A Hartford Financial Services Group Inc. unit may be obligated to indemnify a chocolate company that was victimized by a phishing scheme, says the Vermont Supreme Court, in a ruling that overturns a lower court decision.

Rainforest Chocolate LLC was insured under a business owner policy issued by Hartford unit Sentinel Insurance Co. Ltd., according to the unanimous Dec. 28 ruling by the Vermont Supreme Court in Rainforest Chocolate LLC v. Sentinel Insurance Co. Ltd.

In May 2016, a Rainforest employee received an email purporting to be from his manager directing him to transfer $19,875 to a specified outside bank account through an electronic fund transfer, and the employee did so.

Rainforest learned shortly thereafter the manager had not sent the email and contacted the bank, which froze its account and limited the loss to $10,261.36, according to the ruling.

Rainforest sought coverage for its loss from its insurer, Sentinel, which denied coverage on the basis of a “false pretense exclusion” in its policy, which excludes coverage “for physical loss or physical damage” stemming from “voluntarily parting with any property.”

Rainforest filed suit against Sentinel, and a state court in Addison ruled in the insurer’s favor. The company appealed. “Rainforest argues that the False Pretense Exclusion does not apply because it only excludes ‘physical loss or physical damages’ and the loss here was not a physical loss,” said the ruling.

In ruling in Rainforest’s favor, the decision points to inconsistent policy language. “The policy uses two distinct phrases – ‘physical loss and physical damage’ and ‘loss and damage” within different sections through the policy, sometimes switching between the two sentence to sentence, which would lead the average reader to assume there was some difference between them. But the policy itself does not define or explain the difference between the two phrases,” the ruling said.

“The trial court dismissed this as ‘sloppy drafting’ but sloppiness should not excuse an insurer from covering losses that a reasonable insured party would expect to be covered, based on a reasonable reading and interpretation of the policy language,” the ruling said.

“And further, if Rainforest or another insured business looked to caselaw, they would have been met with a similarly opaque answer because for every court that has analyzed a similar issue, there is a different conclusion,” said the ruling.

The court decided, however, in Rainforest’s favor. “Although this court has not previously adopted one interpretation over another, we are convinced that the False Pretense Exclusion is subject to at least two reasonable interpretations, and thus is ambiguous.

“Therefore, we are bound to interpret it in Rainforest’s favor – the loss suffered was not physical and thus coverage is not barred by the False Pretense Exclusion.”

The ruling adds, however, “The question remains whether the loss is covered by any of the provisions, which Rainforest claims provides coverage: Forgery, Money and Securities, and Computer Fraud.”

The case was remanded to the trial court to determine whether the remaining provisions covered Rainforest for its loss.