(Article from Insurance Law Alert, July/August 2019)
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The Third Circuit affirmed dismissal of a coverage suit by a hotel against its insurer, finding that the allegations of negligence in the underlying complaint were encompassed by an assault and battery exclusion. Nautilus Ins. Co. v. Motel Mgmt. Servs., Inc., 2019 WL 3283221 (3d Cir. July 22, 2019).
A minor female sued Motel Management Services (“MMS”), alleging that it failed to report that traffickers had enticed her to engage in commercial sex acts at its motel. According to the complaint, MMS facilitated the minor’s exploitation by knowingly renting rooms to traffickers and failing to intervene in the illegal conduct. The complaint asserted claims for negligence as well as intentional infliction of emotional distress. Nautilus brought a declaratory judgment action, seeking a ruling that it had no duty to defend the underlying suit based on an assault and battery exclusion that provided Nautilus “will have no duty to defend or indemnify any insured in any action or proceeding alleging damages arising out of any assault or battery,” “regardless of the culpability or intent of any person.”
A Pennsylvania federal district court granted Nautilus’s motion for judgment on the pleadings and the Third Circuit affirmed. The Third Circuit ruled that “arising out of” in the exclusion indicates a “but for” causation standard and explained that “if an assault or battery was a ‘but for’ cause of the plaintiff’s injuries, the assault and battery exclusion will apply to allegations that the insured’s negligence contributed to the injuries.” Applying this standard to the underlying allegations, the Third Circuit concluded that the exclusion barred coverage for all claims, including the negligent failure to prevent or report, because all injuries alleged in the complaint were the result of the exploitation and assault by the traffickers and customers. In so ruling, the court noted the absence of any allegations that MMS’s negligence directly caused the plaintiff’s injuries or resulted in independent harms.