Pre-paid legal services

Legal expenses insurance (LEI), also known as legal protection insurance (LPI) or simply legal insurance, is a type of insurance which covers policyholders against the potential costs of legal action brought by or against the policyholder. The concept originated around 1911 as a result of a fatal crash at the famous Le Mans race during which some spectators lost their lives and others were severely injured. When the victims or their families claimed damages from the insurers of the organizers, their claims were repudiated. They then all contributed to a pool which was used to fund collective action against the insurers. They were successful. This gave rise to the first LEI policy being developed in France. Not long after that, a motoring club in Germany called the "Deutsche Automobil Schutz" (DAS) increased membership contributions to create a similar pool to pay for the defence of its members charged with traffic related offences. Members of the general public then enquired about joining the scheme. That is when the idea of an insurance available to the general public became firmly established. At present, the DAS of Germany is still the largest legal expenses insurer in the world. It is estimated that they write approximately 50% of LEI business worldwide. Then follows ARAG, also a German insurer. It is estimated that they write approximately 30% of global business.

A conflict of interest presents itself if LEI is offered by an insurer that also offers other forms of insurance. As a result, most LEI providers are specialists offering LEI only. Internationally, LEI is represented by a non-profit association called The International Association of Legal Protection Insurers (RIAD)www.riad-online.net. It operates independently of the general insurance industry. A listing of its members can be found on their website.

There are two main forms of LEI, before-the-event and after-the-event ("the event" being that event which triggers legal action). "After-the-event" legal expenses insurance is a misnomer, since insurance technically, can only indemnify against future unforeseen events. Most legal insurance plans are before-the-event, and "after the event" is not common and found mainly in the United Kingdom, where it is an insignificant percentage of total LEI business. The majority of LEI business worldwide, is conducted in Europe (Germany and France in particular).In the United States, the general idea of financial assistance with litigation is most often called pre-paid legal services (PPL or PPLS). The reason for this is that many plans are not insurance based. Some are offered by trade unions as a free benefit of union membership. Others are non-profit clubs set up by groups with a common interest, like University students. Some forms of insurance such as professional liability insurance, medical malpractice insurance,Professional liability insurance, errors and omissions insurance for consultants, agents and brokers of various sorts, and directors and officers liability insurance for principals and supervisory officers of corporations and other organisations, are often marketed under the banner of LEI, but they are in fact liability insurances, a small component of which is to cover the legal expenses of a liability suit. In reality, the insurer is funding the defense of litigation against itself. If it were to fail in doing so, there is a risk that their insured might be held liable for damages that they would be liable to pay under the liability insurance. They are therefore merely protecting their own interests by funding the defence.

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Wikipedia