Moral hazard and a measure of insurance security top-flight law firms provide

For insurance companies, moral hazard means “the tendency of policyholders to change their behavior, such as living on floodplains because their prospective flood losses are lowered due to their flood insurance coverage,” according to Richard B. McKenzie, Why Popcorn Costs so Much at the Movies (Copernicus Books 2008) at 35. mckenzie@uci.edu

For lawyers in companies, moral hazard means a willingness to run closer to the legal risk line because excellent law firms are available to defend the company if the legal risk bites you. As a lawyer in-house, you can take a more aggressive position and rush in where legal angels fear to tread if your backstop, your legal insurance policy, is a terrific law firm – even if legal fees soar.