Valero Title v. RLI Insurance ( 2023 )

Case: 22-20155 Document: 00516631752 Page: 1 Date Filed: 02/01/2023
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
February 1, 2023
No. 22-20155
Lyle W. Cayce
Clerk
Valero Title Incorporated, doing business as Valero Title
Company,
Plaintiff—Appellee,
versus
RLI Insurance Company,
Defendant—Appellant.
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:19-CV-443
Before Elrod, Haynes, and Willett, Circuit Judges.
Per Curiam:*
This appeal arises from a denial of insurance coverage for a claim of
loss due to a fraudulent routing number supplied to Plaintiff-Appellee Valero
Title, Inc., an escrow agent. Valero filed this lawsuit after its insurer
Defendant-Appellant RLI Insurance Company denied Valero’s proof of loss
claim, which RLI determined was not covered by the funds transfer fraud
*
This opinion is not designated for publication. See 5th Cir. R. 47.5.
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No. 22-20155
endorsement in Valero’s crime protection insurance policy. The district
court disagreed and granted partial summary judgment to Valero. RLI now
appeals the judgment of the district court. For the following reasons, we
AFFIRM.
I
Valero purchased a crime-protection policy from RLI that included a
funds transfer fraud endorsement providing that “we will pay for loss of
funds resulting directly from a fraudulent instruction directing [sic] financial
institution to transfer, pay or deliver funds from your transfer account. The
relevant definition for “fraudulent instruction” is “[a] written instruction
. . . issued by you, which was forged or altered by someone other than you
without your knowledge or consent, or which purports to have been issued
by you, but was in fact fraudulently issued without your knowledge or
consent.”
A Valero employee was discussing a loan payoff transaction over e-
mail with a lender’s employee when a fraudster posed as the lender’s
employee and sent the Valero employee fraudulent wiring instructions with
a fraudulent routing number. Because the Valero employee did not recognize
that these instructions were fraudulent, she instructed Valero’s bank to wire
$250,945.31 to the fraudster. When Valero learned of the loss, it submitted
a proof of loss claim to RLI. RLI determined that the loss was not covered by
the funds transfer fraud endorsement.
Based on the denial of coverage, Valero sued RLI. The parties filed
cross motions for summary judgment, RLI seeking summary judgment on all
of Valero’s claims and Valero seeking a declaration that its claimed loss was
covered and that RLI breached the policy by denying coverage. The only
issue before the district court was the interpretation of the insurance policy;
the district court properly assumed the facts pleaded by Valero were true.
The district court granted Valero’s partial motion for summary judgment and
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denied RLI’s motion, holding that Valero’s loss was covered under the
policy. The parties stipulated to the amount of attorney’s fees and agreed to
the dismissal of Valero’s remaining extracontractual claims, which the court
accepted to make the judgment final and appealable. RLI timely appealed.
II
We review a district court’s grant of a motion for summary judgment
de novo. Wallace v. Performance Contractors, Inc., 57 F.4th 209, 217 (5th Cir.
2023). Summary judgment is appropriate where “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.” Fed. R. Civ. P. 56(a). “A genuine issue of
material fact exists when the evidence is such that a reasonable jury could
return a verdict for the non-moving party.” Austin v. Kroger Tex., L.P., 864
F.3d 326, 328 (5th Cir. 2017) (quotation omitted). We view the evidence in
the light most favorable to the non-movant. Id. Under Texas law, the
“interpretation of an insurance policy is a question of law for the court to
determine.” Lawyers Title Ins. Corp. v. Doubletree Partners, L.P., 739 F.3d
848, 858 (5th Cir. 2014).
III
RLI appeals the district court’s interpretation of Valero’s insurance
policy funds transfer fraud endorsement. RLI argues that the district court
misinterpreted the plain language of the policy, premised its analysis on
invalid assumptions, improperly read additional language into the policy, and
that RLI’s interpretation instead gives effect to all policy provisions.
Under Texas law, insurance policies are construed according to
ordinary contract principles. Balfour Beatty Constr., L.L.C. v. Liberty Mut.
Fire Ins. Co., 968 F.3d 504, 509 (5th Cir. 2020) (citing Fiess v. State Farm
Lloyds, 202 S.W.3d 744, 747 (Tex. 2006)); Amerisure Ins. Co. v. Navigators
Ins. Co., 611 F.3d 299, 309 (5th Cir. 2010). Courts look to the plain language
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of the policy, examining the entire agreement and seeking to harmonize and
give effect to all provisions so that none will be rendered meaningless. J.M.
Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003).
The relevant provision of the policy at issue here, the funds transfer
fraud endorsement, provides for reimbursements of funds lost to certain
forms of fraud:
We will pay for loss of funds resulting directly from a
fraudulent instruction directing [sic] financial institution to
transfer, pay or deliver funds from your transfer account.
The endorsement contains three definitions for “fraudulent
instruction,” but only the second is relevant here:
A written instruction . . . issued by you, which was forged or
altered by someone other than you without your knowledge or
consent, or which purports to have been issued by you, but was
in fact fraudulently issued without your knowledge or consent
All parties agree that this definition creates two distinct coverage
scenarios, which the district court labeled “Clause A” and “Clause B.” The
parties’ dispute involves Clause A: “a written instruction . . . issued by you,
which was forged or altered by someone other than you without your
knowledge or consent.”
RLI argues that because the instruction here was issued as it was
authorized and approved by Valero, it cannot be “a written instruction . . .
issued by you, which was forged or altered by someone other than you
without your knowledge or consent.” The district court correctly held that
the only interpretation of Clause A that does not render Clause B
meaningless is one in which a written instruction is forged or altered by
someone other than the insured without the insured’s knowledge or consent
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prior to being issued by the insured. RLI’s construction cannot be
harmonized with the rest of the policy because it makes Clause B redundant.
RLI argues that the district court ignored plausible scenarios under
which Clause A could apply without making Clause B redundant. RLI
proposes that if Valero had forwarded the exact e-mail forged by the fraudster
(posing as the lender) to Valero’s bank, instead of issuing its own wiring
instructions, Clause A would apply. However, in this circumstance, the
instruction would be issued by the lender, not Valero. The practical
difference between RLI’s scenario and what occurred here is also unclear.
Here, the instruction Valero issued to its bank included the name of the
recipient institution, the routing number, the recipient account numbers, the
account name, the payment date, and the total amount of payment. It was
the same instruction Valero received from the fraudster posing as the lender.
Unknown to Valero, the instruction was not the same as the instruction
provided by the lender; it was altered to include different recipient account
information. Thus, when Valero issued the instruction to its bank, it was a
fraudulent instruction that was “forged or altered by someone other than
[Valero] without [Valero’s] knowledge or consent.”
RLI also hypothesizes that it would be possible for Clause A to apply
if Valero’s instruction were received by the recipient bank and an employee
of the bank sent the funds using a different routing or account number.
However, in this scenario the loss would not be the “direct result of a
fraudulent instruction . . . issued by [Valero],” it would be the result of a
subsequent fraud contrary to the instruction issued by the Valero. Similarly,
if a wire instruction were issued by Valero, intercepted on the way to the
bank, forged or altered, and then received by the bank in its forged or altered
state, the wiring instruction issued by the Valero would not be the same
instruction received and/or processed by the bank. Instead, the bank in the
hypotheticals proposed by RLI would be effectuating a different wiring
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instruction “which purports to have been issued by [the insured], but was in
fact fraudulently issued without [the insured’s] knowledge or consent.”
These hypotheticals construe Clause A to have the same meaning as Clause
B and render some or all of the terms Clause A and Clause B meaningless.
See Tesoro Ref. & Mktg. Co., L.L.C. v. Nat’l Union Fire Ins. Co. of Pitt., Pa.,
833 F.3d 470, 474 (5th Cir. 2016); J.M. Davidson, Inc. v. Webster, 128 S.W.3d
223, 229 (Tex. 2003).
As the district court correctly held, the only interpretation of Clause
A that does not render Clause B meaningless is one in which a written
instruction is forged or altered by someone other than the insured without
the insured’s knowledge or consent prior to being issued by the insured. The
district court correctly applied this interpretation and found that coverage
was trigged under the funds transfer fraud endorsement for Valero’s claimed
loss.
* * *
Accordingly, we AFFIRM.
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