When a 31-year-old manufacturing-company executive moved out of his rented home in Oregon, the landlady kept $125 of his $325 security deposit. That sort of thing happens often enough. When it does, tenants usually consider the morass of paper work and legal fees likely to result from bringing suit and glumly drop the whole thing. But this executive and his employer had each been contributing just over $1 per week to a group legal insurance plan, underwritten by Midwest Mutual Insurance Co. and sponsored by the Oregon State Bar Association. The tenant simply consulted one of the plan’s attorneys, who wrote a letter to the landlady. “Before we knew it, a check showed up in the mail,” says the executive. “If I didn’t have the insurance, I probably would have just stood there and taken it.”
Some 2 million American families, largely blue-collar or middle-income, are now enrolled in prepaid legal plans similar to the group insurance plans in medicine. A few plans offer a full range of services, including counsel for criminal offenses; most are limited to routine procedures—divorces, wills, house closings, landlord-tenant problems. While the plans have not grown as quickly as consumer advocates had expected, they are considered the likeliest means of giving the middle class legal protections now enjoyed by increasing numbers of the poor (through legal aid programs) and the rich (who can afford to pay for private service). The 1976 Tax Reform Act excluded from an employee’s taxable income both employer contributions to a group legal plan and the value of legal services. Under the terms of the act, the Internal Revenue Ser vice this spring gave a green light to the largest venture yet: a United Auto Workers group legal plan that will eventually cover 150,000 Chrysler employees and retirees.
Consumer hesitancy about legal insurance, however, is still high. Even in the litigious U.S., few people think future legal disputes are as inevitable as medical problems. “If you have a tooth cavity and don’t take care of it, eventually it will get worse,” notes California Law Professor Preble Stolz. “With legal problems, that’s not always so clear.” Although a few insurance companies sell group legal insurance, some major companies have tested the legal market but are holding off waiting for larger public demand. Labor negotiators have begun to focus on legal plans as a fringe benefit. Such coverage, says Claude Lilly, director of an American Bar Association study of prepaid plans, may be “just as common ten to 15 years from now as prepaid medical is today.”
Most subscribers express happiness with their new legal protection. An early pilot program for a laborers’ union in Shreveport, La., sponsored by the A.B.A. with assistance from the Ford Foundation, was funded from dues even before the experimental period ended, and the plan went forward on its own in January 1974. In Alaska, the teamsters’ and the laborers’ unions have negotiated legal insurance plans. Employers paid 130, then 150 to 200 an hour per worker for protection that includes even expensive criminal-offense work. While the Alaska plans can cost employers up to $400 or more per worker yearly, most other programs involve limited consultation and assistance—for about $100 per year.
Candy Shannon, 25, an administrative assistant with the Alaska laborers’ union, has had at least 13¢ an hour paid for her by her employer for more than three years and has made only one claim (she recovered $75 for unauthorized repairs to her car), but insists that she is happy with the plan. Says Shannon: “We would never have been able to afford to go to a lawyer on our own.”
Some observers are afraid that growth of prepaid legal services will lead to skyrocketing costs or abuse by some attorneys. “If you think doctors are bad, wait until you see us operate,” chuckles one lawyer. There is a shortage of doctors in a number of areas, but many lawyers are underemployed.
When New York’s District Council 37 State, County and Municipal Employees advertised for lawyers to help run a legal insurance plan two years ago, 1,300 applied for 35 jobs.
The long-range implications of such plans are enormous. Lawyers will be used for “preventive care” to avoid disputes or help resolve them outside the courtroom. Litigation may well increase—but only, says A.B.A. Consultant Philip Murphy, “because individuals with rights assert them rather than sleep on them.” If most citizens are educated about their rights and have private counsel to help them, predict Werner Pfennigstorf and Spencer Kimball of the American Bar Foundation, there will be “dramatic changes in the social fabric.”
