Read the Fine Print

Can legal insurance make access to justice more affordable for low and
middle-income Canadians?

By Michael Rappaport, National Magazine

Insurance buys peace of mind. It provides compensation for a wide range of accidents, from car crashes to burning homes. It can also protect us from another one of life’s mishaps: legal action.

Legal insurance is widespread in Europe, where it originated. La Défense Automobile et Sportive, or DAS, founded in Le Mans, France, was the first to offer legal insurance in 1917. It initially came about to cover race car drivers whose accidents on the track gave rise to webs of legal disputes involving liability insurers. Ironically, legal insurance was conceived as insurance against insurers.

Today, it is commonly sold as an add-on to car and home insurance policies. About 98 per cent of Swedes, 75 per cent of German and French residents and 68 per cent of the population of the U.K. is covered by some form of legal insurance. The total legal insurance market in Europe was C= 7 billion in 2009.

Germany-based DAS Group, now the worldwide leader in legal insurance, became the first to market the product in Canada outside of Quebec. La Capitale General Insurance, a pioneer in this field, was the first to kit the Quebec market policies in 1992. DAS Canada began offering its product this past April in Ontario and has gradually rolled out policies across other provinces over the past few months. Law societies across Canada have heralded the arrival of legal insurance with enthusiasm, none more so than the Barreau du Québec, an early believer in its promise. It has actively promoted policies to the public and preached the benefits to other law societies. Still, the question remains whether legal insurance in Canada will make access to justice more affordable for low- and middle-income Canadians, and whether law societies are overlooking better alternatives.

There are doubts about how comprehensive the coverage is and, perhaps most importantly, whether the public will buy it.

The fine print

Barbara Haynes, CEO of DAS Canada says extensive market research has revealed a real need for legal insurance in Canada. “Many Canadians are too wealthy to qualify for legal aid, but not wealthy enough to afford a lawyer,” she says.

Her views are underscored by the Law Society of Upper Canada (LSUC), which has officially declared that legal insurance “has the potential to make legal services more accessible and affordable for people who don’t qualify for legal aid.”

Pierre Gagnon, a former bâtonnier of the Barreau du Québec strikes a more sombre note: “Legal insurance is part of the solution, not the complete solution.”

Whether purchasing legal insurance will make access to justice more affordable or not, boils down to two key factors: the cost of the premium for the policy and the comprehensiveness of the coverage.

The LSUC has already praised DAS Canada for offering the “first comprehensive legal insurance in Ontario.” Its CEO, Malcolm Heins, insists that “for a relatively modest premium policyholders get a fairly robust range of legal services.”

How modest? It costs $80 per year for DAS’ driving policy to insure one vehicle in Ontario. A family plan is $360 per year — roughly the rate of an average hourly fee to consult a lawyer in Toronto.

But what do policyholders get in return? Both policies include unlimited access to DAS Canada’s legal advice helpline. Both have a claims limit of $100,000, which covers all reasonable legal costs in pursuing or defending a claim, namely the appointment of lawyers and expert witnesses, disbursements, court costs. DAS’ driving policy covers legal conflicts arising from automobile use or ownership, including leases, traffic violations, licence suspension, disputes with auto insurer and assistance with submitting an accident and benefits claim. The family policy covers personal injury as well as disputes with employers, neighbour and tax authorities. According to DAS Canada’s website, its policies cover 90 per cent of the top consumer complaints in Ontario.

Now what about the fine print? Insurance policies are notorious for deductions, exclusions and restrictions. DAS policies exclude pre-existing disputes (including waiting periods), libel and family suits, as well as defences in criminal proceedings. “But we do provide hourly fee discounts of about 20 per cent for areas not covered under policies,” DAS Canada’s CEO Haynes explains. “Family law is too costly and too volatile. If we covered family law we would potentially be pitting one policy holder against another.”

What’s more, legal insurance exists to protect policyholders against “legal accidents,” not events or actions over which they have some control, says Heins. “The problem with family law is that it is not so much a contingency, but a decision that a couple can make about splitting up.”

Finally, if the coverage were more comprehensive the costs of premiums would be much higher — and prohibitively expensive.

“Premiums would be around five or six times the present amount if family law was covered,” says Pierre Gagnon, a former bâtonnier of the Barreau du Québec. “No one would be willing to pay the premiums. We have to consider what people are willing to pay and what insurers are willing to offer.”

The big picture

Long before legal expense insurance arrived in Canada, there were prepaid legal service plans. Most notably, the Canadian Automobile Workers (CAW) offers a legal service plan, now covering 96,000 families for a wide range of personal legal service needs.

Prepaid legal service plans share many similarities with legal expense insurance — for example offering legal advice though telephone help lines and certain hourly fee discounts for services outside the scope of the coverage or plan. But prepaid plans typically offer free or flat rates for wills, document review, real estate transactions and other rudimentary legal work. Legal insurance, on the other hand, offers substantial indemnification, but unlike prepaid plans will not cover pre-existing conditions and have a waiting period.

Perhaps the key distinction is that legal insurance is a regulated product unlike prepaid legal service plans — so it can be sold as an add-on to other insurance policies.

When CAW initially launched its plan in 1985, law societies balked. The LSUC threatened participating lawyers with disciplinary action, objecting to the fact that members had to choose their lawyer from a pool of accepted union lawyers. The CAW sued the LSUC and the parties negotiated a settlement, which allowed members to select any lawyer they wanted.

The plan’s panel now draws from a pool of over 1,000 lawyers across Canada who must agree to a contract and a fee schedule capped at $110 per hour. Today, DAS Canada also restricts policyholders to select lawyers from a closed panel of 800 lawyers across Canada. This time, however, the law societies raised no objections. “On the contrary the Ontario, Alberta and B.C. law societies have been very supportive of our business model,” Haynes says. “We wouldn’t want to make the panel wide open. It would be hard to manage the quality of lawyers and deliver sufficient work to make it worthwhile.”

A 2006 CAW survey found that over 5.5-million Canadians are covered by a prepaid legal service plan, even though “most people don’t even know they have a legal plan as part of their benefits,” says Stephen Ginsberg, the executive director of the CAW plan.

And typically, prepaid plans aren’t marketed to individuals. It’s a tough sell, says Barry Young, the founder and CEO of Law Protection Inc., a prepaid provider based in Toronto. Almost 90 per cent of his plans were negotiated with unions as part of an employee assistance plan. On top of it all, says Ginsberg, “an employer paid legal service plan is a taxable benefit unlike dental plans which makes them less attractive. Health care plans aren’t taxable. Legal plans should also be tax exempt.”

Paul Westlake, managing partner for Mills & Mills LLP, based in Toronto, says his firm became the first law firm provider for Oklahoma-based Pre-Paid Legal Services in Canada back in June 1999. The plans cost $25 per month and include telephone advice, some freebies such as the preparation of a will and discounted hourly fees between 25 to 33 per cent. Westlake says the plans are sold on a network marketing basis. “Prepaid plans are not an insurance product. Virtually anyone can become a sales associate.”

Consumer behaviour

So will Canadian consumers be more inclined to purchase legal insurance? Pierre Gagnon certainly hopes so. The Barreau du Québec began exploring legal insurance as a means of making access to justice more affordable over a decade ago. In 1997 it conducted a survey to determine the public’s interest in legal insurance: 40 per cent of respondents thought that legal insurance was a necessity; and 35 per cent were interested in buying a legal insurance policy and would pay up to $95 per year.

In Quebec about a dozen insurers have offered legal expense insurance products for the past decade, though none have specialized in this field exclusively like DAS Canada. From 2003 to 2009 the Barreau spent over $2 million to encourage Quebecers to purchase legal expense insurance. Promotions included a multi-media campaign with advertisements on TV, radio and the Internet, participation in trade shows, information on the law societies’ website and a toll-free hotline.

As a result of the marketing campaign the number of insured families in Quebec has more than doubled from 100,000 to 225,000 in the five year period from 2002-2007. Around 12 per cent of the population of Quebec now has legal insurance. Part of the Barreau du Québec strategy has been to pitch legal insurance as an add-on to other policies. “Legal insurance is a good side order. It is not an easy sell as a stand alone product,” Gagnon says. “The main meal is the car or home insurance.”

To this end, the Barreau du Québec lobbied the government of Quebec to include legal insurance as an add-on to drivers and home insurance policies with an opt-out clause. But consumer groups resisted and the government nixed the proposal. Officials from the Barreau du Québec have also met with their counterparts at the LSUC and the Federation of Law Societies of Canada to advocate for its adoption by other provinces. “Legal insurers have to create a critical mass so the premiums will be affordable,” Gagnon says.

But a May 2010 report released by the LSUC suggests that consumers in common law provinces are hardly lining up to buy legal insurance. In Ontario more than two-thirds of low and middle-income people said they would not be interested in purchasing any, either citing no need for it (56 per cent) and/or an inability to pay for it (1 in 3).

“Most people don’t think bad things will happen to them,” Heins says in regards to the report’s findings. “They don’t expect to get hit by a car when they cross the road.” He notes that the survey was conducted before DAS Canada began offering legal insurance in Ontario. “Now that there is a specific offering, with defined benefits and costs, it will be interesting to see what sort of market response occurs.”