No Coverage Owed for $1.2 Million Loss Caused by Gold Coin Shipping Scam

A Dallas gold coins dealer cannot evade a fraudulent check exclusion in its insurance policy by putting the onus on UPS for rerouting shipments worth more than $1 million.

The Texas Supreme Court ruled that UPS’ alleged mishandling of its merchandise cannot be considered an independent cause of loss under Texas law, meaning the policy exclusion applies. The court issued an opinion on Friday to answer two certified questions from the US 5th Circuit Court of Appeals.

The high court rejected an argument by coin-dealer Dillon Gage that UPS’ “unauthorized rerouting” of the packages “eclipsed” the fraudulent checks that it had accepted as the substantial cause of the loss.

“No evidence exists that Dillon Gage was the victim of two separate criminal schemes, perpetrated by different criminal actors,” the opinion says. “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.”

A thief somehow obtained the Social Security number of Kenneth Bramlett, an orthopedic surgeon in Alabama, and obtained a driver’s license in his name. The thief also intercepted a box of personal checks that had been mailed to Bramlett’s house by his bank.

In January 2018, the thief placed two orders and asked that the merchandise to be delivered to Bramlett’s home address: One was for $549,000 worth of gold coins; the second was for coins worth $655,000.

Each time, on the day the packages shipped, the thief used UPS’ online system to change the delivery instructions. The thief directed UPS to route the packages to a UPS facility where he could pick them up in person. UPS complied both times.

Bramlett’s wife Laurie discovered the fraud after the second package was shipped.

Dillon Gage filed an insurance claim with Lloyd’s of London, requesting reimbursement for the cost of the coins, $1,185.444.30. The syndicate denied coverage for most of the claim, pointing to the exclusion for any loss “consequent upon” the use of fraudulent checks or money orders. The policy had an “extension” clause that allowed a payment of up to $12,500 even if a fraudulent check was involved. Lloyd’s paid only that amount.

Dillon Gage filed a lawsuit that was removed to the U.S. District Court for Northern Texas. The trial court granted summary judgment in favor of the insurer. Dillon Gage appealed. The 5th Circuit sent certified questions to the Texas Supreme Court:

Were Dillon Gage’s losses sustained consequent upon handing over insured property to UPS against a fraudulent check, causing the policy exclusion to apply.

And if the answer is yes:

Whether UPS’s alleged errors are considered an independent cause of the losses under Texas law.

Dillon Gage told the court that it had instructed UPS not to redirect any of is shipments. The company’s lawyers argued that the loss was “consequent upon” UPS failure to follow that order as much as it was the use of a fraudulent check.

The court said Dillon Gage’s interpretation is unreasonable.

“Handing over the coins against the fraudulent check was not merely fertile ground upon which Dillon Gage’s losses occurred,” the opinion says. “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.”

The court also said that UPS’ actions in handing the packages over the thief was not an independent cause of the loss.

“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,” the opinion says.

The case now returns to the the 5th Circuit for a final decision.