Malpractice recoveries and the billing-rate gap

Here’s a gedanken experiment (a thought experiment).

Take a large group of law departments that have between 20 and 30 lawyers each (to control for differences in size of companies). Figure out the gap between each law department’s fully-loaded cost per lawyer hour and the blended billing rates of all their law firms for a five-year period. (See my posts of Sept. 25, 2005 and Oct. 18, 2005 on figuring out the gap.)

Now, for those same law departments and five years, count how much they recovered from the firms for malpractice. I have never seen data on malpractice recoveries, but let’s assume there is some amount.

Finally, if we assume that in-house counsel also make mistakes, then you might argue that malpractice recoveries close the gap, at least partially, between the inside costs – that are not insured – and the outside rates that are insured.