May will mark the third anniversary of the American Law Institute’s vote to approve the organization’s Restatement of the Law, Liability Insurance.

For the most part, while the RLLI has been cited by courts in several dozen cases, the ALI’s work had a substantive role in only a handful.  This is why I was so surprised by what I saw in late February.  Over the course of just three days, three courts discussed the RLLI as part of their analysis in reaching a decision.  The RLLI was right there, playing a part in the court’s decision-making process.  And, I was pleased to see that the courts used the RLLI in exactly the manner that I have been predicting for the past eight or so years.  [I get lots of predictions wrong-- so when I get one right, I like to make a big deal about it.]      

Throughout its long and contentious drafting process there were numerous concerns raised by insurers, and their counsel, that the ALI was seeking to adopt positions in the RLLI that would lead to all manner of detrimental outcomes for insurers in coverage disputes.  After nearly three years, and several dozen decisions having something to say about the RLLI, to various degreees, that has not come to pass. 

Yes, there have been a few cases that an insurer lost and the RLLI was included in the court’s analysis.  But, in some of those cases, it is clear that the court would have found against the insurer anyway – for other reasons.  Importantly for insurers, courts have not undone any pro-insurer precedent in favor of adopting a different rule pronounced in the RLLI.  Insurers have also prevailed in cases where the RLLI was included in the discussion.

None of this is to say that insurers are out of the woods on the RLLI.  For sure, there are some aspects that offer courts an opportunity to adopt a novel approach on an issue that could be very detrimental to insurers.  And then that approach could take hold and be adopted widely. 

Overall, when it comes to courts citing to the RLLI, is has mainly been to state a general principle of coverage law or the ALI’s work was mentioned but it played no part in the decision making.  For example, one court cited the RLLI to state that the insurer has the burden to prove an exclusion.  In another, the court turned to the RLLI to tell us that the insurer “must defend any legal action brought against an insured that is based in whole or in part on any allegations that, if proved, would be covered by the policy, without regard to the merits of those allegations.”  Insurers will lose no sleep over these decisions – nor most others, as they cite to the RLLI for fairly innocuous reasons.

So with courts having mainly cited the RLLI for benign purposes, I was surprised by the February trifecta.  Are courts’ use of the RLLI changing?  

In Burka v. Garrison Prop. & Cas. Co., No. 20-172 (D. Me. Feb. 22, 2021) the court addressed when the duty to defend ends.  In reaching its decision, the court noted that no Maine Law Court had addressed the issue.  However, the court noted that the RLLI has, and cited the rule set out in section 18 as well as a comment.  The court looked favorably to the RLLI’s position: “Adjudication eliminating the covered cause from the action, so that the only remaining cause of action is not covered, ends the insurer’s duty to defend the action, provided that the time for taking an appeal from that adjudication has expired, any appeals have been resolved, or the claimant has relinquished its appeal rights.”

But it doesn’t end there.  The court noted that, in reaching its decision, it was going against another Maine District Court, where Judge Singal held that a trial court dismissal ends the duty to defend before appeal rights are exhausted.  But, as the court noted, it had reasons for reaching a contrary result.  Drum roll: “[Judge Singal] did not have the benefit of the later Restatement analysis,” as well as the fact that he based his conclusion on Massachusetts law.             

In Inn One Home v. Colony Specialty Ins. Co., No. 19-141 (D. Vt. Feb. 23, 2021), the court addressed whether an insurer was required to prove that it was prejudiced before it could disclaim coverage on account of an insured’s failure to satisfy the notice provision in a claims made policy.

The court stated that the majority of courts nationally have held that no prejudice is required.  This is not a contentious conclusion.  In predicting that the Vermont Supreme Court would not require prejudice, the court took guidance from the RLLI: “The Restatement of Liability Insurance endorses this same approach and notes ‘[w]ith respect to claims first reported after the conclusion of the claim-reporting period in a claims-made-and-reported policy, the failure of the insured to satisfy the claim-reporting condition in the policy excuses an insurer from performance under the policy without regard to prejudice’. Restatement of the Law of Liability Insurance § 35(2) (2019). Because the Vermont Supreme Court often looks to the Restatement for guidance, . . . the court predicts that Vermont’s highest state court will not require a showing of prejudice before coverage may be denied for failure to make and report a claim within the applicable policy period.” (emphasis added).

In Cincinnati Ins. Co. v. Selective Ins. Co., No. 18-956 (S.D. Ind. Feb. 25, 2021) the court addressed whether to certify, to the Indiana Supreme Court, the question whether the state recognizes a cause of action for negligent failure to settle.  In deciding if certification was appropriate, the court addressed several factors, including the absence of a consensus view among state courts.

In concluding that there was an absence of a consensus view, the court stated: “Although ‘a duty to settle is a firmly entrenched aspect of an insurer’s obligation to an insured,’ states’ ‘views as to the source of the obligation, the precise extent of an insurer’s obligations, and the remedies for breach diverge[,] and there is a wide-ranging spectrum of approaches as to each.’”

The source for this statement: a Rutgers Law Review article, by Leo Martinez, titled: “The Restatement of the Law of Liability Insurance and the Duty to Settle.”

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My take on the RLLI has not changed since the beginning.  I have said the following many times: “Liability insurance coverage is an extremely well-developed body of law.  On many of the RLLI subjects, the vast majority of states have already spoken.  I do not believe that courts will eschew their own precedent in favor of adopting a contrary rule contained in the RLLI.  Rather, as I see it, the RLLI’s impact will be felt by courts using it to fill voids and crevices in their own state’s law.  Faced with an issue on which there is no home-state law (or the law is not clear), and there is a divergence of positions nationally, the court, looking for a place to land, may be inclined to adopt the RLLI’s position.  In this situation, insurers have more to fear than policyholders.” 

My frequently cited prediction has come true in the courts’ use of the RLLI in all three of the decisions from February.  Once in a while my crystal ball is right.  But never with my NCAA tournament bracket.