The new Restatement of the Law, Liability Insurance has engendered considerable discussion, debate, and attacks. But, what makes it so controversial? Does it really stray from what “the law” is, as some critics have argued? And, is it really some sort of partisan document, rather than what it purports to be—an objective “restatement” of the law?
Answering these questions warrants a look at what the new Restatement actually is, and how it came to be.
The American Law Institute was founded in 1923. The Institute’s members include U.S. Supreme Court justices, judges of the highest courts of most states, law school deans, professors, and private practitioners. Putting it simply, when the Institute speaks, courts and others tend to listen.
According to the Institute, “Restatements are primarily addressed to courts. They aim at clear formulations of common law and its statutory elements or variations and reflect the law as it presently stands or might appropriately be stated by a court.” Restatement of the Law, Liability Insurance (2018), Restatements (Excerpt of the Revised Style Manual approved by the ALI Council in January 2015).
The purpose of this Restatement, like any other Restatement, is described as follows by the Institute:
[W]hat a Restatement can do that a busy common-law judge, however, distinguished, cannot is engage the best minds in the profession over an extended period of time, with access to extensive research, testing rules against disparate fact patterns in many jurisdictions.
It will operate to produce agreement on the fundamental principles of the common law, give precision to use of legal terms, and make the law more uniform throughout the country. Such a restatement will also effect changes in the law, which it is proper for an organization of lawyers to promote and which make the law better adapted to the needs of life.
The Restatement of the Law, Liability Insurance was not created in some overnight partisan process. Instead, it was a long time coming. It was the subject of a lengthy back-and-forth process over ten years involving more than 160 lawyers representing insurers, insureds, and others. As drafts were proposed and revised, there were heated debates among the various constituent groups. The drafting process produced 29 drafts presented formally in seven annual Institute meetings.
Restatements can be important and influential, particularly in jurisdictions where the law on a given subject is neither deep nor broad, or where an issue is one of first impression. Restatements have long been cited and relied upon by courts. “Restatements are one of the most highly regarded types of secondary authority and have exerted considerable influence on the judicial process. Many courts have adopted Restatement sections verbatim as the law of their jurisdiction. Moreover, many law professors rely on Restatements in their courses as the definitive source of ‘black letter’ law.” Suzanne Ehrenberg & Susan Valentine, Lecture Notes for Restatements of the Law (1999), http://www.kentlaw.edu/academics/lrw/tutorials/restate.htm. Courts already have begun citing the new Restatement. See, e.g., Webcor Constr., LP v. Zurich Am. Ins. Co., 2019 WL 1129554, at *4 (N.D. Cal. Mar. 12, 2019); Century Sur. Co. v. Andrew, 432 P.3d 180, 186 (Nev. 2018); Akorn, Inc. v. Fresenius Kabi AG, 2018 WL 4719347, *59 n.619 (Del. Ct. Ch. Oct. 1, 2018). Endurance Am. Specialty Ins. Co. v. Bennington Group, LLC, 2017 WL 4225945, at *4 (Cal. Los Angeles Super. Ct. Aug. 22, 2017, quoting March 28, 2017 proposed final draft regarding “misrepresentation.
So, given the long history and courts’ acceptance of Restatements, why the controversy on this one? Perhaps it is because of the principles it espouses as what the law is, what the law is becoming, and what the law should be. Here are five key tenets (for a more fulsome discussion of the Restatement’s principles, please visit:
- Reliance on Insurer Representations: “In general, it is reasonable for a policyholder or applicant for insurance to rely on the representations of the insurer’s agent with respect to the meaning and significance of questions in the insurance application or renewal process, as well as to what will and will not be covered by the policy. Thus, even if the promise or representation of an insurer’s agent contradicts the clear language of the policy, it will generally be reasonable for the policyholder to rely on that promise or representation.” Id., § 6, Comment c, at 63
- An Insurer’s Right to Information: “An insurer does not have the right to receive any information of the insured that is protected by attorney-client privilege, work-product immunity, or a defense lawyer’s duty of confidentiality under rules of professional conduct, if that information could be used to benefit the insurer at the expense of the insured.” Restatement, § 11, at 109.
- An Insurer’s Duty to Pay Defense Costs versus an Insurer’s Duty to Defend: “When a defense-cost-indemnification policy obligates an insurer to pay the costs of defense on an ongoing basis[,] . . . [t]he scope of the insurer’s defense-cost obligation is determined using the rules governing the duty to defend . . . .” Id., § 22, at 192.
- Insurance for Criminal Actions: “Except as barred by legislation or judicially declared public policy, a term in a liability insurance policy providing coverage for defense costs incurred in connection with any legal action is enforceable, including but not limited to defense costs incurred in connection with: a criminal prosecution; an action seeking fines, penalties, or punitive damages; and an action alleging criminal acts, expected or intentionally caused harm, fraud, or other conduct involving aggravated fault.” Id., § 45, at 392
- No Right to Reimbursement of Defense Payments: “Unless otherwise stated in the insurance policy or otherwise agreed to by the insured, an insurer may not seek recoupment of defense costs from the insured, even when it is subsequently determined that the insurer did not have a duty to defend or pay defense costs.” Restatement, § 21, at 182.