Lloyd’s wins forged check case

After seeking the Texas Supreme Court’s opinion on its interpretation of policy language, a federal appeals court ruled Wednesday that Lloyd’s of London is not obligated to compensate a gold coin and precious metal dealer for the theft of more than $1 million of gold coins obtained with fraudulent checks.

In 2018, Dillon Gage Inc. of Dallas shopped $549,999 worth of gold coins and another $655,000 worth to a thief who forged signatures on stolen checks to pay for the coins, after the checks had provisionally cleared, according to court papers in Dillon Gage Inc. of Dallas v. Certain Underwriters at Lloyd’s.

The coins were shipped to the address of the checks’ owner, but the thief rerouted the shipments on UPS Inc.’s online customer service system prior to delivery and then picked up the packages from a UPS facility.

Dillon Gage sought coverage for the loss under its policy with Lloyd’s of London syndicates. The underwriters agreed to pay only a small portion of the loss because the policy had an invalid payments exclusion clause that limited liability to $12,500 for property losses “consequent upon” handing over insured property against fraudulent checks.

The U.S. District Court in Dallas granted summary judgment to the insurers based upon the “consequent upon” wording. Dillon Gage appealed to the 5th U.S. Circuit Court of Appeals in New Orleans, arguing that the proximate cause of the loss was the theft of the packages, not the fraudulent checks.

The 5th Circuit sought the Texas Supreme Court’s opinion on the meaning of the policy wording, and the state high court ruled that Dillon Gage’s “proffered interpretation is unreasonable.”

The case was then returned to the 5th Circuit, which held in its decision that in light of the Texas Supreme Court’s ruling “the district court correctly determined Dillon Gage’s losses were excluded from coverage.”

Lloyd’s attorney Jerry Kimmitt, a partner with Holman Fenwick Willam LLP in Houston, said, “We’re very pleased that this court affirmed the Texas Supreme Court and agreed there is no coverage for the losses.”

Dillon Gage’s attorney did not respond to a request for comment.

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