AI and the Billable Hour

• Pages: 18-19
• Date: 01 October 2024
• Subject Matter: Civil Law

AI and the Billable Hour

Will generative artif‌icial intelligence technologies be the doom

of the billable hour? Analyzing the “AI eciency paradox” for

2Civility, Mark C. Palmer notes that AI can dramatically im-

prove eciency and productivity by creating f‌irst drafts of

contracts and briefs faster than lawyers, but in ways that

may clash with traditional time-based billing: “If an AI tool

can produce a f‌irst draft of a 20-page contract in minutes,

how can a f‌irm justify billing dozens of associate hours for

that same task?” Moreover, lawyers in jurisdictions that have

adopted Model Rule of Professional Conduct 1.5 face an ethical

question—what is a reasonable fee to charge for work that is a

hybrid of human and AI-generated content? For time-based billing

fee agreements, Palmer concludes the lawyer may only charge for the time actually

spent working on the matter, and if specif‌ically allowed by the agreement and able to be

determined, the reasonable expense for the generative AI itself. Firms that evolve with

technology by adopting “new billing categories, adjusting hourly rates for AI-assisted

work, or developing hybrid billing models that account for human and machine contribu-

tions” will be best poised for this new terrain. Palmer advises transparent fee agreements

communicated early to clients, stressing the ultimate goal “should be to leverage AI to

increase eciency and reduce client costs, while fairly compensating attorneys for their

irreplaceable human judgment, experience, and accountability.”

Cover Yourse lf

The evolving role of in- house counsel carries an in creased

risk of profession al liability. How best to m itigate that

risk is the topic of a gue st post by Nelson Kefauver and

Kilauren Mc Shea for The D&O D iary. There are three key

professional liability protection options to consider:

(1) rely on the in demnif‌ication p rovisions of the employer;

(2) rely on the employer ’s D&O insura nce

policy; or (3) p urchase a malpractice

policy known as an e mployed

lawyer’s policy. Whi le indem-

nity oers prote ction in

some situations , there

are limitations th at

could leave in-hous e

counsel vulnerable.

For example, an un derfunded em-

ployer may place at risk th e indemni-

f‌ied counsel ’s personal a ssets, or an

employer may withhold its indemnity

obligation if it be lieves counsel acted

fraudulently. Relying on the employer’s

D&O insuranc e policy may be sucient

© Getty Image s

as nearly all pol icies name the general coun sel as an insured

and cover liability f or actions performed withi n the scope

of duties. However, such po licies typical ly have a shared

limit for all entitie s and the insured , so counsel may not

have adequate limit s. Also, some of these policies m ay have

a large, self-insu red retention. Finally, while an employed

lawyer’s policy m ay provide benef‌i ts such as lower reten-

tions, separ ate limits from the D& O policy, and broader

coverage for legal s ervices perf ormed outside th e scope

of employment, it a lso has its limitations. For exampl e, it

may limit coverage for cla ims by the employer against the

lawyer. Because of th e complex consider ations involved

in professional l iability protecti on for in-house c ounsel,

Kefauver and McS hea recommend working with you r broker

and legal team to dete rmine the appropriate coverage.

FALL 2024 • VOL. 5 0 NO. 1

18 | ABA LITIGATION SECTIO N

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Published in Lit igation News Volume 5 0, Number 1, Fall 2024. © 2 024 by the America n Bar Associati on. Reproduced wi th permission. A ll rights reserv ed. This informati on or any portion t hereof may not be copi ed or

disseminated in an y form or by any means or s tored in an electro nic database or re trieval system wi thout the express w ritten consen t of the American B ar Associatio n.