Professional Responsibility

S.C. High Court Creates Privity Exception Allowing Insurer’s Malpractice Claim Against Policyholder’s Counsel

By Keith R. Fisher

Traditionally, privity of contract limits to clients those who can bring malpractice claims against lawyers. But on May 30 a divided South Carolina Supreme Court created a narrow exception for an insurer with a duty to defend where its interests are perfectly aligned with those of its policyholder. The court held 3-2 that in such circumstances an insurer may pursue a malpractice claim against a law firm that allegedly mishandled a matter for the policyholder. Finding this result consistent with the “deterrent purpose of tort law,” the majority emphasized the insurer’s “unique position” and its obligation to compensate the lawyers and to pay any settlement or adverse judgment. If the client’s interests are the “slightest bit inconsistent with the insurer’s interests,” however, the exception does not apply, as the majority, citing S.C. R. Prof. Resp. 407, would not permit the attorney’s loyalty to the client to be divided. Certain other jurisdictions allow such claims but on different theories, e.g., dual duty of care, third-party beneficiary, or subrogation.



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