Can an insurance-defense firm send its detailed legal bills to the insurer's outside auditing company, and can it let that auditor review bills from its other, unrelated clients?

Plain-English summary

A law firm defended an insurer's insureds under liability policies. The insurer routed the firm's detailed bills to an unaffiliated outside audit company that recommended payment or nonpayment. The insurer also asked the firm to let the auditor review the detailed bills it had sent to other, unrelated insurance companies. The firm asked whether submitting its insurer bills directly to the auditor, and whether submitting other clients' bills, would violate the Rules.

The committee grounded its analysis in Rule 1.6, which bars revealing information relating to a representation absent the client's consent after consultation, with narrow exceptions, and noted the ethical duty is broader than the evidentiary privilege and survives the representation. It reviewed prior opinions limiting disclosure of client information to auditors, power-of-attorney holders, credit bureaus, and others. On the first question, the committee concluded a lawyer is not ethically prohibited from submitting bills directly to a third-party auditor upon informed consent of both the insurer and the insured, unless the lawyer believes doing so would substantially affect the representation. It stressed that an insurance-defense lawyer has two clients, the insured and the insurer, and the duty to the insured is governed by the Rules, not the insurance contract (citing ABA Formal Opinion 96-403), so consent of the insured is also required.

On the second question, the committee concluded the firm may not release other clients' billing records to the auditor. Obtaining the necessary informed consent would be highly problematic: consent must be full and informed, not based merely on the fact that billing records will be released, and the lawyer should explain the type of information in billing records and the potential legal effects of release. Because releasing a past client's billing records to a third party would serve the lawyer's own interests, the committee added that the lawyer must take care to avoid self-dealing and conflict of interest under Rule 1.7(b).

Currency note

This opinion was issued in 1997, before the South Carolina Bar's adoption of the 2005 revisions to the Rules of Professional Conduct. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can the firm send the insurer's bills directly to an outside auditor?

A: The committee concluded yes, but only with the informed consent of both the insurer and the insured under Rule 1.6, and unless the lawyer believes doing so would substantially affect the representation.

Q: Whose consent is needed for insurance-defense billing disclosure?

A: Both clients'. The committee stated an insurance-defense lawyer has two clients, the insured and the insurer, and must obtain the informed consent of the insured as well as the insurer before releasing billing information to third parties.

Q: Can the firm let the auditor review other clients' bills?

A: No. The committee concluded the firm may not release unrelated clients' billing records to the auditor, noting the difficulty of obtaining genuine informed consent and the self-dealing concern under Rule 1.7(b).

Background and rules framework

The opinion applied Rule 1.6 (confidentiality of information, including its narrow implied-authorization and other exceptions) and Rule 1.7(b) (conflicts where the lawyer's own interests are involved), each corresponding to the like-numbered Model Rule. The committee identified both the insured and the insurer as clients of insurance-defense counsel, citing ABA Formal Opinion 96-403.

Citations and references

Rules of Professional Conduct:

• South Carolina RPC 1.6 / Model Rule 1.6: confidentiality of information.
• South Carolina RPC 1.7(b) / Model Rule 1.7: conflicts involving the lawyer's own interests.

Other opinions cited:

• ABA Formal Opinion 96-403: insurance-defense counsel's clients.
• S.C. Bar Ethics Adv. Ops. 89-03, 90-14, 93-04, 90-09, 94-30, 90-30, 94-11: prior guidance on releasing client information.

See also

• SC Bar Ethics Op. 97-08: Email Confidentiality
• SC Bar Ethics Op. 97-14: Post-Trial Client Perjury

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-97-22/

Original opinion text

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

UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.

Ethics Advisory Opinion 97-22

Law Firm represents Insurance Company and defends its insureds under its liability policies. Insurance Company sends Law Firm's bills to an outside audit company, which is not affiliated with or an employee of Insurance Company. Audit Company makes recommendations to Insurance Company as to payment or nonpayment. Law Firm's bills contain detailed information about the services performed pursuant to the representation. In addition to this, Insurance Company has asked Law Firm to allow Audit Company to review the detailed bills which Law Firm has sent to other insurance companies, unrelated to Insurance Company.

Questions:

1. Would Law Firm's submitting its Insurance Company bills directly to Audit Company, rather than to Insurance Company, violate the South Carolina Rules of Professional Conduct?
2. Would Law Firm's submitting other clients' bills to Audit Company violate the South Carolina Rules of Professional Conduct?

Summary:
While Law Firm may submit its Insurance Company bills directly to Audit Company, after fully informed consent by company and insured, submitting other clients' bills to Audit Company would violate the Rules of Professional Conduct.

Opinion:
The confidentiality of client communications is governed by SCRPC 1.6. A lawyer may not "...reveal information relating to representation of a client unless the client consents after consultation, except for disclosures that are impliedly authorized in order to carry out the representation...." Id. Two other exceptions, one dealing with prospective criminal acts and one with defenses on the lawyer's behalf, are enumerated in the rule. The comments to the rule also acknowledge that final court orders and provisions in SCRPC 2.2, 2.3, 3.3, and 4.1 allow, or require, certain disclosures. The comment regarding "disclosures impliedly authorized" is narrowly written. Lawyers must keep "inviolate" client confidences; such is a fundamental part of the relationship. SCRPC 1.6, Comment. The ethical duty of confidentiality is broader than the evidentiary privilege, Robert M. Wilcox, South Carolina Legal Ethics Section 6 (South Carolina Bar CLE Division 1996), and continues after the representation has concluded. Rule 1.6, comment.

A review of some of our prior opinions concerning the release of client information will be helpful in defining the scope of Rule 1.6. The opinion most similar to the situation presented in this opinion is Adv. Op. 89-03. There, the Committee opined that where a real estate lawyer is also an agent for a title insurance company, the lawyer may not, pursuant to the company's audit, disclose information from its real estate files without the express, informed consent of the client (unless the information was already released to the insurer to obtain the insurance). That opinion mentioned, without resolving, the separate question of releasing information of clients which did not have a relationship to the insurer. Other relevant opinions include the following: a lawyer who is a party to a lawsuit may not, in response to discovery requests, identify former clients or the amount of work done for them, without the informed consent of each client (unless under court order) (Adv. Op. 90-14); a lawyer may not reveal client confidences to a person holding the client's power of attorney, unless the client is incompetent or consents (Adv. Op. 93-04); preparing legal memoranda for an insurance company's agents requires informed consent (Adv. Op. 90-09); a lawyer should not reveal a client?s address, if the address was communicated in confidence, absent a court ruling (Adv. Op. 94-30); a lawyer who, after the representation has ended, discovers that the former client committed a crime during the representation, may not disclose that fact without informed consent (Adv. Op. 90-30); a lawyer may only perform a credit check on a client if doing so does not reveal the person's status as a client; similarly, a lawyer may not report a nonpaying client to a credit bureau (as it is not necessary to the collection process) and may only tell a collection agency information necessary to the collection of the legal fee (Adv. Op. 94-11).

Question One:
Upon receipt of informed consent from the insurer as well as the insured, a lawyer would not be ethically prohibited from submitting his bills directly to a third-party auditing firm, unless the lawyer believes that doing so would substantially affect the representation.

As a final consideration prior to addressing the individual questions, the question of the identity of the client must be answered. When a lawyer is hired by an insurance company to defend a person under the insurer's liability policy, the lawyer has two clients: the insured and the insurer. The lawyer?s duty to the insured is governed by the Rules of Professional Conduct, not by the insurance contract. ABA Formal Op. 96--403. Therefore, the lawyer should have the informed consent of the insured, as well as the insurer, prior to releasing billing information to third parties.

Question Two:
Law Firm may not ethically release other clients' billing records to Audit Company. As a practical matter, achieving the informed consent necessary to such an endeavor is highly problematic. Client consent to the release of confidential information must be informed consent, based upon more than the mere fact that a certain type of information, such as billing records, will be released to third parties. Due to the potential effects of the misuse or abuse of such information, disclosure must be full. The lawyer should elaborate on the type of information which may be found in billing records, as well as the potential legal effects of releasing such information to third parties. While this committee does not express opinions on legal questions, a lawyer contemplating the release of client billing information to third parties should carefully consider issues of waiver and other possible impacts on the case, as well as informing his client of such matters as a part of obtaining informed consent.

Since Lawyer would be serving lawyer's own interests by turning over a past client's billing records to a third party, Lawyer must take careful steps to avoid self-dealing and conflict of interest as described in Rule 1.7(b).