Dillon Gage Incorporated of Dallas v. Certain Underwriters at Lloyds Subscribing to Policy No EE1701590
Filing
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Memorandum Opinion and Order: As a result, the Court GRANTS the underwriters' motion for summary judgment [Doc. No. 36 ], DENIES Dillon Gage's motion for summary judgment [Doc. No. 37 ], and DISMISSES WITH PREJUDICE Dillon Gage's b reach of contract claim. And because Dillon Gage has not alleged or argued an independent injury, the Court GRANTS the underwriters' motion for summary judgment, DENIES Dillon Gage's motion for summary judgment, and DISMISSES WITH PREJUDIC E Dillon Gage's extra-contractual claims (for violations of Chapters 541 and 542 of the Texas Insurance Code). The Court also DISMISSES AS MOOT Dillon Gage's unopposed motion for leave to set oral argument [Doc. No. 54 ]. (Ordered by Judge Brantley Starr on 2/19/2020) (ndt)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
DILLON GAGE
INCORPORATED OF
DALLAS,
Plaintiff,
v.
CERTAIN UNDERWRITERS AT
LLOYD’S, SUBSCRIBING TO
POLICY NO. EE1701590,
Defendant.
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Civil Action No. 3:18-CV-01555-X
MEMORANDUM OPINION AND ORDER
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
1
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 GRANTS the underwriters’ motion for summary
judgment [Doc. No. 36], DENIES Dillon Gage’s motion for summary judgment [Doc.
No. 37], and DISMISSES WITH PREJUDICE Dillon Gage’s breach of contract claim.
And because Dillon Gage has not alleged or argued an independent injury, the Court
GRANTS the underwriters’ motion for summary judgment, DENIES Dillon Gage’s
motion for summary judgment, and DISMISSES WITH PREJUDICE Dillon Gage’s
extra-contractual claims (for violations of Chapters 541 and 542 of the Texas
Insurance Code). The Court also DISMISSES AS MOOT Dillon Gage’s unopposed
motion for leave to set oral argument [Doc. No. 54].
I. Factual Background
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
2
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.1
The criminal placed an order with Dillon Gage for $549,000 worth of gold coins,
and the check (“signed” by Laurie Bramlett) cleared. So, Dillon Gage shipped the
order via UPS and emailed the tracking information to the email address provided by
the alleged customer. This procedure followed Dillon Gage policy of only shipping an
order to a new customer once a check clears.2
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.3 An unknown
individual (neither Keith nor Laurie Bramlett) collected the package, some 15 days
after initiating the order but only 3 minutes after it arrived at the facility.
Laurie Bramlett alerted her bank to the fact that the checks never arrived, but the bank did not stop
the checks or take other precautions.
1
A declaration from the manager of Dillon Gage provides: “When we have a new customer account, it
is the policy of Dillon Gage to wait until the funds provided clear the customer’s bank account before
Dillon Gage will ship the gold.”
2
Dillon Gage contends this violated the business relationship between UPS and Dillon Gage. For
example, the high value stream Dillon Gage ships in is supposed to not allow rerouting without Dillon
Gage’s consent and is supposed to confirm the signatory is the recipient.
3
3
Emboldened by his success, the perpetrator placed another order the same day—this
time for $655,000 worth of products. That check also cleared, and ten days later, the
criminal intercepted the rerouted package.
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.4 Dillon Gage filed a claim. The underwriters responded that fraudulent
payments are excluded from coverage, but that limited coverage totaling $12,500
applied due to an extension of coverage (or an exception to the exclusion). The
underwriters have not made a payment on the claim.
The million-dollar question is whether the policy covers the loss.
II. Legal Standards
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.”5 “A fact is material if it ‘might affect the outcome of the suit’” and “[a] factual
dispute is genuine ‘if the evidence is such that a reasonable jury could return a verdict
for the nonmoving party.’”6 Courts “resolve factual controversies in favor of the
nonmoving party, but only where there is an actual controversy, that is, when both
Dillon Gage claims the true value of the loss is the value of the coins and that its bank’s handling of
the debit violated the Uniform Commercial Code deadline to do so.
4
5
FED. R. CIV. P. 56(a).
Thomas v. Tregre, 913 F.3d 458, 462 (5th Cir. 2019) (alteration in original) (citing Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986)).
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parties have submitted evidence of contradictory facts.”7 Thus, “the nonmoving party
cannot defeat summary judgment with conclusory allegations, unsubstantiated
assertions, or only a scintilla of evidence.”8
But here, both sides moved for summary judgment, and they did so on the legal
interpretation of the policy.
Under Texas law,9 the insured has the burden of
establishing that coverage is potentially provided by the insurance policy, but the
insurer has the burden to prove the applicability of an exclusion (which allows it to
deny coverage).10 If the insurer proves an applicable exclusion, the burden shifts back
to the insured to prove an applicable exception to the exclusion.11 Courts resolve
ambiguities in favor of the insured.12
III. Application
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.
7
Antoine v. First Student, Inc., 713 F.3d 824, 830 (5th Cir. 2013) (citation omitted).
8
Hathaway v. Bazany, 507 F.3d 312, 219 (5th Cir. 2007) (citations omitted).
9
The policy’s choice of law provision requires the application of Texas law.
10
Guar. Nat’l Ins. Co. v. Vic Mfg. Co., 143 F.3d 192, 193 (5th Cir. 1998).
11
Id.
12
Id.
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A. The Invalid Payments Exclusion Clause
The policy’s Invalid Payments Exclusion Clause states:
SECTION D – Standard General Exclusions
Invalid Payments Exclusion Clause
Notwithstanding anything contained herein to the contrary, this
contract excludes any claim in respect of the property insured
hereunder, where the loss has been sustained by the Insured consequent
upon handing over such Insured property to any third party against
payment by:
- Cheque . . . where such Cheque . . . shall prove to be false, fraudulent
or otherwise invalid or uncollectible for any reason whatsoever.
(emphasis added).
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 (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
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necessary effect of a particular action, event, or situation; following as a natural
result, a necessary effect, or a logical conclusion.”13
The underwriters’ initially
proposed definitions are a bridge too far. The policy phrase of “consequent upon”
indicates that the loss flowed from the fraudulent check.
Combining too many
contributing factors could destroy the but-for causation the exclusion text
contemplates. The Fifth Circuit authority the underwriters cite for their preferred
definition also was construing the broader underlying term “or contributed to by,”
which explains the breadth of the Court’s ultimate definition of that phrase.14 And
likewise, the Supreme Court case the underwriters cite for using “occasioned by”
repeatedly refers to “arising from or caused by,” indicating the Supreme Court
believed some form of causation is required.15
But Dillon Gage’s initial interpretation (proximate cause) seems too narrow.
Proximate cause entails reasonable foreseeability,16 and such language limiting
causation to be proximate is nowhere in the invalid payment exclusion. For that
matter, neither is “sole cause” or “superseding cause.” To its credit, Dillon Gage
admits that there can be more than one proximate cause.17 This is all the more true
13
BLACK’S LAW DICTIONARY, CONSEQUENT (11th ed. 2019).
See Sekel, 704 F.2d at 1337–38 (5th Cir. 1983) (construing “any loss resulting from any injury caused
or contributed to by, or as a consequence of” to mean “a functionally closely related significant cause
or contributing factor of which is a noncovered risk”).
14
15
Union Ins. Co. v. Smith, 124 U.S. at 426.
16
As Keeton and Prosser describe proximate cause,
As a practical matter, legal responsibility must be limited to those causes which are so
closely connected with the result and of such significance that the law is justified in
imposing liability. Some boundary must be set to liability for the consequences of any
act, upon the basis of some social idea of justice or policy.
W. Page Keeton et al., PROSSER AND KEETON ON THE LAW OF TORTS § 41, at 264 (5th ed. 1984).
17
“Even if the Court found that the fraudulent payment is a proximate cause of the loss in question, it
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for but-for or actual causation, which we are dealing with here.
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 the criminal had not redirected and intercepted the package, and
that such arguments are speculative. Third, the underwriters contend that, if Dillon
Gage is right, there could be no factual basis for the fraudulent payment exclusion,
which renders the clause meaningless in violation of the canons of interpretation.
is not the only proximate cause of the loss in question.”
8
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.18 As the Court explained,
[W]hen “excluded and covered events combine to cause” a loss and “the
two causes cannot be separated,” concurrent causation exists and “the
exclusion is triggered” such that the insurer has no duty to provide the
requested coverage. But when a covered event and an excluded event
“each independently cause” the loss, “separate and independent
causation” exists, “and the insurer must provide coverage despite the
exclusion.”19
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.”20 The Fifth Circuit and Texas Supreme Court agree that
reading exclusions and anti-concurrent-causation clauses together excludes from
coverage losses caused by both a covered risk and an excluded risk.21
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
18
JAW The Pointe, L.L.C., 460 S.W.3d at 608.
19
Id. (quoting Utica Nat. Ins. Co. of Tex. v. Am. Indem. Co., 141 S.W.3d 198, 204 (Tex. 2004)).
20
Id. at 607.
Id. at 608 (“We agree with the Fifth Circuit that, under Texas law, the anti-concurrent-causation
clause and the exclusion for losses caused by flood, ‘read together, exclude from coverage any damage
caused by a combination of wind and water.’” (quoting Leonard v. Nationwide Mut. Ins. Co., 499 F.3d
419, 429–31 (5th Cir. 2007))).
21
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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”),22 have
such language.23 The fraudulent payments exclusion does not. Under JAW The
Pointe, we need the bigger boat of common law analysis to determine whether the
multiple causes were concurrent and excluded or separate/independent and covered.
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.”24 The Court approvingly cited Burlington Insurance
Cf. All 25 James Bond films. The count of 25 does not include non-Eon films such as Casino Royale
(the 1967 film and not the 2006 version—which could be viewed as an exception to an exclusion that
brings the film back in the scope of Bond films) and Never Say Never Again).
22
The terrorism exclusion excludes coverage “directly or indirectly caused by, resulting from or in
connection with any act of terrorism, regardless of any other cause or event contributing concurrently
or in any other sequence to the loss.” And the Bond villains clause excludes coverage “directly or
indirectly caused by or contributed to or arising from ionizing radiations[.]”
23
24
Utica Nat’l Ins. Co. of Tex., 141 S.W.3d at 204.
10
Co. v. Mexican American Unity Council, 905 S.W.2d 359, 363 (Tex. App.—San
Antonio 1995, no writ), for the proposition that “because negligent supervision of [a]
youth home resident and the assault and battery which caused her injuries were not
‘separate and independent,’ an assault and battery exclusion applied.”25
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.26 In short, the parties could have placed anticoncurrent-causation language in the fraudulent payments exclusion. They did not.
As a result, the concurrent causes here result in triggering the exclusion under Texas
law and no coverage for the claims, unless an exception applies.
B. The Invalid Payments Extension Clause
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:
SECTION B – Contract Extensions
Financial Crime – Invalid Payments Extension Clause
Notwithstanding the Invalid Payment Exclusion Clause contained
herein, it is understood and agreed that coverage hereunder is extended
to cover physical loss of insured interest as a direct result of any
25
Id.
26
Burlington Ins. Co., 905 S.W.2d at 360.
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fraudulent or dishonest payment(s). Underwriters liability hereunder is
limited to USD $12,500 each and every loss and in the aggregate during
the policy period and subject to a deductible of USD 1,000 each and every
loss or series of losses.
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.27
Open questions remain regarding the interpretation of “direct result,” its application
to the facts, and whether the loss is one event, one for each fraudulent check, or a loss
for each package. Because Dillon Gage failed to brief this issue in response to the
underwriters’ motion for summary judgment, it failed to carry its burden to prove an
exception to the exclusion provides coverage.
As a result, the underwriters are
entitled to summary judgment on Dillon Gage’s breach of contract claim.
C. Extra Contractual Claims
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.”28 As the Texas Supreme Court recently clarified, “[t]he
general rule is that an insured cannot recover policy benefits for an insurer’s statutory
Guar. Nat’l Ins. Co., 143 F.3d at 193. This is especially true when the underwriters moved for
summary judgment on all of Dillon Gage’s claims, including its breach of contract claim.
27
28
USAA Tex. Lloyds Co. v. Menchaca, 545 S.W.3d 479, 489 (Tex. 2018).
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violation if the insured does not have a right to those benefits under the policy.”29 The
rationale is that “[w]hen an insured seeks to recover damages that ‘are predicated on,’
‘flow from,’ or ‘stem from’ policy benefits, the general rule applies and precludes
recovery unless the policy entitles the insured to those benefits.”30
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.31
Accordingly, the underwriters are entitled to summary
judgment on Dillon Gage’s extra-contractual claims.
IV. Conclusion
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 GRANTS the underwriters’ motion for summary judgment and
DISMISSES WITH PREJUDICE Dillon Gage’s breach of contract claim. And because
Dillon Gage has not alleged or argued an independent injury, the Court GRANTS the
underwriters’ motion for summary judgment and DISMISSES WITH PREJUDICE
Dillon Gage’s claims for violations of Chapters 541 and 542 of the Texas Insurance
Code. The Court also DISMISSES AS MOOT Dillon Gage’s unopposed motion for
29
Id., at 490.
30
Id. at 500.
Dillon Gage’s response to this summary judgment argument from the underwriters is that, “[a]s
explained above, Dillon Gage’s losses are covered under the Insurance Policy and the Invalid Payment
Exclusion Clause does not apply. See supra. Therefore, Dillon Gage’s extracontractual claims are
valid and should not be dismissed as a matter of law.”
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leave to set oral argument. 32
IT IS SO ORDERED this 19th day of February.
BRANTLEY STARR
UNITED STATES DISTRICT JUDGE
Under § 205(a)(5) of the E-Government Act of 2002 and the definition of “written opinion” adopted
by the Judicial Conference of the United States, this is a “written opinion[] issued by the court” because
it “sets forth a reasoned explanation for [the] court’s decision.” It has been written, however, primarily
for the parties, to decide issues presented in this case, and not for publication in an official reporter,
and should be understood accordingly.
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