Insurer Can Sue Policyholder’s Lawyer, S.C. High Court Says

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By Samson Habte

Insurance carriers have standing to bring malpractice suits against lawyers they hire to defend policyholders, a sharply divided South Carolina Supreme Court ruled.

Voting 3-2, the court carved out a narrow exception to the privity requirement, a century-old doctrine that says only clients may pursue legal malpractice claims against attorneys.

In legal malpractice cases, the privity requirement serves to ensure that a lawyer’s duty of loyalty to a client remains undivided.

But the majority said it was adopting a narrow privity exception that wouldn’t compromise that principle.

That exception, the court said in its May 30 opinion, will apply only to malpractice cases in which the insurer’s interests are perfectly aligned with those of the policyholder.

An insurer “may recover only for the attorney’s breach of his duty to his client,” the majority said in an opinion by Justice John Cannon Few.

“If the interests of the client are the slightest bit inconsistent with the insurer’s interests, there can be no liability of the attorney to the insurer, for we will not permit the attorney’s duty to the client to be affected by the interests of the insurance company,” Few wrote.

The decision, issued in response to a certified question from a federal district court, will permit Sentry Select Insurance Co. to proceed with a malpractice suit against Maybank Law Firm LLC, which allegedly mishandled its defense of a policyholder.

Majority Rule?

Few said the majority opinion—joined by Justice John W. Kittredge and Acting Justice Thomas Anthony Russo—is consistent with authority from most courts that have considered the question.

But two dissenters said that was a “somewhat misleading” statement

“While a majority of jurisdictions may permit an insurer to pursue a legal malpractice action against hired counsel, it is important to note that most of those jurisdictions appear to do so on the belief that a dual attorney-client relationship exists between the insurer, insured, and counsel, which is a belief the majority does not share,” Chief Justice Donald W. Beatty wrote in the dissent, joined by Justice Kaye G. Hearn.

Daryl G. Hawkins, Columbia, S.C., represented the plaintiff. The defendants were represented by Earhart Overstreet LLC.

The case is Sentry Select Ins. Co. v. Maybank Law Firm, LLC , 2018 BL 189635, S.C., No. 27806, 5/30/18 .

To contact the reporter on this story: Samson Habte in Washington at shabte@bloomberglaw.com

To contact the editor responsible for this story: S. Ethan Bowers at sbowers@bloomberglaw.com

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