A federal appeals court has affirmed a lower court ruling in favor of a Travelers Cos. Inc. unit in a dispute with a truck leasing company that focused on the attorney the insurer had hired.

A mechanic was injured while working on the rim assembly of a semi-trailer chassis in Charleston, South Carolina, that was owned by Kenilworth, New Jersey-based Flexi-Van Leasing Inc., according to Monday’s ruling by the 4th U.S. Circuit Court of Appeals in Richmond, Virginia, in Flexi-Van Leasing Inc. v. The Travelers Indemnity Co.

Flexi-Van had entered into a master maintenance and repair agreement with Florence, Kentucky-based InterStar North America Inc., which provides emergency breakdown services, that required InterStar to maintain and repair chassis for a pool Flexi-Van managed.

Under this agreement, InterStar agreed to indemnify both the pool and Flexi-Van from lawsuits arising from InterStar’s negligence, and named both as additional insureds on its coverage with Travelers, according to the ruling.

The mechanic filed suit against Flexi-Van, which tendered the lawsuit’s defense to Travelers. The insurer sent Flexi-Van a reservation of rights letter but provided the company with an attorney, Mark Wall, during the investigation.

Flexi-Van became concerned it would not be covered under the Travelers policy if there were a judgment against it in the mechanic’s lawsuit, and asked Mr. Wall to bring a third-party complaint against InterStar.

Mr. Wall said he was willing to do so but that Flexi-Van would have to pay him to bring the third-party complaint because Travelers would not. 

In response,  Flexi-Van claimed Mr. Wall had a conflict of interest and could no longer protect its interests. It terminated Mr. Walls’ representation and hired substitute counsel.

After Travelers sent Flexi-Van a letter saying it would not pay for the substitute counsel, the company filed suit against the insurer in U.S. District Court in Charleston.

Its lawsuit sought a declaratory judgment that it was entitled to a defense and indemnity from Travelers for the claims stemming from the accident, and charged breach of the policy and breach of the implied obligation of good faith and fair dealing.

The district court ruled in the insurer’s favor on all counts, and was affirmed by a unanimous three-judge appeals court panel. “The district court properly found the Reservation of Rights Letter did not create a conflict of interest. Accordingly, Flexi-Van’s termination of Wall was premature,” the ruling said.

Flexi-Van also argued there was a conflict of interest based on Mr. Wall’s alleged failure to bring a third-party complaint against InterStar, the decision said. “But the record shows that Wall did not refuse to bring a third-party complaint against InterStar. In fact, he expressly stated he would. 

“Wall merely insisted Flexi-Van pay him to do so, as Travelers would not because it believed it had no duty to pay for Flexi-Van’s third-party claim under the Policy and South Carolina law,” it said, in concluding the district court’s grant of summary judgment to Travelers was proper.

Travelers attorney, William Pearce Davis, of Baker, Ravenel and Bender in Columbia, South Carolina, said the ruling is self-explanatory. Flexi-Van’s attorneys did not respond to a request for comment.

The litigation filed by the mechanic was settled, according to a footnote to the ruling.  The litigation filed by Flexi-Van through its new counsel against InterStar, resulted in a jury ruling against Flexi-Van, the footnote said.