Pre-Paid Faces New Round of 'Jackpot Justice'

The Mississippi plaintiffs have accused Pre-Paid of misleading them about the coverage provided by its policies. The company relies on multilevel marketing -- the sales approach made famous by Amway -- to sell a legal plan that provides limited coverage for $25 a month. The plan specifically excludes coverage for such common legal issues as adoption, divorce and drunken driving. Because it offers a discount for such services, however, it has taught its massive sales force to promise customers that "everything is covered." Policyholders can then find themselves facing the very retainer fees they had purchased legal coverage to avoid.

All told, Pre-Paid is staring at nine Mississippi trials carrying potential damages of $90 million each. The company itself is worth just over half of the total amount that Mississippi plaintiffs are seeking. It faces a slew of other lawsuits -- including one accusing it of being an outright pyramid scheme -- as well. But it has reserved just $3.3 million to cover any legal judgments that may arise.

To be fair, Pre-Paid has noted that the Mississippi plaintiffs spent less than $500,000 on their legal policies before filing their multimillion-dollar lawsuits. But the company must now make its case in Mississippi courts that have often ignored the actual damages suffered. For example, a jury in Holmes County -- where Pre-Paid is headed first -- three years ago awarded six plaintiffs $150 million for being exposed to asbestos. The huge award has yet to be thrown out.

"Only 3M (MMM Quote) appealed the decision, as settlements or bankruptcies ended the cases against the other defendants," the Asbestos Litigation Reporter noted last month.

In Hinds County, another so-called hellhole where Pre-Paid faces trial, a jury issued a $30 million judgment against an insurer accused of selling a couple a policy they didn't really need. Some critics believe that Pre-Paid has behaved in a similar fashion.