Identity protection: Worth paying for?

$1 million 'guarantee'

The most controversial aspect of LifeLock is its $1 million guarantee.

"LifeLock's $1 million guarantee is our intent to go support any member of LifeLock who might become a victim of identity theft while subscribed to our service so we that can go out and (fill) our intent to do everything the law allows us to do to help that person recover their good name," Davis said. "So whether that's hiring third-person personnel, whether that's covering any losses or expenses, whether it's getting accounts closed and getting new ones issued, that's what we'll do."

But two of the pending class-action lawsuits say the company's $1 million guarantee is not a guarantee at all but just a "promise" that the company is not actually obligated to fulfill.

"There is no $1 million guarantee," said Leonard Aragon, one of the attorneys who filed a class-action lawsuit against the company. "If you look at the terms of the contract it very clearly says, 'We won't pay consequential damages. We won't pay you directly,' so there's really no way to get up into the million dollars."

"Our understanding is that it basically covers any defect in their product," said Aragon, of Hagens Berman Sobol Shapiro in Seattle. "What that means is the failure to place the fraud alert or maybe they accidentally spell your name wrong."

Davis said the reason LifeLock does not make any actual guarantees is because he doesn't want it to become an insurance company.

"Insurance by design is not built to mitigate risk." Davis said. "They spread actuarial risk over a group of people. LifeLock is so dramatically more than that. We want to be the most comprehensive solution out there to actually prevent this crime to mitigate the risk on the front end. We don't want to limit what we can do for consumers. We don't want to limit where they can acquire this protection by only going through licensed insurance agents. We want you to be able to go get this at Office Depot or CVS Pharmacy or through AAA."

85 claims

Of LifeLock's 940,000 customers, 85 (as of midspring) had filed claims against the company's $1 million guarantee, and all had been pleased with the results, Davis said.

"Those are some of our greatest advocates," he said.

But Aragon warned that although the company is fulfilling its promise now, if there is ever a serious data breach and many of its customers are defrauded, the company may not fulfill its promise. He compared it to the insurance companies that failed to honor their flood clause for consumers whose homes were destroyed in New Orleans from a breached levy rather than floodwaters.

"When everyone's all happy and it really isn't that big of a deal and there really aren't that many claims, well, insurance companies say, 'Sure, we'll pay that. We don't want to cause trouble because we want people to come to our insurance company. But when it hits the fan and there are a lot of claims, well, that's when we start going into the contracts,'" Aragon said.

"You can't promise one thing and have your contract say one thing because eventually that's going to come around, and it's going to be bad news for the consumers who thought they were buying protection when in actuality they weren't buying anything," Aragon said. "They were buying some good customer service. Big deal."

Continued: Company will honor its promise

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