Expanding the Tripartite Relationship

Extending Evidentiary Privilege to Fourth-Party Legal Audits

Legal auditing is one of the fastest growing trends in the legal profession. Due to widely publicized abuses of the legal profession’s hourly billing system and increased pressure on insurance companies to cut costs, the growth of this cottage industry noticeably affected the insurance defense industry. This note advocates extending an evidentiary privilege to information that insurers provide to the legal auditors hired to scrutinize the bills of retained defense counsel. This Note begins by outlining the origins, the nature and scope of legal auditing, and the tripartite relationship that exists between the insurer, the insured, and the legal auditor. After a thorough analysis of the policies that surround evidentiary privileges, the author assesses possible privilege models to address the concern that legal auditing waives the privilege that exists between the attorney and the client. The author recognizes that a distinction exists between insurers who choose to outsource the legal-auditing function and insurers who perform the auditing function themselves. In order to allow attorneys and insureds to maintain the type of relationship that most lawyers and clients have, the author proposes that an evidentiary privilege to fourth-party legal auditors be recognized.

The full text of this Note is available to download as a PDF.