Insurer Can Bring Direct Malpractice Action (S.C. Supreme Ct.)

Malpractice action against firm hired to provide policyholder’s defense permitted

In a 3-2 opinion, the South Carolina Supreme Court held that Sentry Select Insurance Co. (“Sentry”) could maintain a direct malpractice action against a law firm it had retained to defend its policyholder in an auto accident case.  The court’s opinion was in response to certified questions posed by a South Carolina District Court Judge.

The firm retained by Sentry failed to timely respond to requests for admissions to the policyholders (a trucking company and its driver) which included alleged statements that admitted responsibility for the accident.  The questions were deemed admitted due to the lack of a timely response, and the law firm’s request for relief and additional time to respond were denied.  Prior to the requests being deemed admitted, the law firm had estimated the settlement range at $75,000 to $125,000.  Given the change in circumstances, rather than risk a verdict in excess of its $1M policy limit, Sentry settled the case for $900,000.

The policyholders assigned their legal malpractice claims to Sentry and it sued the law firm as both an assignee and directly.  In the absence of controlling authority, the federal District Court Judge certified the question to the South Carolina Supreme Court.

The majority opinion authorized a direct action by an insurer against the lawyer it retained to provide its policyholder a defense, noting that 24 other states do the same.  The court noted that its opinion was consistent with its prior decision in Fabian v. Lindsay, which held that a lawyer could be liable to a third party that suffered damages as a result of a breach of a professional duty.  The court declined to address whether the policyholder’s assignment of its claims were proper.

The majority went to great lengths to address concerns expressed in the dissent that its holding would create a conflict between the lawyer’s loyalty to the policyholder and the insurer.  It stressed that nothing in its opinion sanctioned even the “slightest intrusion into the sanctity of the attorney-client relationship, nor to diminish to any degree the fiduciary responsibilities the attorney owes his client.”  The court cautioned that if “(I)f 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.”  A failure to timely respond to requests for admission poses no such conflict.  Ins. Sentry Select Insurance Co. v. Maybank Law Firm LLC, No. 27806 (S.C. May 30, 2018).