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The Cincinnati Insurance Co. v. Norfolk Truck Center, Inc.

United States District Court, E.D. Virginia, Norfolk Division

December 19, 2019

THE CINCINNATI INSURANCE COMPANY, Plaintiff,
v.
THE NORFOLK TRUCK CENTER, INC., Defendant.

          OPINION & ORDER

          Henry Coke Morgan, Jr. Senior United States District Judge

         After reviewing the briefing and hearing the arguments presented by the parties during the trial on this matter, and considering the stipulated facts before this Court, the Court enters the following findings of fact and conclusions of law pursuant to Federal Rules of Civil Procedure 52(a). Any item marked as a finding of fact or otherwise which may also be interpreted as a conclusion of law is hereby adopted as such. Any item marked as a conclusion of law or otherwise which may also be interpreted as a finding of fact is hereby adopted as such.

         L INTRODUCTION

         This insurance contract case asks whether an insurance company (Plaintiff) must indemnify its insured (Defendant) for the insured's failure to discover and falling victim to a fraudulent e-mail scheme related to legitimate invoice payments. The facts of this case are undisputed. A list of stipulated factual findings is enumerated infra at 5-15.

         On August 25, 2017, Defendant, a dealer of commercial trucks, received an order from the City of Norfolk for two (2) trucks. To meet that demand, Defendant ordered truck parts from Kimble Mixer Company ("Kimble Mixer"), an entity that manufactures truck parts. Defendant received an e-mail from an unidentified imposter (hereinafter, "the Imposter"), who represented himself[1] to be an employee of Kimble Mixer. Imposter gave fraudulent money payment instructions via e-mail to satisfy the payments on the City of Norfolk Trucks. After completing appropriate paperwork with its bank, Defendant authorized its bank to issue a wire transfer of $333, 724.00 in accordance with Imposter's instructions.

         Subsequently, Kimble Mixer asked why it had not received payment for the truck parts. Upon discovering that it had fallen victim to a fraud scheme, Defendant filed an insurance claim, asserting that Plaintiff should indemnify Defendant for the fraudulent loss, under the "Computer Fraud" provision of the parties' insurance contract. That insurance provision provides that Plaintiff will pay for "loss of. . . money . . . resulting directly from the use of any computer to fraudulently cause a transfer of that property from inside the premises or banking premises ... [t]o a person (other than a "messenger") outside those premises." Trial Ex. 1 at 24 of 39.[2] Plaintiff denied the claim and filed this lawsuit seeking declaratory judgment that it is not obligated to pay it.

         IL JURISDICTION AND VENUE

         This Court has subject matter jurisdiction over this case pursuant to 28 U.S.C. § 1332. Plaintiff is incorporated in the State of Ohio and maintains its principal place of business in Ohio. Doc. 1 at 1, Doc. 4 at 1. Defendant is incorporated under the laws of the State of Delaware, [3] with its principal place of business in Norfolk, Virginia. Doc. 1 at 2, Doc. 4 at 2. The amount in controversy of this case exceeds $75, 000; accordingly, this Court has diversity of citizenship subject matter jurisdiction.

         This Court has personal jurisdiction over Defendant, because Defendant maintains its principal place of business in this District and Division, and by consent and/or waiver of Defendant. Doc. 4 at 2.

         This Court is the appropriate venue for this matter, because Defendant maintains its principal place of business in this District and Division, the fact a substantial part of the events giving rise to the instant claim occurred in this District and Division, and by consent and/or waiver of Defendant. 28 U.S.C. § 1391(b), Doc. 4 at 2.

         III. PROCEDURAL HISTORY

         This case was filed on October 17, 2018, when the Cincinnati Insurance Company ("Plaintiff) filed a complaint for declaratory judgment against the Norfolk Trucking Company ("Defendant"). Doc. 1. Plaintiff asks this Court to declare that it is not obligated to indemnify Defendant under the parties' insurance contract for losses stemming from the fraudulent scheme.

         Defendant answered the complaint on December 20, 2018, and demanded a jury trial. Doc. 4. No. motions practice occurred until September 2019.

         On September 19, 2019, Plaintiff moved for summary judgment. Doc. 11. The parties jointly moved to continue the trial, originally scheduled to commence on October 22, 2019, on September 27, 2019.[4] Doc. 13. On October 2, 2019, Defendant filed a "Cross Motion for Summary Judgment and Motion in Opposition to [Plaintiffs] Motion for Summary Judgment." Doc. 14.

         This Court convened for a Final Pretrial Conference on October 9, 2019. At the Final Pretrial Conference, the parties agreed that this matter could be resolved by a bench trial, because all of the facts in this matter are stipulated. Defendant withdrew its jury demand.

         A bench trial was scheduled for Wednesday, December 11, 2019. Although the matters were asserted on summary judgment motions, the United States Court of Appeals for the Fourth Circuit recognizes that district courts may, in a limited set of cases, treat a summary judgment record as a bench trial record. International Bancorp, LLC v. Societe des Bains de Mer et du Cercle des Estrangers a Monaco. 329 F.3d 359, 362 (4th Cir. 2003) ("It makes little sense to forbid the judge from drawing inferences from the evidence submitted on summary judgment when that same judge will act as the trier of fact, unless those inferences involve issues of witness credibility or disputed material facts. If a trial on the merits will not enhance the court's ability to draw inferences and conclusions, then a district judge properly should draw his inferences without resort to the expense of trial." (quoting Matter of Placid Oil Co.. 932 F.2d 394, 398 (5th Cir. 1991)). Accordingly, the Court addressed the parties' stipulated factual record and motions for summary judgment at the December 11, 2019, bench trial.

         IV. LEGAL STANDARD

         Under Virginia law, [5] the insured bears the initial burden to establish a prima facie case that the insurance policy covers the dispute. SunTrust Mtg.. Inc. v. AIG United Guar. Corp., 800 F.Supp.2d 722, 731 (E.D. Va. 2011). If the insured is successful, the burden shifts to the insurer to establish an affirmative defense, such as an application of a policy exclusion. Id.

         An insurance contract should be construed in line with the intent of the parties, as evidenced by the terms of the contract. Id. (citing Nat'l Hous. Bldg. Corp. v. Acordia of Virginia Ins. Agency, 591 S.E.2d 88, 90-91 (Va. 2004)). If the terms of a contract are "clear and unambiguous, their terms are to be taken in their plain, ordinary and popular sense." Erie Ins. Exch. v. EPC MP 15, LLC, 822 S.E.2d 351, 355 (Va. 2019). Indeed, "[t]he plain meaning of a word depends not merely on semantics and syntax but also on the holistic context of the word within the instrument." Id. If the plain meaning is undiscoverable, a court should apply the doctrine of contra proferentem and construe the contract against the drafter. Id. (citing TravCo Ins. v. Ward, 736 S.E.2d 321 (2012)). Such an ambiguity only arises when conflicting interpretations are reasonable. Dress v. Capital One Bank United States. N.A.. Civ. No. 1:19-cv-343, 2019 WL 3451304, 2019 U.S. Dist. LEXIS 126980 at * 11 (E.D. Va. July 20, 2019) (citing Erie Ins. Exh.. 822 S.E.2d at 355)).

         V. FINDINGS OF FACT

         In the parties' summary judgment briefing, they agreed that the following detailed list of facts are undisputed. Accordingly, the Court hereby adopts the parties' stipulated facts and FINDS the following:

         A. THE PARTIES

         1. Plaintiff issued a contract of commercial insurance to Defendant, bearing Policy No. ENP0243066, effective from March 1, 2017, through March 1, 2020 (the "Insurance Contract"). Doc. 4 ¶ 5. That contract was attached as exhibit 1 to the complaint and received as Trial Exhibit 1.[6]

         2. Defendant is a dealership for commercial medium- and heavy-duty trucks manufactured by Crane Carrier Company ("Crane Carrier"), among other manufacturers. Doc. 1 ¶ 6.[7]

         3. Kimble Mixer Company ("Kimble Mixer") is a dealer in commercial truck parts. Doc. 1 ¶ 7.

         4. Kimble Mixer and Crane Carrier are both under the umbrellas of the Hines Specialty Vehicle Group, which uses Kimble Mixer to invoice Crane Carrier trucks. D. Harlow Examination Under Oath ("EUO"), Doc. 12-2, at 36:23-37:8.

         B. THE HAMPTON ORDERS

         5. In or about 2016, Norfolk Truck received an order for two trucks from the City of Hampton (the "City of Hampton Trucks"). Doc. 1 ¶ 9.

         6. Norfolk Truck ordered the chassis for the City of Hampton Trucks from Crane Carrier through Kimble Mixer. Doc. 1 ¶ 10.

         7. On or about December 22, 2016, at 10:25 a.m., Lorraine Farrow, Accountant for Kimble Mixer, sent an e-mail to David Harlow, President and CEO of Norfolk Truck, to which e-mail was attached two invoices for the City of Hampton Trucks, Invoice Number HI 674462 and Invoice Number HI 674463 (together, the "City of Hampton Truck Invoices"). Trial Ex. 2, Doc. 1 ¶ 11. Doc. 4 ¶ 14.

         8. Lorraine Farrow's e-mail address on her December 22, 2016, 10:25 a.m. electronic mail was "Ifarrow@kimblemixer.com". Trial Ex. 2, Doc. 1 ¶ 12 (emphasis added) (referred to herein as the "Legitimate E-mail Address").

         9. In her December 22, 2016, e-mail, Lorraine Farrow stated that Norfolk Truck should wire the payment for the City of Hampton Truck Invoices as follows:

MERCANTILE BANK OF
MI ABA: 072413829
ACCTNO: 100145812

Trial Ex. 2, Doc. 1 ¶ 15.

         10. By e-mail dated December 29, 2016, at 09:11 a.m., David Harlow forwarded the City of Hampton Truck Invoices to Betty Reynolds, Secretary/Treasurer of Norfolk Truck. Trial Ex. 2, Doc. 1 ¶ 13.

         11. The address for Kimble Mixer on the Hampton Truck Invoices was as follows:

Kimble Mixer Company (dba) HSVG
1951 Reiser Ave. SE
New Philadelphia, OH 44663
330-306-6700 (PH)
330-339-4892 (FX)

Trial Ex. 2, Doc. 1 ¶ 16.

         12. Betty Reynolds forwarded the City of Hampton Truck Invoices for payment under Norfolk Truck's floor plan arrangement with Norfolk Truck's lender, Southern Bank. Doc. 1 ¶ 17.

         13. The City of Hampton Invoices were paid by means of a wire transaction from Southern Bank to Kimble Mixer on or about December 29, 2016, according to the original and accurate wiring instructions sent by Lorraine Farrow at Kimble Mixer. Id. ¶ 18.

         14. On December 29, 2016, at 8:42 p.m., David Harlow received an e-mail, allegedly from Lorraine Farrow at Kimble Mixer, but actually came from the Imposter who was not Lorraine Farrow. Trial Ex. 2, Doc. 1 ¶ 19.

         15. On the December 29, 2016, 8:42 p.m., e-mail, the Imposter used electronic mail address "farrow@kimblesmixer.com" (referred to herein as the "Fraudulent E-mail Address"), which removed the "1" character from the front of the address, and added the "s" character between "kimble" and "mixer."[8] See Trial Ex. 2, Doc. 1 ¶20.

         16. In the December 29, 2016, 8:42 p.m., e-mail, the Imposter stated that:

Hello David,
You might have to hold off wire as I just got a directive to stop all pending transactions on our current bank account. I will prepare the updated banking info on our letterhead and send to you shortly.
I sincerely apologize for this embarrassing situation.
Thank you.
Lorraine Farrow

Trial Ex. 2, Doc. 1 ¶ 21.

         17. On December 29, 2016, at 9:41 p.m., David Harlow received another e-mail from the Imposter, which stated as follows:

Hello David,
Find the attached wiring instructions. Let me know when wire is sent.
Thank you.
Lorraine Farrow

Trial Ex. 2, Doc. 1 ¶ 22.

         18. The wiring instructions attached to the December 29, 2016, 9:41 p.m., e-mail stated as follows:

Kimble Mixer Company (dba) HSVG
1951 Reiser Ave. SE
New Philadelphia, OH 44663
330-306-6700 (PH)
330-339-4892 (FX)
WIRING INSTRUCTIONS
Account Name/Beneficiary: THEWO ...

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