Court Opinion

ID: 4673788
Source: CourtListenerOpinion
Date Created: 2021-04-01 18:00:20.622905+00
Date Added: 2024-06-11T08:03:16.036091
License: Public Domain

Case: 20-10262     Document: 00515804870         Page: 1    Date Filed: 04/01/2021

           United States Court of Appeals
                for the Fifth Circuit
                                                                      United States Court of Appeals
                                                                               Fifth Circuit

                                                                             FILED
                                  No. 20-10262                            April 1, 2021
                                                                        Lyle W. Cayce
   Dillon Gage, Incorporated of Dallas,                                      Clerk

                                                           Plaintiff—Appellant,

                                      versus

   Certain Underwriters at Lloyds Subscribing to Policy
   No EE1701590,

                                                           Defendant—Appellee.

                  Appeal from the United States District Court
                      for the Northern District of Texas
                           USDC No. 3:18-cv-01555

   Before Barksdale, Southwick, and Graves, Circuit Judges.
   James E. Graves, Jr., Circuit Judge:
         Dillon Gage, Inc., incurred a million-plus-dollar loss after a thief
   forged checks and intercepted two shipments of gold coins. Dillon Gage filed
   an insurance claim, and the underwriters denied coverage under a policy
   provision that excluded coverage for any loss incurred “consequent upon”
   handing over insured property to any third party against payment by a
   fraudulent check. Dillon Gage insists that its loss was not consequent upon
   the bad checks because UPS, which handled the shipping, made more
   significant and immediate errors that caused the loss. In granting summary
Case: 20-10262      Document: 00515804870          Page: 2    Date Filed: 04/01/2021

                                    No. 20-10262

   judgment, the district court disagreed and concluded that the loss was indeed
   consequent upon Dillon Gage accepting the fraudulent checks and shipping
   the coins. Because this case presents determinative questions of Texas law
   for which there is no applicable precedent, we CERTIFY those questions to
   the Supreme Court of Texas.
          CERTIFICATION FROM THE UNITED STATES
          COURT OF APPEALS FOR THE FIFTH CIRCUIT
          TO THE SUPREME COURT OF TEXAS,
          PURSUANT TO RULE 58 OF THE TEXAS RULES
          OF APPELLATE PROCEDURE.
          TO THE SUPREME COURT OF TEXAS AND THE
          HONORABLE JUSTICES THEREOF:
                                          I.
          The style of the case in which this certification is made is Dillon Gage
   Inc. v. Certain Underwriters at Lloyds Subscribing to Policy No EE1701590, No.
   20-10262, in the United States Court of Appeals for the Fifth Circuit. The
   case is on appeal from the United States District Court for the Northern
   District of Texas. Federal jurisdiction is based on diversity of citizenship.
                                         II.
          Dillon Gage deals in gold coins and other precious metals. And due to
   the immense value of its merchandise, Dillon Gage purchased an insurance
   policy from the underwriters. The terms of that policy came into dispute after
   a thief used fraudulent checks to steal roughly $1.2 million worth of
   merchandise. In January 2018, Dillon Gage received an order it thought to be
   from Kenneth Bramlett, an orthopedic surgeon from Alabama. But
   unbeknownst to Dillon Gage, a criminal posing as Kenneth Bramlett had
   placed the order and provided Bramlett’s correct home address, correct
   social security number, and a scan of an Alabama driver’s license of a person
   purporting to be Bramlett. This thief had managed to steal Kenneth’s and his

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Case: 20-10262      Document: 00515804870           Page: 3    Date Filed: 04/01/2021

                                     No. 20-10262

   wife Laurie’s identities and to intercept a box of their personal checks from
   the mail.
          The January order was for $549,000 worth of gold coins. Once the
   check (purportedly signed by Laurie Bramlett) cleared, Dillon Gage shipped
   the order via UPS and emailed the tracking information to the email address
   provided. Shortly after the origin scan, UPS received an instruction to hold
   the package at a UPS facility instead of delivering it to the Bramletts’ address.
   Dillon Gage contends that UPS was not supposed to allow rerouting without
   its consent. UPS’s alleged mistakes do not end there. An unknown individual
   retrieved the package, without signing for it, only three minutes after it
   arrived at the UPS facility.
          Having successfully stolen the coins, the thief placed another order
   for $655,000 worth of coins the same day. That check cleared, and ten days
   later, the thief intercepted the second rerouted package. Shortly after the
   second order’s interception, Laurie Bramlett discovered the fraud and Dillon
   Gage was soon without both the $1,204,000 worth of gold coins it had
   shipped and the $1,204,000 it had received from the Bramletts.
          Dillon Gage filed an insurance claim. The underwriters, however, said
   that losses consequent upon fraudulent payments are excluded from
   coverage but noted that limited coverage of $12,500 applied due to an
   exception to the fraudulent-payments exclusion that restores limited
   coverage for a loss incurred “as a direct result of any fraudulent or dishonest
   payment(s).” Dillon Gage refused the limited payment and sued the
   underwriters for breach of contract and for violations of Chapters 541 and
   542 of the Texas Insurance Code.
          The parties filed cross motions for summary judgment on all claims
   based on stipulated facts. Though the parties agree on the facts, they have
   divergent views of the law and the meaning of the policy’s terms. The district

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Case: 20-10262      Document: 00515804870            Page: 4   Date Filed: 04/01/2021

                                      No. 20-10262

   court sided with the underwriters and granted their motion for summary
   judgment and dismissed all of Dillon Gage’s claims.
                                          III.
          Under Texas law, the insured has the burden of establishing that the
   policy potentially provides coverage, but the insurer has the burden to prove
   the applicability of an exclusion that would allow it to deny coverage. Guar.
   Nat’l Ins. Co. v. Vic Mfg. Co., 143 F.3d 192, 193 (5th Cir. 1998). Broadly
   speaking, the million-dollar question in this case is whether the policy covers
   the loss, but answering that question requires addressing one, possibly two,
   narrower questions. The first is 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. If the answer is yes, the second
   question is whether UPS’s alleged errors are an independent, rather than a
   concurrent, cause of Dillon Gage’s losses, so as to make the losses covered,
   despite the fraudulent-payments exclusion.
                                          A.
          The policy covers the loss of insured property during shipping. But
   the fraudulent-payments exclusion “excludes any claim . . . where the loss
   has been sustained by the Insured consequent upon handing over such Insured
   property to any third party against payment by [fraudulent check].”
   (emphasis added).
          The full provision reads:
          Notwithstanding anything contained herein to the contrary,
          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:

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                                        No. 20-10262

                 • Cheque, Banker’s Draft, or any other form of Money
                 Order, where such Cheque, Banker’s Draft or other
                 form of Money Order, shall prove to be false, fraudulent
                 or otherwise invalid or uncollectable for any reason
                 whatsoever. . . .
            Since the contract does not define consequent upon, Texas law
   instructs courts to look to the term’s plain meaning and resolve ambiguities
   in favor of the insured. JAW The Pointe, L.L.C. v. Lexington Ins. Co., 460
   S.W.3d 597, 602–03 (Tex. 2015). The dictionary definitions offer little help.
   The Oxford English Dictionary defines “consequent” as “following as an
   effect       or   result;   resulting.”   Consequent,     Oxford         English
   Dictionary (2nd ed. 1989). The phrase “consequent upon” also appears
   in the definitions of “follow” and “after” in the Oxford Dictionary.
            But Black’s Law Dictionary offers a more nuanced definition. It
   defines “consequent” as “[o]ccurring 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.” Consequent, Black’s Law
   Dictionary (11th ed. 2019). And the Collins Dictionary defines
   “consequent” as “happening as a direct result of an event or situation” but
   then defines “consequent on” simply as “following as a result of.”1
            The parties use these definitions to support a spectrum of potential
   meanings. On one end of the spectrum, there is the more inclusive reading
   that consequent upon equates to but-for causation. In other words, if the loss
   would not have occurred but for Dillon Gage handing over the property to

            1
            Consequent, Collins Dictionary,
   https://www.collinsdictionary.com/us/dictionary/english/consequent (last accessed
   Mar.      19,    2020);      Consequent      on,      Collins       Dictionary,
   https://www.collinsdictionary.com/us/dictionary/english/consequent-on (last accessed
   Mar. 19, 2020).

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                                     No. 20-10262

   UPS against a fraudulent check, then the exclusion applies and there would
   be no coverage. On the opposite end of the spectrum, there is the reading that
   consequent upon limits the exclusion to situations where handing over the
   property against a fraudulent check was the most direct cause of the loss. For
   example, a situation where the package was sent directly to the thief with no
   alleged errors by UPS. In between these two poles lies the common-law
   concept of proximate cause, which under Texas law requires foreseeability
   and causation in fact. See City of Gladewater v. Pike, 727 S.W.2d 514, 517 (Tex.
   1987). “Cause in fact” means that the conduct in question must have been a
   substantial factor in bringing about the injury and that the injury would not
   have occurred absent the conduct. Id.
             The underwriters settle on the idea that consequent upon equates to
   but-for causation, whereas Dillon Gage maintains that consequent upon
   imposes a limitation falling somewhere between mere but-for causation and
   common-law proximate causation. Dillon Gage’s proposed reading requires
   a causation standard akin to Texas’s “cause-in-fact” requirement but with
   no element of foreseeability.
             Texas law requires courts to adopt the insured’s reading of the
   contract so long as it is reasonable and to do so even if a more reasonable
   reading exists. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Hudson Energy
   Co., 811 S.W.2d 552, 555 (Tex. 1991). But that rule potentially creates two
   problems in addition to defining the term consequent upon. First, even if
   adopted, Dillon Gage’s proposed reading may not afford coverage because it
   is unclear whether shipping against the fraudulent checks would be
   considered a substantial factor in causing the loss under Texas law. See City
   of Gladewater, 727 S.W.2d at 517. Second, Dillon Gage’s proposed reading
   may not be considered reasonable when read alongside other parts of the
   policy.

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Case: 20-10262      Document: 00515804870            Page: 7   Date Filed: 04/01/2021

                                      No. 20-10262

          The latter of these two problems arises out of Texas law’s
   requirement that a distinct phrase in a policy be read in the context of the
   whole policy, with each clause and phrase being used to help interpret the
   other. Fiess v. State Farm Lloyds, 202 S.W.3d 744, 748 (Tex. 2006). The
   policy’s use of phrases like “any third party” and “any reason whatsoever”
   implies that Dillon Gage and the underwriters may have contemplated
   situations, like this one, where the insured property would pass through an
   intermediary, like UPS, before falling into the hands of a check-forging thief.
          The Texas Supreme Court has neither interpreted the phrase
   consequent upon nor interpreted an analogous phrase in an analogous
   contract. So we ask for the Texas Supreme Court’s assistance in defining the
   scope of the policy’s exclusion.
                                          B.
          If the fraudulent-payments provision excludes coverage, then another
   question arises. Under Texas law, when a covered event and an excluded
   event each independently cause the loss, separate and independent causation
   exists, and the insurer must provide coverage. JAW The Pointe, 460 S.W.3d
   at 608. But when excluded and covered events combine to cause a loss and
   the two causes cannot be separated, concurrent causation exists, and the
   exclusion is triggered. Id. If the fraudulent-payments provision excludes
   coverage, the question of whether UPS’s alleged errors are considered an
   independent cause under Texas law must be answered. Once again, there is
   no Texas Supreme Court case directly on point, so we ask for assistance on
   this question should it need to be answered.
                                          IV.
          Consistent with our respect for federalism and the authoritative role
   of state supreme courts in issuing binding interpretations of state law, while
   simultaneously respecting the parties’ choice of a federal forum by reserving

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                                       No. 20-10262

   for this Court the final power of judgment, we hereby certify, on our own
   motion, the following determinative questions of law to the Supreme Court
   of Texas:
          1. Whether Dillon Gage’s losses were sustained consequent
             upon handing over insured property to UPS against a fraud-
             ulent check, causing the policy exclusion to apply.
          And if that answer is yes:

          2. Whether UPS’s alleged errors are considered an independ-
             ent cause of the losses under Texas law.
          We disclaim any intention or desire that the Supreme Court of Texas
   confine its reply to the precise form or scope of the questions certified. The
   record in this case and copies of the parties’ briefs are transmitted herewith.
   We retain this appeal pending response from the Supreme Court of Texas.

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