Attorney: If judges take ALI's controversial insurance project seriously, policyholders would suffer

By Nicholas Malfitano | Mar 13, 2019

American Law Institute  

PHILADELPHIA – Despite passage at last year’s annual meeting of the American Law Institute, multiple states and courts have since expressed opposition to the application of the ALI’s Restatement of the Law of Liability Insurance.

After eight years, the document received approval from the group’s membership at its annual meeting last May – though reactions to its passage remain mixed. Recently, a Philadelphia attorney told the Pennsylvania Record that the Restatement runs contrary to how contract issues have been interpreted for decades and opens the door for protracted litigation.

The result? Higher premiums for anyone who wants insurance, he says.

“This is an expanded scope beyond what insurers are traditionally liable for under the common law of many states and will likely manifest itself in higher premiums for insureds due to increased settlement amounts expended as the result of increased potential liability in these suits,” said Erik Derr, an associate at Kennedys CMK Law in Philadelphia

The ALI publishes the Restatement of Torts, which serves as a standard that judges can use to decide the law in applicable cases. The project’s Reporter, Tom Baker of the University of Pennsylvania Law School, termed it as one which would prove “valuable” to courts.

“Liability insurance is an important meeting place between tort and contract law, legal fields in which the ALI has a long tradition of involvement,” Baker said.

“Liability insurance case law can also vary from one jurisdiction to the next. By closely examining the existing common law, we believe that the membership approved a product that will be quite valuable to the courts.”

The Restatement concerns when insurers can be found liable in civil lawsuits. Notably, an insurer would need to cover punitive damages in some instances, rather than the insured who engaged in the reckless behavior – even if they’re not covered in the policy (a National Council of Insurance Legislators discussion provided a deep dive into other issues).

However, several legislative and judicial entities have expressed opposition to it.

Prior to the Restatement’s approval last year, Kentucky’s House of Representatives unanimously passed a resolution, in a vote of 90-0 in March 2018, to “urge the ALI to materially change the proposed [RLLI], and if meaningful change is not made prior to the final approval of the Restatement, that the Restatement not be afforded recognition by courts as authoritative reference.”

Also in March 2018, Tennessee’s House of Representatives passed Bill No. 1977, a law which limits an insurer’s’ duty to defend against the allegations included in a lawsuit.

In August 2018, the state of Ohio’s legislature took an unprecedented step by rejecting the document in its entirety, by passing an amendment to the Ohio Revised Code of Insurance which read: “The Restatement of the Law of Liability Insurance that was approved at the 2018 annual meeting of the American Law Institute does not constitute the public policy of this state and is not an appropriate subject of notice.”

Ohio Governor John Kasich signed the bill into law.

In the matter of Catlin Specialty Ins. Co. v. CBL & Assocs. Properties, Inc., the Superior Court of Delaware ruled that the Restatement did not accurately reflect Tennessee law and thus did not follow it. Further, the Delaware judiciary expressed its view that courts need to adopt a Restatement before it can begin to influence case law, and that its approval cannot do that on its own.

“[Restatements] are mere persuasive authority until adopted by a court; they never, by mere issuance, override controlling case law,” according to the Court’s opinion in that case.

According to Derr, the Restatement was the first to focus on an industry as opposed to an area of law such as torts or contracts, thus making it possible for its authors to be subject to industry pressures and/or interests.

Derr referred to a prior draft of the Restatement in it not applying the plain-meaning rule where extrinsic evidence shows that a policyholder would give an insurance contract term a different meaning as “contrary to contract litigation as it has existed for centuries” and that it “opens the door to protracted litigation and discovery in cases that may have been traditionally been disposed of on summary judgment.”

(Note: The version of the Restatement which received approval and passage last year contained different language on the plain-meaning rule, found below:

Section 3. The Plain-Meaning Rule

(1) If an insurance policy term has a plain meaning when applied to the facts of the claim at issue, the term is interpreted according to that meaning.

(2) The plain meaning of an insurance policy term is the single meaning to which the language of the term is reasonably susceptible when applied to facts of the claim at issue in the context of the entire insurance policy.

(3) If a term does not have a plain meaning as defined in subsection (2), that term is ambiguous and is interpreted as specified in Section 4.)

Derr also spoke about the violation of an insurer’s duty to “make reasonable settlement decisions” now opening insurers up to liability for “foreseeable harm caused by the insurer’s breach of this duty.”

Derr concluded by explaining that judges are now faced with arguments that may come before them citing the Restatement; and that, for a judge unfamiliar with the insurance industry, it may make the document appear to be a source of authority.

“This forces adjudicators to weave through an additional layer of complicated jargon in an endeavor to find the truth and come up with not only an equitable, but also the correct, end result. And — if advocates before the court must argue and undermine the credibility of the Restatement, this may lead to similar arguments about other restatements published by the ALI which have been relied upon before,” Derr concluded.

With the American Law Institute announcing it will convene a number of upcoming symposium events to discuss its now-adopted Restatement – including one which was recently hosted by a pair of judges in a federal courthouse – it left some attorneys concerned about the appearance of such an action.

But, ALI’s Deputy Director Stephanie Middleton explained that there was no need for worry about the discussion tour centered on the Restatement, as it will not discuss or impact pending litigation.

“The panel consists of Texas practitioners who represent insurers, and practitioners who represent policyholders, along with one of the reporters on the project. The will be no discussion of any active cases. As most lawyers know, Restatements are simply resources, valuable ones, that describe the common law from many jurisdictions. There is no cause for concern,” Middleton said.

From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at

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