Pro-Policyholder Trend Continues in TVPRA Coverage Litigation
By: Donald W. Kiel, Erin D. Fleury, and Alexandra DiFusco-Cox
In a pro-policyholder trend, multiple federal courts have recently resolved several important insurance coverage issues arising from underlying lawsuits alleging sex trafficking.
In recent years, general liability insurers have increasingly disclaimed their defense obligations to hotel franchisors or operators sued for allegedly benefiting from the use of their hotels by third-party criminals using the hotels as a location to commit criminal sex trafficking, including claims brought under the federal Trafficking Victims Protection Reauthorization Act (TVPRA). Insurers regularly argue, inter alia, that coverage is barred by: (1) public policy; (2) abuse or molestation exclusions; or (3) policy limitations regarding the insureds’ subjective intent or knowledge. In February 2026, however, the US District Court for the Southern District of Indiana rejected an insurer’s effort to evade its obligation to defend a hotel franchisor and franchisee/operator in a TVPRA action, granting summary judgment in favor of the insureds.1
There, the insurer sought a declaration it had no duty to defend or indemnify based, in part, on the policy’s abuse or molestation exclusion, barring coverage for “injury arising out of … [t]he actual or threatened abuse or molestation by anyone of any person while in the care, custody or control of any insured.” Specifically, the insurer argued that the underlying plaintiff was in the “care, custody or control” of the hotel operator. The court disagreed, joining a series of decisions holding that underlying complaints alleging (a) concealment of trafficking or (b) alternative allegations that defendants lacked actual knowledge of the plaintiff’s presence or alleged trafficking (allegations commonly pleaded in TVPRA actions) are insufficient to negate an insurer’s duty to defend.
The court also rejected the insurer’s argument that Indiana public policy bars insurance coverage for TVPRA claims. Emphasizing the absence of allegations that the insureds intended to harm the plaintiff, the court concluded that Indiana’s policy against insuring intentional misconduct did not apply. In light of the “the strong presumption of enforceability of contracts” and other factors, the court therefore declined to deny coverage on public-policy grounds.
Just a few weeks later, the U.S. District Court for the Southern District of Ohio reached a similar conclusion in Red Roof Inns, Inc. v. Liberty Mut. Fire Ins. Co., ordering the insurer to defend its franchisor policyholder.2 The court likewise rejected the insurer’s public policy arguments and held that the underlying TVPRA allegations qualified as an “occurrence.”
Together, these decisions add to a growing body of law that TVPRA claims triggered coverage under general liability policies and provide meaningful support for insureds involved in current and future insurance disputes arising from the TVPRA and similar underlying claims. Among other lessons, policyholders should be skeptical of insurers’ assertions of “public policy” defenses against coverage. See Policyholder’s Guide to the Law of Insurance Coverage (§ 6.03).
Footnotes
1 Am. Family Mut. Ins. Co., S.I. v. Wyndham Hotels & Resorts, Inc., et al., _ F. Supp.3d __, No. 1:24-CV-00506-MPB-MJD, 2026 WL 851639 (S.D. Ind. Feb. 25, 2026), appeal docketed at 26-1611.
2 Red Roof Inns, Inc. v. Liberty Mut. Fire Ins. Co., No. 2:25-CV-00352, 2026 WL 775589 (S.D. Ohio Mar. 19, 2026)