Who makes insurance laws? State legislators, of course!

Courts also make laws when they hand down decisions about what legislators intended and when they interpret legal principles where legislators have not acted. Significant areas of insurance law have been shaped by courts over time.

As branches of the government, legislatures and courts are accountable to the public. In contrast, law professors are not. Although academics have traditionally offered commentary and analysis about what the law should be, they don't have the ability to say what the law is. That distinction, however, is at risk of being blurred by a project in development by an organization recognized as extremely authoritative by the legal community.

The organization is the American Law Institute (ALI) and the project is the "Restatement of the Law of Liability Insurance." They're supposed to summarize and "restate" what the law is so that courts can rely on them.

Inconsistent with existing statutes

In this case, in many significant sections, the liability law Restatement takes positions that are not consistent with existing law as interpreted by U.S. courts. The issues may appear to be technical, but they are significant. Some are fundamental, and none are supported by current law. If the ALI allows the proposed approaches to be adopted by courts, these misstatements would change the way insurance works in ways that could be severely detrimental to insurers and the policyholders they insure.

Why is there a disconnect? The project is authored by two law professors who hold ideological points of view that are out of the mainstream, and they're trying to advance their agenda through the Restatement. This has been clear since the project began as a "Principles" project, which can be aspirational. When the project was converted to a Restatement, many in the insurance industry who had cited concerns about the Principles document expressed hope that it would be changed to be consistent with existing law as a Restatement. Unfortunately, that hasn't been the case.

It's the point of view

There is no problem with law professors having points of view and publishing articles suggesting the law should be changed consistent with those views. But the function of the ALI itself is to "aim at 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," not what its authors think is "better."

If the ALI endorses positions that are contrary to prevailing law, then courts could erroneously take its statements as guidance on what that law is. Judges need to be able to rely on authoritative sources for guidance when the law is less than clear. It is essential that these sources be based on the best available, established legal standards, not opinion.

ALI members were to vote on the restatement this past May during the organization's annual meeting, but its impending publication drew an unprecedented outcry from concerned ALI members as well as business insurance consumers, legislators, attorneys and liability insurers, including NAMIC members, all of which urged the ALI to reconsider the project. The ALI did postpone the vote to allow further work and review of the draft, but the professors have so far responded by "doubling down" on their misstatements, and the ALI has been silent.

NAMIC and others will continue to pressure the ALI to deliver a Restatement in line with the law as it exists in the states. If the ALI does not, its failure will seriously disrupt the business of insurance. If this happens, state legislatures, which possess the real authority to say what the law of insurance is, may respond.

Paul Tetrault is state and policy affairs counsel for the National Association of Mutual Insurance Companies. These opinions are the author's own.

Special Reports /

Proposed restatement of liability insurance law may be 'misstatement'

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