BRANTLEY STARR, UNITED STATES DISTRICT JUDGE.
This is an insurance coverage dispute stemming from fraudulent checks and a gold heist. A criminal used a stolen identity and paid for roughly $1.2 million worth of gold coins from Dillon Gage Incorporated of Dallas (Dillon Gage) with two fraudulent checks. He then altered the UPS delivery instructions and intercepted the packages. Dillon Gage filed an insurance claim, and the insurers (collectively Certain Underwriters at Lloyd's, Subscribing to Policy No. EE1701590; hereinafter "underwriters") determined only minimal coverage existed under an exception to an exclusion for fraudulent payments. Dillon Gage sued the underwriters for breach of contract and violations of Chapters 541 and 542 of the Texas Insurance Code.
Before the Court are cross motions for summary judgment from the underwriters and Dillon Gage on all three claims, based on stipulated facts but diverging views of the law. Unfortunately for Dillon Gage, Texas law provides that concurrent causes of a loss (those that are related and interdependent) where one cause is covered and the other is excluded results in no coverage at all. Here, the two causes are the fraudulent checks and the interception of the packages, and they are related and interdependent—especially given that Dillon Gage only shipped the packages once the fraudulent checks cleared the payor's bank. As a result, there is no coverage due to the fraudulent payments exclusion—except that a nominal exception exists for coverage up to $12,500 thanks to an exception to the exclusion. But Dillon Gage waived any argument for that coverage by not advancing it in response to the underwriter's motion for summary judgment (and insureds have the burden to prove an exception to an exclusion exists).
As a result, the Court
The wrongdoing in this case seems to be a combination of the works of Auric Goldfinger and Frank Abagnale. Dillon Gage is a wholesale buyer of bullion coins and precious metals. And because the world is a dangerous place, Dillon Gage purchased an all risk policy from the underwriters to cover risk from May 2017 to May 2018.
In January 2018, Dillon Gage received the first of two orders from whom it believed to be Kenneth Bramlett, an upstanding orthopedic surgeon in Alabama. The individual was neither Kenneth Bramlett nor upstanding. Unbeknownst to Dillon Gage, the criminal pretending to be Kenneth Bramlett had previously placed a hold on Kenneth and Laurie Bramlett's mail, obtained a box of checks, and harvested sufficient information to steal their identity.
Shortly after the origin scan, UPS received an instruction to hold the package at a UPS facility instead of delivering it to the designated address.
Three days later, Laurie Bramlett signed an affidavit of fraud with her bank after she called the bank and learned their account was depleted. The net result was Dillon Gage being debited by its bank $1,204,000 for the return of the two fraudulent checks.
The million-dollar question is whether the policy covers the loss.
Summary judgment is appropriate only if, viewing the evidence in the light most favorable to the non-moving party, "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."
The underwriters argue that the policy excludes coverage for the shipping fraud that occurred here, but that an extension or exception to the exclusion reinstates limited coverage. Dillon Gage argues that the proximate cause of the loss was the theft of the packages, not the fraudulent checks, and that full coverage exists.
As an initial matter, the policy covers loss of insured property, which includes shipping coverage for coins and money. But wait, there's more.
The policy's Invalid Payments Exclusion Clause states:
What does "consequent upon" mean? The underwriters contend it means either 1) results "occasioned by" the initiating factor (quoting Union Ins. Co. v. Smith, 124 U.S. 405, 428, 8 S.Ct. 534, 31 S.Ct. 497 (1888)), or 2) "functionally closely related significant cause or contributing factor" (quoting Sekel v. Aetna Life Ins. Co., 704 F.2d 1335, 1338 (5th Cir. 1983)). As a result, the underwriters argue that Dillon Gage would have never shipped the coins without nonfraudulent payment, so the loss was "consequent upon" the fraudulent payment and therefore excluded. Dillon Gage contends those authorities are irrelevant given this policy language and that "consequent upon" means proximate cause. Because the coins were taken without permission, the loss was not consequent upon the fraudulent checks, Dillon Gage's argument goes. Both sides, to their credit, came closer together in reply briefs.
The Court believes a proper interpretation of "consequent upon" is "a consequence of" or "because of"—in other words: but-for causation. For example, Black's Law Dictionary defines "consequent" as "[o]ccurring as the natural result or necessary effect of a particular action, event, or situation; following as a natural result, a necessary effect, or a
But Dillon Gage's initial interpretation (proximate cause) seems too narrow. Proximate cause entails reasonable foreseeability,
Here, the fraudulent checks are a but-for cause of the loss. Dillon Gage only shipped the two orders of coins after (and because) the bank checks cleared. And it did so pursuant to a company policy of ensuring checks clear before shipping to new customers.
Dillon Gage contends that, at a minimum, the fraudulent scheme of redirecting the packages were also a cause of the loss. As a result, the argument goes, one must look to the concurrent policy language (or lack thereof) in this particular exclusion. Here, other exclusions expressly exclude coverage of losses caused partly by an excluded risk and partly by a covered risk. There is no such language here that would exclude coverage for loss partly caused by fraudulent payments, so the risk is covered.
The underwriters' response is threefold. First, they contend that Dillon Gage would never have provided tracking numbers to the criminal had the fraudulent checks not cleared the bank first. And Texas law recognizes that concurrent cause with excluded and covered events cannot be separated, and the exclusion is therefore triggered. Here, the underwriters argue, the fraudulent checks led to the redirecting of the packages, so the causes cannot be separated and the exclusion controls. Second, the underwriters argue that Dillon Gage's causation argument hinges on what might have happened if
While this area of the law was once confusing, the Texas Supreme Court clarified it in JAW The Pointe, L.L.C. v. Lexington Ins. Co., 460 S.W.3d 597 (Tex. 2015). There, the Court recognized that the common law treats multiple causes (when one is covered and another is excluded) differently depending on whether they are concurrent or independent.
But that common-law default can be confirmed or displaced by contract with an anti-concurrent-causation clause. Such clauses tend to state that the insurer will not pay for any "loss or damage caused directly or indirectly by any" excluded cause or event, "regardless of any other cause or event that contributes concurrently or in any sequence to the loss."
But it is not true, as Dillon Gage suggests, that "[f]or an insurance policy exclusion to apply if it is a cause of the injury, regardless of whether there are other separate and independent causes, the policy must have, under Texas law, included an anti-concurrent-causation clause with respect to the exclusion. See, e.g., JAW The Pointe, L.L.C. v. Lexington Ins. Co., 460 S.W.3d 597, 604 (Tex. 2015)." But JAW The Pointe said no such thing. Instead, the Courts look to anti-concurrent-causation clauses and give them meaning. And if there are no such clauses, they exclude coverage for concurrent causes but confirm coverage if there are separate and independent causes.
Here, there is no anti-concurrent-causation clause in the fraudulent payment exclusion. Other exclusions, like the Terrorism Exclusion Clause and the Institute Radioactive Contamination Chemical Biological Bio-Chemical and Electromagnetic Weapons Exclusion Clause (hereinafter, the "Bond villains exclusion clause"),
The Court concludes the causes of the loss (the fraudulent checks and the intercepting of the packages of coins) are concurrent. The Texas Supreme Court has framed concurrent causes as being when "excluded and covered events combine to cause the plaintiff's injuries."
The facts of this case fit Texas Supreme Court's test for concurrent causes. The fraudulent checks, once they cleared, led Dillon Gage to ship the coins. So the fraudulent checks and the interception of the packages "combine[d] to cause the plaintiff's injuries" and were connected and interrelated. The checks established the ability of the criminal to steal the coins from the UPS facility, just as the negligent supervision of the youth who left the youth home in Burlington allowed the assault and battery to occur off the premises.
Of course, if an exception to an exclusion applies, it would reinstate coverage to the extent of the exception. That could be the case here, albeit in very limited fashion. The relevant exception provides:
This is the position the underwriters took before this litigation. But Dillon Gage rejected that coverage and filed suit, and the underwriters never paid.
The burden is on Dillon Gage to prove an exception that allows coverage.
But Dillon Gage brought more than a breach of contract claim. It also brought a claim for various violations of Chapter 541 of the Texas Insurance Code and a claim for a Prompt Pay Act violation under Chapter 542 of the Texas Insurance Code. The issue with these extra-contractual claims is that Dillon Gage did not demonstrate policy coverage under its contract claim. As a result, the Texas Insurance Code "does not create insurance coverage or a right to payment of benefits that does not otherwise exist under the policy."
Here, Dillon Gage has not pled an independent injury but instead has claims predicated on a loss covered by the policy. And Dillon Gage has not asserted in summary judgment briefing that its extracontractual claims should swim even if its contract claim sinks.
The Court holds that the multiple causes of Dillon Gage's loss were related and interdependent and therefore concurrent under Texas law. As a result, the excluded risk of the fraudulent checks brings the loss outside the scope of the policy's coverage. The Court
W. Page Keeton et al., PROSSER AND KEETON ON THE LAW OF TORTS § 41, at 264 (5th ed. 1984).