The American Law Institute (ALI) is set to vote to approve its much anticipated aEURoeRestatement of the Law of Liability InsuranceaEUR? Law at its annual meeting
from May 21 to 23, 2018, in Washington, D.C. For almost 100 years, the ALI has published aEURoeRestatement of the LawaEUR? treatises on various legal topics which are meant to inform legal practitioners on general principles of common law, and courts will often look to these Restatements for guidance. In fact, according to ALI statistics, state and federal courts have cited to the ALIaEUR(TM)s publications roughly 200,000 times since the ALI was founded in 1923.
As a result, since the ALI announced in 2010, that it would be publishing a Restatement of the Law of Liability Insurance many in the insurance field have taken notice, and there has been no shortage of debate over the draft statements of law proposed by the ALI in the Restatement. Although the ALI purports to only set forth aEURoeclear formulations of common law. . .as it presently stands or might appropriately be stated by a courtaEUR? in the Restatements, many in the legal community believe that the Restatement of the Law of Liability Insurance as it is currently drafted adopts several minority rules preferred by the members of the ALI who have been charged with drafting the Restatement.
Most notably, Section 3 of the Restatement addresses one of the most fundamental principles of insurance law aEUR" the interpretation of the policy itself aEUR" but adopts a rule of construction which is at odds with the majority aEURoeplain meaningaEUR? rule. As an initial matter, the Restatement states that aEURoe[a]n insurance-policy term is interpreted according to its plain meaning.aEUR? However, the Restatement goes on to state that aEURoeextrinsic evidence may be used to show that the term has a different meaning in contextaEUR? (even the term aEURoeis unambiguous on its faceaEUR?) if aEURoea reasonable person in the policyholdersaEUR(TM) position would give the term a different meaning.aEUR? As such, the aEURoeplain-meaning presumptionaEUR? rule adopted by the Restatement is at odds with the majority aEURoeplain meaningaEUR? rule and will certainly lead to greater uncertainty in the interpretation of standard coverage forms and higher costs in resolving insurance coverage disputes.
Similarly, Section 24 of the Restatement fails to adopt common law aEURoeas it presently standsaEUR? by imposing an obligation on an insurer to make settlement offers even in the absence of a demand. Noting that aEURoe[t]here is no hard and fast rule regarding the insureraEUR(TM)s obligation to make offers,aEUR? Comment f
to Section 24 states that aEURoethere can be circumstances in which an insurer has a duty to make a settlement offer even where no settlement demand has been made.aEUR? In setting forth this purported aEURoerestatementaEUR? of the law, the ALI recognizes that aEURoe[t]here is a split of authority on the question of whether the duty to make reasonable settlement decisions can obligate an insurer to explore settlement negotiations should the claimant or claimants not come forward with a settlement offer.aEUR? This concession in the ReportersaEUR(TM) Note alone demonstrates the ALIaEUR(TM)s departure from the stated goal of Restatements to set forth aEURoeclear formulations of common law. . . as it presently stands.aEUR?
There will certainly be continued debate over the substance of the Restatement of the Law of Liability Insurance when it comes before the ALIaEUR(TM)s full membership for a vote in this May, and it will be interesting to see what aEUR" if any aEUR" amendments are adopted to the Restatement. However, if the ALI adopts the Restatement as currently drafted, it is clear that some of the provisions will fail to meet the goal of a Restatement to provide aEURoeclear formulations of common lawaEUR? as it currently stands.