Consumers are bombarded by insurance company advertisements loaded with puffery and bloated promises. While celebrity hucksters, jovial lizards with heavy accents, and emu sleuths might be amusing on TV, real world policyholders are left to discern fact from fiction when it comes to promotional statements in insurance company quotes.
A recent decision out of an Indiana appellate court analyzed whether certain language in an insurer’s quote for crime coverage misled the policyholders to believe their losses would be covered if they purchased the coverage.1
Background
Policyholders Metal Pro Roofing and Cornett Restoration are owned by Richard Cornett and insured by Cincinnati Insurance Company. In February 2013, the companies discovered that someone hacked into their bank accounts and stole over $78,000. The companies made claims under the “Forgery or Alteration” and “Inside the Premises – Theft of Money and Securities” provisions of crime policies issued by Cincinnati.
The “Forgery or Alteration” coverage provides, in relevant part:
We will pay for loss resulting directly from “forgery” or alteration of checks, drafts, promissory notes, or similar written promises, orders or directions to pay a sum certain in money that are
(1) Made or drawn by or drawn upon you; or
(2) Made or drawn by one acting as your agent; or that are purported to have been so made or drawn.
The policies define “forgery” as “the signing of the name of another person or organization with intent to deceive.” The policies do not define “alteration.”
The “Inside the Premises” coverage provides:
We will pay for loss of “money” and “securities” inside the “premises” or “banking premises”:
(1) Resulting directly from “theft” committed by a person present inside such “premises” or “banking premises”; or
(2) Resulting directly from disappearance or destruction.
The policies define “premises” as “the interior of that portion of any building you occupy in conducting your business”; they define “banking premises” as “the interior of that portion of any building occupied by a banking institution or similar safe depository.”
The insurer denied the computer-hacking claims, then filed for declaratory judgment to confirm its coverage determination. The policyholders answered the complaint and brought a counterclaim alleging breach of contract and bad faith. The counterclaim alleged that Cincinnati:
[A]cted in bad faith in handling the insurance claim by making an unfounded refusal to pay policy proceeds, causing an unfounded delay in making payment, deceiving [the insureds] without a rational or principled bases for denial of the claim, although the company intended this situation to be covered by the Crimes coverage and has made public representations that the commercial crime insurance is intended to protect insured business clients from someone hacking into their computers and into their bank accounts to steal money.
Trial court motions
The parties filed cross-motions for summary judgment. The trial court granted summary judgment in favor of Cincinnati on all issues except one. The court ruled that (1) the claimed losses are not covered under the terms of the policies and (2) because the losses are not covered under the terms of the policies, the policyholders’ first two theories of bad faith—i.e., “unfounded refusal to pay policy proceeds” and “unfounded delay in making payment”—must fail.2
As for the policyholder’s third theory of bad faith—that Cincinnati deceived them—the trial court noted the counterclaim “does not aver any facts as would support” the claim but allowed the claim to proceed anyway because Cincinnati did not present evidence on summary judgment to refute the claim.
The policyholders then amended the counterclaim. They alleged that even if their computer-hacking losses do not fall under the coverage provisions noted above, certain language in Cincinnati’s quotes for crime coverage led them to believe that such losses would be covered if they purchased the coverage. The policyholders attached two quotes to the amended counterclaim containing the following language:
Businessowners typically think of your buildings, inventory, furniture, office equipment, automobiles and mobile equipment when designing an insurance program to protect your assets. Ironically, you would be overlooking what is arguably one of your most valuable assets – your money and securities.
Cincinnati can insure your money and securities while at your premises, inside your bank and even off site in the custody of a courier. While you’ve taken precautions to protect your money and securities, you run the risk of loss from employees, robbers, burglars, computer hackers and even physical perils such as fire.
Give yourself peace of mind with Cincinnati’s crime coverage to insure the money and securities you worked so hard to earn.
Crime Expanded Coverage (XC®) Plus Endorsement $125.00
The insurer moved for summary judgment on the amended counterclaim, arguing, in part, that the above-quoted language does not amount to a representation that computer-hacking losses would be covered. Moreover, even if the language could be read to afford coverage, the insurer argued it was negated by the disclaimer (in fine print at the bottom of the page):
This proposal is based on rating information supplied by you and is valid for 30 days from the date quoted, subject to any pending rules and rate filings. It is also subject to normal underwriting consideration, favorable inspection and acceptable loss experience. This is not a policy. For a complete statement of the coverages and exclusions, please see the policy contract.
The policyholders opposed the motion. They included a supporting affidavit from Cornett, which asserted, among other things, that he relied upon the description of coverage in the crime policy quote. Cincinnati sought an order from the court striking the affidavit.
The trial court granted the insurer’s motion to strike, concluding that Cornett’s statement that he relied on the coverage description conflicted with his prior deposition testimony that he did not read the policy until after the loss.
The trial court also granted Cincinnati’s motion for summary judgment. It addressed the policyholders’ amended counterclaim as one for fraud, fraudulent inducement, and/or estoppel. Ruling in favor of the policyholders in part, the trial court ruled that a finder of fact could read the language of Cincinnati’s quotes as a false representation that the policy affords coverage against loss of money or securities on deposit at a financial institution from computer hackers. However, given its ruling on the motion to strike, the court also found that Cornett did not rely upon the document because it wasn’t read. The court concluded this “lack of reliance” was fatal to any claims of fraud, fraudulent inducement, or estoppel.
Appellate Decision
The policyholders appealed. Regarding the first summary-judgment order, the trial court ruled the computer-hacking losses were not covered by the “Forgery or Alteration” or “Inside the Premises” provisions. The Court of Appeals affirmed that part of the trial court ruling, holding there was no evidence the hackers forged or altered anything, and no evidence the person who committed the thefts was inside the policyholders’ buildings or a bank building.
The appellate court reversed the trial court decision on whether the insurer’s quotes for crime coverage led the policyholders to believe that computer-hacking losses would be covered if they purchased that coverage. Notably, the appellate court observed that it would be entirely reasonable for a prospective insured to read the language in the quote to mean, “If you want to be covered for theft by computer hackers, you should buy this endorsement.”3
In its analysis, the appellate court explained there was no conflict between Cornett’s affidavit and his earlier deposition testimony. The appellate court pointed out that Cornett testified only that he did not read the Crime XC+ portions of the actual policies until Cincinnati denied the claims; he did not disavow reading or relying on the descriptions in the quotes when deciding to purchase the policies. As such, the appellate court found the trial court should not have stricken the affidavit or granted summary judgment for the insurer on that basis.
The appellate court further commented that the trier of fact should decide whether the quote language is misleading and whether the disclaimer neutralized that language.
Finally, the appellate court rejected the insurer’s argument that it cannot be held liable for any misrepresentation because the quotes were given to the policyholders by their insurance agency, rather than directly by the insurer. The appellate court emphasized, however, that the insurer drafted the quotes – not the agent. In that regard, the court pointed out that “Cincinnati does not cite any authority suggesting that it is free to say whatever it pleases in its quotes as long it does not deliver those quotes directly to the prospective insured.” The appellate court remanded for trial on the policyholders’ amended counterclaim.
Takeaway
As policyholder attorneys, we always advise insureds on the importance of reading their insurance policies (before a loss) and being familiar with terms and conditions such as notice provisions, deductibles, definitions and exclusions. The Metal Pro Roofing case takes this recommendation a step further. Policyholders and practitioners should also pay careful attention to any representations made by an insurer in its promotion materials or insurance quotes as part of the policy purchase. This coverage case survived dismissal because the insurer was forced to explain why the breadth of coverage it touted pre-sale was denied after a computer hacking loss occurred.
If you have questions about your insurance policies or claims, feel free to call us at (732) 704-4647 or e-mail me directly at vpedro@merlinlawgroup.com.
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1 Metal Pro Roofing, LLC v. Cincinnati Ins. Co., 130 N.E.3d 653 (Ind. App. 2019).
2 See Metal Pro Roofing, 130 N.E.3d at 656.
3 Id. at 658.
