In an Oct. 15 unpublished opinion, a three-judge panel of the 5th U.S. Circuit Court of Appeals affirmed a trial court ruling that upheld an insurance company’s right to select defense counsel to represent Houston-based Coats Rose Yale Ryman & Lee in a legal malpractice suit. The insurer does not need to reimburse Coats Rose for the legal fees it paid to counsel the firm selected, the appeals court affirmed.

In a March 5 brief filed with the 5th Circuit in Coats Rose Yale Ryman & Lee v. Navigators Specialty Insurance Co., the firm alleged the following: The firm and others were sued in state court in Dallas on June 15, 2010. The causes of action against the firm included malpractice and breach of fiduciary duty, allegations the firm denied.

Coats Rose hired Houston’s Williamson & Rusnak to represent the firm in the legal-mal case, Western Rim Investors 2006-3 LP, et al. v. Short, et al., and asked Navigators, with which it had professional liability coverage, to pay for its defense. Williamson & Rusnak partner Jimmy Williamson, who represented Coats Rose in Western Rim Investors, did not return a telephone call seeking comment.

After Coats Rose filed its answer in Western Rim Investors, Navigators sent a letter saying it had a right to choose counsel for Coats Rose. Coats Rose continued to work with Williamson & Rusnak but also was represented in the legal-mal suit by another firm selected by Navigators, Coats Rose alleged in its brief.

Coats Rose alleged it paid Williamson & Rusnak’s bills and sought reimbursement from Navigators, but the insurer refused to pay.

“Navigators has never offered any reasonable objection to the work done by Williamson in defense of the Malpractice Lawsuit and, in fact, has never articulated any specific reason for its rejection of Williamson . . .,” Coats Rose alleged.

On March 30, 2011, the firm filed Coats Rose in the U.S. District Court for the Northern District of Texas and requested a declaratory judgment to have Navigators reimburse the firm for the $422,035 in fees it paid Williamson & Rusnak in the legal-mal case, Coats Rose alleged in its 5th Circuit brief.

On Oct. 12, 2011, Coats Rose settled Western Rim Investors, according to Navigators’ Dec. 22, 2011, unopposed motion for judgment in Coats Rose.

According to Chief U.S. District Judge Sidney Fitzwater’s Nov. 21, 2011, memorandum opinion and order in Coats Rose, the firmsought partial summary judgment alleging “that any attorney whom Navigators selected would have a conflict of interest,” which “abrogates Navigators’ contractual right to select counsel. . . .” As an example of a potential conflict, Coats Rose raised “various ways that an attorney appointed by Navigators could steer the damages awarded in the case [Western Rim] so that they [the firm] are not covered by the Policy.” The firm specifically alleged that Navigators could exclude coverage under the policy if jurors in the legal-mal suit found the firm had been “dishonest,” Fitzwater wrote.

Navigators filed a cross-motion for summary judgment in Coats Rose “seeking a declaration that it has the exclusive right to select Coats’s counsel . . .,” Fitzwater wrote. Navigators maintained “that there is no conflict of interest, and it has therefore refused Coats’s requests to pay attorney’s fees incurred by Coats’s independently-retained attorney.”

Fitzwater denied Coats Rose’s motion seeking declaratory judgment and granted Navigators’ cross-motion for summary judgment, dismissing all other claims and counter-claims. Coats Rose appealed to the 5th Circuit.

The 5th Circuit panel — made up of Judges Catharina Haynes and Jennifer Walker Elrod and Senior Judge Patrick E. Higginbotham — noted that Navigators had the right to select counsel for Coats Rose “for substantially the same reasons set forth in the district court’s opinion. . . .” And since Coats Rose chose its own counsel, Navigators does not have to pay, according to Fitzwater’s ruling.

Richard Simpson, a partner in Washington, D.C.’s Wiley Rein who represents Navigators, writes in an email that Coats Rose settled Western Rim Investors on Oct. 12, 2011: “Chief Judge Fitzwater held that Navigators had not reserved its rights on the dishonesty exclusion, and so that exclusion could not be a basis for finding a right to independent counsel. He also held that Navigators’ reservation of rights on the return of fees exclusion did not create any conflict between the insurer and the insured regarding how the underlying case would be defended, because Navigators would not benefit if the insured lost on the return of fees claims. The Fifth Circuit’s decision gives added weight to Chief Judge Fitzwater’s published decision upholding the important contractual rights of insurers to select defense counsel except when there is a true conflict of interest regarding how the underlying case is defended.”

Coats Rose director Byron Lee, who represents the firm, declines to comment on a pending case, but says the firm is considering its options.