A Meadowbrook Insurance Group Inc. unit is not liable for breach of contract and bad faith claims for refusing to pay for the independent counsel hired by its policyholder, a federal appeals court said Monday, in affirming a lower court ruling.

The origin of the dispute between Tulane, California-based G&J Heavy Haul Inc. and Meadowbrook unit Williamsburg National Insurance Co., based in Southfield, Michigan, was a 2014 accident, in which the trucking company was sued among others for charges including negligence and premises liability, according to court papers in G and J Heavy Haul Inc.; Gordon Barrett Archer v. Williamsburg National Insurance Co.

After Williamsburg issued a reservation of rights in the case, G&J hired its own attorney. G&J filed suit against the insurer in U.S. District Court in Pasadena, California, charging breach of contract and bad faith when Williamsburg refused to pay for the attorney.

The district court ruled in Williamsburg’s favor, and was affirmed by a three-judge appeals court panel. G&J “argues that Williamsburg’s reservation for rights created a conflict of interest requiring independent counsel” under California’s Civil Code, and that by not paying the attorney it had breached the insurance contract and the implied convent of good faith and fair dealing, the ruling said.

“It is well established by California case law that ‘not every reservation of rights creates a conflict of interest requiring appointment of independent counsel,’” the ruling said, in citing an earlier case. 

“There was no genuine issue of material fact as to whether there was a conflict of interest between Williamsburg and G&B Heavy Haul,” the ruling said, in upholding the dismissal of the breach of contract claim, and also dismissing the bad faith claim.

Williamsburg attorney John E. Peer, a shareholder with Woolls Peer Dollinger & Scher In Los Angeles, said in a statement, “Both the district court and the Ninth Circuit recognized the well-established principle that an actual conflict of interest must exist for retained defense counsel in order to trigger a right to allow the insured to appoint independent counsel.

“Here, early in the underlying litigation the insurer advised its insured that coverage existed under either a general liability policy or a motor carrier liability policy, but not both. The issue of which policy applied was not before the trier of fact in the underlying action and thus created no potential conflict of interest for defense counsel. Both courts flatly rejected the insured’s argument that Williamsburg National acted in bad faith in refusing a demand that it pay both its appointed defense counsel and the insured’s personal counsel’s fees.”

G&J’s attorney did not respond to a request for comment.