Consent to Submission of Legal Bills to Audit Company

 

Opinion rules that an insurance defense lawyer may not submit billing information to an independent audit company at the insurance carrier's request unless the insured's consent to the disclosure, obtained by the insurance carrier, was informed.

 

Inquiry:

 

Law Firm ABC has a significant insurance defense practice. The members of the firm believe that in most cases they cannot ethically advise an insured client to consent to submission of the firm's legal bills to a third party auditor for the insurance carrier. The members of Law Firm ABC have advised their insurance company clients that they believe they are prohibited from disclosing this information pursuant to the requirements of 98 Formal Ethics Opinion 10.

 

98 Formal Ethics Opinion 10 ruled that an insurance defense lawyer may not disclose confidential information about an insured's representation in bills submitted to an independent audit company at the insurance carrier's request unless the insured consents.

 

Recently, Law Firm ABC began to receive assignments from XYZ Insurance Company. The assignments include a letter addressed to the insured from XYZ which reads as follows:

 

Dear [insured]:

 

ABC Law Firm has been hired by XYZ to represent you in the above referenced matter. XYZ's goal is to retain the best and most cost efficient attorneys to represent its insureds. For this reason we will be closely monitoring the effectiveness of the attorney retained.

 

We also want to ensure that all legal fees incurred are fair. To that end, we would like to refer all law firm invoices in this matter to an independent review service, Law Audit Services (LAS). LAS reviews legal bills to ensure that they are in compliance with our billing guidelines, which our panel counsel have read and acknowledged. Because bills for legal services are confidential, we will need your written permission before referring them to LAS.

 

We would appreciate your authorization by signing in the space provided below. You may return the authorization form to us in the postage paid envelope enclosed. Our attorneys have been instructed not to include any privileged information in their billing entries. We have included a very detailed confidentiality commitment in our contract with LAS.

 

XYZ Insurance Company

 

When ABC Law Firm receives an assignment from XYZ, the file includes a copy of the consent letter signed by or on behalf of the insured. May the members of ABC Law Firm submit their bills for legal services rendered in defending the insured to XYZ's independent audit company?

 

Opinion:

 

No, the members of ABC Law Firm may not rely upon the consent obtained by XYZ from the insured unless the lawyer consults with the insured to confirm that the insured understands the meaning and effect of the consent.

 

Insurance Company is certainly entitled independently to seek and obtain the consent of its insureds to the disclosure of billing information to an independent audit company. However, Rule 1.6(c)(2) and 98 Formal Ethics Opinion 10 require a lawyer to evaluate the risk to the insured's interests and to consult with the insured if the insured's consent to disclosure is sought.

 

If a lawyer concludes that the original consent of the client, as obtained by the insurance company, was not informed consent, the lawyer must evaluate the risks to the insured's interests if the billing information is sent to the audit company. The lawyer must discuss any such risks with the insured. If the insured indicates that he or she would like to withdraw the consent, the attorney should refer the insured to the insurance carrier for further discussion. The lawyer may not represent either party to that discussion. Rule 1.7(a). If, after consultation, the client does not want to withdraw the consent, and the lawyer is satisfied that the consent is knowing, the lawyer may send billing information to the audit company as instructed by XYZ.