Two weeks ago, we announced a new biweekly series analyzing, section by section, the new Restatement of the Law of Liability Insurance.  Before we begin talking about specific sections, let’s review the response so far to the Restatement from courts and other authorities outside the ALI.

Pushback against the Restatement began even before final approval by the ALI membership.  On May 5, 2017, a full year before the Restatement was approved, the leaders of the National Council of Insurance Legislators sent ALI leadership a letter arguing that “several of the proposed Restatement’s provisions go beyond established insurance law and thus are of immediate concern because they appear to address matters which are properly within the legislative prerogative.”  Ultimately, in response to criticism both from a coalition of a long list of ALI members (I was proud to join that coalition) and outside authorities, the ALI postponed for a year the scheduled May 2017 vote to give the Restatement final approval.

On November 28, 2017, following a general session at the annual meeting of NCOIL during which the Restatement reporters spoke, NCOIL leadership wrote the ALI again, arguing that the Restatement remained a misstatement of majority law in several key respects, citing specifically to Sections 3, 8, 12, 13(3), 18, 19, 27, 36, 48, 49(3), and 51(1).  NCOIL leaders warned that “Should there not be meaningful change in the proposed Restatement, NCOIL will be forced to oppose the proposed Restatement project as a misrepresentation of the law of liability insurance, and as a usurpation of lawmaking authority from State insurance legislators.”  NCOIL noted that it would soon be deciding the role the organization “would take in alerting state Chief Justices, state legislative leaders and members of the committees with jurisdiction over insurance public policy [and] state insurance regulators” that the Restatement was “in numerous places, a misstatement of the law . . . and should not be afforded recognition as an authoritative reference.”

My home state of Kentucky was first out of the box.  The Kentucky House of Representatives passed House Resolution No. 222 even before the Restatement won final approval from the ALI membership:

Section 1.  This honorable body respectfully urges ALI leadership, members, and Reporters to abide by ALI’s own acknowledgement that “[a]n unelected body like The American Law Institute has limited competence and no special authority to make major innovations in matters of public policy’ and instead afford proper respect to the legislative prerogative, and the expertise and the jurisdiction of NCOIL members.

Section 2.  This honorable body respectfully urges ALI to effect meaningful change to the proposed Restatement so that it is consistent with well-established insurance law and respectful of the rule of state legislatures in establishing insurance legal standards and practice.

Section 3.  This honorable body respectfully urges that, if meaningful change to the proposed Restatement does not occur prior to its final approval, the Restatement of the Law of Liability Insurance should not be afforded recognition by courts as an authoritative reference regarding established rules and principles of insurance law, as Restatements have traditionally been afforded.

Following final approval of the Insurance Restatement in May 2018, the Ohio legislature passed S.B. 239, amending Ohio law as follows: “The ‘Restatement of the Law of 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.”

In February 2019, the Texas legislature followed suit:

WHEREAS, the Restatement contains several areas that . . . are inconsistent with established law . . . and accordingly, courts cannot properly rely on the new Restatement . . . therefore, be it

RESOLVED, that the 86^th Legislature of the State of Texas hereby condemn the American Law Institute’s 2018 Restatement of the Law of Liability Insurance and discourage courts from relying on the Restatement as an authoritative reference regarding established rules and principles of law.

Nor does the Restatement seem to be making much progress in the courts.  Our research has not located a single case in which any of the Restatement sections highlighted by the Restatement’s many opponents has been adopted by a court.

In late 2016, the United States District Court for the Southern District of Alabama “see also” cited a discussion draft in a footnote for regarding the consequences of an unreasonable breach of the duty to defend.  Nationwide Mutual Fire Insurance Co. v. D.R. Horton, Inc., 2016 WL 6828206, n. 6 (S.D. Ala. 2016).  Later that year, the Southern District of Texas cited a Tentative Draft of the Restatement for an unremarkable point about the insured’s duty to cooperate.  2016 WL 7733054, *4, n.28 (S.D. Tex. 2016).  In May 2017, the Southern District of Indiana cited a section of a Discussion Draft of the Restatement stating that the right to recoupment of defense costs must be included in policy language.  Selective Insurance Co. of Am. V. Smiley Body Shop, Inc., 260 F.Supp.3d 1023, 1033 (S.D. Ind. 2017).  In October 2017, the Missouri Court of Appeals included a “see also” cite to a Tentative Draft defining the “all-sums” approach to exhaustion.  Nooter Corp. v. Allianz Underwriters Ins. Co., 536 S.W. 3d 251, 272 (2017).

In February 2018, two litigants in Catlin Specialty Insurance Co. v. J.J. White, Inc., 309 F.Supp.3d 345,  362 (E.D. Pa. 2018), cited one of the more controversial sections of the Restatement describing the consequences of an unreasonable refusal to defend in support of their argument.  The court wasn’t impressed, briefly noting that New York law was to the contrary.  The defendants in Catlin Specialty Insurance Co. v. CBL & Associates Property, Inc., 2018 WL 3805868 (Sup. Del. 2018) cited the Restatement in support of a similar argument.  The court wasn’t persuaded: “the Restatements are mere persuasive authority until adopted by a court; they never, by mere issuance, override controlling case law.  And this Restatement itself acknowledges that ‘[s]ome courts follow the contrary rule.’”  *3.  The counterclaim plaintiff in Progressive Northwestern Insurance Co. v. Gant, 2018 WL 4600716 (D. Kan. 2018) cited another controversial section of the Restatement regarding the consequences of an insurer hiring an incompetent attorney to represent the insured.  The court rejected the argument for two reasons: first, at the time, the Restatement hadn’t been given final approval, and second, Kansas courts hadn’t addressed the issue: “this Court is not inclined to use a nonbinding Restatement as a means to overturn or expand Kansas law.”  Id. at *7.  The Eastern District of Kentucky rejected the Restatement provision addressing the scope of the duty to defend in Outdoor Venture Corp. v. Philadelphia Indemnity Insurance Co., 2018 WL 4656400 (E.D. Ky. 2018), briefly noting the relevant Restatement section and then following the (very different) Kentucky law.  Id. at *18-19.  The Delaware Court of Chancery briefly cited the Restatement in a lengthy footnote in Akorn, Inc. v. Fresenius Kabi AG, 2018 WL 4719347, *59, n. 619 (Del. Ch. Ct. 2018) regarding the burden of proving that a claim falls within an exclusion.  The Western District of Oklahoma briefly cited to the Restatement in National Casualty Co. v. Western Express, 356 F. Supp. 3d 1288, 1299 in connection with determining the number of claims created by an event.

Next week, we’ll be back with a new installment of our series on the law of the Foreign Trade Antitrust Improvement Act.  The week after, we’ll begin our tour through the Insurance Restatement.

Image courtesy of Flickr by GotCredit (no changes).