Can an insurance-defense lawyer send detailed bills describing the defense to the insurer or its outside auditor without the insured client's consent?

Plain-English summary

The committee addressed insurance-defense counsel who are paid by the insurer but whose client is the insured. The bills in this practice are detailed, often naming the client and describing research, tactics, and strategy, and insurers had begun sending those bills to outside auditing services for review.

On the first question, the committee concluded that, except for disclosures impliedly authorized to carry out the representation, counsel cannot disclose to the insurer or a third-party auditor confidential information protected by RPC 1.6 without the insured's informed consent, and that the implied-authorization exception is narrowly construed and does not reach disclosure to an auditor hired by the insurer. On the second question, the committee concluded that a requirement imposed by the payer that counsel seek or obtain the insured's consent to such disclosure would invoke RPC 1.7(a)(2) and (b) and RPC 1.8(f) and place counsel in an untenable position requiring withdrawal, because independent counsel would have an affirmative duty to recommend against consent wherever there is any risk of embarrassment or waiver. On the third question, the committee concluded that counsel may comply with a payer's billing guidelines only where the guidelines do not compel disclosure of information relating to the representation without consent, do not interfere with the lawyer's independent professional judgment or the client-lawyer relationship, and do not direct or regulate that judgment under RPC 5.4(c); the committee gave examples, such as guidelines forcing production of case files or arbitrarily limiting compensation for necessary work, that would violate the rules. The committee added that counsel must obtain the client's informed consent to any limitations and must withdraw under RPC 1.16 if the representation would be materially affected.

Currency note

This opinion was issued in 1999 and amended in 2009. The amended text references the current Washington Rules of Professional Conduct (RPC 1.6, 1.7, 1.8(f), 5.4(c), and 1.16). Later rule amendments or opinions may still have changed the analysis. Treat this page as historical context, not current guidance, and verify against the current rules before relying on any specific provision mentioned here.

Common questions

Q: Can insurance-defense counsel send detailed bills to the insurer's outside auditor?

A: Not without the insured client's informed consent where the bills contain confidential information. The committee concluded that the implied-authorization exception is narrow and does not allow disclosure of confidential client information to an auditor hired by the insurer.

Q: What did the committee say about an insurer requiring counsel to get the client's consent to the audit?

A: The committee concluded such a requirement creates a conflict under RPC 1.7(a)(2) and (b) and RPC 1.8(f) that requires withdrawal, because independent counsel would have an affirmative duty to advise against consent wherever there is any risk of embarrassment to the client or waiver of privilege.

Q: Can counsel ever follow a third-party payer's billing guidelines?

A: Yes, within limits. The committee concluded counsel may comply with billing guidelines that do not require disclosure of confidential information without consent, do not interfere with independent professional judgment or the client-lawyer relationship, and do not direct or regulate that judgment under RPC 5.4(c).

Q: What did the committee say a lawyer must do if the guidelines would materially affect the representation?

A: The committee said counsel must obtain the client's informed consent to any limitations and, where the lawyer reasonably believes the representation will be materially affected, must withdraw under RPC 1.16 and notify the client of the basis for withdrawal.

Background and rules framework

The opinion interpreted RPC 1.6 (Model Rule 1.6, confidentiality), RPC 1.7 (Model Rule 1.7, concurrent conflicts), RPC 1.8(f) (Model Rule 1.8, compensation from a third party), RPC 5.4(c) (Model Rule 5.4, professional independence where a third person pays), and RPC 1.16 (Model Rule 1.16, withdrawal). It treated the insurer-insured-counsel arrangement as a tripartite relationship in which, under Washington law, the lawyer's client is the insured, and it relied on its own earlier Formal Opinion 183 for the breadth of confidentiality beyond the attorney-client privilege.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.6 / Washington RPC 1.6, 1.6(a) (confidentiality)
• Model Rule 1.7 / Washington RPC 1.7(a)(2), 1.7(b) (concurrent conflicts)
• Model Rule 1.8 / Washington RPC 1.8(f) (compensation from one other than the client)
• Model Rule 5.4 / Washington RPC 5.4(c) (third-party payer not directing professional judgment)
• Model Rule 1.16 / Washington RPC 1.16 (withdrawal)

Cases:

• Tank v. State Farm, 105 Wn.2d 381, 715 P.2d 1133 (Wash. 1986), insurer-insured-counsel relationship
• Van Dyke v. White, 55 Wn.2d 601 (Wash. 1960), the insured as the lawyer's client

Other opinions cited:

• WSBA Formal Opinion 183: disclosure of representation information to a third-party funder

See also

• WSBA Ethics Op. 183: Confidentiality vs. a Funder
• ABA Formal Op. 01-421: Lawyer Under Insurer Billing Guidelines
• ABA Formal Op. 96-403: Insured Objecting to Settlement

Source

• Landing page: https://ao.wsba.org/print.aspx?ID=1540

Original opinion text

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

Advisory Opinion: 195
Year Issued: 1999
RPC(s): RPC 1.6, 1.7, FO 183, 1.8(f), 5.4(c), 1.16
Subject: Disclosure of Client Confidential Information in Detailed Billing Statements To Persons Other Than the Client

• Consent of the Client to Insurer’s Review of Billing Statements by Outside Auditor

• Ethical Compliance with "Billing Guidelines" of a Person Other Than the Client

Issue 1: May an attorney whose professional services are paid by a person other than the client, disclose to the person paying the bill, or to third parties such as an insurer’s outside auditing service, information relating to the representation of the client in detailed, narrative billing statements which describe the professional services rendered?

Answer 1: An attorney cannot disclose to an insurer, without the client’s informed consent, confidential information protected by RPC 1.6, except for disclosures that are impliedly authorized to carry out the representation. The exception for disclosures that are impliedly authorized is to be narrowly construed, and does not allow the attorney’s disclosure, without specific client consent, of confidential client information to a third party hired by the insurance company.

Issue 2: May an attorney ethically comply with a requirement of a person other than the client who pays the attorney’s billings, to seek or obtain the client’s informed consent to the attorney disclosing information relating to the representation of the client in billing statements to be submitted to an outside audit service?

Answer 2: No. Such a requirement would put the attorney in an ethical dilemma, precluding the attorney from representing the client under RPC 1.7(a)(2) and (b)(1).

Issue 3: May an attorney whose professional services are paid by a person other than the client, ethically comply with detailed, narrative billing guidelines of the person paying the billing?

Answer 3: An attorney whose professional services are paid by a person other than the client can ethically comply with "Billing Guidelines" of the person paying the billing, provided the billing guidelines do not: (1) require disclosure of information relating to the representation of the client, without the client’s informed consent; (2) interfere with the attorney’s independent professional judgment or with the attorney-client relationship; or (3) direct or regulate the attorney’s independent professional judgment in rendering legal services to the client.

BACKGROUND FACTS Historically, insurance defense attorneys have sent their bills to the insurance company for payment. These bills are quite detailed and typically include the name of the client, information about the nature of the legal services performed, information about specific research conducted by the attorney, and information which would tend to disclose strategic decisions made with regard to the case. In some instances, legal bills include information which would be embarrassing to the client.

Many insurers have issued "Billing Guidelines" to defense counsel. Recently, some insurers have begun a process of retaining independent auditing firms to review bills submitted by their defense lawyers. Some insurers have requested that lawyers directly send their bills to the outside auditing service, either by hard copy or computer disk.

One such national auditing service company that reviews the bills of Washington defense lawyers, enters into contracts with insurance companies on a fixed-price basis in annual increments, generally one year, subject to renewal. Although it maintains records of cost savings, its fee does not change during the annual increment and its employees are salaried and not paid any incentive bonus or contingency for cost savings to the customer. About one half of its employees are attorneys and its contract with each of its insurance company customers contains a "confidentiality" provision, agreeing to treat confidential information of the insured according to the same fiduciary standards that the law imposes on the insurer.

The outside auditing service reviews and makes recommendations for payment or nonpayment of defense counsel’s billings based on compliance or noncompliance with certain "Billing Procedures" and "Billing Guidelines" which have been adopted by the particular insurance company in coordination with the planned outsourcing of billing reviews to be performed by the audit company.

Payment for professional services is based on "adequate descriptions" contained in the billing statement. "Adequate descriptions" often require the identity of all participants in, and the purpose of, a conference, letter, call or meeting; the specific issue involved; and specific information about the nature of what has been discussed, reviewed or decided which may require disclosure of specific tactical and strategic information about the defense of litigation irrespective of whether the information is otherwise privileged, embarrassing to the client, or may involve matters of dispute between the client and the insurer ultimately responsible for paying the attorney’s fees. None of the activities of the auditing service involves the direct investigation or defense of the claim.

"Inadequate description" of communications with the clients (insureds) and their personal attorneys, has been the basis for denial of payment by an auditing service where defense counsel, in "reservation of rights" cases (as well as in cases not involving reservation of rights), did not specifically explain what was discussed in the conversations, which led to the insured’s personal attorney writing letters objecting to the auditing service’s recommendation that the insurer not pay for those activities. That auditing service, in "reservation of rights" cases, applies the same "adequate description" standards and requirements as it does in cases not involving coverage questions, deferring to the insurance carrier for resolution, any issue involving "inadequate description."

As a result of informal opinion #1758 (release of information to third party impermissible absent informed consent of client), one inquirer seeks guidance as to whether assigned defense counsel can ethically obtain informed consent of the insured client to produce copies of the lawyer`s bill to a third-party auditor.

DISCUSSION

Issue 1 The relationship between the insurance company, the insured and defense counsel is a tripartite relationship wherein the insurer, pursuant to an insurance contract, pays the costs of defense including the lawyer’s fee. However, in Washington it is clear that legally and ethically the client of the lawyer is the insured. Tank v. State Farm, 105 Wn.2d 381, 715 P.2d 1133 (1986); Van Dyke v. White, 55 Wn.2d 601, 349 P.2d (1960).

RPC 1.6(a) provides:

A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent ...

Formal Opinion 183, Disclosure of Information Relating to the Representation of a Client by a Legal Service Office to the Legal Service Corporation or Other Third Party (1990), noted that a legal service office could not disclose to the federally funded national corporation which provided financial support to the local legal service office, or to other third parties, information which would disclose or lead to disclosure of confidential client information, without the informed consent of the client pursuant to RPC 1.6. In prohibiting disclosure of confidential client information, FO 183 recognized that the rule of confidentiality in the ethics rules is considerably broader than communications falling within the attorney-client privilege.

RPC 1.6(a) and FO 183 are instructive. Except for disclosures that are impliedly authorized to carry out the representation, appointed defense counsel cannot disclose to an insurer confidential information provided by the client without the client’s consent, such as information that might be prejudicial to the client’s right to coverage. Nor can the lawyer disclose information that might be embarrassing to the client such as the insured’s insolvency or inability to pay the policy deductible.

The exception for disclosures that are impliedly authorized is to be narrowly construed, and does not allow disclosure of confidential client information to a third party hired by the insurance company without specific client consent. In some circumstances, absent consent of the client, even the identity of the client, the fact of the representation and the nature of the case may involve extremely sensitive information prohibiting disclosure of confidential information to an outside auditor, such as pre-litigation representation and confidential settlement of a threatened lawsuit.

Issue 2 RPC 1.7(a)(2) provides:

Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.

RPC 1.7(b) provides in relevant part:

Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:

(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client; . . . and

(2) each affected client gives informed consent, confirmed in writing (following authorization from the other client to make any required disclosures).

RPC 1.8(f) provides:

A lawyer shall not accept compensation for representing a client from one other than the client unless:

(1) the client gives informed consent; (2) there is no interference with the lawyer’s independence of professional judgment or with the client-lawyer relationship; and (3) information relating to representation of a client is protected as required by rule 1.6.

Where confidential client information is not revealed in billings of defense counsel, conveying the insurer’s request that the insured consent to billings being reviewed by an outside audit service would not interfere with the attorney’s independent professional judgment or with the attorney-client relationship, proscribed in RPC 1.7(a)(2) and (b), and RPC 1.8(f).

Conversely, a requirement that defense counsel seek or obtain the informed consent of the insured to disclose confidential client information in billings to be submitted to the insurer or its outside auditing service, would invoke the prohibitions in RPC 1.7(a)(2) and (b), and RPC 1.8(f), and place defense counsel in an impossible situation, requiring withdrawal from the representation. This is because it is almost inconceivable that it would ever be in the client’s best interests to disclose information relating to the representation to a third party.

The issue is not, “what does it matter”, or “does the client care.” Rather, the question must be, "under what circumstances, if any, would independent counsel for the client recommend that the client consent to disclosure of confidential client information to third persons?" If there is the slightest risk of embarrassment to the client or waiver of privileged information, independent counsel would have an affirmative duty to recommend against disclosure.

Silence in the face of an affirmative duty to recommend against disclosure would be as egregious as a recommendation to consent to disclosure. Defense counsel who was required to seek or to obtain the insured’s consent to disclosure would proceed to do so only by advancing counsel’s own self-interests or the interests of a third party, the insurer, in contravention of RPC 1.7(a)(2) and (b), and RPC 1.8(f). Thus, a "requirement" to seek or obtain the client’s consent to disclosure would put defense counsel in an ethical dilemma requiring withdrawal from the representation.

Issue 3 While "Billing Guidelines" are normally a matter of contract between an attorney and client, the billing guidelines at issue are not those of the client, but rather are those of the person paying the bill for the client. Because the person paying the lawyer`s bills is not the client, the billing guidelines at issue here are not merely a matter of contract between attorney and client, but rather touch directly upon the relationship between attorney and client and therefore trigger special ethical responsibilities of the lawyer.

The Rules of Professional Conduct address any scenario, civil or criminal, litigation or non-litigation, where an attorney is paid by a person other than the client, such as a family member, friend or insurer. The RPC apply equally and consistently regardless of the scenario.

RPC 1.6(a) prevents disclosure of information relating to the representation of the client to persons other than the client without the client’s informed consent.

RPC 1.7(a)(2) and (b) prohibit a lawyer from representing a client if there is a significant risk that the representation of that client will be materially limited by the lawyer’s responsibilities to a third person or by the lawyer’s own interests, unless the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client, and each affected client provides informed consent, confirmed in writing.

RPC 1.8(f) prohibits acceptance of compensation for representing a client from one other than the client unless the client gives informed consent, there is no interference with the lawyer’s independence of professional judgment or with the client-lawyer relationship, and information relating to representation of the client is protected as required by rule 1.6.

RPC 5.4(c) requires that a lawyer shall not permit a person who pays the lawyer to render legal services for another to direct or regulate the lawyer’s professional judgment in rendering such legal services.

A billing guideline of a person other than the client that compels or requires disclosure of information relating to the representation of the client in detailed, narrative descriptions of legal services rendered, absent client informed consent, requires conduct in violation of RPC 1.6(a) and 1.8(f).

A billing guideline that arbitrarily and unreasonably limits or restricts compensation for the time spent by counsel performing services which counsel considers necessary to adequate representation, such as periodic review of pleadings, conducting depositions, or in preparing or defending against a summary judgment motion, endeavors to direct or regulate the lawyer’s professional judgment in violation of RPC 5.4(c).

A billing guideline that imposes "de facto" or arbitrary rates for certain services performed by a lawyer, such as compensating a lawyer at prevailing paralegal rates when the firm does not employ paralegals, operates as a disincentive to performance of those services in violation of RPC 5.4(c).

Absent client informed consent, an attorney cannot disclose information relating to the representation of the client or produce case files or other materials containing such information, to an insurer or its outside auditor pursuant to billing guidelines that allow an insurer to require production of a lawyer’s case files to support billing entries for services performed for the client.

An attorney may ethically comply with the billing guidelines of a person other than the client who pays the lawyer’s bill, where the billing guidelines do not endeavor to direct or regulate the lawyer’s independent professional judgment and permit defense counsel to provide a degree of detail and narrative description in billings that meets the test for nondisclosure of confidential information.

However, because the lawyer is being paid pursuant to billing guidelines of a person other than the client, the lawyer must initially consult with the client at the outset of the representation, and consult with the client periodically thereafter as circumstances may require, and obtain the client’s informed consent to any limitations imposed on the lawyer’s representation.

Where a lawyer reasonably believes that representation of the client will be materially affected by any limitations in billing guidelines of the person paying the billings, the lawyer must withdraw, subject to the requirements of RPC 1.16, and notify the client of the basis for the withdrawal.

[amended 2009]