Court Opinion

ID: 9367868
Source: CourtListenerOpinion
Date Created: 2023-02-02 01:00:26.227606+00
Date Added: 2024-06-11T17:16:04.115836
License: Public Domain

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.
Case: 22-20155      Document: 00516631752          Page: 2    Date Filed: 02/01/2023

                                    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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                                     No. 22-20155

   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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                                    No. 22-20155

   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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                                    No. 22-20155

   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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