Duped coin dealer loses coverage fight with Lloyds

The Lloyd's of London building is lit by winter sun in the City of London financial district in London, Britain, February 1, 2018. REUTERS/Simon Dawson
  • Identity thieves "paid" $1.2 million with stolen paper checks
  • Shipping company’s alleged negligence not an independent cause of loss

(Reuters) - A Dallas coin dealer’s policy from underwriters at Lloyds does not cover $1.2 million’s worth of American Gold Eagle coins and other pieces that identity thieves paid for with stolen checks and rerouted electronically via the shipper’s website, the Texas Supreme Court has said.

Dillon Gage Inc’s 2018 policy excluded losses from property shipped “consequent upon” a fraudulent check, but the dealer argued that the exclusion did not apply because the alleged negligence of the shipping company would have caused the loss even if the checks had been valid.

But “UPS did not permit the thief to reroute Dillon Gage’s shipments in a vacuum,” Justice Jane Bland wrote for state high court on Friday. “Instead, the thief induced UPS’s alleged negligence by using shipping information Dillon Gage provided” as a consequence of the fraudulent checks.

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UPS is not a party to the litigation. However, in an email Monday, attorney Jeffrey Levinger of Levinger said its alleged negligence was still an independent cause of loss covered by Lloyds’ policy.

Dillon Gage is “disappointed” the court did not consider the shipper’s alleged failure to comply “with its own protocols for shipping Dillon Gage’s high-value property, including the prohibition against allowing property to be rerouted without Dillon Gage’s permission,” Levinger said.

Lloyds’ lead attorney, Jerry Kimmitt of Holman Fenwick Willan, was unable to provide an immediate comment.

Dillon Gage sued the Lloyds syndicate and UPS Capital Insurance Agency Inc in state court after each denied coverage. According to the complaint, the thieves paid with paper checks intercepted from an Alabama couple’s mail.

The checks cleared before Dillon Gage shipped the coins, but were charged back to Dillon Gage after the couple discovered their account had been drained. By then, the thieves had used the UPS tracking information to reroute the coins and pick them up.

Lloyds removed the case to U.S. District Court in Dallas in June 2018. The dealer voluntarily dismissed the case against UPS's insurer in 2019.

The federal judge in Dallas granted summary judgment for Lloyds, and Dillon Gage appealed.

The 5th U.S. Circuit Court of Appeals heard argument last December. In April, it asked the Texas Supreme Court to weigh in on the meaning of the policy term, “consequent upon,” under state law; and on whether the shipper’s alleged negligence should be considered an independent cause of loss.

The Texas Supreme Court answered both questions in Lloyds’ favor on Friday, leaving the ultimate judgment up to the 5th Circuit.

The case is Dillon Gage Inc of Dallas v. Certain Underwriters at Lloyds Subscribing to Policy No. EE1701590, 5th U.S. Circuit Court of Appeals No 20-10262; Texas Supreme Court No. 21-0312.

For Dillon Gage: Jeffrey Levinger of Levinger

For Lloyds: Jerry Kimmitt of Holman Fenwick & Willan; and Karen Conticello of Conticello Law Office

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