Donohue
HARRISBURG, Pa. – Insurers must defend policyholders accused of sex-trafficking, the Pennsylvania Supreme Court has ruled in rejecting the idea the state has an “overriding public policy” against helping those defendants.
The unanimous court decided against several insurance companies that issued policies to the Roosevelt Inn in Philadelphia. Those companies, years ago, filed for a judgment that would declare they had no duty to indemnify the owners of the hotel because the allegations were based on criminal conduct.
A federal judge found Pennsylvania public policy would bar insurance coverage under those circumstances – “Here, shielding Policyholders from the consequences of their criminal conduct would be against the safety, morals and welfare of the Commonwealth,” Judge Chad Kenney wrote in 2023.
But the Supreme Court, having been asked to review the case by the Third Circuit, disagreed Tuesday. It shook off Kenney’s opinion, a previous ruling in a heroin-overdose case and arguments made by the insurers and trade groups to arrive at its decision.
Justice Christine Donohue said invoking public policy to eliminate insurance coverage would require the court to “divine an ‘overriding’ public policy pronouncement by the General Assembly by virtue of its enactment of the Human Trafficking Law.”
And it is not up to the court to rank crimes on a public-policy scale, she added, and insurers are capable of drafting policies that exclude coverage for crimes.
“(I)t is not appropriate for this Court to act as a ‘super-scrivener’ to insert coverage exclusions that could have been made part of the insurance policy when drafted,” she added.
The ruling is obviously a loss for insurers who can still argue the alleged conduct at issue isn’t covered by their policies as the case progresses. They were supported by the National Association of Mutual Insurance Companies, which argued that since the General Assembly made sex-trafficking a crime, there is a legitimate basis in refusing to force an insurer to defend those who are accused of it.
John Ellison and Luke Debevec of Reed Smith’s Insurance Recovery Group represented the RI Settlement Trust - an entity created through Roosevelt Inn’s bankruptcy to compensate claimants, should insurance provide coverage.
“The court’s decision is a significant victory for policyholders in Pennsylvania who face litigation that includes claims based on third parties’ conduct on their business premises and could be recharacterized as potentially involving unproven, uncharged criminal law violations,” Ellison said.
The insurers had pointed to a 2004 ruling that found an insurer had no duty to defend or indemnify a homeowner when he sold heroin in that home. Michael Greenfield had given Angela Smith a bag of heroin labeled “suicide,”’ which she injected. Smith later died of a heroin overdose, and Greenfield pleaded guilty to involuntary manslaughter and other crimes.
In the subsequent wrongful death lawsuit against Greenfield, he argued he was covered by a homeowner’s policy. Public policy barred coverage, the insurer argued to the Pennsylvania Supreme Court, which agreed.
However, that decision did not control the Roosevelt Inn case, Donohue wrote, noting that in 1970, a public-policy exception wasn’t granted to an insurer because its contract did not contain a “violation of law” clause.
And the Greenfield case was heard by six justices, and after sorting through concurrences and dissents, the Supreme Court found that at most there were three justices supporting the public-policy exception, leaving what’s called a plurality opinion, which is not binding as precedent.
Justice David Wecht filed a concurring opinion, noting the distinction between Greenfield’s illegal drug use and the lawsuits against the Roosevelt Inn, which is not accused of criminal behavior. It is accused of negligence that furthered the criminal activities of traffickers who used its rooms.
“It is not the role of the courts to establish public policy, rooting around until we find a dominant public policy solely to let the insurance carriers out of the contractual obligations to which they freely agreed to be bound,” Wecht wrote.
“To pitch the vague notion of ‘public policy’ as a tool to override clear contractual language is to ask the courts to save the insurers from the consequences of their own actions.”
