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 (unpublished), a case that addresses insurance coverage for a claim of kidnapping and sex trafficking.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. 

US District Court for District of Massachusetts holds that injuries to woman kidnapped, held against her will and sex trafficked come within exclusion for false imprisonment

Lisa Ricchio alleged that she was kidnapped by Clark McLean in 2011, that he held her captive and raped and abused her for several days at the Shangri-La Motel, and that he made clear to her that he intended to force her to work as a prostitute. 

The motel was owned by Bijal, Inc.  Ashvinkumar and Sima Patel worked and lived at the motel at the time.  Ricchio alleged that Bijal and the Patels were aware of McLean's abuse of her and profited from it. She brought a civil lawsuit against them under the federal Victims of Trafficking and Violence Protection Act of 2000 (TVPA) and the Trafficking Victims Protection Reauthorization Act of 2003 ((TVPRA). 

Peerless Indemnity Insurance Company insured Bijal. In Ricchio v. Bijal, Inc., 2019 WL 6253275 (D. Mass.) (unpublished), the United States District Court for the District of Massachusetts considered Peerless's motion for summary judgment in its declaratory judgment action on its duty to defend and indemnify. 

The court first held that Ricchio had standing to oppose Peerless's motion for summary judgment even though she was not an insured, because she had an interest in defining the scope of insurance coverage separate from the interest of the insured. 

The court next addressed whether bodily injury coverage (Coverage A) was excluded by an exclusion for "bodily injury arising out of personal . . . injury."  The policy defined personal injury as including "injury, including consequential 'bodily injury,' arising out of one or more of the following offenses: . . . False arrest, detention or imprisonment." 

Peerless argued that all of Ricchio's claims "arose out of" her "false imprisonment" and therefore came within the exclusion.  Ricchio argued that the source of her personal injury was not her false imprisonment, but rather McLean's act of trafficking her. The court held that her injuries arose of of both the trafficking and the false imprisonment.  The court held that it was irrelevant that the policy contained an asbestos exclusion that excluded injury "arising, in whole or in part, either directly or indirectly out of" asbestos.  If the policy had such broad language in a clause applying to false imprisonment, then the false imprisonment exclusion could be read more narrowly. 

The court then addressed whether there was coverage under Coverage B, Personal Injury Liability.  I will discuss that in my next post.  

US District Court holds no coverage for intentional torts, and insurer not estopped to deny coverage after insurance defense counsel states he will defend throughout course of action

Kenneth and Donna Kaplan were sued by their neighbors, William and Mary Costello.  The Costellos alleged ongoing harassment by the Kaplans in an attempt to enlarge their own yard at the Costellos' expense.  They alleged that the Kaplans filed five lawsuits involving the Costellos, initiated a number of complaints and appeals to town and state agencies, and wrote many aggressive emails about the matter to public officials and local media.  The Costellos sued for abuse of process, intentional infliction of emotional distress, and violation of the Massachusetts Civil Rights Act. 

The Kaplans had homeowner's insurance with Narragansett Bay Insurance Company.  Narragansett provided a defense.  It then filed a declaratory judgment action, asserting that it has no duty to defend or indemnify.

In Narragansett Bay Ins. Co. v. Kaplan, __ F. Supp. 3d __, 2015 WL 7295462 (D. Mass.), the United States District Court for the District of Massachusetts held that there is no coverage for bodily injury or property damage for two reasons.  First, that policy part has an exclusion for injuries "expected or intended" by an insured.  The elements of causes of action for abuse of process, intentional infliction of emotional distress, and the violation of the Massachusetts Civil Rights Act each include intentional acts.  Second, no bodily injury or property damage within the meaning of the policy was alleged. 

The policy also had a personal injury endorsement that covers five enumerated intentional torts.  They do not include the causes of action alleged by the Costellos. 

Although the court granted summary judgment to Narragansett on the duty to defend it oddly declined to do so on the duty to indemnify, on the ground that such a duty could not be determined until the underlying case is resolved.  The judge did note, "I observe at this point, however, that having determined there is no duty to defend, there is necessarily no demonstrated basis for a duty to indemnify."

The Kaplans had filed a counterclaim in the declaratory judgment action asserting that Narragansett was estopped from halting coverage even though it was defending under a reservation of rights. 

The Kaplans relied on a letter from insurance defense counsel stating that he would provide a defense "throughout the course of this action."  The court held that that letter was insufficient to create estoppel.  In the face of the reservation of rights letter the Kaplans could not have reasonably relied on the statement of counsel.  Nor was their reliance detrimental. 

The Kaplans have filed an appeal of the ruling. 

Another plug for liability insurance

I participate in a large listserve for local parents. One of the recent threads concerned problems with cakes from a local bakery. There was a long discussion about whether it was okay to post the name of the bakery or if doing so would create the risk of a libel lawsuit. One of the posters responded that for an additional $8.00 a year she added a rider to her homeowner's policy providing coverage for slander and libel. (In insurance terms slander and libel generally come within what is called "personal injury" coverage, an entirely different coverage from "bodily injury" even though the two are synonymous in other contexts.)

Years ago I defended a couple who was sued when they publicly opposed a telephone sex company renting space in the mixed use commercial and residential condominium building where they lived. After several years of litigation they not only prevailed but were awarded their attorney's fees. Had they not had personal injury insurance, however, the process could easily have bankrupted them or forced them into an unfair settlement.

Liability insurance provides not only indemnity (payment of damages to the claimant after the insured loses at trial or settles the case) but also defense, which is sometimes called lawsuit insurance. Because there is always a risk of being sued even when you have done nothing wrong, having such insurance can save you from the tens of thousands of dollars it can cost simply to have a groundless lawsuit dismissed.