## Facts

- Two Montana law firms petitioned for declaratory relief about whether insurer litigation-management guidelines and billing rules were consistent with Montana’s Rules of Professional Conduct.
- Liability insurers retaining and paying defense counsel for insureds required compliance with detailed litigation plans intended to control costs.
- Guidelines commonly required insurer preapproval for litigation tasks such as filing motions, conducting certain discovery, or performing specified legal research; insurers could refuse to pay for unapproved work.
- Insurers required detailed, task-based billing statements that could reveal attorney assessments, litigation strategy, and other confidential information.
- Some insurers transmitted billing materials to third-party auditing vendors for cost review.
- Petitioners asserted these practices interfered with counsel’s independent professional judgment and pressured counsel to prioritize insurer cost-control interests over the insured’s defense.
- Petitioners also asserted that providing detailed billing information to insurers and third-party auditors risked disclosure of confidential client information without the insured’s informed consent.
- The Montana Supreme Court accepted original jurisdiction in its supervisory role over the bar and resolved the ethical questions on written submissions and argument.

## Issues

1. In insurer-funded defense, who is the lawyer’s client under Montana’s Rules of Professional Conduct: the insured, the insurer, or both?
2. Whether defense counsel may agree to or comply with insurer guidelines that condition payment on insurer preapproval of motions, discovery, research, or other litigation decisions that affect the representation.
3. Whether defense counsel may submit detailed billing information disclosing substantive aspects of the representation to insurers and especially to third-party auditors without the insured’s informed consent, consistent with confidentiality duties.

## Decision

- The court granted declaratory relief.
- The court held the insured is the sole client of defense counsel retained and paid by an insurer; the insurer is a third-party payor.
- The court held lawyers may not accept or follow insurer billing rules and litigation-management guidelines that limit the scope of representation or interfere with counsel’s independent professional judgment and loyalty to the insured.
- The court held disclosure of detailed billing information to third-party auditors violates confidentiality unless the insured gives informed consent.
- The court rejected the argument that broad insurance-policy provisions or general contractual permissions constitute informed consent to specific future disclosures of confidential billing and strategy information.

## Legal Principles

- In the tripartite insurer-insured-defense counsel relationship, defense counsel’s client is the insured, not the insurer.
- A third-party payor may not direct or regulate a lawyer’s professional judgment; payment conditions that effectively control litigation tactics are inconsistent with professional-conduct duties owed to the insured.
- Lawyers may not contractually compromise duties of loyalty, diligence, and independent judgment through insurer cost-control programs that materially limit representation.
- Confidential information may not be disclosed outside the attorney-client relationship to cost-control entities (including third-party auditors) without the insured’s informed consent.
- General consent embedded in an insurance contract does not satisfy the professional-conduct requirement of informed consent for specific disclosures or representation-limiting directives.

## Conclusion

The Montana Supreme Court declared that insurer-imposed litigation-management and billing rules are unethical to the extent they interfere with defense counsel’s independent judgment or limit representation of the insured, and that detailed billing disclosures to third-party auditors require the insured’s informed consent because the insured is counsel’s sole client and confidentiality duties control.


In re Rules of Pro. Conduct & Insurer Imposed Billing Rules & Proc., 2 P.3d 806 (Mont. 2000)