(Article from Insurance Law Alert, June 2018)
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Answering a certified question, the South Carolina Supreme Court ruled that an insurer may bring a direct malpractice action against counsel hired to represent its insured. Sentry Select Ins. Co. v. Maybank Law Firm, LLC, 2018 WL 2423694 (S.C. May 30, 2018).
An insurer hired attorney Roy Maybank to defend its insured in a personal injury suit. When Maybank failed to timely answer requests to admit, the insurer settled the suit for an amount larger than originally anticipated based on the likelihood of an adverse ruling. It then sued Maybank alleging malpractice.
The South Carolina Supreme Court ruled that the insurer’s malpractice action was viable, notwithstanding the absence of an attorney-client relationship between counsel and the insurer. The court explained that although counsel owes a fiduciary duty only to the insured, the “unique position” of the insurer in this context mitigates in favor of allowing a malpractice claim. In so ruling, the court emphasized that appointed counsel owes no separate duty to the insurer and that South Carolina does not recognize a “dual attorney-client relationship.”
The court limited its holding in several important respects. First, an insurer may recover for counsel’s breach of his duty only where the insurer proves by clear and convincing evidence that the breach proximately caused damage to the insurer. Second, there can be no liability if the interests of the client “are the slightest bit inconsistent with the insurer’s interests.” Potential inconsistencies are to be evaluated on a case-by-case basis.
As the court noted, the majority of states that have considered this issue have similarly allowed an insurer to pursue a malpractice claim against appointed counsel.