Can defense counsel for an insured send billing detail to the insurer's outside auditor, and must counsel accept the insurer's defense restrictions?

Plain-English summary

Opinion E-99-1 addressed two practices that insurers were imposing on the lawyers they retain to defend insureds: requiring counsel to submit detailed bills to an outside audit firm, and imposing restrictive guidelines on how the defense is conducted. The committee began by describing the tripartite relationship: Wisconsin lawyers retained by insurers typically represent both the insurer and the insured, are selected and paid by the insurer, and often depend on the insurer for ongoing work. That structure carries inherent ethical risks, including conflicts between the two clients, confidential information about one client that cannot be shared with the other (such as information suggesting a coverage defense), and demands by one client that the lawyer act against the other's interests.

On outside auditors, the committee concluded that a lawyer's bill may contain confidential information protected by SCR 20:1.6(a), and that a lawyer may not use confidential information to a client's detriment without informed consent (SCR 20:1.8(b)). A lawyer should not submit bills containing confidential information to an outside audit firm at the insurer's request without the insured's consent after consultation, because the information could be used to the insured's detriment. The committee noted it may be impractical to keep bills from auditors entirely, so counsel concerned about disclosure should use billing-narrative drafting protocols that avoid revealing confidences. The committee observed that its conclusion was consistent with opinions from 21 other state bar ethics committees on the topic.

On the audit firm's power to disallow or reduce fees, and on insurer defense guidelines, the committee concluded that a lawyer may not let a person paying the fee directly regulate the lawyer's professional judgment for the client (SCR 20:1.8(f)(2) and 20:5.4(c)), and may not accept restrictions so financially or otherwise onerous that they prevent the lawyer from meeting duties of competence, diligence, communication, and loyalty (SCR 20:1.1, 1.3, 1.4, 1.7, 2.1). Where such interference cannot be abated, the rules require the lawyer to decline the representation or withdraw immediately (SCR 20:1.16(a)(1)). The committee added that any client waiver of confidentiality had to be express and after consultation, not implied, and that lawyers should be careful that such waivers do not waive the attorney-client privilege or work-product protection.

Currency note

This opinion was issued in 1999, before Wisconsin's July 1, 2007 adoption of the revised Rules of Professional Conduct (the state's Ethics 2000 update). 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 defense counsel send bills to the insurer's outside auditor?

A: Not without the insured's consent. The committee concluded that bills may contain confidential information under SCR 20:1.6(a), so a lawyer should not submit them to an outside audit firm at the insurer's request without the insured's consent after consultation.

Q: What if it was impractical to keep bills from the auditor?

A: The committee concluded that, because counsel must bill the insurer who may forward the bills, lawyers concerned about disclosure should use drafting protocols so their billing narratives do not reveal confidential information.

Q: Could the lawyer accept the insurer's defense guidelines?

A: Only if they did not impair the lawyer's judgment. The committee concluded that a lawyer may not let a fee-payer regulate professional judgment (SCR 20:1.8(f)(2), 20:5.4(c)) and may not accept restrictions so onerous they prevent meeting duties to the insured.

Q: What if the interference could not be resolved?

A: The lawyer had to decline or withdraw. The committee concluded that where such monetary or other interference with independent judgment could not be abated, SCR 20:1.16(a)(1) required the lawyer not to take on, or to withdraw from, the representation.

Background and rules framework

The opinion interpreted SCR 20:1.6 / Model Rule 1.6 (confidentiality) and SCR 20:1.8(b) and (f)(2) / Model Rule 1.8 (use of client information; third-party payment) together with SCR 20:5.4(c) / Model Rule 5.4 (a payer may not direct professional judgment). It applied SCR 20:1.7 / Model Rule 1.7 (conflicts), SCR 20:1.4 / Model Rule 1.4 (communication), SCR 20:2.1 (independent advice), SCR 20:1.1 and 20:1.3 (competence and diligence), SCR 20:1.16(a)(1) / Model Rule 1.16 (declining or withdrawing), and SCR 20:1.9 / Model Rule 1.9 (continued representation after withdrawal).

Citations and references

Rules of Professional Conduct:

• Wis. SCR 20:1.6(a) / Model Rule 1.6 (confidentiality)
• Wis. SCR 20:1.8(b), (f)(2) / Model Rule 1.8 (client information; third-party payment)
• Wis. SCR 20:5.4(c) / Model Rule 5.4 (independence from a fee-payer)
• Wis. SCR 20:1.7(b) / Model Rule 1.7 (conflicts)
• Wis. SCR 20:1.16(a)(1) / Model Rule 1.16 (declining or withdrawing); SCR 20:1.4 / Model Rule 1.4; SCR 20:2.1; SCR 20:1.9 / Model Rule 1.9

See also

• DC Ethics Op. 290: Disclosure of Insured Information to Insurers and Auditors
• DC Ethics Op. 289: Cause Litigation and Advance Settlement Restrictions

Source

• Landing page: https://www.wisbar.org/formembers/ethics/pages/formal-opinions.aspx
• Original PDF: https://www.wisbar.org/formembers/ethics/Ethics%20Opinions/E-99-1.pdf