Sallie Lux of Brouse McDowell shares an in depth look at the American Law Institute's Restatement of the Law regarding liability insurance. Part I of Sallie's article explains the importance and history of this work.
from Your Coverage Advisor, Summer 2018 (Found under Insights at www.brouse.com).
After years of work, at its annual meeting on May 22, 2018, members of the American Law Institute (ALI) approved Final Draft No.2 of its first ever Restatement of the Law, Liability Insurance (RLLI). The official text of the new Restatement is now ready for final editing for publication. The draft approved may be cited as the formal position of the ALI until the official text is published.
There are four chapters in the RLLI. The first includes topics relating to the application of basic contract law doctrines within the context of insurance law. The second chapter concerns insurance duties and doctrines, such as cooperation, defense, and settlement, relating to the management of insured actions. The third chapter presents principles that are common to risks insured by most forms of liability insurance. This chapter is divided into three general topics: provisions relating to coverage, provisions relating to conditions, and provisions relating to the application of deductions, retentions, and limits. The final chapter concerns a variety of topics relating, inter alia, to broker liability, bad faith, enforceability, and remedies.
Why It Matters: Insurance law is a matter of state law. It is governed by state statutes and common law, and may vary from state to state. As cases are litigated, and the resultant common law in each state is established and evolves, majority and minority views among the states concerning various insurance principles inevitably develop.
ALI is a private organization, founded in 1923, “to promote the clarification and simplification of the law and its better adaption to social needs, to secure the better administration of justice, and to encourage and carry on scholarly and scientific legal work.” ali.org/about-ali/how-institute-works/. ALI’s members, limited to 3000, include the justices of the U.S. Supreme Court, judges of the highest courts of most, if not all, states, law school deans and professors, and private practitioners. As described in ALI’s 2016-2017 Annual Report, the ALI “Is the leading independent organization in the United States producing scholarly work to clarify, modernize, and improve the law.”
In furtherance of its mission, the ALI develops Institute Projects which include Restatements, Principles, and Codes. Restatements are, for the most part, addressed to the courts and aspire to present “clear formulations of common law and its statutory elements, and reflect the law as it presently stands or might appropriately be stated by a court.”
Although Restatements aspire toward the precision of statutory language, they are also intended to reflect the flexibility and capacity for development and growth of the common law. That is why they are phrased in descriptive terms of a judge announcing the law to be applied in a given case rather than in the mandatory terms of a statute. ali.org/about-ali/how-institute-works/ (emphasis supplied). Thus, Restatements typically strive to harmonize both majority and minority views of law, and restate them.
The study of the various Restatements of Law is part of the fundamental course work of every law student in every law school throughout the country. The Restatements are also extremely persuasive and influential in both state and federal courts throughout the country, routinely cited in briefs advocating various legal concepts and principles, and cited and relied upon in an untold number of judicial decisions announcing controlling legal principles.
The development or update of a Restatement takes many years of work. It may include multiple drafts reflecting member comments and revisions advocating various positions, some of which are at odds with one another, before the final draft is ultimately approved as embodying the official positions of the ALI on the particular topic. Moreover, when considering or relying on a Restatement principle, it is crucial to keep in mind that “only the black letter and Comment are regarded as the work of the Institute. The Reporter’s and Statutory Notes remain the work of the Reporter.” Restatement of the Law of Liability Insurance, Proposed Final Draft No. 2, approved May 22, 2018, p. ix.
Some jurists and practitioners caution that some of the influential Restatements in certain circumstances have moved beyond clear statements of what the law is to statements of what the law should be, in the view of the ALI:
I write separately to note that modern Restatements . . . are of questionable value, and must be used with caution. The object of the original Restatements was “to present an orderly statement of the general common law.” Restatement of Conflict of Laws, Introduction, p. viii (1934). Over time, Restatements’ authors have abandoned the mission of describing the law, and have chosen instead to set forth their aspirations for what the law ought to be…Restatement sections such as that should be given not weight whatsoever as to the current state of the law, and no more weight regarding what the law ought to be than the recommendations of any respected lawyer or scholar.
Kansas v. Nebraska, 135 S. Ct. 1042, 1054 (Scalia, J., concurring and dissenting).
The Process Leading to Approval of the Restatement of Law: Liability Insurance: The RLLI project began in 2010 as a Principles of Law Project. Principles, unlike the Restatements, do not purport to be statements of the law, but rather aspirational statements of what the law in a particular area should be. In 2014, the ALI’s Liability Insurance Principles project was recharacterized as a Restatement of Law project both because there is an established body of liability insurance law, and because, consistent with traditional Restatement projects, the Liability Insurance project’s goal was to provide guidance to courts.
Cumulatively, nearly 30 drafts and revisions were prepared during the project’s lifecycle. Over the years, the project has been the object of intense interest and scrutiny by insurance scholars and practitioners representing both insurers and policyholders. Throughout its evolution, many aspects of the project have been highly debated, and many proposed Sections of proposed statements of law have been contested in comments submitted by interested stakeholders, often resulting in section revisions.
As the project progressed, discrete Chapters, Sections, and revisions of the RLLI Project were submitted seriatim for review and approval by ALI members at different annual meetings, both before and after its recharacterization as a Restatement. At the 2017 annual meeting the ALI decided to defer the vote for final approval of the RLLI until the 2018 annual meeting to allow the Reporters to again review the entirety of the draft and to consider comments.
That review process resulted in a number of fairly significant revisions, generally described in the Reporters’ Memorandum of the Restatement of the Law of Liability Insurance, Proposed Final Draft No. 2, pp. xix –xxiv. According to the Reporters’ Memorandum, the most significant revisions are contained in: Chapter 1, Sections 3 and 4 (adopting a plain meaning rule for policy interpretation including what constitutes an ambiguous term, and relatedly, the interpretation of ambiguity); Chapter 2, Section 12 (concerning liability of an insurer in connection with the defense of its insured); Chapter 2, Section 19 (providing that “[a]n insurer that breaches the duty to defend a legal action forfeits the right to assert any control over the defense or settlement of the action”); and Chapter 4, newly numbered Sections 47 and 48, (describing potential remedies for breach by the insurer, including an award of attorneys’ fees and costs to the insured in an action to determine coverage “when provided by state law or policy”).
Because of the depth and breadth of the Liability Insurance project, and the comprehensive nature of the topics ultimately included in the RLLI, there remain many differences of opinion on whether particular statements of law reflect clear and accurate restatements of the law or statements of what the law should be. And, not unsurprisingly, advocates of a certain perspective may view certain sections of RLLI to be accurate reflections of the law, while other sections are not.