The Illusory Coverage Doctrine is Not a Doctrine at All (But It Should Be)

The Illusory Coverage Doctrine, if it ever becomes a true legal doctrine, has the potential to be an incredibly useful tool in insurance law. But courts around the country take very different approaches to the doctrine, ranging from one end of the spectrum—a hard-nosed “pro-insurer” stance where coverage is not illusory so long as a policy provides any coverage—to the other—a muscular “pro-policyholder” public policy approach that requires coverage even if some other exclusion might have prevented coverage under the applicable policy. And along the spectrum are various other iterations, contributing to the complete lack of certainty or consistency about the Illusory Coverage Doctrine or its application in insurance law. In 2019, the American Law Institute published the Restatement of the Law of Liability Insurance to bring consistency and certainty to the field of liability insurance law. But the Restatement makes no mention of the Illusory Coverage Doctrine. This article explores the inconsistent and often problematic applications of the doctrine. It also proposes that the Restatement be revised to address the Illusory Coverage Doctrine in a way that benefits both policyholders and insurers.