Indiana Appellate Court Puts Insurers at Risk for Claims That Policy Quote Was Misleading

(September 2019) - In Metal Pro Roofing, LLC and Cornett Restoration, LLC, v. The Cincinnati Insurance Company, 18A-PL-2205, 2019 Ind. App. Lexis 355 (Ind. Ct. App. August 9, 2019), the court affirmed a trial court decision that a policy clearly did not cover a hacking loss, but reversed and remanded the case for further proceedings on a claim that the quote for the policy was misleading.

In February 2013, Metal Pro Roofing and Cornett Restoration discovered that someone had hacked into their bank accounts and stolen over $78,000. They asserted that the losses were covered by two provisions of its Crime Policy, including “Forgery or Alteration” and “Inside the Premises – Theft of Money and Securities.” Cincinnati Insurance determined there was no coverage, denied the claims, and filed a complaint for declaratory judgment. The companies filed a counterclaim for damages, including counts for breach of contract and insurance bad faith.

On cross-motions for summary judgment, the trial court ruled that the policy did not cover the losses. Further, because the losses were not covered there was no claim for bad faith. The court left open a potential claim that the quote for the policy had been deceptive. The parties then amended their claim to indicate that the quotes for the policies misled them into believing hacking losses would be covered. The trial court later granted a motion for summary judgment filed by the insurer.

The Indiana Court of Appeals agreed that the express terms of the “Forgery or Alteration” provision were not applicable because there was no evidence the hacker signed or forged any documents. Similarly, the “Inside the Premises” language did not apply to the hacking of an account. Therefore, summary judgment was affirmed as to lack of coverage.

The Court of Appeals reversed as to the claim of fraud or fraudulent inducement because the quote expressly referenced “the risk of loss from employees, robbers, burglars, computer hackers, and even physical perils such as fire.” The court concluded that a prospective insured could read that language as promising coverage for computer hacking claims and could rely upon that language in entering the agreement. Further, the court held that a disclaimer in the quote indicating it is not a complete statement of the coverage and exclusions in a policy does not neutralize otherwise misleading quote language. However, Cincinnati Insurance authored the language of its quote and did not cite to any authority suggesting that it is free to say whatever it pleases in its quotes as long as it does not deliver those quotes directly to the prospective insured. It was therefore subject to potential liability.

This case is currently subject Cross Petitions for Rehearing, filed by all parties.

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