‘Restatement’ is still a miss

The publishing of a book is not ordinarily a big deal. And the publishing of a book on insurance law, in particular, would not normally seem like something worthy of significant attention.

However, the publication of a multi-volume treatise known as the “Restatement of the Law, Liability Insurance,” has been the subject of a great deal of controversy as it has been developed over the past several years. Its content has been objected to by the governors of six states, the insurance commissioners of several other states, and a prominent group of insurance legislators. To date, two states have responded to the publication with legislation, and others are expected to follow.

Why all the fuss/? The reason is what the book is supposed to be. Published by an organization known as the American Law Institute, or ALI, the Restatement is supposed to be an authoritative source — really the most authoritative source imaginable — of what the law of liability insurance is.

ALI has published a number of Restatements going back decades on subjects such as the law of torts and the law of contracts, which are well known to lawyers and frequently cited by courts. That’s what Restatements are all about. They’re supposed to reflect the law as it is so that litigants can point to them and judges can rely on them.

Problem areas

The problem with the Restatement is that, on a number of technical but important issues, its content differs from the law in most states, and in a few areas it creates entirely new legal standards and rules. This has been pointed out to the ALI repeatedly and pointedly by NAMIC and many others as the Restatement went through several rounds of drafting. And although changes were made in several areas to correct some issues prior to its adoption in April, there are still areas in which problems persist.

Examples of how the Restatement in its final form departs from existing law include the following:

• It suggests an insurer could be liable for negligent selection of defense counsel, disregarding the fact that lawyers are licensed and overseen by state governing bodies.
• It would add an element of “substantiality” to the requirements for a material misrepresentation to rescind an insurance policy, a standard that creates uncertainty and would drive litigation.
• It would make an insurer liable for punitive damages regardless of existing state policy or contract provisions.

State law conflicts

Because of issues like these the governors of Iowa, Maine, Nebraska, South Carolina, Texas and Utah submitted a joint letter to ALI in April 2018 expressing “sincere reservations and concerns” about the Restatement, observing that, “Rather than offering a reliable and authoritative summary of existing law, the Draft Restatement proposes changes to established legal principles governing liability insurance contracts and disputes.” The governors’ letter pointed out that the proposed changes “are properly within the prerogative of our state legislatures” and warned that “legislative or executive action” may be required.

Demonstrating that such a warning was not unfounded, legislatures first in Tennessee and subsequently in Ohio have taken action. In Tennessee, a bill responsive to the liability insurance Restatement provided clarification that insurance policies should be interpreted using traditional methods of interpreting contracts.

In Ohio, policymakers were blunter. A provision in a statute addressing several issues succinctly states, “The Restatement of the Law, 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.”

The National Council of Insurance Legislators (NCOIL) has also been animated regarding the Restatement, having adopted a resolution expressing concerns while it was in development and subsequently issuing a statement after its adoption. “NCOIL will not allow the constitutionally protected legislative prerogatives in each state to be infringed upon by an unelected body,” asserted NCOIL President Sen. Jason Rapert of Arkansas. “We will examine all necessary steps to rectify this overreach, including the necessity for a model law that accurately states what the law is on certain liability insurance law topics.”

In addition to the governors and legislators, insurance commissioners from Idaho, Illinois and Michigan have weighed in through letters to ALI questioning the reliability of the Restatement’s provisions and whether they should be viewed as accurately describing state insurance law.

Expected to be officially published late in 2018 or early in 2019, the Restatement will be finalized but the discussions over it will not end. To the contrary, its controversial provisions will undoubtedly continue to be debated for many years. It will be cited by litigants and courts.

In response, opposing parties will likely cite Justice Scalia when he asserted that Restatement provisions that find “little if any support in case law … should be given no weight whatever 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. And it cannot safely be assumed, without further inquiry, that a Restatement provision describes rather than revises current law.”

Hostile viewpoints?

In a 2015 case involving a different Restatement, U.S. Supreme Court Justice Antonin Scalia pointed out that the original goal of Restatements was to “present an orderly statement of the general common law.”

He asserted that the 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.”

That’s exactly what happened to the insurance Restatement, which was developed not by lawyers with experience working in the insurance business but rather by two academics known for having viewpoints in some ways hostile to insurer interests.

Paul Tetrault is state and policy affairs counsel for the National Association of Mutual Insurance Companies. You can find him on Twitter: @PaultNAMIC. These opinions are the author’s own.

See also: Proposed restatement of liability insurance law may be ‘misstatement’