Concluding that the computer-hacking losses were not covered by these provisions, Cincinnati denied the LLCs’ claims.

Cincinnati then filed an action seeking a declaratory judgment confirming its coverage determination. The LLCs answered that complaint and filed a counterclaim for damages. Count I of their counterclaim alleged breach of contract – that the losses were covered by the “Forgery or Alteration” and “Inside the Premises” provisions and that, therefore, Cincinnati had “wrongfully denied the claims[.]” In Count II, the LLCs alleged insurance bad faith, specifically, that Cincinnati had acted in bad faith in handling the insurance claim.

The trial court granted summary judgment in favor of Cincinnati on all issues but one. It ruled that (1) the claimed losses were not covered under the terms of the policies, and (2) because the losses were 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” – had to fail.

As for the LLCs’ third theory of bad faith – that Cincinnati had “deceiv[ed]” them – the trial court noted that the counterclaim did “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 [c]ourt on summary judgment on this claim[.]”

The LLCs then amended their counterclaim. They alleged that even if their computer-hacking losses did 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 two such quotes to the amended counterclaim, which began 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

Cincinnati again moved for summary judgment. It argued, in part, that the above-quoted language did not amount to a representation that computer-hacking losses would be covered and that even if the language could be read that way it was 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.

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 trial 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 included “coverage against loss of money or securities on deposit at a financial institution from computer hackers[.]” It concluded, however, that Mr. Cornett “did not rely upon the document because it wasn’t read,” and that this “lack of reliance” was fatal to any claim of fraud, fraudulent inducement, or estoppel.

The LLCs appealed.

The Appellate Court’s Decision

The appellate court affirmed in part and reversed in part.

In its decision, the appellate court first rejected the LLCs’ argument that the trial court erred by concluding that their computer-hacking losses were not covered by the “Forgery or Alteration” or “Inside the Premises” provisions. It reasoned that the policies defined “forgery” as “the signing of the name of another person or organization with intent to deceive” and that the LLCs did not cite any evidence that the hacker “signed” anything, let alone that the hacker signed “the name of another person or organization.” Moreover, the appellate court continued, the LLCs failed to identify an item that allegedly was “altered” when the thief hacked into the LLCs’ bank accounts.

The appellate court reached the same conclusion with respect to the “Inside the Premises” coverage, noting among other things that the LLCs provided no evidence that the person who committed the thefts was inside the LLCs’ building or buildings or inside a bank building.

The appellate court, however, agreed with the LLCs that the trial court erred by granting summary judgment in favor of Cincinnati on the LLCs’ claim that Cincinnati’s quotes for the Crime XC+ coverage led them to believe that computer-hacking losses would be covered if they purchased that coverage.

The appellate court said that it would be “entirely reasonable for a prospective insured to read” Cincinnati’s quotes for Crime XC+ coverage to mean, “If you want to be covered for theft by computer hackers, you should buy this endorsement,” in particular the language that stated:

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 appellate court then ruled that the trial court erred in concluding that Mr. Cornett had not “did not rely upon the document because it wasn’t read.” The appellate court pointed to an affidavit in which Mr. 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 appellate court concluded that a trier of fact should decide whether the disclaimer, “which appear[ed] in fine print at the bottom of the quotes,” neutralized the “otherwise misleading quote language.”

It remanded the case for trial on the LLCs’ amended counterclaim.

The case is Metal Pro Roofing, LLC v. Cincinnati Ins. Co., No. 18A-PL-2205 (Ind. Ct. App. Aug. 9, 2019).