No Coverage for Lawsuit Alleging Human Trafficking and Wage and Hour Violations

Applying Pennsylvania law, the United States District Court for the Eastern District of Pennsylvania has held that no coverage is available under a professional liability policy for a lawsuit alleging human trafficking, wage and hour, and consumer protection violations because all counts rested on intentional conduct that occurred after professional services were rendered.  Hemphill v. Landmark Ins. Co., 2020 WL 3871295 (E.D. Pa. July 9, 2020).

In 2018, a former employee sued his former boss and employer, the insured staffing company, alleging that during the course of his employment, the staffing company forced him to undertake activities beyond the scope of his job responsibilities, withheld money, lodged him in overcrowded and unsanitary housing, and threatened him with arrest and permanent expulsion from a temporary-worker visa program.  The professional liability insurer declined to defend the staffing company in the lawsuit because the complaint did not allege negligent acts, errors, or omissions “solely” in the performance of professional services, which the policy defined as “providing a permanent and/or temporary employee placement services and/or visa application process services for others for a fee.”

In response, the staffing company filed a declaratory judgment action against the insurer.  Relying on the policy’s definition of “professional services,” the court determined that the alleged violations did not occur in the performance of professional services because the alleged conduct occurred after the employee had been placed with an employer and received his temporary-worker visa.  Additionally, the court concluded that the policy afforded no coverage for the alleged conduct because coverage applied to negligent acts, errors, or omissions, and the human trafficking and wage counts required intentional conduct and the consumer protection count alleged intentional conduct.  The court also rejected the staffing company’s argument that the underlying complaint implicitly alleged a negligent misrepresentation claim regarding the former employee’s start date, compensation, and living conditions for the same reasons and because the complaint did not allege facts that the former employee relied on a representation regarding housing.  Moreover, the former employee did not seek redress regarding his start date.