Someday a law department might insist on a lower fixed payment to a firm to handle certain kinds of matters over a period of time, and invest the money thereby saved in an insurance policy. The insurance policy would cover a catastrophic outcome for the portfolio of cases or matter, and thus protect both the law department and the law firm.
The insurance company, clearly, would need to assess the proposed arrangement, such as quality of the firm and its experience in light of the likely portfolio of matters to be handled and the role of the client. If enough law departments entered into fixed-fee arrangements, however, insurers would provide the traditional benefit of spreading risks and lowering the costs for each risk taker (See my posts of July 25, 2005 about patent litigation insurance; March 23, 2006 #5 about EPLI litigation insurance; and April 23, 2006 about litigation insurance generally.).