“Consequent upon” in policy wording connotes ‘but-for’ causation (US)

Patrick Bracher, Norton Rose Fulbright

A Texas court, whose judgment was confirmed on appeal, found that an excluded loss “consequent upon” handing over gold coins to another against a fraudulent cheque invokes a more direct type of causation than “due to” or “arising out of”. A loss sustained “consequent upon” an event connotes ‘but-for’ causation and the consequence must be a direct result of the cause.

A thief placed an order with the insured for $549 000 worth of gold coins the day after opening an account.  The thief paid with a stolen cheque and a forged signature.  When the cheque was initially met the insured shipped the coins to the alleged buyer via a courier service.  The thief entered the shipment tracking information on the courier’s online customer service system and re-routed the shipment ordering it to be collected for pickup from their depot.  The thief picked up the re-routed order.  The thief immediately did the same thing with a further order of $655 000 worth of gold coins.  The bank dishonoured the fraudulent cheques resulting in a loss of $1 204 000.

It was held that the theft was “consequent upon” the handing over of the property against fraudulent cheques even though there were other acts in the retrieval of the goods involving different conduct, different actors, different time periods and different locations.  ‘But for’ the fraudulent cheque, there would not have been a loss.

This case also illustrates how easily fraud can be committed in this electronic age and how good it is South Africa no longer has cheques.

Dillon Gage Inc of Dallas v Certain Underwriters at Lloyd’s, Supreme Court of Texas No. 21-0312, and United States Court of Appeals for the Fifth Circuit No. 20-10262

First published by: Financial Institutions Legal Snapshot