The Art of Adjusting® Podcast

Episode #61: The Insurance Implications of Sex Trafficking Lawsuits

• Season 3 • Episode 61

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In this thought-provoking episode of The Art of Adjusting® Podcast, hosts Bill Auten of Auten Claims Management and Chantal Roberts of CMR Consulting dive into a challenging and highly relevant topic: the intersection of insurance coverage and liability in sex trafficking lawsuits.

The discussion begins with an overview of what constitutes human trafficking, drawing from definitions provided by the Department of Homeland Security and insights from IRMI (Insurance Risk Management Institute). Bill and Chantal then analyze recent legal cases involving hotels, businesses, and tech platforms accused of facilitating trafficking—knowingly or unknowingly.

Key topics include:

  • Negligence vs. Intentional Acts – How liability is determined under insurance policies.
  • The Role of Business Owners – What responsibility do hotels, landlords, and other entities have in preventing trafficking?
  • The Intentional Harm Exclusion – Breaking down whether insurance should cover businesses complicit in these crimes.
  • Moral and Ethical Dilemmas – Can (or should) insurers be required to defend such claims?
  • Legal Precedents and Policy Language – What courts are saying about coverage obligations.

Bill and Chantal also tackle broader industry issues, including the duty to defend vs. the duty to indemnify, policy exclusions, and how insurers should respond when policyholders are accused of unethical or illegal behavior.

This episode is essential listening for insurance adjusters, claims managers, risk professionals, and legal experts navigating complex liability issues in today’s world.

This audio has been edited and engineered by Nicholas Kearns, 585-545-9976, njkearns11@gmail.com

For more insights, you might consider a career in liability adjusting or if you're searching for reliable adjusting services, visit Auten Claims Management.

To explore more about Chantal Roberts and her contributions to the industry, visit CMR Consulting.

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William Auten:

Hello, I'm Bill Auten of Auten Claims Management.

Chantal Roberts:

I'm Chantel Roberts of CMR Consulting and welcome to the Art of Adjusting podcast.

William Auten:

Today we're going to talk about life as an insurance adjuster from the perspective of property, auto liability or workers' compensation adjusters. Our goal is to bring interesting topics in the world of claims adjusting to people who are working as an adjuster now and to people who are considering a career as a claims adjuster. Hey Chantel, how are you today?

Chantal Roberts:

I'm doing well, thank you. How are you?

William Auten:

Well, we're in the dregs of winter and it's been very, very cold this week. We had negative temperatures earlier this week, minus two, I think it was one day. In the morning it's warmed up to a balmy 21 degrees today, so each day.

Chantal Roberts:

I do not know why you people live up north well, you've got some weather too, I hear yeah, I was. I was about to say, although Kansas, I mean it's nothing to sneeze at I have been bundled up and just basically staying out or inside, not outside, and making my husband go do everything for me.

William Auten:

How about Florida and Louisiana getting snow?

Chantal Roberts:

Okay, you know it's funny because I remember this case that I had in New Orleans. I had taken it over from an adjuster who quit. This was while I was a claims manager and a person stated that they had slipped and fell at a car wash One of those ones that you do by yourself, you put in some quarters and you wash it yourself instead of driving through. And it was 32 degrees down in New Orleans and I said come on to the plaintiff attorney. He was threatening to sue. I said, well, bring it, because I mean, even a New Orleans jury knows that it snows or that water freezes at 32 degrees. And then, lo and behold, it snows or that water freezes at 32 degrees.

William Auten:

I hope so.

Chantal Roberts:

And then, lo and behold, it snows in New Orleans and in Florida. I think they said it was the first time since, like 1963 in Pensacola.

William Auten:

Yeah, I saw some videos. It was pretty wild. People running through the streets with sleds and towed by cars. Dangerous stuff. Don't do that.

Chantal Roberts:

Yeah, where did they get the sleds, though? I mean, I don't think it would be something that they would sell a lot of.

William Auten:

I don't know.

Chantal Roberts:

I will tell you.

William Auten:

They may have been homemade.

Chantal Roberts:

They could have been Okay. So last little story, so that everybody can laugh at me, especially if you're from the North. Have I ever told you, bill, about the ice fishing story that I went on?

William Auten:

No, okay, no, do tell.

Chantal Roberts:

Okay, well, again, my husband's from Iowa and I am a southern wilting flower that does not do the cold, and one time we went up north to visit his parents and it happened to be cold enough to where we could walk on the lake, which I thought was super cool, because I thought, oh, I've always wanted to do this, I want to walk on water. This is great.

William Auten:

Literally super cool.

Chantal Roberts:

It is. It is. So for someone from the South, that is something super cool, right. And then there's all these sheds and I'm like what are those? And he says those are ice fishing things. And I'm like, can I go knock on the door? And he said no, you cannot, because those are guys sitting in there they're getting away from their wives, blah, blah, blah. And I said, oh, but you just don't understand If I just go in and say that I have just never seen an ice fishing place before. Could I just look here? He goes no, do not, do not embarrass me. In my own home state, do not do it. And I said, okay, fine. So I didn't get to go into the ice fishing place.

Chantal Roberts:

However, we then went over to the I don't know what it's called, the fishing store kind of place. You know, shields is what it's actually called. The name of the place is called shields, like an academy, sports or whatever, where you have all your Duma hickeys, your athletic wear and gear and all that. Yeah, exactly All that kind of stuff. Well, anyway, I was walking through and there are these little bitty fishing poles and I said that is, that is just such a great idea. And he goes what I said those little bitty fishing poles. And I said that is just such a great idea. And he goes what I said those little bitty fishing poles that you get your kids so that they can learn how to go fish with you. I think that's just fantastic. And Aaron goes those are ice fishing poles, because you can't cast. And I'm like, oh well, that's just the stupidest thing I've ever seen in my entire life.

William Auten:

Well, this is how we learn, though, right? This is how we learn.

Chantal Roberts:

I still think it makes a really good kids fishing pole.

William Auten:

So I thought you were going to tell me you went through the ice and went for a swim.

Chantal Roberts:

Oh gosh, no, no, I don't even do and I don't, I do not understand it, that whole polar bear plunge thing nope, yeah, no, thank you yeah, no, no, not gonna do that, no since we've started talking, the snow has just began to fall out.

William Auten:

Here we can. I can barely see across the yard here, oh geez that is not fun Anyway. Anyway.

Chantal Roberts:

We still have from our blizzard three weeks ago. We still have piles of snow. I still have piles of snow in my backyard.

William Auten:

Yeah, we've had snow cover for weeks now. It's just not. You know, usually we'll get some kind of a thaw, but not today. Today we're talking about a very interesting and pretty serious topic of coverage for sex trafficking. Now, this could fall into the category of, I guess, drug trafficking too, but really what we're talking about is the people that are affected by this and their claims against other parties that may have participated in some way.

Chantal Roberts:

Knowingly or unknowingly.

William Auten:

Right In supporting this trafficking activity. Yeah, and we're not talking about the legal aspects of whether or not it's legal to do this or not, or you know, obviously it's illegal to human traffic, but what are the insurance and negligence ramifications about companies or people that happen to assist people in this endeavor? Yes, that's an interesting question.

Chantal Roberts:

I want to give a shout out. She's not one of our six listeners, Nancy Germond, but she does. I guess she's one of our supporters. Not monetarily, Although if you do want to support Bill and me monetarily, we would be happy to do that. Oh sure, and.

Chantal Roberts:

Venmo and we will pay and if you pay us, we will talk about you for however long you want us to, but we may not guarantee that we won't make fun of you. So anyway, but Nancy Germain was the one who suggested this topic because Ermi had written. Chris Boggs he's a very smart insurance thought leader had written an article in Ermi and she suggested that this would be a great podcast topic, because we often talk about liability and there is some liability trips and triggers that can happen through sex trafficking.

Chantal Roberts:

So I thought you know how I am I always want to talk about what the definitions are first so that we can make sure that we are all on the same page, because I think we hear about this sort of thing but we don't necessarily know what it is. I guess we kind of think of it like someone stealing a kid in some kind of Dickinsonian you know thing and chaining them to a piece of equipment and making them do some work that way and making them do some work that way, but that is not necessarily what it is. The Department of Homeland Security has defined it as the use of force, fraud or coercion to obtain some type of labor or a commercial sex act or a commercial sex act. And this particular article that Ermi has written, chris Boggs has written, talks about the Trafficking Victims Protection Reauthorization Act. So we had this Trafficking Victims Protection Act, I think in the year 2000, and it gets renewed every so often.

Chantal Roberts:

So this equips, this Reauthorization Act, equips the government to have resources and tools to do a campaign and do the research and eliminate this kind of modern form of slavery, both domestically and internationally. According to Homeland Security, they specifically used the word slavery because it is coercion and force and the purpose is to hold businesses accountable under the allegations that the businesses allegedly assisted in this kind of trafficking and I think that's where we're going to be focusing on, because that's where insurance comes into play is did our insured who may be, for example, the hotel, or we're going to talk about a data company, I believe who did they know what they were doing? Right?

William Auten:

So there's there's a lot, of, a lot of actually very interesting aspects of this case. And just so the listeners understand, you're saying ERMI. I've never heard it pronounced that way. It's IRMI Insurance Risk Management Institute.

Chantal Roberts:

Yes, yeah, and I think it's armycom. Yes, irmicom. Yeah, that, by the way, a great resource. You do have to be a member to get into some of the back things, back channels, but they do have some great resources. The Big I channels, but they do have some great resources. The Big I, which is IIAInet I think, but it's called the Big I, that is for agents, and again, you have to be a member to get into some of their back catalogs, but these are some great. Even though we talk to adjusters or whatever, there could be some agents listening to us. There could be some attorneys listening to us. This is some great things that I use personally to do research when I'm writing like an expert witness report.

William Auten:

Yeah. So it is a good resource. And in this case they've written an article about sex trafficking lawsuits. So we defined what sex trafficking is, trafficking lawsuits. So we, we defined what sex trafficking is and, um, obviously it's bad. And then the question becomes um okay, so there's the people, there's the real bad guys that are actually making this happen. You know they're. They're collecting people and then they're delivering people, human beings, to other human beings. It's horrible. But then there's the people in the whole chain of events and the businesses in those chain of events and the question becomes can those businesses or people become liable for damages for the people who suffered under these conditions? And I would say, if they knew about it, for sure and it's hard to imagine that they wouldn't Like.

William Auten:

If you're a hotel owner, you probably are going to have an idea of what's going on. You know if it's one night where these people come in and stay, you probably never know. But if there's a repeated, you know. If you happen to be in an area where this happens a lot, you'll know the signs. Chances are law enforcement is informing hotels and stuff to watch for this kind of thing. So in this scenario, we're assuming that the hotel does actually have some sense that this is happening or potentially happening, and they let it happen. And they let it happen. And they let it happen either because they're paid to be quiet or they're just unscrupulous business people who don't mind taking the money from whoever happens to pass through. So you know, for those folks that just let it happen without reporting it, should there be some liability there, I would think as a decent human being you'd say yes, you shouldn't let that stuff go on.

Chantal Roberts:

I was going to say, if you look at our, looking at it from an insurance lens again, if you look at what negligence is, which is basically doing what, or it's the reasonable person test quote, unquote the reasonable person test. And the reasonable person would be a person who does what would be considered to be a normal thing and everyday kind of circumstances. A normal person, I usually say, would be the jury. They're going to determine what a reasonable person is. And would a reasonable person allow someone to be used as a prostitute or something to that effect? And I would argue no.

Chantal Roberts:

So if we're looking at negligence in that particular idea, negligence meaning responsibility or at fault, you got to look at the ABCD test, which we've talked about before, you know, because you do a lot of liability work. Is there a duty? Well, yeah, the duty, as the, let's say, hotel, is not to engage in illegal activities. Was that duty breached? Well, obviously, because that event happened. Was it the proximate cause of the damages? Yes, the damages being that this person and there's male, by the way, there are male human traffic victims, it's not just women victims, it's not just women, it's not just women. So, yes, that person was injured, so then you do have at least the negligence, if we're talking in that instance.

William Auten:

Yeah, so running that negligence test, against this kind of scenario the reasonableness standard applies. It doesn't necessarily mean they have to have broken a law either. I mean you as the hotel owner may not know what the laws are. You can have a pretty good intervene or stop that by either not renting the room to this person or people reporting it to the police and all that. Then that's kind of a duty that you have as well.

Chantal Roberts:

You said something and, if I could interrupt before we move on, because I just thought that I might take a short sidestep you said something to the effect of it doesn't necessarily have to be illegal, it might not necessarily be this, but you as the hotel owner or night clerk or reception desk or whomever maybe the maid sees it, I don't know the cleaning people it reminded me of this one time and I'm going to slightly go, if that's okay with you. I'm going to slightly go off topic, but it reminded me of this one time when I was hiking with my husband and we came across we were finishing, we were walking into the parking lot and we came across a kid who was crying and I talked to him and he said his dad had left him. And and I'm like, ok, oh my gosh. So I call his mother because apparently the parents were divorced. And I called the mom and I said look kid's. Fine, but the dad left. He doesn't know the dad's phone number, but I'm not turning this kid over to the dad.

Chantal Roberts:

If the dad just up and leaves, right, I am going to call the park police because it was a state park and I'm calling. You know, I didn't call the city police but I called the park police because it was a state park and I'm calling. You know, I didn't call the city police but I called the park police and by the time the dad shows back up, the park police was there and the dad was like, come on with me. And I said no, I'm not letting this kid go with you and anyway, that's kind of the thing that you, I would say, need to do or our insurance would need to do. Is I realize that maybe we're dealing with gangsters and you don't want to stand up to gangsters?

William Auten:

Yeah, I mean, it's a it's a tough situation to get yourself and insert yourself in a situation. I get that and it doesn't necessarily, you know if, if you're, if you're feeling like you're putting yourself at risk by getting yourself involved and you don't do anything, I wouldn't say that you've done anything necessarily wrong. Right, you're looking out to protect your own well-being as well here.

Chantal Roberts:

Exactly. I did send you a thing that I had just come across when I was doing my CPCU updates and they were talking about in CPCU 530, which is the legal environment. It talks about hotel guests and tenants and it said and I thought how apropos that we were just talking about this it says under common law, a landlord or hotel operator was under no duty to protect tenants from intruders. Now that's not necessarily what we're talking about, but the book does say. Cpcu does say this area of the law is changing and now courts impose a duty on landlords, hotel owners and public entities to take reasonable cautions to secure their premises against foreseeable risk of harm. Failure to do so can result in liability. So even this particular sense of the law is changing. Our insureds are becoming responsible for this.

William Auten:

I would say if you have a business that attracts people to it, people come to your place to do whatever. If it's a hotel, they're coming there to stay the night. Whatever You're accepting money to do that, I think your duty is a little bit higher in terms of you know when you see something going on, at least notifying authorities. It doesn't mean you have to be the police. You don't have to go out there necessarily and stop things. If you can, that's great, but uh, not everybody is equipped for that. But at a minimum, call the police and make it stop. You know to I. I don't think you can turn a blind eye, no, and and escape liability for something like that. And that is what is kind of being alleged in these sex trafficking things is that these property owners knew what was going on, turned their eye and turned away and just took the money and perhaps took bribes as well. So there's a couple of interesting questions relating to insurance when these lawsuits come. Questions relating to insurance when these lawsuits come. One is, first of all, is it covered under the policy? And second of all, should they benefit from insurance coverage if they're doing this kind of thing? And that's less of a coverage question and more of a morality question.

William Auten:

There was a movement I wrote about a while ago about gun insurance, firearm insurance and opponents of it called it murder insurance. And the insurance was basically designed for someone who lawfully owns a gun, who has to use it for self-defense or some other reason and winds up getting sued for that activity, that this coverage would protect them. And there was a big fight about whether or not that is morally reprehensible or not. Yes, and we don't have to debate that here, but that's kind of the nature of it is. Insurance is a great thing and it will benefit the people who got harmed. But should the people who were the bad guys in this deal and not saying gun owners are bad guys, but the, the purported bad guys in this scenario should they have the benefit of insurance coverage to protect them and protect their assets? And that's the other moral question. That doesn't really have anything to do with policy language.

Chantal Roberts:

It might a little bit, but it is an issue because and the courts tend to agree, spoiler alert the duty to defend is broader than the duty to indemnify, and so they, at least these courts, were at least saying well, insurance companies, you can't just up and say, no, we're not going to defend you against these lawsuits. I also think, for example, when we're talking about that gun quote, unquote insurance, it's the same thing with here, when we're talking about coverage a and b, I think specifically b, maybe coverage b in in the cgl, which is your, what is it?

Chantal Roberts:

the personal liability personal liability where you have the false imprisonment, your defamation, your slander, uh, false advertising, that kind of thing. I think that's when you get into. The whole wasn't an intentional act, and I pulled up an article by a gentleman that I know, joseph Harrington, also a very big thought leader. I don't know if he's on LinkedIn. I don't think Chris Boggs is on LinkedIn either. I mean, maybe they are, but they don't publish a lot. However, if you find them, get their books, read their stuff. Joseph Harrington, chris Boggs really big insurance thinkers, so yeah, but we'll talk about what Joseph Joe said as we get there. But that was about intentional acts and I think that that's kind of what that quote unquote murder thing was about too.

William Auten:

Well, yeah, I think, I think, I think all of these cases have the shadow of the intentional act exclusion, which we can talk about. That now, if you're, if you're ready for it, because when when you, when you uh, sent that to me. It's the first time I read that article and um it, it jumped out at me he's because he says there's no intentional act exclusion in the cgl policy.

Chantal Roberts:

And I said it's the first one it's like the very first one, very first one, and you go back and you read it and you go, oh, well, I the.

William Auten:

The thing is that we use insurance. People use it as a shorthand.

Chantal Roberts:

Yes.

William Auten:

Because the intentional act exclusion is. We all understand it because we've studied it and we know that it means the intentional result or the intentional harm is really what's excluded. So if you're intending to hurt somebody, that's excluded. But if you're intending to just throw a ball at somebody so they catch it and they don't catch it and it breaks their nose, that's, that was unintended. That was unintended, so it's the unintended consequence of an intentional act is covered.

Chantal Roberts:

Yes, and you're absolutely right. The unintended consequence of an intentional act is covered. Yes, and you're absolutely right. And this is, I think, where some attorneys get confused when they're like oh yeah, you totally have a case, it's an intentional act, blah, blah, blah. No, it's the act. We intended to do the act. We didn't intend the consequences, which sounds kind of like a cop out. But there you go.

Chantal Roberts:

I know I've used the example before of the man and woman fighting and she shot down because she didn't. She had a gun. She shot down towards the floor. She was behind a closed door. She shot down behind the door. He knew she had a gun. He was crouching on the other side of the door. She killed her husband. She didn't intend to, but she intended to shoot the gun. She thought he would be standing up and she would maybe shoot his foot or something. You know that would be covered. So this article by Joe Joseph Harrington again great thought leader was kind of like oh, what are you talking about? What do you mean? There's no covered, or there's no such thing as intentional.

Chantal Roberts:

And then he goes on, but what he does talk about is exactly what we just said steps to requirements that have to be considered for something to be uninsurable in a liability policy and therefore excluded, and that would be. This act must have been done intentionally, with the knowledge that it would harm another person or result in some kind of unfair advantage for the insured who is doing this sort of thing. And I think, throughout both of these cases that we're talking about the one with the hotel, we haven't mentioned the software one yet, but with the hotel the word knowingly keeps cropping up and we really haven't talked about that much. We've talked a little bit about it, but it comes down to the fact that you had to know this was going on, and that is part of the problem is with this. One particular hotel example is that it was alleged that they knew and they were taking bribes right. So or kickbacks or whatever, there's.

William Auten:

There's an interesting lens that we can look at this intentional act exclusion. Uh, for this case and for a lot of other cases, uh, michael young is an attorney, um, on linkedin he posts a lot of great stuff and he he asked the question what is an attorney on LinkedIn? He posts a lot of great stuff and he asked the question what is an accident? And he was describing he did that today?

William Auten:

Yeah Well, actually he did it a week ago. Oh, sorry, you may have seen it today, but he posted that a week ago and my response to that was it's the opposite of an on purpose. But that's important because in the scenario that you just laid out with the shooting victim, he was killed because it was an accident. She didn't intend to do that. If she had aimed it directly at his torso, that would have been an on purpose. So that's the main difference. So, when we're talking about these hotels and the sex trafficking and the salesforcecom and their activities, if they didn't know what the end result was, the end result would be considered an accident, not intentional. But if they knew what was going on and they knew that people were getting harmed throughout this process and they continued to facilitate it by making it easier, by furnishing whatever services or products that were being used, they absolutely knew. And if they knew that that was the end result, is that excluded under the CGL policy?

Chantal Roberts:

Right, and I think the courts are all saying, yeah, that would be excluded. And I also think we're talking did they know? And the courts go on and talk about knowing and knowingly do things?

William Auten:

I would doubt that's a black and white question. I'm sure there's a lot of information to be gone through on that.

Chantal Roberts:

Absolutely, absolutely, I would also say. The thing is, though, the courts also state should you have known, and that's something that you mentioned, which is, are you seeing the same people come through every single time? Are they paying in cash? Are they, you know, giving you a weird vibe, or you know something like that? What do the cleaning people say after they leave the rooms? Kind of deal. It's not only did you know, but should you have known? Like what's a bunch of five I don't know 40 year old men walking in with a 16 year old, or I, you know, I.

William Auten:

That doesn't seem right so I would say that there's some signals that you may have that, uh, as a as a as a business owner there, there could be some signals, and I'm sure there's industry guidelines or white papers or just information for people who own those types of establishments to inform them that this is a possibility. That's the one level, but on the basic level, the person that's actually taken the reservation and sees what's happening on the ground in front of the building, they should know, yeah, and sees what's happening on the ground in front of the building.

Chantal Roberts:

They should know. You know, yeah, and this also I don't know if this is going to translate very well on our radio or on our audio podcast, but there is a signal that women can give to people that they are in distress and that they need help and they need to be rescued. And I'm going to do it. You put your thumb on your palm and then you fold your four fingers over and you just keep doing that, and it's a signal that you are in distress as a woman. Distress as a woman.

Chantal Roberts:

I'm quite sure men don't know this. We have all sorts of little pieces of paper in our bathrooms and, for example, if we're in a place where a lot of people come through, we might have a piece of paper and it's from the bar or it's from the restaurant, and it'll say do you need a ride home? Do you need to get away? Tell your waiter you need an angel margarita, and that means that we are going to call the police for you, or tell them that you need a devil martini and we will walk you to your car, or something like that. And there's like all these sorts of code words that allegedly men don't know, and that would be a way for our insureds to be aware of these things, to try to help sex or the human traffickers, or the trafficees, the people who have been kidnapped, get away.

William Auten:

Yeah.

Chantal Roberts:

Protect them and protect themselves.

William Auten:

Yeah, well, I think, on balance, society does, you know, an okay job trying to prevent these types of things. Yeah, but the bad guys are smart.

William Auten:

Yeah, they are so we have to be extra vigilant and some businesses are more exposed to those types of problems than others and those that are, as you said, should be aware and should be observant and taking precautions. I'm sure law enforcement approaches these places to give them a heads up that that kind of activity may be happening. So the short story on coverage is, even though the way I laid it out looks like there's probably not coverage, if they knew what was going on, turned their eyes away and accepted money for it. That's pretty intentional and it sounds like they knew that damages were resulting from that ignorance and therefore coverage under that scenario would not apply.

William Auten:

But these cases are not so cut and dry and there are a lot of allegations that are made in a lawsuit and many of those allegations are going to not only make allegations of intentional torts or intentional wrongs, they're also going to make allegations of negligence allegations in there. It almost automatically triggers coverage on the defense side. So you at least have to provide a defense, and a phrase you'll hear as an adjuster is often that you have to look at the four corners of the policy, and I never really understood that because there's nothing at the corners of the white white paper, but that's how attorneys typically refer to it, and what they're getting at is that you know you have to look at the four corners of the complaint to see what all, what all the allegations are and if any of them fall under the category of negligence that could be covered. If one out one allegation is covered, then you've got to defend the whole thing Exactly. You don't have to pay indemnify for the whole thing, right, but you at least have to defend it.

Chantal Roberts:

Yeah, that's where we get into that whole saying that we've said multiple times in this podcast, the duty to defend is broader than the duty to indemnify. So one of the things that we also would likely talk about is many of these, especially for, for example, hotels would have an abuse or assault and battery exclusions, and so as adjusters, we normally don't know about these things until the lawsuit shows up, right, and we can't just slap a letter of declination on that we would probably need. Well, we would give that over to defense counsel and more than likely, maybe coverage counsel and then split that coverage counsel and then split that. So we have two attorneys, two adjusters and then let coverage go ahead and send out a reservation of rights letter or waiver or whatever for what may or may not be covered under this particular policy, this particular lawsuit. But that is something to think about.

William Auten:

Yeah and then. So, once we've weeded through what coverage may or may not say about a particular case, then we have to think about is it? If coverage is available, should it be for someone who does this kind of thing knowingly?

Chantal Roberts:

Well, I don't think that we can. Just to be contrary, I don't think that we can take that coverage away. I mean, that's what they paid a premium for unless they did it intentionally, which again is going back to Joseph Harrington's two steps. If they did it intentionally, then there wouldn't be any coverage and we could take that away.

William Auten:

Sure.

Chantal Roberts:

Now are you asking like should we renew their policy?

William Auten:

No, not really. I mean that's a good question too. I mean an underwriter should probably put the kibosh on that policy right.

Chantal Roberts:

Yes, as adjusters, we should definitely notify underwriting that this is going on.

William Auten:

Yeah, you know you're paying for protection, right, but you're paying for a very specific type of protection. You're paying for defense and indemnity. So you're this hotel, you have been participating in this activity and accepting money for it and looking away, not reporting it to the police, and it's gone on for years and hundreds or maybe thousands of people have been injured from this and you've been part of it. And now you're going to have to defend that and that's going to cost you a lot of money. It could cost hundreds of thousands of dollars, but you don't have to pay it because you have an insurance policy Boy. That just doesn't sit right, does it?

Chantal Roberts:

No, but to be fair, if coverage is found not to be applicable, you could, in certain states, ask for your defense costs back. That's true, you would have to do that in your reservation of rights letter or waiver or whatever y'all want to call it in the weird state of New York, but you could do that. And again, that is something that your lawyers are going to be having a separate case going on at the same time that the defense case is going on. So, for example, your coverage counsel may be having a motion for summary judgment that there is no coverage or something to that effect, so that the insurer would not have to provide coverage, thus would not have to provide a defense right.

William Auten:

Right.

Chantal Roberts:

Now, unfortunately, what many judges do is put a stay on the coverage suit until the defense is decided. So which I think is weird. And I did ask an attorney about that one time and they said, well, if you think about it, it's you got to figure out if you got, if you're going to be defending them, before you can deny the defending. And I'm like, no, that doesn't really make sense to me. But OK, I guess it only makes sense to an attorney. But all right, but yeah. So, because it seems to me that, okay, you find out that, yeah, you defended them, maybe you get a plaintiff verdict instead of a defense verdict or something like that, and you have to owe a million dollars or whatever, and then you have to file your, and then the motion for summary judgment goes through, and then you find out that you don't owe it. So I don't know, it's, I've actually never gotten that far, to be honest with you. So if you know about it, let me know yeah, let us know drop us a line well, I I have a proposal.

William Auten:

I think we should, um we should eliminate the phrase intentional act exclusion and call it the intentional harm exclusion.

Chantal Roberts:

That's a great idea.

William Auten:

That'd be good. Yeah, that's more sense, right? Yeah, because that's really what we're talking about. We're talking about whether they intended to cause injury or damage to someone else.

Chantal Roberts:

Yeah, intentional harm. I like that I elect you president of insurance Boy, yay, congratulations.

William Auten:

Well, I'll wear the crown. It'll cover my bald head.

Chantal Roberts:

So what are some of the challenges for our insurance and for our, for our adjusters and I think you were talking about that it's managing that blur between negligence and intentional harm yeah.

William Auten:

So one one really important thing to to make sure you don't do is, um, the opposite of what I just talked about is is, look, look at all this through a morality lens because, um in, don't take this the wrong way, people, but the insurance language is static, it doesn't change. The facts of the case generally aren't going to change until you get some new information. So you've got to analyze that in the bubble that it's in, and if you're morally opposed to it, that could cloud your judgment, because you've got to look at what the wording says and what happened and compare those two things. It doesn't mean that you can't have a moral compass. That's not what I'm saying.

William Auten:

But A lot of people I have seen where adjusters will get wrapped up in the morality of something. You know that person who got hurt was a convicted child molester. They don't deserve a dime. Okay, maybe, but on that particular day they were just, you know, minding their own business when they got hit by a drunk driver, you know. So, yeah, yeah, you have to isolate these things and I'm not saying that you don't have that, like I said, moral compass. You don't have to like that guy. You don't have to, but you've got to. You've got to look at it objectively Now. That being said, a case like that, that particular plaintiff might not do really well in front of a jury because of history, if that stuff was even admitted, you know, admissible.

Chantal Roberts:

But anyway that's a Most of the time it's not. But you speak to a good point and this is where we're talking about that four corners. If you didn't understand, the fact that that person is a child molester, for example, is extrinsic or outside of this particular sorry blue is all upset Squirrel. You know what I mean? It's extrinsic to the policy. Our policy doesn't say that. Our insurance company is the moral compass of people, right? Neither are our adjusters. So the fact that he's a child molester is outside of the fact and we can't really consider it. We would consider it if the allegation is that a child was molested. That's different. Yeah, that's when we would consider it. But if it's a car accident, it's not material. And I think that's really what you were saying.

William Auten:

Yes, that's what I'm saying.

Chantal Roberts:

I do talk about this quite a bit to my students and when we're facilitating 530, the legal environment, I talk a lot about what is a material fact, because the insured could lie to us or do some kind of fraud.

Chantal Roberts:

But if it kind of is not a material fact, we as the insurance company do not necessarily void the policy and deny coverage. So, for example, if our insured says that they have a sprinkler because they're a commercial kitchen and they have a windstorm come through and they have roof damage, and we're walking through as adjusters looking at all of the damage and we see that they don't have a sprinkler, that was a material misrepresentation or that was a misrepresentation, excuse me, that was misrepresentation, they don't. They lied to us. But does that have anything to do with the roof claim? No, can we deny that claim? And you know, void the policy and all that. Sure, they lied to us. Do you want to die on that hill? No, now, if there was a fire that these mythical sprinklers could have put out, then yes, that's a material fact. So I think that's kind of what you were saying, if I could put words in your mouth.

William Auten:

Kind of yeah, in the context of these claims with the hotel and the trafficking, an adjuster's moral compass is going to be tested again, because now you've got to make a decision. Do you pay for their defense? Well, the court's probably going to say that you do, and if you don't like these people because of the bad things they did, you don't really want to help them, but it doesn't matter.

Chantal Roberts:

Yeah, it doesn't matter.

William Auten:

That's what the policy says Exactly. On the flip side, you may find that there's no coverage for the act itself, so there's no indemnity available to this policyholder. So that means these victims may not get enough compensation if this entity doesn't have any cash to pay a judgment. Right, and you feel bad. And you feel bad and so you can't just say, well, we're going to cover it so that we can give these folks some money for the. It's tough, I mean, this is kind of what you've got to deal with in the job here, and if there's no coverage, there's no coverage, exactly.

Chantal Roberts:

You want to help the victims, but again, this is the contract that the insured bought and this is the bet that the insured needs to lie in.

William Auten:

If you feel bad about giving them a defense, you should feel equally bad about allowing them to have a payment made on their behalf to somebody else, even though that somebody else probably really deserves some compensation for what they went through. So, boy, morality. I once brought up morality to an attorney and he just laughed he goes well, this is insurance. There's no morality here.

Chantal Roberts:

I disagree. I mean we do have these ethical and practical considerations that we have to undergo as adjusters when you have licenses. If you have licenses, you do have to have, for example, three or four hours of ethics. So these kind of things that we're looking at is an ethical thing. I mean, do we treat the insured the same as every other insured? Yes, we have to. That is what we have to do. That's ethics. Whether we want to or not, whether we agree with it or not, this is what the contract says and that's our ethical duty to the insured.

William Auten:

Yeah.

Chantal Roberts:

Yeah, so yeah, there's some ethicalness and morality in insurance.

William Auten:

Sure, sure. There is At the end of the day, you've got to be a good person.

Chantal Roberts:

At the end of the day, you got to be a good person, and I think you said it once before if you treat someone who was either making a claim or I think it was making a claim, treat them as you would your own grandmother. Yeah, that's what I do. Even if it's the insured, first party claimant, third party claimant, treat them like you would want your grandmother treated. Yeah, and you're probably not going to have any trouble out of this, yeah. So what are our takeaways?

William Auten:

Takeaways are when you, when you perform an act of intentional harm, there's a likelihood, depending on how the lawsuit is filed and the causes of action in there, that you might get a defense, even though they may deny indemnity coverage later on if there's a verdict against you. One of the phrases that was used in that article by Harrington yeah, he said that sometimes insureds will walk away, policyholders will walk away from a case because they believe they have no coverage and they'll just handle it themselves when in reality they may actually have coverage if they misunderstand what this intentional act exclusion really means and again it's an intentional harm exclusion, not an intentional act exclusion really means and again, it's an intentional harm exclusion, not an intentional act exclusion. So that could lead to some confusion for policyholders and potentially adjusters too, where they may try and get out of coverage where they actually owe it. So that's one takeaway I would say.

Chantal Roberts:

Yeah, I would also encourage our adjusters to work closely with attorneys because, like I said, when we get these sorts of cases, nine times out of 10, they're already going to be a lawsuit and attorneys don't necessarily investigate a claim, necessarily investigate a claim, and maybe it's because they don't understand how it's done, because they aren't an adjuster, they are lawyers, they deal with the law, and so when we adjusters are talking to our defense counsel or our coverage counsel, we need to explain these sorts of things. We need to explain these sorts of things, even though the attorneys don't get me wrong understand the duty to defend and the four corners and the eight corners and all of this sort of thing. We need to explain coverage a little bit more to them and the idea of intentional harm, like you said, it's shorthand.

William Auten:

It is.

Chantal Roberts:

And that's what we use, and we have to be careful with ourselves, even because, like I said, when I read it, I'm like Joe, what are you talking about? Come on now. But he's smarter than I am.

William Auten:

He's smarter than I am, and when I read it I'm like, oh, I get it. Yes, you're absolutely right. Yes, so anyway. Well, explaining how the coverage works is important for attorneys and lay people.

William Auten:

I mean insurance coverage. The policy limit is not an unending pool of money. That's unconditional. It is conditional, it is very conditional. It depends on what the coverage says and it depends on liability and who is actually negligent there. Yeah, you know, just because you got hurt on somebody's property doesn't mean that you just get to dip into that pool, Exactly so.

Chantal Roberts:

Yeah. So next episode I'm super excited about, I believe, remind me about, I believe, remind me, I believe. Our next episode is going to be with Heather Blevins, and she is the insurance rebel and super excited about that. If you don't follow her on LinkedIn, again follow her, heather Blevins. She's going to be talking to us about resiliency, about how adjusters can be more resilient in their lives. It should hit, if I recall correctly, oh right before the Valentine's Day, so February 13th is when it should hit. So be just in time for some love. Yeah, great, can't wait. Be sure to leave us a review. Yes, follow us. Like us subscribe.

William Auten:

Say nice things on LinkedIn.

Chantal Roberts:

Yes, say nice things on LinkedIn, blah, blah blah, that sort of thing. All right, all right Well.

William Auten:

I guess we're all set.

Chantal Roberts:

We are. We'll see you later.

William Auten:

All right, take care.

Chantal Roberts:

Bye.

William Auten:

Thanks for joining us on the Art of Adjusting podcast, where we talk about life as an insurance adjuster. Hit that subscribe button real quick and tell all of your adjuster friends to check this out as well. For independent adjusting services, go to wwwautinclaims, and for anyone interested in working as an independent liability adjuster, go to the contact us tab to join our roster.

Chantal Roberts:

So this wraps up another Art of Adjusting podcast. If you enjoyed this podcast or this episode, please give us five stars and a review. It does help the algorithm pick us up. In the meantime, you can contact me at theartofadjustingcom for consulting and training purposes.

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Chantal Roberts

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William Auten

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Nicholas Kearns

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