Who makes insurance laws? State legislators, of course!

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

As branches of the government, legislatures and courts areaccountable to the public. In contrast, law professors are not.Although academics have traditionally offered commentary andanalysis about what the law should be, they don't have the abilityto say what the law is. That distinction, however, is at risk ofbeing blurred by a project in development by an organizationrecognized 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 supposedto summarize and "restate" what the law is so that courts can relyon them.

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Inconsistent with existing statutes

In this case, in many significant sections, the liability lawRestatement takes positions that are not consistent with existinglaw as interpreted by U.S. courts. The issues may appear to betechnical, but they are significant. Some are fundamental, and noneare supported by current law. If the ALI allows the proposedapproaches to be adopted by courts, these misstatements wouldchange the way insurance works in ways that could be severelydetrimental to insurers and the policyholders they insure.

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

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It's the point of view

There is no problem with law professors having points of viewand publishing articles suggesting the law should be changedconsistent with those views. But the function of the ALI itself isto "aim at clear formulations of common law and its statutoryelements or variations and reflect the law as it presently standsor might appropriately be stated by a court," not what its authorsthink is "better."

If the ALI endorses positions that are contrary to prevailinglaw, then courts could erroneously take its statements as guidanceon what that law is. Judges need to be able to rely onauthoritative 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 duringthe organization's annual meeting, but its impending publicationdrew an unprecedented outcry from concerned ALI members as well asbusiness insurance consumers, legislators, attorneys and liabilityinsurers, including NAMIC members, all of which urged the ALI toreconsider the project. The ALI did postpone the vote to allowfurther work and review of the draft, but the professors have sofar responded by "doubling down" on their misstatements, and theALI has been silent.

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

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Paul Tetrault is state and policy affairs counsel for theNational Association ofMutual Insurance Companies. These opinions are the author'sown.