Hotels accused of having sex trafficking on their premises are facing significant jury verdicts and settlements. Their insurers, who are being ordered to cover defense costs, may also be required to indemnify the hotels, adding to the potential liabilities.
Last July, a federal jury handed down a $40 million verdict against United Inn and Suites, a Georgia motel where a 16-year-old girl was allegedly sold for sex more than 200 times. Last year also saw settlements of $17.5 million, $6 million and $5 million. Numerous other suits have settled for smaller sums.
“Early on, litigators on both sides … wondered if this would be ‘the next asbestos,’” said Marisa Trasatti, a Baltimore-based partner at Bowman and Brooke who has represented hotels. “While I don’t quite see that volume of cases yet, the verdict and settlement trends are concerning.”
The $40 million verdict came in a case filed under the federal Trafficking Victims Protection Reauthorization Act, which, since 2003, has allowed victims to sue not only traffickers, but any person or company that knowingly “benefits” from trafficking.
Civil suits filed under the act have risen sharply since 2019, with 280 filed in 2024, according to the Human Trafficking Legal Center. The act covers both labor trafficking and sex trafficking, and several industries have been affected, such as banks that funded traffickers and tech companies that hosted trafficking websites.
But the hotel industry has been especially hard hit. About three-quarters of the civil cases involve sex trafficking, and 63% of sex trafficking cases in 2024 involved hotels, the latest period for which figures are available, according to the Human Trafficking Legal Center.
The legal trends reflect greater collaboration between plaintiffs lawyers in recent years, says Ms. Trasatti.
The big settlements and verdicts have set a precedent for the hundreds of cases still in the pipeline, “and will impact how the negotiations go,” Ms. Trasatti said.
Meanwhile, judges in Georgia, Virginia and Ohio have often ordered general liability insurers to defend hotels in sex trafficking cases. In 2008, the TVPRA was amended to cover entities that “knew or should have known” of the trafficking venture. This allowed victims to sue for negligence and such suits don’t automatically trigger exclusions for intentional injuries, judges have found.
Likewise, judges have found that exclusions such as for sexual abuse and molestation do not relieve insurers of their obligation to defend because trafficking victims suffer injuries from many causes. In the Georgia $40 million settlement case, a judge found that the insurer had to defend because the victim’s injuries did not all arise from acts of abuse or molestation.
It remains unclear whether, and when, insurers will be required to indemnify hotels, especially as settlement and verdict sizes grow. In Pennsylvania, the state supreme court has been asked to rule on whether an insurer must defend employees who have allegedly violated the state’s anti-trafficking law.
If the insurer prevails, it could set a precedent allowing insurers to claim that “public policy” prohibits coverage in trafficking cases, said Joseph K. Cole, a partner at Shumaker who has represented a hotel chain. In a December hearing, the justices appeared skeptical about making an exception to the insurer’s broad duty to defend claims, especially when the employees had not been criminally charged under the anti-trafficking law, Mr. Cole said.
“Traffickers don’t have a lot of assets,” so the ability to sue corporations covered by insurance policies is likely to attract more lawsuits, Mr. Cole said.
In recent years, more hotels have trained staff to spot the warning signs of trafficking. Meanwhile, some insurers are tailoring insurance policies to sublimit or exclude trafficking-related claims. But many current suits date from a time before trafficking was seen as a major concern for hotels.
Legal changes have extended the time for trafficking-related claims to be filed. The TVPRA gives victims 10 years to pursue a claim. And in 2022, President Joe Biden signed a law eliminating time limits on claims brought by minors.
Trafficking cases are often lengthy, complex and expensive, with defense costs running into the hundreds of thousands of dollars in suits that are ultimately dismissed, Mr. Cole said.
“A lot of the lawsuits or allegations come out of this or from things that happened 10, 15 years ago. And obviously, there’s nothing you can do to fix what happened back then,” said Kimberly Gore, North American leader for hospitality at Hub International. But Ms. Gore said she can help clients find “a path forward.”
For risk managers at hotels or other companies facing trafficking liability, “the developing case law sends an important signal: Insurers cannot avoid their obligations under liability policies when trafficking-related claims arise,” said Mr. Cole. “This growing body of law is an important backstop for businesses that are doing the right thing but nonetheless find themselves named in litigation.”
