After nearly a decade of debate and controversy, the American Law Institute (ALI) voted to approve the much anticipated Restatement of the Law of Liability Insurance (RLLI) at its annual meeting on Tuesday, May 22, 2018. The project that ultimately resulted in the RLLI was launched in 2010, under the direction of Reporter Tom Baker of the University of Pennsylvania School of Law and Associate Reporter Kyle D. Logue of Michigan Law School, and produced nearly 30 drafts through the lifecycle of the project, before the ALI approved the final draft earlier this week.
Of note, the project was first introduced in 2010 as the “Principles of the Law of Liability Insurance” project. According to the ALI, its “Principles” projects “express the law as it should be, which may or may not reflect the law as it is.” In October 2014, the project was converted to the “Restatement” project, a move that substantially magnified the project’s significance and influence because restatements of the law are often cited by courts and attorneys as support for their positions. According to the ALI, the restatements seek to set forth “clear formulations of common law . . . as it presently stands or might appropriately be stated by a court.” Despite the fact that the project was converted to a “Restatement” project, the RLLI as approved by the ALI this week continues to adopt several minority rules that are more consistent with a “Principles” project, which has been a source of much criticism directed at the RLLI.
The RLLI as adopted consists of four chapters covering a range of liability insurance law topics. Chapter 1 is titled “Basic Liability Insurance Contract Rules” and addresses basic contract-law doctrines that have special application in the insurance-law context such as interpretation, waiver, estoppel, and misrepresentation. Chapter 2 is titled “Management of Potentially Insured Liability Claims” and addresses the duties of insurers and insureds in the management of potentially insured liability actions, including the duty to defend, settle, and cooperate. Chapter 3 is titled “General Principles Regarding the Risks Insured” and addresses general principles relating to most forms of liability insurance, including coverage provisions (i.e. insuring clauses and exclusions), conditions, and the application of limits, deductibles, and retention (i.e. number of occurrences and allocation). Chapter 4 is titled “Enforceability and Remedies” and addresses enforcement of policy provisions and remedies, including claims for bad faith.
Debate regarding several sections of the RLLI continued up until the final vote. The issues that received the most attention were the controversial “plain-meaning presumption” rule adopted by the ALI in lieu of the majority “plain meaning” rule for interpreting policy language, as well as the ALI’s adoption of a rule that results in the waiver of coverage defenses if an insurer breaches its duty to defend. However, the core of the RLLI as presented — and its more controversial provisions — remained unchanged through the process. According to a statement released by the ALI following its adoption of the RLLI, the reporters are authorized to implement substantive changes agreed to during discussion with the membership or by motions approved at the annual meeting, but “[u]ntil the official text is published, the draft approved by the membership is the official position of ALI, and may be cited as such.”
Now that the RLLI has been approved by the ALI, we can certainly expect to see parties cite to the RLLI in coverage litigation in an attempt to persuade courts to their side. As such, the battleground over the RLLI will shift from efforts to modify or amend the liability insurance law rules set forth in the RLLI to disputes over the role that the controversial (and much criticized) RLLI should play in the court’s decision-making. In this regard, if history is any indicator, it is likely that the RLLI will be given weight by courts, particularly when addressing areas of law in which the court does not have binding precedent to follow.
According to ALI statistics, state and federal courts have cited to the other ALI publications roughly 200,000 times since the ALI was founded in 1923. As a result, although there will certainly be continued debate over the weight that courts should give to the ALI’s RLLI — which arguably fails to meet the goal of a restatement to provide “clear formulations of common law” as it currently stands — we would all be well-served to become familiar with the RLLI, including its key provisions, and how they may impact coverage disputes moving forward.