440 F.Supp.3d 587
N.D. Tex.2020Background
- Dillon Gage, a Dallas bullion dealer, received two orders placed with a stolen identity; two checks (totaling $1,204,000) cleared and Dillon Gage shipped coins after its policy to wait for funds to clear.
- The perpetrator altered UPS delivery instructions, intercepted both high‑value packages at UPS facilities, and ultimately the Bramletts (whose checks were stolen) reported fraud; Dillon Gage’s bank debited Dillon Gage for the checks’ return.
- Dillon Gage submitted an insurance claim under an ‘‘all risk’’ policy; underwriters asserted an Invalid Payments Exclusion and declined payment but contended a limited $12,500 Invalid Payments Extension might apply.
- Parties filed cross motions for summary judgment on breach of contract and Texas Insurance Code (Chapters 541 and 542) claims; facts were stipulated and the dispute turned on contract interpretation and Texas law on concurrent causation.
- The court held the fraudulent checks were a but‑for cause of the loss, the checks and the package interception were concurrent, the Invalid Payments Exclusion therefore bars coverage, and Dillon Gage waived/failed to prove any exception (including the $12,500 extension).
- Because Dillon Gage showed no entitlement to policy benefits, its extra‑contractual Insurance Code claims (bad faith / prompt‑pay) failed and were dismissed with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Invalid Payments Exclusion (loss "consequent upon" fraudulent checks) bars coverage | "Consequent upon" requires proximate cause; the theft/interception, not the checks, was the operative proximate cause — so coverage applies | "Consequent upon" means but‑for causation; Dillon Gage shipped only because checks cleared, so loss flowed from fraudulent payments and is excluded | Court: "consequent upon" = but‑for; the fraudulent checks were a but‑for cause; exclusion applies |
| Whether the fraudulent checks and interception are concurrent or separate/independent causes | Causes are separable/independent (covered theft vs excluded payment), so exclusion should not bar coverage | Causes are related/interdependent; under Texas law concurrent causes (one excluded) bar coverage | Court: causes were concurrent (interrelated); exclusion triggered; no coverage |
| Whether the Invalid Payments Extension reinstates limited coverage ($12,500) | Insured sought coverage and argued exclusion inapplicable; did not meaningfully contest or prove the extension in response to summary judgment | Underwriters asserted the written extension would provide limited $12,500 coverage but that insured bears burden to prove any exception | Court: Dillon Gage failed to brief/prove the extension in response; waived the argument; summary judgment for underwriters (no proven exception) |
| Whether extra‑contractual Texas Insurance Code claims survive absent coverage | Statutory claims valid regardless | Statutory claims fail if no entitlement under the policy; insured shows no independent injury | Court: statutory claims dismissed — no independent injury and no policy entitlement |
Key Cases Cited
- JAW The Pointe, L.L.C. v. Lexington Ins. Co., 460 S.W.3d 597 (Tex. 2015) (Texas Supreme Court rule distinguishing concurrent versus separate/independent causes and effect on exclusions)
- Union Ins. Co. v. Smith, 124 U.S. 405 (U.S. 1888) (uses causation language such as "occasioned by" and "arising from or caused by")
- Sekel v. Aetna Life Ins. Co., 704 F.2d 1335 (5th Cir. 1983) (construing broad causation language to include contributing causes)
- Guaranty Nat’l Ins. Co. v. Vic Mfg. Co., 143 F.3d 192 (5th Cir. 1998) (allocation of burdens: insured establishes coverage; insurer proves exclusion; insured proves exception)
- USAA Tex. Lloyds Co. v. Menchaca, 545 S.W.3d 479 (Tex. 2018) (Texas rule that Insurance Code does not create coverage absent a right under the policy)
- Utica Nat’l Ins. Co. of Tex. v. Am. Indem. Co., 141 S.W.3d 198 (Tex. 2004) (discussion of concurrent causation framing adopted by Texas Supreme Court)