Ethics Advisory Opinion 97-22

UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.

Ethics Advisory Opinion 97-22

Law Firm represents Insurance Company and defends its insureds under its liability policies. Insurance Company sends Law Firm's bills to an outside audit company, which is not affiliated with or an employee of Insurance Company. Audit Company makes recommendations to Insurance Company as to payment or nonpayment. Law Firm's bills contain detailed information about the services performed pursuant to the representation. In addition to this, Insurance Company has asked Law Firm to allow Audit Company to review the detailed bills which Law Firm has sent to other insurance companies, unrelated to Insurance Company.

Questions:
1. Would Law Firm's submitting its Insurance Company bills directly to Audit Company, rather than to Insurance Company, violate the South Carolina Rules of Professional Conduct?
2. Would Law Firm's submitting other clients' bills to Audit Company violate the South Carolina Rules of Professional Conduct?

Summary:
While Law Firm may submit its Insurance Company bills directly to Audit Company, after fully informed consent by company and insured, submitting other clients' bills to Audit Company would violate the Rules of Professional Conduct.

Opinion:
The confidentiality of client communications is governed by SCRPC 1.6. A lawyer may 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...." Id. Two other exceptions, one dealing with prospective criminal acts and one with defenses on the lawyer's behalf, are enumerated in the rule. The comments to the rule also acknowledge that final court orders and provisions in SCRPC 2.2, 2.3, 3.3, and 4.1 allow, or require, certain disclosures. The comment regarding "disclosures impliedly authorized" is narrowly written. Lawyers must keep "inviolate" client confidences; such is a fundamental part of the relationship. SCRPC 1.6, Comment. The ethical duty of confidentiality is broader than the evidentiary privilege, Robert M. Wilcox, South Carolina Legal Ethics Section 6 (South Carolina Bar CLE Division 1996), and continues after the representation has concluded. Rule 1.6, comment.

A review of some of our prior opinions concerning the release of client information will be helpful in defining the scope of Rule 1.6. The opinion most similar to the situation presented in this opinion is Adv. Op. 89-03. There, the Committee opined that where a real estate lawyer is also an agent for a title insurance company, the lawyer may not, pursuant to the company's audit, disclose information from its real estate files without the express, informed consent of the client (unless the information was already released to the insurer to obtain the insurance). That opinion mentioned, without resolving, the separate question of releasing information of clients which did not have a relationship to the insurer. Other relevant opinions include the following: a lawyer who is a party to a lawsuit may not, in response to discovery requests, identify former clients or the amount of work done for them, without the informed consent of each client (unless under court order) (Adv. Op. 90-14); a lawyer may not reveal client confidences to a person holding the client's power of attorney, unless the client is incompetent or consents (Adv. Op. 93-04); preparing legal memoranda for an insurance company's agents requires informed consent (Adv. Op. 90-09); a lawyer should not reveal a client?s address, if the address was communicated in confidence, absent a court ruling (Adv. Op. 94-30); a lawyer who, after the representation has ended, discovers that the former client committed a crime during the representation, may not disclose that fact without informed consent (Adv. Op. 90-30); a lawyer may only perform a credit check on a client if doing so does not reveal the person's status as a client; similarly, a lawyer may not report a nonpaying client to a credit bureau (as it is not necessary to the collection process) and may only tell a collection agency information necessary to the collection of the legal fee (Adv. Op. 94-11).

Question One:
Upon receipt of informed consent from the insurer as well as the insured, a lawyer would not be ethically prohibited from submitting his bills directly to a third-party auditing firm, unless the lawyer believes that doing so would substantially affect the representation.

As a final consideration prior to addressing the individual questions, the question of the identity of the client must be answered. When a lawyer is hired by an insurance company to defend a person under the insurer's liability policy, the lawyer has two clients: the insured and the insurer. The lawyer?s duty to the insured is governed by the Rules of Professional Conduct, not by the insurance contract. ABA Formal Op. 96--403. Therefore, the lawyer should have the informed consent of the insured, as well as the insurer, prior to releasing billing information to third parties.

Question Two:
Law Firm may not ethically release other clients' billing records to Audit Company. As a practical matter, achieving the informed consent necessary to such an endeavor is highly problematic. Client consent to the release of confidential information must be informed consent, based upon more than the mere fact that a certain type of information, such as billing records, will be released to third parties. Due to the potential effects of the misuse or abuse of such information, disclosure must be full. The lawyer should elaborate on the type of information which may be found in billing records, as well as the potential legal effects of releasing such information to third parties. While this committee does not express opinions on legal questions, a lawyer contemplating the release of client billing information to third parties should carefully consider issues of waiver and other possible impacts on the case, as well as informing his client of such matters as a part of obtaining informed consent.

Since Lawyer would be serving lawyer's own interests by turning over a past client's billing records to a third party, Lawyer must take careful steps to avoid self-dealing and conflict of interest as described in Rule 1.7(b).