STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 6793

April 7, 1994

INSURANCE:

Definition of legal expense insurance

A pre-paid legal services plan that only covers the cost of basic legal services, i.e., legal services provided primarily by phone or mail, is subject to regulation as legal expense insurance if the attorneys providing the services are not employees of or under the control of the insurer.

Diane Braunstein

Director

Office of Services to the Aging

P.O. Box 30026

Lansing, Michigan 48909

You have asked whether a pre-paid legal services plan that only covers the cost of basic legal services, i.e., legal services provided primarily by phone or mail, is subject to regulation as legal expense insurance.

The Legislature has defined legal expense insurance in section 618 of the Insurance Code of 1956, MCL 500.618; MSA 24.1618, as follows:

When the language of a statute is plain and unambiguous, there is no room for construction, and the statute must be given effect according to its plain meaning. Smith v Grand Rapids City Comm, 281 Mich 235, 240; 274 NW 776 (1937). It is a cardinal principle of statutory construction that, where the Legislature has defined a word or term in an act, the courts are bound by that definition. Carr v General Motors Corp, 425 Mich 313, 318; 389 NW2d 686 (1986).

The three sentences which comprise section 618 are unambiguous on their face. First, legal expense insurance constitutes insurance involving the assumption of a contractual obligation to reimburse the beneficiary or pay on behalf of the beneficiary all or a portion of the fees, costs or expenses related to or arising out of services performed by or under the supervision of an attorney licensed to practice in the jurisdiction in which the services are performed. Quite simply, this first sentence embraces the general concept that insurance constitutes indemnity against contingent losses whether by reimbursement to the beneficiary or payment on the beneficiary's behalf.

In the second sentence, the Legislature enlarged the definition by clarifying that legal expense insurance also includes reimbursement or payment for basic legal services provided by telephone or mail provided the attorneys are neither employees nor under the control of the insurer. The focal point here is upon the status of the provider attorney rather than upon the medium through which the legal service is rendered, i.e., telephone or mail. If the provider attorney is an employee of or under the control of the insurer, the plan would constitute an arrangement in the nature of a service contract as distinguished from a contract of insurance. In that instance, there exists merely the provision of services rather than indemnification for contingent losses.

Thus, the second sentence of section 618 merely recognizes that in order to constitute legal expense insurance, the basic legal services provided by telephone or mail must be performed by attorneys who are not employees of or under the control of the insurer. The sentence does not say, or even suggest, that basic legal services provided by telephone or mail do not constitute legal expense insurance. To the contrary, if the basic legal services, by telephone or mail, are rendered by an attorney who is not an employee of or under the control of the insurer, the provision of these services constitutes legal expense insurance under the definition.

Finally, expressly excluded from the definition of legal expense insurance is the provision of or reimbursement for legal services which may be incidental to other insurance coverages. This sentence merely excludes incidental legal services provided in connection with the liability portions of other insurance policies such as automobile, homeowners and malpractice. This statutory definition of legal expense insurance governs any determination whether a person is engaged in providing legal expense insurance. A person providing legal expense insurance must obtain the requisite certificate of authority from the Commissioner of Insurance under section 402 of the Insurance Code of 1956, MCL 500.402; MSA 24.1402.

It is my opinion, therefore, that a pre-paid legal services plan that only covers the cost of basic legal services, i.e., legal services provided primarily by phone or mail, is subject to regulation as legal expense insurance if the attorneys providing the services are not employees of or under the control of the insurer.

Frank J. Kelley

Attorney General