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October 6, 2016

ILR Raises Concerns about Fairness of ALI Insurance Restatement Process

This week in Philadelphia, the American Law Institute (ALI) meets to discuss the latest draft of its Restatement of the Law, Liability Insurance, which addresses the nationwide state of the law on issues as significant as bad faith and punitive damages.

ALI Restatements have traditionally been regarded as impartial and accurate reflections of existing state common law, designed to clarify and summarize how the law is being applied. But, as ILR noted during ALI’s Annual Meeting this past May, ALI Restatements have moved increasingly beyond the prevailing view of existing law and toward a more activist presentation of how some believe the law should be interpreted. The Insurance Restatement is the most notable example of this troubling trend.

Substantial concerns have been raised about the direction of the Insurance Restatement process, beginning with the Restatement’s inception. Early in the process, ALI made the unprecedented move of converting the Insurance Principles project (guidelines not grounded in existing case law), into an Insurance Restatement (a reflection of the current state of the law). The decision to convert a Principles project into a Restatement has never once been made in ALI’s 93-year history.

For the nation’s judges who routinely cite Restatements in their decisions, the distinction between what the law is on a particular issue and what some believe that law should ideally be could not be more different. For this Restatement in particular, ALI has moved far beyond just restating existing liability insurance law.

And while academic activists have increasingly exerted control over the Restatement process, the perspectives of the insurers have been largely ignored by the Restatement Reporters. Not a single suggestion from the industry has been included in discussions or resulted in changes to the drafts. As a result, the Insurance Restatement process has slanted sharply towards the interests of a narrow handful of ALI’s members.

The latest draft of the Insurance Restatement which will be reviewed at the Philadelphia meeting adopts an unacceptably low standard for what constitutes insurance bad faith. Even the review process itself feels like it is done in bad faith. The 142-page draft was released just 16 working days before the approval vote, thus limiting the ability of the ALI members to adequately voice concerns.  

It should go without saying that the Restatement Reporters should also allow for full and deliberate discussion among all members and take all viewpoints into consideration.  These viewpoints can and should be reflected in the next draft so that the Insurance Restatement is a more fair and reasoned recitation of the law.    

Will ALI ensure that all member feedback and objections pertaining to the Insurance Restatement are evaluated fairly in Philadelphia this week, and throughout the project’s remaining review? This week will be the crucial test as to whether ALI remains a venerable and unbiased mirror on the current state of the law, or has become a vessel of bias and political activism.

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