Insurance Company's Request To Audit Defense Bills Must Be Approved By Client

October 2001

by Edward Poll, J.D., M.B.A., CMC

New ABA Formal Opinion 01-421, issued in February, is intended to help attorneys deal with potential conflicts arising from a "managed care" approach to the defense of policy holder claims by cost-conscious insurers.

An insurance company is paying to defend its policyholder in an auto accident case. The insurer asks the defense lawyer to submit copies of legal bills to a third-party auditor to help the insurer keep costs down. Would that pose an ethical problem? Yes, unless the lawyer gets the client's consent to send the bills to the auditor according to a recent opinion from the ABA Standing Committee on Ethics and Professional Responsibility.

This opinion gives the attorney a reason to refuse the insurer's request to send the billings to a third-party. Of course, the insurer can then change the insurance policy and include in it a requirement of insurance that the client waive his right to object ... and then, of course, we'll have to deal with the potential loss of attorney-client privilege because the billings, describing work done, was sent to a third party. My, oh my! ... Copies of the ABA opinion may be obtained from the ABA at or (800) 285-2221.

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October 2001