hotel operator's] benefit. As set forth in the allegations stated above, [the minor] alleges that [the hotel operator] financially benefited from [the minor's] sex trafficking and even assisted the traffickers in operating the trafficking enterprise on its premises.
For purposes of the duty to defend, the court ruled that the minor was falsely imprisoned "on behalf of" the hotel operator.
The Abuse of Molestation Endorsement Does Not Bar a Duty To Defend
Next, the court analyzed the abuse or molestation endorsement that excludes coverage for any "[b]odily injury" or "[p]ersonal and advertising injury" "arising out of any act of 'abuse or molestation' committed by any person[.]" "Abuse or molestation" means "any intentional, reckless or offensive physical contact of a sexual nature with a person without his or her consent that inflicts some injury, regardless of whether the resulting injury inflicted is intended or expected." At issue was whether the minor's injuries all arose out of alleged acts of abuse or molestation.
The court ultimately ruled that the exclusion was inapplicable because not all of the underlying suit's allegations arose out of alleged acts of abuse or molestation. In reaching this result, the court held:
[The minor] alleges that [hotel operator's] conduct caused her multiple, "indivisible injuries," including "substantial physical … harm" and "physical deterioration[.]" It is at least arguable that some of these injuries arose not from any act of abuse or molestation in particular, but rather from other aspects of [the minor's] experience as an underage victim of trafficking. [The minor's] physical deterioration, for example, could plausibly have resulted from being forcibly kept in a hotel for extended periods without freedom of movement and under the thumb of dangerous individuals. More specifically, [the minor] was allegedly confined by weapon-toting traffickers for weeks on end in hotel rooms that were used for a booming prostitution and drug-selling enterprise. On many days, numerous people went in and out of [the minor's] hotel room—not just to purchase sex with [the minor], but also to purchase sex with other trafficking victims and to buy drugs. It is arguable based on the underlying pleading that [the minor] suffered physical deterioration from these circumstances even in the absence of abuse or molestation.
[Citations omitted.]
Based on this conclusion, the court held that the underlying suit could be interpreted as alleging physical harm suffered by the minor that was incurred independent of "abuse or molestation." The court, therefore, ruled that the exclusion was inapplicable regarding the duty to defend.
The Assault or Battery Endorsement Is Inapplicable
Finally, the court addressed the assault or battery endorsement, which excluded coverage for injuries "arising out of an 'assault or battery offense' committed at the direction of the insured or that the insured knowingly allowed to happen." "Assault" was defined as "any attempt or threat to inflict injury to another, including any conduct that would reasonably place another in apprehension of such injury." "Battery" meant "any intentional, reckless or offensive physical contact with, or any use of force against, a person without his or her consent that inflicts some injury, regardless of whether the resulting injury inflicted is intended or expected."
The insurer argued that the exclusion precluded coverage under the endorsement. However, the court rejected this argument, holding that there were not any instances of "assault or battery" unambiguously alleged in the underlying suit complaint as those terms were defined in the policy. Specifically, the court held:
Although [the minor] "alleges that [she] w[as] trafficked[,]" she does not allege that she "suffer[ed] either an intentional act to inflict injury or an intentional or reckless use of force." And while [the minor] alleges that she engaged in commercial sex with adult men as a minor, the underlying complaint does not allege that physical force was used or threatened against her. [The minor] alleges that she was physically harmed as a result of [the hotel operator's] acts and omissions, but she does not explicitly allege that she was subject to "assault or battery," as those terms are defined in the Policy.
[Citations omitted.]
The court ruled that the allegations brought the underlying claims to fall within this insuring agreement and that none of the exclusions applied. Accordingly, the court concluded that the insurer owed a duty to defend the underlying suit.
Second Case: Salesforce.com Entitled to Coverage Related to Sex Trafficking Claims
Ruling: The Ninth Circuit Court of Appeals ruled that a duty to defend was owed to Salesforce.com for claims that its sale of business software to a website known for facilitating illegal prostitution was covered under a standard CGL coverage form.
Citation: Travelers Prop. Cas. Co. of Am. v. Salesforce.com, Inc., No. 21-15862 (9th Cir. Sep. 25, 2024)
Policy Form Analyzed
| Drafter | Form Name | Form Number |
|---|---|---|
| ISO | Commercial General Liability Coverage Form | CG 00 01 10 01 |
Underlying Facts and Coverage Dispute
Salesforce.com, Inc., a business software provider, was sued by multiple plaintiffs in Texas for its alleged role in aiding and abetting sex trafficking through its business relationship with Backpage.com—a website known for facilitating illegal prostitution. The underlying suits were based on two Texas statutes that outlaw the promotion of sex trafficking (the "Texas Sex Trafficking Statutes"). For example, § 98A.002 of the Texas Civil Practice and Remedies Code states:
(a) A defendant is liable to a victim of compelled prostitution, as provided by this chapter, for damages arising from the compelled prostitution if the defendant:
- (1) engages in compelling prostitution with respect to the victim;
- (2) knowingly or intentionally engages in promotion of prostitution, online promotion of prostitution, aggravated promotion of prostitution, or aggravated online promotion of prostitution that results in compelling prostitution with respect to the victim.…
Also, § 98.002(a) of the Texas Civil Practice and Remedies Code states:
A defendant who engages in the trafficking of persons or who intentionally or knowingly benefits from participating in a venture that traffics another person is liable to the person trafficked, as provided by this chapter, for damages arising from the trafficking of that person by the defendant or venture.
The underlying suit alleged that Salesforce.com's sale of CRM software to Backpage.com contributed to the facilitation of sex trafficking.
Salesforce.com sought coverage under its CGL insurance policy issued by Travelers Property Casualty Company. The CGL policy was the standard ISO, Commercial General Liability Coverage Form (CG 00 01 10 01), which covers "bodily injury" caused by an "occurrence." The policy's Coverage B section covered "personal injury." This included offenses such as false imprisonment, detention, or imprisonment.
Travelers agreed to defend under a reservation of rights. However, it filed a coverage suit contending that the Texas Sex Trafficking Statutes imposed civil liability only for intentional conduct that falls outside the scope of "bodily injury" arising from an "accident."
Also, Travelers argued that two exclusions applied. First, regarding Coverage A, the policy excluded coverage for "bodily injury" resulting from intended or expected acts. Next, the policy excluded coverage under Coverage B for "personal injury" "caused by … the insured with the knowledge that the act would violate the rights of another and would inflict 'personal … injury.'"
The district court dismissed Travelers' claims, ruling that it owed a duty to defend Salesforce.com. According to the court, the allegations in the underlying suit potentially showed that Salesforce.com acted only negligently and not intentionally or knowingly.
Court's Ruling
The Ninth Circuit, interpreting California law, ruled that the CGL policy was potentially triggered by the claims of Salesforce.com. In reaching this result, the court first addressed Travelers argument that the Texas Sex Trafficking Statutes "impose civil liability only for intentional conduct that falls outside the scope of 'bodily injury' arising from an 'accident.'" However, the court noted that the "statute plainly does not attach the intent requirement to the result clause 'results in compelling prostitution with respect to the victim.'"
The court stated:
The adverbs "knowingly or intentionally" modify the phrasal verb "engages in" and its direct objects: "promotion of prostitution, online promotion of prostitution, aggravated promotion of prostitution, [and] aggravated online promotion of prostitution." The subordinate result clause indicates the consequence of the phrasal verb acting upon the direct object. That is, while a defendant must knowingly or intentionally commit an act that promotes prostitution, the defendant need not have known or intended that its actions would result in compelled prostitution.
[Citations omitted.]
Next, the court noted that Salesforce.com could have violated the statute without acting intentionally or knowingly. The court held:
Here, Salesforce could potentially be held liable under Texas's statute for selling software to Backpage.com even though the harm being remedied by the statute—compelled prostitution—would not have occurred absent an additional act that was "unexpected, independent, and unforeseen" by Salesforce. It does not automatically follow that selling business software, even to a business known to promote prostitution, will result in victims being compelled into prostitution. Because § 98A.002(a)(2) does not require proof that Salesforce intended or knew that selling its business software to Backpage.com would "result[] in compelling prostitution," it is possible that Salesforce may be held liable for an "unexpected, unforeseen, or undesigned happening or consequence" of its actions.
[Citations omitted.]
Thus, the court held that there was a duty to defend.
Next, the court addressed the intentional acts exclusions. According to the court, a "plain reading of Texas's sex-trafficking statute covers more than conduct that a defendant knows or intends will result in compelled prostitution." The Ninth Circuit, therefore, held that the exclusions did not bar a duty to defend.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.
