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November 03, 2022 at 11:02 AM
What You Need to Know
- In-house attorneys, a fast-growing group, are at risk of lawsuits on several fronts.
- They may be unpleasantly surprised to learn that their company's directors and officers policy does not cover them.
- Advisors should encourage these clients to make sure their companies have the right kind of coverage.
Attorneys make up a sizable share of many advisors’ valued, long-term client bases, and the fastest growing segment — attorneys working in-house at companies — now numbers well over 100,000.
This growth continued in 2022, according to the Association of Corporate Counsel’s (ACC) 2022 Chief Legal Officers Survey, as 45% of respondents expected to hire more attorneys this year, up 13 points from 2021. The survey also revealed the reason — the expanding scope of activity for their departments, from mergers and acquisitions to compliance with environmental, social and governance regulations.
In fact, company legal teams are now spending more in-house than for outside counsel, with 54% of spending staying in-house last year, up from 49% in 2020, according to an ACC benchmarking report.
While these attorneys are helping their companies manage risks, it’s fair to wonder who is helping them manage their risk. This presents an opportunity for advisors to identify potential gaps in their risk management strategies.
Potential Risks
Company attorneys face the threat of lawsuits on three main fronts. The first relates to the legal work they provide to their employer, which may involve areas such as contract negotiation, merger and acquisition due diligence, intellectual property, and employment and labor law, any of which can result in allegations from third parties for legal malpractice.
More and more, these duties are extending to compliance efforts, such as privacy issues, and involve interactions with third-party regulatory bodies, such as the Securities & Exchange Commission.
For example, when a funding shortage forced a not-for-profit hospital to downsize staff, an in-house counsel determined that the layoffs would not disproportionately affect employees in protected classes under employment laws.
A former employee filed a national origin discrimination claim with the Equal Employment Opportunity Commission, which investigated and brought an enforcement action against the hospital, and affected employees sued the in-house counsel for negligent design of the downsizing plan.
The second source of risk comes into play when well-meaning in-house attorneys provide what could be considered personal legal services for company employees or executives. These are typically informal, such as a lunchtime conversation where an employee might ask for an opinion on a matter, such as a home sale transaction.
