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The Texas Supreme Court last week issued a pro-insurer ruling on issues raised in a dispute over coverage for the theft of gold coins worth more than $1 million in which fraudulent checks were used to scam a dealer.
Answering two questions put to it by a federal appeals court, the Texas high court said on Dec. 3 that the policy wording should be interpreted to mean that an exclusion and sublimit applied and that the alleged negligence of the shipper did not allow for an additional claim.
In the underlying case, Dillon Gage Inc. of Dallas v. Certain Underwriters at Lloyd’s, Dillon Gage, a gold coin and precious metal dealer, in 2018 shipped $549,000 worth of gold coins and then another $655,000 worth to a thief who forged signatures on stolen checks to pay for the coins, after the checks had provisionally cleared.
The coins were shipped to the address of the owner of the checks, but the thief rerouted the shipments on UPS Inc.’s online customer service system prior to delivery and then picked up the packages from a UPS facility.
Dillon Gage sought coverage for the loss under its policy with Lloyd’s of London syndicates. The underwriters agreed to pay only a small portion of the loss, however, because the policy had an invalid payments exclusion clause that limited liability to $12,500 for property losses “consequent upon” handing over insured property against fraudulent checks.
The dealer argued that the proximate cause of the loss was the theft of the packages, not the fraudulent checks. The underwriters argued that the limits available were restricted because the dealer would not have shipped the coins but for the payments, and therefore the loss was “consequent upon” the fraud.
In addition, the dealer argued that UPS’ alleged negligence was a separate cause of loss and therefore the exclusion did not apply.
In its ruling, the U.S. District Court for the Northern District of Texas in Dallas, which characterized the case as “a combination of the works of Auric Goldfinger and Frank Abagnale,” granted summary judgment to the insurers on the issue of the “consequent upon” wording and ruled that the alleged negligence by UPS was not an independent cause of loss.
Dillon Gage appealed to the U.S. 5th Circuit Court of Appeals and the appeals court sought a ruling from the state high court on the meaning of the policy wording and whether the alleged negligence was an independent cause of loss.
In its response, the high court said: “We conclude that Dillon Gage’s proffered interpretation is unreasonable. The ordinary meaning of ‘consequent upon’ is ‘following as a result or effect.’”
In addition, the court said the same “actor” used forged checks as part of the overall scheme.
“UPS did not permit the thief to reroute Dillon Gage’s shipments in a vacuum. Instead, the thief induced UPS’s alleged negligence by using shipping information Dillon Gage provided against the thief’s tender of the fraudulent check,” the state supreme court stated.
Dillion Gage did not respond to a request for comment.