Can an insurance defense lawyer send the insured's legal bills to the insurer's outside auditor or reviewer?

Plain-English summary

The Lawyer Disciplinary Board addressed whether an insurance defense lawyer may send legal bills to the insurer's outside reviewers or auditors, where the third party might have a contractual arrangement with the insurer. The Board emphasized that in an insurance defense representation the insurer retains the lawyer but the insured is the primary client whose interests must be protected, an obligation flowing from Rules 1.8(f), 5.4(c), and 1.7(b). Lawyers must maintain the client's confidentiality under Rule 1.6, which has been given a broad construction protecting much more than the evidentiary attorney-client privilege (citing Lawyer Disciplinary Board v. McGraw). Because itemized bills contain information about legal work done for the client, they contain information relating to the representation.

The Board concluded that disclosure of legal bills to outside auditors, reviewers, or similar entities is a release of confidential information governed by Rule 1.6, and that from the insured's perspective submitting bills to auditors does nothing to further the case, so it is not impliedly authorized to carry out the representation. No Rule 1.6 exception applied. Accordingly, a lawyer may submit legal bills to outside auditors only if the insured consents, and the consent may be obtained only after the lawyer consults with the insured. The consent must be informed and follow full disclosure: the consultation should elaborate on and give examples of the type of information in the bills and explain the potential effects of release, including whether information could correlate to a disputed coverage issue or otherwise harm the insured, and the lawyer should consider legal consequences such as whether release could waive the attorney-client or work-product privileges (a legal question the Board declined to decide).

The Board added that even if the insurer already obtained consent in the insurance contract, the lawyer must separately consult the insured and obtain consent, because the Rules of Professional Conduct, not the insurance contract, govern the lawyer's ethical responsibilities. Once the insured gives informed consent to sending future bills for outside review, the Board did not anticipate the lawyer would need separate consent for each individual bill, but if release of sensitive or potentially detrimental information was not contemplated when the lawyer consulted the client, the lawyer must seek new consent. If the lawyer sends bills to the insurer and then learns the insurer is providing them to an outside auditor without the insured's consent after consultation, the lawyer should advise the insured and request that the insurer cease releasing confidential information. The Board noted its opinion was consistent with opinions from Alabama, Florida, South Carolina, Utah, Kentucky, Indiana, Louisiana, Washington, and Maryland.

Currency note

This opinion was issued in 1999, before the West Virginia Supreme Court of Appeals' comprehensive 2015 revision of the West Virginia Rules of Professional Conduct (effective January 1, 2015). 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: Were a client's itemized legal bills treated as confidential?

A: Yes. The opinion concluded that legal bills contain information relating to the representation and are confidential under Rule 1.6, which the Board read broadly to protect all information whatever its source.

Q: Could the lawyer send bills to the insurer's outside auditor without asking the insured?

A: No. The opinion concluded the lawyer may release bills to outside auditors or reviewers only if the insured consents, after the lawyer consults with the insured.

Q: Did consent the insurer obtained in the policy satisfy the rule?

A: No. The opinion stated the lawyer must nonetheless consult the insured and obtain separate consent, because the Rules of Professional Conduct, not the insurance contract, govern the lawyer's ethical responsibilities.

Q: Did the lawyer need fresh consent for every bill?

A: Not necessarily. The Board did not anticipate separate consent for each bill once the insured gave informed consent to future outside review, but the lawyer had to seek new consent if release of sensitive or detrimental information was not contemplated in the original consultation.

Q: What if the lawyer learns the insurer is sending bills to an auditor without the insured's consent?

A: The opinion stated the lawyer should advise the insured and request that the insurer cease releasing confidential information.

Background and rules framework

The opinion interpreted West Virginia's Rules as they stood in 1999. Rule 1.6 (Model Rule 1.6) protected information relating to the representation, with limited exceptions, and the Board read it broadly per Lawyer Disciplinary Board v. McGraw. Rules 1.7(b), 1.8(f), and 5.4(c) (Model Rules 1.7, 1.8, 5.4) established that the insured is the primary client and protected the lawyer's independent professional judgment from the third-party payer. The Board declined to decide the separate legal question, governed by the law of evidence and civil procedure rather than the Rules, of whether releasing bills waives the attorney-client or work-product privileges, citing United States v. Massachusetts Institute of Technology.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.6 / WV Rule 1.6 (confidentiality of information)
• Model Rule 1.7 / WV Rule 1.7(b) (representation materially limited by third person or own interests)
• Model Rule 1.8 / WV Rule 1.8(f) (compensation from one other than the client)
• Model Rule 5.4 / WV Rule 5.4(c) (professional independence of a lawyer)

Cases:

• Lawyer Disciplinary Board v. McGraw, 194 W. Va. 788, 461 S.E.2d 850 (1995), broad construction of Rule 1.6
• United States v. Massachusetts Institute of Technology, 129 F.3d 681 (1st Cir. 1997), privilege waiver from releasing bills (cited; question declined)

See also

• WV Ethics Op. 2005-01: Insurance Billing Guidelines
• WV Ethics Op. 99-01: Insurance Company Captive Law Firms
• ABA Formal Op. 01-421: Insurer Litigation Guidelines
• Alabama Ethics Op. 1998-02: Third-Party Auditing of Lawyer Billings

Source

• Landing page: https://wvodc.org/Legal-Ethics-Opinion
• Original PDF: https://storage.googleapis.com/msgsndr/Rgd68xOkcVdteTsBkf6O/media/66a7ea7e3c9fe01a5b45e80e.pdf

Original opinion text

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

LEI 99-02

Submitting Insurance Defense Legal Bills to Outside Auditors or Reviewers

The Lawyer Disciplinary Board has received requests for a formal advisory opinion on the ethical propriety of an insurance defense lawyer sending his/her bills to outside reviewers or auditors. The Board understands that some insurance companies which have retained a law firm to represent its insureds are either requesting or requiring that the law firm submit its bills to third parties for review and / or audit. The third party reviewers / auditors might have a contractual arrangement with the insurance company.

In an insurance defense representation, the insurance company retains the lawyer, but the insured is the primary client and the insured's interests must be protected. This obligation flows from Rules 1.8(f), 5.4(c), and 1.7(b) of the West Virginia Rules of Professional Conduct.[1] Lawyers are required to maintain their clients' confidentiality. Rule 1.6 of the West Virginia Rules of Professional Conduct provides:

(a) 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).
(b) A lawyer may reveal such information to the extent the lawyer reasonably believes necessary:
(1) to prevent the client from committing a criminal act; or
(2) to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client, to establish a defense to a criminal charge or civil claim against the lawyer based upon conduct in which the client was involved, or to respond to allegations in any proceeding concerning the lawyer's representation of a client.

Rule 1.6 has been given a broad construction; "information relat[ed] to the representation" protects much more than what is covered by the evidentiary attorney-client privilege. Lawyer Disciplinary Board v. McGraw, 194 W. Va. 788, 461 S.E.2d 850 (1995). The comment to Rule 1.6 explains that the rule protects "all information, whatever its source." Legal bills, particularly the itemized bills which insurance companies often require, contain information about legal work done for a client, and therefore contain information relating to the representation.

It is the opinion of the Lawyer Disciplinary Board that disclosure of legal bills to outside auditors, reviewers, or similar entities constitutes a release of confidential information and is governed by Rule 1.6. From the insured's perspective, submitting bills to auditors / reviewers does nothing to further the progress of his/her case and the representation; thus, it is not "impliedly authorized to carry out the representation." Although there are exceptions found in Rule 1.6 which would permit a lawyer to release information without client consent, none of the exceptions apply to this situation.

Accordingly, pursuant to Rule 1.6 a lawyer may only submit legal bills to outside auditors, reviewers, or similar entities if the insured consents to this release. The consent may only be obtained after the lawyer consults with the insured.

The consent must be informed, after full disclosure by the lawyer to the insured. The consultation between the lawyer and insured should include an elaboration on and examples of the type of information which is included in the bills. The lawyer should explain the potential effects, if any, of releasing this information to third parties. For example, if information in the bill could correlate to a disputed coverage issue, or something detrimental to the insured's interests, the lawyer should carefully explain this to the insured and should advise against the release. The lawyer should also consider any legal consequences to the insured, such as whether the release could waive the attorney-client or work product privileges[2], and should advise the insured accordingly.

If the insurance company has already obtained consent from the insured for the release of information, perhaps in the insurance contract, the lawyer must nonetheless consult with the insured and obtain separate consent for the release. The Rules of Professional Conduct, not the insurance contract, govern a lawyer's ethical responsibilities. As set forth above, this consent must be informed and made after full disclosure by the lawyer to the insured.

As long as the insured gives informed consent to sending future bills for outside review, the Board does not anticipate that the lawyer would have to seek separate consent for each individual bill which is submitted for outside review during the course of the representation. However, even if the insured has previously consented, the lawyer must still be careful about what information is released. If the release of sensitive or potentially detrimental information was not contemplated when the lawyer consulted with his client, then the lawyer must seek new consent.

Furthermore, if the lawyer sends the bills to the insurer and then learns that the insurer is providing the bills to an outside auditor or reviewer without insured consent after consultation with the lawyer, then the lawyer should advise the insured and also request that the insurer cease releasing confidential information.

The Board has not located any court decisions on this issue, but notes that this opinion is consistent with both formal and informal opinions from the lawyer disciplinary authorities of Alabama, Florida, South Carolina, Utah, Kentucky, Indiana, Louisiana, Washington and Maryland.

APPROVED by the Lawyer Disciplinary Board on April 30, 1999.

DAVID J. ROMANO, CHAIRPERSON
Lawyer Disciplinary Board
State of West Virginia

[1] Rule 1.8(f) of the West Virginia Rules of Professional Conduct provides: 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 with the client-lawyer relationship; and (3) information relating to representation of a client is protected as required by Rule 1.6. Similarly, Rule 5.4(c) says: A lawyer shall not permit a person who recommends, employs, or pays the lawyer to render legal service for another to direct or regulate the lawyer's professional judgment in rendering such legal services. Rule 1.7(b) provides: A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests, unless: (1) the lawyer reasonably believes the representation will not be adversely affected; and (2) the client consents after consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implications of the common representation and the advantages and risks involved.
[2] The attorney-client and work product privileges are creatures of the laws of evidence and civil procedure, not of the Rules of Professional Conduct. Whether these privileges would be waived by releasing legal bills to outside entities is a legal question which the Lawyer Disciplinary Board declines to address. Lawyers are encouraged to research this topic and examine each situation on a case by case basis. An often cited case in this area is United States v. Massachusetts Institute of Technology, 129 F.3d 681 (1st Cir. 1997).