Court Opinion

ID: 4521105
Source: CourtListenerOpinion
Date Created: 2020-03-31 18:09:54.833529+00
Date Added: 2024-06-11T12:03:31.984643
License: Public Domain

FILED
                                                                           Mar 31 2020, 8:10 am

                                                                               CLERK
                                                                           Indiana Supreme Court
                                                                              Court of Appeals
                                                                                and Tax Court

      ATTORNEYS FOR APPELLANT                                    ATTORNEYS FOR APPELLEE
      George M. Plews                                            Patrick P. Devine
      Christopher J. Braun                                       Jennifer Kalas
      John M. Ketcham                                            Hinshaw & Culbertson LLP
      Josh S. Tatum                                              Schererville, Indiana
      Plews Shadley Racher & Braun LLP                           Adam P. Joffe
      Indianapolis, Indiana                                      Traub, Lieberman, Straus &
                                                                 Shrewsberry, LLP
                                                                 Chicago, Illinois

                                                  IN THE
          COURT OF APPEALS OF INDIANA

      G&G Oil Co. of Indiana,                                    March 31, 2020
      Appellant-Plaintiff,                                       Court of Appeals Case No.
                                                                 19A-PL-1498
              v.                                                 Appeal from the Marion Superior
                                                                 Court
      Continental Western Insurance                              The Honorable Kurt M. Eisgruber,
      Company,                                                   Judge
      Appellee-Defendant.                                        Trial Court Cause No.
                                                                 49D06-1807-PL-28267

      Mathias, Judge.

[1]   The Marion Superior Court granted summary judgment to Continental

      Western Insurance Company (“Continental”) after concluding that the
      Court of Appeals of Indiana | Opinion 19A-PL-1498 | March 31, 2020                           Page 1 of 11
      commercial insurance policy held by G&G Oil Co. of Indiana (“G&G”) did

      not include coverage for losses suffered as the result of a ransomware attack.

      G&G appeals and argues that the policy terms unambiguously provide

      coverage for losses resulting directly from the use of a computer to fraudulently

      cause a transfer of G&G’s funds.

[2]   We affirm.

                                  Facts and Procedural History
[3]   Continental issued a multi-peril commercial common policy to G&G for the

      policy period of June 1, 2017 to June 1, 2018. The policy has several coverage

      parts, including an “Agricultural Output Coverage Part,” “Commercial General

      Liability Coverage Part,” and “Commercial Crime and Fidelity Coverage

      Part.” Appellant’s App. Vol. 2 pp. 16–18.

[4]   The Commercial Crime Coverage Part includes the following provisions

      relevant to this appeal:

              Coverage is provided under the following Insuring Agreements
              for which a Limit of Insurance is shown in the Declarations and
              applies to loss that you sustain resulting directly from an
              “occurrence” taking place during the Policy Period shown in the
              Declarations . . .

                                                        ***

              6. Computer Fraud

      Court of Appeals of Indiana | Opinion 19A-PL-1498 | March 31, 2020        Page 2 of 11
                        We will pay for loss of or damages to “money”,
                        “securities” and “other property” resulting directly from
                        the use of any computer to fraudulently cause a transfer of
                        that property from inside the “premises” or “banking
                        premises”:

                        a. To a person (other than a “messenger”) outside those
                        “premises”; or

                        b. To a place outside those “premises”.

      Appellant’s App. Vol. 3, pp. 66–67.

[5]   On November 17, 2017, G&G employees discovered that the company was the

      victim of a ransomware attack. Employees were unable to access the company’s

      servers and most of its workstations. The workstations were useless without

      access to the servers. A hijacker had gained access to G&G’s computer

      network, encrypted its servers and most workstations, and password protected

      its drives. The hacker demanded a ransom, and in exchange for payment,

      agreed to send G&G the passwords and restore its control over its computer

      servers.

[6]   The hijacker demanded payment in bitcoin. G&G made the payment

      demanded, but the hijacker refused to restore G&G’s control over its computer

      servers and demanded additional bitcoin. Ultimately, G&G paid $34,477.50 for

      the four bitcoins it sent to the hijacker. After receiving the fourth bitcoin, the

      hacker gave G&G the passwords enabling it to decrypt its computers and regain

      access to its servers.

      Court of Appeals of Indiana | Opinion 19A-PL-1498 | March 31, 2020          Page 3 of 11
[7]   On November 29, 2017, G&G submitted a claim to Continental requesting

      coverage for the ransomware attack and ensuing losses under the computer

      fraud provision included in the Commercial Crime Coverage Part of its

      insurance policy. Continental denied G&G’s claim on January 9, 2018, in part

      because G&G had not purchased the optional “Computer Virus and Hacking

      Coverage” offered under the Agricultural Output Coverage Part. Continental

      also concluded that G&G’s losses did not result directly from the use of a

      computer to fraudulently cause a transfer of G&G’s funds.

[8]   On July 17, 2018, G&G filed a complaint in Marion Superior Court seeking a

      judgment requiring Continental to indemnify G&G for the losses incurred as a

      result of the ransomware attack. Both parties filed motions for summary

      judgment, and the trial court heard argument on the motions on March 27,

      2019. Continental argued that it was not required to indemnify G&G’s losses

      because they were not the result of computer fraud. Continental asserted that

      the ransomware attack was akin to an act of theft rather than fraud. And

      Continental noted the exclusion in the insurance policy for losses resulting from

      a computer virus or hacking. G&G argued for a more expansive interpretation

      of the term “fraud” and claimed that the hijacker’s use of computers caused its

      losses, thus entitling G&G to coverage under the terms of its insurance policy.

[9]   On May 30, 2019, the trial court issued its order denying G&G’s motion for

      summary judgment and granting Continental’s cross-motion for summary

      judgment. The trial court concluded:

      Court of Appeals of Indiana | Opinion 19A-PL-1498 | March 31, 2020      Page 4 of 11
               Pursuant to the terms of the Policy, G&G Oil’s loss must be
               “fraudulently caused.” Here, the hacker inserted himself into
               G&G Oil’s system. That may have involved some sort of
               deception, but no more than the burglar inserts himself into a
               house by picking a lock or climbing through a window or the
               auto thief who steals a car by accessing a FOB or a key through
               surreptitious means. G&G Oil may prefer to brand all three as
               fraudsters, but with good reason, the law labels one a burglar, the
               other a car thief and the third a hacker. Unlike the fraudster, a
               hacker, like the burglar or car thief is forthright in his scheme.
               The hacker deprived G&G Oil of use of its computer system and
               extracted bitcoin from the Plaintiff as ransom. While devious,
               tortious and criminal, fraudulent it was not.

       Appellant’s App. Vol. 2, p. 10. The trial court also concluded that G&G’s losses

       did not directly result from the use of a computer but from a “voluntary

       payment to accomplish a necessary result.” Id. G&G Oil now appeals.

                                           Standard of Review
[10]   When our court reviews a summary judgment order, we stand in the shoes of

       the trial court. See Matter of Supervised Estate of Kent, 99 N.E.3d 634, 637 (Ind.

       2018) (citation omitted). Summary judgment is appropriate “if the designated

       evidentiary matter shows that there is no genuine issue as to any material fact

       and that the moving party is entitled to a judgment as a matter of law.” Ind.

       Trial Rule 56(C). The fact that the parties have filed cross-motions for summary

       judgment does not alter our standard for review, as we consider each motion

       separately to determine whether the moving party is entitled to judgment as a

       matter of law. Reed v. Reid, 980 N.E.2d 277, 285 (Ind. 2012). The interpretation

       Court of Appeals of Indiana | Opinion 19A-PL-1498 | March 31, 2020          Page 5 of 11
       of an insurance policy presents a question of law which is appropriate for

       summary judgment. Am. Family Ins. Co. v. Globe Am. Cas. Co., 774 N.E.2d 932,

       935 (Ind. Ct. App. 2002), trans. denied.

                                       Discussion and Decision
[11]   The parties agree that the facts of this case are undisputed. The sole issue

       presented in this appeal is whether Continental is required to indemnify G&G

       for the losses it suffered as a result of the ransomware attack.

[12]   We review an insurance policy using the same rules of interpretation applied to

       other contracts; that is, if the language is clear and unambiguous we will apply

       the plain and ordinary meaning. Adkins v. Vigilant Ins. Co., 927 N.E.2d 385, 389

       (Ind. Ct. App. 2010), trans. denied. An insurance policy is ambiguous if a

       provision is susceptible to more than one interpretation and reasonable persons

       would differ as to its meaning. Id. An ambiguity does not exist merely because

       the parties favor different interpretations. Id. If the policy contains ambiguous

       provisions, they are construed in favor of the insured. United Farm Family Mut.

       Ins. Co. v. Matheny, 114 N.E.3d 880, 885 (Ind. Ct. App. 2018), trans. denied.

       “This strict construal against the insurer is driven by the fact that the insurer

       drafts the policy and foists its terms upon the customer. The insurance

       companies write the policies; we buy their forms or we do not buy insurance.”
Id. (quoting Meridian Mut. Ins. Co. v. Auto-Owners Ins. Co., 698 N.E.3d 770, 773

       (Ind. 1998)).

       Court of Appeals of Indiana | Opinion 19A-PL-1498 | March 31, 2020         Page 6 of 11
[13]   An insurance contract that is unambiguous must be enforced according to its

       terms, “even those terms that limit an insurer’s liability.” Sheehan Constr. Co. v.

       Cont’l Cas. Co., 935 N.E.2d 160, 169 (Ind. 2010). The power to interpret

       insurance contracts “does not extend to changing their terms, and we will not

       give insurance policies an unreasonable construction to provide added

       coverage.” Adkins, 927 N.E.2d at 389. In other words, we may not extend

       coverage beyond that provided by the unambiguous language of the contract.

       Sheehan Constr. Co., 935 N.E.2d at 169. “[I]nsurers have the right to limit their

       coverage of risks and, therefore, their liability by imposing exceptions,

       conditions, and exclusions.” Id.

[14]   Under its Commercial Crime Coverage Part form, the commercial insurance

       policy at issue in this case provides:1

                Computer Fraud

                We will pay for loss of or damages to “money”, “securities” and
                “other property” resulting directly from the use of any computer
                to fraudulently cause a transfer of that property from inside the
                “premises” or “banking premises”:

                a. To a person (other than a “messenger”) outside those
                “premises”; or

       1
        This coverage form begins with the following statement: “Various provisions in this policy restrict coverage.
       Read the entire policy carefully to determine rights, duties and what is or is not covered.” Appellant’s App.
       Vol. 3, p. 66.

       Court of Appeals of Indiana | Opinion 19A-PL-1498 | March 31, 2020                               Page 7 of 11
               b. To a place outside those “premises”.

       Appellant’s App. Vol. 3, pp. 67. G&G argues that the trial court erred when it

       concluded that its losses did not result from computer fraud.

[15]   G&G argues that the terms “fraud” and “fraudulently” were not defined in the

       policy, and therefore, they must be given their plain and ordinary meanings.

       G&G observes that while “fraudulently” can mean a “knowing

       misrepresentation or concealment of a material fact,” it is also defined as

       “unconscionable dealing.” Appellant’s Br. at 22 (citing Black’s Law Dictionary

       at 802 (11th ed. 2019)). G&G also directs our attention to a broad definition of

       fraud in bankruptcy appeal from the United States Court of Appeals for the

       Seventh Circuit:

               No learned inquiry into the history of fraud is necessary to
               establish that it is not limited to misrepresentations and
               misleading omissions. “Fraud is a generic term, which embraces
               all the multifarious means which human ingenuity can devise
               and which are resorted to by one individual to gain an advantage
               over another by false suggestions or by the suppression of truth.
               No definite and invariable rule can be laid down as a general
               proposition defining fraud, and it includes all surprise, trick,
               cunning, dissembling, and any unfair way by which another is
               cheated.”

       McClellan v. Cantrell, 217 F.3d 890, 893 (7th Cir. 2000) (quoting Stapleton v. Holt,

       207 Okla. 443, 250 P.2d 451, 453–54 (Okla. 1952)).

       Court of Appeals of Indiana | Opinion 19A-PL-1498 | March 31, 2020         Page 8 of 11
[16]   G&G argues that the hacker’s ransomware attack was deceptive and

       unconscionable. And the hacker gained control of G&G’s computers by

       “misrepresenting his authority to enter and control those machines. He also

       cheated G&G Oil when he said he would return all of the machines for three

       Bitcoins.” Appellant’s Br. at 23. G&G also claims that its losses resulted from

       computer fraud because the hacker engaged in deception when he refused to

       release the computers after G&G paid the first Bitcoin demand and demanded

       an additional payment before restoring G&G’s control over its computers.

[17]   Although Continental encourages us to interpret the policy to allow coverage

       only for tortious or criminal acts of fraud, it contends that if G&G’s definition is

       applied, “even the layperson’s definition of ‘fraud’ . . . requires ‘intentional

       perversion of truth’ and/or ‘an act of deceiving or misrepresenting.’” Appellee’s

       Br. at 22. Continental agrees that the hacker’s acts were illegal but that he or she

       did not commit any act that could be classified as “fraud” when the hacker

       demanded ransom in exchange for the passwords that would allow G&G to

       regain access to its computer system.2

       2
        The insurance policy at issue is extensive and contains several different coverage parts. Under the
       Agricultural Output Coverage Part, G&G had the option of purchasing coverage for losses resulting from
       computer hacking. Continental argues that this case is easily resolved because G&G was offered but declined
       to purchase “computer virus and hacking coverage.” Appellee’s Br. at 16. Because the computer virus and
       hacking coverage forms were not incorporated into the commercial insurance policy at issue, a computer
       virus or computer hacking exclusion was incorporated into the Agricultural Output Coverage. Id. at 16–17.
       The structure of the policy itself leads us to conclude that the computer hacking exclusion applies only to the
       policy provisions in Agricultural Output Coverage Part. The terms of the policy providing coverage for

       Court of Appeals of Indiana | Opinion 19A-PL-1498 | March 31, 2020                                 Page 9 of 11
[18]   As the term is commonly understood and defined, fraud is the “intentional

       perversion of truth in order to induce another to part with something of value or

       to surrender a legal right.” Fraud, Merriam-Webster Dictionary,

       https://www.merriam-webster.com/dictionary/fraud (last visited on March

       23, 2020) [https://perma.cc/R3JX-PFGH]. Similarly, the American Heritage

       Dictionary defines fraud as “[a] deception practiced in order to induce another

       to give up possession of property or surrender a right.” Fraud, American

       Heritage Dictionary, https://ahdictionary.com/word/search.html?q=Fraud

       (last visited on March 23, 2020) [https://perma.cc/ZU3B-RZVB].

[19]   We also observe that the Court of Appeals for the Ninth Circuit has considered

       language similar to the policy in this case and concluded that the phrase

       “fraudulently cause a transfer” requires “the unauthorized transfer of funds.”

       Pestmaster Servs., Inc. v. Travelers Casualty & Surety Co. of America, 656 Fed. Appx.
332 (9th Cir. 2016). “Because computers are used in almost every business

       transaction, reading this provision to cover all transfers that involve both a

       computer and fraud at some point in the transaction would convert this Crime

       Policy into a ‘General Fraud’ Policy.” Id. See also, InComm Holdings, Inc. v. Great

       American Ins. Co., 2017 WL 1021749 *10 (N.D. Ga. Mar. 16, 2017) (noting that

       computer fraud at issue in this case are provided for in the Commercial Crime Coverage Part. Therefore, the
       exclusion for computer hacking does not dispose of the issues in this case as Continental suggests.

       Court of Appeals of Indiana | Opinion 19A-PL-1498 | March 31, 2020                             Page 10 of 11
       “courts repeatedly have denied coverage under similar computer fraud

       provisions, except in cases of hacking where a computer is used to cause

       another computer to make an unauthorized, direct transfer of property or

       money”).

[20]   Here, the hijacker did not use a computer to fraudulently cause G&G to

       purchase Bitcoin to pay as ransom. The hijacker did not pervert the truth or

       engage in deception in order to induce G&G to purchase the Bitcoin. Although

       the hijacker’s actions were illegal, there was no deception involved in the

       hijacker’s demands for ransom in exchange for restoring G&G’s access to its

       computers. For all of these reasons, we conclude that the ransomware attack is

       not covered under the policy’s computer fraud provision.3

[21]   We therefore affirm the trial court’s order granting summary judgment to

       Continental on G&G’s claim that the insurance policy provides coverage for

       the losses it incurred as a result of the ransomware attack.

[22]   Affirmed.

       Bradford, C.J., and Altice, J., concur.

       3
        Because this issue is dispositive, we do not address G&G’s argument that trial court erred when it
       concluded that the company’s losses did not result “directly” from the use of a computer.

       Court of Appeals of Indiana | Opinion 19A-PL-1498 | March 31, 2020                              Page 11 of 11