What cost advantage do inside lawyers have because they do not have to buy insurance for their legal work? Data from the website of the Attorneys’ Liability Assurance Society (ALAS) provides 2007 per attorney premium rates for malpractice coverage. Rates vary by coverage limits and retention levels but let’s choose a common combination of the two. Take a retention level of $1 million for each claim up to an aggregate annual maximum of $2 million and match that with a total coverage policy limit of $50 million per claim and $100 million in the annual aggregate. The ALAS rate listed for that combination of coverage is $7,439 per attorney. If an attorney bills 2,000 hours at $350 an hour, that malpractice premium represents about one percent of billings.
A sidebar in Law Firm Inc., Vol. 5, Nov. 2007 at 33, discusses a range of premiums for professional liability coverage, between $6,000 and $10,000 per attorney. The brokers interviewed also added property and casualty insurance, which adds another $1,600 per attorney per year, and per-firm coverage for employment practices, management liability, and the like.
By contrast, in-house lawyers do not bear any malpractice or other non-medical insurance burden. In a 400-lawyer firm, the insurance premiums – to say nothing of deductibles – account for something on the order of $5-7 per hour billed. Not only do in-house lawyers enjoy this small dollar per hour savings, there is also a greater ability to take a legal risk when you are inside. If negligent, you won’t trigger a claim – although you might lose your job (See my posts of Dec. 20, 2005; Oct. 24, 2005; and April 15, 2007 on malpractice from the inside; as well as Nov. 10, 2007 on general counsel retaining counsel to protect them.).