The American Law Institute is set to consider proposals on guidelines for liability insurance law during a pair of meetings this week, including a controversial provision that attorneys say could impose tough penalties on insurers for breaching the duty to defend.
The ALI council has already largely approved the first two chapters of its “Restatement of the Law of Liability Insurance,” a set of guidelines aimed at providing courts with guidance in resolving coverage issues across the spectrum. The Restatement, which is subject to the approval of the ALI’s membership, is designed to articulate common law on insurance issues in a way that reflects “the law as it presently stands or might plausibly be stated by a court.”
Now, the project’s leaders are set to meet with advisers in Philadelphia on Oct. 29 and 30 to debate provisions dealing with whether insurance companies may look to evidence outside of an underlying complaint in evaluating whether to defend a claim and the consequences of an insurer’s failure to defend, among other areas.
Sherilyn Pastor, leader of McCarter & English LLP’s insurance coverage group, said that, while the draft’s “without reasonable basis” standard is in line with bad faith remedies, a rule that breaching insurers automatically forfeit their coverage defenses may be more appropriate.
“Because clever insurer attorneys can always find something to label as supposedly fairly debatable about coverage when looking at an insurance policy filled with insurance jargon, an automatic forfeiture rule offers policyholders more suitable protection from insurers’ breaches of contract,” Pastor said.