In Kentucky, may an insurance-defense lawyer let the insurer forward the lawyer's detailed legal bills to an outside auditing company without the insured client's consent?

Plain-English summary

The opinion addressed the tripartite insurance-defense relationship: a lawyer retained by an insurer to defend an insured, where the lawyer learns that the insurer forwards the lawyer's detailed legal bills to an outside auditing firm. The Committee began from settled Kentucky ground that, in this arrangement, the lawyer represents the insured, not the insurer (KBA E-368, KBA E-378), and the insurer is a third-party payor governed by KRPC 1.8(f). Confidentiality of the representation is governed by KRPC 1.6.

The Committee extended its earlier KBA E-404 (1998), which held that a firm could not submit defense bills directly to an auditing company without the insured's fully informed consent because detailed legal billing can reveal much about the client and the representation, including matters affecting the attorney-client privilege and work-product doctrine. KBA E-409 concluded that the lawyer's duty is the same when the lawyer does not send the bills to the auditor directly but knows the insurer does: the lawyer had to explain the implications and obtain the insured's fully informed consent before providing the insurer with detailed billing information, and had to discuss the consequences (including under the insurance contract) of the insured's refusal to consent.

The Committee declined to opine on whether disclosure to the auditor actually waives the privilege or work-product protection, treating that as a question of law rather than ethics. It added that if the insured consents after counseling, the lawyer must follow the client's instruction and disclose; if the lawyer believes disclosure is contrary to the client's interest, the lawyer should counsel the client to that effect, and if the client consents over that advice the lawyer may seek permissive withdrawal under KRPC 1.16(b).

Currency note

This opinion was issued in 1999 and predates the Kentucky Supreme Court's substantial 2009 revisions to the Rules of Professional Conduct (SCR 3.130), under which Rules 1.6 and 1.8 cited here were amended. The Kentucky Bar Association notes that lawyers should consult the current version of the rules before relying on this opinion. Treat this page as historical context, not current guidance. Verify against the current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: In an insurance-defense case, who is the lawyer's client?

A: Per the opinion, the insured. The Committee restated Kentucky's settled view (KBA E-368, KBA E-378) that the lawyer represents the insured, and the insurer is a third-party payor governed by KRPC 1.8(f).

Q: Did the lawyer need the insured's consent if the insurer, not the lawyer, sent bills to the auditor?

A: Yes. The opinion concluded that when the lawyer knows the insurer forwards the detailed billing to an outside auditor, the lawyer's duty to the insured is the same as if the lawyer sent it directly, so the lawyer had to explain the implications and obtain fully informed consent before providing the bills.

Q: Did the opinion decide whether sending bills to an auditor waives the attorney-client privilege?

A: No. The Committee declined to opine on that, treating the scope of the privilege and work-product doctrine as questions of law, not ethics.

Q: What if the insured refused to consent, or consented against the lawyer's advice?

A: Per the opinion, the lawyer had to counsel the insured about the consequences, including under the insurance contract. If the client consented over the lawyer's contrary advice, the lawyer could seek permissive withdrawal under KRPC 1.16(b).

Background and rules framework

The opinion interprets KRPC 1.8(f) (compensation from a third party; the Model Rule 1.8 counterpart), KRPC 1.6 (confidentiality; Model Rule 1.6), KRPC 5.4(c) and KRPC 2.1 (independence of professional judgment; Model Rules 5.4 and 2.1), and KRPC 1.16(b) (permissive withdrawal; Model Rule 1.16). The Committee grounded the analysis in the lawyer's independent professional judgment and the protection of client confidences in the tripartite insurer-insured-lawyer arrangement.

Citations and references

Rules of Professional Conduct:

• MR 1.6 / KRPC 1.6 (confidentiality)
• MR 1.8 / KRPC 1.8(f) (compensation from a third party)
• MR 5.4 / KRPC 5.4(c) (independence of professional judgment when a third party pays)
• MR 2.1 / KRPC 2.1 (independent professional judgment)
• MR 1.16 / KRPC 1.16(b) (permissive withdrawal)

Other opinions cited:

• KBA E-404 (1998): consent required before submitting defense bills to an auditing company
• KBA E-378 (1995); KBA E-368 (1994): the lawyer represents the insured, not the insurer
• D.C. Op. 290 (1999); Oregon Op. 1999-157; Tenn. Op. 99-F-143; Utah Op. 98-03; S.C. Op. 97-22; Pa. Informal Op. 97-119; N.C. Op. 10 (1998): informed consent required for disclosure to an auditing company

See also

• KBA Ethics Op. E-410: Insurance Defense, Reservation of Rights, and Coverage Conflicts
• KBA Ethics Op. E-408: Lawyer Who Is Also a Real Estate Sales Agent

Source

• Landing page: https://kybar.org/For-Members/Rules-Ethics-Information/Ethics-Opinions
• Original PDF: https://kybar.org/Portals/0/Admin/Ethics%20Opinions/KBA_E-409.pdf

Original opinion text

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

KENTUCKY BAR ASSOCIATION
Ethics Opinion KBA E-409
Issued: September 1999

Since the adoption of the Rules of Professional Conduct in 1990, the Kentucky Supreme
Court has adopted various amendments, and made substantial revisions in 2009. For
example, this opinion refers to Rules 1.6(b) and 1.8, which were amended. Lawyers
should consult the current version of the rules and comments, SCR 3.130 (available at
http://www.kybar.org), before relying on this opinion.

Question:

If an attorney is defending an Insured with the defense being provided by an
Insurer pursuant to an insurance contract between the Insurer and the Insured, and
if that attorney is aware that the attorney’s legal bills sent to the Insurer are
forwarded to an outside auditing firm, what do the Kentucky Rules of
Professional Conduct require of the attorney?

Answer:

The attorney must obtain fully informed consent from the Insured, the client,
before forwarding legal billing information to the Insurer if the attorney knows
the Insurer will send the billing information to an outside auditor.

References:

Kentucky Rule of Professional Conduct (KRPC) 1.6 (SCR 3.130(1.6); KRPC
1.8(f); KRPC 5.4(c); KRPC 2.1; KBA E-404 (Sept. 1998); KBA E-378 (1995);
KBA E-368 (1994); D.C. Op. 290 (1999); Oregon Op. 1999-157 (1999); Tenn.
Op. 99-F-143 (1999); Utah Op. 98-03 (1998); S.C. Op. 97-22 (1997); Pa.
Informal Op. 97-119 (1997); N.C. Op. 10 (1998); ABA Model Rules of
Professional Conduct, Terminology Section.
OPINION

The Opinion of the Ethics Committee is drawn from some fundamental principles of the
Rule of Law and its relation to the independence of both the Bench and Bar. The Rules of
Professional Conduct are grounded in the need for such independence. This is made plain in
Rule 1.8(f), Rule 5.4(c) and Rule 2.1. It is also made plain by the well-accepted refusal of the
Supreme Court of Kentucky to surrender its power and responsibility for regulation of the
practice of law to other branches of government.
The attorney represents the Insured, not the Insurer in the typical insurance defense
arrangement, although the attorney may have significant economic or other allegiance to the
Insurer. See KBA E-368 (1994); KBA E-378 (1995). The Insurer is a third-party payor and the
situation is governed by Kentucky Rules of Professional Conduct (KRPC) 1.8(f), which states:
A lawyer shall not accept compensation for representing a client from one other
than the client unless:

(1) such compensation is in accordance with an agreement between the client and
the third party or the client consents after consultation;
(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.
The confidentiality of client confidences is governed by KRPC 1.6, which states:
A lawyer shall not reveal information relating to representation of a client unless the
client consents after consultation, except for disclosures that are impliedly authorized in
order to carry out the representation, and except as stated in paragraph (b).
Paragraph (b) sets out situations in which an attorney may reveal client confidences.
These situations involve revealing information to prevent the client from committing a criminal
act likely to result in imminent death or serious bodily harm, revealing information to establish a
claim or defense for the lawyer in a controversy involving the client, and revealing information
when required by law or court order. KRPC 1.6(b).
Recently, KBA E-404 (Sept. 1998) stated that a law firm could not ethically submit the
bills for the costs of the defense of the Insured directly to an auditing company without fully
informed consent of the client, the Insured. See also D.C. Op. 290 (1999) (informed consent
necessary); Oregon Op. 1999-157 (1999) (same); Tenn. Op. 99-F-143 (1999)(same); Utah Op.
98-03 (1998) (same); S.C. Op. 97-22 (1997) (same); Pa. Informal Op. 97-119 (1997) (same);
N.C. Op. 10 (1998) (informed consent required for disclosure to auditing company; because
attorney represents Insurer as well as Insured, consent must be obtained according to the
guidelines of 1.7). KBA E-404 was based on the fact that legal billing information in the
insurance defense setting often is quite detailed and may reveal much about the client Insured
and the representation itself. KBA E-404 took the position that the client, the Insured, should be
informed of the implications that flow from making such legal billing information available to
the auditing company. KBA E-404 specifically noted that the disclosure of such information
may affect the application of the attorney-client privilege and the work product doctrine and that
such implications should be discussed with the client in order to obtain informed consent to the
disclosure.
If the attorney does not send the legal billing information directly to the auditing
company but knows that the Insurer sends the legal billing information to an auditing company,
the attorney’s responsibilities to the client Insured are the same. The attorney should explain the
implications of such a procedure to the client and obtain the client’s fully informed consent
before providing the Insurer with detailed billing information. In so doing, the attorney should
also discuss with the Insured client the implications, with regard to the insurance contract
between the Insurer and the Insured, that may flow from the Insured’s failure to consent to the
release of legal billing information. See also ABA Model Rules of Professional Conduct,
Terminology Section (“‘consult’ or ‘consultation’ denotes communication of information
reasonably sufficient to permit the client to appreciate the significance of the matter in
question”).

The parameters of the work product doctrine and the attorney-client privilege are matters
of law, not ethics, and so we do not opine as to whether the disclosure of legal billing
information to the auditing company by the Insurer affects these protections. If the attorney
counsels the client Insured about the possible consequences of the disclosure of the legal billing
information and the client consents to the disclosure, the attorney must follow the instruction of
the client Insured and disclose the information. If the attorney believes disclosure to be contrary
to the best interests of the client Insured, the attorney should counsel the client as to the
attorney’s belief. If the client consents to the disclosure contrary to the attorney’s advice, the
attorney may seek a permissive withdrawal from the representation pursuant to KRPC 1.16(b).
See also D.C. Op. 290 (1999) (lawyer should advise client of risks of disclosure to Insurer if
Insurer discloses information to auditor).

Note to Reader
This ethics opinion has been formally adopted by the Board of Governors of the Kentucky
Bar Association under the provisions of Kentucky Supreme Court Rule 3.530 (or its predecessor
rule). The Rule provides that formal opinions are advisory only.