Legal insurance plans target individuals, companies

By now, medical coverage under a PPO (preferred provider organization) plan is an everyday concept.

You pay a monthly sum to an insurance entity. The PPO arranges a list of physicians and medical practitioners from which you can choose when you require routine medical attention.

Legal insurance has evolved in a similar fashion.

When something fairly simple happens for which you might need an attorney – such as a contract on a house, which calls for a closer look. As long as you choose from one of the attorneys on the entity’s list, you have his or her services for as long as the money you’ve contributed lasts.

Chuck Turner, the executive director of the American Bar Association’s Colorado office in Denver, said the idea started about 30 years ago, when labor unions negotiated for pre-paid legal as part of benefits package.

“It started when labor unions were pretty strong and they could negotiate benefits,” Turner said. “So they negotiated these. Of course labor unions aren’t as strong as they were then, but these things are still around. Sometimes employers will offer them. They are pretty much marketed individually to people now. You have to figure out what something like this pays for and then decide if it’s worth the money.”

Actually, it’s not insurance in the traditional sense, according to Susan Gambrill, the deputy commissioner of insurance for consumer affairs in Colorado.

“We don’t see it much here because it’s not really insurance,” Gambrill said. ” It’s more of a business risk.”

Patrick Shaw, the regional vice president for Pre Paid Legal Services Inc. in Colorado, said his service is not considered “insurance” in the state of Colorado because it does not have a license from the state division of insurance.

David Rivera, the commissioner for insurance for Colorado, said the difference between a business risk and an insurance risk is that in a business risk, the risk is limited and known.

“In an insurance risk, the risk is unknown – there are no limits but a company is still insuring them,” Rivera said.

Some insurance companies don’t even acknowledge legal insurance. Local representatives of both Farmers’ Insurance and State Farm said they’d never heard of it.

Carole Walker, head of the Rocky Mountain Insurance Information Association, an insurance trade group in Colorado based in Denver, wondered what it would be good for in the case of small businesses. “Businesses have a general liability policy or a commercial business policy where any legal representation is built in,” Walker said. “I don’t know what something like this would be good for. The only thing I could think of is if you thought you needed a little something extra.”

Which might explain why prepaid legal services are sold more to individuals than to small businesses.

“That could be,” mused Alec Schwartz, the director of the American Bar Association’s Standing Committee of Group or Prepaid Legal Services in Chicago, when told about general liability policies cutting into any need for small businesses needing something like legal insurance.

“There are some (legal insurance) plans designed for small businesses, but generally they haven’t done too well,” he said.

However, Kristina Harding, an associate manager for Pre-Paid Legal Services in Greeley, says that the business in legal insurance has been steamrolling along in the past few years.

“We are publicly traded on the New York Stock Exchange. We have plans for families, small-business owners, groups … We’ve been around for 33 years and we like to say we are a 33-year overnight success.”

Legal insurance has been around for some time. Pre-Paid’s Shaw said the idea started in Europe about 80 years ago. It is only in the last decade that it has caught on, spurred by things such as the cost of an attorney and things like identity theft.

“Identity theft has really been a problem in Colorado in the last few years,” Shaw said. “The burden of proof is on you to do something about your credit rating. Well, if somebody in Florida buys a Lexus and puts down your social security number, what are you going to do about it?”

Shaw said his firm’s answer was to sign a deal with Kroll Worldwide, an accounting firm that monitors a client’s credit and restores the client’s credit rating for as long as the client has a power of attorney.

A basic family plan offered by Harding will run $16 a month with an extra $1 legal field rider. The rider offers 24-hour access to a legal provider. A similar offering, called LegalRx, is sold by Iowa-based ARAG, which charges $20 per month.

“The reality is that the average person just can’t afford the cost of an attorney,” Shaw said. A will, for example, could cost someone between $600 and $1,400 per person to prepare.

“This is if you want one that’s really iron-clad, living will, all that stuff,” he said. If you join an outfit like Pre-Paid, depending on the plan, your will is covered by your payment.

Pre-Paid Legal also sells plans to businesses, with services such as contract and document review, legal correspondence and debt collection.

Legal insurance differs from a traditional retainer fee in that businesses deal with an attorney of their choice directly. They don’t deal with a third party and they certainly don’t care if that attorney is on the list of a legal insurance provider.

The purpose of legal insurance is to help people get their feet wet in the legal arena when necessary. “The real reason people join these things is because they run into a problem later on and sometimes they don’t know where to go to even find a lawyer,” Schwartz said. “There’s an old stat going around that says people run into some kind of legal trouble about once every year, so this fuels this kind of thing.”

A 2002 survey by the American Bar Association found that nearly 70 percent of American households confronted a legal issue over the previous year that might have required an attorney.

The existence of Schwartz’s standing committee is a good place to start to ask if there is anything wrong with legal insurance.

“The reason my committee exists is because there is the problem of educating people who want to put something like this together,” Schwartz said. “There are a lot of lawyers calling the ABA wanting to know how to put something like this together.”

Most of these plans are advertised over the Internet. Schwartz is also the director of the American Prepaid Legal Plans Institute, a trade organization for the legal plans service industry.

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