Go ahead, sue me - I have insurance

Share

David Chen, the Toronto grocer forced to fight criminal charges over his "citizen's arrest" of an alleged shoplifter, racked up tens of thousands of dollars in legal fees to clear his name last year.

Those bills make him an example of someone who could have benefited from what is known as "legal protection insurance," says the head of a company trying to sell Canadians on the concept.

The idea is simple. You pay an annual premium, starting at $360, for access to a hotline that offers advice for common legal problems and a lawyer if you need to go to court, to a maximum of $100,000 per claim and $500,000 a year in total.

DAS Legal Protection Insurance Co. Ltd., a subsidiary of German reinsurance giant Munich Re, has been offering the policies since last year. Barbara Haynes, DAS Canada's chief executive officer, points to small business operators like Mr. Chen, who became a became a cause célèbre before being acquitted, as potential customers.

"Really what we're about is providing affordable access to justice," Ms. Haynes said in an interview. "Certainly if you talk to the law societies or the bar association they've got access to justice very high on the agenda."

The whole notion of legal insurance for consumers is, with some exceptions, a foreign concept in Canada, despite its popularity in Europe and the U.S. Legal protection insurance is included in some Canadian Auto Workers' and other unions' contracts, and the provision of similar insurance coverage in Quebec is co-ordinated by the profession's governing body, Le Barreau du Québec. But otherwise, it is largely unknown here.

DAS sees Canada as an untapped market for its business. Observers in the legal profession, while generally positive about the concept, caution that it is no panacea for the problem of access to the legal system and is not without pitfalls.

The insurer's customers can tap into a legal advice line that draws on about 850 lawyers across Canada. Lawyers will draft letters for customers, give them advice, and represent them in court if necessary.

DAS's marketing materials sell the product as "affordable" justice for the middle class, which is too wealthy for legal aid but not wealthy enough to pay large legal bills: "It's more than a policy; it's empowerment, knowing you have access to legal counsel and expense coverage when and if you need it."

But there are many provisos, including deductibles and waiting periods. And, before DAS will proceed with a civil suit, its own lawyers must believe that there is at least a 51-per-cent chance of success. Plus, the policy excludes family law, so it does not cover divorces or child-custody battles.

The company also offers special policies for drivers - which will see its lawyers fight traffic tickets - and small businesses. Premiums vary, but the company says that a business with revenue of about $700,000 tends to pay roughly $600 a year, plus an additional $500 for contract-dispute and debt-recovery coverage.

It's all cheap compared with covering legal costs yourself, with the average hourly rate for a lawyer with 10 years experience at more than $300. Ms. Haynes lists off countless scenarios in which the coverage would come in handy: obtaining a severance package after being fired, feuding with a neighbour who plays music at 3 a.m. every night, seeking compensation for a slip and fall, or fending off an audit by the Canada Revenue Agency.

The legal-protection insurance industry in Europe takes in roughly $11-billion in premiums a year, said Jochen Messemer, chairman of ERGO International AG, the Munich Re subsidiary that owns DAS. By comparison, Canadians are buying roughly $11-million to $12-million worth of coverage a year, DAS says.

Mr. Messemer said that legal-protection insurance has changed the speed with which many disputes are settled in countries such as Germany: "When you have a dispute with somebody, like a repair shop, even saying 'You should think again because I have legal protection insurance' really makes people think."

DAS cuts off customers who it believes are suing people just because they have insurance.

"There are people in every society who love to go to court and sue their neighbour," Mr. Messemer said. "After the third or fourth case, we would consider cancelling the legal protection insurance to signal that it might be better to speak to the person you have the dispute with. And, to be profitable, you don't want to have people in your portfolio who have fun suing other people."

Here in Canada, DAS has established partnerships with firms such as Gowling Lafleur Henderson LLP and is licensed across the country except in Quebec, where it is still working to obtain its licence. It has hired someone to open an office in the Maritimes later this summer.

But DAS says profits here are at least five years away, and it is focusing on building its brand. It currently has about 1,300 customers - individuals and businesses - Ms. Haynes said. At the end of this year it will be up to about $2-million in annual premiums.

Michael Trebilcock, a University of Toronto law professor, authored a 2008 report on Ontario's legal aid program that called for the "promotion of private insurance markets for legal expense coverage." More recently, he co-authored a paper calling for a comprehensive public legal-expense insurance scheme - an idea that has not gained a lot of traction.

He said that while he was "generally positive" about insurance along the lines DAS is selling, he said it faces numerous obstacles. For one thing, customers are most likely to be "high-risk" individuals with the most potential for legal problems, making it difficult for insurers such as DAS to succeed.

"If unemployment insurance were purely private, which individuals would buy it? Well, individuals at the highest risk of being laid off," Prof. Trebilcock said.

Kevin Le Messurier-Girling, president of Sterlon Underwriting Managers Ltd., which provides legal insurance for professionals and businesses, but not for individual consumers, said the idea of selling legal-expense insurance to consumers in Canada isn't new. He was in charge of British-based Legal Protection Group when its launch of a similar product line for Canadian customers in 1990 flopped.

"It was not a good business," he said, saying that too many customers bought insurance and then filed claims immediately afterward, and that insurance brokers and customers were not interested. "It's not new. The way DAS has pitched it, it sounds as if, you know, they've come to save Canada and this is new and everything else. But it's really not."

The Law Society of Upper Canada says it supports DAS's efforts, but unlike the Barreau du Quebec, it has no plans to help co-ordinate or market insurance coverage. Former Ontario attorney-general Marion Boyd, a lay bencher with the Law Society and the chairwoman of its access-to-justice committee, said she thinks, even with its limitations, that private legal insurance could help make justice more affordable.

"If you look at what happens in most European countries, people would no more go without legal insurance than go without car insurance," Ms. Boyd said, predicting that other insurers will follow DAS if the company can make a go of it. "I mean, it's not that much more expensive than the extended warranty on an appliance. … I really think in the long term people will catch on to the importance of it."