Does defense counsel need the insured's informed consent before sending legal bills to the insurer's outside billing auditor?

Plain-English summary

A law firm handling insurance defense litigation faced an insurer's use of outside billing auditors to evaluate its legal bills. The insurer's guidelines required detailed descriptions of each service, but the insurer agreed to waive detail where, in the firm's judgment, it would disclose privileged or confidential information or interfere with the representation, in which case a generic description would say only that the activity was privileged or confidential. Building on Ethics Advisory Opinion 97-22, the inquiry asked whether submitting the bills to an outside auditor still required the insured's informed consent, what billing information counts as "information relating to the representation," and whether informed consent requires the lawyer to recommend whether to consent.

The committee concluded that submission to an outside auditing service requires the insured's informed consent regardless of whether the firm determines information is privileged or confidential. Rule 1.6(a) bars revealing information relating to the representation absent the client's consent after consultation or implied authorization, and creates no separate category for "privileged or confidential" information, so there is no point in the firm making such a determination. Drawing on Opinion 97-22, it reiterated that billing information falls within "information relating to the representation," because bills tracking services performed reveal strategies, potential witnesses, admissions, potential liabilities, and other topics, and that release of billing records to third parties does not fall within Rule 1.6's narrow implied-authorization exception.

On the third question, the committee concluded that Rules 1.7 and 1.8 (conflicts of interest) would not bar the arrangement, and that while the attorney must fully consult with the client, neither rule requires the attorney to provide a recommendation to the insured. It cited the Restatement (Second) of Agency Section 381 on an agent's duty to give the principal relevant information, noting an agent may have a duty to communicate information received, but did not extend that to a required recommendation.

Currency note

This opinion was issued in 1998, before the South Carolina Bar's adoption of the 2005 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: Does defense counsel need the insured's consent to send bills to an outside auditor?

A: The committee concluded yes: submission to an outside auditing service requires the insured's informed consent, regardless of whether the firm deems items privileged or confidential.

Q: What billing information counts as confidential?

A: The committee concluded that any material giving information about a named entity is "information relating to the representation," because bills reveal strategies, witnesses, admissions, and potential liabilities.

Q: Must the lawyer recommend whether the insured should consent?

A: The committee concluded no: the lawyer must fully consult with the client, but informed consent does not require the lawyer to recommend consenting or withholding consent.

Background and rules framework

The opinion interpreted South Carolina RPC 1.6 (confidentiality; the narrow implied-authorization exception) and RPC 1.7 and 1.8 (conflicts of interest), corresponding to the like-numbered Model Rules, building on Ethics Advisory Opinion 97-22 and citing the Restatement (Second) of Agency Section 381.

Citations and references

Rules of Professional Conduct:

• South Carolina RPC 1.6 / Model Rule 1.6: confidentiality of information relating to the representation.
• South Carolina RPC 1.7, 1.8 / Model Rules 1.7, 1.8: conflicts of interest.

Other opinions cited:

• S.C. Bar Advisory Opinion 97-22: billing records as confidential client information.

See also

• SC Bar Ethics Op. 98-33: Imaging Closed Files
• SC Bar Ethics Op. 98-23: IRS Request for Client Files

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-98-36/

Original opinion text

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

UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.

Ethics Advisory Opinion 98-36

Law Firm handles insurance defense litigation. Insurance Company has engaged outside billing auditors to evaluate Law Firm's legal bills. The billing guidelines require Law Firm to furnish detailed descriptions and information for each service performed. Insurance Company has agreed to waive any part of the billing guidelines requiring detailed information about services performed when, in Law Firm's professional judgment, the detailed information would constitute a disclosure of privileged or confidential information, or otherwise interfere with the representation of the insured. In those situations, the generic description would state only that the activity is privileged or confidential without further detail. In applying this set of particular facts to the results reached in Ethics Advisory Opinion 97-22, these questions arise:

Questions:
I. Assuming that Law Firm is permitted to exercise its professional judgment in determining whether information is privileged or confidential and no such information is disclosed by the billing activity descriptions, does the submission of the legal billing statement to an outside auditing service for payment still require the informed consent of the insured?

II. What, if any, of the factual information proposed to be included in the billing statement constitutes "information relating to the representation of a client" as contemplated by Rules1.6 and 1.8 of the Rules of Professional Conduct?

III. If the informed consent of the insured client is required prior to submission of Law Firm's billing statement to the auditing service, does "informed consent" also require the attorney to provide a recommendation or advise the insured as to whether the attorney believes it is in the insured's best interest to consent or withhold consent?

Summary:
The submission of the legal billing statement to an outside auditing service requires the informed consent of the insured, regardless of whether or not Law Firm determines that the information is privileged or confidential or both. Any material which gives information about a named entity constitutes "information relating to the representation of a client." "Informed consent" would not require the attorney to provide a recommendation to the insured.

Opinion:
Rule 1.6(a) 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...." The Rule does not create a distinction or separate category for "privileged or confidential" information. Consequently, there is no point in having Law Firm engage in such determination. The submission of the legal billing statement to an outside auditing services requires the informed consent of the insured.

In Ethics Advisory Opinion No. 97-22, this committee responded that billing information without question falls within the scope of "information relating to representation of a client." That Opinion described how these bills, in tracking the services performed for the client, will contain details as strategies, potential witnesses, admissions, potential liabilities and any number of other topics.

This committee has considered the phrase "disclosures impliedly authorized" as being narrowly written. The Comment to Rule 1.6 describes that phrase as applying to situations where the disclosures are appropriate in carrying out the representation. The comment also states that the confidentiality rule applies not merely to matters communicated in confidence by the client but also to all information relating to the representation, whatever its source. A lawyer may not disclose such information except as authorized or required by the Rules of Professional Conduct or other law. Opinion 97-22 found that release of billing records to third parties does not fall within the implied authorization of Rule 1.6.

Rules 1.7 and 1.8 describe conflict of interest situations. These Rules would not bar transactions as described above. The attorney must fully consult with the client, but neither of these rules would require the attorney to provide a recommendation to the insured. Restatement of Agency 2nd, Section 381, describes the duty of an agent to use reasonable efforts to give information to his principal which is relevant to affairs entrusted to him. The Comment states that an agent may have a duty to act upon, or to communicate to his principal or to another agent, information which he has received, although not specifically instructed to do so.