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OBA Ethics Counsel

Ethics Opinion No. 314

Adopted December 15, 2000

TOPIC

Insurance companies’ submission of invoices of insureds’ defense counsel to third party auditors.

ISSUE

An insurance carrier ("Insurer") which assigns the defense of its insureds ("Clients") to defense counsel ("Attorney") submits Attorney’s bills for services rendered to an outside auditor ("Auditor") for review. May Attorney agree to representation of Clients under this circumstance without violating the Oklahoma Rules of Professional Conduct ("ORPC")?

ABSTRACT

In addressing this issue, several Rules must be kept in mind including, but not limited to, the following: First, Rule 1.7, which is the embodiment of a lawyer’s duty of loyalty to the client, conditionally prohibits a lawyer from representing a client whose interests will be adverse to another client, and conditionally prohibits a lawyer from representing a client when that representation will be materially limited by a lawyer’s responsibilities to another client, to a third person or by the lawyer’s own interests. Second, Rule 1.8(f) conditionally prohibits a lawyer from accepting compensation for representing a client from one other than the client. Third, Rule 1.6(a) conditionally prohibits a lawyer from revealing information relating to representation of a client except for disclosures which are impliedly authorized in order to carry out the representation. However, the lawyer may agree to the representations described in Rule 1.7 and 1.8(f), and to the disclosure described in Rule 1.6(a), if, inter alia, the client consents after consultation. Consultation denotes communication of information reasonably sufficient to permit the client to appreciate the significance of the matter in question.

Attorney who is retained by Insurer to represent Clients with knowledge that Attorney’s invoices for services rendered in connection with the representation will be provided to Auditor would be required under the ORPC, to secure Client’s informed consent to the representation, including the audit procedure, at the outset of the formation of the attorney-client relationship. Seeking informed consent to the audit procedure would place Attorney in an impermissible conflict between Attorney’s personal financial interest in getting paid by Insurer and Attorney’s duty to maintain client confidences in violation of Rule 1.7(b). Moreover, under the ORPC, Attorney would be required to secure Client’s informed consent with respect to each invoice for the Attorney’s services prior to each submission of such invoices to Insurer and, in each instance, Attorney would be charged with the responsibility of determining whether the Client should also consult with independent counsel to assist the Client in determining whether informed consent should be given. This procedure would result in an unwieldy process which, in itself, is impermissible because it would materially limit Attorney’s representation of Client in violation of ORPC 1.7(b). Seeking informed consent from the Client to submission of Attorney’s bills to an outside Auditor would potentially place the protections of client confidences in jeopardy, and would give rise to an appearance of impropriety which is particularly striking because Client receives no benefit from the audit procedure separate from the Client’s right to defense and indemnity for which Client has already paid premiums to the Insurer. Attorney may not therefore, agree to the representation described herein without violating the ORPC.

OPINION

The LEC has been asked to address the ethical considerations pertinent to the following facts: Defense counsel ("Attorney") is hired by an insurance company ("Insurer") to represent the Insurer’s insureds ("Clients"). Insurer submits Attorney’s bills for services rendered as counsel for Clients to an outside party for auditing. Attorney is concerned that submission of defense counsel’s bills for services rendered to an outside party for auditing may violate the attorney/client confidentiality privilege enjoyed by the Clients.

In order to aid the reader’s understanding of the audit procedures, a brief discussion of the relationship among attorneys, insured clients and insurers and of the use of outside auditors and its genesis is provided.

The relationship among an attorney, the attorney’s client and the insurance company which provides coverage for the attorney’s representation of the client is known as the tripartite relationship. The tripartite relationship often consists of dual attorney-client relationships between defense counsel with the insured and with the insurer. The triangular relationship which exists among these parties is held together by the contractual relationship between the insurer and the insured by virtue of the insurance policy and the implied covenant of good faith and fair dealing. Ronald E. Mallen, Guidelines or Landmines? Preserving the Tripartite Relationship, FOR THE DEFENSE, August, 1998 at 3, 3. The tripartite relationship is illustrated as follows:

(1) Attorney

(3) Ins. Co. (2) Client

Communication between defense counsel and the insurer is confidential and subject to the attorney- client privilege because the insurance company is the client’s representative and the communication is "in furtherance of the rendition of professional legal services to the client". OKLA. STAT. Tit. 12 §2502.

Insurers are under tremendous economic pressure which began building in the early ‘90’s as a result of increased competition in the industry and rising loss adjustment expenses. See Andrew G. Cooley, Audits of Attorney Bills, FOR THE DEFENSE, February 1998 at 21, 21. Increased competition is evidenced by the number of recent acquisitions and mergers among and by property/casualty insurers. C. David Sullivan & Patrick T. Muldowney, Changing Times in the Insurance Industry, in PRESSURE ON THE PROFESSION: THE FUTURE OF THE DEFENSE LAWYER, February, 1998 Supplement to FOR THE DEFENSE at 3. Increased competition is also reflected in the trend of larger businesses to retain a greater portion of their own risks, which drives up the costs to the insurers for the remaining business, thereby placing even more pressure on insurers’ business. Id. Another contributing factor is the increasing total cost of the tort system. Douglas R. Richmond, Of Legal Audits and Legal Ethics, DEFENSE COUNSEL JOURNAL, October, 1998 at 512, 512. Many cost-conscious insurers have focused on efforts to limit defense costs, including the use of billing guidelines which require great detail and specificity in attorneys’ bills, and the use of outside auditors to review defense counsel’s bills before payment. The focus on efforts to limit defense costs is justified by the insurers who contend that the performance of defense counsel lends itself to objective performance measures and statistical analysis, a point which is hotly contested by many defense counsel. Id.

Efforts to contain defense costs include the use of billing guidelines, which often require defense counsel to specify their activities in minuscule detail and may also restrict a lawyer’s ability to perform certain legal services without prior approval which must be requested from the insurer. Some billing guidelines place time limits on counsel’s activities which cannot be exceeded without prior approval from the insurer. The ethical implications of the use of billing guidelines are beyond the scope of this opinion.

Outside auditors are retained by some insurers to examine all of defense counsel’s bills and, in some cases, to recommend that certain fees and expenses, or portions thereof, should not be paid. Outside auditors may review defense counsel’s bills under a variety of arrangements with the insurer, including guaranteed reductions of specified percentages of defense counsel’s bills or contingency fee arrangements under which the auditing firm receives a percentage of the attorney fee expenses it saves the insurer. The use of auditors is nothing new — for years insurers have examined defense counsel’s bills via in-house claims personnel. The use of outside auditors would introduce a fourth party to the relationship among defense counsel, the insured client and the insurer — a party which is not included in the tripartite relationship. The use of an outside auditor would create an additional tripartite relationship among defense counsel, the insurer and the auditor, which may be illustrated as follows:

(4) Auditor (1) Attorney

(3) Ins. Co. (2) Client

This opinion addresses the ethical concerns raised by the use of outside auditors to review defense counsel’s bills, as opposed to evaluation of defense counsel’s bills by in-house personnel.

The LEC has recast the question to articulate the ethical issue presented by Attorney’s inquiry as follows: Whether, and under what circumstances an Attorney retained by an Insurer to represent its Insured may agree to the representation with knowledge that the Insurer will submit Attorney’s invoices for services rendered to an outside Auditor without violating the Oklahoma Rules of Professional Conduct ("ORPC"). The LEC assumes that the insurance policy requires the Insurer to defend the Client and authorizes the Insurer to control the defense of any claims against the Client. The LEC also assumes that a claim, covered by the insurance policy, has been brought against the Client and that the Insurer has hired the Attorney to defend the claim.

For purposes of determining a lawyer’s authority and responsibility, principles of substantive law, external to the ORPC, determine whether a client/lawyer relationship exists. OKLA. STAT. tit. 5 Ch.1 App.3-A, "Scope". The ORPC provide no guidance as to who is the client. ABA Committee on Professional Ethics, Formal Opinion 96-403 (1996). However, it is a certainty that when an insurance company hires a lawyer to defend its insured, the insured is the lawyer’s client with all of the ethical considerations which are part of the attorney-client relationship. Church v. Hofer, Inc., 844 P.2d 887, 888 (Okla. App. 1992).

Because the insured is the lawyer’s client, the ethical considerations presented under the facts of this inquiry include the lawyer’s duty of loyalty to the client. This duty is embodied in Rule 1.7 which provides:

(a) A lawyer shall not represent a client if the representation of that client will be directly adverse to another client, unless:

1) the lawyer reasonably believes the representation will not adversely affect the relationship with the other client; and

2) each client consents after consultation.

(b) A lawyer shall not represent a client if 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.

The obligation to defend an insured under an insurance contract contemplates representation by counsel who can exercise independent, professional judgment on behalf of the client and devote complete loyalty to the client. Rule 1.7, 2.1, 5.4(c). The ORPC, and not the provisions of the insurance contract, control an attorney’s obligations to the client. ABA Committee on Professional Ethics, Formal Opinion 96-403 (1996); Oklahoma Bar Association Legal Ethics Advisory Opinion No. 309 (1988).

In the absence of an express agreement specifying the identity of a lawyer’s client or clients, a lawyer hired by an insurer to defend its insured may have an attorney-client relationship with the insured alone or with both the insured and the insurer. See ABA Committee on Professional Ethics, Formal Opinion 96-403 (1996). In instances in which the insured and the insurer are both clients, Rule 1.7(a) applies. Oklahoma Bar Association Legal Ethics Advisory Opinion, No. 309 (1998). Similarly, Rule 1.7(a) applies when the lawyer represents the insurer, as opposed to the insured, in other matters. If only the insured is the client, then Rule 1.7(b) applies. In either case, a lawyer may not seek client consent to representation or provide representation on the basis of client consent "when a disinterested lawyer would conclude that the client should not agree to the representation under the circumstances". Comment to Rule 1.7.

Analysis of the issue presented also requires an analysis of the ethical considerations which are triggered when a lawyer is compensated for services rendered by a third party payor. The starting point is Rule 1.8(f) of ORPC, which provides:

(f) 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.

The term "‘consultation’ denotes communication of information reasonably sufficient to permit the client to appreciate the significance of the matter in question." OKLA. STAT. tit. 5 Ch.1, App. 3- A, "Terminology". Full disclosure and consent should be part of all dealings with a client regarding compensation for legal services as well as all dealings in attorney-client relations. State of Oklahoma ex rel. Oklahoma Bar Association v. Watson, 897 P.2d 246, 254 (Okla. 1994). A lawyer is required to exercise independent professional judgment and render candid advice. ORPC Rule 2.1.

Rule 1.8(f) also requires that the arrangement with a third party payor must conform to the requirements of Rule 1.6, concerning protection of client confidences, and Rule 1.7, concerning conflict of interest. Comment to Rule 1.8(f). Rule 1.6 provides in pertinent part:

(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 paragraphs (b) and (c).

The rule of confidentiality is given effect in two related bodies of law: the attorney-client privilege and work product doctrines in the law of evidence and the rule of confidentiality established in the law of professional ethics. The concept of confidentiality is broader than the attorney-client privilege or work product doctrine, and includes all information communicated to a lawyer by a client. The rule of attorney-client confidentiality applies in situations other than when information is sought from the lawyer by legal compulsion. Comment to Rule 1.6.

In the context of the rules of discovery in litigation, the attorney-client privilege and the attorney work product are not synonymous. The attorney-client privilege belongs to the client and can only be waived by the client. In contrast, the protections of the attorney work product belong to the lawyer and may be waived by the lawyer in the context of the rules of evidence and of discovery. Information which may not be protected from discovery as attorney-client privilege may nonetheless be protected attorney work product. Ellison v. Gray, 702 P.2d 360, 363 (Okla. 1985). However, under the ORPC, all information pertaining to representation of the client is confidential. The rule of confidentiality applies not only to matters communicated to a lawyer by a client in confidence, but also to all information relating to the representation, whatever its source. A lawyer may not disclose confidential information, except as authorized by the ORPC. Comment to Rule 1.6.

In some circumstances, the identity of a client may be a confidence which must be preserved by a lawyer. For example, it may be detrimental or embarrassing to a client to disclose the fact that a claim against the client was settled before a lawsuit was filed against the client. See e.g., Oklahoma Bar Association LEC Advisory Opinion No. 136 (1937) (lawyer’s refusal to disclose client’s identity was ethical in absence of any evidence that the client intended to commit a crime).

Rule 1.6(a) permits disclosures which are impliedly authorized in order to carry out the representation. An insurer typically has the right to control the defense of litigation and most insureds expect their insurers to receive and pay defense counsel’s invoices. An insurer also usually has the right to investigate, negotiate and settle a claim or lawsuit. An insurer must also be provided with sufficient information to properly evaluate a claim.

Under the facts assumed, disclosure of information contained in the Attorney’s invoices to the Insurer, who is paying the cost of defense of a covered claim, is impliedly authorized to carry out the representation. However, the same cannot be said for disclosures to an outside Auditor whose services are retained by the Insurer to reduce legal expenses. Review of billing information is part of an insurer’s cost containment efforts which have absolutely nothing to do with the evaluation and defense of a claim and is unrelated to evaluation and defense of a claim. The Bar Associations of several states have considered whether disclosure of billing information to outside auditors is impliedly authorized to carry out the representation and have answered the question in the negative. Alaska Bar Association, Ethics Committee, Ethics Opinion No. 99-1 (1999); Indiana Bar Association, Ethics Committee Opinion 4 of 1998; Maryland State Bar Association Committee on Ethics, Ethics Opinion 99-7; Utah State Bar, Ethics Advisory Opinion Committee, Opinion No. 98-03 (1998) ("The client’s consent to release the billing statement to the insurance company is usually included in the agreement between the client and the insurance company. However, because the client must consent ‘after disclosure’, the lawyer should review the insurance agreement with the client and renew the client’s consent before sending any billing statements to the insurance company … . [I]f the lawyer relies upon an insurance agreement for consent, the lawyer must review the agreement with the client and renew the client’s consent before sending any billing statements to the audit service"): District of Columbia Bar, Legal Ethics Committee Opinion No. 290 (1999).

The Bar Association of the State of Washington has opined that it would be unethical to seek client consent to the disclosure of attorney’s billing statements which contain confidences or secrets to an outside auditor because, ordinarily, submission of a lawyer’s detailed bill containing client secrets and confidences to a third party auditor creates an actual conflict of interest between the client’s interests and defense counsel’s own self-interests or those of a third party, the insurer, in contravention of Rules 1.7(b) and 1.8(f). Washington State Bar Formal Opinion 195 (1999) ("Conversely, a requirement that defense counsel seek or obtain the informed consent of the insured to disclose client confidences or secrets in billings to be submitted to the insurer or its outside auditing service, would invoke the prohibitions in ORPC 1.7(b) and 1.8(f) and place defense counsel in an impossible situation, requiring withdrawal from the representation. This is because it is almost inconceivable that it would ever be in the client’s best interests to disclose confidences or secrets to a third party"). The Oregon Bar Association has opined that an attorney may ethically seek or obtain a client’s consent to submitting to a third-party auditing service the attorney’s invoices for services rendered to the client "only if no conflict of interest exists between an insurer and insured regarding the advisability of releasing the billing information … ". Oregon State Bar Association Formal Opinion No. 157 (1999). The LEC agrees with the reasoning of the Washington Bar Association that it would be unethical for Attorney to seek Client’s consent to the audit procedure because to do so would place Attorney in a conflict between Client’s interests and those of a third party, Insurer, and Attorney’s own self interest in getting paid by Insurer. The LEC declines to adopt the conditional prohibition announced by the Oregon State Bar Association because this approach would require, at the very least, a new set of difficult line- drawing exercises which would be time consuming and which would increase uncertainty.

The LEC also cannot ignore the holding of the United States Court of Appeals for the First Circuit in U.S. v. Massachusetts Institute of Technology, 129 F.3d 681, 683 (1st Cir. 1997), in which the First Circuit Court of Appeals affirmed the district court’s holding that the university forfeited the attorney-client privilege by disclosing billing statements of firms representing MIT to defense department auditors. The Court did not determine the scope of the waiver of the attorney-client privilege, or whether opinion work product, as opposed to ordinary work product, was waived by disclosure of the fee statements to outside auditors. To date, this holding of the MIT case has been followed in at least three other reported cases: In the Matter of the Rules of Professional Conduct and Insurer Imposed Billing Rules and Procedures, 2000 WL 50245 **15-21 (Mont.) (Citing the MIT case, the Court held that disclosure by defense counsel of an attorney’s invoices to outside auditors without first obtaining the contemporaneous, fully informed consent of the client violates client confidentiality under Montana’s Rules of Professional Conduct. Disclosure of billing information to third party outside auditors is not impliedly authorized because outside auditors are potential adversaries and outside the "magic circle" of others with whom information may be shared without loss of the privilege); In re Columbia/HCA Healthcare Corporation Billings Practices Litigation, __ F.R.D. __, 2000 WL 425781 ** 2,3 (M.D. Tenn.) (After extensive discussion of the MIT case, the court held that disclosure of documents to federal government during governmental investigation waived attorney-client privilege for documents as to all adversaries, despite the fact that disclosing party had an agreement with the government that disclosure to government did not constitute waiver); U.S. v. South Chicago Bank, 1998 WL, *3 774001 (N.D.Ill.) ("Auditors are not generally part of the circle of persons, including secretaries and interpreters, for example, with whom confidential information may be shared without destroying the privilege").

Disclosure of billing statements of law firms to outside auditors has become of increasing concern to the legal community and has been the subject of numerous ethics opinions which have addressed the issue with reference to the MIT case.(FN1) Relying upon the equivalents of Rules 1.6, 1.7 and 1.8(f), the majority of jurisdictions addressing the same or similar facts have concluded that billing statements may not be furnished to a third party auditor without the consent, often characterized as informed consent, of the insured client.(FN2)

The Committee on Professional Ethics of the Massachusetts Bar Association has taken a somewhat different approach. Massachusetts Bar Association Opinion Letter (unnumbered), November 20, 1997. The Massachusetts Bar Association reasoned that if the client has consented to disclosure of billings to the insurance company, consent to disclosure to an outside auditing company may be inferred, and a lawyer may submit fee statements to an outside auditor without securing further client consent so long as the lawyer satisfies himself that the auditor has taken reasonable steps to protect the insured’s confidentiality. Id. The Ethics Committees of at least two bar associations have specifically rejected the reasoning of the Massachusetts Bar Association in this regard.(FN3)

The LEC declines to adopt the reasoning of the Massachusetts Bar Association for the same reasons stated earlier for declining to infer client consent to disclosure to an outside auditor, pursuant to Rule 1.6(a). The LEC declines to adopt the reasoning of the Massachusetts Bar Association for the additional reason that an outside auditor’s efforts to maintain confidentiality of client information are irrelevant because such efforts would not be binding upon a third party who seeks discovery of attorney fee statements in litigation. In re Columbia/HCA Healthcare Corporation Billings Practices Litigation, supra, at **2, 3. The Nebraska State Bar Association Advisory Committee concluded that submission of attorney-fee bills to outside auditors is not unethical, citing DR 4-101(c)(4), which provides that a lawyer may reveal confidences necessary to establish or collect his fee. The Nebraska State Bar Association Advisory Committee concluded that there is "no distinction from the context of the attorney suing the client to the context of the insurance company submitting the bill to an audit by an outside auditor" and concluded that submission of bills to an outside auditor without client consent does not violate the Code of Professional Responsibility. Nebraska State Bar Association Advisory Committee letter (unnumbered), January 8, 1998. The Nebraska Advisory Committee also reached this result, in part, because the Committee viewed submission of attorney fee bills to outside auditors as a rather routine matter.

The LEC declines to adopt the reasoning employed by the Nebraska Advisory Committee. Under the ORPC, the counterpart to DR 4-101(c)(4) is Rule 1.6(b)(3) which authorizes disclosure of confidential information "to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client." Under the facts presented, there is no controversy between Attorney and Client, and therefore the exception provided in Rule 1.6(b)(3) is not triggered.

Attorney’s obligation to secure informed consent cannot be satisfied by including consent language in the insurance policy or application for insurance for two reasons. First, the ORPC, not the insurance contract, define a lawyer’s ethical responsibilities towards his client. Second, it cannot be assumed that an insured understands or remembers, or that the insured even reads the insurance policy or the application for insurance. See ABA Committee on Professional Ethics Formal Opinion 96-403 (1996). Moreover, a confidentiality agreement between the insurer and the auditor is no solution to the problem of potential waiver of the attorney-client privilege, because such an agreement would not be binding upon a third party in a discovery dispute. In re Columbia/HCA Healthcare Corporation Billings Practices Litigation, supra, at **2, 3; South Carolina Bar Association, Ethics Advisory Committee, Advisory Opinion No. 97-22 (1997). Defense counsel simply cannot ignore the weight of ethics opinions which conclude that there is no implied consent to disclose confidential information to outside auditors.

The informed consent provisions of Rules 1.6, 1.7 and 1.8(f) are mandatory. Attorney could not ethically agree to representation of Client knowing that Insurer will submit Attorney’s fee statements to an outside auditor without obtaining Client’s informed consent. In order to ethically agree to the representation, the Attorney would be required, at the outset of formation of the attorney-client relationship, to advise the Client that the Insurer is paying Attorney for the Client’s representation and that Attorney therefore has a personal financial interest in the auditing procedure which interest may be adverse to Client’s interest. See Rule 1.7(b), Rule 1.8(a), (f)(1). Attorney would also be required at the outset to advise Client that invoices for services rendered would contain detailed descriptions of Attorney’s work and that confidential information, as reflected in the narrative of services in the Attorney’s invoices to the Insurer, would be revealed to a third party Auditor under the terms of representation as proposed by the Insurer. See Rule 1.6(a). Informed consent would also require that the Client be informed of all of the risks and consequences associated with disclosure to an outside Auditor, including the Attorney’s opinion whether disclosure to the Auditor is a waiver of the attorney- client privilege. Pennsylvania Bar Association, Committee on Legal Ethics and Professional Responsibility, Formal Opinion No. 97-119 (1997).

The level of information to be conveyed to a Client before the Client’s consent could be deemed to be informed would vary on a case-by-case basis. Examples of such information might include an explanation to the Client of the purpose of providing the information to the Auditor, how providing or not providing the information could affect the Attorney’s representation of the Client, and how the attorney-client privilege and attorney work product might be affected by the disclosure. Specific identification of any confidential information which could potentially be disclosed and the potential legal effects of disclosure, including waiver of privilege and other potential impact upon the insured’s case, would have to be reviewed and disclosed to the insured.

Such disclosures would also have to be made in writing. Oklahoma Bar Association, Legal Ethics Committee, Legal Ethics Advisory Opinion No. 309 (1998). Attorney would also be required to determine whether informed consent should be reaffirmed with each billing cycle and, on a case-by-case basis, and with respect to each billing cycle, whether the Client should consult a disinterested lawyer before agreeing to the representation. Adding the Client’s private counsel to the relationship would result in a fifth point being added to the tripartite relationship:

(4) Auditor (1) Attorney

(5) Client’s Private Attorney

(3) Ins. Co. (2) Client

Seeking informed consent to the audit procedure would place Attorney in an impermissible conflict between Attorney’s personal financial interest in getting paid by Insurer and Attorney’s duty to maintain client confidences. To properly seek informed consent to disclosure of Attorney’s invoices, Attorney would have to do so with respect to each invoice on an individual basis, in writing, and often utilizing the services of the Client’s personal counsel, which would result in an unwieldy process which is impermissible because the process itself materially limits Attorney’s representation of Client in violation of Rule 1.7(b). The public perception of lawyers would be adversely affected if lawyers were permitted to routinely request their clients to waive confidences so that the lawyers may get paid, thus undermining client trust which is the bedrock of the attorney-client privilege. As the Supreme Court explained in Upjohn v. United States, 449 U.S. 383, 389, 101 S.Ct. 677, 682 (1981):

[The privilege’s] purpose is to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice. The privilege recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyer’s being fully informed by the client.

Other rules which may be implicated by the facts presented include, but are not limited to, the following:

1. Rule 1.1, which provides "A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness in preparation reasonably necessary for the representation."

2. Rule 1.4(b) which provides that "A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation."

3. Rule 1.8(b) which prohibits use by a lawyer of information relating to the representation of a client to the client’s disadvantage, unless the client consents after consultation.

4. Rule 5.4(c) which prohibits a lawyer from permitting a person who employs or pays the lawyer to render legal services for another to regulate the lawyer’s professional judgment in rendering such legal services.

5. Rule 1.16(a)(1), which requires a lawyer to decline representation or to withdraw from representation of a client if the representation will result in violation of the Rules of Professional Conduct.

CONCLUSION

The LEC concludes that Attorney may not agree to representation of Client with knowledge that Insurer will submit Attorney’s invoices for services rendered to an outside Auditor for examination. Attorney who is retained by Insurer who represents the Client with knowledge that the Attorney’s invoices for services rendered in connection with the representation will be provided to an outside Auditor would be required under the ORPC to secure the Client’s informed consent to the representation, including the audit procedure, at the outset of the formation of the attorney-client relationship. Seeking informed consent to the audit procedure places Attorney in an impermissible conflict between Attorney’s financial interest in getting paid by insurer, and Attorney’s duty to maintain Client’s confidences, in violation of Rule 1.7(b), Rule 1.8(a), (f) and Rule 1.6(a). Moreover, under the ORPC, the requirement of informed consent after consultation would place the duty upon the Attorney to secure the Client’s informed consent with respect to each invoice for the Attorney’s services, prior to each submission of such invoices to the Insurer, and, in each instance, the Attorney would be charged with the responsibility of determining whether the Client should also consult with independent counsel to assist the Client in determining whether informed consent should be given. This procedure would result in an unwieldy process which, in itself, is impermissible because it would materially limit Attorney’s representation of Client, in violation of ORPC 1.7(b). Seeking informed consent from the Client to submission of Attorney’s bills to an outside Auditor would also potentially place the protections of client confidences in jeopardy, and would give rise to an appearance of impropriety which is particularly striking because Client receives no benefit from the audit procedure separate from the Client’s right to defense and indemnity for which Client has already paid premiums to the Insurer. Attorney may not therefore, agree to the representation described herein without violating the ORPC.

1. Alabama State Bar, Disciplinary Commission, Formal Opinion No. RO-98-02; Alaska Bar Association, Ethics Committee, Ethics Opinion No. 99-1 (1999); Indiana Bar Association, Ethics Committee Opinion 4 of 1998; Mississippi Bar Association, Ethics Committee Opinion No. 246 (1999); Oregon State Bar Association Legal Ethics Opinion No. 1999-157.

2. Alabama State Bar, Disciplinary Commission, Formal Opinion No. R0-98-02 (Expressing doubts whether any attorney my ethically seek consent but concluding that disclosure to outside auditors is unethical without client consent); Alaska Bar Association, Ethics Committee, Ethics Opinion No. 99-1 (1999); Florida Bar Association, Florida Bar Staff Opinion 20762 (1998); Indiana Bar Association, Ethics Committee Opinion 4 of 1998; Kentucky Bar Association Ethics Opinion No. E-404 (1998); Maryland State Bar Association, Inc. Committee on Ethics, Ethics Docket 99-7; Mississippi Bar Association, Ethics Committee, Opinion No. 246 (1999); Missouri Bar Association Opinion 980188; New York State Bar Association, Committee on Professional Ethics, Opinion 716-3/3/99 (12/a- 98); North Carolina State Bar Association, 98 Formal Ethics Opinion 10 (July 16, 1998); Oregon State Bar Association Formal Opinion No. 1999-157; South Carolina Bar Association, Ethics Advisory Committee, Ethics Advisory Opinion 97-22 (1997); Tennessee Bar Association, Board of Professional Responsibility of the Supreme Court of Tennessee, Formal Ethics Opinion 99-F-143 (1999); Utah State Bar Association, Ethics Advisory Opinion Committee, Opinion No. 98-03 (1998); Vermont State Bar Association Opinion 98- 7; Virginia Bar Association, Legal Ethics Opinion 1723 (1998); Washington State Bar Association Formal Opinion 195 (1999); Wisconsin Bar Association Formal Opinion E-99-1 (1999); District of Columbia Bar Association, Legal Ethics Committee Opinion No. 290 (1999).

3. Virginia Bar Association Legal Ethics Opinion 1723 (1988); District of Columbia Bar Association Legal Ethics Committee Opinion No. 290 (1999).