Category Archives: Legal Environment

Legal Environment

Pushback continues against ALI restatement of liability insurance

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In May 2018, the American Law Institute (ALI) gave final approval to its “Restatement of Law, Liability Insurance.” Portions of the restatement continue to prove controversial, and state legislators have begun pushing back against it.

The ALI is an independent organization of legal professionals that seeks to clarify and simplify U.S. case law to help judges in their decisions. To this end, the ALI publishes a variety of materials that describe what the case law says in various areas, including insurance. One of the materials the ALI publishes is called a “restatement of law,” which attempts to describe common law and its statutory elements. It’s basically a way for judges to know where the law currently stands on a variety of issues.

The latest restatement addresses liability insurance and includes provisions that have met with vocal opposition from state legislatures, the insurance industry, and lawyers. These include, among other things, possible changes to how insurance policies can be interpreted; how coverages are triggered for “long-tail” claims (claims that can last for many years, like environmental losses); and how an insurer might be held responsible for breaching its duty to defend.

Opponents argue that some provisions of the restatement could fundamentally – and improperly – change how liability law operates. That in so changing liability law, the restatement arrogates powers to regulate insurance that properly belong to state legislatures. That many aspects of the restatement do not accurately reflect current state case law and weigh the scales against the legal rights of insurance companies. That portions of the restatement are less a description of law than they are a “wish list” for what the law should be.

Others have called these criticisms of the restatement unfounded or have sought a more balanced response to its changes.

But regardless of who is right, state legislatures have begun to act against the restatement. The National Conference of Insurance Legislators has come out against it. Arkansas, Michigan, North Dakota, Ohio, Tennessee, and Texas have all recently passed legislation that in some form seeks to curtail or condemn the use of the restatement under their respective insurance laws. The Kentucky and Indiana legislatures have also passed resolutions stating their opposition to the ALI’s restatement.

How this will all shake out remains to be seen: will the restatement of law for liability insurance begin to make its mark in case law? Will legislation against the restatement continue to spread? Only time will tell.

Legal Environment, Risk Management

“Patent trolls”? No thanks, says Apple…probably

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I once took an Uber in Fairfield, Ohio. As we sat at a light, the driver pointed to an empty big box storefront.

“What’s that building look like?” he asked. I said it looked like an empty big box storefront.

“That’s right. You know where it went?” I said no, confused. He pointed down the street a few hundred yards away to a brand-new big box store.

“There it is. You know why they moved down the street? Taxes. Lower sales tax across the county line.”

I was reminded of that story of fiscal competition at its finest when reading about Apple’s recent decision to close two of its stores in the Dallas suburbs.

Or more accurately, as Ars Technica reported, Apple’s decision to close two stores within the federal court jurisdiction of the Eastern District of Texas. Rumor has it that Apple’s move could be in response to intellectual property litigation. Per Ars Technica:

The Eastern District is known for its extremely patent-friendly judges, and so for decades patent plaintiffs have set up shop there and sued defendants located all over the country. Prior to 2017, the law allowed a plaintiff based in the Eastern District of Texas to sue defendants there if defendants had even tenuous connections to the district. And, of course, a company of Apple’s size has business ties to every part of the country.

These plaintiffs are often called “patent trolls,” which the Electronic Frontier Foundation defines as companies or individuals that cheaply purchase patents (often “overbroad and vague” patents, at that) and then threaten expensive litigation against companies allegedly in violation of said patents:

These letters threaten legal action unless the alleged infringer agrees to pay a licensing fee, which can often range to the tens of thousands or even hundreds of thousands of dollars.

Many who receive infringement letters will choose to pay the licensing fee, even if they believe the patent is bogus or their product did not infringe. That’s because patent litigation is extremely expensive — often millions of dollars per suit — and can take years of court battles. It’s faster and easier for companies to settle.

The Eastern District has been a favorite venue for this kind of litigation – even after the Supreme Court sought to rein in so-called “venue shopping” in a 2017 decision. Ars Technica explains:

[U]nder the Supreme Court’s 2017 TC Heartland decision, a defendant can only be sued in a district where it “resides”—meaning where it was incorporated—or “has a regular and established place of business.”

Apple’s two stores in the Eastern District would likely count as “regular and established places of business” for patent-law purposes. So under the new rules, continuing to operate the stores makes it easier for patent plaintiffs to sue Apple in the Eastern District.

Apple has not confirmed that its move is related to patent-troll litigation. But, tellingly, the company is replacing its two shuttered stores with a new store…directly across the border of the Eastern District. Sometimes, the best offense is a good defense.