Meet the legal service delivery vehicle of the 21st century: Judicare
Of all the forces buffeting the legal profession, the most powerful impact may come from a little-regarded source: the pre-paid legal services plan. The private judicare model is poised to change the face of the legal profession.
By Sheldon Gordon
Too poor to hire a lawyer and too rich for legal aid, an estimated one in three Canadian families who need legal help each year recoil from hiring a lawyer because of the cost. Prof. Stephen Coughlan of Dalhousie University's Faculty of Law calls it "the latent legal market," and by some estimates it could generate $1 billion in new business for the Canadian Bar.
How to access that massive untapped market? The answer may lie in the relative anonymity of private judicare, the pre-paid legal service model. In a country that worships medicare as a sacred trust, judicare is an idea with enormous potential.
Under the basic judicare model, subscribers pay a small monthly premium for access to a limited range of legal services. Most plans provide free telephone consultations, as well as simple services such as will preparation or a lawyer's letter. They may also cover heavy-duty civil or criminal representation at discounted rates.
Pre-paid legal services plans in Canada date back only to 1984, when the Canadian Auto Workers union (CAW) negotiated judicare as an employee benefit in collective agreements with the Big Three automakers. Private plans offered by insurance companies, credit card companies and other vendors have followed.
Yet Canada's adoption of judicare lags far behind that of the U.S., where the basic structure of pre-paid legal services was developed in the early 1970s. According to the American Prepaid Legal Services Institute, an industry trade group, a staggering 18 million Americans are eligible for benefits from a pre-paid legal services plan, a product provided by 23,000 lawyers.
Pre-Paid Legal Services Inc. of Ada, Oklahoma is the leading provider of private judicare south of the border. A public company since 1976, it is listed on the NASDAQ and American Stock Exchange and has a market value approaching US$1 billion.
While less than one per cent of Americans are covered by judicare, Pre-Paid notes that approximately 80% of Europeans have such coverage. The company also claims that while it took Health Maintenance Organizations (HMOs) a decade to achieve two-per-cent market penetration, they required only an additional seven years to reach 52% penetration. Pre-Paid expects to achieve the same critical mass.
Given America's litigious reputation, its leadership in judicare may not seem surprising. Yet Sandra DeMent, president of Advisory Communications Systems (ACS) Inc. of Lanham, Maryland, notes that Canadians use lawyers even more than Americans, thanks mainly to their role in the refinancing of Canadian mortgages. She believes Canada is a promising market for pre-paid legal services.
"There is no doubt that the future holds pre-paid legal service plans in it," says Prof. Coughlan. "The only question is whether those plans will be operated by Canadian or American-owned companies."
A growing market
ACS's Vancouver-based subsidiary, Lawphone Ltd. of Canada, is one of several U.S.-owned vendors attempting to capture a sizeable slice of the Canadian market. Lawphone began offering judicare to the Bank of Nova Scotia's one million VISA card customers in 1995 through its ScotiaPlan initiative. Participation has varied from 0.5% to 1.5% of cardholders - a typical direct-mail response rate, according to DeMent.
ScotiaPlan subscribers pay $14.95 a month and receive a wallet card with a toll-free phone number to a law firm in their province. Lawphone works with 1,200 law firms, spread across all the provinces and territories.
The estimated 3,000 lawyers who participate don't have to pay the plan a fee, but must have five years' worth of experience and be in good standing with the local law society. The law firm submits its legal bill to the Plan.
Unlike some other judicare plans, ScotiaPlan provides its members with unlimited telephone consultation, even on a problem that is "stale" or that continues to evolve (such as a landlord-tenant dispute). Subscribers can also have documents reviewed and wills prepared. Other services, such as civil litigation, power of attorney and document preparation are available at discounts averaging 25%.
At press time, Lawphone was about to launch a direct-mail marketing campaign on behalf of another large consumer organization. It expects to ally itself with an insurance company by the autumn to provide a legal expense insurance policy. And it plans to open its service to the general public through its web site. "The market is going to grow very rapidly," predicts DeMent.
Perhaps. But the growth of judicare in Canada has faced, and continues to face, serious obstacles from a wide range of sources: lawyers's organizations, insurance regulators and even the tax system itself.
Obstacles to overcome
When the CAW established its plan in 1984, the Law Society of Upper Canada threatened participating lawyers with disciplinary action. The LSUC objected to the plan's lack of freedom of choice: members could only choose to retain staff lawyers employed by the union.
Stephen Ginsberg, executive director of the CAW plan, says a "closed panel" (in which a plan administrator uses only one or a small number of law firms) gives a union the advantage of control - "control of both quality and expense. It's easier to administer cases going to a certain number of lawyers in a certain number of law firms."
The law society, however, balked. LSUC Secretary Richard Tinsley says the society accepts closed panels if they're marketed to the public, because the public can reject them. But in the context of a collective agreement, he argues, closed-panel plans deny union members freedom of choice.
The CAW responded with a lawsuit challenging the LSUC's right to make rules affecting the plan, and under an agreed settlement, members were allowed to use any lawyer they wished. Today, the CAW plan retains 25 staff lawyers in eight offices (seven in Ontario, one in Quebec) who handle 50% of the files. Another 25% of the cases are taken by lawyers at co-operating law firms, while the remaining 25% are handled by lawyers who are chosen by plan members themselves and reimbursed by the plan.
In addition to lawyers' objections, the CAW plan also faces tax hurdles. Plan premiums are paid by the employer, but unlike most employer-paid benefits (such as extended health and dental), the premiums for pre-paid legal services are taxable. Ginsberg believes this has been a major disincentive to the introduction of such plans by labour unions.
"If an employee group is presented at the bargaining table with a list of benefits, where they pay tax on some and not on others, they're more likely to choose the non-taxable benefits," he points out. "Yet the rationale for legal services plans is no different than for health plans - to make essential professional services more accessible to the general public."
Ginsberg calculates that if pre-paid legal benefits were non-taxable, the government might receive about $65 less in tax revenue from each enrolled family. But most of that $65, he contends, would be returned to the government on someone else's tax return - presumably, a plan lawyer's.
If such obstacles are stunting the CAW plan's growth, there's little evidence of it: its total enrolment has reached 100,000 members. While that's still less than half of the union's overall membership, that number has risen substantially as more bargaining units have negotiated judicare as an employee benefit.
Insurance or not?
Government regulations have also hampered the growth of legal services plans. In Ontario, if a provincial insurance regulator finds that a legal services plan is "legal expense insurance," its vendor must be licensed to sell insurance products in the province. That restriction effectively limits the field of judicare providers to insurance companies.
Last June, Oklahoma's Pre-Paid Legal Services launched its Canadian judicare operation in Ontario with PPL Legal Care of Canada Corp. The company says that at the time, it believed the Financial Services Commission (FSC) had granted PPL oral approval to proceed.
In December, however, the commission ruled that the plan constituted insurance under the terms of the Insurance Act. Since PPL was not licensed to sell the product, the FSC demanded that the plan be scaled back.
Grant Swanson, the FSC's director of licensing, insists no verbal go-ahead was ever given. "If you're making a significant business decision to enter a market, don't you get a written commitment?" he asks.
"Some elements of the original plan were contingent on the occurrence of a mishap or fortuitous event. That's an element in the definition of insurance. It's not like a pre-paid service contract where you're paying in advance for services that you may require over time."
PPL's initial plan offered a slate of legal services, including:
- unlimited legal advice by phone;
- defence of most traffic violations; and
- 60 hours of a lawyer's court time when defending civil suits or certain criminal charges.
Under the revised plan, members can receive free phone advice on any legal matter, personal or business-related. But only one phone call per subject is permitted; additional calls seeking advice on the same subject are offered at a 25% discount.
However, Paul Westlake of Toronto's Mills & Mills, PPL's provider law firm for Ontario, says that in practice, the firm "will always give the member a [free] follow-up call. But if we did unlimited consultations - say, on family law - it could go on for months."
Similarly, PPL lawyers will make one phone call or write one letter on a member's behalf on any subject matter. (This is the most heavily used portion of the plan.) Additional phone calls or letters, or other legal services, are provided at a 25% discount on the firm's standard rate.
A one-third discount is offered for representation in court. Wills and powers of attorney are drawn up for free for members - if they come to Mills & Mills's offices to sign the document. (Spouses are charged $30.) Currently, the firm's plan has 14,500 members who each pay a monthly fee of $25 plus an enrollment fee of $10.
Members who signed on to the original plan are "grandfathered," and Westlake concedes "there's a perception by some people that there was more offered under the old plan." Still, gross sales have not declined since the new scheme was introduced in January. The PPL plan attracts 1,500 new members a month, and has a turnover of 20 per cent to 25 per cent.
When Mills & Mills was selected by PPL as its legal provider for Ontario, the firm had to ramp up for the anticipated new business by hiring additional lawyers - the practice has expanded from 12 to 25 - and renting more office space and phone lines. Westlake says the firm's revenues have not yet doubled, but he declines to reveal specifics, including what percentage of each monthly $25 membership fee goes to the firm.
West coast initiatives
PPL's Canadian foray also includes British Columbia, where the Vancouver firm of Watson Goepel & Maledy is its legal provider. B.C., however, may be an even tougher market to crack than Ontario.
The B.C. branch of the CBA struck a committee in the early 1990s to examine judicare, and then negotiated with a service provider. But when the economy slumped, the provider found little interest among employers or unions.
"We wanted the plan to be open to any lawyer willing to accept the carrier's fees," says Parker MacCarthy of Ramsay Thompson Lampman of Nanaimo, B.C., Chair of CBA's General Practitioners' Conference. "Their plan did meet that criterion, but the experience here hasn't been a barn-burner." The B.C. Branch has recently reconvened the pre-paid legal services committee and is re-examining the private judicare issue.
Richmond Savings, one of B.C.'s largest credit unions, offers a pre-paid legal services plan to its members for an annual fee of $96. The plan offers free benefits similar to those of other judicare schemes; it also provides relatively low-cost mortgage registration and title search for plan members who acquire a home mortgage from Richmond Savings.
Although the credit union has nearly 90,000 members, only 1,500 to 2,000 have signed up for the plan. "When it's marketed, there is a demand," says Eric Rice of Vancouver's of Campbell Froh May & Rice, which is the exclusive legal provider under the plan. "I just don't think the credit union puts it at the top of its marketing priorities."
For his firm, says Rice, who's also Vice-President of the CBA, the plan "is not particularly profitable, but it gives us the opportunity to deal with people who haven't used lawyers before."
Rice is at a loss to explain why, in a province with a considerable organized-labour and credit union presence, judicare has not made greater inroads. Certainly, regulatory barriers have not been a factor in B.C.
"The law society hasn't been a strong negative," Rice says. "Nobody there even asked us to explain ourselves." Karl Warner, president of the Law Society of British Columbia, confirms it has no objection to a closed-panel arrangement as long as the society's "core values" are maintained.
In theory, judicare could be a real gain for young lawyers, creating a whole new client base for them to serve. It should also work to the advantage of general practitioners, who provide most of the telephone consultations that are at the core of pre-paid legal plans.
But Tracy McPhee, a sole practitioner in Whitehorse, Yukon and Chair of the CBA's Young Lawyers' Conference, sounds a cautionary note. The plans, she says "are likely to flourish only in big cities. It's not going to mean much for lawyers in Regina or Halifax."
The gains would only be spread more evenly, she adds, if a plan were launched by a union with members nationwide, such as the Canadian Union of Public Employees.
Quebec success story
One market in which judicare does seem to be putting down solid roots is Quebec, where some 17 insurance companies are selling "legal protection insurance" (assurance protection juridique). The product already covers 150,000 households, and the Barreau du Quebec is attempting to give it a higher profile. This year, it devoted its entire $600,000 mass-media advertising campaign to promoting the product.
"We've noticed in recent years that there's been a significant decline in the [amount of litigation] ... one reason being that people can't afford [to go to court]," says Denis Jacques, outgoing Batônnier of the Barreau. His organization favours the widespread use of legal protection assurance to overcome the problem of affordability.
"Until this year, no insurance company sold legal protection insurance as a stand-alone product," says Jacques. Many Quebecers did have telephone access plans as an add-on to their home or auto insurance, but these plans entitled them only to a phone consultation. "One of the results of our ad campaign was that it prompted the insurers to offer a new, stand-alone product," he says.
The new, comprehensive plans cover full representation by a lawyer. They pay not only legal fees but also the fees of expert witnesses. Policyholders can freely select their lawyer, who is remunerated by the plan at an hourly rate between $75 and $150. The policy-holder pays an annual premium of $35 to $80 for family coverage.
The insurers are also offering, for the first time, legal insurance aimed at small businesses and the self-employed. The annual premium is $300.
La Capitale General Insurance has, to date, sold most of the stand-alone policies. It pays a policyholder's lawyer $50 for the first consultation on any subject. The insurer pays up to $1,000 in legal fees relating to estates and powers of attorney and up to $5,000 for disputes arising in any of five areas - consumer transactions, labour, bodily injury or property damage, residency (e.g., landlord-tenant) and income replacement (e.g., disability insurance). The policy covers up to three disputes or $15,000 per year.
The Quebec experience offers the most successful Canadian manifestation of private judicare thus far: little interference from regulators or law societies, comprehensive coverage, the involvement of large insurance companies and, perhaps most significantly, the aggressive marketing support of lawyers' governing body. The Barreau is squarely behind pre-paid legal coverage and doesn't intend to waver.
"We're hoping to see coverage expand to the greatest number of households possible," says Jacques. "The Barreau is not taking this step in order to sell insurance as such. What we're after is greater accessibility to the justice system. We want to ensure that people have genuine access to justice."
Sheldon Gordon is a freelance writer in Toronto.
