The federal district court granted summary judgment requiring the insurer to defend the insured hotel in a suit involving sex trafficking of a minor. Am. Fam. Mut. Ins. Co. v. Windham Motels & Resorts, Inc., 2026 U.S. Dist. LEXIS 66641 (S.D. Ind. Feb. 25, 2026).

G.M., a minor, sued the hotel alleging that she was subjected to sex trafficking and raped at seven of the insured’s hotels in 2016. She alleged that her stays at the hotels generated “consistent red flags” that were “open and obvious” to staff. These red flags included paying for rooms in cash and on a day-to-day basis, requesting rooms away from other guests, obvious illegal drug use, frequent requests for linen changes, unusual quantities of used condoms in the trash, male visitors asking for G.M. or her traffickers at the front desk, and visible signs of physical abuse.

The hotel tendered the underlying suit to American Family. The policy provided for business liability coverage, including for “bodily injury” and “personal and advertising injury.” The policy also included an “Abuse or Molestation Exclusion” which stated coverage “does not apply to ‘bodily injury’ . . . or ‘personal and advertising injury’ arising out of . . .[t]he actual or threatened abuse or molestation by anyone or any person while in the care, custody, or control of any insured[.]”

American Family defended under a reservation of rights and then filed suit for a declaratory judgment. Cross-motions for summary judgment were filed.

American Family first argued no occurrence was alleged in the underlying complaint. Even if this was correct, the court noted that the duty to defend was triggered if G. M. alleged injuries that met the definition of “personal and advertising injury.” The policy covered “personal and advertising injury caused by an offense arising out of your business[.]” “Personal and Advertising injury” was defined as “injury, including consequential ‘bodily injury’, arising out of . . . [f]alse arrest, detention or imprisonment” among other offenses.

The underlying complaint contended that G.M.’s injuries were at least in part caused by her coerced imprisonment in the insured’s rooms. This was sufficient to characterize her injury as one caused by false imprisonment and thus a “personal and advertising injury” under the policy.

American Family next argued the Abuse or Molestation Exclusion barred coverage. The insurer contended that G. M. was in the care, custody or control of the insured. G.M. alleged that the insured was aware of her presence or negligently unaware. These allegations meant that G.M. was not in the care, custody or control of the insured. Therefore, the exclusion did not apply.

Finally, American Family argued that public policy should bar coverage for those who allegedly participated in, and profited from, child sexual trafficking. The insured, however, was not alleged to have violated any criminal laws, nor had it been convicted under state or federal law. Given American Family’s inability to point to a public policy applicable to the underlying factual allegations, the court declined to declare the policy void as a matter of public policy.

American Family’s motion for summary judgment was denied. The hotel’s cross-motion seeking a declaration on the insurer’s duty to defend was granted but denied without prejudice regarding the insurer’s duty to indemnify as premature.