Lawyer Needs Insured’s Consent Before Submitting Bills to Insurer’s Auditor
By Lazar Emanuel [Originally published in NYPRR June 1999]
N.Y. State Bar Op. 716 (1999)
Question: May a lawyer representing an insured in a civil action submit his legal bills to an independent audit company employed by the insurance carrier without the consent of the insured after full disclosure by the lawyer?
Answer: No.
Facts: A lawyer has been retained to represent parties in litigation who are insured by several carriers. Under the insurance contracts, the carriers pay the legal fees of the insureds. The carriers retain an independent auditor to review the lawyer’s bills. The auditor reviews the bills for conformity to the carriers’ guidelines and adjusts the bills downward or rejects them completely if the guidelines are not observed. If a bill is reduced or rejected, the lawyer can submit documentation of his services to justify his charges. The documentation submitted often includes the lawyer’s evaluation of the merits of the insured’s claims and a description of his strategy and tactics. The auditor receives either a flat fee or a contingent fee geared to the amounts by which the lawyer’s bills are reduced.
Opinion: When a lawyer defends a policyholder in civil litigation, the client is the policyholder, not the insurance company. This is true even when the insurance company retains the lawyer to defend the policyholder. The lawyer’s commitment is to the policyholder, and the carrier must not interfere with the lawyer’s professional judgment in behalf of the policyholder.
Much of the information contained in the lawyer’s bills to the policyholder will constitute a confidence or a secret as defined in DR 4-101(A). This is because the information is gained in the lawyer’s professional relationship with the client. To the extent that the information may be embarrassing or detrimental to the client, the information constitutes a secret. To the extent that the information constitutes a confidence, it is protected by the attorney-client privilege.
Because the bills may constitute either a secret or a confidence, the lawyer is forbidden to disclose them except with the client’s consent. The requirement of consent is not obviated by the carrier’s obligation to pay the lawyer’s bills. The lawyer may ignore a provision in the insurance contract which purports to require the client to submit bills to the outside auditor of the carrier because it is inconsistent with the client’s right to be fully informed. (If the client is fully informed, he may contest the provision requiring submission of the bills or he may forego reimbursement by the carrier to avoid disclosure of information by the lawyer.)
Full Disclosure Required
To enable the client to make an informed decision, the lawyer must make full disclosure. He should discuss the kind of information to be found in the billing records sought by the auditor, as well as the consequences of the client’s consent. This includes a discussion of possible waiver of the lawyer-client privilege. The lawyer has a continuing obligation to inform the policyholder of new or expanded risks created by his consent.
In advising the policyholder, the lawyer must avoid being influenced by the interests of the carriers or by his own personal interests. He must exercise independent judgment. “[He] shall not permit a person who recommends, employs or pays [him] to render legal services for another to direct or regulate [his] professional judgment in rendering such legal services.” [DR 5-107(B).]
If the lawyer is pressured by an auditor who is influenced by his contingent fee agreement to reduce his fee or the amount of time spent in behalf of the policyholder, he shall make full disclosure to the client. If the lawyer or the client believes that the lawyer’s effectiveness will be impaired by the pressure, the lawyer should take proper steps to withdraw from the representation. [EC 5-21.]
Lazar Emanuel is the Publisher of NYPRR.
DISCLAIMER: This article provides general coverage of its subject area and is presented to the reader for informational purposes only with the understanding that the laws governing legal ethics and professional responsibility are always changing. The information in this article is not a substitute for legal advice and may not be suitable in a particular situation. Consult your attorney for legal advice. New York Legal Ethics Reporter provides this article with the understanding that neither New York Legal Ethics Reporter LLC, nor Frankfurt Kurnit Klein & Selz, nor Hofstra University, nor their representatives, nor any of the authors are engaged herein in rendering legal advice. New York Legal Ethics Reporter LLC, Frankfurt Kurnit Klein & Selz, Hofstra University, their representatives, and the authors shall not be liable for any damages resulting from any error, inaccuracy, or omission.
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