Dillon Gage Incorporated of Dallas v. Certain Underwriters at Lloyds Subscribing to Policy No Ee1701590 ( 2021 )

Supreme Court of Texas
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No. 21-0312
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Dillon Gage Incorporated of Dallas,
Appellant,
v.
Certain Underwriters at Lloyds Subscribing to
Policy No. EE1701590,
Appellee
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On Certified Questions from the
United States Court of Appeals for the Fifth Circuit
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Argued September 30, 2021
JUSTICE BLAND delivered the opinion of the Court.
A gold-coin dealer purchased insurance to cover its shipments
against physical loss. The policy excluded losses “consequent upon” the
dealer’s handing over its coins to another against a fraudulent check. A
thief paid the dealer for two shipments of coins using fraudulent checks.
After the checks initially cleared, the dealer shipped the coins and sent
the shipment tracking information to the thief. Using this tracking
information, the thief successfully requested that the shipper reroute
the coins from their initial destination to a pickup facility. Ultimately,
the dealer recovered neither the funds it was owed on the checks nor the
gold coins it had shipped.
In the dealer’s suit against its insurance carrier, the Fifth Circuit
certified two questions to us: whether the dealer sustained its loss
“consequent upon” handing over the property against fraudulent checks,
and if so, whether the shipper’s allegedly negligent rerouting of the
shipment is an independent cause of the loss under Texas common law.
We answer, yes, the dealer sustained its loss consequent upon
handing over the property against fraudulent checks, and, no, the
shipper’s alleged negligence in rerouting the shipment was not an
independent cause of the loss.
I
Dillon Gage Incorporated of Dallas is a gold-coin and precious-
metal dealer. In January 2018, a thief posing as Kenneth Bramlett
opened an account with Dillon Gage. The thief supplied his or her own
email address and a fictitious driver’s license, together with Bramlett’s
correct home address.
The thief placed an order with Dillon Gage for $549,000 worth of
gold coins the day after opening the account. The thief paid with a stolen
check and forged Bramlett’s wife’s signature. After the check
provisionally cleared, Dillon Gage shipped the coins to Bramlett’s home
address, but it sent the United Parcel Service’s tracking information to
the thief’s email address.
A few minutes after UPS retrieved the package from Dillon Gage,
the thief entered the shipment tracking information into UPS’s online
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customer service system and rerouted the shipment. The thief requested
that UPS hold the coins at a facility for pickup. Dillon Gage maintains
that it had instructed UPS that it should not reroute shipments absent
Dillon Gage’s consent.
Someone other than the Bramletts collected the coins at the UPS
facility. The same day, the thief placed a second order with Dillon Gage,
this time for $655,000 worth of gold coins. The thief paid with a second
fraudulent check and intercepted the coins in the same manner as the
first shipment. Meanwhile, the Bramletts discovered and reported the
identity theft and check fraud. Their bank dishonored the fraudulent
checks made out to Dillon Gage, resulting in a loss to Dillon Gage of
$1,204,000.
Dillon Gage made claims under its policy with Underwriters, 1
seeking to recover $1,185,444.30 for the value of the coins. The policy
covers the “physical loss” of insured property “whilst being shipped via
postal or courier transit.”
The policy, however, has an “Invalid Payments Exclusion
Clause.” This exclusion clause limits liability for property losses
“consequent upon” handing over insured property “to any third party”
against payment by fraudulent check:
. . . 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, Banker’s Draft, or any other form of
Money Order, where such Cheque, Banker’s Draft
1 Certain Underwriters at Lloyds Subscribing to Policy No. EE1701590.
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or other form of Money Order, shall prove to be
false, fraudulent or otherwise invalid or
uncollectable for any reason whatsoever.
Based on this exclusion, the Underwriters denied coverage for all but
$12,500. The $12,500 represents the policy’s limit under an “Invalid
Payments Extension Clause.” The extension clause provides coverage
“[n]otwithstanding the Invalid Payment Exclusion Clause” for “physical
loss of [an] insured interest as a direct result of any fraudulent or
dishonest payment(s).”
Dillon Gage sued the Underwriters in Texas state court, claiming
breach of contract and violations of the Texas Insurance Code. The
Underwriters removed the suit to the United States District Court for
the Northern District of Texas. The parties each moved for summary
judgment on agreed facts. The district court granted summary judgment
in favor of the Underwriters, interpreting “consequent upon” to mean
but-for causation. 2 The district court further determined that UPS’s
alleged negligence was not an independent cause of the loss under our
decision in JAW The Pointe v. Lexington Insurance. 3 Because UPS’s
negligence did not create an independently covered physical loss, it
ruled, the invalid payments exclusion remained in effect. 4
2 Dillon Gage Inc. of Dallas v. Certain Underwriters at Lloyd’s, 440 F.
Supp. 3d 587, 591–92, 595 (N.D. Tex. 2020).
3 Id. at 593–94 (citing 460 S.W.3d 597 (Tex. 2015)).
4 Id. at 594.
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Dillon Gage appealed the district court’s decision to the United
States Court of Appeals for the Fifth Circuit. The Fifth Circuit certified
the following questions to us:
1. Whether Dillon Gage’s losses were sustained
consequent upon handing over insured property to UPS
against a fraudulent check, causing the policy exclusion
to apply.
And if that answer is yes:
2. Whether UPS’s alleged errors are considered an
independent cause of the losses under Texas law. 5
We accepted the certified questions. 6
II
We interpret insurance policies using the rules of contract
construction. 7 We determine the parties’ intent through the terms of the
policy, giving words and phrases their ordinary meaning, informed by
context. 8 If the parties offer reasonable but conflicting interpretations,
we adopt the construction that favors coverage. 9
The parties offer conflicting interpretations of the phrase
“consequent upon.” Dillon Gage argues that the phrase requires a
5 Dillon Gage, Inc. of Dallas v. Certain Underwriters at Lloyds
Subscribing to Policy No EE1701590, 992 F.3d 401, 405–06 (5th Cir. 2021).
6Tex. Const. art. V, § 3-c(a); Tex. R. App. P. 58. The policy is expressly
governed by Texas law.
7 RSUI Indem. Co. v. Lynd Co., 466 S.W.3d 113, 118 (Tex. 2015).
8 Id.9 Id.5
stringent causal connection, more like substantial-factor causation. 10 In
this case, it argues, the fraudulent check merely furnished a condition
that made the loss possible—UPS’s unauthorized rerouting of the
shipment eclipsed the fraudulent check as the substantial cause of the
loss. 11 In support, Dillon Gage points to the Black’s Dictionary definition
of “consequent”: “Occurring as the natural result or necessary effect of a
particular action, event, or situation; following as a natural result, a
necessary effect, or a logical conclusion.” 12 Dillon Gage also contrasts the
policy’s use of “consequent upon” with the use of “arising out of” in other
clauses. “Arising out of” is a term that connotes but-for causation. 13
The Underwriters respond that Dillon Gage’s proposed standard
departs from the ordinary meaning of “consequent upon,” which does not
indicate a direct causal connection, as well as from the dictionary
authorities Dillon Gage cites.
10 See Union Pump Co. v. Allbritton, 898 S.W.2d 773, 776 (Tex. 1995)
(abrogated by Ford Motor Co. v. Ledesma, 242 S.W.3d 32 (Tex. 2007))
(describing substantial-factor causation); see also Mays v. Chevron Pipe Line
Co., 968 F.3d 442, 447–48 (5th Cir. 2020) (interpreting statute with “occurring
as the result of” to require substantial nexus or significant causal link between
defendant’s conduct and plaintiff’s injury).
11See Union Pump Co., 898 S.W.2d at 776 (holding no substantial-factor
causation existed from a fire when plaintiff’s fall occurred after fire was
extinguished).
12 Consequent, Black’s Law Dictionary (11th ed. 2019).
13 See Utica Nat. Ins. Co. of Tex. v. Am. Indem. Co., 141 S.W.3d 198, 203
(Tex. 2004) (“This Court has held that ‘arise out of’ means that there is simply
a ‘causal connection or relation,’ which is interpreted to mean that there is but
for causation, though not necessarily direct or proximate causation.” (quoting
Mid-Century Ins. Co. of Tex. v. Lindsey, 997 S.W.2d 153, 156 (Tex. 1999)
(internal citation omitted)).
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We conclude that Dillon Gage’s proffered interpretation is
unreasonable. The ordinary meaning of “consequent upon” is “following
as a result or effect.” 14 Neither this ordinary meaning nor the Black’s
definition Dillon Gage cites admits to a more stringent causal connection
than but-for causation.
Reading “consequent upon” in the context of the rest of the policy
does not make Dillon Gage’s interpretation more reasonable. In Utica
National Insurance Co. of Texas v. American Indemnity Co., 15 the Court
contrasted the policy’s use of “due to” with “arising out of” to conclude
that the former must invoke “a more direct type of causation.” Utica
concerned two variations in causal phrasing. The policy here, in
contrast, has at least seven:
• “loss . . . of whatsoever nature directly or indirectly
caused by, resulting from or in connection with any act
of terrorism”;
• “expense directly or indirectly caused by or
contributed to by or arising from the use or operation”
of a computer virus;
• “losses arising from . . . [w]ear and tear”;
• “damage directly or indirectly occasioned by,
happening through or in consequent of war”;
• “… unless a loss arises as a direct consequence of an
event not excluded under this insurance”;
• “loss . . . as a direct result of any fraudulent or
dishonest payment(s).” 16
14 Consequent, New Oxford American Dictionary (3d ed. 2010).
15 141 S.W.3d at 202–03. Employing one or two causal phrases in a
contract lessens uncertainty in interpretation; employing phrases with settled
legal meanings even more so.
16 Emphases added.
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The Utica reasoning does not stretch to encompass seven different
gradations of causation, each with its own meaning. Among available
standards, the ordinary meaning of “consequent upon” places it in the
category of but-for causation.
Even if we assign “consequent” a meaning that requires
substantial-factor causation, we would nevertheless conclude that
standard to be met on these facts. Handing over the coins against the
fraudulent check was not merely fertile ground upon which Dillon
Gage’s losses occurred. Rather, as a direct result of the fraudulent check,
Dillon Gage forwarded the shipment tracking information to the thief,
who in turn used it to reroute the packages. We recognize that an event
can have more than one cause, even under proximate-causation
standards. 17
The Underwriters’ interpretation of “consequent upon” is that the
loss must “flow from” the fraudulent check. This definition comports
with the ordinary understanding of “consequent upon” and definitions
of “consequent.” 18 Dillon Gage concedes that handing over the coins
17 Lear Siegler, Inc. v. Perez, 819 S.W.2d 470, 471 (Tex. 1991).
18 E.g., Consequent, Merriam-Webster Online (2021) (“following as a
result or effect”); Consequent, American Heritage Dictionary (2020) (“Following
as a natural effect, result, or conclusion”); Consequent, Oxford English
Dictionary (“Following as an effect or result; resulting.”) (2d ed. 1989);
Consequent, Webster’s Third New Int’l Dictionary (“following esp. as a result
or effect: Resultant”) (1961).
The policy contains indicia that it was drafted in British English, using
British English spellings for cheque, jewellery, utilise, colours, programme, and
instalment. Neither party argues that we must give “consequent upon” a
distinct British English meaning, nor that British legal causation standards
apply. In any event, the Cambridge Dictionary defines “consequent” in line
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against the fraudulent check was at least a but-for cause of its loss.
Accordingly, we answer yes to the Fifth Circuit’s first certified question.
III
Having settled the meaning of “consequent upon,” we turn to the
Fifth Circuit’s second question. Texas concurrent-causation doctrine
applies when covered and excluded events combine to cause an insured’s
loss. 19 Under that doctrine, if covered and uncovered events are
inseparable, then causation is concurrent, the insurance policy’s
exclusion applies, and the insurer owes no coverage for the loss. 20 “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.’” 21
Dillon Gage argues that the fraudulent check and UPS’s alleged
negligence in rerouting the shipments are independent causes of its
losses. It observes that the check and the retrieval of the goods “involved
different conduct, different actors, different time periods, and different
locations.” It does not dispute, however, that the same actor or actors
with the American English dictionaries we consulted: “happening as a result
of something; resulting.” Consequent, Cambridge Advanced Learner’s
Dictionary (4th ed. 2013). Additionally, the Queen’s Bench has interpreted
“consequent upon” in an insurance exclusion comparably to Texas common law
concurrent-causation doctrine: “if the loss is caused by two causes effectively
operating at the same time and one is wholly expressly excluded from the
policy, the policy does not pay.” Wayne Tank & Pump Co. v. Employers Liability
Assurance Corp. [1974] 1 QB 57, 75 (Roskill LJ).
19 JAW The Pointe, 460 S.W.3d at 608.
20 Id.
21 Id. (quoting Utica, 141 S.W.3d at 204).
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used a fictitious Dillon Gage customer account and a forged check as
part of the criminal scheme that achieved the theft. No evidence exists
that Dillon Gage was the victim of two separate criminal schemes,
perpetrated by different criminal actors. UPS rerouted the packages at
the behest of the thief, but Dillon Gage supplied the coins to UPS and
the tracking information to the thief against fraudulent checks.
Finally, Dillon Gage argues that UPS’s errors “were
independently capable of causing property losses without any
fraudulent checks,” but we must examine the events as they occurred,
not as they might have occurred. 22 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.
* * *
We hold that a loss sustained “consequent upon” an event
connotes but-for causation under the policy’s exclusion of coverage for
property handed over to a third party against a fraudulent check.
Accordingly, we answer the Fifth Circuit’s first certified question yes.
We further hold that the third-party shipper’s alleged negligence
was a concurrent cause of the loss, dependent upon handing over the
22 This is not to say that acts committed by the same actor are
necessarily concurrent and excluded from coverage. E.g., Guaranty Nat’l Ins.
v. North River Ins., 909 F.2d 133, 137 (5th Cir. 1990) (holding that a hospital’s
failure to secure windows and to properly supervise a psychiatric patient each
proximately caused her suicide and thus a professional exclusion did not
apply). In this case, however, the claimed losses are the result of the excluded
conduct.
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property against the fraudulent checks. Accordingly, we answer the
Fifth Circuit’s second certified question no.
Jane N. Bland
Justice
OPINION DELIVERED: December 3, 2021
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