A federal appeals court has affirmed a lower court ruling in favor of a Chubb Ltd. unit in litigation over an executive protection portfolio policy involving an employee stock ownership plan.

Kilgore, Texas-based Martin Resource Management Corp., a professional services company that has an ESOP plan, purchased such a policy from Chubb unit Federal Insurance Co., according to Monday’s ruling by the 5th U.S. Circuit Court of Appeals in St. Louis in Martin Resource Management Corp. v. Federal Insurance Co.

In 2017, Martin employees filed two underlying class actions against the company’s appointed third-party professional trustee for the ESOP, Wilmington, Delaware-based Wilmington Trust N.A.

The litigation alleged Martin had improperly loaned or contributed money to the ESOP, which then used the borrowed funds to buy stock from Martin and its insiders at an inflated price, the ruling said.

Wilmington was the only named defendant in that litigation, which did not allege any wrongful conduct by Martin, the ruling said. The litigation was settled for an undisclosed amount in October 2020, it said. Martin paid to defend Wilmington in this litigation in accordance with the trust agreement.

In response to Wilmington’s demands, Martin sought coverage under the fiduciary liability coverage section of its policy. Federal initially agreed to pay Wilmington’s defense costs, but subsequently determined the demands were not covered under the policy.

Martin then filed suit in U.S. District Court in Tyler, Texas, which ruled in the insurer’s favor. The lower court was upheld by a unanimous three-judge appeals court panel.

“A careful, plain reading” of the coverage’s insurance clause shows “coverage is only available if a Fiduciary claim is made against an Insured for a Wrongful Act by an insured,” the ruling said.

“The Demands, as they appear from Wilmington, are facially insufficient to trigger the Insuring clause, which requires the assertion of a ‘Fiduciary Claim…made against (Martin)…for a Wrongful Act committed…by (Martin),’” the ruling said.

Federal has stated, “that Martin had not be named as a defendant in those actions and that there were no allegations of wrongful conduct against Martin in the complaints,” the appeals court panel said, in affirming the lower court ruling.

Attorneys in the case did not respond to requests for comment.