Civil human trafficking lawsuits: a growing risk for many insureds

Human trafficking is a long-standing, worldwide problem and one that increasingly has insurance implications for certain US industries. These industries include most visibly hotels and motels, as well as businesses that engage with foreign supply chains. Many of these insurance implications grow out of the impact of the Trafficking Victims Protection Act (TVPA), which allows civil lawsuits against entities that benefit from human trafficking enterprises even if they have not engaged in trafficking themselves. Accordingly, it’s increasingly important for businesses in these industries to be aware of the impact of the TVPA’s civil liability provisions on general liability insurers and insureds.

Human trafficking and the TVPA: a brief overview

One important fact about human trafficking is that it includes all types of forced labor and services—not just sex trafficking. The TVPA defines human trafficking as obtaining the labor or services of a person by force, serious harm, or abuse of the legal process, including threats of any of these actions. The Act also contains a catch-all provision prohibiting any scheme intended to make a person believe they would suffer serious harm or physical restraint if they did not perform labor or services.¹

An estimated 30 to 40 million people are victims of human trafficking worldwide.² About 25 percent of these victims are children.³

Traffickers prey on people made vulnerable by economic hardship, political instability, psychological vulnerability, or lack of social support.⁴ Methods of coercion include physical or sexual abuse, blackmail, emotional manipulation, fraud, and the confiscation of official documents, such as passports.⁵ Victims are often prevented from seeking help due to language barriers and fear of traffickers or law enforcement.⁶

Examples of human trafficking include:

• Involuntary sex work such as escort services and illicit massage
• Domestic servitude
• Forced labor or debt bondage in factories and in agricultural settings
• Fraudulent or coerced organ donation
• Forced marriage
• Child soldiers

Important 2008 broadening of the TVPA

In 2008, the TVPA was amended to allow a victim to recover from anyone who “knowingly benefits, financially or by receiving anything of value from participation in a venture that the person knew or should have known” was engaging in trafficking.⁷ With this change, plaintiffs are able to sue not just anyone who engages in trafficking but also anyone who knew or should have known they were doing business with a trafficker. The statute of limitations for these civil actions is ten years after the cause of action arose.⁸

Before 2008, a trafficking victim might have sued for negligence, assault and battery, false imprisonment, and intentional infliction of emotional dismiss, all of which typically have statutes of limitations of two to four years. Now, however, the same victim has several additional years to sue for her injuries under the TVPA. The insurance industry is seeing more sex abuse claims that allege TVPA causes of action to increase the time period during which a plaintiff can recover.

In addition, defendants who lose their lawsuits must now pay the plaintiff’s reasonable attorneys’ fees. Thus, pro bono attorneys may be financially able to take on more cases, increasing the defendant’s potential exposure.

Industries at risk from TVPA cases: hotels and beyond

The trafficking cases that have garnered the most attention in the insurance industry are cases against hotels and motels. In a typical case, the plaintiff alleges that the hotel should have known it was profiting from sex traffickers by alleging one or more of the following: (1) guests with minimal luggage; (2) multiple men being escorted one at a time to a guest room; (3) the presence of guests who cannot speak freely or seem disoriented; (4) an abundance of used condoms in trashcans; (5) cash payments; and (6) guests who routinely decline housekeeping.

While hotels are a prime target of trafficking lawsuits, entities relying on a foreign supply chain are also at risk. For instance, the leading producers of chocolate in the US were sued in a class action lawsuit filed by Mali citizens who alleged they were trafficked to the Ivory Coast as children to harvest cocoa that was purchased by the defendants and used in chocolate production.

Others exposed to trafficking claims are social media providers such as Facebook⁹ and online platforms such as Airbnb.¹⁰ The Communications Decency Act previously provided such platforms with immunity from trafficking lawsuits. However, that law was amended in 2018 to remove immunity for certain civil and criminal trafficking suits.¹¹

A study from the Human Trafficking Legal Center shows the spectrum of industries at risk. That study determined that, as of October 2018, these labor sectors were subject to federal civil trafficking suits in the following numbers:

• Domestic work (94)
• Agriculture (35)
• Food service and hospitality (25)
• Sex (25)
• Detainee/prisoner (17)
• Construction/landscaping (12)
• Shipyard (11)
• Technology (9)
• Transportation (8)
• Education/research (7)
• Religious (7)
• Factory/production (7)
• Medical (7)
• Entertainment (5)¹²

Defendants in these cases included staffing agencies, religious organizations, municipalities, detention facilities, and other corporate entities. We have also seen cases against entities that work with youth, including amateur sports organizations and residential therapy providers.

Cases often lead to substantial financial outlays by defendants

According to the same study by the Human Trafficking Legal Center, as of October 2018, 52 percent of civil trafficking cases were settled or resulted in judgments for plaintiffs, while fewer than 8 percent ended with involuntary dismissals or judgments for defendants. The remainder were either ongoing or dismissed voluntarily or without prejudice.¹³

Not surprisingly, trafficking lawsuits are expensive. They generate large defense bills because the law is undeveloped and the facts are typically complicated, requiring numerous depositions and significant document production. Some are class actions, requiring protracted litigation relating to class certification. In addition, as noted above, plaintiffs who prevail can recover their attorneys’ fees.

Judgments and settlements are often substantial, including $14 million in a case involving five plaintiffs lured from India to work in shipyards after Hurricane Katrina;¹⁴ $8 million to a woman forced into labor by a cult;¹⁵ $3 million to an Ethiopian citizen held in forced labor and sexual servitude by a US diplomat in Yemen;¹⁶ $365,000 to a Swazi woman who was forced to work without compensation by a minister and his wife;¹⁷ and $331,921 to three plaintiffs who were forced to perform construction and domestic work for no pay and under threat of deportation.¹⁸

Important questions of coverage often arise

It is safe to say that general liability policies were not designed to cover human trafficking claims, and that no general liability insurer has intended to cover such claims. Nevertheless, civil TVPA lawsuits raise numerous coverage issues.

The first issue is whether the lawsuit involves Coverage Part A, which applies to bodily injury and property damage, or Coverage Part B, which applies to personal and advertising injury. If bodily injury is alleged, Coverage Part A may be triggered; but there may also be an issue as to (1) whether the complaint alleges an occurrence, which is generally defined as an “accident,” and (2) whether the exclusion for expected or intended injury applies. If the complaint alleges only intentional conduct, then there is no occurrence, and the expected or intended injury exclusion should apply, which precludes coverage under Coverage Part A.¹⁹ In contrast, if the complaint alleges the defendant benefitted from a venture that the defendant “should have known” was part of a trafficking enterprise, then a court may hold that the plaintiff is alleging negligence, not intentional conduct.²⁰

It is also possible that a court will view a TVPA lawsuit as the equivalent of a false imprisonment case, in which case Coverage Part B could be triggered because the definition of “personal and advertising injury” usually includes false imprisonment.²¹ If so, application of the criminal acts exclusion should be evaluated; but it may not apply where the complaint is found to allege negligence.²²

Another potential coverage issue is whether the policy includes an abuse exclusion or an exclusion for assault and battery. Generally speaking, both exclusions should encompass human trafficking claims.²³ However, the wording of the exclusions is important. An abuse exclusion that bars coverage only for sexual abuse may not apply in a labor trafficking case that has no element of sexual misconduct. Also, some of these exclusions apply only to abuse against persons in the care, custody, or control of the insured. Courts have come down different ways on whether hotel guests are in the care of the hotel.²⁴

Finally, at least one court has held that public policy precludes insurance coverage for human trafficking claims.²⁵ It remains to be seen whether other courts agree with this principle.

Risk assessment considerations reflect some common factors

From a risk assessment perspective, careful attention should be paid to specific industries that are especially susceptible to trafficking claims, such as (1) hospitality providers; (2) staffing agencies; (3) residential care facilities; (4) organizations working with minors or other vulnerable populations; (5) sports organizations; (6) online platforms and social media; (7) entities reliant on temporary or migrant labor; and (8) industries reliant on an international supply chain. As noted above, the TVPA is used as a tool by plaintiffs in sex abuse cases that have not traditionally been viewed as trafficking cases. Thus, if an entity is at risk for abuse claims, it is also at risk for TVPA claims.

Organizations in these industries should be evaluated for (1) a history of claims or notices of potential claims relating to trafficking or abuse; (2) policies and procedures in place to prevent trafficking, including employee education and training; and (3) engagement with the local anti-trafficking community, including law enforcement and anti-trafficking not-for-profits.

Finally, companies working in affected industries should be aware of the myriad of trafficking laws and regulations. Regulations are issued on an ongoing basis, and additional legislation regarding trafficking can be expected. For instance, the US State Department recently issued a Xinjiang supply chain business advisory requiring importers to document each step in their supply chains. Congress is also contemplating legislation that would create a rebuttable presumption that goods from Xinjiang may not enter the US unless the importer can show the goods are not the result of forced labor. One can imagine a scenario in which failure to comply with the advisory or impending legislation could create a basis for a TVPA civil lawsuit.

Conclusion: It pays to be aware of specific risk factors in this area

Civil human trafficking lawsuits are a serious risk to many insureds and insurers. That said, they come in many varieties and have many nuances. The insurance industry and its clients should familiarize themselves with the dimensions of risk that pertain to specific industries as well as the actions that can be undertaken to mitigate that risk. Proper education and action will reduce the risk of civil lawsuits and, more importantly, help in efforts to eradicate human trafficking.

¹ 18 U.S.C.A. § 1589(a).
² “Human Trafficking by the Numbers,” Human Rights First, January 7, 2017, humanrightsfirst.org/resource/human-trafficking-numbers; “Global Estimates of Modern Slavery: Forced Labour and Forced Marriage,” International Labour Organization, September 19, 2017, http://ilo.org/global/publications/books/WCMS_575479/lang--en/index.htm.
³ “Global Estimates of Modern Slavery: Forced Labour and Forced Marriage,” International Labour Organization, September 19, 2017, ilo.org/global/publications/books/WCMS_575479/lang--en/index.htm.
⁴ “What Is Human Trafficking?,” US Department of Homeland Security, August 18, 2021, dhs.gov/blue-campaign/what-human-trafficking.
⁵ “The Crime,” United Nations Office on Drugs and Crime, August 18, 2021, unodc.org/unodc/en/human-trafficking/crime.html.
⁶ “What Is Human Trafficking?,” US Department of Homeland Security, August 18, 2021, dhs.gov/blue-campaign/what-human-trafficking.
⁷ 15 U.S.C.A. § 1595(a).
⁸ Id., § 1595(c).
⁹ Malathi Nayak, “Facebook Must Face Claims Linked to Sex Trafficking, Judge Says,” Bloomberg, June 25, 2021, bloomberg.com/news/articles/2021-06-25/facebook-must-face-claims-linked-to-sex-trafficking-judge-says.
¹⁰ David Miller, “Exclusive: Airbnb Expands Pledge to Fight Human Trafficking Amid Hospitality Industry Struggles,” USA Today, February 20, 2020, usatoday.com/story/travel/hotels/2020/02/20/airbnb-human-trafficking-polaris-partnership-amid-industry-lawsuits/4806104002/.
¹¹ Pub. L. No. 115-164, 132 Stat. 1253 (2018) (codified as amended at 18 U.S.C. §§ 1591, 1595, 2421A and 47 U.S.C. § 230).
¹² Alexandra F. Levy, “Federal Human Trafficking Civil Litigation: 15 Years of the Private Right of Action,” The Human Trafficking Legal Center, December 2018, htlegalcenter.org/wp-content/uploads/Federal-Human-Trafficking-Civil-Litigation-1.pdf.
¹³ Id.
¹⁴ “David, et al. v. Signal International, LLC, et al., ” American Civil Liberties Union, May 29, 2013, aclu.org/cases/david-et-al-v-signal-international-llc-et-al.
¹⁵ Debra Cassens Weiss, “Woman Forced Into Labor by Cult Is Awarded $8M in Default Judgment,” ABA Journal, June 4, 2018, abajournal.com/news/article/woman_forced_into_labor_by_cult_is_awarded_8m_in_default_judgment.
¹⁶ “Extraterritorial Jurisdiction Victory in the United States,” The Freedom Fund, March 12, 2019, freedomfund.org/blog/extraterritorial-jurisdiction-victoryin-the-united-states/.
¹⁷ “Swazi Woman Recovers $365K Award on Forced Labor, Trafficking Claims Against Ga. Minister, Wife,” 2015 WL 6585407.
¹⁸ Echon v. Sackett, No. 1:14CV03420, 2018 WL 5778327 (D. Colo. Feb. 14, 2018).
¹⁹ Hemphill v. Landmark Am. Ins. Co., No. 19-5260, 2020 WL 3871295 (E.D. Pa. July 9, 2020) (holding that the complaint only alleged knowing conduct and, therefore, an insuring agreement covering “negligent” acts did not apply), appeal filed July 29, 2020.
²⁰ Ricchio v. Bijal, Inc., 424 F. Supp. 3d 182, 193 (D. Mass. 2019) (noting that the TVPA’s “knew or should have known” language “echoes common language used in describing an objective standard of negligence”).
²¹ See id. at 192 (holding that a TVPA lawsuit was equivalent to a claim for false imprisonment, triggering coverage B under a CGL policy).
²² Id. at 195 (declining to apply the exclusion to a complaint that alleged only criminal conduct on the grounds that the complaint was “reasonably susceptible” to an interpretation finding only negligence).
²³ Nautilus Ins. Co. v. Motel Mgmt. Servs, Inc., 781 Fed. Appx. 57 (3rd Cir. 2019) (holding that an assault and battery exclusion applied to sex trafficking lawsuit against motel operator).
²⁴ Starr Indem. & Liab. Co. v. Choice Hotels Int’l, Inc., No. 20-cv-3172 (PKC), 2021 WL 2457107 (S.D.N.Y. June 16, 2021); Millers Capital Ins. Co. v. Vasant, 2018 WL 5295899 (D. Md. Oct. 25, 2018); Holiday Hosp. v. AMCO Ins. Co., 983 N.E.2d 547, 5890 (Ind. 2013).
²⁵ Nautilus Ins. Co. v. Motel Mgmt. Servs, Inc., 320 F. Supp. 3d 636 (E.D. Pa. May 24, 2018), aff’d on other grounds, 781 Fed. Appx. 57 (3rd Circ. 2019).