Ohio lawmakers send first-of-its-kind rejection to powerful legal group

By Nicholas Malfitano | Aug 3, 2018

COLUMBUS, OHIO – Through a bill signed into law by Gov. John Kasich on Tuesday, the State of Ohio has legislatively opposed the American Law Institute’s long-debated and recently-passed Restatement of the Law of Liability Insurance wholesale, an unprecedented development in the 95-year history of the ALI.

COLUMBUS, Ohio – Ohio lawmakers have unanimously rejected a controversial conclusion reached by an influential group that guides judges around the country.

Gov. John Kasich has signed into law a bill rejecting the American Law Institute's long-debated and recently passed Restatement of the Law of Liability Insurance, an unprecedented development in the 95-year history of the ALI.

The law, originally known as Senate Bill No. 239, among a number of items, provides for greater transparency on regional councils on governments and approves renaming of memorial highways – but notably, states “the American Law Institute’s approved Restatement of the Law, Liability Insurance does not constitute the public policy of Ohio."

The ALI's Restatements are intended to gather existing law on certain topics and explain them in a way judges can use. However, in recent years, the ALI has been accused of creating law rather than restating it.

As to the new development in Ohio, ALI’s Deputy Director Stephanie Middleton confirmed no state had ever passed legislation against a Restatement in its entirety before.

“Over the decades, some states have passed legislation as to one specific section of a new Restatement – often because they prefer what is in an earlier Restatement. In the Restatement of Torts, for example, some states prefer Restatement Second rules with respect to particular sections on products liability or landowner liability, rather than the Restatement Third version of that section,” Middleton said.

“Some lawyers have said it signals to the courts in Ohio that they should check carefully the statutes and well-established case law in Ohio. That is, of course, true. Restatements are necessary because the various jurisdictions have different laws – statutes and common law. 

"Restatements describe the different rules or approaches, and pick for the Restatement the black letter rule that seems best; this means jurisdictions with the rule(s) not picked may have law that is not the black letter in the Restatement.”

Prior to being made law by Gov. Kasich, the original bill was sponsored by Sen. Matt Dolan (R-24) of Cuyahoga County.

The offices of Gov. Kasich and Sen. Dolan did not respond to requests for comment from the Pennsylvania Record.

After eight years, the ALI’s Restatement of the Law of Liability Insurance received approval from the group’s membership at its annual meeting in May – though reactions to its passage remain mixed.

The ALI publishes the Restatement of Torts, which serves as a standard that judges can use to decide the law in applicable cases.

Tom Baker, a professor at University of Pennsylvania Law School, was the Restatement's Reporter, and Kyle Logue, a professor at University of Michigan Law School, was the Assistant Reporter.

“I learned more about insurance law from our experts, to improve my teaching. I think we’ve produced a product that will influence the courts and improve the law," Logue said.

Before the meeting, the National Council of Insurance Legislators held a discussion on the Restatement during which Middleton said the ALI was trying to "stay in our lane" and did not have an agenda.

A specific criticism addressed during the decision was the use of the word "substantiality" with respect to misrepresentation of material facts in Section 8.

Laura Foggan, a partner at Crowell & Moring, called the word a “litigation driver” that is “at odds with existing statutory and common law of governing misrepresentation and rescission.”

"It’s a magnet for expensive litigation and it’s a change in the law as it exists that isn’t supported by existing law and existing approaches to the law," Foggan said.

"Although it’s been stated silently that the legislature trumps the ALI Restatement, it’s problematic to suddenly have a Restatement proposing something different from what statutory law provides in the majority of jurisdictions. And it’s very problematic to have where what’s being proposed is at odds with statutory law and common law,"

Further, Lorie Masters, a partner at Hunton Andrews Kurth, expressed concerns over the Restatement’s Section 27, calling it “a muddle” and one which “compares apples to oranges” in its discussion of damages for breach of the duty to make reasonable settlement decisions – through raising two different issues in assessed damages on one hand, and coverage and the law of insurability as it relates to punitive damages on the other.

Under Section 27, an insurer has to pay punitive damages if one of its insured engages in reckless behavior, even if the policy excludes punitive damages coverage. 

Middleton added that in crafting an insurance project specifically, the ALI had to consider state law in 51 jurisdictions comprised of a mix of state statutes, insurance commission rules and practices and common law created by courts, some of which may have a relation to a particular state statute and which might reflect public policy of that state.

“An example is the variation among states as to whether an insurer may even sell a policy that provides coverage for punitive damages. It is the public policy in some states that insurers may not do so. The Restatement says that if there is not a public policy in the state as to this issue, then such policies are not unlawful,” Middleton stated.

Middleton said the ALI recognizes that state legislatures can and do declare what the public policy of the state is on a particular topic, and both ALI and the courts know that courts should follow relevant state statutes.

“Sometimes state supreme courts declare public policy of the state. The lower courts must follow that rule rather than the Restatement, if the Restatement rule is different,” Middleton said.

Middleton also stipulated that the Restatement draft mentioned in the Ohio law is not the final version.

“We will continue to make some changes that reflect the discussion at the meeting in May. Plus, we ‘clean up’ the draft, which takes a few months. These are technical edits mostly. But, we received written comments on that draft – some pointing out errors small and large – so we always review those and make appropriate changes,” Middleton said.

From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nickpennrecord@gmail.com

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