South Carolina Coverage and Bad Faith Opinion


South Carolina Answers Certified Question For Attorney Client Privilege In Bad Faith Refusal to Defend

The South Carolina Supreme Court, on certified question from the Fourth Circuit, has decided whether an insurer waives the attorney-client privilege when it denies liability in a “bad faith” case. 

The issue arose out of a construction defect lawsuit when the insurer failed to defend its insured, a contractor.  After settling out of the case personally, the policyholder contractor sued the carrier for bad faith refusal to defend.  In discovery, the policyholder sought the carrier claim file including correspondence between the carrier and its coverage attorneys.  The Insurer claimed privilege over those communications, but the Insured argued that the Insurer’s denial of liability for bad faith and its affirmative defense of “good faith” resulted in waiver of the attorney-client privilege.  The discovery dispute ultimately found its way to the SC Supreme Court.

Holding:

A client does not waive the attorney-client privilege simply by bringing or defending a lawsuit; rather, waiver requires the additional interjection of the issue of advice of counsel (either expressly or implicitly) by the client.  In other words, whether or not “advice of counsel” is raised as an affirmative defense, if the client defends based on the affirmative theory that the client’s mental state at the time at issue (such as when the Insurer denied the Insured’s claim) was based on an evaluation of the law and the facts then existing, such would equate to putting the legal evaluation “at issue” and thus result in a waiver of the privilege.

“a client does not waive the privilege simply by bringing or defending a lawsuit. “

In reaching its conclusion, the Court relied heavily on an approach adopted by Arizona in the case State Farm Mutual Automobile Insurance Co. v. Lee.

Published by C. Clay Olson

Attorney Christopher Clay Olson is a partner at Harper Little PLLC where he focuses on representing clients in the construction, insurance, banking, hospitality, retail, and real estate industries. Mr. Olson is currently enjoying his seventeenth year as a practicing lawyer in South Carolina. Located in Charleston, Clay is a partner with Harper Little. Mr. Olson focuses his practice on commercial litigation, with an emphasis on the construction industry. Over the years he has litigated construction defect suits, payment disputes, including mechanics lien obligations, surety bond claims as well as insurance coverage litigation involving local, regional, as well as nationally emerging builders and developers. During the years 2008 and 2009, Clay proudly served as South Carolina’s co-chair for the Council on Litigation Management, an organization comprised of insurance companies, self-insured corporations, attorneys, and governmental agencies all striving towards the common goal of cost-efficient dispute resolution. Membership in the Council is achieved by invitation only. Mr. Olson has litigated matters in State and Federal Courts, as well as within various alternative dispute resolution bodies such as the American Arbitration Association. Education Mr. Olson was born in Anderson, South Carolina in 1974. He received his B.A. in Government from Wofford College in 1996, and his J.D. from the University of South Carolina School of Law in 1999. Admissions Mr. Olson is admitted to the State Bar of South Carolina, and the U.S. District Court for the State of South Carolina. Classes/Seminars Taught · Lecturer, Litigation Management Basics (2009) – Argo Specialty Lines and The Colony Group (Richmond, VA) · Lecturer, Evaluation Damages (2009) – Seibels Bruce and Subsidiaries (Columbia, SC) Lecturer, Additional Insured Provisions, Limitations of Liability, and Related Contractual Provisions in Design Contracts (2011) – Arrowpoint Capital (Charlotte, NC) Legal Affiliations Mr. Olson is a member of the State Bar of South Carolina (Member, Construction Law Section). Mr. Olson is also a member of the Council on Litigation Management (CLM). Industry Affiliations Mr. Olson is rated as Distinguished by Martindale Hubbell. He is a member of the South Carolina Bar's Construction Focus and the ABA Forum on the Construction Industry.

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