Litigation Remains an Obstacle to Online Insurance Sales

As e-commerce grows, online shoppers increasingly expect a frictionless experience. To help businesses meet that demand, forty-seven states adopted the Uniform Electronic Transactions Act (UETA), allowing companies to contract with consumers without forcing their customers to deliver a physical signature.  Insurance is part of this trend:  According to J.D. Power, 74% of insurance consumers shopped online for automobile policies in 2016, and 25% bought their coverage entirely through the Internet.[1]  But insurers’ interactions with consumers are often regulated in ways that don’t apply to Amazon.  In many states, carriers can be penalized for failing to present online shoppers with “meaningful offers”—offers that “intelligibly advise” consumers about complex financial products in a “commercially reasonable” way.  Last week, in Moultrie v. Progressive Direct Ins. Co., No. 2:16-cv-03174 (D.S.C. Oct. 18, 2017), a federal court in South Carolina showed that the paternalistic impulses underlying this type of insurance law can overcome even the seemingly unassailable power of the Internet. 

Making It Easy 

In November 2015, Shawn Moultrie and his wife took a weekend outing to Columbia, South Carolina. Shawn’s brother had told him Capital City Cycles had some “good sales,” so he visited the store to do a little “window shopping.”  The salesman he met was persistent, and Mr. Moultrie soon found himself agreeing to lease a 2012 Harley Davidson.  There was just one hitch:  The company that financed the transaction required that he provide proof of insurance before he could drive his bike off the lot. 

According to Mr. Moultrie, Capital City’s salesman told him the store had “insurance representatives” on-site. Sure enough, a second store employee got a quote for Mr. Moultrie through a local agent.  Dissatisfied with that offer, Mr. Moultrie sought a better price from Progressive, using a computer terminal in the shop.  He testified that the store employee “pulled something up on the computer and I was scrolling through it, and she left the room.”  Then the employee returned, and, according to the customer: 

I didn’t do anything as far as getting the insurance, picking policies, or typing in any information. The lady asked me questions; I answered them … click, check, click, check, click, check. … Would I be riding to work?  No.  Click, click, click.  “You’re not going to need this.  You’re not going to need that.”  I didn’t question anything, because I’m thinking that she is a Progressive agent doing the best policy for me. 

When the process was completed, Mr. Moultrie “signed the box” to pay for his policy with a debit card. He received a written verification of coverage, a temporary insurance card, and the keys to a 2012 Harley.

Six days later, Mr. Moultrie was seriously injured by an unknown driver in Moncks County. When he notified his insurer, Progressive’s records showed that he had rejected underinsured motorist (UIM) coverage at the time of purchase, and his claim under that coverage was denied. 

Making it Meaningful 

Like many states, South Carolina requires auto insurers to “offer” UIM coverage with every new policy. S.C. Code § 38-77-160.  In 1987, in State Farm Mut. Automobile Ins. Co. v. Wannamaker, 354 S.E.2d 555 (S.C. 1987), the state’s Supreme Court held that this statutory requirement can be satisfied only by a “meaningful offer.”  

Wannamaker was one of several cases around the country to adopt the analysis of Hastings v. United Pacific Insurance Co., 318 N.W.2d 849 (Minn. 1982). It held that an offer of UIM coverage must “intelligibly advise the insured of the nature of the optional coverage.” Furthermore, if “the purported offer is made in other than face-to-face negotiations,” then the “notification process” must be “commercially reasonable.”  

In the wake of that decision, South Carolina’s General Assembly enacted a safe-harbor statute, allowing insurers to comply with Wannamaker by satisfying certain conditions—such as presenting the offer in language and a format approved by the South Carolina Department of Insurance.  S.C. Code § 38-77-350.  If an insurer’s application form satisfies the statute’s substantive requirements, and if the form is signed by the named insured in the manner prescribed by the UETA, then “it is conclusively presumed that there was an informed, knowing selection of coverage ….” 

The application of these rules to online insurance sales was tested last year, in Traynum v. Scavens, 416 S.C. 197, 786 S.E.2d 115 (2016).  The insured in Traynum bought an auto policy on the website of Progressive Direct Insurance Company.  Later, after being injured in a collision with an underinsured motorist, the plaintiff alleged that she had not received a “meaningful offer” of UIM coverage, and she sought to reform the policy. 

The plaintiff in Traynum did not contest the adequacy of Progressive’s online disclosures, but she asserted that the “notification process” was so far from being “commercially reasonable” as to negate those disclosures.  South Carolina’s high court would have none of it.  It suggested that the plaintiff essentially assumed the risk of whatever procedural defects she complained of when she decided to buy online:  “Progressive’s online communication of the offer of UIM coverage was effective because Traynum agreed to interact with Progressive electronically by choosing to purchase insurance through Progressive’s website … .”  And it found that making insurers take additional precautions to make online offers “meaningful” would be bad public policy: 

[T]he ability to purchase insurance online benefits consumers by allowing them to shop from the comfort of their own homes and avoid the time constraints and pressures associated with face-to-face interactions with sales agents. We therefore decline to add to the statutory requirements ... and frustrate the purpose of the UETA by judicially engrafting an additional burden on those transactions. 

A Little Byte of Evidence Is A Dangerous Thing 

It is not known if Progressive’s computers experience emotions yet, but they would have been justified in feeling confident about the sale to Mr. Moultrie, because he purchased his policy through the same system that was vindicated in Traynum.  

The system presents the user with a series of screens. The group of screens dealing with UIM coverage features a window, in which the “Offer of underinsured motorist coverage” appears in .pdf format.  The user can open this Offer Form to view it on a full screen, can print the document, and also can save it to his or her computer.  The .pdf Offer Form that was presented to Mr. Moultrie was nearly identical to the one at issue in Traynum, and the Supreme Court found that form to be “essentially identical” to the one promulgated by the Insurance Department.  

The user cannot type on or alter the .pdf version of the Offer Form; the system “pre-populates” that form with the customer’s name. But the customer can, and must, affirmatively accept or reject the coverage, by typing his or her name into a signature block that appears on the same screen as the offer form.  After filling the signature block, the customer must also click a “Continue” button.  

After the denial of his claim, Mr. Moultrie filed an action for reformation of his policy, on the ground that he “did not personally mark the UIM offer form to select desired coverage limits”; that the bike shop employee (who, presumably, was the one who rejected the UIM offer) had “represented herself as … a licensed insurance agent”; and that, in light of these circumstances, “Progressive did not make a meaningful offer of UIM coverage.”  

The insurer moved for summary judgment, asserting that its process satisfied both the safe harbor statute and the UETA, “[r]egardless of whether Moultrie or [the store employee] … signed the Offer Form.”  In support of that motion, Progressive submitted the affidavit of a Manager of Business Process, explaining the procedure through which Mr. Moultrie’s policy had been issued.  Attached to the affidavit were images from a “Tealeaf” system, showing the screens that had been presented to whoever ordered Mr. Moultrie’s policy.  One of those images showed the screen offering UIM coverage, but without any signature typed in the signature block.  The Manager’s affidavit also attached the .pdf version of the Offer Form, documenting Mr. Moultrie’s rejection of UIM coverage. 

Additionally, Progressive submitted an affidavit from the Capital Cities employee who had helped Mr. Moultrie buy the policy; she testified that she “may have assisted Mr. Moultrie with the entry of certain information,” but that she “did not electronically sign any documents that were required to be signed as a part of the transaction.” 

The very next day, Mr. Moultrie filed a summary judgment motion of his own—arguing that no one had “signed” the UIM Offer Form.  That motion was based primarily on the evidence offered by Progressive:  In addition to his own deposition testimony, in which he denied having “clicked” on the Offer Form, Mr. Moultrie offered (1) the affidavit of the Capital Cities employee;  (2) the image of the screen that presented the Offer Form, with the empty signature block; and (3) the affidavit of Progressive’s Manager, stating that the signature on the .pdf version of the Offer Form had been “pre-populated.” 

Trust Me  

Progressive’s position is that Mr. Moultrie’s claim could not possibly be true. Customers click a “Buy Now” button at the end of the application process—but if a customer has not completed the electronic signing of other forms in the application, including the UIM Offer Form, then the customer is redirected to an “error” page, and the transaction fails.  Thus, no policy is issued to a customer who has not affirmatively accepted or rejected UIM coverage.  According to Progressive, the fact that Mr. Moultrie obtained a policy (with an online discount, to boot) is itself proof that the UIM form was completed and electronically signed. 

Furthermore, Progressive contended that Mr. Moultrie had misunderstood the relevant computer records. Progressive saves “Tealeaf” images—including the “screen shot” that had no signature—only to illustrate the content of the screens with which a customer interacts.  Tealeaf is not used for purposes of record-keeping, and Progressive testified that its Tealeaf images did not include all the screens from Mr. Moultrie’s session.  For document retention purposes, Progressive stores the .pdf versions of UIM Offer forms.  Progressive’s Manager testified that the .pdf version is not stored in the computer archive, unless the customer has already provided the appropriate electronic signature. 

Finally, Progressive produced computer code, showing the fields that were presented to and completed by the consumer. But the meaning of the code was not self-evident; the relevant portion looked like this: 

<inet_eform_first_name PresentationStatus = “ANSWERED” LastAskedPage = “eFullFillmentSignFormPage”/>

<inet_eform_last_name PresentationStatus = “ANSWERED” LastAskedPage = “eFullFillmentSignFormPage”/>

<inet_eform_middle_name PresentationStatus = “ANSWERED” LastAskedPage = “eFullFillmentSignFormPage”/> 

He Said, It Said 

The district court’s ruling on the motions for summary judgment turned on whether Mr. Moultrie’s claim—that the relevant form was unsigned—raised a genuine issue of material fact. The court found that three pieces of evidence supported the claim:  Mr. Moultrie’s deposition testimony, denying that he rejected UIM coverage online; the affidavit of the Capital Cities employee, denying that she had provided any electronic signature on Mr. Moultrie’s behalf; and the “screen shot” from the Tealeaf system, showing an empty signature block. 

On the other hand, the court refused to consider the additional computer records submitted by Progressive—because the insurer had failed to produce them earlier in the case, in response to the plaintiff’s discovery requests.  That is, Mr. Moultrie was permitted to base his motion for summary judgment on documents that Progressive had hoped to use; but, as a discovery sanction, Progressive was barred from using any of those same records—either to rebut the plaintiff’s arguments, or to put the plaintiff’s documents in context. 

That discovery ruling did not end matters, because Progressive also offered uncontroverted testimony about how its system operated—testimony to the effect that the policy could not have been issued, if (as Mr. Moultrie maintained) no one had affirmatively accepted or rejected UIM coverage. It also offered testimony about why Mr. Moultrie’s “Tealeaf” image did not have the significance he attributed to it.  The plaintiff implied that the insurer’s various statements were inconsistent with each other, but he did not otherwise suggest he could establish a different version of how Progressive’s computer system actually works. 

Still, the court found this testimony was insufficient to overcome Mr. Moultrie’s claim. In part, the ruling appears to reflect some confusion about Progressive’s position:  The court suggested, for example, that Progressive is attempting to argue that a prepopulated signature that appears on an insurance policy [i.e., the UIM Offer Form] before the insured reads through and signals affirmative ascent to the terms of the policy fulfills [the South Carolina fair harbor statute]. 

That was not Progressive’s argument. The insurer’s claim, rather, was that the prepopulated Offer Form was evidence that Mr. Moultrie (or someone acting for him) had affirmatively rejected UIM coverage—because the Offer Form would not have been saved in Progressive’s records without someone’s having typed his name on the screen through which the form was presented. 

On other matters, the court simply threw up its hands. Although Mr. Moultrie did not claim he could refute Progressive’s testimony about the Tealeaf system, the court found: 

Progressive contends that the Tealeaf system is used for training and retention purposes only and is not used as a records archive. This is the sort of factual dispute that cannot be resolved at the summary judgment stage.

Where Do We Go From Here? 

It’s probably too much to call Moultrie a cautionary tale:  Although the costs and risks of the litigation have increased significantly, Progressive will still have an opportunity to prove its case.  But the decision is at least symptomatic of an important aspect of insurance litigation in the Age of the Internet.  

The most striking feature of the evidence Progressive used to document Mr. Moultrie’s purchase is that it was utterly unremarkable: Online merchants submit similar affidavits, with similar screen shots and lines of code, as a matter of routine.  In this case, the use of that evidence was complicated by a discovery dispute, but that is only part of the story.  As a rule, consumers who deny making online purchases just don’t get very far—especially if, like Mr. Moultrie, they admit having paid virtually no attention to their purchase: 

1. So she did all of it, but she did it for you, correct?
2. I mean, she did it all, but, I mean, I didn’t know what was going on.
3. Well, did you ever ask her to explain anything, what she was doing?
4. No.
5. Did you ever say, “Can I look at that?”
6. No.
7. Did you ever say, “Can I get more information about this or that?”
8. No. 

But insurers are held to different standards, especially when they deal directly with consumers. That difference persists even in the virtual realm.  

Although the economic pressure to increase and simplify online access is both immense and growing, courts can be expected to second-guess every facet of electronic insurance sales. In other words, insurers may not simply follow established paths into e-commerce.  Even when a system has been carefully constructed, and even after it has received the apparent imprimatur of a state Supreme Court, even the most rudimentary monkey wrench can still stop the gears

[1] J.D. Power, 2016 U.S. Insurance Shopping Study.