South Carolina Supreme Court Rules on Attorney Client Privilege Treatment in Bad Faith Law

The SC Supreme Court recently addressed a novel issue of how attorney-client privilege is treated  with regard to insurance bad faith law.  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 Insured sued the Insurer for bad faith refusal to defend.  In discovery, the Insured sought the Insurer’s claim file including correspondence between the Insurer and its 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.

The Court held that a denial of bad faith and/or the assertion of good faith by an insurer does not, standing alone, place a privileged communication “at issue” such that the attorney-client privilege is automatically waived.  Instead, the Court adopted a middle-ground, case-by-case approach akin to Arizona law.  Per the Court’s 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.

In re: Mt. Hawley Ins. Co., Op. No. 27892 (S.C. Sup. Ct., June 12, 2019)

Summary Judgment Affirmed (AGAIN!) in Long Grove Case!

For those of you that have been following along, in Long Grove, the original apartment Developer (and its affiliated general contractor and architect) prevailed against the POA in the Developer’s attempt to disclaim liability to downstream purchasers as part of the sale of an apartment complex to a Condo Converter Developer.  The original Developer had bargained for and received warranty disclaimers on behalf of itself and all “affiliates” when it sold the apartment complex to the Condo Converter Developer.  The disclaimers were incorporated into the master deed, thereby putting downstream purchasers on notice.  The circuit court granted summary judgment in favor of the Developer (and its affiliates), finding 1) the Developer did not put the condos into the stream of commerce because they were not intended to be converted at the time of design; 2) because the disclaimers of warranties were incorporated into the master deed, subsequent buyers were effectively put on notice; and 3) the Developer effectively and permissibly transferred its liability to the Condo Converter Developer, such that the POA’s recourse was against the Condo Converter Developer rather than the original Developer.

The Court of Appeals affirmed in a two-paragraph, per curiam opinion:  Long Grove at Seaside Farms, LLC v. Long Grove Prop. Owners’ Ass’n, No. 2015-UP-377, 2015 S.C. App. Unpub. LEXIS 457 (S.C. Ct. App. July 29, 2015).  The Supreme Court heard the appeal several months ago, but has now decided it should never have accepted the case and dismissed the writ as “improvidently granted.”  Thus, the case is effectively ended as to the original Developer and its affiliates.