Update on the ALI Restatement of the Law of Liability Insurance Monday, May 15, 2017 10:00 a.m. EDT
Asking Questions
Anti-Trust Policy Before we begin our meeting, please keep in mind that numerous state and Federal laws absolutely prohibit the exchange of information among competitors regarding price, refusals to deal, or agreements to proceed in certain anti-competitive respects, and that no such exchange of this information is either sanctioned by NAMIC or will be permitted during our meeting. This is a very serious matter and your cooperation will be appreciated. Although The McCarren-Ferguson Act has given a limited exemption to the insurance industry from certain otherwise prohibited activities, board members should realize that the exemption provided companies has definite limits and that NAMIC itself, as a trade association, has no such exemption. Activities, both in and out of the meeting room, are exempt only if they: a) involve the business of insurance; b) are regulated by state law; and c) do not constitute an agreement to boycott, coerce and/or intimidate or an act to further any of the three. Please note that legislative activities are protected by the 1 st Amendment and are generally not subject to anti-trust laws. Conviction upon violation of the anti-trust laws (Sherman Act, Clayton Act, FTC Act and Robinson-Patman Act) will result in mandatory jail sentences, fines or both, even for first offenders who are otherwise leaders in their communities. Beside discussions involving any possible insurance market boycott, coercion and/or intimidation, which are never protected under any circumstances, here are some practices which you should not initiate nor participate in as they may expose you, your company, and NAMIC to possible anti-trust investigation and/or prosecution by the FTC or Justice Department. Discussing any of the following: Price, profits, commission, reinsurance or any other cost components and elements. Rates or the stabilizing of rates or other terms or conditions of any products to be offered for sale. Underwriting criteria with an eye toward standardizing. A market division plan without a state law covering the plan, including discussions of type or products to be offered, customers to whom insurance products may be sold or the territories in which they may be sold. Matters that would adversely affect availability of insurance or services to the public. Future rate plans including actuarial projections. Fair profit levels. Keeping access to NAMIC membership unduly restrictive or denying unique services of NAMIC to nonmembers. Developing standards for company operations. Trading information on bidding for office equipment and supplies or agreeing to collectively refrain from purchasing any equipment, services or supplies from any supplier. Suggesting a certain credit policy. Referring to any company or agency by specific name in any example you may give as an illustration during our discussions. If any of the above occurs, you should object, have your objection noted in the minutes of any meeting and, if the discussion or practice continues, leave the room. Further, the prohibitions apply to discussions in an informal or social setting, not just regularly scheduled meetings. If you see any prohibited practices occurring in any NAMIC meeting or social event, please mention your concern to an officer of the Association.
TOM KAROL General Counsel, Federal Affairs NAMIC tkarol@namic.org
LAURA A. FOGGAN Crowell & Moring LLP lfoggan@crowell.com
ALI Restatement of the Law, Liability Insurance The ALI Restatement of the Law, Liability Insurance project draft is not consistent with (1) the common law, or (2) the revised ALI Restatement Style Guidelines.
ALI Restatement of the Law, Liability Insurance Final sections of the draft Restatement, along with the project as a whole, will be presented for final approval at the ALI Annual Meeting in Washington, D.C. on May 23, 2017. Key sections of the ALI Restatement of the Law: Liability Insurance project present serious concerns for insurers, and for the ALI. These are controversial sections where the draft discards the common law to adopt a different position and introduce innovative language or rules.
Examples of Controversial ALI Provisions Section 1: mandatory/non-mandatory rules Section 3(2): plain meaning rule Section 4 (3): automatic contra-insurer rule for all standard terms Section 12: negligent supervision of defense counsel Section 13(b): duty to defend based on information about possible additional allegations
Examples of Controversial ALI Provisions Section 19: loss of coverage defenses for breach of defense without reasonable basis Sections 21, 25 & 48: no recoupment Section 22: defense reimbursement policies Section 24: reasonable settlement duties Section 25(3): consent to settle
Examples of Controversial ALI Provisions Sections 49(3), 49(8), 50(3) and 52 (1): fee-shifting, i.e., policyholder recovery of attorneys fees and other costs Many other sections pose concerns and appear to reflect a bias toward finding coverage on consumer protection grounds and/or as a means of injury compensation.
ALI Restatement of the Law, Liability Insurance The revised ALI Style Manual (January 2015) sets out four principal elements of the Restatement process: First, Reporters should ascertain the majority rule. Second, Reporters should ascertain trends in the law. They may reject a majority rule if current trends go in the opposite direction. Third, Reporters should choose the specific rule [that] fits best with the broader body of law and therefore leads to more coherence in the law. Fourth, Reporters should ascertain the relative desirability of competing rules. The Style Manual states that social-science evidence and empirical analysis can be helpful in weighing the desirability of competing rules. The ALI Style Manual makes clear that change is accretional. Wild swings in law are inconsistent with a Restatement, and choices are meant to be constrained by the need to find support in the law.
ALI Restatement of the Law, Liability Insurance The Liability Insurance project draft does not codify or restate the common law; nor does it conform to the ALI Style Manual. It instead advocates major changes that include important shifts in the law and implicate public policy considerations. Concerned ALI Members will present motions at the upcoming Annual Meeting to recommit some or all of the Liability Insurance project draft for further review and discussion. However, insurers should be prepared for possible approval of the Restatement draft by the ALI membership.
ALI Restatement of the Law, Liability Insurance The ALI s Restatements are highly influential publications, which have been cited over 200,000 times in the courts. Even without final approval at the May Annual Meeting, much of the project previously has been approved by the ALI Council and membership, such that it can be cited as the most current statement of ALI's position and may be cited in opinions or briefs in accordance with Bluebook rule 12.9.4, until the official text is published. In fact, the Restatement already is being cited in the courts.
ALI Restatement of the Law, Liability Insurance To date, the draft Restatement of the Law, Liability Insurance has been cited at least 21 times in parties briefs. The draft Restatement of the Law, Liability Insurance also already has been cited by courts in coverage disputes. For instance, recently the Northern District of Georgia cited the draft Restatement for the proposition that an insurer cannot settle an action against its policyholder and thereafter seek recoupment of the settlement amount from the policyholder where the underlying action was not covered. See Twin City Fire Ins. Co. v. Hartman, Simons & Wood, LLP, et al., No. 1:13-CV-01608-SCJ (N.D. Ga. Feb. 28, 2017). Insurers thus must be prepared for an effort by policyholders and claimants to reshape the law through reliance on the ALI Restatement of the Law, Liability Insurance.
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