It isn't easy to comment here, as I have not understood why the council was involved in making a decision, rather than simply relying on asking the insurers whether the incident fell within their libel cover.
So far as confidentiality goes, it would seem reasonable for the councillor in question to consult, in confidence, anyone who she believes is qualified to provide useful advice. Assuming the former lawyer has not broadcast the information, then it's doubtful whether any breach of confidence has occurred. More to the point, unless the council has suffered damage by the councillor seeking advice, then the disclosure seems unlikely to be actionable.
In general, it is always best to avoid legal action and to resolve disputes without going to law whenever possible.