Can an insurance defense lawyer follow the insurer's litigation and billing guidelines?

Plain-English summary

The opinion addresses insurers' practice of imposing "guidelines" on attorneys defending their insureds, including restrictions on allowable discovery, limits on preparation time, pre-approval of legal and computer research, and restrictions on or pre-approval of expert-witness retention, with the practical sanction that non-compliant services are simply not paid for. The question is whether an attorney may ethically follow such guidelines.

The opinion applies HRPC 1.8(f), under which a lawyer may not accept compensation for representing a client from someone other than the client unless the client consents after consultation, there is no interference with the lawyer's independent professional judgment or the client-lawyer relationship, and client information is protected under Rule 1.6; and HRPC 5.4(c), under which a lawyer may not permit a person who recommends, employs, or pays the lawyer to direct or regulate the lawyer's professional judgment. The opinion concludes that billing guidelines that form part of the contract are ethically impermissible if adherence to them interferes with the attorney's independent professional judgment for the client.

The opinion concludes that some guidelines do not necessarily raise ethical concerns: an insurer may require regular reporting and case analysis, and the basic financial arrangement may be set by contract. But provisions that prohibit activity the lawyer's professional judgment finds necessary, or that create a disincentive to perform such tasks, are unacceptable; the opinion gives restrictions on preparation and discovery and limits on compensable communication among attorneys in an office as examples likely to affect independent judgment. If guidelines cannot be ethically followed, the attorney must obtain a modification of those guidelines or decline the representation.

In practice

Under this opinion, a Hawaii lawyer taking insurance defense work cannot treat the insurer's cost-control guidelines as overriding the lawyer's judgment about what the insured client's defense requires. The opinion holds that the dividing line is interference with independent professional judgment: reporting requirements and a contractual fee structure are permissible, but caps on necessary preparation, discovery, experts, or intra-office consultation are not. When a guideline cannot be followed consistent with the duty to the insured, the opinion directs the lawyer to get it changed or to decline or withdraw, not to quietly cut corners.

Common questions

Q: Can an insurance defense lawyer agree to the insurer's litigation guidelines?

A: The opinion concludes the guidelines are impermissible to the extent adherence interferes with the lawyer's independent professional judgment for the insured client.

Q: Which guidelines are acceptable?

A: Per the opinion, requirements for regular reporting and case analysis, and a basic financial arrangement set by contract, do not necessarily raise ethical concerns.

Q: What must the lawyer do about an unacceptable guideline?

A: The opinion concludes that if guidelines cannot be ethically followed, the attorney must obtain a modification of them or decline the representation.

Background and rules framework

The opinion interprets HRPC 1.8(f) (accepting compensation from a third party only with client consent, no interference with independent judgment, and protection of client information) and HRPC 5.4(c) (no direction of the lawyer's professional judgment by a person who pays the lawyer), with HRPC 1.6 protecting client information. These correspond to Model Rules 1.8(f), 5.4(c), and 1.6.

Citations and references

Rules of Professional Conduct (Hawaii; cf. Model Rules):

• HRPC 1.8(f) (third-party compensation; no interference with independent judgment) (cf. Model Rule 1.8(f))
• HRPC 5.4(c) (no direction of professional judgment by the payor) (cf. Model Rule 5.4(c))
• HRPC 1.6 (confidentiality of client information) (cf. Model Rule 1.6)

See also

• ABA Formal Op. 01-421: A Lawyer Under Insurance Company Guidelines
• Alabama Ethics Op. 1990-12: Third-Party Payment of Fees Must Not Impair Independence
• ABA Formal Op. 96-403: Insured Objecting to Settlement

Source

• Landing page: https://dbhawaii.org/legal-ethics-advice-for-hawaii-lawyers/
• Original PDF: https://dbhawaii.org/wp-content/uploads/FO_37.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.
Disciplinary Board of the Hawai#i Supreme Court
201 Merchant Street, Suite 1600
Honolulu, Hawai#i 96813
Telephone (808) 599-1909
www.odchawaii.com
Chairperson

Hon. Clifford L. Nakea (Ret.)
Vice Chairperson

Hon. Leslie A. Hayashi
Secretary

Nathan J. Sult, Esq.
Treasurer

Joy M . M iyasaki, Esq.
Filing Clerk

Board M embers
James L. Branham, Esq.
Gary M . Farkas, Ph.D., M BA
Diane D. Hastert, Esq.
Philip D. Hellreich, M .D.
Shelton G.W. Jim On, Esq.
Harrilynn K. Kame#enui, Esq.
Hon. Evelyn B. Lance (Ret.)
Philip H. Lowenthal, Esq.
Jeffrey P. M iller, Esq.
Carolene N. Kawano Neely, M .S.W., M .Ed.
Jeffrey S. Portnoy, Esq.
Irwin J. Schatz, M .D.
Judith A. Schevtchuk, Esq.
Asst. Chief Eugene Uemura, (Ret.), M A.Ed.

Faye F. Hee
Board Counsel

Bradley R. Tamm, Esq.

FORMAL OPINION NO. 37
It is the practice of some insurance companies to impose
so-called "guidelines" on attorneys with respect to the legal
services being provided to their insureds. These guidelines may
include restrictions on allowable discovery, limitations on
preparation time for hearings and/or discovery, requirements for
pre-approval of research and computer research time, and
restrictions on, or pre-approval of, retention of expert witnesses.
Although guidelines purport to allow deviations, legal services
provided to the insured that are not in compliance with the
insurer's guidelines are simply not paid for.
This Opinion addresses the issue of whether it is ethically
impermissible for an attorney to follow such guidelines in the
attorney's representation of his or her client.
HRPC 1.8(f) provides as follows:
(f)

A lawyer shall not accept compensation for representing
a client from one other than the client unless:
(1)

The client consents after consultation;

(2)

There is no interference with the lawyer's
independence of professional judgment or the
client-lawyer relationship; and

(3)

Information relating to representation of a client
is protected as required by Rule 1.6.

The Disciplinary Board’s mission is to maintain the integrity of the legal profession
and protect the public from professional misconduct by attorneys.

HRPC 5.4(c) provides as follows:
(c)

A lawyer shall not permit a person who recommends,
employs, or pays the lawyer to render legal services for
another to direct or regulate the lawyer's professional
judgment in rendering such legal services.

Billing guidelines of insurance companies that form a part of
the contract with an insurance defense attorney are ethically
impermissible if adherence to those guidelines interferes with the
attorney's exercise of independent professional judgment on behalf
of the client.
Certain billing or litigation guidelines do not necessarily
give rise to ethical concerns. For example, an insurance company
may require its defense counsel to report on a regular basis and
provide an analysis of the case with recommendations. Additionally,
the basic financial arrangement between the insurer and the
insurance defense attorney can be established by contract.
However, provisions that prohibit activity which, in the lawyer's
professional judgment, are necessary in the representation of the
client or provisions that provide a disincentive to perform those
tasks are ethically unacceptable. As an example, restrictions on
preparation and discovery, and the limitation on compensable
communication among attorneys in an office regarding a legal matter
would, in all likelihood, affect an attorney's exercise of
independent judgment on behalf of the client.
If guidelines cannot be ethically followed, an attorney must
obtain
a
modification
of
those
guidelines
or
decline
representation.
DATED:

Honolulu, Hawai#i, March 25, 1999
Bernice Littman
Chairperson, Disciplinary Board

UPDATED:

Honolulu, Hawai#i, March 19, 2015

Hon. Clifford L. Nakea (Ret.)
Chairperson, Disciplinary Board