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Nautilus Insurance Co v. Motel Management Services Inc, 18-2290 (2019)

Court: Court of Appeals for the Third Circuit Number: 18-2290 Visitors: 7
Filed: Jul. 22, 2019
Latest Update: Mar. 03, 2020
Summary: NOT PRECEDENTIAL UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT _ Nos. 18-2290 & 18-3436 _ NAUTILUS INSURANCE COMPANY v. MOTEL MANAGEMENT SERVICES, INC., d/b/a Neshaminy Inn; E. B. MOTEL MANAGEMENT SERVICES, INC., Appellant _ Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. No. 2-17-cv-04491) District Judge: Hon. Timothy J. Savage _ Submitted Pursuant to Third Circuit L.A.R. 34.1(a) May 24, 2019 _ Before: McKEE, SHWARTZ, and FUENTES, Circuit Judge
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                                                                  NOT PRECEDENTIAL

                        UNITED STATES COURT OF APPEALS
                             FOR THE THIRD CIRCUIT
                                 ______________

                                 Nos. 18-2290 & 18-3436
                                    ______________

                         NAUTILUS INSURANCE COMPANY

                                             v.

                      MOTEL MANAGEMENT SERVICES, INC.,
                            d/b/a Neshaminy Inn; E. B.


                      MOTEL MANAGEMENT SERVICES, INC.,
                                         Appellant
                               ______________

                       Appeal from the United States District Court
                         for the Eastern District of Pennsylvania
                                (D.C. No. 2-17-cv-04491)
                         District Judge: Hon. Timothy J. Savage
                                     ______________

                    Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
                                     May 24, 2019
                                   ______________

              Before: McKEE, SHWARTZ, and FUENTES, Circuit Judges.

                                   (Filed: July 22, 2019)
                                     ______________

                                        OPINION*
                                     ______________

SHWARTZ, Circuit Judge.

       *
        This disposition is not an opinion of the full Court and, pursuant to I.O.P. 5.7,
does not constitute binding precedent.
       At issue in this appeal is whether Nautilus Insurance Company has a duty to

defend and indemnify Motel Management Services (“MMS”) in a lawsuit minor E.B.

brought in state court against MMS alleging that MMS failed to intervene or report that

traffickers enticed E.B. to engage in commercial sex acts at MMS’s motel. Because the

Court properly determined that the assault and battery exclusion in MMS’s insurance

policy applies, and therefore Nautilus does not have a duty to defend MMS in E.B.’s suit,

we will affirm the orders granting Nautilus’s motion for judgment on the pleadings and

denying MMS’s motion for relief from that judgment.

                                              I

       E.B., a minor female, sued MMS and other motel operators in Pennsylvania state

court (“the underlying action”), alleging that (1) she “was recruited, enticed, solicited,

harbored and/or transported to engage in commercial sex acts” in violation of

Pennsylvania’s Human Trafficking Law, 18 Pa. Cons. Stat. § 3011, including at a motel

owned and operated by MMS, App. 31 ¶ 27;1 (2) she was “held at gun point and

threatened to engage in sexual acts with multiple traffickers,” App. 33 ¶ 37, “visibly

treated in an aggressive manner” by those engaging in commercial sex acts with her,

App. 33 ¶ 41, and suffered physical harm; (3) MMS facilitated her exploitation by

knowingly renting rooms at its motel to the traffickers; (4) MMS failed to intervene or to

report the traffickers’ illegal conduct; and (5) MMS financially profited from E.B.’s




       1
           Appendix citations are to the appendix filed in docket number 18-2290.

                                              2
exploitation. E.B. sought compensatory and punitive damages for negligence per se,2

negligence, negligent infliction of emotional distress, and intentional infliction of

emotional distress.

       Nautilus brought this declaratory judgment action asserting that an exclusion in

MMS’s insurance policy with Nautilus for claims arising out of an assault or battery,

including a failure to prevent or suppress an assault or battery, exempted it from the

duties to defend and indemnify MMS in E.B.’s suit.

       The District Court granted Nautilus’s motion for judgment on the pleadings,

declaring that Nautilus had no duty to defend and indemnify MMS because E.B.’s claims

in the underlying action arose from facts alleging negligent failure to prevent an assault

or battery and therefore were not covered by the insurance policy. Nautilus Ins. Co. v.

Motel Mgmt. Servs., Inc., 
320 F. Supp. 3d 636
(E.D. Pa. 2018). MMS thereafter filed a

Rule 60(b) motion contending that E.B.’s deposition testimony in the underlying action

conflicted with the allegations in the Complaint. The Court denied the motion. MMS

appeals both orders.




       2
        This claim alleges that MMS’s conduct violated Pennsylvania’s Human
Trafficking Law.

                                              3
                                             II3

       When interpreting an insurance contract under Pennsylvania law, which all parties

agree governs this dispute, we must ascertain and give effect to the parties’ intent as

manifested in the terms of the policy. Donegal Mut. Ins. Co. v. Baumhammers, 
938 A.2d 286
, 290 (Pa. 2007). Where the language is clear and unambiguous, we must follow it.

Minn. Fire & Cas. Co. v. Greenfield, 
855 A.2d 854
, 861 (Pa. 2004). However, where the

contract language is ambiguous, we construe that provision in favor of the insured. 
Id. An insurer
has a duty to defend the insured in any suit in which the complaint

alleges potentially covered injuries. 
Baumhammers, 938 A.2d at 290-91
. If an insurer

relies on a policy exclusion as an affirmative defense to deny coverage, it bears the

burden of proving that the exclusion applies. Madison Constr. Co. v. Harleysville Mut.

Ins. Co., 
735 A.2d 100
, 106 (Pa. 1999). In determining whether Nautilus has a duty to

defend MMS, “we may not look . . . beyond the four corners of [E.B.’s] complaint and



       3
         The District Court had jurisdiction under 28 U.S.C. § 1332. We have jurisdiction
under 28 U.S.C. § 1291. “We review a denial of a motion for judgment on the pleadings
de novo.” Zimmerman v. Corbett, 
873 F.3d 414
, 417 (3d Cir. 2017). In considering a
motion for judgment on the pleadings, we must accept as true all facts presented in the
complaint and answer, and draw all reasonable inferences in favor of the non-moving
party—here, MMS. See Bedoya v. Am. Eagle Express Inc., 
914 F.3d 812
, 816 n.2 (3d
Cir. 2019). “Judgment will not be granted unless the movant clearly establishes there are
no material issues of fact, and he is entitled to judgment as a matter of law.” 
Id. (internal quotation
marks and citations omitted). While MMS implores us to look beyond the
pleadings, we may not.
       “We review the denial of Rule 60(b) relief for an abuse of discretion.” Coltec
Indus., Inc. v. Hobgood, 
280 F.3d 262
, 269 (3d Cir. 2002). Under Rule 60(b), “the court
may relieve a party or its legal representative from a final judgment, order, or
proceeding” in light of “newly discovered evidence that, with reasonable diligence, could
not have been discovered” before the judgment was entered. Fed. R. Civ. P. 60(b)(2).

                                             4
how it matches up with the actual terms of the . . . Policy.” Lupu v. Loan City, LLC, 
903 F.3d 382
, 392 (3d Cir. 2018) (citing Kvaerner Metals Div. of Kvaerner U.S., Inc. v.

Commercial Union Ins. Co., 
908 A.2d 888
, 896 (Pa. 2006)). Pennsylvania law does not

recognize any exceptions to this “four corners” rule, even if the insurer knows or should

know that the allegations in the complaint are untrue. 
Id. at 390-92.
       Here, Nautilus asserts that its policy excludes from coverage claims “arising out

of” an assault or battery. The exclusion provides that Nautilus “will have no duty to

defend or indemnify any insured in any action or proceeding alleging damages arising out

of any assault or battery,” regardless of culpability, intent, or relationship of the

perpetrator of the assault or battery to the insured, or whether the damages occurred at

premises owned or operated by the insured. App. 111. The assault and battery exclusion

specifically omits from the policy’s coverage “[a]ll causes of action arising out of any

assault or battery” or “any act, error, or omission relating to such an assault or battery.”

App. 111.

       The term “arising out of” is interpreted in terms of “but for” causation. See

Madison 
Constr., 735 A.2d at 109-10
(citing McCabe v. Old Republic Ins. Co., 
228 A.2d 901
, 903 (Pa. 1967)). Therefore, if an assault or battery was a “but for” cause of the

plaintiff’s injuries, the assault and battery exclusion will apply to allegations that the

insured’s negligence contributed to the injuries. See Acceptance Ins. Co. v. Seybert, 
757 A.2d 380
, 383 (Pa. Super. Ct. 2000) (finding no duty to defend where insured bar’s

negligence in serving alcohol to visibly intoxicated men who subsequently attacked

plaintiff in underlying action was merely a contributing factor and not a direct cause of


                                               5
plaintiff’s injuries). The insurer only owes a duty to defend if the complaint alleges the

insured’s negligence directly led to the injuries. See QBE Ins. Corp. v. M & S Landis

Corp., 
915 A.2d 1222
, 1229 (Pa. Super. Ct. 2007) (finding duty to defend nightclub that

negligently trained staff who restrained a patron because the negligence of the nightclub

and its staff directly caused plaintiff’s injuries).

       All alleged injuries in this complaint are the result of exploitation and assault by

traffickers and customers with whom E.B. engaged in commercial sex acts.4

Accordingly, the assault and battery were the “but for” causes of the injuries E.B. claims.

E.B. nowhere alleges that MMS’s negligence directly caused her injuries or caused an

independent harm. Rather, she alleges that MMS failed to intervene or report the

traffickers’ activities and MMS they financially benefitted from her abuse. The assault

and battery exclusion, however, encompasses claims arising both from an assault or




       4
         MMS argues that the assault and battery exclusion should not apply because
involuntary servitude under Pennsylvania’s Human Trafficking Law does not
“necessarily include[] assault.” Appellant’s Br. at 15. However, our focus is on the four
corners of E.B.’s complaint, in which she alleges that she suffered injury including
physical harm and mental anguish as a victim of human trafficking, including by being
“visibly treated in an aggressive manner” and “held at gun point” and forced to engage in
commercial sex acts. App. 33. These allegations reflect assaults and batteries, and it is
irrelevant for the purposes of deciding insurance coverage whether they also satisfy the
elements of Pennsylvania’s Human Trafficking Law. See Mut. Ben. Ins. Co. v. Haver,
725 A.2d 743
, 745 (Pa. 1999) (“[T]he particular cause of action that a complainant pleads
is not determinative of whether coverage has been triggered. Instead it is necessary to
look at the factual allegations contained in the complaint.”).

                                                6
battery and from a failure to prevent or suppress an assault or battery. This language

unambiguously bars coverage for E.B.’s claims.5

       Accordingly, the District Court did not err by holding that Nautilus has no duty to

defend or indemnify MMS.6

                                            III

       For the foregoing reasons, we will affirm the District Court’s orders.




       5
         Because the insurance policy excludes coverage, we need not address whether
public policy would also preclude insurance coverage for the criminal conduct and
intentional torts alleged in E.B.’s complaint.
       6
         Because Pennsylvania adheres to a strict “four corners” rule, 
Lupu, 903 F.3d at 390-92
(citing 
Kvaerner, 908 A.2d at 896
), the District Court did not abuse its discretion
by denying MMS’s Rule 60(b)(2) motion and declining to consider E.B.’s deposition in
the underlying action to determine whether Nautilus is obligated to defend MMS.

                                             7

Source:  CourtListener

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