Home Page The Publication The Editor Contact Information Insurance Key issues Book Subscribe

Vol. 6, Iss. 5
May 17, 2017

A Curious Letter Is Sent To The ALI About Its Liability Insurance Restatement

The American Law Institute’s Restatement of the Law, Liability Insurance has been an on-going project of the Institute for seven years. With the approval of the ALI membership, at its annual meeting, it will be complete at the end of May.

While the Restatement was relatively unknown in the early years, that hasn’t been the case for the past several. To the contrary, the ALI’s Insurance Restatement has been the most talked-about, and controversial, topic in liability coverage circles – being the subject of countless articles, as well as being discussed and debated at numerous insurance conferences. The ALI Insurance Restatement has been the Kardashians of insurance coverage.

So it seems curious that on April 5, 2017, Dean Cameron, Director of the Idaho Department of Insurance, sent a letter to the ALI, stating that his office has just learned about the Restatement for the first time.

Director Cameron stated that “not only are the proposed revisions and rules of concern to the insurance industry and policyholders, they may also be of concern to regulators. The proposed changes could significantly alter the course of doing business ergo, its regulation. The Idaho Department of Insurance respectfully requests that the finalization of the Restatement, Liability Insurance project be delayed to a date later than May 2017, allowing state regulators the opportunity to weigh in on important issues raised by the proposed Restatement.”

I would agree with Director Cameron that there is a place at the table for the views of state insurance regulators when it comes to a discussion of the issues in the Restatement of Liability Insurance. But how is it that the Idaho Department of Insurance is only now hearing about a project of this magnitude that has been in the oven for seven years?

Stephanie Middlemen, Deputy Director of the ALI, told me that, as far as she knows, Director Cameron is the first state insurance regular to contact the ALI about the project. So, in fact, it turns out that Idaho may be more informed about the Restatement than lots of other state Insurance departments. Admittedly, some state insurance departments may have been aware of the Restatement and just never provided comments.

Ms. Middleton responded to Director Cameron’s letter with her own on April 18. She indicated that the ALI would be grateful to know which sections of the Restatement are of most concern to him. She also indicated that ALI would like to hear from other state regulators. Ms. Middleton requested a response by May 7th, so that any specific concerns could be considered at the ALI’s Annual Meeting on May 22-24. As of May 12th the ALI had not received a response from Director Cameron’s office.

As this article was going to press I learned that the National Conference of Insurance Legislators sent a May 5th letter to the ALI, stating that it too just recently learned of the Restatement, setting out some specific concerns and asking that the upcoming vote to approve it be deferred.

On the subject of regulatory considerations and the Restatement, this was recently addressed in a paper by Debevoise and Plimpton lawyers Eric Dinallo and Keith Slattery. Mr. Dinallo was New York State Superintendent of Insurance from 2007 to 2009. Mr. Slattery held senior positions with AIG from 1998 to 2007. The authors acknowledge that financial support for their paper was provided by the National Association of Mutual Insurance Companies.

Dinallo and Slattery argue that, “[i]f adopted by courts, the draft Restatement could create market disruption in the form of an uncertain and unpredictable pricing and reserving environment, increased claim handling costs and litigation, inflated settlements, increased premiums, and the potential for market exits by insurers and reinsurers, as well as carrier insolvencies.” “The Draft,” they maintain, “changes longstanding and fundamental precepts in key areas that form the foundation for policy coverages, rates, reserving, claim handling and reinsurance, while insurers are recast as quasigovernmental financial guarantors under the Draft’s proposed rules which are designed to force insurers to defend and pay for all claims. Absent corrections, adoption of the Draft may result in the cost of insurance becoming more unaffordable to many, leaving people and companies uninsured or underinsured.”

Restatement Reporters Tom Baker and Kyle Logue responded to the Dinallo and Slattery paper with one of their own that explains that the sky is not falling. Professors Baker and Logue maintain that the assertions by Dinallo and Slattery are “false, unsupported by any proffered evidence, or confused and misleading. Every rule of insurance law adopted in the Restatement is grounded in existing case law; most of the rules have been adopted in most jurisdictions; and all the rules, as well as all the commentary supporting those rules, are the product of the famously thorough ALI Restatement process, which includes many opportunities for experts in the field to review, comment on, and suggest revisions to drafts. Moreover, none of the rules adopted in the Restatement encroach or usurp the role of state insurance regulators. To the contrary, as demonstrated by the fact that all the rules the Restatement adopts are already in effect in multiple jurisdictions, those rules are compatible with, and complementary to, the regulatory role of state offices of insurance regulation. Further, D&S do not offer any evidence in support of their claim regarding adverse effects on the insurance market. All they offer is their own opinions, which are grounded in the mischaracterizations and confused analysis that we describe.”

Discussing these competing regulatory issues further is well beyond the scope here. It’s something I hope to do in a subsequent issue of CO.

Website by Balderrama Design Copyright Randy Maniloff All Rights Reserved