United States District Court, D. Montana, Billings Division
ORDER REGARDING CROSS MOTIONS FOR SUMMARY
TIMOTHY J. CAVAN, UNITED STATES MAGISTRATE JUDGE
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.)
before the Court are Ad Design's Motion for Summary
Judgment, and Sentinel's Cross-Motion for Summary
Judgment. (Docs. 17, 31.) The motions are fully
briefed and ripe for the Court's review.
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
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.
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.
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.
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.
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,
Summary Judgment Standard
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.
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)).
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
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.
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.
relevant coverage provisions of the Policy provide: