Can an insurance defense lawyer send the insured's defense bills to the insurer's outside billing auditor, and must the lawyer follow the insurer's billing guidelines?
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This page answers the general question as of 1999. Ezel answers yours: whether it's allowed on your facts, under the current rules of professional conduct in your state, with citations.
Plain-English summary
Opinion 107 (adopted September 18, 1999) addressed the ethics of insurance companies using outside audit agencies to review the bills of insurance defense counsel, a practice in which detailed billing statements (often containing confidential or privileged information about the insured's defense) are submitted to "third-party auditors," who also issue billing guidelines limiting the time and personnel that will be paid for. The Committee, building on its earlier Opinion 91 about the "tripartite relationship" among insurer, attorney, and insured, framed the issue around two duties the lawyer owes the insured: confidentiality and independent professional judgment. It cautioned that the underlying legal questions (such as whether disclosure to an auditor waives privilege) were unsettled in Colorado and beyond the committee's province, so the opinion offered benchmarks rather than firm legal conclusions.
On independence, the opinion concluded that because the lawyer's primary duty runs to the insured, the lawyer may not let the insurer, directly or through an auditor, control or restrict actions the lawyer believes are necessary to protect the insured, and may not follow billing guidelines that unreasonably impair the lawyer's independent professional judgment (Rules 2.1 and 5.4(c)). A lawyer who concluded a guideline interfered with that judgment had to take one of several steps: obtain the insurer's permission not to follow it, decline and withdraw, obtain the insured's informed consent to forego the contrary action, seek payment from the insured, or do the work without compensation.
On confidentiality, the opinion concluded that legal billing statements often contain information relating to the representation that Rule 1.6(a) protects (and that may be privileged), so the lawyer may not disclose it, directly or indirectly, to a third-party auditor without the insured's informed consent. The opinion treated the auditor as an outsider to the attorney-client relationship, even a potentially adverse party, and noted authority that voluntary disclosure to an outside auditor may waive privilege. Informed consent (Rule 1.4(b)) had to make the insured aware of the risks, including possible waiver of privilege, availability to adverse parties, and adverse use against the client; the lawyer should first ask the insurer about limiting the information and confirming the auditor's confidentiality safeguards, and should mark disclosed material "Privileged and/or Confidential, for internal use only." The opinion drew no distinction between direct (lawyer to auditor) and indirect (lawyer to insurer to auditor) disclosure.
Currency note
This opinion was issued in 1999, before Colorado's 2008 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: Could an insurance defense lawyer send the insured's bills to the insurer's outside auditor?
A: Only with the insured's informed consent. The opinion concluded that billing statements often contain information protected by Rule 1.6(a), so the lawyer could not disclose them to a third-party auditor, directly or indirectly, without the insured's informed consent.
Q: Did the lawyer have to follow the insurer's billing guidelines?
A: Not if they unreasonably interfered with the lawyer's independent professional judgment. The opinion concluded, under Rules 2.1 and 5.4(c), that the lawyer could comply with guidelines that did not compromise that judgment but otherwise had to seek permission, withdraw, obtain the insured's consent, or seek payment from the insured.
Q: Whose interests came first in the insurer-insured-lawyer relationship?
A: The insured's. The opinion reaffirmed Opinion 91 that the lawyer's primary duty in the tripartite relationship is to the insured, and that the lawyer may not let the insurer's interests interfere with the insured's.
Q: Did it matter whether the lawyer sent the bills to the insurer rather than directly to the auditor?
A: No. The opinion recognized no distinction between direct and indirect disclosure; if the lawyer knew or reasonably should have known the insurer would forward bills to an auditor, the lawyer still had to obtain the insured's informed consent first.
Background and rules framework
The opinion interpreted Colo. RPC 1.6(a) (confidentiality of information relating to the representation), Colo. RPC 2.1 and 5.4(c) (independent professional judgment, and not letting a third-party payer direct the lawyer's judgment), Colo. RPC 1.8(f) (third-party payment of fees, with its confidentiality protection), and Colo. RPC 1.4(b) (communication sufficient for informed decisions), all in the insurance-defense "tripartite relationship" the Committee had analyzed in Formal Opinion 91. It noted the conflict concern under Rule 1.7(b) and stressed that the conclusions were intended for the insurance-defense context.
Citations and references
Rules of Professional Conduct:
- Colo. RPC 1.6(a) / Model Rule 1.6 (confidentiality)
- Colo. RPC 2.1 / Model Rule 2.1 (independent professional judgment)
- Colo. RPC 5.4(c) / Model Rule 5.4 (no third-party interference with professional judgment)
- Colo. RPC 1.8(f) / Model Rule 1.8 (third-party payment of fees)
- Colo. RPC 1.4(b) / Model Rule 1.4 (communication for informed decisions)
Cases:
- Rose Med. Ctr. v. State Farm Mut. Ins. Co., 903 P.2d 15 (Colo. App. 1995), defense counsel is not counsel to the insurer; inherent tension in the tripartite relationship
- United States v. Massachusetts Inst. of Tech., 129 F.3d 681 (1st Cir. 1997), disclosure to an outside auditor may destroy privilege
Other opinions cited:
- CBA Formal Op. 91: the tripartite relationship among insurer, attorney, and insured
- ABA and numerous state opinions (e.g., Alaska 99-1, D.C. 290, Maryland 99-2, Washington Formal Op. 195) on third-party auditors and billing guidelines
See also
Source
- Landing page: https://www.cobar.org/ethicsopinions
- Original PDF: https://www.cobar.org/Portals/COBAR/Repository/ethicsOpinions/FormalEthicsOpinion_107.pdf
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