Can insurer-retained defense counsel give an outside billing-audit company case-file information that contains the insured client's confidences or secrets?

Plain-English summary

A law firm retained by an insurance company to defend the company's insureds was told that the insurer had hired an auditing company to review the insurer's case files at the firm to confirm that the time the firm devoted and the amount billed were reasonable and appropriate. The auditing company sent the firm an "audit agreement" requiring the firm to produce all documentation supporting its billings and to make all firm personnel available to answer the auditor's questions; the agreement had no provision allowing the firm to withhold any confidence or secret obtained from an insured. The question was whether the firm could agree to provide information from the insureds' files when that information contains confidences or secrets within the meaning of the Maine Bar Rules.

The Commission relied on its prior opinions (Nos. 63, 72, and 122) holding that when a lawyer is retained by an insurer to defend an insured, the client is the insured, not the company, even though the company pays for the representation. Therefore Maine Bar Rule 3.6(h), governing the preservation of a client's confidences and secrets, fully applies, and it prevents the lawyer and the lawyer's co-workers from disclosing the insured's confidences or secrets, subject to exceptions not applicable here. The Commission concluded that, without client consent, the firm may not provide, or agree to provide, information containing confidences or secrets of a client-insured to the insurance company or to its agent, such as a retained auditing company.

The Commission acknowledged that insureds may give express (sometimes written, as Rule 3.6(h) requires) consent to communications between counsel and the insurer that pass along confidences or secrets, generally so the insurer can make decisions it is entitled to make, such as settlement. But it concluded that such express consent should not be read as implied consent to disclose confidences or secrets to an auditing company retained for purposes other than defending the claim. Nor could consent be implied from the insured's general duty to cooperate with the insurer (the auditor being a different entity from the insurer) or from a lawyer's implied power to make disclosures to further the representation (the auditor's activities having no relation to conducting the representation); client consent to disclosure is not lightly implied. The Commission added that the firm may still cooperate in justifying its bills, but in doing so must take care not to release any confidence or secret obtained from the insured, and suggested that any agreement with the auditing company simply recite that such information is excepted.

Currency note

This opinion was issued in 1998, before Maine's replacement of the former Maine Bar Rules with the Maine Rules of Professional Conduct (effective August 1, 2009). 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: Who is the client when an insurer hires a lawyer to defend its insured?

A: The opinion concluded the insured is the client, not the insurer, even though the insurer pays for the representation; so the confidentiality rule fully governs the lawyer's relationship with the insured.

Q: Can defense counsel release the insured's confidences to the insurer's billing auditor?

A: The opinion concluded not without the insured's consent. The firm may not provide, or agree to provide, the insured's confidences or secrets to the insurer or its agent, including a retained auditing company.

Q: Does the insured's general duty to cooperate with the insurer cover the auditor?

A: The opinion concluded no. Consent to disclose confidences or secrets is not lightly implied, and a general duty to cooperate with the insurer does not extend to an auditor, which is a different entity from the insurer.

Q: Can the firm still let its bills be audited?

A: Yes, with care. The opinion concluded the firm may cooperate in justifying its bills but must not release any confidence or secret obtained from the insured, and suggested the audit agreement recite that such information is excepted.

Background and rules framework

The opinion interprets Maine Bar Rule 3.6(h), which protects a client's confidences and secrets, in the insurance-defense triangle where the insurer pays but the insured is the client. This corresponds to ABA Model Rule 1.6 (confidentiality of information) and Model Rule 1.8(f) (accepting compensation from one other than the client without compromising the lawyer's duties to the client). The Commission built on its prior Opinions Nos. 63, 72, and 122 identifying the insured as the client.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.6 (confidentiality of information)
• Model Rule 1.8(f) (compensation from a third party)
• Maine Bar Rule 3.6(h)

Other opinions cited:

• Maine PEC Opinions Nos. 63, 72, 122 (the insured, not the insurer, is the client).

See also

• ABA Formal Op. 01-421: Lawyer Working Under Insurance Company Guidelines
• ABA Formal Op. 96-403: Insured Objecting to a Settlement

Source

• Landing page: https://mebaroverseers.org/attorney_services/opinion.html?id=89578

Original opinion text

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

Issued by the Professional Ethics Commission

Date Issued: December 2, 1998

Facts

A law firm has been retained by an insurance company to defend the insureds of the company. Subsequently, the insurance company advises the law firm, that it has hired an auditing company to review the insurance company?s case files at the law firm to insure that the amount of time devoted by the law firm to each file was reasonable and that the amount billed to the insurance company was consequently appropriate.

Following its retention by the insurance company, the auditing company sends an ?audit agreement?, to the law firm. The agreement provides that the law firm will produce all documentation supporting its billing to the insurance company, as well as make available all firm personnel to answer all questions about the billing posed to them by the auditing company. The agreement has no provisions for the law firm to withhold from the auditing company any confidence or secret that it may have obtained from an insured.

Question Presented

May the law firm agree with an insurance company or its auditing company to provide information from files of the insurance company?s insureds, if that information contains confidences or secrets within the meaning of the Maine Bar Rules?

Opinion

On several occasions in the past, the Ethics Commission has had occasion to determine the identity of the client when a lawyer is retained by an insurance company to defend an insured of the company. In each case, the Commission concluded that, even though the insurance company may be paying the cost of representation, the client is the insured and not the company. Opinions Nos. 63, 72, 122. Therefore, the provisions of Maine Bar Rule 3.6(h), concerning the preservation of confidences and secrets of a client by a lawyer, fully apply to the relations between a lawyer and an insurance company?s insured. Those provisions prevent a lawyer, and his or her co-workers, from disclosing the confidences or secrets of his or her clients, subject to certain exceptions not applicable here. Consequently, without client consent the inquiring law firm here may not provide, or agree to provide, information containing confidences or secrets of a client-insured, either to the insurance company, or to an agent of the company, such as a retained auditing company.

It is, of course, true that insureds may give express consent to communications between their counsel and their insurer pursuant to which counsel passes along to the insurer confidences or secrets of the insured. Sometimes the consent is in writing, as Rule 3.6(h) requires. Such communications are made, generally, for the purpose of allowing the insurance company to make decisions it is entitled to make, or in which it is entitled to participate, such as settlement. The Commission is of the view, however, that the giving of such express written consent by the insured should not be read to mean that the insured has impliedly consented to the disclosure of confidences or secrets to an auditing company retained by the insurance company for purposes other than defending the claim. Absent express written consent for this purpose there is nothing in the relationship between counsel and the insured or counsel and the insurer that makes the provisions of Bar Rule 3.6(h) inapplicable.

Similarly, the Commission does not think that the consent of the insured to the disclosure of confidences or secrets to an auditing company may be implied either from his or her undertaking a general duty to cooperate with the insurer, a common provision in insurance policies, or from the common law rule that an ethical duty to preserve confidences or secrets does not prevent the disclosure of confidences or secrets by a lawyer when necessary to further the representation. In the Commission?s view, client consent to the disclosure of confidences or secrets is not lightly to be implied; and a client?s consent to the disclosure of confidences or secrets to an auditing company cannot therefore be implied from a general duty to cooperate with the insurer (since the auditor is a different entity from the insurer) or from the implied power of a lawyer to make disclosures to further the representation (since the activities of the auditor have no relation to the conduct of the representation).

This conclusion does not mean, of course, that the law firm may not cooperate with the insurance company or its auditing company in providing information to justify its bills. It only means that, in providing such information, the law firm must take care not to release any confidence or secret which it may have obtained from the insured. The Commission suggests, therefore, that any agreement between the law firm and the auditing company simply recite that such information is excepted.