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AD Advertising Design, Inc. v. Sentinel Insurance Company, Ltd.

United States District Court, D. Montana, Billings Division

September 26, 2018




         Plaintiff Ad Advertising Design, Inc., doing business as Ad Creative (“Ad Design”) filed this action against Defendant Sentinel Insurance Company, Limited (“Sentinel”) seeking declaratory judgment that a business owners' policy issued by Sentinel provides coverage for monetary losses Ad Design suffered as a result of a fraudulent email scheme. (Doc. 16.)

         Presently before the Court are Ad Design's Motion for Summary Judgment, and Sentinel's Cross-Motion for Summary Judgment.[1] (Docs. 17, 31.) The motions are fully briefed and ripe for the Court's review.

         Having considered the parties' submissions, the Court finds Ad Design's Motion for Summary Judgment should be GRANTED in part, and Sentinel's Motion for Summary Judgment should be DENIED in part.

         I. BACKGROUND

         A. Factual Background[2]

         Sentinel issued a Business Owner's Policy to Ad Design, Policy No. 41 SBA FV3465 SC, which was valid for the period 2/15/2016 to 2/15/2017 (the “Policy”). Ad Design was the victim of a fraudulent email scheme between September 15, 2016 and October 6, 2016. On four occasions during that period April Logulo, Operations Manager at Ad Design, received an email purportedly from Ad Design's president, Eric Finstad. The emails requested that electronic payments in the amount of $31, 832.00, $24, 376.00, $28, 746.00, and $30, 642.00, respectively, be sent to a designated bank account. Believing the emails were legitimate and the requests were to satisfy a vendor, Ms. Logulo submitted written requests to Western Security Bank to transfer the money out of Ad Design's account to the designated bank account. The total amount transferred in the four transactions was $115, 595.00. After the fourth payment, Ad Design determined the emails from Mr. Finstad were fraudulent. Unfortunately, Ad Design was not able to recover any of the money.

         Ad Design filed a claim with Sentinel seeking coverage for the loss of the money. On September 6, 2017, Sentinel denied the claim, finding the Policy excluded coverage under a “False Pretense” exclusion.

         B. Procedural Background

         On September 11, 2017, Ad Design filed the instant action in the Montana Thirteenth Judicial District Court, Yellowstone County, Montana, seeking a declaration that the Policy provides coverage for its claim. (Doc. 1.) On October 20, 2017, Sentinel removed the case to federal court based on diversity jurisdiction under 28 U.S.C. § 1441(b). (Id.) On December 28, 2017, Ad Design filed an Amended Complaint. (Doc. 16.) The Amended Complaint seeks “a declaration that the Policy provides coverage for the four forgery occurrences described herein, ” and for a judgment that “Sentinel is obligated under the policy to pay benefits according to the terms and conditions of the policy, less applicable deductibles.” (Doc. 16 at 3-4). The Amended Complaint also requests attorney fees and costs, together with prejudgment interest. Id. at 4.

         On January 8, 2018, Ad Design filed a motion for summary judgment on the issue of whether there is insurance coverage for its loss under the Policy. (Doc. 17.) Ad Design asserts its claim is covered under the Monies and Securities, Forgery and Computer Fraud Coverages in the Policy. Ad Design further argues that the “False Pretense” exclusion in the policy does not apply because that exclusion is limited to physical losses. Ad Design asserts the loss of money from its bank account was not a physical loss. Finally, Ad Design asserts that the amount of the loss covered under the policy is $80, 000.00. Nevertheless, it contends to be entitled to recover the full amount of its loss, $115, 596.00, because Sentinel breached the insurance contract.

         On April 6, 2018, Sentinel filed a cross-motion for summary judgment, seeking a ruling that the False Pretense exclusion in the Policy precludes coverage. (Doc. 31.) Sentinel argues Ad Design physically lost money that it was induced to voluntarily part with by a fraudulent scheme. Sentinel further argues that if Ad Design's loss is not considered to be a physical loss, then the loss falls wholly outside the Policy, which only covers physical loss or physical damage. Sentinel also argues that the Money and Securities, Forgery, and Computer Fraud provisions do not provide coverage for Ad Design's loss. Finally, Sentinel asserts that even if the loss is covered, the covered loss would be limited to $20, 000.00.


         A. Summary Judgment Standard

         “The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). Material facts are those which may affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute as to a material fact is genuine if there is sufficient evidence for a reasonable fact-finder to return a verdict for the nonmoving party. Id.

         As noted, the Court's jurisdiction over this action is based on diversity of citizenship. Thus, the Court must apply the substantive law of Montana. Medical Laboratory Mgmt. Consultants v. American Broadcasting Companies, Inc., 306 F.3d 806, 812 (9th Cir. 2002). In Montana, the interpretation of an insurance contract is a question of law. Scentry Biologicals, Inc. v. Mid-continent Cas. Co., 319 P.3d 1260, 1264 (2014). A court interpreting an insurance policy is to read the policy as a whole and, to the extent possible, reconcile the policy's various parts to give each meaning and effect. O'Connell v. Liberty Mut. Fire Ins. Co., 43 F.Supp.3d 1093, 1096 (D. Mont. 2014) (citing Newbury v. State Farm Fire & Cas. Ins. Co. of Bloomington, Ill., 184 P.3d 1021 (2008)).

         The insured bears the burden of showing that its claim falls within the basic scope of coverage under the policy. Travelers Cas. & Surety Co. v. Ribi Immunochem Research, Inc., 108 P.3d 469, 476 (2005). In turn, the insurer has the burden of proving the claim is excluded under an exclusionary clause. Id. Exclusions from coverage are “narrowly and strictly construed because they are contrary to the fundamental protective purpose of an insurance policy.” Id. (citing Wellcome v. Home Ins. Co., 849 P.3d 190, 192 (1993)). In interpreting insurance contracts courts also must give terms and words in the contract their usual meaning and construe them using common sense. Id. “It is well established that in construing and analyzing the terms of an insurance policy we look first to the policy's plain language. In doing so we apply the ‘common sense meaning as viewed from the perspective of a reasonable consumer of insurance products.'” Monroe v. Cogswell Agency, 234 P.3d 79, 82 (2007) (citing Stutzman v. Safeco Ins. Co. of America, 945 P.2d 32 (1997).

         Any ambiguities in the insurance contract are construed against the insurer and in favor of extending coverage. Revelation Indus., Inc. v. St. Paul Fire & Marine Ins. Co., 206 P.3d 919, 929 (2009). A contract provision is ambiguous if it is “reasonably subject to two different interpretations.” Fisher ex. rel. McCartney v. State Farm Mut. Auto. Ins., 305 P.3d 861, 865 (Mont. 2013) (citing Modroo v. Nationwide Mut. Fire Ins. Co., 191 P.2d 32 (Mont. 2008)). “Whether a provision of an insurance contract is ‘reasonably susceptible to two different interpretations,' is determined from ‘the viewpoint of a consumer with average intelligence, but untrained in the law or the insurance business.'” Id. at 865-66.

         B. Analysis

         The parties do not dispute the material facts. Rather, they dispute whether Ad Design suffered a covered loss under the Policy. The Policy provides coverages for Money and Securities, Forgery and Computer Fraud. The Policy also contains an exclusion for False Pretenses.

         1. Policy Provisions

         The relevant coverage provisions of the Policy provide:

         A. ...

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