The Future of Insurance Law? Restatement of Law - Liability Insurance July 26, 2018 DiBella Geer McAllister Best, PC
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Presenters C. Scott Rybny Partner Rebar Bernstiel 19 years of insurance experience Dick DiBella Shareholder DiBella, Geer, McAllister, Best 40 years of insurance experience
The Restatement of The Law - Liability Insurance (RLLI) Topics of Discussion What is the American Law Institute (ALI)? The Plain Meaning Rule & Use of Extrinsic Evidence. When coverage disputes arise Settling Liability Claims Misrepresentations by Policyholders
What is the American Law Institute (ALI)?
The ALI Founded in 1923 Stated mission: To promote the clarification and simplification of the law and its better adaptation to social needs, to secure the better administration of justice, and to encourage and carry on scholarly and scientific legal work.
The ALI Today it s a 4,300- member private organization comprised predominantly of academics, judges and lawyers 245 members include U.S. Supreme Court justices, federal court of appeal judges, chief justices of each state supreme court and dean of every accredited law school
ALI s Restatements of Law Prior Restatements include: Law of Agency; Conflict of Laws; Contracts; Judgments; Property; Restitution; Contracts; Torts Trusts. Restatements historically considered neutral. U.S. Supreme Court cited ALI s work in 1/6 of its cases. State & federal courts cited to the ALI roughly 200,000 times since the ALI was founded.
Purpose of Restatements Stated Purpose Restatements aim to provide clear formulations of common law and its statutory elements or variations and reflect the law as it presently stands or might appropriately be stated by a court. How the ALI views itself In the RLLI the ALI describes itself as a law reform organization
Justice Scalia s Take On The ALI - 2015 Over time, the Restatements authors have abandoned the mission of describing the law, and have chosen instead to set forth their aspirations for what the law ought to be.
Justice Scalia s Take On The ALI - 2015 Restatements should be given no weight whatsoever as to the current state of the law, and no more weight regarding what the law ought to be than the recommendations of any respected lawyer or scholar.
Not All Judges Agree Hon. Frank Sullivan Jr. (Ret) Indiana Supreme Court I was always willing to consider an argument to overrule precedent that was grounded in a restatement
Current Supreme Court Picks?
Why Insurers Should Be Concerned
Restatement s Applicability Not limited to liability insurance policies
Restatement s Applicability These rules are drafted for application only to liability insurance features of such policies (although some of the rules may also be usefully applied to other forms of insurance).
The Plain Meaning Rule & Use of Extrinsic Evidence
RLLI on Policy Interpretation New Lingo Mandatory Rules : A rule of contract law or insurance law that cannot be changed by the parties. Non-Mandatory Rules: A rule of contract law or insurance law that can be changed by agreement of the parties (also known as a default rule ).
RLLI On Policy Interpretation New Lingo Examples of Mandatory Rules: Waiver & Estoppel; Obligation to provide independent defense; Make reasonable settlement decisions; Prejudice; and Good faith & fair dealing Examples of Non-Mandatory Rules: Scope of right to defend; Recoupment of defense & settlement costs; Exhaustion & drop down; Indemnification from multiple policies; and Insurance of known liabilities.
RLLI on Policy Interpretation Legal Action: A demand for redress of the kind that fits within the usual framework of insured liabilities. That demand can be formal or informal, and includes demands made before formal legal actions are commenced. The liability insurance policy defines which legal actions are insured under that policy. Is appraisal now a legal action? New Lingo
RLLI on Policy Interpretation New Meaning to Old Terms Condition: In a liability insurance policy is an event under the control of an insured, policyholder, or insurer that, unless excused, must occur, or must not occur, before performance under the policy becomes due under the policy. Who bears the burden of proving? Pennsylvania placed burden of showing the satisfaction of conditions as a prerequisite to coverage on insureds. Peters Twp. Sch. Dist. v. Hartford Acc. & Indem. Co., 833 F.2d 32 (3d Cir. 1987).
RLLI on Policy Interpretation RLLI changes the way policies are interpreted Pennsylvania : A policy must be construed according to their plain terms when the policy is unambiguous. RLLI s Version Courts can look to dictionaries, court decisions, statutes, regulations & secondary legal authorities such as treatises and law review articles. RLLI encourages custom, practice and usage evidence.
RLLI on Policy Interpretation Ambiguous Terms Ambiguous terms are to be construed against the party that supplied the term, unless that party persuades the court that a reasonable person in the policyholder s position would not give the term that interpretation.
RLLI on Policy Interpretation Ambiguous Terms Ambiguous terms are to be construed against the party that supplied the term, unless that party persuades the court that a reasonable person in the policyholder s position would not give the term that interpretation. This is an objective, as opposed to subjective test intended to include the observable, objective characteristics of the policyholder that identify the policyholder as a member of a relevant class of insurance purchasers. No sophisticated-policyholder exception for commercial policyholders.
When Coverage Disputes Arise
RLLI on Reservations of Rights Reservations must include the specific policy terms and facts upon which the coverage issue is based. The letter must be written in language understandable by a reasonable person in the position of the insured
Consequences for the Failure to Defend Section 19 Consequences of Breach of the Duty to Defend (1) An insurer that breaches the duty to defend a legal action forfeits the right to assert any control over the defense or settlement (2) An insurer that breaches the duty to defend without a reasonable basis for its conduct must provide coverage for the legal action for which the defense was sought, notwithstanding any grounds for contesting coverage that the insurer could have preserved by providing a proper defense under a reservation of rights pursuant to Section 15.
Consequences for the Failure to Defend Pennsylvania (Majority Rule): No automatic forfeiture of coverage defenses. Minority Rule: Automatic forfeiture of coverage defenses. RLLI changed its position from earlier texts. It now provides that an insurer may lose its coverage defenses if the breach was in bad faith.
Settlement Offers
Settlement Offers Section 24, comment f: Where a claimant has not made a settlement demand, the insurer may be obligated to make a settlement offer. Section 25: A Reservation of Rights does not relieve an insurer of the duty to make reasonable settlement decisions; however, an insurer is not required to cover a judgment on a non-covered claim.
Misrepresentations
Misrepresentations The Innocent Misrepresentation Most often raised in connection with policy applications or changes in condition. Based on a fairness objection, i.e., policyholders purchase liability insurance as protection from negligence, and they should therefore be protected from negligence in applying for insurance.
Misrepresentations The Innocent Misrepresentation Not applicable where state legislatures articulated doctrines of misrepresentation in same vein as strict liability. Pennsylvania s laws based on common law and require an insurer to show, among other items that the insured knew the representation was false when made or acted in bad faith.
Misrepresentations Where an insurer rescinds a policy for a misrepresentation, it must return all of the premiums paid for the policy.
Questions?
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