Earlier this month in Insurance Liability Project Exemplifies American Law Institute’s Mission Drift, we discussed an especially troubling instance of where the American Law Institute (ALI), a private organization known for its “Restatements” of common law in areas such as torts, products liability, and contracts, was instead revising the law. On Tuesday, May 23, ALI announced at its annual meeting that rather than hold a final vote on the Restatement of Law, Liability Insurance as scheduled, the draft’s Reporters (i.e. authors) “agreed that another year of work” was needed on the project.
The postponement is a welcome development. ALI’s stated mission is to “clarify” and “modernize” the law. If ALI believes that an area of law should evolve in a direction different from what courts in the US have been applying, it commissions a “Principles Project,” which is explicitly aspirational, rather than a summation—along the lines of a glorified law review article. Restatements, on the other hand, are meant to simply restate. With projects like the Restatement of the Law, Copyright (which we criticized in a 2015 WLF Legal Pulse post) and now the liability insurance Restatement, the organization has been blurring the line between restating and revising. In fact, the liability insurance Restatement began as a Principles Project.
Mintz Levin LLP partner Kim V. Marrkand explained in a May 19, 2017 WLF Legal Backgrounder that a significant number of sections in the proposed Restatement failed to reflect the majority legal rule. Ms. Marrkand, for instance, cited 30 court decisions which embrace a legal principle that deviates markedly from a draft Restatement section on an insurer’s duty to defend its policyholder absent proof of bad faith. She also noted that another section would compel the losing party in insurance-coverage litigation to pay the winning party’s attorneys’ fees, a rule that is completely contrary to the prevailing “American Rule” (each side pays its own fees).
Other influential voices weighed in strongly with ALI in the weeks leading up to its vote on the liability insurance Restatement. A letter from nine non-insurance-company general counsel reflected our concerns that ALI’s drift toward law-making was imperiling its reputation and would inject uncertainty into the law. And a group whose members include those whom the public has elected to make insurance law—the National Conference of Insurance Legislators—also urged ALI to postpone a final vote.
Substantial work remains for those advocating that a Liability Insurance Restatement actually restate the current law. Consider that even though ALI decided to postpone a final vote on the entire document, the membership voted to approve Chapter 4 of the draft, which included the section creating a loser-pays rule for attorneys’ fees.
Also published by Forbes.com on WLF’s contributor page.