Must a defense lawyer hired by an insurer follow the insurer's litigation guidelines, and can the lawyer send the insured's billing details to the insurer or an outside auditor?

Plain-English summary

The committee considered the lawyer's obligations in the tripartite insurance-defense relationship, where the insured's policy gives the insurer rights over the defense and the insurer imposes litigation-management guidelines, expense controls, and bill audits. The committee took no position on whether the insurer is also a client, observing that the Model Rules offered little guidance on the question, and grounded its analysis in duties that applied regardless of the client's identity.

The committee held that the lawyer could not let cost-control directives compromise the quality of the defense. It relied on Rule 5.4(c): regardless of whether the insurer is a client, "Rule 5.4(c) states that a lawyer 'shall not permit a person who recommends, employs or pays a lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering . . . legal services.'" In most cases, the opinion noted, undivided loyalty to the insured and insurer coincide and guidelines raise no concern, because "the company and the insured are virtually one in their common interest." In the rare case where a guideline would compromise competent representation, or the insured objects, the lawyer had to consult both insured and insurer, and if the conflict could not be resolved and the insured would not consent, the matter implicated Rule 1.7(b) and the lawyer would have to withdraw from representing the insurer (and, where necessary, the insured), protecting the insured's immediate interests.

On disclosure, the committee distinguished routine transmission to the insurer from disclosure to an outside auditor. Most billing information sent to the insurer is impliedly authorized to carry out the representation and comply with the policy, but the committee cautioned that "in those relatively rare situations when the lawyer reasonably believes that disclosure of confidential information to the insurer will affect a material interest of the client-insured adversely, the lawyer may not disclose such confidential information without first obtaining the informed consent of the client-insured." For third-party auditors, the committee was firmer: such an auditor is an outside vendor, disclosure may not be essential, and it risks waiver of privilege, so "the lawyer must obtain the insured's informed consent before sending bills with such information to a third party hired by the insurer to audit the bills."

Currency note

This opinion was issued in 2001, before the American Bar Association's adoption of the 2002 (Ethics 2000) revisions to the Model 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: Did a defense lawyer have to follow the insurer's litigation guidelines?

A: Only so far as they did not materially impair the lawyer's independent professional judgment. The committee held that under Rule 5.4(c) the lawyer could not let a payer direct or regulate professional judgment, and that a guideline compromising competent representation had to be resisted, consulted on, and, if unresolved, met with withdrawal.

Q: Could the lawyer send the insured's bills to the insurer?

A: Generally yes, as impliedly authorized to carry out the representation and comply with the policy, but the committee held the lawyer could not disclose where he reasonably believed it would adversely affect a material interest of the insured without first obtaining informed consent.

Q: Could the lawyer send the insured's bills to an outside auditor the insurer hired?

A: Not without the insured's informed consent. The committee treated a third-party auditor as an outside vendor whose access risked waiver of privilege, so it required informed consent before sending bills containing the insured's confidential information.

Background and rules framework

The opinion applied Rule 1.2 (scope of representation), Rule 1.6 (confidentiality, including implied authorization), Rule 1.7 (conflicts), Rule 1.8(f) (compensation from a third party), and Rule 5.4(c) (a payer may not direct the lawyer's professional judgment). Because the ABA interprets the Model Rules directly, there is no state-rule analogue; the opinion collected numerous state and local bar opinions reaching similar conclusions on insurer-imposed billing and auditor disclosure.

Citations and references

Rules of Professional Conduct:

• MR 1.2 (scope of representation)
• MR 1.6 (confidentiality)
• MR 1.7 (conflicts of interest)
• MR 1.8(f) (compensation from one other than the client)
• MR 5.4(c) (professional independence of a lawyer)

Other opinions cited:

• ABA Formal Op. 96-403 (1996): obligations when an insured objects to a settlement within policy limits
• ABA Formal Op. 282 (1950): the "community of interest" between insurer and insured
• ABA Formal Op. 98-411 (1998): implied authorization in lawyer-to-lawyer consultation
• ABA Formal Op. 95-398 (1995): nonlawyer access to a lawyer's database

See also

• ABA Formal Op. 05-435: Lawyer suing an insured of a client-insurer
• ABA Formal Op. 03-430: Insurance staff counsel representation and naming
• RI EAP Op. 2011-05: Title Insurer's Unconditional Audit Access to a Lawyer's IOLTA Records and Client Files Is Prohibited by Rule 1.6 Absent Client Consent

Source

• Landing page: ABA Formal Ethics Opinions index
• Original PDF: 01-421.pdf