Mission Drift at the American Law Institute

August 28, 2018

The American Law Institute (ALI) is drifting further away from its original mission of crafting clear Restatements of the Law for use by judges and legislators. To make those Restatements, the ALI used to examine how a given law is usually interpreted in courts across the country, and create a document that clearly restates the law in terms of the majority interpretation.

Instead, as U.S. Chamber Institute for Legal Reform President Lisa Rickard observed at the beginning of this year, it is increasingly reshaping the law to fit its own opinions.

In recent years, ALI Reporters (the ones who craft the Restatements) have been following a new directive from ALI leadership. This directive allows them to disregard the majority interpretation of a given law when drafting a Restatement, and instead to choose a “better rule.” This essentially gives them carte blanche to rewrite the law as they see fit.

The “better rule” approach is on full display in one of the organization’s newest projects, the Restatement of the Law of Liability Insurance. Michael Menapace, who teaches insurance law at the Quinnipiac University School of Law, published a recent article contending that section 13(3) of the ALI’s document imposes unreasonable restrictions on an insurer’s ability to deny a defense to an insured.

Menapace points out that in early drafts, the ALI was stating the majority judicial opinion when they recognized a general exception to an insurer’s obligation to defend an insured in litigation. That exception arises when “undisputed facts” not at issue in the case dictate that the legal action should not be covered. For example, if an insured has pled guilty of a criminal offense in a related case, courts have recognized that the insurer’s obligation to defend them goes away.

The most recent draft reversed course and ignored that precedent, narrowing the general exception to a few specific conditions. Under this narrow interpretation, an insurer can deny a defense if:

  • the defendant is not actually an insured under the policy;
  • a defendant-owned automobile or other property involved in the case was not covered by the insurance policy;
  • the defendant reported their claim later than stipulated in a claims-made policy and there is no applicable prejudice requirement under the Restatement’s rules;
  • the defendant’s claim is subject to a prior pending or related claim litigation exclusion;
  • the policy has been “properly” cancelled; or
  • there is no duty to defend under a similar, narrowly defined exception recognized in the applicable jurisdiction.

This much narrower interpretation leaves insurers open to potentially massive and unpredictable new liabilities before courts that implement the Restatement, and is a clear example of how the ALI’s new approach creates damaging consequences for businesses.

It should go without saying that ILR believes in reforming the law—when such reform is undertaken by legislatures or legitimate rulemaking bodies.

However, we do not believe that the ALI has the authority to change the substance of the law on its own initiative and with no direct oversight. ILR urges judges and legislators to take a hard look at every Restatement issued by the ALI, and where necessary, to follow the state of Ohio’s lead in rejecting Restatements outright when they come into conflict with state statutes.