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By: Matthew Weiss
Last week Ohio Governor John Kasich signed into law legislation that rejected the American Law Institute’s (ALI) Restatement of the Law of Liability Insurance, claiming that it “does not constitute the public policy of Ohio.” According to ALI, the legislation marks the first time a state has rejected a Restatement in its entirety.
The Restatement of the Law of Liability Insurance was approved by the ALI in May but has received a decidedly mixed public reaction. Insurance attorneys have criticized numerous provisions within the Restatement.
In one example, lawyers have disagreed with the Restatement’s adoption of a “plain meaning presumption” in the interpretation of insurance contracts in the Comment to Section 3, rather than the “plain meaning rule” used in a majority of states. This means that the Restatement advocates a “contextual approach” when interpreting provisions that requires the utilization of custom, practice, or usage. In effect, this would lead courts to interpret insurance policies in light of the circumstances surrounding the drafting, negotiation, and performance of the policy. By contrast, the plain meaning rule states that when a provision is “unambiguous” when applied to a claim in the context of the entire policy, courts must interpret the provision according to its plain meaning.
Another controversial provision is Section 8, which uses the word “substantiality” with respect to misrepresentation of material facts. Experts claim that the word is unnecessarily vague and at odds with existing statutory and common law governing misrepresentation and rescission. Similarly, Section 13 of the Restatement deviates from the majority of states by creating a duty to defend not only based on the allegations of a complaint, but also based on extrinsic evidence known to the insurer. Finally, Section 11 provides that an insurer does not have a right to receive any information of the insured that is protected by attorney-client privilege, work-product immunity, or a lawyer’s duty of confidentiality under the rules of professional conduct if that information could be used to benefit the insurer at the expense of the insured.
The actual impact of the Restatement’s deviations from established case law in the field of liability insurance is subject to debate. While the Restatement may have an impact in areas where limited case law exists nationally on a particular issue, where state law is silent on an issue, or where case law exists within a jurisdiction but no clear rule has been established, the Restatement will not overcome a rule in a state where clear precedent exists on a topic.
The impact of the Restatement of Liability Insurance remains to be seen, but the Ohio legislation is more likely to be the beginning, rather than the end, of a debate concerning its relevance and practicality.
For more information about the Restatement, or other insurance coverage issues, please contact Matthew Weiss of the Law Firm Freeman Mathis & Gary LLP at (678) 399-6356 or [email protected].