Can insurance defense counsel send detailed bills through a third-party computer screening service without the insured's consent?

Plain-English summary

The Committee was asked whether a lawyer may send confidential defense bills, at the insurer's request, to a computer contractor that is not the insurer for screening through a software program, and whether that practice is allowed without the insured's informed consent. It concludes that Opinion 99-1 controls and that the lawyer may not disclose the client's confidences and secrets, electronically or otherwise, to an outside contractor that is not the insurer without the insured's informed consent.

On the facts, an insurance defense firm represents insureds, and the insurer asks the lawyer to transmit detailed billings through a third-party computer contractor that screens them against the insurer's guidelines; passing bills are forwarded to the insurer automatically, and the contractor's employees normally do not review the bills, though they can in case of a malfunction. The opinion relies on Opinion 99-1, which addressed sending detailed billings to a third-party auditor hired by the insurer and concluded an attorney may send bills containing client confidences and secrets to an outside auditor only with the insured client's specific consent.

The opinion explains the concern: because insurer guidelines require detailed billing of every activity, the bills may contain confidences and secrets within Rule 1.6(a), and disclosure to an outside party risks waiving attorney-client privilege or work-product protection, so the lawyer must choose the option least likely to cause an unintended waiver and obtain informed consent first. It notes that since 99-1, more than thirty state bars and the ABA (in Formal Opinion 01-421) have reached the same conclusion. The Committee finds that screening by an "electronic screen" or software program is, for all practical purposes, the same as sending bills to an outside human auditor, because the bills are transmitted to an outside party where confidences are available to third parties. So the same rule applies: no transmission through such screens without the insured's informed consent.

In practice

Under this opinion, as the Alaska rules stood at the time, an insurance defense lawyer may not transmit detailed billings that contain the insured client's confidences and secrets to an outside computer-screening contractor that is not the insurer without first obtaining the insured client's informed consent. The opinion treats automated software screening the same as a human outside auditor, because the bills still leave the lawyer's control and are accessible to a third party. It frames the rule as protecting against an unintended waiver of privilege or work-product protection under Rule 1.6(a).

Common questions

Q: Can defense counsel route bills through the insurer's outside screening vendor?

A: Not without consent. The opinion concludes a lawyer may not send bills containing client confidences to an outside contractor that is not the insurer without the insured's informed consent.

Q: Does it matter that a computer, not a person, reviews the bills?

A: No. The opinion finds software screening is, for practical purposes, the same as an outside human auditor, because the bills are transmitted to an outside party where confidences are available to third parties.

Q: Why is consent required?

A: The opinion explains that detailed bills may contain confidences and secrets under Rule 1.6(a), and disclosure to an outside party risks waiving privilege or work-product protection, so the lawyer must obtain informed consent.

Background and rules framework

The opinion interprets Alaska Rule of Professional Conduct 1.6(a) (confidentiality, analog of Model Rule 1.6) as applied to insurer billing-review arrangements. It applies and extends the Committee's Opinion 99-1 and aligns with ABA Formal Opinion 01-421 and In re Rules of Professional Conduct and Insurer Imposed Billing Rules, 2 P.3d 806 (Mont. 2000).

Citations and references

Rules of Professional Conduct:

• Alaska RPC 1.6(a) (confidentiality of client information)

Cases:

• In re Rules of Professional Conduct and Insurer Imposed Billing Rules and Procedures, 2 P.3d 806 (Mont. 2000)

Other opinions cited:

• Alaska Ethics Opinion 99-1 (controlling); ABA Formal Opinion 01-421

See also

• ABA Formal Op. 01-421: Lawyer Under Insurance-Company Billing Guidelines
• AK Bar Ethics Op. 2008-2: Is a Subrogated Insurer a Client?

Source

• Landing page: https://alaskabar.org/ethics-discipline/ethics-opinions/adopted-ethics-opinions-chronological/
• Original PDF: https://alaskabar.org/wp-content/uploads/2006-3.pdf

Original opinion text

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

ALASKA BAR ASSOCIATION
ETHICS OPINION NO. 2006-3

Disclosure of Confidential Insurance Defense Attorney Bills to
Non-Insurer Contractors for
Electronic Or Computerized “Screening”

QUESTIONS
The Committee has been asked to give an opinion as to whether it is
proper for a lawyer to send confidential defense bills, at the request of a client’s
insurer, to a computer contractor that is not the insurer for screening through
a computerized software program. A secondary question is whether the
practice would be allowed without the informed consent of the insured.
CONCLUSION
It is the committee’s opinion that Ethics Opinion 99-1 controls this issue.
The lawyer may not disclose, through electronic means, or otherwise
confidences and secrets of the client to an outside contractor that is not the
insurer without the informed consent of the insured client.
DISCUSSION
I.

Facts

The facts presented with this question are helpful in setting the stage for
the discussion which follows. In the scenario presented to the Committee, an
insurance defense firm is retained by Insurer to represent its insureds in
litigation in Alaska. The Insurer agrees to pay defense costs as part of its
insurance agreement with the Insured client of the law firm. Insurer requests
that the lawyer transmit billings through a third-party computer contractor for
initial review and screening. The lawyer’s billings contain detailed and
confidential statements discussing the lawyer’s work on the client’s behalf.
In the usual case, the bills are “screened” by a computer software
program for comparison to certain guidelines established by Insurer. If the
lawyer’s billings pass the software screen, then the billing is automatically
forwarded to Insurer for review and payment by Insurer’s claims personnel (a
human being). The electronic screen may also raise an electronic red flag
which is similarly forwarded automatically to Insurer. In the normal course,
the Computer Contractor’s employees do not review the lawyer’s billings.
However, in case of computer malfunction, or other glitch, the employees of
Computer Contractor are able to review the confidential billings, for the
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purpose of correcting possible hardware or software malfunctions. The process
is intended to be fully automated.
II.

Analysis

In Alaska Bar Association Ethics Opinion 99-1, the Committee addressed
a similar question. There, the issue was whether defense counsel appointed by
an insurer was permitted to send detailed billings (presumably containing
confidences and secrets of the insured client) to a third party auditor hired by
the insurer solely to review attorney bills. The Committee concluded the
practice was ethically problematic for defense counsel. An attorney is only
permitted to send billings which contain client confidences and secrets to an
outside auditor with the specific consent of the insured client. See Ethics
Opinion 99-1.
The principal concern is that disclosure of billing statements may
disclose information or materials protected by the attorney-client privilege or
attorney work-product doctrine. Typically, because insurer imposed guidelines
for defense counsel require detailed billing statements reflecting each and every
activity involved in the defense of a case, the billing statements may contain
confidences and secrets of the client-insured within the meaning of ARPC
1.6(a). Because of the possibility that disclosure of billing records to an outside
auditor might result in a waiver of the privileges, the Committee reasoned that
attorneys must act cautiously and choose the option least likely to result in an
unintended waiver. Id.; See Also, ARPC 1.6(a). In Ethics Opinion 99-1, the
Committee explained that caution requires the attorney to obtain the informed
consent of the client insured before transmitting or disclosing the billing
records.
Since the Committee issued Opinion 99-1, several courts, bar
associations, and commentators have weighed in on the issue. More than
thirty state Bar Associations, and the American Bar Association have now
addressed the issue and concluded that insurance defense counsel may not
submit billing statements containing confidential information to outside
auditors without first obtaining the informed consent of the client-insured. See
ABA Formal Opinion 01-421 (2001); See also In Re The Rules of Professional
Conduct and Insurer Imposed Billing Rules and Procedures, 2 P3d 806 (Montana
2000). These additional authorities provide further support for Ethics Opinion
99-1.
Here, the practice of sending billing statements through a computer
program is, for all practical purposes, the same as sending billing statements
to an outside auditor. The billing statements are transmitted to an outside
computer, where they are presumably processed, compared by means of a
computer program to a series of pre-determined criteria, and then forwarded

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again to Insurer. In the Committee’s view, the fact that the bills are reviewed
by an “electronic screen” or software program rather than an outside human
auditor makes no difference. The billing statements have been transmitted to
an “outside party” with confidences and secrets of the client available to third
parties to review.
In summary, the practice of sending billing statements containing
confidences and secrets of a client-insured through a computer screen that is
not the insurer’s for comparison to an insurer’s defense guidelines raises the
same ethical concerns addressed by the Committee in Ethics Opinion 99-1.
Lawyers may not send billing statements through such screens without first
obtaining the informed consent of the client-insured.

Approved by the Alaska Bar Association Ethics Committee on April 6, 2006.
Adopted by the Board of Governors on April 25, 2006.

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