December 19, 1986

The Honorable Bernard C. Christenson 
South Dakota House of Representatives 
1105 Bridgeview 
Pierre, South Dakota 57501

OFFICIAL OPINION NO. 86-45

Legal services insurance contracts

Dear Representative Christenson:

You have requested an opinion from this office based upon the following factual situation:

FACTS: 

A certain company proposes to sell contracts in South Dakota, to both individuals and groups.  A contract will require payment of a premium or purchase price, presumably having some relation to the company's expected claims under the contract.  When a contract purchaser needs an attorney, the company will either pay fees directly to counsel or reimburse the purchaser for those amounts actually paid.  In either case, the company is promising to pay or indemnify against legal expenses.  Additionally, the company apparently does not have either State Bar sponsorship, nor any agreement by participating attorneys for proration of fees should the company be unable to fulfill its promises.

Based on the above facts, you have asked the following question:

QUESTION: 

Is the company doing an insurance business under Title 58 of the South Dakota Codified Laws?

I have reviewed my predecessor's Opinion No. 78-39, and do not believe that it can be used to answer your question.  First, the current proposal has no State Bar sponsorship, and no guarantee that the legal expenses will be paid  (and services thereby provided), regardless of the company's financial stability.

Second, and more importantly, is the fact that the company is undertaking to  'indemnify another or pay or provide a specified or determinable amount, or benefit upon determinable contingencies.'  SDCL 58-1-2(1).  The statutory definition makes no distinction regarding whether the guaranteed payment is made to the claimant or insured.  Whether or not the company pays the contract purchaser for subsequent legal expenses, or pays the attorney directly, the fact remains that this company is entering into a contractual promise to hold the purchaser harmless from specified types of legal expenses.  These expenses can vary in amount.  The plan therefore has all of the regular attributes of insurance, including risk assessment, indemnification, the need for loss reserves, etc.

Finally, as a matter of public policy, it is appropriate to define this type of contract as insurance, in order to provide South Dakota consumers with those regulatory protections afforded by the Legislature.  In view of all of the above considerations, it is my opinion that the answer to your question is yes.

Respectfully submitted,

Mark V. Meierhenry
Attorney General