Defending the Restatement of the Law, Liability Insurance: 'Regulatory Considerations'

Abstract

As the Restatement of the Law, Liability Insurance (“the Restatement”) has progressed through the rigorous drafting process of the American Law Institute (the “ALI”), insurance industry organizations have funded several public critiques of the Restatement. In this essay, we address one of the critiques funded by the National Association of Mutual Insurance Companies: a white paper prepared by Eric Dinallo and Keith Slattery (“D&S”) that criticizes the Restatement based on “regulatory considerations.” Their overarching claim is that the Restatement adopts a series of rules that are not based on the existing case law and that, if adopted by the ALI, would greatly expand the coverage owed by property-casualty insurers and encroach on the regulatory function of state insurance regulators. The result, they argue, will be a disruption in insurance markets, including premium increases, coverage withdrawals, significant additions to loss reserves, and general market instability. As we will demonstrate, these assertions 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.