Debate Persists: The Controversial Restatement of the Law on Liability Insurance

In May 2018, the long, contentious debate over the substance of the American Law Institute’s (ALI’s) proposed Restatement of the Law, Liability Insurance (Restatement) ended.  The Restatement was approved and published soon thereafter in 2019.  While one debate ended, a new one began regarding what role the Restatement could (and should) play in courts’ decision-making, and what weight it should be given. 

Since its finalization and publication, the Restatement has been cited by hundreds of state and federal courts around the country, often in support of policyholders’ positions.  This is not a surprise.  As those who have followed the tumultuous evolution of the Restatement are aware, the Restatement has not received a warm welcome by insurers.  Groups like the American Property Casualty Insurance Association (APCIA) and the National Association of Mutual Insurance Companies (NAMIC) vehemently oppose the Restatement — and with good reason. 

Why the Controversy? A Recap

The ALI touts itself as being a leading “independent” organization in the United States, producing scholarly work “to clarify, modernize and otherwise improve the law.”¹  Over the years, it has published restatements of the law, model codes, and principles of the law. As the ALI acknowledges, its works are “persuasive” and influential authority.² Courts across the nation rely on restatements where there is no existing statutory law or no recognized common law on a particular issue. 

The Restatement is unlike these previously issued restatements.  The Restatement takes the approach of proposing innovation and reform in liability insurance law, rather than restating existing common law insurance rules. A discussion of these specific instances is beyond the scope of this article, but no shortage of articles exists addressing this topic.³ As NAMIC explains, restatements “are supposed to be clear formulations of common law, which provide an unbiased reflection of the law as it presently stands.”⁴  Unfortunately, the Restatement “adopted numerous minority rules, which is fundamentally inconsistent with the purpose of a Restatement.”⁵ As emphasized by NAMIC, “[t]hese minority rules generally impede the ability of insurance companies to exercise their legal rights,” and they “create litigation impediments for insurance companies that are not based upon prevailing judicial determinations,” but aspirational views.⁶

Strenuous efforts by NAMIC and APCIA to oppose the Restatement continue.  Together, NAMIC and APCIA are holding regional programs across the nation to educate the insurance industry on differences between the hundreds of pages of the Restatement and the actual case law.⁷

The Latest Chapter: Cue The Legislature

Meanwhile, APCIA is working to pass legislation in several states that removes the recognition of the Restatement as an authoritative reference regarding liability insurance law.⁸ It appears legislators have taken notice of the Restatement’s overreaching, which alters the common law and imposes judgments on public policy issues.⁹ 

Some legislatures have already enacted statutes and resolutions rejecting the Restatement as inconsistent with the law and policy of their jurisdictions. In Ohio, for example, legislators recently amended the Ohio insurance statute to state that the Restatement “does not constitute the public policy of this state and is not an appropriate subject of notice.”¹⁰  In the ALI’s 95-year history, no state has ever before passed legislation against a restatement in its entirety.

North Dakota, Michigan, and Arkansas approved bills similar to that of Ohio, preventing courts from considering the Restatement.  Further, the Kentucky House of Representatives adopted a resolution officially opposing the Restatement.¹¹ Tennessee’s legislature also amended its insurance statute to add provisions addressing plain meaning interpretation of insurance statutes and insurers’ duty to defend obligations.¹² 

Numerous other states have expressed their rejection of the Restatement.  Governors of South Carolina, Maine, Texas, Iowa, Nebraska, and Utah submitted a joint letter to the ALI expressing their concerns that the Restatement alters fundamental insurance law principles.¹³ Additionally, the insurance commissioners of Michigan, Idaho, and Illinois have written to the ALI expressing concerns that the Restatement goes beyond the codification of the law, adversely impacting the insurance system.¹⁴  The APCIA has recently urged similar legislation in Florida, contending that the Restatement conflicts with Florida law.¹⁵

The Controversy Continues

In 2015, Justice Scalia warned that modern restatements, in general, are “of questionable value,” and must be used “with caution.”¹⁶ According to Justice Scalia, “[o]ver time, the [r]estatements’ 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.”¹⁷ While Justice Scalia’s cautionary words were written years before the publication of the Restatement, they cannot ring more true in this instance. 

With the recent involvement of various states’ legislatures on this front, the controversy over the Restatement has certainly not concluded. Those seeking to cite the Restatement, and those seeking to oppose its citation, should be mindful of how both the courts and legislature in their relevant jurisdiction have treated the Restatement.