Opinion
22-CV-00221-DC-RCG
08-03-2023
KENT DISTRIBUTORS, INC., Plaintiff, v. TRAVELERS CASUALTY AND SURETY COMPANY OF AMERICA, Defendant.
REPORT AND RECOMMENDATION OF THE U.S. MAGISTRATE JUDGE
RONALD C. GRIFFIN UNITED STATES MAGISTRATE JUDGE
BEFORE THE COURT are Defendant Travelers Casualty and Surety Company of America's (“Travelers”) Motion to Dismiss Plaintiff's First Amended Complaint (Doc. 13) and Plaintiff Kent Distributors, Inc.'s (“Kent”) Response in Opposition (Doc. 14). This case is before the undersigned through a Standing Order pursuant to 28 U.S.C. § 636 and Appendix C of the Local Court Rules for the Assignment of Duties to United States Magistrate Judges. After due consideration, the Court RECOMMENDS that Travelers's Motion to Dismiss Plaintiff's First Amended Complaint be GRANTED. (Doc. 13).
All page number citations are to CM/ECF generated pagination unless otherwise noted.
I. Background
On October 17, 2022, Kent filed its Original Complaint against Travelers. (Doc. 1). Then, on December 5, 2022, Kent filed its Amended Complaint. (Doc. 11). Thus, the Amended Complaint is now the operative pleading in the case. The allegations in Kent's Amended Complaint stem from check cashing services provided through its d/b/a “Mr. Payroll.” Id. at 2. According to the Amended Complaint, from approximately March 18, 2020 and May 8, 2020, “numerous federal income tax refund checks and COVID-19 pandemic relief checks, stolen from various apartment complex mailboxes in and around Houston, Texas, were fraudulently endorsed-with forged signatures-and cashed in person at Kent Distributors' ‘Mr. Payroll' locations in Midland and Odessa.” Id. at 3. When cashing these fraudulently endorsed checks, the alleged fraudsters “made intentional and misleading material misrepresentations to employees of Kent Distributors in order to cause them to pay money.” Id. These included presenting “various forms of false identification including fake drivers' licenses and social security cards, as well as the fraudulently endorsed checks, to Kent Distributors' employees.” Id. “In reliance upon these false representations, Kent Distributor's employees paid the money to the purported clients as instructed and the purported clients took the money and departed the premises with the money.” (Doc. 11 at 3).
Kent asserts that the initial funds paid to the alleged fraudsters were drawn by Kent upon its bank account, which the United States Treasury then reimbursed to Kent when the checks cleared. Id. at 4. However, on May 15, 2020, Kent “received notices of reclamation from the United States Treasury,” and ultimately, the United States Treasury reclaimed $74,091.75 from Kent's bank account (“the loss”). Id.
Here is where Travelers enters the picture. According to Kent, Travelers issued insurance policy 071-KB-105658267 (“the Policy”) on August 1, 2019. Id. at 2. Both Kent and its d/b/a “Mr. Payroll” are listed as insureds. Id. Kent attached a copy of the Policy and incorporated the Policy by reference into its Amended Complaint. (Docs. 11 at 2; 11-1). The Amended Complaint alleges the Policy “purported to insure Kent Distributors against certain risks from crime, including ‘Social Engineering Fraud,' ‘Forgery or Alteration,' and ‘On-Premises Theft,' among other things, for a period beginning on August 1, 2019, and ending on August 1, 2020.” (Doc. 11 at 2-3).
On August 28, 2020, after the United States Treasury's reclamation, Kent notified Travelers of the loss. Id. at 5. However, Travelers denied Kent's claim. Id. Thus, Kent initiated the instant action against Travelers alleging breach of contract, breach of the duty of good faith and fair dealing, failure to comply with the Texas Insurance Code's prompt payment statute, and unfair or deceptive acts or practices under the Texas Insurance Code. Id. at 6-9.
On December 19, 2022, Travelers filed the instant Motion to Dismiss arguing Kent's claims should be dismissed because coverage under the Policy is precluded. (Doc. 13). On January 3, 2023, Kent filed its Response in Opposition, and on January 10, 2023, Travelers filed its Reply. (Docs. 14, 15). Consequently, this matter is fully briefed and ripe for disposition.
II. Standard of Review
Federal Rule of Civil Procedure 12(b)(6) authorizes dismissal of a complaint for “failure to state a claim upon which relief can be granted.” When considering a Rule 12(b)(6) motion to dismiss, a court must “accept the complaint's well-pleaded facts as true and view them in the light most favorable to the plaintiff.” Johnson v. Johnson, 385 F.3d 503, 529 (5th Cir. 2004). Federal Rule of Civil Procedure 8 requires that a pleading contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). Thus, to survive a Rule 12(b)(6) motion to dismiss, the plaintiff must plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A complaint need not include detailed facts to survive a Rule 12(b)(6) motion to dismiss. See Twombly, 550 U.S. at 555-56. However, a plaintiff must do more than recite the formulaic elements of a cause of action. See id. at 556-57. Additionally, the Court is not bound to accept as true a legal conclusion couched as a factual allegation in the complaint. See Iqbal, 556 U.S. at 678. Thus, although all reasonable inferences will be resolved in favor of the plaintiff, the plaintiff must plead “specific facts, not mere conclusory allegations.” Tuchman v. DSC Commc'ns Corp., 14 F.3d 1061, 1067 (5th Cir. 1994).
III. Discussion
A. Texas Contract Law
In diversity cases involving state court insurance contract claims such as the case at hand, “federal courts look to the substantive law of the forum state.” See Sentry Select Insurance Co. v. Lopez, 241 F.Supp.3d 777, 780 n.1 (W.D. Tex. 2017) (citing Tex. Indus., Inc. v. Factory Mut. Ins. Co., 486 F.3d 844, 846 (5th Cir. 2007)). Under Texas law, “insurance policies are construed according to the ordinary rules of contract construction.” Cen. Mut. Ins. Co. v. Reliance Prop. Mgmt., Inc., No. 05-21-00071-CV, 2022 WL 1657031, at *5 (Tex. App.-Dallas 2022, pet. filed) (citing Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex. 2003)). “In interpreting an insurance contract, terms are given their plain, ordinary meaning unless the policy itself shows that the parties intended the terms to have a different, technical meaning.” Great Am. Ins. Co. v. AFS/IBEXFin. Servs., Inc., No. 3:07-CV-924-O, 2008 WL 2795205, at *5 (N.D. Tex. July 21, 2008) (citing DeWitt County Elec. Coop., Inc. v. Parks, 1 S.W.3d 96, 101 (Tex. 1999); Puckett v. U.S. Fires Ins. Co., 678 S.W.2d 936, 938 (Tex. 1984)). “When terms are defined in an insurance policy, those definitions control.” Id. (citing Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 823 (Tex. 1997)).
“If an insurance contract uses unambiguous language, [courts] will construe it as a matter of law and enforce it as written.” Cen. Mut. Ins., 2022 WL 1657031, at *5 (citing In re Deepwater Horizon, 470 S.W.3d 452, 464 (Tex. 2015); TIG Ins. Co. v. N. Am. Van Lines, Inc., 170 S.W.3d 264, 268 (Tex. App.-Dallas 2005, no pet.)). “When possible, [courts] must harmonize all of the provisions with reference to the entire agreement; no single provision should be read as controlling.” Id. (citing Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983)).
Ultimately, whether a policy's language is ambiguous is a question of law. Cen. Mut. Ins., 2022 WL 1657031, at *5 (citing Schaefer, 124 S.W.3d at 157). However, “[a]mbiguity does not arise simply because the parties offer conflicting interpretations; rather, ambiguity exists only when the contract is susceptible of two or more reasonable interpretations.” Id. (citing Schaefer, 124 S.W.3d at 157). “Ambiguity must be evident from the policy itself; it cannot be created by introducing parol evidence of intent. Id. (citing Fiess v. State Farm Lloyds, 202 S.W.3d 744, 747 (Tex. 2006)). “[I]f an insurance contract is ambiguous, the Court construes the contract in favor of the insured.” Great Am. Ins., 2008 WL 2795205, at *5 (citing Barnett v. Aetna Life Ins.Co., 723 S.W.2d 663, 665 (Tex. 1987); Canutillo Indep. Sch. Dist. v. Nat'l Union Fire Ins. Co., 99 F.3d 695, 701 (5th Cir. 1996)). Further, when a policy exclusion is subject to two or more reasonable interpretations, “the Court must adopt the construction urged by an insured as long as the construction is reasonable, even if the construction urged by the insurer appears to be more reasonable or a more accurate reflection of the parties' intent.” Id. (citing Nat'l Union Fire Ins. Co. v. Hudson Energy Co., Inc., 811 S.W.2d 552, 555 (Tex. 1991); Glover v. Nat'l Ins. Underwriters, 545 S.W.2d 755, 761 (Tex. 1977)). With all this in mind it remains that “an insured bears the burden of showing that its claim is potentially within a policy's coverage, and the insurer bears the burden of establishing that an exclusion in the policy constitutes avoidance of or an affirmative defense to coverage.” Id. at *10 (citing Canutillo Indep. Sch. Dist. v. Nat'l Union Fire Ins. Co., 99 F.3d 695, 701 (5th Cir. 1996)).
B. Considering the Policy when Ruling on Travelers's Motion to Dismiss
Even though the Policy is a matter outside of the Complaint, the Court may consider it when ruling on Travelers's Motion to Dismiss. “When reviewing a motion to dismiss, a district court must consider the complaint in its entirety, as well as other sources courts ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in particular, documents incorporated into the complaint by reference, and matters of which a court may take judicial notice.” Funk v. Stryker Corp., 631 F.3d 777, 783 (5th Cir. 2011). This includes “documents attached to the complaint, and any documents attached to the motion to dismiss that are central to the claim and referenced by the complaint.” Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 (5th Cir. 2010) (citing Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498-99 (5th Cir. 2000)). The Policy falls squarely within these parameters, as it is both attached to and incorporated by reference into Kent's Amended Complaint. (Docs. 11 at 2; 11-1). Therefore, the Court will consider the Policy's terms in ruling on Travelers's Motion to Dismiss.
The Court also notes the authenticity of Kent's copy of the Policy, as well as the Court's consideration of it whilst ruling on the instant Motion are both uncontested.
C. Does Kent State a Claim under The Policy's Forgery or Alteration Insuring Agreement?
The Policy's Forgery or Alteration Insuring Agreement, in relevant part, provides:
The Company will:
1. pay the Insured for the Insured's direct loss directly caused by Forgery or alteration of, on or in any written Covered Instruments that are:
a. made by, drawn by, or drawn upon, the Insured, or purport to have been so made or drawn; or b. made or drawn by one acting as the Insured's agent, or purport to have been so made or drawn; ....(Doc. 13 at 9-10) (quoting Doc. 11-1 at 82) (emphasis omitted). Here Travelers argues Kent's loss is not covered under the Policy's Forgery or Alteration Insuring Agreement because the checks were not: (1) “made on, drawn on, or drawn upon” Kent; and (2) Kent did not suffer “direct loss directly caused by” forgery of the Checks. Id. at 10.
Otherwise identified as “Insuring Agreement B.” (Doc. 13 at 10).
Kent contests both of Travelers's arguments. As to whether the checks were “made on, drawn on, or drawn upon” by Kent, Kent asserts that through the assignment process, the checks, i.e. the “Covered Instruments” became Kent's property. (Doc. 14 at 10-11). Additionally, Kent asserts that the checks were both “drawn upon” Kent's bank account, causing the loss and “drawn by” Kent on the United States Treasury when the checks were deposited into Kent's bank account. Id. (citations omitted).
Here it is clear the checks were not “made on, drawn on, or drawn upon” Kent. In an analogous case involving a similar Travelers's forgery or alteration insurance agreement, the
Fifth Circuit stated:
the Travelers policy “uses the term ‘drawn' in the context of the specific listed instruments and ‘similar . . . promises, orders or directions to pay.' In the commercial paper context the phrases ‘drawn by' and ‘drawn upon' are not ambiguous and have a definite legal meaning. A contract term that can be given a definite or certain legal meaning is not ambiguous. We will not therefore interpose multiple dictionary usages.”Travelers Cas. & Sur. Co. of Am. v. Baptist Health Sys., 313 F.3d 295, 299 (5th Cir. 2002) (quoting Parkans Int'l LLC v. Zurich Ins. Co., 299 F.3d 514, 517 (5th Cir. 2002)). In the instant case, the Forgery or Alteration Insuring Agreement also uses the terms made on, drawn on, and drawn upon in the context of “Covered Instruments,” which are defined in the Policy and are similar to the policy the Fifth Circuit is examining in Baptist Health Sys. (See Doc. 11-1 at 82).
The Fifth Circuit continues:
Definitions that fall in line with common commercial use include: A “maker” is “a person who signs or is identified in a note as a person undertaking to pay.” TEX. BUS. & COMM. CODE § 3.103(a)(5) (Vernon Supp. 2002). A “drawer” is “a person who signs or is identified in a draft as a person ordering payment.” TEX. BUS. & COMM. CODE § 3.103(a)(3). A “drawer” is “one who directs a person or entity, usually a bank, to pay a sum of money stated in an instrument-for example, a person who writes a check; the maker of a note or draft.” Black's Law Dictionary 510 (7th Ed. 1999).Baptist Health Sys., 313 F.3d at 299 n.1.
It is clear from the facts in Kent's Amended Complaint, as well as its Response to Travelers's Motion to Dismiss that Kent was not the drawer or maker of the checks. under the applicable definitions the united states Treasury would be the maker and drawer of the checks. Thus, Kent's Amended Complaint fails to state a claim under the Policy's Forgery or Alteration Insuring Agreement and the Court RECOMMENDS that Kent's claim under the Forgery or Alteration Insuring Agreement be DISMISSED.
D. Does Kent State a Claim under The Policy's on Premises Insuring Agreement?
Next, the Court examines the on Premises Insuring Agreement. In relevant part, the on Premises Insuring Agreement reads:
Otherwise identified as “Insuring Agreement C” (Doc. 13 at 13).
The Company will pay the Insured for:
1. The Insured's direct loss of Money or Securities located inside the Premises or Financial Institution Premises directly caused by Theft committed by a person present inside such Premises or Financial Institution Premises;(Doc. 13 at 13-14) (quoting Doc. 11-1 at 82). The Policy further defines “Theft” as “the intentional unlawful taking of Money and Securities to the Insured's deprivation.” Id. at 14 (quoting Doc. 11-1 at 94).
Travelers argues first that the loss is excluded from the On Premises Insuring Agreement because Kent's loss was not direct. Id. Second, Travelers asserts that the loss is excluded because the alleged fraudsters did not commit “Theft” as defined by the Policy. (Doc. 13 at 14). Kent claims Travelers's argument narrows the definition of “take” beyond its plain and ordinary meaning in common usage to create additional requirements. (Doc. 14 at 16).
As to whether the loss was direct, Kent argues that “[t]here is no loss more direct or inevitable than when the U.S. Government decides to reclaim funds as a direct result of fraud committed directly against a party using a fraudulently endorsed U.S. Treasury check.” (Doc. 14 at 13). Further, Kent argues its loss was direct because “Kent exchanged cash for forged, valueless instruments and suffered an immediate, direct loss. That the U.S. Treasury paid and then later reclaimed the funds those checks purported to represent is immaterial to the immediacy and directness of Kent's Loss.” Id. at 14 (internal citation omitted). Kent also emphasizes that there were no intervening causes between the forgeries and the loss. Id.
Here the Court agrees with Kent-the loss was direct. Kent's loss occurred when Kent's employees handed the alleged fraudsters money in exchange for the checks. Though the loss and fraud were not realized until later, that does not vitiate the directness of Kent's loss. Even the case Travelers cites for the definition of a direct loss supports this interpretation. (Doc. 15 at 8) (citing Tex. Ass'n of Sch. Bds., Inc. v. Travelers Cas. & Sur. Co. of Am., No. 1:15-cv-369-RP, 2016 WL 4257748, at *6 (W.D. Tex. July 7, 2016). Despite being tailored to a “direct loss” in the context of employee theft insurance policies, the Tex. Ass'n of Sch. Bds. Court notes Texas follows the majority approach regarding the meaning of “direct loss,” which “generally requires that for a loss to be direct it must be ‘immediate' and ‘without any intervening space . . . time . . . agency . . . or instrumentality.' ” Tex. Ass'n of Sch. Bds., 2016 WL 4257748, at *6 (quoting Tooling, Mfg. & Techs. Ass'n v. Hartford Fire Ins. Co., 693 F.3d 665, 673 (6th Cir. 2012)). Further, “the insured does not suffer a direct loss unless the insured's assets, and not those of a third party, are reduced because of the offending employee's wrongful conduct.” Id. (quoting Tooling, Mfg. & Techs. Ass'n, 693 F.3d at 674). Again, this definition supports the Court's conclusion that Kent's loss was direct. The United States Treasury's reclamation of the money at a later date does not change the fact that Kent directly exchanged money for fraudulent checks for which it was never going to retain any of the value, making the loss direct.
The Court further finds that the alleged fraudsters committed “Theft” as defined in the Policy. The Policy's language is unambiguous, and the facts described in Kent's Amended Complaint fall clearly within the plain meaning of the On Premises Insuring Agreement. It appears apparent that an “intentional unlawful taking of Money and Securities to the Insured's deprivation” took place on Kent's premises. Therefore, Kent's Amended Complaint adequately pleads a claim under the Policy's on Premises Insuring Agreement.
E. Does Kent State a Claim under The Policy's Social Engineering Fraud Insuring Agreement?
Next, Travelers argues the loss is excluded from the Social Engineering Fraud Insuring Agreement. The Social Engineering Fraud Insuring Agreement provides: “The Company will pay the Insured for the Insured's direct loss from the transferring, paying or delivering of Money or Securities, directly caused by Social Engineering Fraud.” (Doc. 13 at 15) (quoting Doc. 11-1 at 110).
The Policy defines “Social Engineering Fraud” as
[T]he intentional misleading of an Employee by a person purporting to be:
1. a Vendor
2. a Client;
3. an Employee; or
4. an Authorized Person, through the use of a Communication.Id. at 15-16 (quoting Doc. 11-1 at 110). The Policy defines “Communication” as:
[A]n electronic, telegraphic, cable, teletype, telephonic voice, telefacsimile, or written instruction received by an Employee that:
a. directs the Employee to transfer, pay, or deliver Money or Securities;
b. contains a misrepresentation of a material fact; and
c. is relied upon by the Employee, believing the material fact to be true.Id. (quoting Doc. 11-1 at 110). Travelers argues Kent's loss is excluded because the alleged fraudsters did not take any action “through the use of a Communication.” Id. at 16 (emphasis omitted). Travelers directs the Court to the Merriam-Webster Online Dictionary for the definition of “check,” which is “a written order directing a bank to pay money as instructed.” Id. Thus, Travelers argues the checks cannot and do not constitute a written instruction because “[t]he Checks did not instruct or direct Kent, or Kent's employees, to do anything. Rather, the Checks instructed the United States Treasury to pay money to the Checks' payee (i.e. ultimately, Kent).” (Doc. 13 at 16). Notwithstanding, the above discussion, Travelers alternatively argues that Kent's loss is excluded because it was not a direct loss. Id. at 16-17.
Conversely, Kent argues the Social Engineering Fraud Coverage applies because “individuals purporting to be ‘Clients' misled Kent's employees using ‘Communications'- fraudulently endorsed checks which are written instructions directing the payment or transfer of money-into transferring money which led to the direct loss of more than $74,000.” (Doc. 14 at 15).
The Parties' briefings show that it is uncontested that the alleged fraudsters are Clients- Travelers contests the checks were not Communications, as defined by the Policy and that Kent's loss was not direct. The Court notes that the Social Engineering Fraud Insuring Agreement is unambiguous and neither party argues otherwise. Additionally, the Court finds that the checks do not constitute a “Communication” as defined by the Policy. That is because the checks did not direct Kent or its employees “to transfer, pay, or deliver Money or Securities.” The alleged fraudsters may have negotiated with Kent's employees to exchange money for the checks, which were then endorsed over to Kent, however the checks still do not direct Kent or its employees “to transfer, pay, or deliver Money or Securities.” Instead, the checks instruct the United States Treasury to pay whomever the check is written to, or in this case Kent once the check was endorsed over to Kent. Consequently, Kent's Amended Complaint fails to state a claim under the Policy's Social Engineering Fraud Insuring Agreement and the Court RECOMMENDS that Kent's claim under the Social Engineering Fraud Insuring Agreement be DISMISSED.
* * *
In summation, the Court concludes that Kent adequately pleaded a claim under the On Premises Insuring Agreement but failed to state a claim under the Fraud or Alteration Insuring Agreement and the Social Engineering Fraud Insuring Agreement. The Court will now proceed to Travelers's arguments that Kent's claims are excluded from the Policy via Exclusion R. However, the Court will focus its analysis on Exclusion R's effect on Kent's claim under the On Premises Insuring Agreement.
F. Does the Policy's Exclusion R Apply to Kent's Claims?
Travelers next argues dismissal is appropriate because Kent's claims are barred by Exclusion R of the Policy as Kent gave, surrendered, or voluntarily parted with the money it is alleging as the loss. (Doc. 13 at 3-9). Exclusion R contains two separate provisions and Travelers presents arguments as to each.
Kent spends a considerable amount of its Response arguing that Travelers's interpretation of the voluntary parting exclusion cannot be reconciled with the Policy's Forgery or Fraud Insuring Agreement. (Doc. 14 at 6-8). However, since Kent failed to state a claim under the Forgery or Fraud Insuring Agreement, the Court does not see a reason to undertake an analysis of whether the two provisions can be reconciled. Id. at 6 (citing Doc. 11-1 at 89; Cent. Mut. Ins. Co., 2022 WL 1657031, at *1). Further, Kent only argues that finding the Social Engineering Fraud endorsement and the Forgery or Fraud Insuring Agreement excluded by Exclusion R is an unreasonable result- however, Kent does not expressly extend this argument to the On Premises Insuring Agreement. See id.; (Doc. 14 at 16-17). The Court agrees with Travelers that in this specific case, “there is no conflict between the Policy and the Endorsement. The Policy provides for coverage under the forgery or alteration and on premises insuring agreement. (Doc. 11-1 at 81-82). Then, the Endorsement unambiguously provides that loss caused by giving, surrendering, or voluntarily parting with money is excluded.” (Doc. 15 at 5).
First Exclusion R.1 reads, “[t]his Crime Policy will not apply to loss resulting directly or indirectly from: 1. the giving or surrendering of Money, Securities, or Other Property in any exchange or purchase, whether genuine or fictitious.” Id. at 4 (quoting Doc. 11-1 at 112) (emphasis omitted). The operative words, Travelers argues are “giving” and “surrendering.” Travelers quotes the Merriam-Webster Online Dictionary for the definitions of both words. Id. at 4-5 (citations omitted). “Give” is defined by Merriam-Webster as “ ‘to grant or bestow by formal action,' ‘to put into the possession of another for his or her use,' and ‘to transfer from one's authority or custody.' ” Id. at 4 (citation omitted). “Surrender” is defined as “ ‘to yield to the power, control, or possession of another upon compulsion or demand' and ‘the action of yielding one's person or giving up the possession of something especially into the power of another.' ” Id. at 5 (citation omitted).
Based on these definitions, Travelers concludes that Kent gave the money to the alleged fraudsters because it “granted or bestowed the cash to the alleged fraudster(s), put the cash into the possession of the alleged fraudster(s) for their use, and transferred the cash to the alleged fraudster(s)' authority or custody.” Id. Further Kent also surrendered the money because it “unquestionably yielded and gave up possession of the money to the alleged fraudster(s)' power or control and possession.” Thus, Travelers asserts that “there can be no question that Kent entered into a commercial transaction whereby it gave or surrendered money to the alleged fraudster(s) in an exchange or purchase.” Id. at 5.
Second is Exclusion R.2, otherwise referred to by the Parties as the “voluntary parting exclusion,” which provides:
This Crime Policy will not apply to loss resulting directly or indirectly from: . . .
2. any other giving or surrendering of, or voluntary parting with, Money, Securities, or Other Property, whether or not induced by any dishonest or fraudulent act, except when covered under:
i. Insuring Agreement A.;
ii. Insuring Agreement E.;
iii. Insuring Agreement F1., or
iv. the Social Engineering Fraud Insuring Agreement.(Doc. 13 at 6) (quoting Doc. 11-1 at 112) (emphasis omitted). Travelers argues that “[c]ourts across the country have enforced this exclusion as written” Id. (citing Vision Fin. Grp., Inc. v. Midwest Family Mut. Ins. Co., 355 F.3d 640, 642-43 (7th Cir. 2004); Great Amer. Ins. Co., 2008 WL 2795205, at *13-14; Grady Motors Corp. v. Travelers Fire Ins. Co., 147 F.Supp. 290 (D.D.C. 1957); U.S. Fid. and Guar. Co. v. J.D. Johnson Co., Inc., 438 So.2d 917, 921 (Fla. 1st Dist. Ct. App. 1983); Outwest Bean, Inc. v. Nat. Fire Ins. Co. of Hartford, 514 P.2d 782 (Colo.App. 1973); Bell Gardens Bicycle Casino v. Great Amer. Ins. Co., 124 Fed.Appx. 551 (9th Cir. 2005)).
As to R.1, Kent argues that its “payment of the check amount to the perpetrators cannot legitimately be considered the consensual ‘giving or surrendering of money.' ” (Doc. 14 at 9) (citing Doc. 11 at 10). Then as to R.2 Kent cites the Court to the Merriam Webster Online Dictionary definition of “voluntary,” which is “ ‘proceeding from the will or from one's own choice or consent,' ‘unconstrained by interference,' and ‘acting or done of one's own free will without valuable consideration or legal obligation.' ” Id. at 9 (citation omitted). Thus, Kent asserts, its “alleged consent for the perpetrators' taking of money was not ‘voluntary' as it was constrained by the thieves' interference in misrepresenting their identities and forging the Covered Instruments.” Id. Further, “[t]hat fraud negates any possible ‘voluntariness' under the plain meaning of the word ‘voluntary.' ” Id. at 10.
The Court agrees with Travelers regarding Exclusion R.1-Kent attempts to read consent as being required when under R.1's plain meaning it is not. Further, Exclusion R.1 is unambiguous and the facts from Kent's Amended Complaint shows Kent's claims fall clearly within its plain meaning. Thus, Kent's remaining claim under the On Premises Insuring Agreement is excluded from the Policy by Exclusion R.1.
That alone is enough for the Court to recommend dismissal of Kent's claim under the On Premises Insuring Agreement, however Exclusion R.2 also excludes Kent's claim. Another Texas court found a similar insurance policy exclusion applicable and enforceable despite the loss being caused by theft. See Great Am. Ins. Co., 2008 WL 2795205, at *14 (“Accordingly, the Court finds that while the uncontroverted evidence demonstrates that losses were caused by theft, Plaintiff has demonstrated that no issue of fact exists that the ‘Voluntary Parting of Title to or Possession of Property' exclusion operates here to exclude coverage under the ‘Inside the Premises/Theft' provisions of the . . . policies.”). Therefore, Kent's argument that fraud negates any possible voluntariness on its part fails. As such, Kent's claim under the On Premises Insuring Agreement is also excluded by Exclusion R.2 of the Policy. Thus, the Court RECOMMENDS that Kent's claim under the On Premises Insuring Agreement be DISMISSED and Travelers's Motion to Dismiss be GRANTED. (Doc. 13).
G. Kent's Extracontractual Claims Fail as a Matter of Law
Remaining for discussion are Kent's extracontractual claims for common law bad faith, breach of the duty of good faith and fair dealing, failure to comply with the Texas Insurance Code's prompt payment statute, and unfair or deceptive acts or practices under the Texas Insurance Code. As Travelers argues, under Texas law, because Kent failed to plead a claim under the Policy its extracontractual claims fail as a matter of law. See State Farm Lloyds v. Page, 315 S.W.3d 525, 532 (Tex. 2010) (“When the issue of coverage is resolved in the insurer's favor, extra-contractual claims do not survive.” (citing Progressive Cnty. Mut. Ins. Co. v. Boyd, 177 S.W.3d 919, 921 (Tex. 2005) (per curiam); Boyd, 177 S.W.3d at 922 (“[Insured]'s common-law bad-faith claims are also negated by the determination in the breach of contract claim that there was no coverage.”); Barbara Techs. Corp. v. State Farm Lloyds, 589 S.W.3d 806, 813 (“To prevail under a claim for [Texas Prompt Payment of Claims Act] damages under section 542.060, the insured must establish: (1) the insurer's liability under the insurance policy . . . .”.) (citations omitted). Consequently, the Court RECOMMENDS Kent's extracontractual claims be DISMISSED.
IV. Recommendation
For the foregoing reasons, the Court finds that Kent fails to state a claim upon which relief can be granted, either because its claims are not covered by the Policy or are excluded by Exclusion R. Therefore, the Court RECOMMENDS that Travelers's Motion to Dismiss be GRANTED. (Doc. 13).
Instructions for Service and Notice of Right to Appeal/Object
In the event that a party has not been served by the Clerk with this Report and Recommendation electronically, pursuant to the CM/ECF procedures of this District, the Clerk is ORDERED to mail such party a copy of this Report and Recommendation by certified mail. Pursuant to 28 U.S.C. § 636(b)(1), any party who desires to object to this report must serve and file written objections within fourteen (14) days after being served with a copy. A party filing objections must specifically identify those findings, conclusions, or recommendations to which objections are being made; the District Judge need not consider frivolous, conclusive, or general objections. Such party shall file the objections with the Clerk of the Court and serve the objections on all other parties. A party's failure to file such objections to the proposed findings, conclusions, and recommendations contained in this report shall bar the party from a de novo determination by the District Judge. Additionally, a party's failure to file written objections to the proposed findings, conclusions, and recommendations contained in this report within fourteen (14) days after being served with a copy shall bar that party, except upon grounds of plain error, from attacking on appeal the unobjected-to proposed factual findings and legal conclusions accepted by the District Judge. Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1428-29 (5th Cir. 1996).