Insurance companies cannot invoke “overriding public policy” in order to refuse to defend insured hotel owners and managers accused of enabling an
d 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 p
ublic policy when the insured is alleged to have enabled or profited from sex trafficking,” the Pennsylvania Supreme Court declared yesterday.
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 appropri
ate 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 cr
iminal 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 belie
ve 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 jus
tifiably refuse to defend a claim against its insured “unless it is clear from an examination of the allegations in the complaint and the langu
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he 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 Philadelph
ia, including the Roosevelt Inn. Each plaintiff filed suit against UFVS Management Co., Roosevelt Motor Inn, Inc., and Roosevelt Inn, as the owners, operators, and mana
gers 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 Preferr
ed Insurance Co., Nationwide Mutual Insurance Co. and Samsung Fire and Marine Insurance Co. Har
leysville, 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.
The case ended up at the Supreme Court on a request by the Third Circuit Court of Appeals
for a clarification on the public policy issue as it dealt with an appeal by the policyholders after a federal district court had ruled in favor of the insurer.
In siding with Samsung, the district court relied upon on a 2004 opinion, Minnesota Fire & Casualty Co. v. Greenfield, which permitted an insurer to deny homeowners coverage for an insured alleged to have sold heroin that ca
used the death of an individual. The Greenfield opinion reasoned that in situations where an insured commits a criminal act with respect to a Schedule I controlled substa
nce, “public policy will not allow coverage under the contract of insurance.”
