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January 11, 2018

“It Can Happen to Anyone”

Today and tomorrow, the Council of the American Law Institute (ALI) will debate whether to make far-reaching changes to the way judges interpret the law around insurance and consumer contracts. If it seems strange that an unelected body of academics might unilaterally change the law in this way, that’s because it is strange.

It shouldn’t happen. And, until very recently, it didn’t happen.

The American Law Institute has a long and honorable track record of creating informational resources called ‘Restatements’. For most of the ALI’s existence, the Restatements served only to clarify complex formulations of common law in its current form and how it might be appropriately stated by a court. Judges have long relied on these supposedly impartial resources to navigate knotty legal questions. In recent years however, the ALI has added increasing amounts of opinion to its Restatements, to the point where the next round of Restatements threatens to distort the laws in question, rather than clarify them.

The ALI Council will consider two proposals: a Restatement of the Law of Liability Insurance, and a Restatement of the Law on Consumer Contracts.

The first of these (well-covered in legal press) has been widely criticized by the insurance industry, the broader business community, and concerned legislators for introducing an innovation that would allow judges to consider “extrinsic” evidence when interpreting the terms of insurance contracts—fundamentally undermining the legal certainty that contracts are supposed to provide.

The second proposed Restatement was written by a panel that included Harvard Law School Professor Oren Bar-Gill, a former academic colleague of Senator Elizabeth Warren. Perhaps unsurprisingly, this proposal constitutes a real windfall for the plaintiffs’ bar, creating a completely new category of “consumer contracts”, ignoring the Federal Arbitration Act and related Supreme Court decisions, and creating a “deceptive contract” theory that would allow consumers to reject any contract terms they think are “the result of a deceptive act or practice.”

In short, the two draft Restatements that the ALI is considering this Thursday and Friday represent a striking deviation from the organization’s role as a neutral interpreter of common law. The ALI’s leaders should reject these drafts, and insist that future Restatements endeavor to clarify the law—not change it.

For more on this, read U.S. Chamber Institute for Legal Reform President Lisa A. Rickard’s January 17, 2018 op-ed in National Law Journal here.

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