ContraVest and the association subsequently sued Mount Hawley, alleging bad faith failure to defend or indemnify, breach of contract, and unjust enrichment.

During discovery, ContraVest and the association sought production of Mount Hawley's file on ContraVest's claim for excess coverage relating to the Plantation Point suit and Mount Hawley's files relating to all of Contravest's claims under its excess liability policies.

Mount Hawley contended that these files contained material protected by the attorney-client privilege, and produced files in redacted form with accompanying privilege logs.

ContraVest and the association filed multiple motions to compel, arguing that Mount Hawley had waived the attorney-client privilege as to these files.

The U.S. District Court for the District of South Carolina granted the motions to compel and ordered Mount Hawley to produce the files for in camera inspection.

Mount Hawley sought a writ of mandamus from the Fourth Circuit to vacate the district court's order granting the motions to compel.

The circuit court asked the South Carolina Supreme Court to decide:

Does South Carolina law support application of the “at issue” exception to attorney-client privilege such that a party may waive the privilege by denying liability in its answer?

The South Carolina Supreme Court's Decision

The court elected to analyze the issue narrowly in the limited context of a bad faith action against an insurer, holding that denying liability and/or asserting good faith in the answer did not, standing alone, place the privileged communications “at issue” in the case.

In its decision, the court adopted the framework set forth by the Supreme Court of Arizona in State Farm Mutual Automobile Insurance Co. v. Lee, 13 P.3d 1169 (Ariz. 2000) (en banc), to apply in South Carolina in a tort action by an insured against an insurer for bad faith refusal to provide coverage.

The court explained that, under the Arizona Supreme Court's interpretation of the Restatement (Third) of the Law Governing Lawyers § 80(1)(a)), the party that would assert the privilege “has not waived unless it has asserted some claim or defense, such as the reasonableness of its evaluation of the law, which necessarily includes the information received from counsel.” In that situation, the court continued, the party claiming the privilege has interjected the issue of advice of counsel into the litigation to the extent that recognition of the privilege would deny the opposing party access to proof without which it would be impossible for the factfinder to fairly determine the very issue raised by that party.

In the court's view, such a point was reached when, as in the Mount Hawley case, “the party asserting the privilege claims its conduct was proper and permitted by law and based in whole or in part on its evaluation of the state of the law. In that situation, the party's knowledge about the law is vital, and the advice of counsel is highly relevant to the legal significance of the client's conduct.”

The court, in finding the Lee framework instructive, emphasized the “sanctity of the attorney-client privilege.” In this regard, the court said, a client did not waive the privilege simply by bringing or defending a lawsuit. It then adopted the Lee framework in a tort action against an insurer for bad faith refusal to provide coverage, with the “additional requirement” that the party seeking waiver of the attorney-client privilege “make a prima facie showing of bad faith.”

The case is In re Mt. Hawley Ins. Co., No. 27892 (S.C. June 12, 2019). Attorneys involved include: C. Mitchell Brown, William C. Wood Jr., and Blake T. Williams, all of Nelson Mullins Riley & Scarborough, LLP, of Columbia; and Andrew K. Epting Jr., of Andrew K. Epting Jr., LLC, of Charleston, all for Petitioner. Jesse A. Kirchner, Michael A. Timbes and Thomas J. Rode, all of Thurmond Kirchner & Timbes, P.A., of Charleston, for Respondents. Gray T. Culbreath and Janice Holmes, both of Gallivan, White, & Boyd, PA, of Columbia, for amici curiae The American Property Casualty Insurance Association and The South Carolina Insurance Association. Bert G. Utsey III, of Peters, Murdaugh, Parker, Eltzroth & Detrick, P.A., of Charleston, and J. Ashley Twombley, of Twenge & Twombley Law Firm, of Beaufort, for amicus curiae the South Carolina Association for Justice.