United States District Court for the District of Massachusetts finds duty to defend sex trafficking claim under personal injury coverage

In my last post I was discussing Ricchio v. Bijal, Inc., 2019 WL 6253275 (D. Mass.) (unpublished), a case that addresses insurance coverage for a claim of kidnapping and sex trafficking.  Peerless Indemnity Insurance Company insured Bijal, the owner of Shangri-La Motel.  Plaintiff Lisa Ricchio had been taken to the motel against her will by Clark McLean and imprisoned there, allegedly with the knowledge of Bijal and two of its employees, Ashvinkumar and Sima Patel.  She brought a civil lawsuit under federal anti-trafficking laws. 

In my last post I discussed the summary judgment decision of the United States District Court for the District of Massachusetts holding that there was no coverage under Coverage A, for Bodily Injury, because of an exclusion for bodily injury arising out of personal injury, including false imprisonment. 

The court then moved on to a discussion of coverage under Coverage B, Personal Injury Coverage.  (While personal injury and bodily injury are often used interchangeably in personal injury law, they have very different meanings in insurance policies.  Bodily injury means, generally, physical injury, like a broken leg.  Personal injury encompasses injuries that don't have a directly physical component, such as injury to reputation as a result of defamation.)

Coverage B provided coverage for "personal . . . injury caused by an offense arising out of [the insured's] business."

Peerless argued that Ricchio's claims did not amount to a personal injury because they are based upon violations of the TVPA, an anti-trafficking law, and violations of the TVPA do not constitute personal injuries.

The court dismissed that argument.  It held that the relevant question was whether Ricchio's injuries -- which were caused by violations of the TVPA -- constitute a personal injury under the policy definition.  The policy definition includes injuries arising out of false imprisonment.  Ricchio's injuries arose at least in part from her false imprisonment.  They therefore were personal injuries.

Peerless then argued that Ricchio's injuries were not caused by an offense "arising out of" Bijal's business, because Bijal is not in the business of human trafficking.

The court held that the agreement to continue renting a room to McLean, providing him with the privacy he needed to abuse Ricchio, was an activity that caused an injury that arose out of the business.  The court referenced a two part test: (1) whether the activity is one which the insured regularly engages as a means of livelihood, and (2) whether the purpose of the activity is to obtain monetary gain.  The complaint alleged that the defendants regularly rented out rooms for the purpose of making money.  Therefore, Ricchio's injuries arose out of the business.

Peerless argued that Ricchio's claims were excluded by an exclusion for "personal injury arising out of a criminal act committed by or at the direction of the insured."  Peerless argued that Ricchio's injuries were caused by criminal violations of the TVPA committed by the Patels, and therefore fell within the exclusion. 

Ricchio argued that while McLean committed criminal acts in violation of the TVPA, the other defendants in the civil case were alleged to have violated only civil provisions. 

The court agreed that it was possible to be civilly liable under the sex trafficking laws without being criminally liable.   Although the complaint alleged that the defendants acted intentionally, not negligently, that did not foreclose a duty to defend.  A duty to defend arises when a complaint shows through general allegations a possibility that the claims are covered by the policy.  Ricchio's complaint was reasonably susceptible to an interpretation finding only negligence. Peerless therefore had a duty to defend.