An Indiana appeals court has revived a $3 million bad-faith hit against Erie Insurance, ruling its policy limits cannot cap damages for its own breach.
In a decision dated May 14, 2026, the Court of Appeals of Indiana upheld a jury's finding that Erie acted in bad faith when it denied an uninsured-motorist claim, reinstated $3 million in breach-of-contract damages a trial judge had cut, and sent the case back for the trial court to reconsider whether the full award is excessive. The jury had originally returned $8,125,407.61.
The dispute traces to August 2016, when Christine and Roy Cosme bought an Erie auto policy through Churilla Insurance and listed their son Broyce on it. In February 2017, a Hobart Police officer pulled over a car carrying Broyce and his friends. The group was arrested for marijuana possession. The officer mistakenly identified 19-year-old Broyce as the driver, and the Indiana Bureau of Motor Vehicles suspended his license for failing to show proof of insurance. The officer told Broyce he would fix the mistake. He didn't.
Erie auto-renewed the policy that August. A routine vehicle change request triggered the carrier's underwriting system to pull motor vehicle records, and Erie's sole Indiana underwriter, Megan Malena, spotted the suspension. On September 27, 2017, Erie sent the Cosmes an exclusion letter saying it could not continue the policy unless Broyce was excluded from coverage. The deadline to return the carrier's "No Coverage" form was October 28.
The family scrambled. Broyce paid to reinstate his license. The paperwork was forwarded to Malena with a request to put the cancellation on hold or extend it. Malena had already pulled the trigger. At 12:01 a.m. on November 1, the policy ended. The Cosmes didn't know.
Three days later, on November 4 in Hammond, Indiana, an uninsured driver named Debora Warfield Clark rear-ended them. Christine went to the hospital with neck pain that hasn't gone away in the years since. The cancellation letter arrived in the mail on November 6. Erie denied the claim on November 30, 2017.
The Cosmes sued in March 2018. After a first trial ended in a directed verdict for Erie - reversed by the Indiana Supreme Court – a second jury came back in February 2025 with $8,125,407.61: $2 million for the wreck, $3 million for breach of contract, $3 million for breach of the duty of good faith and fair dealing, and $125,407.61 in punitive damages. The trial court trimmed the first two awards to $500,000 combined, citing the policy's uninsured-motorist limits of $250,000 per person and $500,000 per accident for bodily injury.
Erie's own paperwork undercut its position. On April 3, 2018, the carrier's records coordinator certified that the policy was in effect from August 27, 2017, to August 27, 2018, and the attached declarations pages said the same. Erie later blamed a scrivener's error – but never claimed the declarations themselves were wrong.
The Cosmes' insurance expert, Elliot Flood, told the jury Erie's conduct amounted to opportunistic fraud. He described the carrier's handling as a bungling that turned, when a claim came in, into a chance to take advantage of the situation and avoid paying out $250,000 in coverage. Erie argued the phrase was a new opinion that should have been disclosed before trial. The appeals court disagreed, finding it was the same opinion Flood had given in his summary judgment affidavit, just with different phrasing.
Erie kept one piece of its win. The court agreed the uninsured-motorist limits properly capped the $2 million wreck-damages award, largely because the Cosmes did not contest that finding on appeal.
The $3 million breach award was a different story. Judge Felix wrote that the policy's uninsured-motorist endorsement covers only damages flowing from a motor vehicle accident involving an uninsured or underinsured driver – not damages caused by the insurer's own failure to pay. Quoting a 1992 Indiana decision, the court reiterated that a policy's limits do not cap what an insurer owes for breaching the contract itself. Only an unreasonably narrow-minded insurer, the earlier opinion said, would fail to foresee those damages.
The panel also rejected Erie's argument that bad-faith claims must fit into one of four pre-set categories of insurer misconduct. The Cosmes' theory - that Erie made an unfounded refusal to pay and deceived them through its underwriting and cancellation actions – was good enough to go to a jury.
The case now heads back to Lake Superior Court, which has been told to take another look at whether the four damages awards are excessive. The ruling is not yet final.
