Restatement of the Law of Liability Insurance

An American Law Institute Restatement of the Law of Liability Insurance (RLLI) has stirred considerable controversy; its final draft was withdrawn on the eve of a membership vote, with further work expected [WLF: Mark Chenoweth, Kim Marrkand, Glenn Lammi; W.J. Kennedy, Legal NewsLine/Forbes] Chenoweth:

Simply put, this “Restatement” does a lot less restating and a lot more revising than ought to be seen in something traveling under this banner.

Others have done an excellent job of describing where ALI’s Restatement draft falls short in characterizing current law, so there is no need to reiterate those arguments here. But for clarity’s sake, let me say that I am referring specifically to at least the following provisions of the draft:

  • Permitting policyholders to introduce extrinsic evidence in interpreting insurance contracts, which contradicts the ‘parole evidence’ rule.
  • Radically shifting the consequences of breaching the duty to defend (in the absence of bad faith).
  • Fee shifting; and
  • Creating a duty for insurers to make a reasonable settlement offer in the absence of a demand.

Earlier here and related here (“No more of Prosser’s tricks,” and views of Justice Scalia).

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