1 See, e.g., Barlow F. Christensen, Lawyers for People of Moderate Means (Chicago: American Bar Foundation, 1970); Spencer L. Kimball, Bringing Legal Services to Market (William Elliott Lecture at Pennsylvania State University, Jan. 30, 1975; in process of publication).Google Scholar

2 Preble Stolz, in Transcript of Proceedings, National Conference on the Future of Prepaid Legal Services, San Francisco, Cal., Dec. 7–8, 1973, at 171 (Chicago: American Bar Association, 1974) [hereinafter cited as ABA Conf. 19731.Google Scholar

3 Werner Pfennigstorf, Legal Expense Insurance: The European Experience in Financing Legal Services (Chicago: American Bar Foundation, 1975).CrossRefGoogle Scholar

4 On the latter, see especially Harry P. Stumpf, Community Politics and Legal Services: The Other Side of the Law (Beverly Hills/London: Sage Publications, 1975), and Samuel J. Brakel, Judicare: Public Funds, Private Lawyers, and Poor People (Chicago: American Bar Foundation, 1974).Google Scholar

5 Public Law 93–355 of July 25, 1974 (93d Gong.), 88 Stat. 378, creating new sec. 1007(g) of the Economic Opportunity Act of 1964.Google Scholar

6 This study is not a handbook cataloging existing plans, but an analysis. A catalog would duplicate the work of the Special Committee on Prepaid Legal Services of the American Bar Association. The publications of that committee provide excellent source material. See Prepaid Legal Services: Proceedings of a Conference on the Development of Prepaid Legal Services, Los Angeles, Cal., Nov. 12–13, 1971 (Los Angeles: Institute of Industrial Relations, University of California, 1972); Revised Handbook on Prepaid Legal Services: Papers and Documents Assembled by Special Committee on Prepaid Legal Services, April 1972 (Chicago: American Bar Association, 1972) [hereinafter cited as ABA Rev. Hdb.]; Compilation of Reference Materials on Prepaid Legal Services, May 1975 (Rev. ed., loose-leaf. Chicago: American Bar Association, 1975); and the series of transcripts of conferences conducted by the committee: supra note 2 and infra notes 17, 95, and 162.Google Scholar

7 After initial resistance, lawyer referral systems have been established in more than 200 communities including all major cities. For a critical analysis and evaluation of referral plans, see Christensen, supra note 1, at 173–204.Google Scholar

8 The legal profession and the courts have traditionally opposed the involvement of lay intermediaries in attempts to provide brokerage services for prospective clients–as a threat to the personal nature of the attorney-client relationship and as an invitation to abuses such as solicitation, fee splitting, or barratry. The activities tend to be classified as unauthorized practice of law. See Justine Fischer & Dorothy H. Lachmann, Unauthorized Practice Handbook 152–56 (Chicago: American Bar Foundation, 1972). Various kinds of “intermediaries” (taken in the broadest possible sense) and the problems caused by their activities are discussed by Christensen, supra note 1, at 225–91. F. Raymond Marks, The Lawyer, the Public, and Professional Responsibility (Chicago: American Bar Foundation, 1972) at 117–50 devotes a full chapter to “The Brokers: The Market Makers for Public Interest Law.”See also Kimball, supra note 1.Google Scholar

9 “Preventive law” has only recently received some of the attention it deserves, mostly based on the work of Louis M. Brown. See, e.g., Louis M. Brown, Manual of Preventive Law (New York: Prentice-Hall, 1950), and more recently, Manual for Periodic Check-up (San Francisco: California Lawyers' Service, 1974). For a complete bibliography of Louis Brown's writings, see 48 S. Cal. L. Rev. 760 (1975).Google Scholar

10 Several recent studies indicate that the conventional delivery of health services encourages unnecessary hospitalization and surgery and does not sufficiently encourage preventive medicine. See, e.g., Robert W. Hetherington, Carl E. Hopkins & Milton I. Roemer, Health Insurance Plans: Promise and Performance (New York: John Wiley & Sons, 1975); and John Krizay & Andrew Wilson, The Patient as Consumer: Health Care Financing in the United States (A Twentieth Century Fund Report) (Lexington: D. C. Heath & Co, 1974). The Health Maintenance Organization (HMO) is being promoted because it is believed to provide, through capitation payments, an incentive for providers to keep their patients healthy at minimum cost. See, e.g., Health Maintenance Organization Act of 1973, Report by the Committee on Interstate and Foreign Commerce Together with Additional Views 5–7 [To accompany H.R. 79741 (U.S. House of Representatives, 93d Cong., 1st Sess., Rep. No. 93–451). The bar may learn from this development. Remedying the lack of lawyers skilled in preventive law is not simple. We need to know more about the real legal needs of the public and to educate lawyers to meet those needs. Compensation on a capitation basis might encourage lawyers to learn to keep their clients out of trouble.Google Scholar

11 Some pertinent suggestions have been made by Christensen, supra note 1, at 160–72.Google Scholar

12 Intermediaries have traditionally held a strong position in insurance. They were mainly responsible for the “countersignature laws” of many states, which require, ostensibly to protect citizens against unscrupulous and unregulated out-of-state operators, that all fire insurance policies covering property in the state be countersigned by a resident agent. It is widely thought that these laws reflect only the power of intermediaries to demand a share in the commission on insurance contracts, without making any economic contribution. See, e.g., Spencer L. Kimball, Insurance and Public Policy: A Study in the Implementation of Social and Economic Public Policy, Based on Wisconsin Records 1835–1959, at 285–86 (Madison: University of Wisconsin Press, 1960).Google Scholar

13 This was not the only objective of the early Blue Cross and Blue Shield plans; they also aimed at giving citizens better access to affordable medical services, as well as at providing a viable privately sponsored alternative to national health insurance, which at that time was a hotly contested proposal. See, e.g., Robert D. Eilers, Regulation of Blue Cross and Blue Shield Plans 10–17 (Homewood, Ill.: Richard D. Irwin, 1963); Sylvia A. Law, Blue Cross: What Went Wrong? 6–7 (New Haven: Yale University Press, 1974). But the paramount role of marketing is demonstrated by the organized medical profession's bitter opposition to consumer-sponsored health service plans, while promoting the Blue Shield plans, which were completely controlled by the medical societies. See, e.g., Eilers, supra, at 15–16; William A. MacColl, Group Practice & Prepayment of Medical Care 26–27 (Washington, D.C.: Public Affairs Press, 1966); American Medical Ass'n v. United States, 317 U.S. 519 (1942), affirming 130 F.2d 233 (D.C. 1942).Google Scholar

14 Legal service plans do not have a monopoly on education and guidance of this sort; it has long been provided in various ways, recently by writers for profit. See, e.g., Norman F. Dacey, How to Avoid Probate (New York: Crown Publishers, 1965). Bar associations sometimes conduct education campaigns blended with a generous portion of public relations intended to improve the image of lawyers-or even engage in collective advertising. For example, the German Bar Association (Deutscher Anwaltverein) (an organization with traditional strict views about advertising by individual lawyers) recently developed a series of eight folders and offers them through an affiliated publisher for distribution in lawyers' waiting rooms. Each folder explains in laymen's terms the legal aspects of a particular situation (landlord and tenant law for tenants, succession law for testators, sales law for buyers, labor law for employees, domestic relations for spouses, traffic law for motorists, tax law for taxpayers, succession law for heirs). On the front page of each folder, in addition to its special subject and a cartoon depicting a typical conflict situation, is the general title “Tips from Your Attorney” and the catch phrase “Your lawyer knows how right you are.”Google Scholar

15 It is difficult to separate neatly the public interest measures from those that only serve the lawyers' own financial interests. The problem has been stated most eloquently by Karl N. Llewellyn in The Bar's Troubles, and Poultices-and Cures? 5 L. & Contemp. Prob. 104, 116 (1938). See also Kimball, supra note 1.CrossRefGoogle Scholar

16 Legal services plans are not alone in pursuing this objective. Bar associations have long supported continuing legal education, and there is now a trend toward mandatory programs for maintaining and improving professional skills. See, e.g., Douglas H. Parker, Periodic Recertification of Lawyers: A Comparative Study of Programs for Maintaining Professional Competence, 1974 Utah L. Rev. 463.Google Scholar

17 Proposals calling for such a requirement may have been inspired by the Health Maintenance Organization Act of 1973 (P.L. 93–222, December 29, 1973), which requires HMOs to establish quality assurance programs, including “peer review” of health services. See, e.g., Garrick F. Cole, Will the History of Health Plans on Cost and Quality Controls Repeat Itself in Legal Services? in Transcript of Proceedings, National Conference on Prepaid Legal Services and Beyond, Boston, Mass., May 2–4, 1974, at 135 (Chicago: American Bar Association, 1974) [hereinafter cited as ABA Conf. 1974], and Jules Bernstein, The Health Plan Analogy: Comments, id. at 143.Google Scholar

18 Formal Opinion No. 338 of November 16, 1974, 61 A.B.A.J. 123 (January 1975).Google Scholar

19 This last specification should quickly disappear as a result of Goldfarb v. Virginia State Bar, 421 U.S. 773, 44 L. Ed. 2d 572, 95 S. Ct. 2004 (1975).Google Scholar

20 Instances of such higher fees were reported in a recent survey of California group legal service plans (San Francisco: The California Group Legal Institute, 1973).Google Scholar

21 The ABA's Special Committee on Prepaid Legal Cost Insurance changed its name to Special Committee on Prepaid Legal Services in order not to “invite regulation.”See Report of July 1971, 96 Annual Report of the ABA 723 (1972).Google Scholar

22 See, e.g., C. Arthur Williams, Jr. & Richard M. Heins, Risk Management and Insurance 203 (2d ed. New York: McGraw-Hill, 1971).Google Scholar

23 The essence of life insurance is distribution of mortality risk, which escaped the court in SEC v. Variable Annuity Life Insurance Co. of America, 359 U.S. 65 (1959). The majority opinion, written by Justice Douglas, stated that “the concept of ‘insurance’ involves some investment risk-taking on the part of the company” (at 71). Since the variable annuity in question did not assign at least “some” investment risk to the company, the opinion concluded it was not an insurance contract. The mortality risk assumed by the company was declared to be “apparent, not real; superficial, not substantial,” and consequently was disregarded in classifying the contract. It hardly needs to be added that we believe that view to be in error. The results of the case can be made plausible by a different rationale. See the opinion of Brennan, J., id. at 80–91.Google Scholar

24 An elementary statement of the problem is found in Spencer L. Kimball, All Lines Authority: Implications for Solidity, 11 Forum 433 (1976).Google Scholar

25 Homeowners' insurance was initially sold at optimistic rates that produced large losses for insurers. See Gerald R. Hartman, Ratemaking for Homeowners Insurance (Homewood, Ill.: Richard D. Irwin, 1967).Google Scholar

26 See F. Raymond Marks, Robert Paul Hallauer & Richard R. Clifton, The Shreveport Plan: An Experiment in the Delivery of Legal Services 61–67 (Chicago: American Bar Foundation, 1974), for some indications of increased usage. The authors present an argument, about which we are skeptical, that improved access to lawyers may reduce usage. Id. at 86.Google Scholar

27 Proposed by H.R. 3025 (94th Cong., 1st Sess.).Google Scholar

28 This attitude expressed itself in special “enabling acts” in many states for the early health service plans; these acts usually contained a statement of legislative policy emphasizing the charitable and benevolent nature of the plans and then established formal requirements to be met by plans to achieve exemption from regulation and taxation. See Eilers, supra note 13, at 99–109. The same attitude is much in evidence in the California Supreme Court's opinion in California Physicians' Service v. Garrison, 28 Cal. 2d 790, 172 P.2d 4 (1946).Google Scholar

29 This seems to be borne out by the experience of some of the older plans. For instance, in the first year of operation of the Shreveport plan, several cases were reported in which subscribers solved their problems with only the threat of a lawyer; one member forestalled attempted repossession simply by announcing he would call a lawyer “under his insurance plan.” Some participating attorneys thought that the availability of legal assistance was likely to discourage dishonest business practices. See Marks et al., supra note 26, at 86, and Statement of Robert J. Connerton in support of the proposed amendment of sec. 302(c) of the Taft-Hartley Act, Congressional Record, Vol. 119, Pt. 13, May 16, 1973, at 16010.Google Scholar

30 In addition, class actions can often generate fees to pay the lawyers who are involved.Google Scholar

31 The development, potential, and possible problems of organizational litigation are considered in Comment, From Net to Sword: Organizational Representatives Litigating Their Members' Claims, 1974 U. Ill. L.F. 663.Google Scholar

32 Student plans in particular have initiated projects aimed at common problems. Landlord-tenant relations are the most numerous student problems. Booklets, newspaper articles, and lectures by student legal service attorneys inform student tenants of landlord-tenant relation-ships. The Student Legal Service program of the University of Virginia, for example, updated a handbook on local landlord-tenant law and developed a “Model Lease Form” for use by students in negotiating with landlords; the form was also made available to landlords with the hope that they might adopt it for rental units offered to students.Google Scholar

33 Information from a member of our Advisory Committee.Google Scholar

34 Army Regulation No. 608–50, of Feb. 22, 1974, No. 3.Google Scholar

35 39 Cal. St. B.J. 679–81 (1964).Google Scholar

36 The Employee Retirement Income Security Act of 1974 (ERISA), Public Law No. 93–406, of Sept. 2, 1974, 88 Stat. 829 in its sec. 3(16)(B) defines “plan sponsor” as follows:Google Scholar

(i) the employer in the case of an employee benefit plan established or maintained by a single employer, (ii) the employee organization in the case of a plan established or maintained by an employee organization, or (iii) in the case of a plan established or maintained by two or more employers or jointly by one or more employers and one or more employee organizations, the association, committee, joint board of trustees, or other similar group of representatives of the parties who establish or maintain the plan.Google Scholar

Under sec. 3(16)(A), the sponsor becomes the administrator if no administrator is designated in the plan instrument, and as such is responsible, inter alia, for filing the reports required under sec. 101. See note 47, infra.Google Scholar

A much cruder definition has been proposed by Garrick F. Cole, An Act to Regulate Group Legal Service Plans, 11 Harv. J. Legisl. 68, 83 (1973) (“a person who or which offers and manages a plan”).Google Scholar

37 See also notes 36 supra and 47 infra. Some of the special problems of employee legal service plans arc discussed in another paper; see note 78 infra.Google Scholar

38 See, e.g., Jordan v. Group Health Ass'n, 107 F.2d 239 (D.C. 1939); California Physicians' Service v. Garrison, 28 Cal. 2d 790, 172 P.2d 4 (1946); Feinstein v. Attorney General, 36 N.Y.2d 199, 326 N.E.2d 288, 366 N.Y.S.2d 613 (1975).Google Scholar

39 See, e.g., Massachusetts House Bill No. 2964 (January 1975), which proposes Chapter 176G of the General Laws with the following requirement in sec. 5(a)(1)(A):Google Scholar

Benefits package, including the provision of criminal defense services, which is reason-able in scope and extent and reasonably designed and expected to pay at least seventy-five percent of the total cost of legal services required during its period of operation by all of the plan's subscribers or members; provided, however, that the commissioner may alter the percentage of coverage required, by regulations duly adopted after at least three month's experience hereunder.Google Scholar

Cole, supra note 36, at 101, proposes a similar requirement for “legal services cost insurance”: “The coverage … shall be designed to cover at least 80 percent of the cost of legal services provided to 90 percent of the plan's subscribers….”Google Scholar

We have difficulty understanding the meaning of these ambiguous requirements, and their justification if we understand their meaning correctly, for they may preclude viable operation.Google Scholar

40 Public Law 93–222 of Dec. 29, 1973, 87 Stat. 914. The law in its second section (new sec. 1301 of the Public Health Service Act) defines HMOs to include only those organizations that provide at least a list of services defined as “basic and supplemental health services.” It should be noted, however, that this requirement is imposed not for regulation but to determine eligibility for federal subsidies.Google Scholar

41 “Reserve” is a technical term in insurance law; a reserve is a liability on the firm's balance sheet. It represents “prepaid premiums not yet earned,” or “losses incurred not yet paid,” etc. Reserves reflect the reasonable allocation of prepaid income to future or contingent expenditures that every prudent businessman must make–they are not additional idle assets, as the uninitiated often assume, based on the ordinary connotations of the term.Google Scholar

42 See, e.g., Tondel, Connerton, and Fisher, The New ABA Ethic, in ABA Conf. 1974, supra note 17, at 64–78.Google Scholar

43 Minimum fee schedules were declared to be in violation of the federal antitrust laws by Goldfarb v. Virginia State Bar, 421 U.S. 773, 44 L. Ed. 2d 572, 95 S. Ct. 2004 (1975). For details of the development of the schedules, see Note, A Critical Analysis of Bar Association Minimum Fee Schedules, 85 Harv. L. Rev. 971 (1972), and Note, The Application of the Sherman Act to Legal Practice and Other “Non-commercial” Activities, 82 Vale L.J. 313 (1972).Google Scholar

44 The establishment of a trust is one of the conditions under which sec. 302(c) of the Labor Management Relations (Taft-Hartley) Act permits the payment of contributions by employers. ERISA sec. 403 (supra note 36) also requires a trust fund.Google Scholar

45 The Ohio State Bar Association has established a trust fund rather than a nonprofit corporation as a vehicle to offer prepaid legal services to groups. See Rudolph Janata, Prepaid Legal Services: The Ohio Experience, 41 Ins. Counsel J. 50 (1974). Under a legal service program offered by the Utah State Bar to members of credit unions, contributions are channeled through a special trust fund. See Joseph Novak, How the Utah Bar Prepaid Legal Services Plan Operates, 60 A.B.A.J. 1081 (September 1974).Google Scholar

46 For a discussion of the powers and duties of trustees, see Trustees Handbook (David Livingston, ed. Brookfield, Wis.: International Foundation of Employee Benefit Plans, 1970).Google Scholar

47 See, e.g., ERISA sec. 101 (supra note 36). Not every person performing administrative functions is an administrator in the sense of ERISA. Section 3(16)(A) of the Act defines “administrator” as follows:Google Scholar

(i) the person specifically so designated by the terms of the instrument under which the plan is operated.Google Scholar

(ii) if an administrator is not so designated, the plan sponsor; orGoogle Scholar

(iii) in the case of a plan for which an administrator is not designated and a plan sponsor cannot be identified, such other person as the Secretary may by regulation prescribe.Google Scholar

(For a definition of “sponsor,”see note 36 supra.) The position of the administrator requires us, in the subsequent paper, to ask what duties are not delegable to him.Google Scholar

48 See, e.g., Junius L. Allison, Problems of Professional Responsibility Arising from the Development of Pre-Paid Legal Services, 4 U. Toledo L. Rev. 413 (1973), who lists a total of eight possible complaints, all related to the interference of a third-party intermediary.Google Scholar

49 See, e.g., Chief Justice Burger Proposes First Steps Toward Certification of Trial Advocacy Specialists, 60 A.B.A.J. 171 (1974); Irving R. Kaufman, The Court Needs a Friend in Court, id. at 175.Google Scholar

50 One of the most complete collections of the various arguments for and against legal service plans, including criticisms of the present system, can be found in the Hearings of the Subcomm. on Representation of Citizen Interests of the U.S. Senate's Judiciary Comm.: Prepaid Legal Services Plans, Hearings before the Subcomm. on Representation of Citizen Interests of the Comm. on the Judiciary, U.S. Senate, 93d Cong., 2d Sess., on Recent Developments in Prepaid Legal Services Plans, May 14 and 15, 1974.Google Scholar

51 See Allison, supra note 48.Google Scholar

52 Supra pp. 420–21.Google Scholar

53 See, e.g., Law, supra note 13; Krizay & Wilson, supra note 10, at 91–123; Catherine Lynch, Reimbursement of Hospitals by Blue Cross: The Need for Subscriber Participation, 11 Colum. J. L. & Social Prob. 189 (1975).Google Scholar

54 See Krizay & Wilson, supra note 10, at 119–21.Google Scholar

55 Supra pp. 417–19.Google Scholar

56 See, e.g., ABA Code of Professional Responsibility, DR 2–101. Considerable liberalization of these restrictions has been proposed by the ABA Standing Committee on Ethics and Professional Responsibility. See the report in 20 Am. Bar News 1 (No. 8, December 1975).Google Scholar

57 For a discussion of various new approaches to lawyer advertising, see Jerome Wilson, Madison Avenue, Meet the Bar, 61 A.B.A.J. 586 (1975). Changes adopted by the ABA House of Delegates in February 1976 would permit lawyers to include information concerning their qualifications, special areas of interest, and fee rates in law lists and directories, including the Yellow Pages.Google Scholar

58 For details, see Spencer L. Kimball, The Purpose of Insurance Regulation: A Preliminary Inquiry in the Theory of Insurance Law, 45 Minn. L. Rev. 471 (1961); Kimball, supra note 24.Google Scholar

59 See ERISA secs. 402–413, supra note 36. Section 402(6)(3) anticipates amendments of plans and only requires that jurisdiction and procedures be specified in advance. However, the law does assist participants in enforcing whatever claims they have under the plan, by requiring that in case of denial of a claim the reasons must be stated and the participant must be given an opportunity to have the decision reviewed. See ERISA sec. 503 and sec. 102(b).Google Scholar

60 ERISA secs. 301–306 and sec. 103(a)(4), (d).Google Scholar

61 See, e.g., Kimball, The Purpose of Insurance Regulation, supra note 58, and Wis. Stat. sec. 623.11 (1973).Google Scholar

62 See note 39 supra and corresponding text.Google Scholar

63 There are precedents for such rules in the regulation of accident and health insurance policies. Some states require restrictive clauses to be indicated by prominent warnings, such as “'This is a limited policy Read it carefully”See, e.g., Wisconsin Administrative Code Ins. 3.13(2)(h). See also generally Spencer L. Kimball & Werner Pfennigstorf, Legislative and Judicial Control of the Terms of Insurance Contracts: A Comparative Study of American and European Practice, 39 Ind. L.J. 675 (1964).Google Scholar

64 See note 39 supra.Google Scholar

65 For instance, the federal pension law of 1974, after a long legislative struggle, now seeks to assure employees that they will actually receive the benefits of pension plans; but the law does not yet safeguard the expectations created by other types of employee benefit plans.Google Scholar

66 Cole, supra note 17.Google Scholar

67 See, e.g., the list of potentially relevant factors in DR 2–106 of the ABA Code of Professional Responsibility.Google Scholar

68 See note 43 supra.Google Scholar

69 See, e.g., F. B. MacKinnon, Contingent Fees for Legal Services (Chicago: Aldine Publishing Co., 1964).Google Scholar

70 See, e.g., Jeffrey O'Connell, The Injury Industry and the Remedy of No-Fault Insurance 37–53 (Urbana: University of Illinois Press, 1971).Google Scholar

71 Several federal and state laws and court rules limit the percentage that can be charged as a contingent fee in certain matters. See, e.g., Donald A. Strickland, Limitations on Attorneys' Fees under Federal Law (Chicago: American Bar Foundation, 1961).Google Scholar

72 This has been one of the difficulties encountered by insurance regulators who tried to force Blue Cross plans to adopt more effective cost control policies. See, e.g. Krizay & Wilson, supra note 10, at 99.Google Scholar

73 A background study devoted to these jurisdictional problems will be published separately.Google Scholar

74 Four decisions of the U.S. Supreme Court signaled the start of the present legal service plan movement:Google Scholar

NAACP v. Button, 371 U.S. 415 (1963); Bhd. of R.R. Trainmen v. Virginia ex rel. Virginia State Bar, 377 U.S. 1 (1964); UMW v. Illinois State Bar Ass'n, 389 U.S. 217 (1967); United Transp. Union v. State Bar of Michigan, 401 U.S. 576 (1971).Google Scholar

75 See, e.g., Florian Bartosic & Jules Bernstein, Group Legal Services as a Fringe Benefit: Lawyers for Forgotten Clients Through Collective Bargaining, 59 Va. L. Rev. 410 (1973).CrossRefGoogle Scholar

76 See, e.g., F. Raymond Marks & Darlene Cathcart, Discipline Within the Legal Profession: Is It Self-Regulation? 1974 U. Ill. L. Forum 193.Google Scholar

77 ERISA sec. 514(a) and (c)(2). The sponsors of the legislation made it clear that the preemption was intended to extend to actions by professional associations “under the guise of State-enforced professional regulation.”See Senator Williams in Congressional Record, Vol. 120, No. 130, Aug. 22, 1974, at S 15742. See also the exchange between Senators Taft, Williams and Javits, id. at S 15757–8.Google Scholar

78 We have treated the special problems raised by the preemption provision of ERISA in Employee Legal Service Plans: Conflicts Between Federal and State Regulation (in process of publication).Google Scholar

79 For details, see Jan Hellner, The Scope of Insurance Regulation: What Is Insurance for Purposes of Regulation? 12 Am. J. Comp. L. 494 (1976); Herbert S. Denenberg, The Legal Definition of Insurance: Insurance Principles in Practice, 30 J. Ins. 319 (1963).Google Scholar

80 A collection of all the definitions in state statutes, as well as definitions in cases, was recently compiled by the Advisory Committee to the Prepaid Legal Expense Subcommittee of the National Association of Insurance Commissioners. See 1974 (Vol. 2) NAIC Proceedings 654.Google Scholar

81 See the articles cited supra note 79.Google Scholar

82 See, e.g., Robert D. Eilers, Minimum Premium Health Plans: Insured Non-insurance, 36 J. Risk & Ins. 63 (1969); Richard W. Duesenberg, The Legality of Noninsured Employee Benefit Programs, 5 B.C. Ind. & Comm. L. Rev. 231 (1964); Raymond Goetz, Regulation of Uninsured Employee Welfare Plans Under State Insurance Laws, 1967 Wis. L. Rev. 319; Note, State Regulation of Noninsured Employee Welfare Benefit Plans, 62 Geo. L.J. 339 (1973); Note, Self-insured Employee Welfare Plans and the 501(c)(9) Trust: The Specter of State Regulation, 43 Cinn. L. Rev. 325 (1974).Google Scholar

83 See, e.g., Mutual Life Insurance Co. of New York v. New York State Tax Commissioner, 32 N.Y.2d 348, 298 N.E. 2d 632 (1973); West & Co. of La. v. Sykes, 515 S.W.2d 635 (Ark. 1974); State ex rel. Farmer v. Monsanto Co., 517 S.W.2d 129 (Mo. 1974).Google Scholar

84 See, e.g., William B. Pugh as quoted in 2 Group Legal Rev. [41 (No. 3, 1974).Google Scholar

85 See Idaho Code secs. 41–4001 to 41–4022, created by ch. 248, laws of 1974; Missouri Ann. Stat. sec. 354.165, created by ch. 134, laws of 1973. These laws are preempted by ERISA sec. 514. See notes 77 and 78 supra and corresponding text and the paragraph on the regulation of labor relations infra.Google Scholar

86 See the article cited in note 78 supra.Google Scholar

87 ERISA sec. 514, supra note 36.Google Scholar

88 The conflict of federal and state jurisdictions in the regulation of employee legal service plans is discussed in the article cited in note 78 supra.Google Scholar

89 The regulation of automobile clubs, with special emphasis on legal service benefits, will be described in a separate study.Google Scholar

90 The special problems posed by student legal service plans are the subject of a separate study.Google Scholar

91 See note 34 supra and corresponding text.Google Scholar

92 The McCarran Act, Public Law 15 of March 9, 1945, 59 Stat. 34, sec. 2(b), provides that the antitrust laws shall apply to the business of insurance only to the extent that it is not regulated by the states; sec. 3(b) excepts from this exemption activities amounting to boycott, coercion, and intimidation.Google Scholar

93 Goldfarb v. Virginia State Bar, 421 U.S. 773, 44 L. Ed. 2d 572, 95 S. Ct. 2004 (1975).Google Scholar

94 See, e.g., Thomas E. Kauper and Joe Sims as quoted in 60 A.B.A.J. 1410, 1413 (1974).Google Scholar

95 For details, see John E. Hendricks in Transcript of Proceedings, 5th National Conference on Prepaid Legal Services, New Orleans, La., May 8–10, 1975, at 159–66 (Chicago: American Bar Association, 1975) [hereinafter cited as ABA Conf. 1975].Google Scholar

96 Federal Reports Act of 1942, Public Law 831, 77th Gong. of Dec. 24, 1942, now 44 U.S.C. secs. 3501–3511.Google Scholar

97 See Olavi Maru, Research About the Legal Profession: A Review of Work Done (Chicago: American Bar Foundation, 1972). A meaningful evaluation of the dangers presented by conflict of interest situations would require much more knowledge of lawyers' motivations–in practice rather than in the self-image or public image of lawyers. The traditional ideal of the legal profession reflected in the ethical rules is that of a person of independent means who gives advice and aid without regard to compensation. The opposite image is of the mercenary moved exclusively by profit. As usual, the truth can be expected to be in the middle: like other human beings, lawyers are neither blind to their own interests nor unable to perceive those of others. Nor are they immune to value judgments (on whatever philosophical or religious basis) that sometimes impel them to subordinate their own interests. Some insights are provided by Dorothy Linder Maddi & Fredric R. Merrill, The Private Practicing Bar and Legal Services for Low-Income People (Chicago: American Bar Foundation, 1971), and Philip R. Lochner, Jr., The No Fee and Low Fee Legal Practice of Private Attorneys, 9 Law & Soc'y 431 (1975).Google Scholar

98 49 Cal. State Bar J. 542 (1974). It was formerly known as Rule 20.Google Scholar

99 Id. at 616.Google Scholar

100 See California Group Legal Institute Survey, supra note 20, which compared sample fees quoted by the law firms with statewide averages. While the majority of the firms surveyed quoted lower than statewide average fees, several firms quoted fees that were higher; in one instance, the quoted fees exceeded the average by 61 percent. The methods used in the survey for both data collection and analysis were crude and the results equally so; still, the number of instances of higher than average fees is enough to suggest further study of the bargaining process and the conflicting interests involved in establishing a group legal service plan.Google Scholar

101 Public education about the nature and cost of legal services and a liberalization of advertising restrictions may improve the situation. Moreover, group representatives become increasingly skillful in shopping and negotiation.Google Scholar

102 See note 21 supra.Google Scholar

103 Id.Google Scholar

104 It is little comfort that the terminology was not invented but adopted by the promoters of legal service plans from the health service organizations such as Blue Cross and Blue Shield Plans, which have used the term for many years for the same reason, namely to avoid insurance regulation. See, e.g., the testimony of Walter J. McNerney in Medical Care for the Aged, Hearings on H.R. 3920 before the House Committee on Ways and Means, 88th Cong., 1st & 2d Sess., pt. 4, at 2068 (1964).Google Scholar

105 ABA Special Committee on Prepaid Legal Services, Special Report to National Conference on Prepaid Legal Services 1 (Chicago: American Bar Association, 1972).Google Scholar

106 ABA Special Committee on Prepaid Legal Services, A Primer on Prepaid Legal Services 3 (Chicago: American Bar Association, 1974).Google Scholar

107 Supra p. 460.Google Scholar

108 See, e.g., Krizay & Wilson, supra note 10, at 125; MacColl, supra note 13; Note, The Role of Prepaid Group Practice in Relieving the Medical Care Crisis, 84 Harv. L. Rev. 887 (1971).Google Scholar

The Health Maintenance Organization Act of 1973, supra note 40, has established the prepayment method as one of the essential requirements to be met by HMOs in order to qualify for federal subsidies. See sec. 1301(c) of the Public Health Service Act, as amended: “Each health maintenance organization shall–… (2) assume full financial risk on a prospective basis for the provision of basic health services,” subject to the option of obtaining insurance coverage for certain portions of the risk.Google Scholar

109 See, e.g., Frederick G. Fisher, Jr., Prepaid Legal Services–Open v. Closed Panels: Future Options of the Private Bar in the Field of Prepaid Legal Services, 58 Mass. L. Quarterly 243 (1973); and, on the other hand, William Martin Greene, Prepaid Legal Services: More than an Open and Closed Case, 22 Cleveland St. L. Rev. 425 (1973).Google Scholar

110 Most services can be performed locally, but some provision is necessary for matters where the venue lies elsewhere. In Blue Cross and Blue Shield contracts there is provision for emergency services outside the geographical area of the plan.Google Scholar

111 See, e.g., Proposed Rules of Professional Conduct of the California State Bar, Rule 2–104(E) sec. a(2)(b)(i), as published in 49 Cal. State Bar J. 542 (1974). This rule permits lawyers to cooperate with plans if they are operated by nonprofit organizations and are so developed, administered and operated that “the panel of attorneys furnishing legal services thereunder consists of at least 20% or 1000 or the active members of the State Bar engaged in private practice and maintaining their principal offices in the geographical area served by the arrangement, whichever is the lesser number, but in no event less than 15 such active members …. “The rule further requires that the panel of attorneys must be open to any active member of the State Bar in the geographical area served by the arrangement. Id. Rule 2–104(E) sec. a(2)(b)(ii).Google Scholar

112 See, e.g., Official Opinion 75–29 of the Idaho Attorney General, Aug. 14, 1974, 1974 Ins. L.J. 616 (No. 622).Google Scholar

113 See, e.g., Filers, supra note 13, at 85–88; MacColl, supra note 13, at 159–61.Google Scholar

114 See, e.g., Opinion No. 74–25, dated Jan. 18, 1974, of the Kansas Attorney General.Google Scholar

115 For a summary of the issue, see the articles by Hellner and Denenberg, supra note 79.Google Scholar

116 Physicians' Defense Co. v. O'Brien, 100 Minn. 490, 111 N.W. 396 (1907); Physicians' Defense Co. v. Cooper, 199 Fed. 576 (9th Cir. 1912). Their reasoning is much more convincing than that of two earlier decisions announcing a contrary view: State ex rel. Physicians' Defense Co. v. Laylin, 73 Ohio St. 90, 76 N.F. 567 (1905); Vredenburgh v. Physicians' Defense Co., 126 Ill. App. 509 (1906).Google Scholar

117 See, e.g., Eilers, supra note 13, at 85–88. Both Blue Cross and Blue Shield plans were initially limited (as a result of their attempts to avoid being classified as insurance companies) to providing care and services in kind, to the exclusion of any money payments. This made it impossible for them, e.g., to reimburse subscribers for hospital expenses incurred outside the area served by the plan, and to provide benefits covering loss of income due to sickness, as the commercial insurance companies could. These limitations put the health service plans at a competitive disadvantage as compared with commercial insurers and explain why these plans have not been able to achieve a larger market share in spite of the cost advantages of privileged tax status and their strategic market position through their relationship to the providers of services. An even more serious effect of the misplaced emphasis on services has been the fragmentation of health service plans and their coverages (hospital care as opposed to physicians' services, dental and vision services, prescriptions, ambulance services, blood suppliers, etc.). Their inability to develop integrated and comprehensive health care coverages has led to grotesque misallocations of health care resources and is one of the principal causes of the present HMO movement. See, e.g., the works cited supra notes 10 and 13.Google Scholar

118 See, e.g., the opinion of the Idaho Attorney General, supra note 112.Google Scholar

119 See, e.g., Williams & Heins, supra note 22.Google Scholar

120 Supra pp. 444–45.Google Scholar

121 ERISA sec. 402(b)(3) (supra note 36).Google Scholar

122 That issue is discussed in a separate paper; see note 78 supra.Google Scholar

123 In most states, legislation providing the basis for an effective regulation of employee benefits plans has been prevented by powerful opposition from industry, banks, and labor. After the enactment of ERISA and its preemption clause, opposition to state legislation can be expected to be stronger and support for it weaker.Google Scholar

124 ERISA secs. 4(b)(1) and 3(32) (supra note 36).Google Scholar

125 See, e.g., statement of Michael N. Thome, Chief Executive Officer, State Teachers' Retirement System, State of California, in Welfare and Pension Plan Legislation, Hearings before the General Subcomm. on Labor of the Comm. on Education and Labor, House of Representatives, 93d Cong., 1st Sess., on H.R. 2 and H.R. 462, Pt. 2, 711 (1973).Google Scholar

126 We are aware that this view is not shared by the sponsors and administrators of some legal service plans for public employees. We think, however, that this is the only interpretation that is supported by the legislative history. The entire exception for governmental plans is subject to further study and possible revision. See ERISA sec. 3031 (supra note 36).Google Scholar

127 Supra p. 460.Google Scholar

128 See [proposed] Rule, 29 CFR 2510.3-3(p), 40 Fed. Reg. 24652 (No. 111 of June 9, 1975).Google Scholar

129 ERISA secs. 4(b)(2) and 3(33) (supra note 36).Google Scholar

130 For details, see the paper mentioned in note 78 supra.Google Scholar

131 ERISA sec. 3(1) specifically refers to “prepaid legal services” in defining employee welfare plans. For a discussion of the “prepaid” terminology, see pp. 462–65 supra.Google Scholar

132 While ERISA establishes funding standards for pension plans in secs. 301–306, no comparable requirements are imposed on other plans. The traditional (and the only feasible) practice for employee welfare (i.e., other than pension) plans has been to start with the amount of contributions negotiated with the employer or voted by the union members as a fixed basis, to establish a schedule of benefits that the contributions can be expected to pay for, and to adjust the schedule whenever it appears that the cost of benefits and the available funds are not approximately equal. ERISA sec. 402(b)(3) accepts this pattern by requiring plans to specify procedures for their amendment. See also the paper mentioned in note 78 supra.Google Scholar

133 Labor Management Relations Act of 1947, 29 USC sec. 186.Google Scholar

134 Check-off of union dues is expressly permitted by sec. 302(c)(4) of the Taft-Hartley Act.Google Scholar

135 Public Law 93–95 of Aug. 15, 1973, 87 Stat. 314.CrossRefGoogle Scholar

136 The stagnation is not limited to employee plans but affects other types of legal service plans as well. See, e.g., Lee Morris in ABA Conf. 1975, supra note 95, at 41.Google Scholar

137 Among the 133,897 employee welfare plans about which the U.S. Department of Labor had collected information as of Jan. 1, 1973, under the Disclosure Act of 1958, 123,422, or 92.2 percent, were controlled by employers or employer associations, 4,802, or 3.6 percent, were jointly trusteed, and 2,430, or 1.8 percent, were controlled by employee organizations (3,243, or 2.4 percent, were “other and unclassified”). Characteristics of 178,670 Plans on File January 1, 1973, under the Welfare and Pension Plans Disclosure Act, p. 11, Table 4 (U.S. Department of Labor, Labor-Management Services Administration, Office of Labor-Management and Welfare-Pension Reports, Washington, 1973).Google Scholar

138 See ERISA sec. 403(6)(1) (supra note 36).Google Scholar

139 Supra pp.460, 474.Google Scholar

140 The administrator may also manage the office work of the trustees, thus occupying a dual role with potential conflicts of interest. The administrator may also be an agent of the trustees in dealing with the insurance company.Google Scholar

141 See ERISA secs. 402(a)(1) and 3(16). For further details, see the paper cited note 78 supra.Google Scholar

142 See ERISA sec. 514 (b)(2)(B) and the paper cited note 78 supra.Google Scholar

143 See ERISA sec. 403(a).Google Scholar

144 See note 82 supra and corresponding text.Google Scholar

145 See note 78 supra.Google Scholar

146 See ERISA sec. 3(16)(A) and the paper cited in note 78 supra.Google Scholar

147 Supra pp. 430–31.Google Scholar

148 For details, see the paper cited note 78 supra.Google Scholar

149 See p. 429 supra.Google Scholar

150 For accounts of the development, see, e.g., Milton J. Blake, Legal Assistance for Servicemen: A Contribution in War or Peace, 37 A.B.A.J. 9 (1951); Carl E. Winkler, Legal Assistance for the Armed Forces, 50 A.B.A.J. 451 (1964); Jack S. Bender III & Alessandro J. Ranciglio, The Air Force Expanded Legal Assistance Program, 14 U.S.A.F. JAG L. Rev. 173 (1973).Google Scholar

151 See Army Regulation No. 608–50 of Feb. 22, 1974; Navy, Manual of the Judge Advocate General Ch. 19; Air Force Regulation No. 110–22 of March 1, 1973.Google Scholar

152 From the beginning, the legal profession has watched the development with much concern. The ABA has had a Committee on the subject since 1940 (see Blake, supra note 150), now designated Standing Committee on Legal Assistance for Servicemen (originally: Special Committee on National Defense, later Special Committee on Legal Service to the Armed Forces). For a critical analysis of the attitude of the legal profession, see F. Raymond Marks, Military Lawyers, Civilian Courts, and the Organized Bar: A Case Study of the Unauthorized Practice Dilemma, 56 Mil. L. Rev. 1 (1972). A bill now before Congress (S. 895, 94th Cong., 1st Sess.) proposes to create a uniform statutory basis for military legal assistance.Google Scholar

153 See, e.g., People ex rel. Chicago Bar Ass'n v. Motorists Ass'n of Illinois, 354 Ill. 595, 188 N.E. 827 (1933); People ex rel. Chicago Bar Ass'n v. Chicago Motor Club, 362 Ill. 50, 199 N.E. 1 (1935); and Henry Weihofen, Practice of Law by Motor Clubs-Useful but Forbidden, 3 U. Chi. L. Rev. 296 (1936).Google Scholar

154 See Pfennigstorf, supra note 3, at 16–21.Google Scholar

155 See, e.g., Harriet Whitman Thayer in Transcript of Proceedings, National Conference on Prepaid Legal Services, Washington, D.C., April 27–29, 1972, at 62 (Chicago: American Bar Association, 1972); ABA Conf. 1973, supra note 2, at 185; and ABA Conf. 1975, supra note 95, at 88.Google Scholar

156 Supra pp. 423–25, 477–82.Google Scholar

157 The various aspects and problems of group insurance are treated extensively in Robert D. Eilers & Robert M. Crowe, Group Insurance Handbook (Homewood, Ill.: Richard D. Irwin, 1965).Google Scholar

158 There is a troublesome potential for conflict of interest in the triangle formed by the liability insurer, its insured, and the attorney. They are not easy to resolve, especially in cases where the insured amount is too low. See, e.g., Allen E. Smith, The Miscegenetic Union of Liability Insurance and Tort Process in the Personal Injury Claims System, 54 Cornell L. Rev. 645 (1969); and Guiding Principles of the ABA National Conference of Lawyers and Liability Insurers, 20 Fed. Ins. Counsel Q. 93 (No. 4, 1970). A different but not less serious conflict is bound to arise when legal expense coverage is offered by companies that are also liability insurers and as such become involved on the other side of a case. This conflict has led some countries in Europe to a strict policy of separating legal expense insurance from other lines. See Pfennigstorf, supra note 3, at 84–88.Google Scholar

159 See pp. 450–51 supra.Google Scholar

160 This is in striking contrast to the European situation where the development of commercial legal expense insurance began about 1910. For details and for a discussion of some of the factors that may account for the difference, see Pfennigstorf, supra note 3.Google Scholar

161 See, e.g., Barnard Tilson in ABA Conf. 1975, supra note 95, at 35, and Lee Morris in id. at 41.Google Scholar

162 They are the Cumis Insurance Society of Madison, Wisconsin, the Midwest Mutual Insurance Company of Des Moines, Iowa, and the Stonewall Insurance Company of Birmingham, Alabama. For details, see Danny R. Jones in id. at 50 and Thomas A. Foster in id. at 57.Google Scholar

163 See generally Eilers, supra note 13. The regulation of health service plans and its implications for the regulation of legal service plans are examined in more detail in a separate paper.Google Scholar

164 One example is the use of the term “prepaid” instead of insurance as demonstrated by the change of the name of the ABA Committee. See note 21 supra. The health service plans have constructed a whole new vocabulary in their quest for semantic insulation, and they have succeeded remarkably well. See, e.g., the statement by McNerney, supra note 104. “We have a dictionary of terms including prepayment, enrollment, instead of sales, services instead of–and so on and so forth. It is our way of among others of differentiating our character. But in essence, it is a job of sharing risks and guaranteeing service.”Google Scholar

165 See, e.g., John E. Hendricks in ABF Conf. 1975, supra note 95, at 159.Google Scholar

166 See, e.g., Joe Sims in id. at 147; Business Review Letters dated Aug. 5, 1974, and Jan. 17, 1975, from Thomas E. Kauper, Assistant Attorney General in Charge of the Antitrust Division, to California Lawyers' Service.Google Scholar

167 The articles and bylaws of the corporation, the agreements establishing the plan, and much of the preparatory material were published in ABA Rev. Hdb., supra note 6, Appendix II. Other material can be found in a special publication of the Shreveport Bar Association: Shreveport Bar Association/Laborers Local Union 229 Prepaid Legal Service Plan: A Compilation of the Basic Documents (n.p., n.d.).Google Scholar

168 See p. 476 supra.Google Scholar

169 For details about the history and structure of the California Lawyers' Service, see the report of the Ad hoc Committee re Prepaid Legal Cost Insurance of the State Bar of California, September 1971, as published in ABA Rev. Hdb., supra note 6, Appendix VII A; the pertinent sections in the annual reports of the Governors of the California State Bar; and the report by Peter F. Sloss in ABA Conf. 1973, supra note 2, at 7.Google Scholar

170 For more details, see the report by Leonard M. Wood in ABA Conf. 1975, supra note 95, at 31.Google Scholar

171 For more details, see the description of the plan in 53 Mich. State Bar J. 683, 729–31 (1974) and the report by Alec Schwartz in ABA Conf. 1975, supra note 95, at 12.Google Scholar

172 For details of the development, see Comment, Group and Prepaid Legal Services in New Mexico, 4 N.M.L. Rev. 225 (1974), and the reports in 12 N.M. State Bar Bull. 163, 284, 319 (No. 8, June 7, 1973; No. 13, July 12, 1973; No. 14, July 19, 1973), and 14 N.M. State Bar Bull. 727 (No. 10, May 9, 1975).Google Scholar

173 See infra.Google Scholar

174 For details, see the reports by F. Jay Lutz, 34 Oreg. State Bar Bull. 5 (No. 10, 1974), and in ABA Conf. 1975, supra note 95, at 19.Google Scholar

175 For details, see Charles A. Werner, Prepaid Legal Services, Inc., Goes to the Public, 22 St. Louis Bar J. 16 (No. 1, 1975).Google Scholar

176 Prepaid Legal Services Act, ch. 582, Laws of 1973, Rev. Civ. Stat. (Vernon) Art. 320b (1974–75 Pocket Part).Google Scholar

177 Ch. 60, Laws of 1975, approved April 22, 1975, creating new Ch. 23 of the Insurance Code: Non-Profit Legal Services Corporations.Google Scholar

178 For details, see Franklin Jones, Jr., Prepaid Legal Services, 35 Tex. Bar J. 1123 (1972); Franklin Jones, Jr., in ABA Conf. 1973, supra note 2, at 11; and the report by Douglas Richnow in ABA Conf. 1975, supra note 95, at 28.Google Scholar

179 For details, see Novak, supra note 45, and the report by Charles Harris in ABA Conf. 1974, supra note 17, at 32.Google Scholar

180 For details see Charles E. Ehlert, Prepaid Legal Services in Washington: A Status Report, 29 Wash. State Bar News 31 (No. 8, 1975).Google Scholar

181 See p. 496 supra.Google Scholar

182 This plan is discussed in our special study of student legal service plans.Google Scholar

183 For details, see Report of the Prepaid Legal Services Committee, 46 Ohio Bar 523 (1973); Janata, supra note 45; Robert J. Perry, Ohio State Bar Association Prepaid Legal Services Committee Benefit Plans, 41 Ins. Counsel J. 76 (1974).Google Scholar

184 Failure of the states to adjust the traditional rules of trust law to the needs of the new trust funds created for the purpose of administering employee benefit plans caused sufficient concern to induce Congress to create detailed rules concerning fiduciary responsibilities for the trustees of employee benefit plans. See ERISA secs. 401–411 (supra note 36) and the discussion of state trust laws in Senate Report No. 93–127, Retirement Income Security for Employees Act of 1973, Report from Comm. on Labor and Public Welfare to accompany S. 4, April 18, 1973, at 29.Google Scholar

185 Official Opinion 75–29 of the Idaho Attorney General, supra note 112.Google Scholar

186 Some details of the plan are provided in the report by Allen R. Derr in 17 The Advocate (Idaho State Bar Foundation) 1 (No. 6, 1974).Google Scholar