<PAGE>
 
                                                                   EXHIBIT 10.04

                        PREFERRED SHAREHOLDER AGREEMENT


     THIS PREFERRED SHAREHOLDER AGREEMENT (this "Agreement"), effective as of
the 6th day of May, 1997, by and between LAW COMPANIES GROUP, INC., a Georgia
corporation (the "Company") and Virgil R. Williams and James M. Williams, each a
resident of the State of Georgia (jointly and severally, "Shareholder").

                             W I T N E S S E T H:
                             - - - - - - - - - - 

     WHEREAS, pursuant to that certain Securities Purchase Agreement, dated as
of March 21, 1997, by and between the Company and Shareholder (the "Securities
Purchase Agreement"), Shareholder purchased 963,398.23 shares of Preferred Stock
issued by the Company (the "Preferred Shares"), together with certain warrants
(the "Warrants") and options to purchase shares of Common Stock under terms and
conditions set forth therein, and in accordance therewith, became a shareholder
of the Company.

     WHEREAS, the Company and Shareholder deem it in the best interests of the
Company to make provision herein for any future disposition of the Preferred
Shares, and certain rights and restrictions related thereto, and related to the
Warrants.
 
     NOW, THEREFORE, in consideration of the mutual benefits to each party, it
is agreed as follows:

     SECTION 1.   CERTAIN RESTRICTIONS.
                  -------------------- 

     (a)  For a period of two (2) years from the date hereof, Shareholder will
not transfer, sell, assign, pledge or otherwise convey (collectively, a
"Transfer") any of its Preferred Shares or any of the rights associated with
such shares, unless (i) a majority of the Common Directors (as defined in the
Company's Restated Articles of Incorporation) consent to such Transfer in
writing; or (ii) either Virgil R. Williams or James M. Williams should die; or
(iii) such Transfer is to an "Affiliate" (as hereinafter defined).  An Affiliate
shall be any of the following: (A) Virgil R. Williams, James M. Williams, or any
of their respective immediate family members; (B) a trust exclusively for the
benefit of any one or more persons named in (A); or (C) a presently existing
corporation, at least 51% of the outstanding capital stock of which, as of March
21, 1997, is owned and controlled by one or both of Virgil R. Williams and James
M. Williams (or an Affiliate under subsection (A) or (B)); or (D) a corporation
formed on or after March 21, 1997, at least 80% of the outstanding capital stock
of which is owned and controlled by one or both of Virgil R. Williams and James
M. Williams (or an Affiliate under subsection (A) or (B)); provided that any
Affiliate, as a condition to such Transfer, shall be required to become a party
to this Agreement and be bound by all the terms and conditions hereof, pursuant
to documents in form and substance acceptable to the Company; and provided
further, that in the case of a Transfer to a corporation pursuant to (C) above,
the shareholders of such corporation who are, or who qualify as, an Affiliate,
shall be required as an additional condition to 
<PAGE>
 
such Transfer, to agree to restrictions on the transfer of capital stock and
ownership of the corporation, pursuant to agreements in form and substance
reasonably acceptable to the Company. In the event of a Transfer pursuant to
Section 1(a)(ii), the Company shall be given a right of first refusal with
respect to any proposed Transfer to a third party following such death as set
forth below in Section 2.

     (b)  (i)  For a period of two (2) years from the date hereof, neither
Shareholder nor any transferee permitted under this subparagraph (b) will
acquire, directly or indirectly, any Common Stock, subscriptions, options,
preemptive rights, warrants, calls, commitments or rights of any character,
including any right of conversion or exchange under any outstanding security or
other instrument, from any other shareholder or shareholders of the Company
unless a majority of the Common Directors consent to such acquisition in
writing.

          (ii) (A) For a period beginning two (2) years after the date hereof
and ending four (4) years after the date hereof, neither Shareholder nor any
transferee permitted under subparagraph (b) above will acquire or hold, directly
or indirectly, Common Stock, subscriptions, options, preemptive rights,
warrants, calls, commitments or rights of any character, including any right of
conversion or exchange under any outstanding security or other instrument
(collectively, "Securities"), from any other shareholder or shareholders of the
Company, which, together with the shares underlying the Warrants and the
Independent Options (each as defined in the Securities Purchase Agreement), will
exceed fifty percent (50%) of the outstanding shares of the Company on a fully
diluted basis (including, but not limited to consolidation of the dilutive
effect of any possible future exchange of "Jersey Shares" or "HKS Shares" (each
as hereinafter defined), unless a majority of the Common Directors consent to
such acquisition in writing; provided, however, that in determining whether
Shareholder has exceeded the fifty percent (50%) limitation, any options, which
at the time of making the calculation set forth above have an exercise price
that exceeds by twenty-five percent (25%) the value of the Common Stock of the
Company, shall not be included in such determination (such value shall be the
value determined by the appraisal required under the Company's 401(k) plan, as
long as such appraisals are regularly performed; if such appraisals are no
longer regularly performed at the time of such determination, then such value
shall be the value agreed upon by the Company and Shareholder, and if no such
agreement is reached within thirty (30) days after Shareholder shall give a
written notice to the Company requesting agreement on such value, then such
value shall be determined by arbitration pursuant to the commercial arbitration
rules of the American Arbitration Association).

          (B)  In the event the foregoing Section 1(b)(ii)(A) is violated for
whatever reason, then a "Requisite Amount" of such Securities shall be deemed to
be non-voting, and Shareholder acknowledges and agrees that it shall not vote
and shall have no right or authority to vote with respect to such Requisite
Amount of Securities (but Shareholder shall have all economic rights with
respect to such Securities, including the right to receive dividends and
distributions).  "Requisite Amount" shall mean the minimum amount of Securities
necessary so that Shareholder holds the same number of voting shares of Common
Stock as all other holders of Common Stock combined who are eligible to vote at
the date upon which said vote is taken.

                                       2
<PAGE>
 
     (c)  The parties acknowledge and agree that there are presently certain (i)
outstanding Preference Shares issued by Law Companies Group, Ltd. (the "Jersey
Shares"), and (ii) outstanding "A" shares of HKS Law Gibb Share Trust
(Proprietary) Ltd. (the "HKS Shares"). Shareholder agrees that until after the
fourth anniversary of the date hereof it will not have the right to vote (for
any purpose) a number (the "Restricted Amount") of shares of stock (whether
Common Stock or Preferred Stock) owned by Shareholder. The Restricted Amount
shall be equal to the sum of all outstanding Jersey Shares and outstanding HKS
Shares, divided by two.
        ----------     

     (d)  Shareholder agrees that as long as any shares of Preferred Stock
remain outstanding, Shareholder shall in no event, with respect to shares of
Common Stock owned by Shareholder, either as a result of its exercise of
Warrants or as a result of conversion of Preferred Stock, be entitled to vote
(for any purpose), and Shareholder agrees not to vote, more than one-ninth (1/9)
of the total outstanding shares of Common Stock of the Company.

     (e)  All of the restrictions set forth herein shall also apply to Virgil R.
Williams and James M. Williams and their respective Affiliates and permitted
assignees.

     SECTION 2.   RIGHT OF FIRST REFUSAL.  For a period of two (2) years after 
                  ----------------------                                      
the date hereof, if a Transfer is permitted under Section 1(a) (ii) of this
Agreement and a holder, Affiliate or permitted transferee thereof intends to
engage in a Transfer pursuant to such provision, then Shareholder shall first
give written notice to the Company (the "Notice of Proposed Transfer")
specifying the name of the proposed purchaser(s) of the Preferred Shares (the
"Proposed Purchaser(s)"), the total number of Preferred Shares which Shareholder
desires to sell to the Proposed Purchaser(s) pursuant to a Transfer permitted by
Section 1(a)(ii) (the "Offered Shares"), all of the material terms, including
the price, upon which Shareholder proposes to sell the Offered Shares to the
Proposed Purchaser(s), and stating that the Company has the right to purchase
all (but not less than all) of the Offered Shares at said price and on such
terms (including by payment of the form of consideration specified in the Notice
of Proposed Transfer). During the 60-day period following delivery of the Notice
of Proposed Transfer, the Company shall have the option to exercise its right to
purchase all (but not less than all) of the Offered Shares before the same shall
be sold, transferred or assigned to the Proposed Purchaser(s). The Company shall
give written notice of its election to Shareholder during such 60-day period. If
the Company has not exercised its right to acquire the Offered Shares within the
aforementioned 60-day period or consummated the acquisition of the Offered
Shares within the 120-day period following delivery of the Notice of Proposed
Transfer, then Shareholder shall have the right for a period of 60 days after
the expiration of such applicable period to transfer the Offered Shares to the
Proposed Purchaser(s) at the price and on terms substantially the same as
specified in the Notice of Proposed Transfer.

     SECTION 3.   RIGHTS OF CO-SALE.
                  ------------------

     (a)  Rights of Co-Sale.  If at any time in accordance with the terms of 
          ----------------- 
this Agreement, Shareholder proposes to transfer, sell, assign or otherwise
convey any Preferred Shares or Warrants 

                                       3
<PAGE>
 
to an unaffiliated third party (the "Transaction"), then to the extent the
Company has not exercised its right of first refusal pursuant to Section 2
hereof as to any Preferred Shares being sold, any holder of Common Stock of the
Company (an "Eligible Holder") who notifies the Company in writing within 30
days after receipt of notification of the Transaction shall have the opportunity
to sell to such third party shares of Common Stock held by such Eligible Holder
in the same proportion as the Preferred Shares (or Warrants, as the case may be)
which Shareholder proposes to sell bear to the total number of Preferred Shares
(or Warrants, as the case may be) held by Shareholder (a "Pro Rata Portion");
whereupon Shareholder shall assign so much of its interest in the agreement of
sale as the Eligible Holder shall be entitled to and shall request hereunder,
and the Eligible Holder shall assume such part of the obligations of Shareholder
under such agreement as shall relate to the sale of the Common Stock by the
Eligible Holder. Each Eligible Holder shall notify Shareholder whether he/she
elects to sell an amount equal to or less than its Pro Rata Portion. The
Eligible Holders shall be entitled to sell their Common Stock to any proposed
purchaser (the "Proposed Purchaser") hereunder of the Preferred Shares at a
purchase price equal to the fair market value of the Common Stock in light of
the transaction contemplated with the Proposed Purchaser(s) as determined by an
appraisal made by an independent investment banker.

     (b)  Notice.  Prior to any proposed Transaction, Shareholder shall notify
          ------                                                              
the Company, in writing, of its intention to enter into such proposed
Transaction, setting forth the general terms of the proposed Transaction. In the
event the Company does not exercise its right of first refusal, the Company
shall, simultaneously with notifying Shareholder that it does not wish to
exercise its right of first refusal, send written notice to each Eligible
Holder, setting forth the general terms of the transaction.

     (c)  Failure to Notify.  If within 30 days after Shareholder gives its
          -----------------                                                
notice to the Eligible Holders, the Eligible Holders do not notify the Company
that they desire to sell all of their Pro Rata Portion of Common Stock at the
price and on the terms and conditions set forth in such notice, then Shareholder
may, not later than 60 days following delivery of the notice under Section 3(b),
as to the Pro Rata Portion of Preferred Shares (or Warrants, as the case may be)
to the Common Stock of which the Eligible Holders do not indicate a desire to
sell, conclude a transfer on the terms and conditions described in the notice.
In the event Shareholder has not sold the Preferred Shares (or Warrants, as the
case may be) or entered into an agreement to sell the Preferred Shares (or
Warrants, as the case may be) within such 60-day period, Shareholder shall not
thereafter sell any Preferred Shares (or Warrants, as the case may be) without
first notifying the Eligible Holders and the Company in the manner provided
above.  The exercise or non-exercise of the right to participate in one or more
sales of Preferred Shares (or Warrants, as the case may be) made by Shareholder
shall not adversely affect an Eligible Holder's right to participate in
subsequent sales of Preferred Shares (or Warrants, as the case may be) by
Shareholder pursuant to Section 3(a) hereof.

                                       4
<PAGE>
 
     (d)  Termination.  The obligations of Shareholder under this Section 3 
          -----------       
shall terminate and be of no further force and effect upon the earlier of: (i)
the date on which no shares of Preferred Stock remain outstanding; or (ii) the
death of either Virgil R. Williams or James M. Williams; or (iii) the occurrence
of a "Listing Event" (as defined in the Company's Restated Articles of
Incorporation).

     SECTION 4.   REMEDIES.  The Company and Shareholder acknowledge and agree
                  --------                                                    
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached.  It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof, in addition to any other remedy to which they may be entitled
at law or equity.

     SECTION 5.   ENTIRE AGREEMENT.  This Agreement, together with the other
                  ----------------                                          
"Transaction Documents" (as defined in the Securities Purchase Agreement),
constitute the sole understanding of the parties with respect to the subject
matter hereto, and supersede and cancel any and all prior agreements,
communications, and representations, whether oral or written, relating to the
subject matter hereof.

     SECTION 6.   COUNTERPARTS.  This Agreement may be executed in one or more
                  ------------                                                
counterparts, each of which shall be for all purposes deemed an original and all
of which shall constitute one and the same instrument.

     SECTION 7.   NOTICES. Any notice, request, instruction or other document to
                  -------                                                    
be given hereunder by any party hereto to any other party hereto shall be in
writing and delivered personally or sent by registered or certified mail
(including by overnight courier or express mail service), postage or fees
prepaid,

          if to the Company to:

               Law Companies Group, Inc.
               3 Ravinia Drive, Suite 1830
               Atlanta, Georgia 30346
               Attention: Mr. Bruce C. Coles

          with a copy to:

               Long Aldridge Norman LLP
               303 Peachtree Street, N.E., Suite 5300
               Atlanta, Georgia 30308
               Attention: Mr. F. T. Davis, Jr.

                                       5
<PAGE>
 
          if to Shareholder to:

               Mr. Virgil R. Williams
               Mr. James M. Williams
               2076 West Park Place
               Stone Mountain, Georgia 30087
 

          with a copy to:

               Arnall Golden & Gregory, LLP
               One Atlantic Center
               1201 West Peachtree Street
               Atlanta, Georgia 30309
               Attention: Mr. Jonathan Golden

or at such other address for a party as shall be specified by like notice.  Any
notice which is delivered personally in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt by such party or the office of such party. Any notice which is addressed
and mailed in the manner herein provided shall be conclusively presumed to have
been duly given to the party to which it is addressed at the close of business,
local time of the recipient, on the fourth business day after the day it is so
placed in the mail or, if earlier, the time of actual receipt.

     SECTION 8.   GOVERNING LAW.  This Agreement is executed by the parties in,
                  -------------                                            
and shall be construed in accordance with and governed by the laws of, the State
of Georgia (without giving effect to the principles of conflict of law thereto).

     SECTION 9.   AMENDMENT.  No amendment, modification or alteration of the
                  ---------                                                  
terms or provisions of this Agreement shall be binding unless the same shall be
in writing and duly executed by the parties hereto.

     SECTION 10.  FURTHER ACTS.   The parties agree to perform any further acts
                  ------------                                            
and to execute and deliver any instruments or documents that may be necessary to
carry out the purposes of this Agreement.

     SECTION 11.  SEVERABILITY.  In the event that any one or more of the 
                  ------------                                           
provisions contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, the same shall not invalidate
or otherwise affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision or
portion thereof had never been contained herein.

                                       6
<PAGE>
 
     SECTION 12.  HEADINGS.  The headings of the Sections and paragraphs of this
                  --------                                                 
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.

     SECTION 13.  MODIFICATION AND WAIVER.  Any of the terms or conditions of 
                  -----------------------                                    
this Agreement may be waived in writing at any time by the party which is
entitled to the benefits thereof.  No waiver of any of the provisions of this
Agreement shall be deemed to or shall constitute a waiver of any other provision
hereof (whether or not similar).

     SECTION 14.  PARTIES BOUND BY AGREEMENT; SUCCESSORS AND ASSIGNS. The terms,
                  --------------------------------------------------     
conditions and obligations of this Agreement shall inure to the benefit of and
be binding upon the parties hereto and the respective successors and assigns
thereof. Without the prior written consent of the other party hereto, the
Company may assign its rights, duties or obligations hereunder (including but
not limited to the Preferred Shares) or any part thereof to any other person or
entity, except that Shareholder may assign its rights hereunder to a corporation
at least 51% of the outstanding capital stock of which, as of March 21, 1997, is
owned and controlled by one or both of Virgil R. Williams and James M. Williams
(or an Affiliate), or a corporation formed on or after March 21, 1997, at least
80% of the outstanding capital stock of which is owned and controlled by one or
both of Virgil R. Williams and James M. Williams (or an Affiliate), which
assumes in writing all of Shareholder's obligations hereunder; provided,
however, no assignment pursuant hereto shall relieve the Shareholder from
liability for any breach of noncompliance with the terms of this Agreement
whether before or after such assignment, and provided further that any such
assignment shall be accomplished pursuant to documents in form and substance
acceptable to the Company.

     SECTION 15.  "INCLUDING."  Words of inclusion shall not be construed as
                   ----------                                                
terms of limitation herein, so that references to "included" matters shall be
regarded as non-exclusive, non-characterizing illustrations.

                                       7
<PAGE>
 
     IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed on its behalf as of the date indicated on the first page
hereof.

                                     THE COMPANY:                             
                                     -----------                              
                                                                              
                                     LAW COMPANIES GROUP, INC.                
                                                                              
                                                                              
                                     By: /s/ Bruce C. Coles                   
                                        ----------------------------------------
                                        Bruce C. Coles                     
                                        Chairman, CEO and President        
                                                                              
                                     SHAREHOLDER:                             
                                                                              

                                                                              
                                     /s/ Virgil R. Williams
                                     -------------------------------------------
                                     Virgil R. Williams                       
                                                                              

                                                                              
                                     /s/ James M. Williams 
                                     -------------------------------------------
                                     James M. Williams                         

                                       8