Decision from Hawaii Supreme Court Amplifies Reasoning for its Prior Order in Maui Fire Cases

    Following its order dated February 10, 2025, the Hawaii Supreme Court issued its full opinion, explaining its answers to the reserved questions addressed in the order. In the Matter of the Petition for the Coordination of Maui Fire Cases, Haw Sup. Ct., SCRQ-24-0000602 (March 17, 2025) [Prior post on order here].

    The global settlement reached by the individual and class plaintiffs and defendants required, as a condition precedent, either a release by insurance carriers of all subrogation claims against the defendants, or a final, unappealable order and judgment that the insurers' exclusive remedy for all subrogation claims would be a lien against the settlement under Haw. Rev. Stat. 663-10. 

    Mediation between the individual action plaintiffs, consolidated class plaintiffs, defendants, and subrogation insurers resulted in a settlement term sheet signed by all parties except the subrogation insurers. The term sheet contemplated a global settlement that resolved all claims against the defendants. The term sheet also required an agreement or judgment resolving the subrogating insurers' claims against the defendants as a condition precedent to the proposed settlement. 

    The circuit court issued an order declaring itself to have "excessive jurisdiction, authority, and legal duty to review and resolved any and all subrogation claims or liens arising out of claims for payments under Haw. Rev. Stat. 663-10 in the event the global settlement of the Maui Fire claims between plaintiffs and defendants becomes effective."

    The Supreme Court held that in the context of a tort settlement, Haw. Rev. Stat. 663-10 was the exclusive remedy for a property and casualty insurer to recover claims paid for damages caused by a third-party tortfeasor. Further, because the statutory lien is the exclusive remedy for a property and casualty insurer to recover claims paid to its insured in the context of a tort settlement, an insurer's rights were not prejudiced by its insured's release of a tortfeasor where the settlement documents and release preserve the insurer's reimbursement rights under Haw. Rev. Stat. 663-10. Finally, the court declined to apply the made whole doctrine to the statutory lien-claim process defined by Haw. Rev. Stat. 431:13-103 (a) (1) and 663-10 under the circumstances of this mass tort case. 

    The court more fully addressed the reserved questions:

    Question 1 – Does the holding of Yukumoto v. Tawardhara, 140 Hawaii 285, 400 P.3d 486 (2017), that limits the subrogation remedies available to health insurers to reimbursement from their insureds under HRS 663-10 and barred independent actions against tortfeasors who settled with the insureds extend to property and casualty insurance carriers?

    The court answered in the affirmative. By way of background, Haw. Rev. Stat 663-010 provided that before any judgment or stipulation to dismiss an action was approved, the court would determine the validity of lien claims against the amount of the judgment or settlement. The judgment or order subsequent to a settlement would include a statement of the amounts due and owing to any person holding a valid lien. Haw. Rev. Stat. 431:13-103 (a) made the lien claim process pursuant to Haw Rev. Stat. 663-10 the exclusive means of recovery for a property and casualty insurer in the context of a settlement between an insured and a third-party tortfeasor. The two statutes constructed a framework that comprehensively addressed and limited an insurer's rights to reimbursement a subrogation. Nothing in the plain language of the statutes suggested that property and casualty insurers were exempt from the comprehensive procedure they defined.

    Finally, under the Yukumoto decision, the equitable considerations that support subrogation did not exist in the context of personal insurance.

    Therefore, because the court concluded that under Haw. Rev. Stat. 431:13-103 (a) (10) (A) the lien-claim process established by Haw. Rev Stat 663-10 provided the exclusive remedy for an insurer to recover for claims paid to an insured for damages caused by a third-party tortfeasor where the insured had settled with the tortfeasor, question 1 was answered in the affirmative. Where an insured pursued a settlement or judgment from a third-party tortfeasor, the legislature intended to limit a property and casualty insurer's right of reimbursement to the lien-claim process prescribed by Haw. Rev. Stat. 663-10. The court noted, however, that where the injured insured did not pursue a civil action against the tortfeasor, an insurer could pursue its own subrogation claim. 

Question 2 – Is a property and casualty insurer's subrogation right of reimbursement prejudiced by the insured's release of any tortfeasor when the settlement documents and release preserve those same rights under Haw. Rev Stat. 663-10?

    After holding in Question 1 that Haw Rev. Stat. 663-10 was the exclusive remedy for an insurer to recover paid claims in the context of a settlement between an insured and a third-party tortfeasor under Haw Rev. Stat. 431:13-103 (a) (10) (A), Question 2 was answered in the negative.  

Question 3 – Under the circumstances of the Maui Fire Cases and the terms of the "Global Settlement," does the law of the State of Hawaii require that insureds be made whole for all claimed injuries or damages before their insurers can pursue a subrogation right of recovery or reimbursement against a third-party tortfeasor?

    Question 3 was answered in the negative. The court had never adopted the made whole doctrine in the context of property and casualty insurance and the court declined to apply it here under the circumstances of this mass tort case. 

    These answers to the reserved questions provided a framework for the circuit court to evaluate the proposed settlement, consistent with the principles established by the legislature in Haw. Rev. Stat. 663-10 and 431:13-103.