PROMETHEUS OR THE TROJAN HORSE?: A LOOK AT THE PREPAID... SERVICES INDUSTRY IN THE UNITED STATES Stephen F. Herbes

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PROMETHEUS OR THE TROJAN HORSE?: A LOOK AT THE PREPAID LEGAL
SERVICES INDUSTRY IN THE UNITED STATES
Stephen F. Herbes
Legal Profession: Delivery of Legal Services
February 13, 2001
1
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I. INTRODUCTION
A. Snapshot of an Industry
Lawyers are not cheap. While over fifty percent of the United States population will
encounter a legal problem that a lawyer could resolve, only thirty to forty percent will
actually call an attorney.1 The public’s reluctance to consult an attorney is not the result of
any innate shyness the American populace bears the legal profession. Initial attorney
consultation fees can range from a modest sixty dollars to a whopping one thousand dollars!2
For those who cannot afford an initial consultation fee, let alone the cost of subsequent
litigation, prepaid legal services may offer a more attractive alternative.
Prepaid legal services, or legal insurance plans, are fairly simple. For a monthly
membership fee – generally between ten and twenty five dollars – an individual can get a
lawyer to perform a number of services, such as drafting a will, reviewing documents,
offering telephone advice, and writing letters on the individual’s behalf.3 Additional services
may include traffic-ticket defense or a simple divorce. These additional services are billed at
flat rates much lower than normally would be charged. More complicated cases, such as
courtroom representation, are billed by the hour at deeply discounted rates.4
In theory, everyone is better off. The lawyers who participate in the plan (and who
usually have their own practices) benefit because some clients will pay the monthly fee and
1
ABA Consortium on Legal Services and the Public, Comprehensive Legal Needs Study (February 1994).
During 1992, approximately half of the moderate- and low-income families in the United States encountered a
new or continuing legal problem. Of that number, only thirty-nine percent of moderate- and twenty-nine
percent of low-income families attempted to solve that problem with legal assistance.
2
See, e.g., J. Steven Bush, Attorney at Law, at http://www.innocent-man.com/legalfee.htm (visited Feb. 13,
2001) (“A consultation takes up a lawyer’s time just like any other work that he does. I usually charge $60 for
a half hour consultation.”) (emphasis added); David A. McPhie, Attorney and Counselor at Law, at
http://mcphielaw.com/feeagree.htm (visited Feb. 13, 2001) (“$1,000.00 of the retainer money is not refundable
and pays for the initial consultation.”) (emphasis added).
3
See Phil Connors, Traffic-Ticket Defense, Simple Divorce: Many Turn to Legal Insurance Plans, WALL ST. J.,
Jan. 23, 2000, at http://www.legalclub.com/investorrelations/legalplan_wallstreet_art.asp (visited Feb. 6, 2001).
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never ask for services. In addition, attorneys save money because they spend less time
advertising to “drum up” new business.5 Individuals who subscribe to the plan benefit
because of the reduced legal fees. People facing major life decisions – such as getting
married, having kids, buying a house, or starting a business – are especially likely to benefit.6
So what is the net result? At the turn of the millennium, prepaid legal service plans
are a booming business. Approximately 115 million Americans, ten million more than two
years ago, are now covered by some sort of legal services plan.7 In contrast, the first census
conducted by the National Resource Center for Consumers of Legal Services in 1976 found
only one million people covered by legal plans.8 Prepaid legal service plans are profitable
too. For the nine months ending on September 30, 2000, Pre-Paid Legal Services, Inc.,
which designs, underwrites, and markets legal expense plans, pocketed a tidy $186.2
million.9 Other prepaid legal service plans have posted similar profits.
B. A Glance at the Past
How did the prepaid legal services industry arrive at its current position? A journey
into the past helps to explain the present success of prepaid legal service plans as well as
their potential expansion to middle and lower income individuals.
Prepaid legal services plans emerged in the early 1900s when organizations such as
automobile clubs and labor organizations sought to provide legal services to their members.10
4
Id.
See id.
6
See id.
7
Nat’l Resource Ctr. for Consumers of Legal Servs., Legal Services Plans Cover 42% of Americans, at
http://www.nrccls.org/Publications/Legal_Census/legal_census.html (visited Feb. 21, 2001).
8
Id.
9
Yahoo! Finance, Profile - Pre-Paid Legal Services (NYSE:PPD), at http://biz.yahoo.com/p/p/ppd.htm (visited
Feb. 13, 2001).
10
See, e.g., Seawell v. Carolin Motor Club, 184 S.E. 540 (N.C. 1936); People ex rel. Chicago Bar Ass’n v.
Chicago Motor Club, 199 N.E. 1 (Ill. 1933); In re Gill, 176 P.11 (Wash. 1918). See generally, Rebecca L.
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At first the programs received a frosty reception from state bar associations and the bench.
By the 1960s, however, the climate had warmed. Starting in 1963, several Supreme Court
decisions upheld the right of nonprofit groups to provide legal services to their members.11
At about the same time, some of the major players in the prepaid legal services industry were
brought into being.
Daalco, a prepaid legal services plan, was founded in 1967 by Don Caldwell.12
Caldwell was a successful insurance broker who “saw the great need for affordable legal
services.”13 He determined that the risk someone might need legal services could be pooled
in much the same way as insurance.14 Caldwell incorporated his ideas into Daalco, the first
prepaid legal corporation in the United States.15 Today, the successor of Daalco, Caldwell
Legal, U.S.A. (“Caldwell Legal”), is one of the few prepaid legal service plans available to
the general public with no jurisdictional strings attached.16
Pre-Paid Legal Services, Inc. (“Pre-Paid Legal Services”), one of the largest and
fastest growing prepaid legal services plans in the United States, was started by accident. In
1972, Harland Stonecipher had a costly brush with lawyers over a head-on automobile
accident.17 While Stonecipher had auto insurance, medical insurance, and life insurance, he
Golding & Thomas B. Ellis, Prepaid Legal Service Plans: An Analysis and Case-Study Review (1995)
(unpublished manuscript, on file with the author).
11
See, e.g., United Transportation Union v. State Bar of Michigan, 401 U.S. 576 (1971); United Mine Workers
v. Illinois State Bar Ass’n, 389 U.S. 217 (1967); Brotherhood of Railroad Trainmen v. Virginia ex. rel. Virginia
State Bar, 377 U.S. 1 (1964); NAACP v. Button, 371 U.S. 415 (1963).
12
Caldwell Legal, U.S.A., The History of Our Industry, at http://www.Caldwell-legal.com/thooi.htm (visited
Jan. 10, 2001).
13
Id.
14
Id.
15
Id.
16
Nat’l Resource Ctr. for Consumers of Legal Servs., supra note 7.
17
Pre-Paid Legal Services, Inc., It Started by Accident, at
http://www.prepaidlegal.com/scripts/odb…OtEG00&Content=OUR_PRODUCT_BODY_DEFAULT&Session
=0 (visited Feb. 6, 2001).
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did not have protection for the enormous legal bills that accompanied his accident.18 The
auto accident experience was the driving force behind Stonecipher’s decision to start PrePaid Legal Services.19 In 1979, Pre-Paid Legal Services filed with the Securities and
Exchange Commission and its securities became available to the public.20 Twenty years
later, Equities magazine named Pre-Paid Legal Services as the thirty-third fastest growing
stock on the New York Stock Exchange.21
The history of the prepaid legal services industry has several unique features. Most
importantly, many of its founders were not lawyers or otherwise associated with the bar. The
movers and shakers in the prepaid legal services industry were largely “outsiders” forced to
deal with the legal profession on a consumer basis. Additionally, the founders of prepaid
legal services plans initially met with resistance from the bench and bar. Both the bench and
bar opposed the creation of prepaid legal services plans.
These observations suggest that the expansion of legal services to middle and lower
income individuals will require the impetus and active involvement of those same
individuals. At the same time, effective delivery of legal services to middle and lower
income levels through prepaid legal service plans will require the participation of the bench
and bar. Both themes will reappear at several points throughout the examination of the
prepaid legal services’ business model and the evaluation of the industry’s economic
performance. In the end, these strands will draw together to show how a prepaid legal
services plan could be used to deliver additional legal services to middle and low income
individuals.
18
Id.
Id.
20
Id.
21
Id.
19
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II. ANALYSIS
A. Business Model
1. Plan Members of Prepaid Legal Services Industry
So who are the members of the prepaid legal services industry? Prepaid legal
services members can be divided into two camps based on the type of plan they subscribe to:
group plans, such as those offered by unions and employers, and individual “insurance-type”
plans. About two-thirds of all legal plan users are covered through “group-plans,” the largest
of which is the United Auto Workers Legal Services Plan. The other one-third is covered
through “individual plans” such as Pre-paid Legal Services.22 Prepaid legal services
members can be divided into four categories based on who sets up the plan, bargains with the
legal services company or other provider, and pays for the services or collects premiums
from enrollees; (1) union-sponsored, (2) non-union employer-sponsored, (3) non-employer
group-sponsored, and (4) plans that are marketed directly to individuals or small
businesses.23
The majority of employer-paid plans are sponsored by unions.24 What started as a
contract benefit offered by a few companies, soon expanded to a staple of employment
compensation packages. The United Auto Workers (“UAW”) boasted the earliest large-scale
success in negotiating legal services as a contract benefit. Today, UAW accounts for
approximately 2.1 million plan members.25 Other major union-sponsored plans include the
22
Golding & Ellis, supra note 10, at 1.
Group Legal Consultants, Inc., How To Fund A Group Legal Plan, at
http://www.grouplegal.com/profile/html (visited Feb. 6, 2001).
24
Nat’l Resource Ctr. for Consumers of Legal Servs., supra note 7.
25
Id.
23
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Municipal Employees Services Plan, paid for by New York City, and the New York Hotel
and Restaurant Employees Plan.26
On the supply side of prepaid services plans, Group Legal Consultants, Inc. (“Group
Legal”) provides legal services plans for associations, organization guilds, and unions.27
Some of its participants include:
•
New York State
•
Police Conference of New York, Inc.,
Legal Services Plan
•
Western Conference of Teamsters
•
American Postal Workers Union
•
Retail Clerks Union Legal Services
Trust Fund
•
AFL-CIO
•
International Brotherhood of
Teamsters, Airline Division
•
American Association of CriticalCare Nurses
•
National Nutritional Foods
Association
•
Southern California Professional
Engineers Association
•
Engineers & Architects Association
•
Engineers & Scientists of California
•
Seattle Professional Engineering
Employees Association
•
American Society of Engineers and
Architects.28
One of the fastest growing segments of the prepaid legal services industry is the nonunion employer-sponsored plan.29 Some of the first movers into this lucrative market were
ARAG Group (“ARAG”) and Hyatt Legal Plans (“Hyatt”). ARAG, for example, provides a
variety of legal services to companies and government entities such as:
•
Chiron Corporation
•
Fannie Mae
26
Sonia T. Banerji, A Survey of the Prepaid Legal Services Industry (May 1997) (unpublished manuscript, on
file with the author).
27
Group Legal Consultants, Inc., Company History & Profile, supra note 23.
28
Id.
29
Since 1992, however, growth in the employer-paid segment of the prepaid legal services industry has slowed
due to the expiration of Internal Revenue Code 120, which exempted employer contributions to legal services
plans from taxation.
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•
First Data Corporation
•
First Union Corporation
•
Ford Motor Company
•
Genentech, Inc.
•
Global One
•
Kraft Foods, Inc.
•
Microsoft Corporation
•
Novartis Pharmaceuticals
•
Oracle Corporation
•
Orbital Sciences Corporation
•
The Procter & Gamble Company
•
The State of California
•
The Washington Post Company
•
WorldCom, Inc.30
Hyatt Legal Plans (“Hyatt”) offers legal plans to employees of several companies.
Some of its participants include:
•
3COM
•
Anheuser-Busch
•
AOL
•
AT&T
•
Brinker International
•
Compuware
•
Coors
•
CVS
•
Dayton Hudson
•
E*Trade
•
Florida Department of Labor
•
Lucent Technologies
•
Metropolitan Life
•
Nordstrom
•
Perot Systems
•
Pfizer
•
Prandium
•
Schneider National.31
Advisory Communications Systems, Inc. (“ACS”), a legal network provider, partners
with LawPhone to provide the “LawPhone Legal Access Plan” and comprehensive Legal
Security Insurance Plans to:
30
ARAG Group, Client List, at http://www.araggroup.com/AboutArag/AboutClient.asp (visited Jan. 10, 2001).
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•
Amerigas
•
Amtrak
•
Bell Atlantic
•
Canada Life Casualty Insurance Co.
•
Cap Gemini
•
CAN
•
FBI (Special Agents Mutual Benefit
Association)
•
Magellan Behavioral Healthcare, Inc.
•
The New York Times
•
Reliance National Insurance
Company
•
Ross Stores
•
UnitedHealth Group.32
A majority of Lawstar’s clients are employees of corporations, unions, and
associations that acquire Lawstar’s legal services plan as a benefit “paid for” by the
organization.33 Pre-Paid Legal Services also offers employer-sponsored legal service plans.34
While less attractive financially to prepaid legal services plans, the non-employer
group-sponsored segment of the prepaid legal services industry offers potential market
growth to providers like Hyatt. Employer-sponsored plans funded by employees and groupsponsored plans funded by group members (e.g., church or fraternal organization sponsored
and membership funded) are expected to double over the next several years.35
A number of prepaid legal services plans target small businesses and individuals.
Advance Pay Legal Services (“APLS”) offers “Family Legal Plans” and “Home-Based
Business Plans” in “most states” in the United States.36 Caldwell Legal provides a “Personal
31
Hyatt Legal Plans, More Leading Companies Are Offering Legal Benefits, at
http:/www.legalplans.com/news.htm (visited Feb. 6, 2001).
32
LawPhone, Employer Plans, at http://www.lawphone.com/homemap2.map?381.2 (visited Feb. 6, 2001).
33
Lawstar, About Lawstar, at http://www.lawstar.com/about.htm (visited Feb. 6, 2001).
34
Pre-Paid Legal Services, Inc., Corporate Profile Page, supra note 17.
35
Want More Productivity? Consider a Prepaid Plan, 1 MANAGING SCHOOL BUSINESS 1, Apr. 15, 1996.
36
Advance Pay Legal Services, Family and Home Based Business Legal Plans, at
http://yp.bellsouth.com/sites/advancepaylegal/page2.html (visited Jan. 10, 2001).
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Legal Defender” plan and a “Business Protector” plan.37 Company Counsel offers a small
business legal access plan called “Company Counsel.”38 The plan is used by:
•
Citibank
•
GTE
•
Qwest
•
Nicor Energy
•
BizConex
•
New Jersey Natural Gas
•
Portland General Electric.39
Hyatt also offers a legal services plan for families and individuals called “LawPlan.”
LawPhone offers three phone consultation legal services packages to individuals and small
businesses: the “LawPhone Legal Access Plan,” the “OneCall Connect” plan, and the
“LawPhone Small Business Legal Network.”40 Besides union sponsored and non-union
employer-sponsored legal services plans, Lawstar’s legal plan services may also be
purchased directly by families and individuals.41 Legal Club of America (“Legal Club”),
LegalWise, PlanetLegal, the Pocket Lawyer Legal Services (“Pocket Lawyer”), Pre-Paid
Legal Services, ProCare Benefit Card, the Professional Driver Legal Plan, Legal Services
Plan, and United Legal Benefits (“United Legal”) also offer a variety of small business and
individual legal services plans.42
37
Caldwell Legal, U.S.A., You Should Know, supra note 12.
Company Counsel, Overview of Company Counsel, at
http://www.companycounsel.com/cc/prepaid_legal_companyoverview.a (visited Feb. 6, 2001).
39
Id.
40
LawPhone, LawPhone Legal Plans, supra note 32.
41
Lawstar, About Lawstar, supra note 33.
42
Legal Club of America, Welcome to Legalclub.com, at http://www.legalclub.com (visited Feb. 6, 2001);
LegalWise, Quality Group Legal Plans, at http://www.legalwise.com/index2.htm (visited Feb. 6, 2001);
PlanetLegal.com, Our Legal Plan Is Designed for Small Businesses, at
http://www.planetlegal.com/becomeamember.htm (visited Feb. 6, 2001); The Pocket Lawyer, The Pocket
Lawyer Legal Services, at http://pocketlawyer.com/main%20table.htm (visited Feb. 6, 2001); Pre-Paid Legal
Services, Inc., Corporate Profile Page, supra note 17; ProCare Benefit Plan, Legal Services, at
http://www.procarecard.comlegalsavings.as (visited Feb. 6, 2001); The Professional Driver Legal Plan, The
Professional Driver Legal Plan, at http://www.pdlp.com/untitled1.htm (visited Feb.6, 2001); Legal Services
Plan, Welcome to America’s Leading Prepaid Legal Services Plan!, at
38
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As the above survey of prepaid legal services members suggests, the prepaid legal
services industry is rapidly expanding into new markets and attracting some very high profile
members.
1. Services Offered to Plan Members of Prepaid Legal Services Industry
The prepaid legal services industry offers its members a variety of services. For
analytical purposes, it is useful to divide the services provided along lines similar to the
categorization of members in the prepaid legal services industry; services provided as part of
an employment compensation package, services provided to a group, and services provided
to small businesses and individuals. The lines are not etched in stone. Many of the services
offered to employees as part of a compensation package are the exact same services offered
to small businesses and individuals.
Prepaid legal services providers point out several benefits an employer receives from
investing in a prepaid legal services plan. The “high-value, low-cost plans” are an “easy-toadminister way to enhance” an employee’s benefit package.43 Further, by providing
employees with convenient, affordable and immediate access to legal resources, the
employees will be more productive at work and spend less time worrying about legal
problems.44 Statistics seem to be on the side of the prepaid legal services providers. It is
estimated that forty-two percent of all employees take time off each year to deal with legal
problems. An employee with legal problems is absent from work five times more than an
average employee, uses medical benefits four times more than an average employee, and
http://www.legalhelpnow.com/index.asp?page=faq (visited Feb. 6, 2001); United Legal Benefits, Benefits of
Membership, at http://www.unitedlegalbenefits.com/beneifts.htm (visited Feb. 6, 2001).
43
ARAG Group, Employers, supra note 30.
44
Caldwell Legal, U.S.A., Group Legal Service Benefits for Your Employees – Why it Makes Sense, supra
note 12.
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takes sick leave twice as much as an average employee.45 So what exactly does a prepaid
legal services provider have to offer?
ARAG offers three prepaid legal services packages. The UltimateAdvisor, which is
ARAG’s most extensive plan, provides members with document review and preparation,
financial planning guidance, standard wills, durable powers of attorney, and adoption. It also
includes assistance with driving privilege protection, criminal misdemeanor defense, divorce,
consumer debt collection, consumer protection, personal property protection, and coverage
of major trials.46 The Ultimate Legal Plan provides almost the same benefits as the
UltimateAdvisor except clients no longer receive financial planning guidance.47 Recently,
ARAG added the SeniorAdvocate plan to deal with eldercare issues. SeniorAdvocate assists
plan members with creating and modifying a will, planning for disposition of an estate, and
determining Medicare benefits.48
Caldwell Legal, offers prepaid legal services plans to employers and individuals. The
Personal Legal Defender Premier Plan, priced at $14 a month, or $168 a year, offers several
free services to members, including; unlimited telephone advice and consultation from a
Legal Service Office lawyer in the plan member’s state, letters and telephone calls to third
parties on a plan member’s behalf, simple will preparation and updates, a will repository,
contract and legal document review, agency referrals, a handbook to organize vital life
records, and a tax hotline that provides unlimited telephone advice on federal tax matters.49
Additional services are available at a reduced fee. Plan members can have an attorney
45
L.S. KAHN, PHD., LEGAL PROBLEMS & LOST WORK TIME: CATEGORIES, COSTS AND PREVENTION (1999), at
http://www.lawphone.com/lostwork.html (visited Feb. 6, 2001).
46
ARAG Group, Employers, supra note 30.
47
Id.
48
Id.
49
Caldwell Legal, U.S.A., Personal Legal Defender Premier Plan, supra note 12.
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prepare a revocable living trust or continue pre-existing legal matters for $85 per hour.50
Additional wills for eligible dependents of a covered member are available at a cost of $25.
Probate of estates, tax, title insurance, securities, and anti-trust matters are also available at
twenty-five percent of the attorney’s usual and customary fee.51
Caldwell Legal, has a Business Protector Premier Plan that comes with a price tag of
$37 per month, or $444 per year.52 As with the Personal Legal Defender plan, the Business
Protector plan includes free telephone advice and consultation, letters and telephone calls on
plan member’s behalf for business and personal legal matters, simple will preparation and
updates, a will repository, contract and legal document review, agency referrals, a handbook
to organize vital life records, and a new tax hotline that provides unlimited telephone advice
on federal tax matters.53 Similarly to the Personal Legal Defender plan, additional services
are available at $85 per hour. Debt collection letters, priced at $10 per letter, and additional
simple wills, priced at $25 per letter, are also available.54
Group Legal offers three legal plan options. Option One provides full and
comprehensive coverage in a mandatory program where the employer makes the contribution
directly to the fund, priced at $10.25 per employee per month. Option Two includes full and
comprehensive coverage by a payroll deduction program with a minimum of seventy-five
percent enrollment, priced at $17.30 per employee per month. Option Three offers simple
wills, consultation, and document review at no cost with fees on all other benefits reduced by
twenty-five percent, priced at $9.75 per employee per month.55 Full and comprehensive
50
Id.
Id.
52
Id.
53
Id.
54
Id.
55
Group Legal Consultants, Inc., Group Legal Plan Options, supra note 23.
51
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coverage includes; coverage of administrative proceedings,56 advice and consultation on
legal and financial matters for a maximum of five hours per year, handling of civil litigation
and consumer complaints,57 assistance enforcing warranty provisions or unsatisfactory
services or repairs, representation of misdemeanor criminal offenses, representation at
arraignments and bail setting, entry of plea, motions directed to the charge, appearances,
hearings and trial in a criminal proceeding,58 assistance in domestic relations,59 assistance
with will and estate planning, financial counseling,60 landlord and tenant, personal injury,
real estate transactions, and traffic matters.61
LawPhone provides a more limited range of legal services to employees and
individuals.62 The OneCall Connect plan offers unlimited telephone assistance with any
personal legal matter for $42 per completed call.63
Small businesses and individuals represent an exploding market for prepaid legal
services. Company Counsel offers a nationwide small business plan priced at $600 per year
or $150 per quarter with a one-time enrollment fee of $15.64 The plan provides unlimited
initial telephone and in-person consultations with a plan attorney on new business legal
56
Among the administrative proceedings services covered by Group Legal are: proceedings involving a
member’s driver’s license; problems with income tax audits or delays in getting refunds; assistance with green
cards; immigration and naturalization applications, hearings, and permits; problems in applying for or receiving
veteran’s benefits; problems in applying for or receiving social security benefits; problems with state or local
agencies involving assessments; and real or personal property assessments. Id.
57
Items covered under civil litigation and consumer complaints include: name changes; proceedings necessary
to correct errors or mistakes involving real estate, birth certificates, licenses, or permits; problems with an
insurance company in making claims or receiving payment; and property line disputes. Id.
58
Group Legal does not cover felony cases. Id.
59
Coverage includes: petitions for divorce or dissolution; answers or responses to petitions for divorce or
dissolution; modifications of prior decrees, such as child support or custody of children; and legal separations.
Id.
60
Assistance with the following is provided; personal bankruptcy, joint bankruptcy, wage earner petitions, out
of court arrangements, and out of court settlements. Id.
61
Coverage includes; speeding violations, traffic control violations, and equipment violations. Id.
62
LawPhone, LawPhone Legal Plans, supra note 32.
63
Id.
64
Company Counsel, Company Counsel Enrollment Form, supra note 38.
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matters (the in-person consultations are limited to thirty minutes), third party letters and
phone calls on independent business and legal matters, contract and document review
(limited to five independent documents up to ten pages each every month), collection
assistance (limited to ten initial collection letters per month), and registered agent services at
no additional cost.65 Additional services are priced at $89 per hour for out of court
representation and $109 per hour for in court representation.66 Reduced contingency fees are
also available.67
Law Alliance provides a more limited range of legal services at a monthly cost of
$14.95.68 Members receive unlimited telephone consultations, law reports and research
summaries emailed on request, and a fifteen percent discount on all other paid legal and
related services.69
In addition to employee coverage via a compensation package, LawPhone also offers
small business and individual packages. The LawPhone Small Business Legal Network,
with a price tag of $89 per quarter, or $356 per quarter, offers members unlimited telephone
consultations, follow-up letters to third parties, advice on how to present a case in court,
what evidence will be allowed, and what points to make, collection letters with past-due
accounts, review of documents (up to four pages), unlimited telephone consultations with
financial advisors at Ernst & Young LLP, and referral to a local attorney for additional
representation with twenty-five percent off the attorney’s usual fee.70 The LawPhone Legal
Access Plan provides unlimited telephone consultations, follow-up letters to third parties,
65
Id.
Id.
67
Id.
68
Law Alliance, at http://www.lawalliance.com (visited Feb. 6, 2001).
69
Id.
70
LawPhone, LawPhone Legal Plans, supra note 32.
66
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review of documents (up to four pages), basic will preparation, and unlimited financial
consulting at a cost of $42 per quarter, or $168 per year.71
Lawstar offers similar small business and individual legal services for an annual
membership fee of $79.95.72 Small business owners and individuals receive free unlimited
telephone consultations (up to one hour), free unlimited office visits (up to one hour), a
twenty-five percent reduction in attorney’s fees, an incorporation kit and a “limited liability
corporation” kit that walks members through the process of incorporating a small business or
forming a “limited liability corporation,”73 a package with letters, agreements, notices,
memos, and other documents to collect unpaid bills, a human resource handbook, access to
an on-line law library, preparation of a free will, small claims court assistance on how to file,
obtain judgments, collect, appeal, etc., IRS assistance on how a member should conduct himor herself during an audit, an emergency contact service, a monthly newsletter, and access to
thirty-two legal documents and forms.74
Legal Club offers a Small Business Plan and a Family Legal Plan.75 Membership in
the Small Business Plan costs $24.95 per month, or $299.40 per year.76 Free services
71
Id.
Lawstar, Small Business Owner’s Legal Benefits Plan, supra note 33.
73
Lawstar’s reference to “limited liability corporations” is somewhat of a misnomer. What Lawstar refers to as
a “limited liability corporation” is actually called a Limited Liability Company. Currently, no state recognizes
limited liability corporations. See, e.g., 6 Del. C. §§ 18-101- 18-1109 (2000); N.Y. LIMITED LIABILITY
COMPANY LAW §§ 101-1403 (Consolid. 2000).
74
The 32 documents and forms available to members are; Agreement To Sell Personal Property, Agreement To
Sell Real Estate, Lead-Free Disclosure, Bad Check Notice, Bill of Sale, Auto/Boat/Personal Property, Blanket
Certificate Of Resale, Blanket Certificate Of Resale For California, Blanket Certificate Of Resale For
Washington State, New York Business Certificate, Claim Of Lien, Commercial Lease, Contractor Agreement
For California, Demand Note, Final Notice Before Legal Action, General Agreement, General Power Of
Attorney, General Durable Power Of Attorney – New York, Lease With Option To Purchase, Limited Power
Of Attorney, Monthly Rental Agreement, Notice To Pay Rent Or Quit, Notice To Terminate Tenancy, Offer To
Purchase Real Estate, Partnership Agreement, Promissory Note, Quitclaim Deed, Rental Application,
Residential Lease, Apartment/Condo/House, Residential/Apartment Lease For Chicago, Illinois, Subcontractor
Agreement, and Waiver of Lien. Lawstar, Small Business Owner’s Legal Benefits Plan, supra note 33.
75
Legal Club of America, Welcome to Legalclub, supra note 42.
76
Id. at Small Business Plan.
72
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included with membership are; unlimited phone consultation on all new legal matters,
attorney review of five independent documents each month (ten page maximum each), initial
call made on behalf of the member’s business (two per month), initial letter written on behalf
of member’s business (three per month), ten initial collection letters (ten per month), inperson consultation on any new legal matter (thirty minutes maximum), and a registered
agent for a plan member’s business in the state where the business is incorporated.77 Out of
court representation is available at $89 per hour and in-court representation is capped at $109
per hour.78 In collection matters, Legal Club attorneys receive an eighteen percent
contingency fee if the case is settled before formal court proceedings and a twenty-seven
percent contingency fee if the case is settled after proceedings begin.79 On all other
contingency matters, there is a ten percent discount on the lower of either the state maximum
or the attorney’s standard rate.80 The Family Legal Plan costs $96 per year, or $32 per
month, for three consecutive months.81 Free services include; phone consultations during
business hours for new legal matters, attorney review of legal documents (six page
maximum) per new matter, “necessary” telephone calls and letters by the member’s attorney,
one-on-one consultations for new legal matters, simple wills, advice on representation in
small claims court, and assistance with government programs.82 A variety of discounted
services are also provided, traffic ticket defense, priced at $89, Chapter 7 bankruptcy, priced
at $250, name change, priced at, $155, simple will with trust, priced at $170, nonsupport of
77
Id.
Id.
79
Id.
80
Id.
81
Id. at Individual/Family Legal Plan.
82
Id.
78
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spouse or child, priced at $239, and simple divorce, priced at $210.83 Extended legal
representation is available at a maximum rate of $75 per hour.84
LegalWise offers a legion of group and small business legal service plans; LegalLine
Access, priced at $12.95 per month, or $155.40 per year, LegalWise Personal Protection
Plan, price not available, LegalWise Premier, price not available, LegalWise OnLine, priced
at $4.95 per month, or $59.40 per year, and BusinessWise, priced at $29.95 per month, or
$329 per year.85 LegalLine Access provides unlimited phone consultation, document review,
third party work as well as free simple will, debt collection and small claims assistance.
Attorneys are available to cover additional legal matters at discounted prices.86 The
LegalWise Personal Protection Plan offers the same benefits as LegalLine Access with an
additional one hundred hours of in-person attorney services per year.87 The LegalWise
Premier plan is basically the same plan as the LegalWise Personal Protection Plan with the
extra one hundred hours included.88 LegalWise OnLine is an interactive search engine with
more than ten thousand legal summaries for all fifty states and federal laws on personal and
business issues.89 BusinessWise offers its members unlimited telephone consultations, short
document reviews (contracts, leases, etc.), tax advice, and telephone calls and letters to third
parties.90 Extended attorney assistance is discounted.91
83
Id.
Id.
85
Companies with less than fourteen employees and a maximum annual revenue of $3,000,000 pay $29.95 per
month, or $329 per year. Businesses with fifteen to two hundred employees and a maximum annual revenue of
$5,000,000 pay $49.95 per month, or $549 per year. LegalWise Quality Group Legal Plans, supra note 42.
86
Id.
87
The 100 hours of attorney services cover such areas as; divorce, adoption, child custody, alimony and child
support, real estate, estate planning, Chapter 7 bankruptcy, consumer protection, and traffic disputes. Id.
88
Id.
89
Id.
90
Id.
91
Id.
84
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PlanetLegal provides three legal service plans: LegalPartner, designed for small
businesses; Legal Care, specialized for employees, individuals, and their families; and
LegalNet, a collection of hundreds of legal forms and legal letters customized for quick
access and retrieval on the Internet.92 At a price of $49 per month, LegalPartner provides
unlimited legal consultation and legal assistance by phone and email, full access to all
resources available in the PlanetLegal website, review of contracts and documents (ten pages
per month), draft of contracts and documents (five pages per month), draft of collection
letters on business’ behalf (four letters per month), legal counseling regarding employment
issues, calls on business’ behalf to protect the interest of the business in a time of dispute
(four calls per month), and trial work and representation in court (ten hours a year to annual
members).93 In the event a member requires extended legal representation, PlanetLegal
guarantees an hourly rate of $89 per hour for in-court and out of court representation.94 In
addition, PlanetLegal offers regular incorporation, priced at $89, simple contract preparation,
priced at $99, and complex contract preparation, priced at $189, at a discounted price.95
Legal Care, with a price tag of $9 per month, provides numerous services to members;
unlimited legal consultation and legal assistance by phone and email, full access to all
resources available on PlanetLegal’s website, review of contracts and documents (twenty
pages per year), draft of contracts and documents (four pages per year), calls on member’s
behalf to protect interests in a time of dispute (two calls per year), and draft of simple wills
for members and their spouses (limited to annual members).96 On top of that, LegalPlanet
guarantees Legal Care members an hourly rate of $89 for in-court or out of court
92
PlanetLegal, Our Legal Plan Is Designed for Small Businesses, supra note 42.
Id.
94
Id.
95
Id.
93
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representation and a ten percent reduction of the state’s maximum contingency fee rate or the
attorney’s usual rate, whichever is lower.97 Additional services are priced at a discount. For
example, traffic ticket defense comes at a cost of $89, simple contracts cost $89, simple wills
with a trust cost $170, and a name change costs $150.98 The membership cost for Legalnet is
$30 a year. Legal forms and letters are available in a variety of categories, including;
agreements, power of attorney, trade, affidavit, real estate, wills and trusts, bankruptcy,
selling goods, broker, business, buying goods, corporate forms, credit, family law, financial,
franchises, human resources, and loans.99
The Pocket Lawyer offers six major plans; Advisor Plus Series, Advisor Deluxe
Series, Contractor Series, Entrepreneur Plus Series, Homeowner Deluxe Series, and Senior
Silver Series.100 At a cost of $49.95 per year, the Advisor Plus Series provides a number of
services, including, one free ten minute telephone consultation for each new legal matter, one
thirty minute office consultation regarding the same matter, priced at $25 each, maximum
flat rate fees on a variety of services,101 reduced hourly rates, priced at $120 per hour,
reduced contingency fees (twenty-eight percent settled before trial, thirty-six percent settled
or awarded after trial, and forty percent settled or awarded after appellate brief is prepared),
free simple wills, second wills, and 24-hour emergency bail and arrest hotline, all priced at
96
Id.
Id.
98
Id.
99
Id.
100
The Pocket Lawyer, The Pocket Lawyer Legal Services, supra note 42.
101
Services are priced as follows: adoption (uncontested) $285; additional initial office consultations $50;
chapter 7 bankruptcy (single) $575; consumer protection (filing civil suit only) $180; debt collection, as
plaintiff (without suit) twenty percent of recovered amount; divorce (uncontested) $325; document review (up
to eight consecutive pages) $50; residential eviction defense (without court appearance) $180; incorporation
(home state) $475; living trust $695; name change $295; partnership agreement (standard) $375; general power
of attorney $40; real estate closing review $125; simple will $95; trademark search (state and federal) $195; and
traffic violation (first offense) $150. Id.
97
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$25.102 The Advisor Deluxe Series, priced at $69.95 per year, provides the same services as
the Advisor Plus Series except that plan members may have one legal document reviewed
(eight pages).103 The Entrepreneur Plus Series, priced at $180 per year, offers all the benefits
of the Advisor Deluxe Series with one free lease review, debt collection services (reduced by
twenty percent), reduced rates for business name and product name trademark searches,
attorney review and report, and trademark application preparation and filing, priced at $350,
and reduced rates on preliminary notices, lien filings, stop notices, and other related
mechanics’ lien services.104 The Homeowner Deluxe Series includes the services provided
by the Advisor Deluxe Series with the addition of free general power of attorney, estate
planning consultation, and a paper organizer.105
Pre-Paid Legal Services provides plans ranging from $14.95 per month to $23.95 per
month.106 The price of the plan varies depending on the size of the organization and its
location within the United States.
ProCare Benefit Card combines discounted legal services with savings on drug
prescriptions, travel, counseling, and other medical services.107 Priced at $15.95 per month,
members receive unlimited telephone or face-to-face consultations for all new legal matters,
telephone calls and letters on members’ behalf, review of legal documents, one-on-one
consultations, assistance in small claims court, assistance with government programs, and a
simple last will and testament.108 Among the additional services available at a discount are;
traffic ticket defense for $89, name change for $155, simple will for $170, Chapter 7
102
Id.
Id.
104
Id.
105
Id.
106
Pre-Paid Legal Services, Inc., Why PPL as an employee benefit?, supra note 17.
107
ProCare Benefit Plan, Legal Services, supra note 42.
103
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bankruptcy for $250, non-support (spouse or child) services for $239, simple divorce for
$210, regular incorporation for $295, and personal real estate closing for $175.109
The Professional Driver Legal Plan targets commercial drivers.110 Local drivers can
obtain coverage for $14.95 per month and over-the-road drivers can obtain coverage for
$34.95.111 Services include; representation for any moving traffic violation, unlimited legal
advice by phone or in person, and other discounted services.112
United Legal provides legal services to families and individuals. The plan’s price is
$17.50 per month, with a one-time enrollment fee of $20 and a minimum enrollment period
of twelve months.113 Services provided by the plan include; general advice and consultation,
preparation of wills, preparation of powers of attorney and living wills, family law and
divorce, traffic violations, consumer and seller relations, review of legal documents, real
estate transactions, administrative proceedings, adoptions, defense of juveniles, credit
protection, criminal violations, and personal injury.114 First time traffic court representations
are capped at $500. Criminal, bankruptcy, and most other representations are discounted by
thirty percent while personal injuries are discounted by twenty-five percent pre-suit and
thirty-three percent post-suit.115
While most prepaid plans list the price of individual legal services packages, some
plans will not release price estimates without a description of the group to be covered.116
108
Id.
Id.
110
The Professional Driver Legal Plan, The Professional Driver Legal Plan, supra note 42.
111
Id.
112
Services provided include; personal injury, auto accident, insurance disputes, DUI charge, suspended
license, pre-existing traffic tickets, IRS audits, divorce, criminal defense, bankruptcy, truck overweight,
wills/probate, real estate, corporate transactions, and lawsuits. Id.
113
United Legal Benefits, supra note 42.
114
Id.
115
United Legal Benefits, Summary of Services, supra note 42.
116
Telephone Interview with Amanda Earle, Sales Representative, LegalWise (Apr. 10, 2001).
109
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Membership in Legal Services Plan guarantees plan members certain basic legal services at
no additional cost.117 Such customized price schemes can vary depending on the size of the
organization or location of the company within the United States.118
2. Enrollment in Prepaid Legal Services Plans
So what does it take to join a prepaid legal services plan and how does one go about
it? Most enrollment procedures are relatively straightforward. An applicant can join a
prepaid legal services plan simply by picking up the phone or filling out a form.
APLS, for example, provides a toll-free number that interested applicants can call to
enroll.119 Other prepaid legal service providers offer toll-free numbers or e-mail addresses
potential plan members can contact.120
Some companies offer multiple ways to apply. Caldwell Legal permits applicants to
print an application form located on their website and mail it directly to the company, fax the
form, or call a toll-free number and apply over the phone.121 Applicants are required to
disclose limited personal information (e.g., name, home address, and plan preference).122
Payment is usually structured on a monthly or yearly schedule. Normally, payment is
made by check or credit card.123
3. Types of Attorneys Retained by Prepaid Legal Services Plans
117
Legal Services Plan, Welcome to America’s Leading Prepaid Legal Services Plan!, supra note 42.
Id.
119
Interested small businesses and individuals can call 1-877-644-2757 to enroll. Advance Pay Legal Services,
Family and Home Based Business Legal Plans, supra note 36.
120
See, e.g., ARAG Group, Plan Members, supra note 30 (listing toll-free, 1-800-247-4184, and e-mail,
[email protected], as contacts); Caldwell Legal, U.S.A., Mail-In or FAX Application Form, supra note 12
(as of Jan. 10, 2001) (listing toll-free, 1-800-222-3035, as contact); Company Counsel, Company Counsel
Enrollment Form, supra note 38 (listing on-line application form); Group Legal Consultants, Inc., Group Legal
Plan Options, supra note 23 (listing toll-free, 1-800-767-7121, mailing address, Group Legal Consultants, PO
Box 3417, Burbank, CA 91508-3417, and e-mail, [email protected], as contacts).
121
Caldwell Legal, U.S.A., Mail-In or FAX Application Form, supra note 12 (listing mailing address, Caldwell
Legal, U.S.A., PO Box 245778, Sacramento, CA 95824-5778, and FAX number, (916) 455-4943, as contacts).
122
Id.
123
Id. (accepting Visa, Master Card, and Discovery).
118
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Generally, plan members will be paired with an attorney in one of three ways: (1) open
panel, (2) closed panel, and (3) modified panel. Plans that mandate the use of a plan attorney
are considered closed panel, while plans that allow use of an attorney outside the plan are
called open panel. In the middle are modified panels which reimburse plan members who
decide to use an attorney outside the plan up to the amount a plan attorney would have been
paid.124
Since many plans mandate the use of plan attorneys or refer plan members to plan
attorneys, the success of a prepaid legal services plan turns on member satisfaction with
attorney services.125 To maintain member satisfaction and control the quality of services
provided, many of the top prepaid legal services plan providers have implemented stringent
selection, training, and supervision requirements.126 Prior to acceptance at a provider’s
network, attorneys are often required to submit an extensive application and undergo several
rounds of interviews and meetings with the provider’s representatives in order to determine
their competence. To be considered as an applicant, most attorneys are required to have a
minimum number of years of practice experience. The practice experience serves as an
indicator of each applicant’s success and reputation. In addition, the typical provider will
analyze various factors (e.g., graduation from an accredited law school, valid state licensure,
fully staffed offices with live telephone reception, positive customer service attitude and
eagerness to serve new clients, breadth and suitability of practice, familiarity with legal
124
Banerji, supra note 26, at 3.
Alec M. Schwartz, A Lawyer’s Guide To Prepaid Legal Services, 15 A.B.A. SEC. OF ECON. LAW PRAC. 43,
46 (1989).
126
Jim Brennan, Group Legal Insurance: An Effective Recruiting and Retaining Tool, COMPENSATION &
BENEFITS 49 (1999).
125
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services plans, Martindale-Hubbell ratings, and minimum malpractice insurance) to
determine each applicant’s credentials.127
Once accepted, attorneys are often subjected to random evaluations. Each evaluation
considers the attorney’s success record, feedback from clients, and feedback from other
attorneys.128 The provider is also responsible for investigating any complaints filed by the
plan member.129 Should evaluation reveal that the attorney has failed to adhere to the
provider’s standards, the provider may reprimand the attorney by imposing a fine,
suspension, or expulsion from the network.130 In addition, attorneys are still bound by the
ethical standards established by federal regulations and by their respective bars.131
Specific requirements vary considerably among prepaid legal services plans.
Attorneys at ARAG can work in five different networks; personal, elder law, business,
reduced fee, or telephone.132 To be a part of any of the networks, attorneys must have a PCbased environment and Internet access, maintain a current license to practice in a particular
state, agree to the methods and rates of payment for covered services, agree to provide
ARAG plan members with a written fee agreement for non-covered services, maintain an
office and be regularly engaged in the practice of law, agree to provide services to plan
members (though attorneys may decline an engagement on reasonable grounds), agree to
maintain professional liability coverage of at least $100,000, and submit a copy of their
127
Brian Heid & Eitan Misulovin, The Group Legal Plan Revolution: Bright Horizon or Dark Future?, 18
HOFSTRA LAB. & EMP. L.J. 335, 357-58 (2000).
128
Id. at 358; Wayne Moore & Monica Kolasa, AARP’s Legal Services Network: Expanding Legal Services to
the Middle Class, 32 WAKE FOREST L. REV. 503, 542-43 (1997).
129
Heid & Misulovin, supra note 127, at 358; Moore & Kolasa, supra note 128, at 543-44.
130
Heid & Misulovin, supra note 127, at 358; Moore & Kolasa, supra note 128, at 543.
131
Heid & Misulovin, supra note 127, at 358-59.
132
ARAG Group, Attorneys, supra note 30.
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professional liability policy’s face sheet to the company.133 Attorneys may not be on both
the personal network and the telephone network.134 In addition, members of the telephone
network must have offices equipped with an adequate number of phone lines, qualified staff
capable of answering all calls in a timely and efficient manner, schedule return calls for later
the same day at the convenience of the plan member if the attorney is unavailable when the
plan member calls, and maintain a professional liability policy with a minimum of $500,000
aggregate coverage.135
To join the attorney panel at Hyatt and become eligible to provide legal services to
Hyatt plan members, attorneys must maintain malpractice insurance in the minimum sum of
$100,000 per claim, have at least five years general practice experience, maintain an active
license with the state bar with no bar complaints or disciplinary problems, operate a fully
staffed general practice law office, and agree to provide legal services to plan members
according to Hyatt’s policies, utilizing Hyatt’s fee schedules for covered services.136
Attorneys are also held to more intangible requirements such as adherence to the “highest
standards of client satisfaction.”137
LawPhone has rigorous criteria for selecting plan attorneys. Access law firms, which
provide telephone consultations, must be medium-sized firms of three to forty lawyers,
depending on the area of the country, have relevant legal practice with experienced attorneys
able to handle family law, real estate, probate, contract, consumer and criminal legal matters,
and a minimum of ten years of law practice or its equivalent to take calls.138 In addition,
133
Id.
Id.
135
Id.
136
Hyatt Legal Plans, Attorneys, supra note 31.
137
Id.
138
LawPhone, Qualified Attorneys Work For You, supra note 32.
134
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each access law firm must also complete a detailed confidential law firm questionnaire; have
errors and omissions coverage with a minimum $500,000 limit; supply references; host a site
inspection visit; authorize an inquiry into the licensing status of each attorney in the firm
with the state supreme court or bar association; sign a contract, requiring audit calls,
standards, telephone answering standards and emergency 24-hour call handling; and agree
not to take revenue-generating work from record keeping clients.139 Referral law firms must
sign a contract, rather than have the individual practitioners sign it, possess a minimum of
five years in the practice of law, complete a detailed confidential law firm questionnaire,140
have a policy of errors and omissions coverage with a minimum of $300,000 limit, supply
references, authorize an inquiry into the licensing status of each attorney in the firm with the
state supreme court or bar association, and sign a contract giving LawPhone clients preferred
rates of twenty-five percent less than their usual rates, including contingency fee matters.141
Legal Club requires its attorneys to sign an attorney enrollment agreement.142 Plan
attorneys must maintain an active license to practice law in their state, maintain good
standing in their respective bar association or licensing department, maintain professional
liability insurance of at least the minimum amounts required by state law or at least $100,000
per incident and $300,000 aggregate, agree to provide legal services to plan members while
adhering to the most recent fee schedule established by Legal Club, maintain an office for the
practice of law and be regularly engaged in the practice of law within their state, provide
periodic updates of their personal practice information when requested by Legal Club, and
139
Id.
The questionnaire includes the following information: all separate firm locations, jurisdictions of practice,
the name and graduation year of all attorneys in the firm, subject matter areas of law firm practice by
percentage of time, languages spoken, fixed fees, contingent fees and regular hourly fees of firm, special
certifications, capabilities, and names and addresses of references. Id.
141
Id.
140
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verify that a plan member seeking legal services has active membership in Legal Club which
entitles him or her to discounted fees.143
Other prepaid legal services providers have less stringent requirements. Caldwell
Legal merely requires a firm resume with a brief statement of the attorney’s prepaid legal
services experience and a description of the support staff at the firm.144 Similarly, attorneys
applying to Corporate Counsel fill out an attorney enrollment form that lists the firm’s name,
the number of attorneys in the firm and their years of experience, the name and bar license
number of each attorney who will receive referrals, the languages spoken by attorneys at the
firm, the firm’s areas of specialization, and a brief biography of each attorney who will
receive referrals.145 Lawstar requires a minimum of ten years experience before it will allow
an attorney to join its panel.146 Attorneys must provide a genuine twenty-five percent
discount in their fees to Lawstar members and agree to consult with any one of Lawstar’s
plan members for up to one hour at no charge.147 LegalWise requires its attorney members to
be in good standing with the state bar association, maintain professional liability coverage of
$100,000 per incident and $300,000 aggregate, and host a personal visit with a LegalWise
Provider Services Representative.148 Prepaid Legal Services requires that all its attorneys
have at least two years experience practicing law, receive at least a BV rating from
Martindale Hubbell (if rated), have a minimum of $100,000 malpractice insurance, and never
have been publicly disciplined by the state bar.149
142
Legal Club of America, Attorney Enrollment Agreement, supra note 42.
Id.
144
Caldwell Legal, U.S.A., Legal Service Office Attorneys Wanted, supra note 12.
145
Company Counsel, Company Counsel Enrollment Form, supra note 38.
146
Lawstar, Attorney Services, supra note 33.
147
Id.
148
LegalWise, LegalWise Affiliate Attorney Network, supra note 42.
149
Pre-Paid Legal Services, Inc., Attorney Candidate Application, supra note 17.
143
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Some prepaid legal services plans even charge participating attorneys a fee. At
Pocket Lawyer, for example, attorneys must be members in good standing of the state bar,
have at least two years legal experience, maintain professional liability insurance, and
maintain an office for the full time practice of law.150 In addition, participating attorneys pay
dues of $25 per month.151
The rigorous screening process employed by many of the prepaid legal services plans
and the fact that several of the plans are able to charge law firms fees to participate in the
network suggest that many attorneys are interested in the plans.
B. Industry Critique
Employee Benefit News has suggested ten questions plan members should ask
themselves to evaluate the performance of a prepaid legal services plan.152 (1) How is the
provider rated by A.M. Best, an independent organization that rates insurance companies on
financial strength, operating performance, and their ability to meet obligations to
policyholders? An “A” rated carrier indicates that a particular provider is financially
sound.153 (2) What breadth of service is provided for the premium? For example, many
plans do not provide coverage for domestic issues, especially post-divorce, yet this accounts
for almost half of the plan usage. Plan members should seek a company that provides a
range of services and plans from which to choose. (3) What is the pay-out value received?
Many plans provide an average of $1.50 to $1.75 in legal service value for every $1.00 of
150
The Pocket Lawyer, How To Join The Affiliate Attorney Network, supra note 42.
Id. Under the Rules of Professional Conduct, legal service organizations are allowed to collect the “usual
charge” of the organization. MODEL RULES OF PROF’L CONDUCT, Rule 7.2 (1983).
152
Ten Tips for Evaluating Group Legal Plans, EMPLOYEE BENEFIT NEWS (Dec. 1998).
153
While many prepaid legal services plans are not rated by A.M. Best, the insurance company that the plan is a
part of may be rated. For example, A.M. Best rates Metropolitan Life Insurance Co. (“MetLife”) “A+”. Since
Hyatt is a part of MetLife, plan members can get an idea of Hyatt’s service quality through MetLife’s rating.
A.M. Best, Ratings Search, at http://www.ambest.com/ratings/search.html (visited Apr. 24, 2001).
151
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premium received. By comparison, the average health insurance plan pays out less than 85
cents for each $1.00 of premium received. (4) Is there 24-hour emergency service? Since
legal problems do not always come up during the business day, a good plan will provide
quick emergency service at any hour. (5) Is an out-of-network benefit available? These
plans usually cost a bit more, but they allow members to use any attorney rather than those
associated with the network. (6) Does the plan have capitated attorney rates? Legal
insurance companies should pay attorneys by the hour, not by the service, to ensure that
members get the full attention they deserve. (7) Does the plan pay promptly? Serviceoriented companies pay their attorneys at least weekly, ensuring prompt, courteous, personal,
and complete service for their members. (8) How fast will a plan member be able to speak
with an attorney? The answer should be “instantly.” If the first contact during business
hours is with voice-mail, the plan member should look for another company. (9) Does the
company solicit and publish attorney quality ratings based on member satisfaction? Since
that level of evaluation is not available on the open market, it is necessary to obtain it from
those legal services providers who do publish these ratings. (10) Does the prepaid legal
service plan exclude claims against the employer? Corporate plan members may not want to
provide a benefit to their employees only to end up with additional litigation brought against
the corporation at its own expense.
Strengths of the Prepaid Legal Services Industry
Prepaid legal services plans represent a potential cash cow for many legal service
providers.154 Pre-Paid Legal Services is one example of a public prepaid legal services
154
Heid & Misulovin, supra note 127, at 335-36.
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provider that has seen its profits soar in recent years.155 Its stock price followed suit, almost
doubling in less than one year.156 Insurance companies also want a piece of the action in part
due to the demand for prepaid legal services from their larger institutional clients.157 One
estimate places the profit margins on prepaid legal services plans around fifteen percent (four
times the profit margin of group health plans).158
Response to prepaid legal services plans has been overwhelmingly positive.159
Besides receiving the endorsement of the AFL-CIO and American Bar Association,160
prepaid legal services plans have benefited from broad-based support among plan members.
Retired union members of the United Federation of Teachers Plan in New York City laud the
legal services plan, noting that lawyers in the plan make house calls, hospital visits to draw
up wills at bedside, and provide large-print forms for elderly clients.161 Caldwell Legal
clients rave, “As a longtime subscriber, I am delighted with Caldwell Legal U.S.A. It is a
wonderful value for the money” and “I have had the [Caldwell Legal] business plan for years
155
Yahoo! Finance, Profile - Pre-Paid Legal Services (NYSE:PPD), supra note 9.
David Segal, Legal HMOs: Defense Against High Fees; Consumers Embracing Prepaid Plans, WASH.
POST, Mar. 14, 1998, at D9.
157
Andrea Gerlin, Companies See Legal Plans as Cheap Perk, WALL ST. J., Mar. 14, 1995, at B1 (discussing
interest of Metropolitan Life Insurance Co. and its customers in obtaining prepaid legal services). After the
publication of Gerlin’s article, Metropolitan Life Insurance Co. bought Hyatt Legal Plans. Hyatt Legal Plans,
More Leading Companies Are Offering Legal Benefits, supra note 31.
158
Gerlin, supra note 157.
159
Tanya Bell, Prepaid Plans for Legal Woes Grow Popular/Lawyers More Affordable, GAZETTE, Mar. 16,
1998, at City/State 1; Clarke Canfield, Lawyers To Go: Some Mainers Are Taking Care of Their Legal Needs
Through Prepaid Services, PORTLAND PRESS HERALD, Apr. 27, 1999, at C1; Kevin O’Donoghue, Group Legal
Insurance Gains Company Favor, THE DES MOINES REG., May 6, 1998, at 10S. See generally, Heid &
Misulovin, supra note 127, at 364.
160
See Group Legal Consultants, Inc., Endorsement of Group Legal Plans by the AFL-CIO (1975), supra note
23 (“The AFL-CIO recommends prepaid legal services should be incorporated into the collective bargaining
programs of all affiliated national and international unions.”); Group Legal Consultants, Inc., Acceptance by
the American Bar Association, supra note 23 (“Americans have come to view legal assistance as a necessity,
and probably the best way for the majority of Americans to be able to assure themselves of legal assistance
when they need it is through prepaid plans.”) (quoting James Fellers, Former President of the American Bar
Association).
161
Andrea Adelson, Earning It: Getting Legal Advice, Without Billable Hours, N.Y. TIMES, May 26, 1996, at
B9.
156
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and consistently received superior service from my lawyer. I am very satisfied with the
Caldwell plan. I wouldn’t be without it.”162 LegalWise customers write,
We have offered LegalWise to our members for fourteen years. The endorsement of
LegalWise and its services has allotted our members the opportunity to utilize the
plans and enjoy the ‘peace of mind’ that having LegalWise benefits provide. ... Over
the years LegalWise has proven time and again their eagerness to provide service that
is unparalleled when it comes to addressing any of our legal needs. They have
delivered on everything in a timely and professional manner.163
2. Vulnerabilities of the Prepaid Legal Services Industry
While the prepaid legal services industry has enjoyed wide-spread success, it remains
exposed to several weaknesses that may hinder its long-term existence, quality, and
profitability.
A frequent concern of critics of prepaid legal services plans is that the low costs of
the plan to employees may pose problems to the quality and efficiency of the plan.164
Opponents argue that plans do not offer the type or quality of service that employees could
get on their own.165 As a result, the plans create a conflict between the services provided and
the services that the employees expect.166 For example, suppose an employee heard about a
162
Caldwell Legal, What Our Members Say About Us, supra note 12. Other reactions by Caldwell Legal plan
members include: “Your comments, followed by your letter makes me realize how fortunate I am to have this
legal plan. Your professionalism and interest in a little client like me really is important.”; “Caldwell legal gave
me 1/2 hour free consultation with a criminal lawyer, advice from a civil litigation lawyer and several hours of
free phone advice. If I had not had access to Caldwell Legal I would have had to pay $2000 ... I recommend
Caldwell Legal Prepaid Services to everyone.”; and “Thanks for the letter. They not only painted the curb red
but dismissed my parking fine, too. That proves the pen is mightier than the sword. Especially when it’s
signed by an attorney at law.” Id.
163
LegalWise, What Our Customers Say About Us, supra note 42. Other comments by LegalWise plan
members include: “I would like to extend a very sincere thank you to LegalWise for your prompt handling of
my situation. I am especially appreciative of my affiliate attorney who settled my case without having to file
suit. I have used several private attorneys and legal services over the years, and I’ve never had better
representation. Be assured, I have recommended your service to all my associates;” and “When I contacted a
sampling of LegalWise customers, not once did I encounter a negative comment towards LegalWise. All
parties praised LegalWise for their client service and genuine concern. In the 10+ years I’ve been conducting
interviews I have not seen a 100% approval rating such as LegalWise posted.” Id.
164
Segal, supra note 156.
165
Id.
166
Heid & Misulovin, supra note 127, at 345.
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generous divorce settlement obtained by her neighbor on which the neighbor’s attorney spent
several hours (and received an even more generous fee). The employee, so the argument
goes, would expect similar results even though the plan attorney would not be able to offer
the undivided attention that the neighbor’s attorney gave to the divorce case.
Since attorneys fees are capped in prepaid legal services plans, attorneys often
maximize their profits by taking on as many cases as possible.167 The end result, so the
argument goes, is attorneys with unmanageable case loads.168 To manage their unwieldy
case loads, attorneys tend to expedite clients who are members of prepaid legal services
plans.169 As a result, plan members can end up with premature settlements and carelessly
drafted documents.170 A related issue is the unavailability of face-to-face consultation or
other additional services without an additional charge in several of the plans.171
The lower legal fees of prepaid legal services plans, many critics claim, tend to attract
inexperienced lawyers.172 Since the nature of most prepaid legal services claims is generally
limited to personal services and representation of minor claims, network attorneys never
receive experience in complex or challenging litigation.173 The effect of low fees and hohum litigation can be seen in the lack of interest shown by corporate law firms and other
large law firms, who typically employ the most reputable and qualified attorneys, in prepaid
legal services plans.174 On the other hand, the high turn-over rate among corporate law
167
Segal, supra note 156.
Id.
169
Id.
170
Dianne Molvig, Group & Prepaid Legal Service Plans: A Way to Build Your Practice?, WIS. LAW., June
1999, at 10, 60.
171
Schwartz, supra note 125, at 44.
172
Segal, supra note 156.
173
Schwartz, supra note 125, at 44.
174
Heid & Misulovin, supra note 120, at 347.
168
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associates suggests an equal number of corporate attorneys at prestigious law firms may also
be burnt out by monotonous due diligence and contract review.
A further concern with prepaid legal services plans is that they will promote
excessive litigation. By reducing the cost of legal services, more people will bring the
smallest problems to the attention of their plan attorney.175 Not only will lower litigation
costs encourage people to sue at “the drop of a coffee cup,” but the increased suits will put a
strain on an already stressed judicial system.176
Another weakness of prepaid legal services plans is that many of the services offered
by prepaid legal services plans are available elsewhere, often at no cost.177 For example,
many attorneys already provide free consultations.178 Other services, such as many of the
legal forms provided by Legalnet, are free and readily available on the Internet at other
locations.179
Finally, it is argued that prepaid legal services plans simply offer a different way of
mass-marketing lawyers and law firms. Rather than building a reputation in the community
through civic involvement and corporate contacts, attorneys rely on the prepaid legal services
plan to provide them with a steady stream of income.180 Gone are the days of small-town
attorneys coaching Little League or spending their lunch hour on the fourteenth green with a
175
Segal, supra note 156; Heid & Misulovin, supra note 127, at 346 (citing D.L. Stewart, Legal Plans Wear
Like a Cheap Suit, DAYTON DAILY NEWS, Aug. 31, 1999, at 1C (stating that the plans are “not appealing to
anybody with an established practice, ... people view it as an open invitation to vent to their attorneys every
time they have a dispute with their neighbor”)).
176
Heid & Misulovin, supra note 127, at 346.
177
Bell, supra note 159, at 66-67.
178
Neil T. Shayne, Tips and Techniques for Business Development: Attracting and Keeping Clients, in
PROVING OR DEFENDING REPETITIVE STRESS INJURY, MEDICAL DEVICE, LEAD, PHARMACEUTICAL AND CLOSED
HEAD TRAUMA CASES, at 219 (PLI Com. Law & Practice Course, Handbook Series No. A-723, 1995).
179
See, e.g., Legal Forms, at http://www.findlaw.com (visited Feb. 6, 2001).
180
Heid & Misulovin, supra note 127, at 347.
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potential business client. Instead, attorneys have become complacent and content to rely on
the plan for new business.
C. Expansion of Prepaid Legal Services to Middle- and Low-Income Individuals
To a certain extent, the bogeymen of prepaid legal services plans may be no more
than idolization of the status quo where businesses and individuals were clients at the mercy
of the attorney’s schedule rather than “employers” with deadlines, quality controls, and turnarounds different from those imposed by state courts and bar associations.181 It seems
unrealistic to think attorneys will curtail their interaction with the local community merely on
account of a guaranteed income stream. Significantly, no prepaid legal services plan
guarantees its attorneys a specific number of clients per year. During a legal drought,
attorneys must still go to the community well to find clients who need their services.
Awareness of this dependency insures that no prepaid legal services attorney will ever
become a complete “island unto himself.” Nevertheless, other concerns about the fee
incentives and quality of services attendant on prepaid legal services plans contain an
element of legitimacy that help to shape the principles of a prepaid legal services plan
targeted at middle to low-income individuals. These principles, what one might call the Four
Noble Truths of prepaid legal services plans, are: the cooperation of bench, bar, and client in
shaping the future plan; solidarity between organized labor and prepaid legal services plans
to create aggressive contracts with major corporations to provide prepaid legal services to
management and employees as well as provide support to major corporations with some of
their financial and corporate needs; a national prepaid legal services program similar to
181
Under the Model Rules of Professional Conduct, “employment” of an attorney is limited by the requirement
that the attorney retain discretion over his or her professional judgment, and the prohibition against partnerships
with non-lawyers. MODEL RULES OF PROF’L CONDUCT, Rule 5.4 (1983).
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Social Security and Medicare to provide legal support to low-income families and
individuals; and an administrative body to regulate the quality of legal services among
prepaid legal services plans.
First, development of a plan must be the joint effort of providers and users. In other
words, judges, lawyers, and potential clients should be involved in the creation of the plan.
A valuable plan, from the member’s perspective, must provide his or her basic legal needs
for a flat monthly rate while offering certain additional legal services at a discounted price.
Drafting simple wills, providing documentation on fee simple conveyances, and soliciting
alimony and child support payments are but a few of the basic legal needs a plan should
provide. The unexpected lawsuit should come at a discounted price. Since many of a
client’s basic legal needs may already be available or may not require an attorney’s
assistance, judges and lawyers should also be involved in plan structure. Legal forms could
be made available at courthouses at no cost, or with a minimum fee assessed, rather than
being packaged as part of a prepaid legal services plan. In addition, judges and lawyers
should both participate in the control of legal services demand. Legal analysts might be
employed at the front-end to answer plan members calls and channel their problem to the
appropriate resource (e.g., a website with the appropriate forms, a lawyer, or perhaps merely
a sympathetic ear).
Second, the attraction and retention of reputable and qualified attorneys at prepaid
legal services plans requires that these plans partner with corporations and social service
groups to create financially lucrative markets to attract corporate law firms and other large
law firms, and that prepaid legal services plans partner with other prepaid services plans to
keep the legal stars of the individual plans actively engaged in the industry. Such
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partnerships would require the cooperation of the legislature, labor unions, and state bar
associations. For example, a prepaid legal services provider, such as PrePaid Legal Services
or Hyatt, might contract with some of its larger corporate clients, such as AT&T and
Anheuser-Busch, to assign a specific percentage of their patent disputes or income tax work
to the plan. Labor unions, management, and non-unionized employees would be essential in
bringing economic pressure to bear on large corporations to provide prepaid legal services
plans to management and labor. With management and labor demanding prepaid legal
services plans as part of their compensation packages, prepaid legal services plans would be
in a better position to bargain with larger corporations about the provision of additional
corporate law services. The ability of prepaid legal service plans to attract a significant
amount of complex and challenging legal work would make them more attractive to the most
reputable and qualified attorneys, while at the same time providing valuable experience to
plan attorneys.
While the inclusion of prepaid legal service plans as an element of employment
compensation might make legal services more available to employed individuals, it still
leaves many unemployed or low-income individuals without access to prepaid legal services.
What is needed is a national legal services program that accepts bids from prepaid legal
services plans to contract with the program, assesses the legal needs of low-income
applicants, and assigns the applicants to one of the contracted prepaid legal services
providers.
The program could be funded a variety of ways. One possibility would be to create a
“sales tax” on legal transactions. Every hour a lawyer bills would be taxed a small
percentage of the lawyer’s hourly rate. The revenue raised would be used to pay the prepaid
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legal services plans hired by the government to provide services to low-income individuals.
Another possibility would be to require every attorney to pay a federal licensing fee on top of
any state licensing fees before he or she is allowed to practice law. Again, the revenue from
the federal licensing fee could be used to fund the national program.
Finally, the provision of prepaid legal services must be regulated to ensure the quality
of the services provided. To this end, an administrative body would be created similar to the
regulatory bodies of the banking and securities industry. The administrative body would be
responsible for establishing and monitoring compliance with minimum standards of legal
performance by prepaid legal services plans across all the states. Such a program would
prevent much of the hastily drafted documentation or early settlements that currently plague
prepaid legal services plans.
CONCLUSION
In ancient Greece, a story was told of a Titon named Prometheus who looked down
on a prehistoric family in their cave during the dead of winter. Moved with pity, he brought
them the gift of fire. Later, another Greek fire emerged from a band of warriors hidden in the
belly of a wooden horse who emerged only to set fire to the city of Troy. Today in America,
the legal profession in America looks down from its Olympian heights on a population
largely without access to the legal system. Prepaid legal service plans contain the sparks of a
future system of universal legal coverage that could make access to an attorney a reality for
many middle- and low-income Americans. Only time will tell, however, whether prepaid
legal service plans will deliver on their promise to bring expanded legal access to millions of
Americans left out in the cold, or whether the plans topple the legal citadel all together.
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