By: Kyle Sholes
SOUTH CAROLINA – In the context of a personal injury lawsuit, a unique relationship exists among three parties: the defendant (“insured”), the insurance company (“insurer”), and the defense counsel (“attorney”). The insurer owes a great deal to both the insured and the attorney. The insurer has a duty to defend the insured, must compensate the attorney for his time in defense of their client, ordinarily pays the settlement/judgment, and owes a duty of good faith to the insured to act reasonably in settlement agreements to protect the insured from liability in excess of policy limits. But while the attorney owes a duty to his client, the insured, above all, he owes no professional duty to the insurer. Beyond the absence of a duty that would ordinarily be required for any negligence suit brought by the insurer, the attorney is also protected by immunity. Where the insurer is technically a third-party to the attorney/client relationship, the attorney is, as a matter of law, “immune from liability to third persons arising from the performance of his professional activities as an attorney on behalf of and with the knowledge of his client.” Gaar v. N. Myrtle Beach Realty Co., 287 S.C. 525, 528 (Ct. App. 1986). However, recent case law has seen the South Carolina Supreme Court carve out narrow exceptions to such immunity.
In the 2019 case Sentry Select Insurance v. Maybank Law Firm, the insurer brought suit against the attorney for, among other things, negligence. Sentry Select Ins. Co. v. Maybank Law Firm, LLC, 426 S.C. 154, 157 (2019). The attorney had been hired by the insurer to represent its insured trucking company. Unfortunately, the attorney failed to timely answer request to admit, and since the circuit court was likely to deem them admitted, the insurer proceeded with settlement at $900,000. The settlement was within the policy limits, leaving the insured no motive to sue for malpractice. However, the attorney had initially represented to the insurer that it could settle in a range of $75,000 to $125,000, and the insurer claimed that the increased settlement was a direct result of the attorney’s failure to timely answer the requests. As a result, the court was faced with the question of 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, to which the court answered simply, “yes.”
The court created an exception to the attorney’s third-party immunity, but a very narrow one, with the holding that an 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 court further emphasized that the insurer bears the burden of not just proving proximate cause, but doing so “by clear and convincing evidence.” In support of the newly created exception, the court referred to twenty-four other states that allowed such an action in appropriate circumstances. The court’s holding is definitively the exception, not the rule, and a narrow one at that. Concerning the exception’s potential impact on the attorney/client relationship, the court stated that “[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, for we will not permit the attorney’s duty to the client to be affected by the interests of the insurance company.” Such inconsistencies would be a matter of law to be decided by the trial court.
Recognizing the risk of creating an exception to the attorney’s well established third-party immunity, the court reiterated its intention to “expressly limit the scope of this opinion.” So while attorney’s now face an exception to their immunity, the exception is new, narrow, and scarcely litigated.
Kyle Sholes, who authored this article, is a student at USC School of Law. Kyle is currently working as a law clerk in the WJCB Greenville office. THIS ARTICLE DOES NOT CONSTITUTE LEGAL ADVICE. PLEASE CONTACT US IF YOU HAVE ANY QUESTIONS FOR AN ATTORNEY OR NEED LEGAL ASSISTANCE [email protected]