On Friday, August 9th, an Indiana Court of Appeals reversed a trial court’s ruling and allowed an insureds’ claim for bad faith based on misrepresentations in the insurer’s quote for coverage to proceed to trial.

Metal Pro Roofing, LLC v. Cincinnati Insurance Company, No. 18A-PL-2205, 2019 WL 3756738 (Ind. Ct. App. Aug. 9, 2019) involved a declaratory judgment action brought by the insurer against two insured LLCs after it refused to cover more than $78,000 stolen from the LLC’s bank accounts by computer hackers.  The LLCs countered for breach of contract and bad faith against Cincinnati.  In particular, the LLCs’ bad faith claim alleged that Cincinnati deceived the LLCs into purchasing the coverage by misrepresenting that the coverage would “protect insured business clients from someone hacking into computers and into their bank accounts to steal money.”

The parties moved for summary judgment and the trial court found in favor of Cincinnati on all issues except for the bad faith claim.  The LLCs then amended their counterclaim, citing specifically to the insurance quotes on which they allegedly relied when purchasing the policy.

Cincinnati argued that the insurance quotes did not amount to a representation concerning the scope of coverage that was to be afforded for computer-hacking losses since the insurance quotes contained an explicit disclaimer stating that the quote “is not a policy.  For a complete statement of the coverages and exclusions, please see the policy contract.”

Following further summary judgment briefing, the trial court concluded that a finder of fact could read the subject quotes as a false representation that the policy was to include “coverage against loss of money. . . at a financial institution from computer hackers.”  Nevertheless, the trial court ruled in favor of Cincinnati based on its prior determination that the LLCs had not read the insurance quotes and therefore would be unable to prove reliance.

On appeal, the appellate court affirmed the summary judgment order and affirmed that there was no coverage for the computer hacking losses.  However, the appellate court reversed the trial court’s ruling on reliance, finding that “[i]t would be entirely reasonable for a prospective insured to read [the representation] language . . . to mean, ‘If you want to be covered for theft by computer hackers, you should buy this endorsement.’”  In reaching that determination, the court of appeals rejected Cincinnati’s argument that reliance on the disclaimer was unreasonable noting critically that Cincinnati failed to “cite any authority that such a disclaimer neutralizes the otherwise misleading quote language,” and the trier of fact should decide the effect of the disclaimer.

Finally, the appellate court also rejected Cincinnati’s argument that it could not be liable for the misrepresentation because the quote was given to the LLCs by an insurance agency, rather than Cincinnati.  The court recognized that although this may be true, Cincinnati drafted the quotes and did “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 Metal Pro Roofing decision is significant for policyholders because it illustrates the extent to which a policyholder can reasonably rely on the statements and representations made by insurers and their agents prior to the issuance of coverage.  The decision also serves as a good reminder that bad faith conduct is not limited to the claim handling process; it can occur in any number of ways and at different points in the coverage and claim lifecycles.  Policyholders should therefore beware of any seemingly deceptive conduct by their insurer.  Finally, the decision underscores that an insurer cannot defeat or limit coverage through the use of obscure disclaimers that purport to negate clear representations concerning the scope of coverage.