A federal appeals court has reduced the amount of money an insurance company owes an attorney following his dispute with the company to fund his defense in sanctions proceedings.

Although attorney Benjamin Post brought the appeal from a district court ruling that had granted him nearly $1 million from his legal malpractice insurer, St. Paul Travelers Insurance Co. gained some ground in the ruling from the U.S. Court of Appeals for the Third Circuit.

The court chipped off a few months’ worth of attorney fees from what the lower court had ordered Travelers to cover and rejected the holding that the insurer was responsible for covering the cost of a separate suit filed by Post, even though it was related to the underlying issue.

The court said it was also adopting a “bright-line” rule that an insurer has no responsibility to cover separate litigation undertaken by its insured.

The majority of the split appeals court panel affirmed that Travelers must fund Post’s defense for a portion of a sanction proceeding.

The dispute between Post and Travelers stems from a September 2005 trial of a medical malpractice case in Luzerne County in which Post was serving as lead defense lawyer for Mercy Hospital in Wilkes-Barre.

The trial was aborted when plaintiffs attorney Joseph Quinn accused Post of discovery violations and Mercy responded by firing Post and threatening to sue him for malpractice. The trial never resumed because Mercy hired Stevens & Lee soon after to take over the case and struck an $11 million settlement.

But while the medical malpractice case was quickly finished, the legal malpractice litigation was just beginning along with satellite litigation over whether Post was entitled to insurance coverage for the lawyers he hired to defend him.

Post hired George Bochetto of Bochetto & Lentz to represent him in defending against a sanctions motion filed by Quinn. But Travelers refused to pay Bochetto’s bills, setting the stage for a hard-fought battle over insurance coverage in U.S. District Court for the Eastern District of Pennsylvania.

By the time the insurance battle was coming to a head, Post had successfully defended himself in both the sanctions proceedings and in fending off legal malpractice claims from Mercy.

Post won the first significant round in the coverage lawsuit when U.S. District Senior Judge Anita B. Brody ruled that Travelers had a duty to fund Post’s defense in the sanctions proceedings.

However, he filed for an appeal of the district court’s dismissal of his claim of bad faith against Travelers and the insurer responded by filing a cross-appeal on the award of damages for his breach of contract claim. The district court had awarded Post $921,862 on that claim.

The three-judge panel for the Third Circuit was unanimous in upholding the lower court’s dismissal of the bad-faith claim.

“Travelers did not frivolously decline to provide a defense to Post; rather, after an investigation and retention of outside counsel, Travelers reasonably concluded that the sanctions exclusion in the policy applied to Post’s claim and denied coverage,” Judge Thomas Ambro wrote in Post v. St. Paul’s Travelers Insurance on behalf of the majority, which included Judge Michael Chagares. Judge Thomas Hardiman, who dissented in part, joined the majority on that holding.

Read more about it in Thursday’s Legal.