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Controversial Restatement of Liability Insurance Approved by Final Vote of ALJ

Today, the American Law Institute (ALI) voted to approve the Restatement of the Law, Liability Insurance.  According to ALI’s press release,

“The draft has four chapters covering a range of liability insurance law topics. Chapter 1 addresses basic contract-law doctrines that have special application in the insurance-law context: interpretation, waiver, estoppel, and misrepresentation. Chapter 2 addresses insurance-law doctrines relating to duties of insurers and insureds in the management of potentially insured liability actions: defense, settlement, and cooperation. Chapter 3 addresses general principles relating to the risks insured that are common to most forms of liability insurance, including coverage provisions, conditions, and the application of limits, retentions, and deductibles. Chapter 4 addresses enforceability and remedies.”

The National Association of Mutual Insurance Companies has opposed the project, warning that the draft adopted numerous minority rules.  The DRI Center for Law and Public Policy has also stated its opposition, as have corporate counsel.  Critiques have been made of the Restatement’s stance on rules of interpretation, attorney’s fees, and admissibility of extrinsic evidence, among others.  The vote was delayed last year for additional study and revisions.

The 2017 Proposed Final Draft is not the approved draft.   According to ALI the approved draft is “Proposed Final Draft 2” and will not be available for 2-3 weeks.  Once it has been published, it will be the official position of ALI and “may be cited as such.”  But courts have already cited the tentative draft, see, e.g., Mid-Continent Cas. Co. v. Petroleum Solutions, Inc., 2017 U.S. Dist. LEXIS 107603 (S.D. Tex. July 12, 2017) and more may do so after today’s vote.  We will be reviewing the final text and providing substantive updates to navigate coverage disputes post-Restatement.

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