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Flexi-Van Leasing Inc. v. Travelers Indemnity Co.

United States District Court, D. South Carolina, Charleston Division

July 25, 2019




         This matter is before the court on defendant The Travelers Indemnity Company's (“Travelers”) renewed motion for summary judgment, ECF No. 128. For the reasons set forth below, the court grants the motion.

         I. BACKGROUND

         This declaratory judgment action and insurance coverage case stems from an underlying action that was before this court, Vititoe v. Bridgestone Americas Tire Operations, Inc., No. 2:12-cv-01844-DCN (“underlying action”), where plaintiff Flexi-Van Leasing, Inc. (“Flexi-Van”) was one of the named defendants. In the underlying action, Charles Vititoe (“Vititoe”) alleged that he was working on a semitrailer's rim assembly on the truck's right rear tire when the rim assembly exploded and injured him. Vititoe and his wife brought several causes of action against Flexi-Van because the rim assembly that injured Vititoe was affixed to a chassis owned by Flexi-Van.

         At the time of Vititoe's injury, the chassis was on lease to Zim Integrated Shipping Services Company, Inc. (“Zim”). Zim contributed the chassis to the South Atlantic Consolidated Chassis Pool (“SACP”). Interstar North America, Inc., (“Interstar”) entered into a Master Maintenance and Repair Agreement (“the Agreement”) with Flexi-Van-as SACP manager-to be the SACP chassis maintenance and repair vendor. Pursuant to the Agreement, Interstar agreed to indemnify, defend, and hold harmless SACP and Flexi-Van as its manager from suits arising from or in connection with Interstar's negligence in complying with Interstar's duties under the Agreement. Appendix B of the Agreement required Interstar to name SACP and its manager as additional insureds on Interstar's insurance policy and maintain general liability insurance of at least $10, 000, 000 per occurrence. Interstar fulfilled this requirement by obtaining a commercial insurance policy (“the Policy”) from Travelers and adding Flexi-Van as an additional insured.

         Pursuant to the Agreement and the Policy, Flexi-Van tendered its defense in the underlying action to Travelers. Initially Travelers agreed to defend and indemnify Flexi-Van and informed Flexi-Van that Mark Wall (“Wall”) would be Flexi-Van's attorney. On March 27, 2013, Travelers sent Flexi-Van a reservation of rights letter (“Reservation of Rights Letter”) that explained that Travelers would not defend or indemnify Flexi-Van for issues outside of Travelers's coverage. Travelers explained that this could occur if Flexi-Van were liable as a result of its own independent acts, omissions, or exclusions, or if the underlying action fell within the Policy's “Aircraft, Auto or Watercraft” exclusion. ECF No. 34-7 at 4. On June 28, 2013, Flexi-Van expressed its opinion that there was a conflict between Travelers and Flexi-Van so that Wall could no longer protect Flexi-Van's interests. In particular, Flexi-Van asked Wall to bring Interstar as a third-party defendant in the underlying action, and Wall failed to do so, stating that “Travelers has not directed me to start a 3rd party [action] against them and will not pay for it.” ECF No. 34-8 at 3. As a result, Flexi-Van terminated Wall's representation and hired a substitute counsel. Id. at 2. On July 26, 2013, Travelers sent Flexi-Van a letter informing Flexi-Van that it would not pay for Flexi-Van's substitute counsel. ECF No. 34-10 at 2. Flexi-Van then filed the instant suit on April 24, 2015. Flexi-Van's complaint brings the following causes of action: (1) a declaratory judgment that it is entitled to a defense and indemnity from Travelers for the claims asserted in the underlying action; (2) breach of contract for failing to defend and indemnify; and (3) breach of the implied obligation of good faith and fair dealing. Compl. ¶¶ 18-44.

         In the underlying action, Flexi-Van filed a third-party complaint against InterStar, bringing causes of action for (1) breach of contract for failure to defend and indemnify, (2) contractual indemnity, (3) equitable indemnity, (4) negligent hiring, (5) negligent supervision, and (6) negligent training (“third-party underlying action”). In response, InterStar brought a third-party counterclaim against Flexi-Van, alleging that Flexi-Van breached the Agreement by terminating the defense provided by Interstar. The third-party underlying action was bifurcated from the underlying action, and a trial on the third-party underlying action was commenced in February 2018. On February 8, 2018, the jury in the third-party underlying action returned a verdict against Flexi-Van on Flexi-Van's breach of contract and contractual indemnity claims against InterStar, [1] finding that Flexi-Van did not prove by a preponderance of the evidence that Interstar breached the Agreement by failing to pay Flexi-Van's defense costs for its substitute counsel. The jury also returned a verdict in favor of Interstar on Interstar's breach of contract counterclaim, finding that Flexi-Van breached the Agreement by hiring substitute counsel.

         The parties in the instant case first filed their motions for summary judgment in June 2017 before the trial in the third-party underlying action. ECF Nos. 80-81. The court granted in part and denied in part Travelers's motion and denied Flexi-Van's motion. ECF No. 95. Then after the jury rendered a verdict in the third-party underlying action, Travelers filed a renewed motion for summary judgment on June 12, 2018. ECF No. 118. The court issued an order on March 18, 2019 that denied the motion without prejudice. ECF No. 127. However, the court offered the parties an opportunity to brief a related issue, discussed below, in a renewed motion for summary judgment. As such, Travelers filed its renewed motion for summary judgment on May 14, 2019. ECF No. 128. Flexi-Van responded on June 26, 2019, ECF No. 133, and Travelers replied on July 10, 2019, ECF No. 136. The motion is fully briefed and ripe for review.

         II. STANDARD

         Summary judgment shall be granted if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). “By its very terms, this standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). “Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.” Id. at 248. “[S]ummary judgment will not lie if the dispute about a material fact is ‘genuine,' that is, if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id. “[A]t the summary judgment stage the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.” Id. at 249. The court should view the evidence in the light most favorable to the non-moving party and draw all inferences in its favor. Id. at 255.


         There have now been three rounds of briefing for summary judgment in this case. The first round concluded with an order dated December 7, 2017. That order left one discrete issue to be tried, relating to the breach of contract and declaratory judgment claims, which is discussed in more detail below. The second round of summary judgment briefing involved Travelers arguing that, after the jury verdict in the third-party underlying action found that Flexi-Van breached the Agreement, collateral estoppel required that the court also find that Flexi-Van breached the Policy when Flexi-Van fired Wall and hired substitute counsel. The court held on March 18, 2018 that collateral estoppel could not apply because the Agreement and the Policy are two separate contracts, and the jury findings in the third-party underlying action regarding Flexi-Van's conduct were not specific enough to apply the verdict about the Agreement to the Policy.

         The court then offered the parties the opportunity to brief the issue of what impact a breach of the Agreement would have on the Policy. Instead, Travelers filed a renewed motion for summary judgment that largely reiterated arguments it made during previous rounds of briefing. Therefore, the court remains unconvinced that the jury verdict in the third-party underlying action can be applied here to resolve this case.

         The remaining issue is whether Travelers breached its Policy by failing to pay for Flexi-Van's independently obtained counsel after Flexi-Van fired Wall. This hinges on whether an actual conflict of interest existed in Wall representing Flexi-Van while being paid by Travelers. If a conflict of interest did exist, then Flexi-Van was justified in firing Wall, and Travelers, pursuant to its duty to defend, would still be obligated to pay the defense costs of Flexi-Van's independently obtained counsel and indemnify Flexi-Van for its settlement costs in the underlying action. If no actual conflict of interest existed, then Travelers did not breach its duty to defend or its duty to indemnify. In the court's first summary judgment order, dated December 7, 2017, the court denied summary judgment as to the breach of contract and declaratory judgment claims because it found that a genuine issue of material ...

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