A lawyer retained by an insurer to defend its insureds is obliged to make an independent, case-by-case determination as to whether aspects of the insurer's litigation guidelines which mandate the use of paralegals for certain tasks are ethically permissible under the Massachusetts Rules of Professional Conduct. Irrespective of the insurer's directives, the lawyer may not delegate to a paralegal tasks that cannot be performed competently by the paralegal. Furthermore, to the extent that the insurer's guidelines purport to require the lawyer to submit legal invoices containing client confidential information of the insured to an outside auditor for the purpose of periodic review and payment, the lawyer may not do so without the insured's express consent after consultation consistent with the obligation of confidentiality imposed by Rule 1.6(a). It is the lawyer's obligation to inform the client of the possible choices and the potential ramifications of each choice. The insured then is free to make an informed decision as to whether to permit the disclosure, which decision the lawyer must follow.
A lawyer is retained by an insurance company to defend claims asserted against its various insureds. The insurer has issued a set of "litigation guidelines" which purport to restrict, for cost control reasons, the activities that the lawyer can undertake in defending the insureds, and requires the lawyer to have certain case-related tasks, such as drafting deposition notices, performed only by paralegals. The guidelines also require the lawyer to submit his or her invoices for legal defense services rendered, which often include descriptions of work performed that contain confidential information of the insured, to an outside auditor for periodic review and payment.Discussion:
Insurer "litigation guidelines" of the type described implicate various Rules of Professional Conduct, including Rules 1.1 (Competence), 1.2 (Scope of Representation), 5.3 (Responsibilities Regarding Nonlawyer Assistants), Rule 5.4 (Professional Independence of a Lawyer), and Rule 5.5 (Unauthorized Practice Of Law).
By way of general guidance, Rule 1.1 states that
[a] lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness, and preparation reasonably necessary for the representation.
The Committee interprets this Rule to mean that a lawyer's ethical obligations include ensuring that tasks that are to be performed during the course of the representation are performed, in fact, by persons who are trained and otherwise capable of performing those tasks. Moreover, Rule 1.1 contemplates that a practicing lawyer will exercise sufficient thoroughness to ensure that the tasks performed during the course of the representation are performed correctly.
The obligations imposed by Rule 1.1 must be considered, however, in the context of the provisions of Rule 1.2(c), which state that "[a] lawyer may limit the objectives of the representation if the client consents after consultation." Comment  to Rule 1.2 specifically states that
the objectives or scope of services provided by a lawyer may be limited by agreement with the client or by the terms under which the lawyer's services are made available to the client . . . . [For example,] [w]hen a lawyer has been retained by an insurer to represent an insured, the representation may be limited to matters related to the insurance coverage. The terms upon which representation is undertaken may exclude specific objectives or means.
While Rule 1.2(c) and the associated Comments clearly permit the imposition of certain "limit[s]" on the representational activities of defense counsel by an insurer, they offer no guidance regarding the particulars of what is ethically acceptable. Comment  to Rule 1.2 states only that the client "may not be asked to agree to representation so limited in scope as to violate Rule 1.1 . . ." In the same vein, Rule 5.4(c) provides that a lawyer
shall not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering such legal services.
The Committee believes that obligation and restrictions imposed by insurer litigation guidelines must be considered on a case-by-case basis in order to determine whether they are ethically permissible under the Massachusetts Rules of Professional Conduct. A more specific analysis of certain specific practices follows.
1. Litigation Guidelines Concerning the Use of Paralegals
Rule 5.3 addresses a lawyer's "Responsibilities Regarding Non-Lawyer Assistants." Inasmuch as the limitations imposed by insurer litigation guidelines require that particular case-related tasks be performed by paralegals, the Committee believes that Rule 5.3(b) requires all such assignments be handled in such a way that the lawyer's delegation of work does not result in a violation of Rule 1.1 or Rule 5.5 (Unauthorized Practice Of Law). Rule 5.5(b) prohibits a lawyer from "[assisting] a person who is not a member of the bar in the performance of activity that constitutes the unauthorized practice of law." The Comment to Rule 5.5 reiterates the supervisory responsibility of the lawyer and the lawyer's retained responsibility for the work. Thus, while Rules 5.3 and 5.5(b) contemplate the use of paralegals, the lawyer retains ultimate responsibility for the work performed by the paralegals. The Committee believes that, consistent with that responsibility, the lawyer retains the authority to determine as to each task which the insurer's litigation guidelines mandate be performed by a paralegal, whether, in the context of the particular representation at hand, the task is appropriate for delegation. That is a fact-intensive judgment upon which the Committee can offer no general opinion.
For example, an insurer's litigation guidelines may mandate that all
deposition notices be drafted by paralegals, although the precise content of some
deposition notices may require significant substantive and strategic legal input. If the lawyer has a reasonable basis to believe that the creation of a particular deposition notice presents too complicated a task for a paralegal to perform competently, then the lawyer's ethical obligations, as described above, compel the lawyer not to delegate that task. In the event that the lawyer's decision subsequently is challenged by the insurer who is paying his or her fees, then the Committee believes that the lawyer must consider whether the issue is significant enough to warrant withdrawing from the representation under Rule 1.16(a)(1).
In summary, the Committee believes that a lawyer serving as defense counsel to an insured must decide whether a particular case-related task is appropriate for performance by a paralegal. If, in his or her independent professional judgment, the lawyer concludes that it is not, then the lawyer is obliged to perform the task him or herself, or to have it performed by another lawyer in his or her office possessing the appropriate skills and training. The insurer cannot abolish the lawyer's ethical obligations in this regard. Whether the lawyer can continue to represent the insured in such circumstances, or whether the lawyer can reach a reasonable accommodation with the insurer, again are matters upon which the Committee is not able to opine.
2. The Use Of Outside Legal Auditors
The principal issue implicated by an insurer's use of an outside auditor for the purpose of reviewing legal billings and authorizing payment is whether disclosure of the "subject" of communications between the lawyer and his or her client (the insured) would violate Rule 1.6(a) pertaining to the "Confidentiality Of Information." The Committee assumes, for purposes of this opinion, that a blanket requirement compelling disclosure of the subject matter of privileged communications necessarily would implicate confidential information.
Because confidential information may not be disclosed to third parties without the client's "consent after consultation," a lawyer may not disclose such information to either the insurer or to an independent auditor without first obtaining such consent. Whether the insured impliedly has consented, is obliged to consent, or would be wise to consent to the disclosure of its confidential information in any particular instance are questions that the Committee cannot answer. In each case, it is the lawyer's duty to inform the insured of the possible choices and the potential ramifications of each choice, including the risk that the available insurance coverage may be forfeited, cf. First Fidelity Bancorporation v. National Union Fire Ins. Co.
, 1994 WL 111363 (E.D.Pa. March 30, 1994) (insured's refusal to provide copies of privileged documents to its insurer cited as a violation of duty of cooperation), as well as the risk that any disclosure to the insurer or to an outside auditor may be regarded as a waiver of the attorney-client privilege, see, e.g.
, U.S. v. Mass. Institute of Technology
, 129 F.3d 681 (1st Cir. 1997) (disclosure of legal billing statements to government audit agency constituted a waiver of the attorney-client privilege with respect to such statements). The insured then is free to make an informed decision as to the course that he or she wishes to pursue, and the lawyer is bound to follow it.