December 3, 2018

American Law Institute: Elite Group of Legal Experts Exerts Growing Influence Over State Law

This kind of thing isn’t supposed to happen. A private group of legal experts has influenced a court to ignore a majority rule and change their application of state law. And it won’t be the last time.

Frequent readers of this blog will know that The American Law Institute (ALI) is a well-respected, 96-year-old body of jurists and legal practitioners that produces documents called “Restatements,” which have traditionally distilled and clearly restated the opinions of a majority of state courts on difficult questions of common law.

When the ALI’s Reporters drafted the problematic Restatement of the Law of Liability Insurance (RLLI), they were able to use procedural discretion recently written into the ALI Handbook. This new discretion allows them to ignore majority interpretations of common law when they can identify a “better” rule to follow, effectively acting as unelected legislators. And one of their “better rules” just influenced the Circuit Court of Cook County to rule against an insurer.

In Gilbane v. Liberty Insurance Underwriters, the insurer sought to recoup a $7.5 million settlement from Gilbane Building Co., after paying that cost up-front under Gilbane’s directors and officers (D&O) liability insurance policy. Gilbane countered that their policy did not give the insurer the right to do this, and the court acknowledged that state law is split on when an insurer has the right to seek reimbursement. So far so good.

But here’s the problem. The RLLI ignores the lack of consensus on the recoupment question, and flatly rejects an insurer’s right to recoupment absent an explicit policy provision or separate agreement between the insurer and the insured. And the Gilbane court cited the RLLI’s position on the question as being representative of a “recent trend and default rule” among state courts.

The court then ruled in favor of Gilbane.

In short, the RLLI influenced the Cook County Circuit Court’s opinion in Gilbane by purporting to document a “default rule” that does not, in fact, exist. And this was only possible because that court, and most other state courts, are likely unaware of the ALI’s recent shift away from objectively describing the state of the law as it is, towards redrafting the law the way they think it should be.

Gilbane is only the first of what will likely be many rulings to cite the RLLI as an important factor in reaching a decision. State courts and state legislators need to be aware of the risk this poses to the integrity of their common law, and should take a critical eye not just to this Restatement, but to all new work product coming out of the ALI.

And, where legislators find a Restatement to be unacceptable, they should follow Ohio’s lead and pass a law to keep it out of their states.

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