After seeking the opinion of the Texas Supreme Court on it's interpretation of policy language, the US Court of Appeals for the 5th Circuit has ruled that an insurer is not obligated to compensate a gold coin and precious metal dealer for the theft of more than $1 milion of gold coins obtained with fraudulent checks. The case is Dillon Gage v. Certain Underwriters at Lloyd's, No. 20-10262, 2022 U.S. App. LEXIS 4264 (5th Cir. Feb. 16, 2022).
In 2018, gold coin and precious metal dealer Dillon Gage Inc. separately shipped $549,999 and $655,000 worth of gold coins to a thief who forged signatures on stolen checks to pay for the coins. Dillon Gage did not ship the coins until after the checks had provisionally cleared. The coins were shipped to the address on the checks, but the thief rerouted the shipments on the UPS website prior to delivery and picked the packages up from a UPS facility.
Dillon Gage sought coverage for the loss under its insurance policy through Lloyd's of London. The insurers agreed only to pay $12,500 for property losses "consequent upon" handing over insured property against fraudulent checks due to an invalid payments exclusion clause that limited the insurer's liability to that meager sum.
The U.S. District Court in Dallas granted summary judgment to the insurers based on the "consequent upon" wording. Dillon Gage appealed to the 5th U.S. Circuit Court of Appeals, and argued that the proximate cause of the loss was the theft of the packages, not the fraudulent checks. The 5th Circuit sought the opinion of the Texas Supreme Court on the meaning of the policy wording. The state high court ruled that the precious metal dealer's "proffered interpretation is unreasonable.
The 5th Circuit then received the case back, and held in its decision that in light of the Texas Supreme Court's ruling "the district court correctly determined Dillon Gage's losses were excluded from coverage."
Editor's Note: The court found that an excluded loss "consequent upon" handing over gold coins to another against a forged check invokes a more direct type of causation than "due to" or "arising out of". A loss sustained "consequent upon" an event connotes 'but-for' causation and the consequence must be a direct result of the cause. In this case it was held that the theft was "consequent upon" the handing over of the property against forged checks even though there were other acts in the retrieval of the goods involving different conduct, different actors, different time periods and different locations. 'But for' the forged check, there would not have been a loss.