Court Opinion

ID: 4424329
Source: CourtListenerOpinion
Date Created: 2019-08-09 15:04:17.844021+00
Date Added: 2024-06-11T14:51:23.851133
License: Public Domain

FILED
                                                                           Aug 09 2019, 8:37 am

                                                                               CLERK
                                                                           Indiana Supreme Court
                                                                              Court of Appeals
                                                                                and Tax Court

      ATTORNEY FOR APPELLANTS                                    ATTORNEY FOR APPELLEE
      Sheila Tow                                                 Ginny L. Peterson
      Law Office of Sheila Tow, LLC                              Kightlinger & Gray, LLP
      Plainfield, Indiana                                        Indianapolis, Indiana

                                                  IN THE
          COURT OF APPEALS OF INDIANA

      Metal Pro Roofing, LLC and                                 August 9, 2019
      Cornett Restoration, LLC,                                  Court of Appeals Case No.
      Appellants-                                                18A-PL-2205
      Defendants/CounterPlaintiffs,                              Appeal from the
             v.                                                  Johnson Superior Court
                                                                 The Honorable
      The Cincinnati Insurance                                   Kevin M. Barton, Judge
      Company,                                                   Trial Court Cause No.
      Appellee-                                                  41D01-1501-PL-1
      Plaintiff/CounterDefendant

      Vaidik, Chief Judge.

                                            Case Summary
[1]   Metal Pro Roofing, LLC and Cornett Restoration, LLC (“the LLCs”) appeal

      the trial court’s grant of summary judgment in favor of The Cincinnati

      Court of Appeals of Indiana | Opinion 18A-PL-2205 | August 9, 2019                           Page 1 of 13
      Insurance Company (“Cincinnati”) in a dispute over insurance coverage. We

      affirm in part and reverse in part.

                             Facts and Procedural History
[2]   In February 2013, the LLCs, both of which are owned by Richard Cornett,

      discovered that someone had hacked into their bank accounts and stolen over

      $78,000. The next month, the LLCs made claims under insurance policies that

      had been issued to them by Cincinnati. They contend that the losses are

      covered under two different provisions of the CinciPlus Crime XC+ (Expanded

      Coverage Plus) Coverage Part of the policies: “Forgery or Alteration” and

      “Inside the Premises - Theft of Money and Securities.”

[3]   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.

      Court of Appeals of Indiana | Opinion 18A-PL-2205 | August 9, 2019       Page 2 of 13
      Appellants’ App. Vol. II pp. 58, 76. The policies define “forgery,” in relevant

      part, as “the signing of the name of another person or organization with intent

      to deceive[.]” Id. at 69, 87. The policies do not define “alteration.”

[4]   The “Inside the Premises” coverage provides, in relevant part:

              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.

      Id. at 58, 76. 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.” Id. at 67, 69, 85, 87.

[5]   Concluding that the computer-hacking losses are not covered by these

      provisions, Cincinnati denied the LLCs’ claims. It then filed a lawsuit seeking a

      declaratory judgment confirming its coverage determination. The LLCs

      answered that complaint and filed a counterclaim for damages. Count I of the

      counterclaim alleged breach of contract—that the losses are covered by the

      “Forgery or Alteration” and “Inside the Premises” provisions and that therefore

      Cincinnati “wrongfully denied the claims[.]” Id. at 104. In Count II, the LLCs

      alleged insurance bad faith, specifically, that Cincinnati

      Court of Appeals of Indiana | Opinion 18A-PL-2205 | August 9, 2019           Page 3 of 13
              acted 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 LLCs] 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.

      Id. at 105.

[6]   The parties filed cross-motions for summary judgment. The trial court granted

      summary judgment in favor of Cincinnati on all issues but one. It 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 LLCs’

      first two theories of bad faith—“unfounded refusal to pay policy proceeds” and

      “unfounded delay in making payment”—must fail. Id. at 22. As for the LLCs’

      third theory of bad faith—that Cincinnati had “deceiv[ed]” them—the court

      noted that the counterclaim “does not aver any facts as would support” such a

      claim but nevertheless allowed the claim to proceed, explaining that

      “Cincinnati designates no evidence to the Court on summary judgment on this

      claim[.]” Id. at 22-23.

[7]   The LLCs then amended their counterclaim. They alleged that even if their

      computer-hacking losses do not fall under the Crime XC+ coverage, certain

      language in Cincinnati’s quotes for that coverage led them to believe that such

      losses would be covered if they purchased the coverage. The LLCs attached

      Court of Appeals of Indiana | Opinion 18A-PL-2205 | August 9, 2019           Page 4 of 13
      two such quotes to the amended counterclaim. The quotes begin with 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

      Appellants’ App. Vol. IV p. 224-25 (emphasis added).1

[8]   Cincinnati again moved for summary judgment. It argued, in part, that the

      above-quoted language does not amount to a representation that computer-

      hacking losses would be covered and that even if the language could be read

      1
        Cincinnati emphasizes that at least one of the quotes the LLCs attached to their amended counterclaim was
      not issued until after the LLCs had already discovered the computer-hacking losses, so the LLCs could not
      have relied on it when deciding to purchase the policies at issue. However, as we note below, Cornett stated
      in an affidavit that Cincinnati had used the same quote language since the LLCs first purchased the Crime
      XC+ coverage in 2011. In other words, there is evidence (unchallenged by Cincinnati) that the quotes in the
      record are exemplars of the quotes Cincinnati issued in previous years.

      Court of Appeals of Indiana | Opinion 18A-PL-2205 | August 9, 2019                              Page 5 of 13
       that way it is followed by this 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.
                Each insurer has sole financial responsibility for its own
                products. Not all Cincinnati subsidiaries operate in all states.

       Id. at 224 (emphasis added).

[9]    In support of their response to Cincinnati’s motion, the LLCs designated an

       affidavit from Cornett. He asserted, among other things, that (1) he “accepted”

       the Crime XC+ coverage for the LLCs in 2011, (2) Cincinnati provided “the

       same Crime quote and description every year from the first year (2011) and at

       each renewal,” and (3) he “relied on the description” provided by Cincinnati.

       Appellants’ App. Vol. VIII pp. 99-100.

[10]   Cincinnati moved to strike Cornett’s statement that he “relied on the

       description” of the Crime XC+ coverage in Cincinnati’s quotes. Citing the

       principle that a party cannot avoid summary judgment simply by designating an

       affidavit that directly contradicts the affiant’s prior deposition testimony, see

       Gaboury v. Ireland Rd. Grace Brethren, Inc., 446 N.E.2d 1310, 1314 (Ind. 1983),

       Cincinnati argued that Cornett had testified in an earlier deposition that “he did

       not even read [the description] much less read the Policy prior to the alleged

       Court of Appeals of Indiana | Opinion 18A-PL-2205 | August 9, 2019          Page 6 of 13
       losses.” Appellants’ App. Vol. IX p. 75. The trial court granted Cincinnati’s

       motion to strike, concluding that Cornett’s statement that he “relied on the

       description” is “contrary to the deposition testimony at pages 81 and 82 that he

       did not read the policy until after the loss.” Appellants’ App. Vol. II p. 26.

[11]   In a separate order issued the same day, the trial court granted Cincinnati’s

       motion for summary judgment. It analyzed the LLCs’ amended counterclaim

       as one for fraud, fraudulent inducement, and/or estoppel. The court actually

       ruled in favor of the LLCs in part. That is, the court concluded that a finder of

       fact could read the language of Cincinnati’s quotes for Crime XC+ coverage as

       a (false) representation that the coverage includes “coverage against loss of

       money or securities on deposit at a financial institution from computer

       hackers[.]” Id. at 38. However, consistent with its ruling on Cincinnati’s

       motion to strike, the court also concluded that “Mr. Cornett did not rely upon

       the document because it wasn’t read.” Id. The court found this “lack of

       reliance” to be fatal to any claim of fraud, fraudulent inducement, or estoppel.

       Id. at 38-39.

[12]   The LLCs now appeal.

                                   Discussion and Decision
[13]   The LLCs challenge both of the trial court’s summary-judgment orders. We

       review motions for summary judgment de novo, applying the same standard as

       the trial court. Hughley v. State, 15 N.E.3d 1000, 1003 (Ind. 2014). That is,

       Court of Appeals of Indiana | Opinion 18A-PL-2205 | August 9, 2019        Page 7 of 13
       “The judgment sought shall be rendered forthwith 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).

                            I. First Summary-Judgment Order
[14]   Regarding the first summary-judgment order, the LLCs argue that the trial

       court erred by concluding that their computer-hacking losses are not covered by

       the “Forgery or Alteration” or “Inside the Premises” provisions. We disagree.

[15]   The “Forgery or Alteration” coverage applies to losses resulting directly from

       the “‘forgery’ or alteration of checks, drafts, promissory notes, or similar written

       promises, orders or directions to pay a sum certain in money[.]” The policies

       define “forgery” as “the signing of the name of another person or organization

       with intent to deceive[.]” The LLCs do not cite any evidence that the hacker

       “signed” anything, let alone that they signed “the name of another person or

       organization.” And as for “alteration,” while that term is not defined in the

       policies, it obviously assumes the existence of some item that is capable of being

       “altered.” The LLCs fail to identify an item that was allegedly “altered” when

       the thief hacked into the LLCs’ bank accounts. To be sure, using a computer to

       hack into someone else’s bank account to steal money clearly involves wrongful

       conduct. However, by arguing that it involves “forgery” or “alteration” of a

       check, draft, promissory note, or similar written promise, order, or direction,

       the LLCs are attempting to put a square peg in a round hole.

       Court of Appeals of Indiana | Opinion 18A-PL-2205 | August 9, 2019        Page 8 of 13
[16]   The same can be said with regard to the “Inside the Premises” coverage.

       Again, that coverage applies to losses resulting directly from “‘theft’ committed

       by a person present inside [the business’s] ‘premises’ or ‘banking premises[.]’”

       The policies define “premises” as “the interior of that portion of any building

       you occupy in conducting your business,” and they define “banking premises”

       as “the interior of that portion of any building occupied by a banking institution

       or similar safe depository.” The LLCs do not direct us to any evidence that the

       person who committed the thefts was inside the LLCs’ building(s) or a bank

       building. (The “Inside the Premises” coverage also applies to losses resulting

       from the “disappearance or destruction” of money and securities, but the LLCs

       make no argument that either of those terms is relevant here.)

[17]   In challenging the first summary-judgment order, the LLCs also contend that

       the trial court erred by striking one of the exhibits they designated: Cincinnati’s

       Crime XC+ quote for Metal Pro dated 2/25/13. We need not address that

       argument. Even if we were to agree that the quote should not have been

       stricken, that would not impact our ultimate conclusion that the computer-

       hacking losses are not covered under the plain language of the “Forgery or

       Alteration” or “Inside the Premises” provisions.

                         II. Second Summary-Judgment Order
[18]   The LLCs also assert that the trial court erred by granting summary judgment

       in favor of Cincinnati on the LLCs’ claim that Cincinnati’s quotes for the Crime

       Court of Appeals of Indiana | Opinion 18A-PL-2205 | August 9, 2019        Page 9 of 13
       XC+ coverage led them to believe that computer-hacking losses would be

       covered if they purchased that coverage. On this point we agree with the LLCs.

[19]   As noted above, the trial court analyzed the LLCs’ amended counterclaim as a

       claim of fraud, fraudulent inducement, and/or estoppel. It noted that a party

       claiming fraud must establish that (1) the party to be charged made a material

       representation of past or existing facts, (2) the representation was false, (3) the

       representation was made with knowledge or reckless ignorance of the falseness,

       (4) the representation was relied upon by the complaining party, and (5) the

       reliance proximately caused the complaining party injury. Kapoor v. Dybwad, 49

       N.E.3d 108, 121 (Ind. Ct. App. 2015), trans. denied. It also noted that

       “[f]raudulent inducement occurs when a party is induced through fraudulent

       misrepresentations to enter into a contract.” Lightning Litho, Inc. v. Danka

       Indus., Inc., 776 N.E.2d 1238, 1241 (Ind. Ct. App. 2002), reh’g denied, trans.

       denied. The court then concluded—though Cincinnati does not acknowledge it

       in its brief on appeal—that a finder of fact could read the language of

       Cincinnati’s quotes for Crime XC+ coverage as a false representation that the

       coverage includes “coverage against loss of money or securities on deposit at a

       financial institution from computer hackers[.]”

[20]   We concur in the trial court’s reading of Cincinnati’s quotes. The quotes

       provided, in relevant part:

               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

       Court of Appeals of Indiana | Opinion 18A-PL-2205 | August 9, 2019         Page 10 of 13
               and securities, you run the risk of loss from employees, robbers,
               burglars, computer hackers [emphasis added] 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

       It would be entirely reasonable for a prospective insured to read that language,

       in that sequence, to mean, “If you want to be covered for theft by computer

       hackers, you should buy this endorsement.”

[21]   Having ruled in favor of the LLCs on that issue, however, the court held that

       the LLCs’ fraud claims nonetheless fail because Cornett “did not rely upon the

       document because it wasn’t read.” This is where the trial court erred. In an

       affidavit designated by the LLCs, Cornett specifically stated that he “relied on

       the description” of the Crime XC+ coverage in Cincinnati’s quotes when he

       decided to purchase that coverage. The trial court struck that statement on the

       ground that it conflicted with Cornett’s earlier deposition testimony. See

       Gaboury, 446 N.E.2d at 1314. But that is incorrect. In the portions of the

       deposition cited by the trial court, Cornett testified only that he did not read the

       Crime XC+ portions of the actual policies until Cincinnati denied the LLCs’

       claims; he did not testify that he did not read or rely on the descriptions in the

       quotes when deciding to purchase the policies. See Appellants’ App. Vol. V pp.

       77-78. As such, there is no conflict between Cornett’s deposition testimony and

       the statement in his affidavit that he “relied on the description” in the quotes.
       Court of Appeals of Indiana | Opinion 18A-PL-2205 | August 9, 2019        Page 11 of 13
       The trial court should not have stricken that statement or granted Cincinnati

       summary judgment on that basis.

[22]   We briefly address two arguments made by Cincinnati. First, it asserts that

       even if the language of the quotes could be read as a representation that

       computer-hacking losses would be covered under the Crime XC+ coverage, any

       reliance on that language was unreasonable because it was accompanied by the

       following disclaimer:

               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.
               Each insurer has sole financial responsibility for its own
               products. Not all Cincinnati subsidiaries operate in all states.

       Appellants’ App. Vol. IV p. 224 (emphasis added). Cincinnati does not cite any

       authority for the proposition that such a disclaimer neutralizes otherwise

       misleading quote language. The trier of fact should decide whether the

       disclaimer in this case—which appears in fine print at the bottom of the

       quotes—had that effect.

[23]   Cincinnati also contends that it cannot be held liable for any misrepresentation

       because the quotes were given to the LLCs by their insurance agency,

       Huntington Insurance, rather than by Cincinnati itself. That is true, but only in

       the literal sense: Cincinnati sent the quotes for the LLCs to Huntington, which

       Court of Appeals of Indiana | Opinion 18A-PL-2205 | August 9, 2019     Page 12 of 13
       in turn gave the quotes to the LLCs as part of a larger insurance proposal.

       There is no dispute, however, that Cincinnati, not Huntington, drafted the

       quotes. 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.

[24]   For all of these reasons, we reverse the trial court’s second summary-judgment

       order and remand this matter for trial on the LLCs’ amended counterclaim.

[25]   Affirmed in part and reversed in part.

       Kirsch, J., and Altice, J., concur.

       Court of Appeals of Indiana | Opinion 18A-PL-2205 | August 9, 2019        Page 13 of 13