Sentry claimed that because Mr. Maybank had failed to timely answer the requests, and because of the likelihood that the trial court would deem them admitted, it settled the case for $900,000. Sentry claimed that Mr. Maybank previously had represented to Sentry that it could settle the case in a range of $75,000 to $125,000.

Sentry then sued Mr. Maybank and the Maybank Law Firm, alleging a variety of theories, including negligence.

The U.S. District Court for the District of South Carolina asked the South Carolina Supreme Court to decide:

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?

The South Carolina Supreme Court's Decision

The court answered the certified question “yes.”

In its decision, the court explained that when an insurer hired an attorney to represent its insured, an attorney-client relationship arose between the attorney and the insured – the attorney's client. Pursuant to that relationship, the attorney owed the client – not the insurer – a fiduciary duty.

The court added, however, that an insurance company that hired an attorney to represent its insured was “in a unique position in relation to the resulting attorney-client relationship.” Pursuant to the insurance contract, the insurer had a duty to defend its insured, and had to compensate the attorney for the attorney's time in defense of the insured.

Moreover, the court continued, if the insured settled or judgment was imposed against the insured, the insurance contract ordinarily required the insurer to pay the settlement or judgment. The court also pointed out that many insurance contracts provided that the insurer had a right to investigate and settle claims as a representative of its insured. The court observed that the insurer's right to settle had to be exercised in good faith, and that the duty of good faith required the insurer to act reasonably in protecting the insured from liability in excess of the policy limits.

The court then held that, because of the insurance company's “unique position,” an insurer could bring a direct malpractice action against counsel hired to represent its insured.

However, the court said, it would “not place an attorney in a conflict between [the attorney's] client's interests and the interests of the insurer.”

Thus, the court ruled, the insurer could recover only for the attorney's breach of the attorney's duty to the client when the insurer proved the breach was “the proximate cause of damages to the insurer.” The court said that if the interests of the client were “the slightest bit inconsistent with the insurer's interests,” there could 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.”

The court concluded that whether there was any inconsistency between the client's and the insurer's interests in the circumstances of an individual case was “a question of law to be answered by the trial court.”

The court said that, as a final limitation on an insurer's right to bring an action against the lawyer it hired to represent its insured, the insurer “must prove its case by clear and convincing evidence.”

The court concluded that “[n]othing we say in this opinion should be construed as permitting even the slightest intrusion into the sanctity of the attorney-client relationship, nor to diminish to any degree the fiduciary responsibilities the attorney owes [the] client.”

The case is Sentry Select Ins. Co. v. Maybank Law Firm, LLC, No. 27865 (S.C. March 6, 2019). Attorneys involved include: Daryl G. Hawkins, of Law Office of Daryl G. Hawkins, LLC, of Columbia, for Plaintiff. David W. Overstreet, Michael B. McCall, and Steven R. Kropski; all of Earhart Overstreet, LLC; all of Charleston; for Defendants.