Well that didn’t take too long. On August 9th a court issued what I believe to be the first decision addressing the ALI’s Restatement of the Law of Liability Insurance post-adoption.
At issue in Catlin Specialty Ins. Co. v. CBL & Assocs. Props., 2018 Del. Super. LEXIS 342 (Del. Super. Ct. Aug. 9, 2018) was an insurer that secured a determination that it had no duty to defend its insured, in an underlying action, under a Contractor’s Protective, Professional and Pollution Liability Policy. With that win in hand, the insurer now sought reimbursement of the defense costs that it had paid while defending its insured under a reservation of rights.
The issue was to be decided under Tennessee law. The insurer’s position was that it reserved the right to seek reimbursement when it agreed to defend and the insured accepted the defense under that reservation. The insurer relied on the 2007 Tennessee federal court decision in Cincinnati Ins. Co. v. Grand Pointe LLC which it maintained supported its position.
Grand Pointe did support the insurer’s position. And there had been no subsequent Tennessee cases on the issue. So the insured argued that Grand Pointe was a decade old and it did not “reflect the more recent trend away from the then-majority position.”
The court accepted that there has been a trend toward not permitting insurers to seek recovery of defense costs following a no duty to defend determination. The court even noted: “True, most recently, the American Law Institute has revised its Restatement of the Law on Liability Insurance to reflect such a shift. But just as Tennessee state courts had never before directly spoken on this reimbursement issue, they have also not yet adopted the new Restatement’s rule. Moreover, the Restatements are mere persuasive authority until adopted by a court; they never, by mere issuance, override controlling case law. And this Restatement itself acknowledges that ‘[s]ome courts follow the contrary rule[.]'”
The court followed Grand Pointe and held that the insurer was entitled to reimbursement of defense costs.
This seems to be a typical situation in which the ALI’s Restatement of the Law of Liability Insurance will be in play in a coverage case. One party had no applicable case law on point so it turned to the RLLI for support. But while the court discussed the RLLI, and seemingly factored it into the analysis, it did not rely on it because it was persuasive only. In essence, while Grand Pointe is not a precedential statement of Tennessee law, on an insurer’s right to reimbursement of defense costs, it was seen as a more important source of guidance than the RLLI.
As the court noted, “Restatements are mere persuasive authority until adopted by a court; they never, by mere issuance, override controlling case law.” Translation – Look to see the RLLI most in play in situations where applicable case law is non-existent or sparse.
Had Grand Point not been there, and the Tennessee slate clean, it would not have been all that surprising to see the court rely on the RLLI to deny the insurer’s right to reimbursement.