S.C. Supreme Court: Defense Counsel Can Be Sued for Malpractice by Insurer

The South Carolina Supreme Court recently opined that an insurer can sue an attorney it hired to defend its policyholder for malpractice.

The high court in the case of Sentry Select Insurance Company v. Maybank Law Firm, LLC, and Roy P. Maybank, 2016-001351, was tasked by the district court to answer two questions in the case of Sentry Select’s lawsuit against defense counsel it hired to defend its insured.

The two questions to be answered are: Whether an insurer may maintain a direct malpractice action against counsel hired to represent its insured where the insurance company has a duty to defend, and whether a legal malpractice claim may be assigned to a third-party who is responsible for payment of legal fees and any judgment incurred as a result of the litigation in which the alleged malpractice arose.

The case arose when Sentry Select hired Maybank to defend a trucking company it insured in a personal auto injury lawsuit in state court

Sentry Select alleged that Maybank “failed to timely answer requests to admit served by the plaintiff pursuant to Rule 36(a) of the South Carolina Rules of Civil Procedure.”

The insurer stated Maybank filed a motion for more time to answer plaintiff’s requests seven months later. The court held the motion under advisement until mediation was completed. The insurer alleges that due to Maybank’s failure to answer the requests in a timely fashion, as well as its belief the district court was unikely to admit the answers, it settled the suit for $900,000. This was higher than Maybank’s initial settlement estimate of $75,000-$125,000. Because of the tripartite relationship that exists between the insurer, the policyholder and the attorney hired to defend the policyholder, the high court ruled that the insurer could bring a direct malpractice action against counsel hired to represent its insured where the insurance company has a duty to defend.

The South Carolina Supreme Court further noted that “we will not place an attorney in a conflict between his client’s interests and the interests of the insurer. Thus, the insurer may recover only for the attorney’s breach of his duty to his client, when the insurer proves the breach is the proximate cause of damages to the insurer.”

The South Carolina Supreme Court continued: “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. Whether there is any inconsistency between the client’s and the insurer’s interests in the circumstances of an individual case is a question of law to be answered by the trial court.”

The Supreme Court declined to answer the second question posed by the district court, indicating its response to the first question addressed it.