Can a North Carolina insurance defense lawyer send the insured's bills to the insurer's outside audit company based on a consent form the insurer collected?

Plain-English summary

An insurance defense firm received assignments from an insurer accompanied by a letter, addressed to the insured and signed by or on behalf of the insured, authorizing the firm to refer its invoices to an independent bill-review service. Building on 98 Formal Ethics Opinion 10, which held that a defense lawyer may not disclose confidential information about an insured's representation in bills submitted to an outside audit company without the insured's consent, the committee was asked whether the firm could rely on that pre-signed consent.

The opinion concluded the firm could not rely on the insurer-obtained consent unless the lawyer consulted with the insured to confirm the insured understood the meaning and effect of the consent. While the insurer may independently seek its insureds' consent to disclosure, Rule 1.6(c)(2) and 98 Formal Ethics Opinion 10 require the lawyer to evaluate the risk to the insured's interests and to consult with the insured when consent to disclosure is sought. If the lawyer concludes the original consent was not informed, the lawyer must evaluate and discuss the risks of sending billing information to the audit company. If the insured then wishes to withdraw consent, the lawyer must refer the insured to the insurer for further discussion and may not represent either party to that discussion (Rule 1.7(a)). If, after consultation, the insured does not want to withdraw consent and the lawyer is satisfied the consent is knowing, the lawyer may send the billing information as instructed.

Currency note

This opinion was issued in 2000, before North Carolina's adoption of the 2003 revisions to the Rules of Professional Conduct, and it cites the confidentiality and conflict rules under the numbering then in effect (Rule 1.6(c)(2) and Rule 1.7(a)). The confidentiality provisions were renumbered and revised in later amendments. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule subsection mentioned here.

Common questions

Q: Can a North Carolina defense lawyer rely on a consent form the insurer already had the insured sign?

A: Not by itself. The opinion held the lawyer may not rely on the insurer-obtained consent unless the lawyer consults with the insured to confirm the insured understands the meaning and effect of the consent.

Q: Why isn't the insured's signed authorization enough?

A: The opinion held that Rule 1.6(c)(2) and 98 FEO 10 require the lawyer independently to evaluate the risk to the insured's interests and to consult with the insured whenever consent to disclosure of confidential billing information is sought.

Q: What if the insured wants to withdraw the consent after talking to the lawyer?

A: The opinion held the lawyer must refer the insured to the insurer for further discussion and may not represent either party to that discussion, citing the conflict in Rule 1.7(a).

Q: When may the lawyer send the bills to the audit company?

A: The opinion permitted the lawyer to send the billing information if, after consultation, the insured does not want to withdraw consent and the lawyer is satisfied the consent is knowing.

Background and rules framework

The opinion applied North Carolina Rule 1.6 (confidentiality of information, including the then-existing consent provision at 1.6(c)(2)) and Rule 1.7 (conflicts of interest), the analogues to Model Rules 1.6 and 1.7. It built directly on 98 Formal Ethics Opinion 10, which addressed disclosure of an insured's confidential billing information to an outside audit company.

Citations and references

Rules of Professional Conduct:

• MR 1.6 (confidentiality of information) / NC Rule 1.6(c)(2)
• MR 1.7 (conflicts of interest) / NC Rule 1.7(a)

Other opinions cited:

• NC 98 Formal Ethics Opinion 10: a defense lawyer may not disclose an insured's confidential information in bills sent to an outside audit company without the insured's consent

See also

• ABA Formal Op. 01-421: Lawyer Under Insurance Company Guidelines
• ABA Formal Op. 96-403: Insured Objecting to Settlement
• NY State Bar Op. 1102: Insurance In-House Counsel Office Confidentiality

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/99-formal-ethics-opinion-11/

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Inquiry:

Law Firm ABC has a significant insurance defense practice. The members of the firm believe that in most cases they cannot ethically advise an insured client to consent to submission of the firm's legal bills to a third party auditor for the insurance carrier. The members of Law Firm ABC have advised their insurance company clients that they believe they are prohibited from disclosing this information pursuant to the requirements of 98 Formal Ethics Opinion 10.

98 Formal Ethics Opinion 10 ruled that an insurance defense lawyer may not disclose confidential information about an insured's representation in bills submitted to an independent audit company at the insurance carrier's request unless the insured consents.

Recently, Law Firm ABC began to receive assignments from XYZ Insurance Company. The assignments include a letter addressed to the insured from XYZ which reads as follows:

Dear [insured]:

ABC Law Firm has been hired by XYZ to represent you in the above referenced matter. XYZ's goal is to retain the best and most cost efficient attorneys to represent its insureds. For this reason we will be closely monitoring the effectiveness of the attorney retained.

We also want to ensure that all legal fees incurred are fair. To that end, we would like to refer all law firm invoices in this matter to an independent review service, Law Audit Services (LAS). LAS reviews legal bills to ensure that they are in compliance with our billing guidelines, which our panel counsel have read and acknowledged. Because bills for legal services are confidential, we will need your written permission before referring them to LAS.

We would appreciate your authorization by signing in the space provided below. You may return the authorization form to us in the postage paid envelope enclosed. Our attorneys have been instructed not to include any privileged information in their billing entries. We have included a very detailed confidentiality commitment in our contract with LAS.

XYZ Insurance Company

When ABC Law Firm receives an assignment from XYZ, the file includes a copy of the consent letter signed by or on behalf of the insured. May the members of ABC Law Firm submit their bills for legal services rendered in defending the insured to XYZ's independent audit company?

Opinion:

No, the members of ABC Law Firm may not rely upon the consent obtained by XYZ from the insured unless the lawyer consults with the insured to confirm that the insured understands the meaning and effect of the consent.

Insurance Company is certainly entitled independently to seek and obtain the consent of its insureds to the disclosure of billing information to an independent audit company. However, Rule 1.6(c)(2) and 98 Formal Ethics Opinion 10 require a lawyer to evaluate the risk to the insured's interests and to consult with the insured if the insured's consent to disclosure is sought.

If a lawyer concludes that the original consent of the client, as obtained by the insurance company, was not informed consent, the lawyer must evaluate the risks to the insured's interests if the billing information is sent to the audit company. The lawyer must discuss any such risks with the insured. If the insured indicates that he or she would like to withdraw the consent, the attorney should refer the insured to the insurance carrier for further discussion. The lawyer may not represent either party to that discussion. Rule 1.7(a). If, after consultation, the client does not want to withdraw the consent, and the lawyer is satisfied that the consent is knowing, the lawyer may send billing information to the audit company as instructed by XYZ.