Legal Insurance and Its Limits

Courts are buckling under the weight of a staggering access-to-justice crisis. In three-quarters of cases, at least one side lacks a lawyer, default judgments are on the rise, and most Americans with valid claims never take legal action. The situation is dire, and it understandably has policymakers casting about for a fix. On the menu are a range of uncontroversial reform ideas, such as expanding legal aid, supporting system simplification, and promoting pro bono. But it is increasingly clear that those measures—even if accomplished—would not make a dent in the problem. Attention is thus turning to other reform ideas, such as relaxing unauthorized practice of law (UPL) rules and scrapping Model Rule 5.4(d), the provision that prevents nonlawyers from even partially owning entities that deliver legal services. Both reforms are promising. But both would dilute the longstanding lawyers’ monopoly. Perhaps not surprisingly, the bar is fighting these reforms tooth-and-nail. Into this roiling landscape, some now have a new idea: legal insurance. They suggest that legal insurance is the way to expand access to justice for middle- and working-class Americans. Reformers are also quick to point out that—unlike a relaxation of UPL restrictions or the abolition of Rule 5.4(d)—legal insurance stands to benefit lawyers. We have seen this play before. In the 1970s, the bar seized on legal insurance as a solution to what was then seen as an urgent access-to-justice crisis afflicting the middle-class. The movement garnered enthusiastic support, not just from the bar, but also from unions, states, Congress, private insurers, and consumer groups. For a time, legal insurance even took off. By the mid-1970s, there were reportedly 5,000 distinct plans in operation, and experts predicted that, by the mid-1980s, half of practicing lawyers would be participating. Of course, it didn’t come to pass—and remarkably, it seems the entire episode has been forgotten. This Article recovers the lost history of the country’s first experiment with legal insurance. In so doing, it seeks to forestall another false start. In addition, by drawing on a range of disciplines—including insurance law (particularly insights concerning moral hazard and adverse selection), behavioral economics, legal ethics, and the legal profession—this Article explains why the legal insurance idea floundered, and seems destined to flounder, going forward. It is undeniably seductive to think the access-to-justice crisis can be addressed in a way that benefits lawyers. It was seductive half-a-century ago. It is seductive now. But those who actually want to address the access-to-justice crisis need to look somewhere else.