An insurer can file a legal malpractice lawsuit against the law firm it hired to represent its insured when the insurer has a duty to defend, said the South Carolina Supreme Court in a divided opinion issued Wednesday.

The insurer’s attorney said the case establishes a new precedent in South Carolina law, and is the first to rule this way on the issue nationwide.

Stevens Point, Wisconsin-based Sentry Select Insurance Co. hired Roy B. Maybank, of the Charleston, South Carolina-based Maybank Law Firm LLC, to defend a trucking company it had insured in a personal injury lawsuit in state court, according to the ruling in Sentry Select Insurance Co. v. Maybank Law Firm LLC.

Sentry Select claimed that because Maybank failed to answer requests for information on a timely basis the case was settled for $900,000 rather than the $75,000 to $125,000 that Mr. Maybank had represented it could be settled for, according to the ruling.

Sentry then filed suit in federal district court in Columbia, South Carolina, against Mr. Maybank and his firm on charges including negligence, and the district court referred the issue to the state Supreme Court.

An insurer “that hires an attorney to represent its insured is in a unique position in relation to the resulting attorney-client relationship,” said the 3-2 ruling. 

“Because of the insurance company’s unique position, we hold the answer” is yes to the question of whether the insurer can file a direct malpractice action again the counsel it hired to represent the insured where the insurer has a duty to defend, said the ruling.

“However,” it added, “we will not place an attorney in a conflict between his client’s interests and the interests of the insurer. Thus, the 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.

“If 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.

“Whether there is any inconsistency between the clients and the insurer’s interests in the circumstances of an individual case is question of law to be answered by the trial court,” said the ruling.

The dissenting opinion says the majority opinion “provides the insurer a windfall at the cost of preserving the attorney-client relationship, which is a decision I cannot support.”

Sentry attorney Daryl G. Hawkins, of the law office of Daryl G. Hawkins LLC in Columbia, South Carolina, said, “What we’ve done here is unique from what other states have done” and establishes a new precedent in South Carolina law.

Twenty-four other states have said insurers can sue their attorneys, but under other theories, said Mr. Hawkins, who said also he believes the ruling will be influential.

Maybank’s attorney could not be reached for comment.