This article was originally published in Maclean's Magazine on March 9, 2009
Legal Insurance Could Be What Canadians Need
Karen Fallis works on the assembly line at the Chrysler plant in Brampton, Ont., bolting on seat belts and "doing the same thing 500 times a day." A single mother with two kids, her free time - not to mention disposable income - is in short supply. So when Fallis found herself embroiled in a legal dispute with her ex over child support payments, she was relieved that she belonged to the Canadian Auto Workers Union: CAW members have had access to a legal services plan for over 20 years. Just as health insurance covers medical bills, this type of coverage pays for lawyers.
Fallis called up the CAW Legal Services Plan, a law firm where lawyers work directly for individual members, not for the car companies or the union itself, and handle everything from property deals to litigation. (For family law cases like Fallis's, the plan covers 12 hours of a lawyer's time; after that, members pay a reduced rate of $110 an hour, about half what the average lawyer charges.) After a legal battle that lasted over a year and eventually went to trial, Fallis came away with a result she was happy with. It wouldn't have happened, she says, without the coverage. "I just wouldn't have been able to do it financially. I would have bowed down, and regretted it," Fallis says. "Money is a huge issue when you're talking about lawyers."
It's a sentiment shared by a lot of middle-class Canadians who find themselves too wealthy to qualify for LEGAL AID, but not wealthy enough to afford a lawyer. As Fallis knows, though, there's a third way that's scarcely been tapped in this country. Legal services plans, which protect against the cost of future legal action, range from union-based plans like the CAW's to policies issued by private insurers. They've never caught on in Canada, though that may be about to change. DAS Legal Expenses Insurance Company, which is part of DAS Group, the largest legal expenses insurer in the world, is set to expand into Canada; it should be selling policies here by the end of the year. If successful, it will change how we access the justice system, hopefully for the better - as long as Canada's provincial law societies, the legal profession's self-regulating bodies, don't stand in the way.
Legal expenses insurance (also known as LEI) has been popular in Europe for decades. In Germany, where DAS is based, 42 per cent of households have a policy. The United Kingdom is the fastest-growing market at the moment, and Paul Asplin, chief executive officer of DAS UK Group, sees Canada as the same kind of opportunity - our legal system is similar to England's, he points out, and has the same problem of middle-class accessibility. "Our Canadian research showed that many families cannot afford the cost of taking legal action to protect their rights," Asplin says.
In April, DAS UK Group will be opening an office on Toronto's Bay Street, with plans to expand to Calgary and Vancouver soon after (the Canadian company will be a subsidiary of the U.K. group). DAS hopes to begin issuing policies as early as July, ranging from family legal protection - insurance against future disputes with an employer or neighbour, for example - to a motor policy, which covers anything from contract arguments over a vehicle, to lawyers' fees in the event of a driving-related lawsuit. The family product should cost about $300 per year. "Legal fees are paid, and if you lose, any costs you might have to pay as a result," Asplin says, noting that DAS does cap payments at certain limits. Each subscriber will also have access to basic legal advice over the phone. It's not cheap, but it's a bargain compared to the cost of hiring a lawyer.
DAS's entry is sure to shine a spotlight on legal services plans, but they aren't entirely unknown here. Many Canadians might belong to one without even knowing it, although most are less extensive than the CAW's, which is an employer-paid, taxable benefit. In a 2006 survey, Stephen Ginsberg, executive director of the CAW Legal Services Plan, found that roughly 5.5 million Canadians subscribe to some type of legal services plan, most of which offer little more than access to advice over the phone. (These are often add-ons to employee assistance programs, credit cards or other insurance policies, he says.) Pre-Paid Legal Services, which is not a licensed insurance provider, operates in four provinces. Its family plan, which costs $26 per month, provides members with limited access to some services, but doesn't cover the costs of litigation.
European-style legal expenses insurance, meanwhile, remains relatively rare in Canada, yet it's been shown to help members of the middle class access the justice system when they might otherwise avoid it. A German study, for example, found this type of insurance encouraged people to fight cases with merit that would otherwise have been dropped. After interviewing a sample of U.K. residents with LEI, Richard Moorhead, deputy head of Cardiff University's law school, found those who received funding for their claims were generally satisfied. Based on Germany's experience, "there can be little doubt that a well-developed LEI market can improve access to justice," according to Matthias Kilian, an academic lawyer at the University of Cologne.
A number of Canadian experts think we could benefit from it, too. In his recent report on Ontario's legal aid system, University of Toronto law professor Michael Trebilcock concluded that legal insurance is an "underexplored" means of promoting access to justice, and urged the Law Society of Upper Canada and Legal Aid Ontario to take note. "We haven't made as much progress in this area as we might have," he says. Ontario Chief Justice Warren Winkler, who chaired a task force in the 1970s looking at legal services plans, calls them "meaningful and workable." But they never took off on a large scale.
It's not for lack of trying. DAS isn't the first foreign LEI provider who's tried to set up here. Back in 1990, the U.K.-based Legal Protection Group started issuing legal expenses insurance policies in Canada, says Kevin Girling, who was the company's vice-president in charge of Canadian operations. Not long after, LPG withdrew from the market; Girling went on to found STERLON Underwriting Managers, an Ontario-based company that provides high-end legal insurance products to companies and licensed professionals, but not individuals. Girling faults the law societies for not doing more to promote it. For this type of insurance to really catch on, "you'd need the Law Society of Upper Canada to stand up and say, 'This is a good system,' which they haven't done to date," he says.
Ontario's law society has theoretically supported legal expenses insurance since 1993, but doesn't actively endorse it. The LSUC says it's now looking at whether it should take a more active role in doing so, as well as examining barriers to its use. Other law societies are non-committal; a spokesperson for the Law Society of B.C., for example, says legal insurance is not among its priorities for the coming year. Girling thinks some lawyers might oppose LEI because it could drive fees down; not only that, "they'd have someone looking over their shoulder." After all, if a lawyer lost multiple cases, "they'd just be draining the insurance fund."
Yet there is one province where LEI has flourished: in Quebec, where the provincial law society actively promotes it. The Barreau du Québec spends about $125,000 per year on a public information campaign that includes a website, a hotline, television ads and pamphlets distributed through lawyers' offices; it even provides coverage to its roughly 150 employees. LEI, which is sold through nine insurers in the province as an add-on to a homeowners or car insurance policy, covers claims of up to $5,000 for about $35 per year, though some areas, like family law, are not covered. Roughly 250,000 Quebec families have a policy. "We've tried to convince other law societies to promote it. They don't seem interested for now," says Pierre Gagnon, past president of the Barreau.
Even if they don't seem interested, soon the law societies might not have a choice: the arrival of a heavyweight like DAS should be enough to give legal expenses insurance a real shot here. "You need a high-end carrier to invest a lot and make it work," Girling says. "We just weren't that size." One impediment to designing a good legal insurance policy, Winkler says, is the unpredictability of each case. Some are quick to wrap up, while others can stretch on in endless litigation, driving up premiums. (In Germany, which represents half the LEI market worldwide, this isn't a problem: lawyers' fees are fixed, so insurance companies can easily calculate risk.) Beyond that, insurers are wary of what's called adverse selection: the notion that people who'd buy this type of insurance are also the most likely to use it. That's one reason union plans like the CAW's are successful; within the pool of members, some will certainly be less litigious than others. Finally, such policies can be a hard sell because most people don't think they need a lawyer, until they do.
DAS should be well-equipped to deal with these hurdles. By referring clients to a panel of lawyers who agree to work for a set fee, and imposing a maximum limit for each claim (family legal protection, for example, covers up to $100,000), the company has sidestepped concerns around endless litigation costs, Asplin says. As for adverse selection, "that's always a problem," he admits. "The answer is, you have to market the product very well, and attract a range of policy holders, not just litigious ones." DAS is prepared to absorb some losses over the first few years as it puts down roots here. If it succeeds, other insurers could follow suit: STERLON, for one, may piggyback on DAS's arrival to start offering some individual LEI policies, Girling says.
While legal expenses insurance won't be the magic bullet that solves Canada's access to justice crisis, observers hope it could be one part of the solution. "The U.K. and Canada share a common problem: people have legal rights, but can't afford to enforce them," Asplin says. "But it's the basis of any democracy that people can enforce their rights - otherwise, what have you got?"
Maclean's March 9, 2009