INSURING HAWAII HOMEOWNERS

• Property insurers believe that any settlement process must be fair and transparent for all involved parties.
• The proposed settlement seeks to eliminate the insurers’ subrogation claims, which could have significant negative impacts on both the future cost and availability of property insurance for all residents in Hawaii.
• Property insurers believe a rush to settlement without all the facts is not in the best interest of any claimant. Only when all the facts are known can a fair and equitable settlement be reached.

Contrary to media reports, property insurers are NOT blocking a settlement between the victims of the Lahaina wildfire and the at-fault parties. In fact, the property insurers support every claimant’s independent right to pursue their claims and reach a settlement with the at-fault parties if they so choose. What property insurers do not support is a proposed global settlement that seeks to eliminate the property insurers’ independent rights of subrogation.

• Because of the complexity of the legal issues and the potential for enormous plaintiff attorney fees, the property insurers believe judicial oversight and factfinding are vital and in the best interest of all claimants, especially the fire victims.
• If the individual plaintiffs (fire victims) wish to settle their claims with the at-fault parties, they are free to do so. Similarly, if the at-fault parties wish to compensate the victims to expedite a resolution, they are encouraged to do so. However, what the individual plaintiffs and at-fault parties cannot do is agree to release the property insurers’ subrogation rights as part of their bargain. Those are not their claims to resolve, and it is well established Hawaii law that “the insured’s release of the tortfeasor [at-fault party] will not affect the insurer’s subrogation right[s].” State Farm Fire & Cas. Co. v. Pac. Rent-All, Inc., 90 Haw. 315, 330 (1999).

To date, property insurers have paid more than $2.3 billion to customers for their property claims and expect to pay $1 billion more, for a total of approximately $3.3 billion. These are the only damages property insurers are seeking to recover. Contrary to media reports, property insurers never demanded “$65 billion, then $30 billion, $12 billion, and then $7 billion in the settlement.”

There are several steps to the subrogation process:

• Investigation: When a policyholder suffers a loss and files a claim, their insurance company conducts an investigation into the cause of the loss.
• Claim Payment: The insurance company pays for damages or injuries covered under the policy.
• Pursuing the At-Fault Party: After compensating their policyholder, the insurance company stands alongside – not in front of – other individuals seeking compensation for damages caused by the same at-fault party.
• Recovery: If successful, the insurance company recovers monies from the at-fault party, which helps control expenses and the overall cost of insurance for customers.

Insurance subrogation is a legal process that allows an insurance company to pursue an at-fault party that caused a covered loss. This process enables the insurer to recover the amount of the claim it paid to the policyholder for the loss caused by the at-fault party.

When describing the importance of subrogation, the Hawaii Supreme Court has held that subrogation “plays an important role in insurance law” because it holds the legally responsible party responsible for the harm caused to the insured. State Farm Fire & Cas. Co. v. Pac. Rent-All, Inc., 90 Haw. 315, 328 (1999).

The party responsible for causing the loss “pays exactly the damages it would ordinarily pay” in the absence of insurance coverage. Moranz v. Harbor Mall, 150 Haw. 387, 400 (2022).

In the context of the Lahaina wildfires, subrogation claims are particularly significant due to the large sums involved and the number of affected parties. Key points of significance include:

• Financial Recovery: Insurance companies have paid more than $2.3 billion in covered claims to policyholders affected by the wildfires and expect to pay $1 billion more. These insurers are seeking to recover damages from the at-fault parties for causing the wildfires and resulting property destruction. Property insurers are NOT trying to be first in line to any recovery, nor are they seeking recovery beyond what they expect to pay in claims. They are simply seeking a fair resolution.
• Priority of Subrogation Claims: Property insurers are NOT seeking to recover their damages before the individual plaintiffs (fire victims) or other claimants. Representing their policyholders, property insurers stand alongside the individual plaintiffs and other claimants in seeking recovery from the at-fault parties.
• Settlement Process: A fair resolution of all claims is critical to finalizing a global settlement. Judge Peter Cahill in the Second Circuit Court on Maui directed the parties appearing in his court (and those who have not formally appeared) to mediate their disputes, and that process continues.

The subrogation action includes more than 160 property insurers who have paid property damage claims caused by the Lahaina wildfires. After initiating an investigation, property insurers identified three groups of parties they allege are responsible for causing the loss including, but not limited to:

• Hawaiian Electric: a publicly traded regional electrical utility;
• Hawaiian Telecom and Charter Communications: telecommunications providers; and
• Kamehameha Schools: Hawaii’s largest private landowner.

The property insurers have not filed any subrogation claims against the State of Hawaii or the County of Maui.

Insurance subrogation is a crucial mechanism that allows insurers to recover costs from an at-fault party (i.e., the party responsible for causing a loss), ensuring that the financial burden does not fall unfairly on the policyholder or their insurance company.

Subrogation helps facilitate lower premiums for consumers. Without subrogation, parties responsible for losses would avoid responsibility for the harm they caused. Those costs or damages would be passed along to consumers in the form of higher premiums or limitations on the availability of coverage.

A successful subrogation recovery from an at-fault party in a preventable disaster, like the Lahaina wildfires, helps control expenses and the overall cost of insurance for all residents in Hawaii.

Subrogation also leads to accountability and social responsibility. Shifting losses from one industry (e.g. the utility industry) to the insurance industry does nothing to help prevent future wildfires. Only when those who cause a loss are held responsible can we effect meaningful change.

No, property insurers subrogate only those losses caused by an at-fault party. If a natural catastrophe, such as a hurricane, were to strike Hawaii and cause widespread property damage, subrogation would not come into play.

• No. Property insurers are seeking subrogation from the at-fault parties for amounts paid and not reimbursement from their policyholders. These are distinct contractual and legal principles. Property insurers have never filed a lien seeking reimbursement from their customers in any Hawaii court.
• Hawaii law allows property insurers to pursue their independent rights of recovery against the at-fault party. This is called subrogation. If this longstanding legal right is blocked, it could further worsen property market conditions in Hawaii by increasing rates and reducing the availability of property insurance for all residents.

Confidentiality is a cornerstone of the mediation process and essential for creating an environment conducive to open communication and effective dispute resolution. Confidentiality facilitates trust and provides legal and business safeguards for all parties. The assurance of confidentiality can lead to more effective and amicable settlements.

Property insurance covers loss or damage to tangible property, such as a building and its contents, due to events like fire, theft, or a natural disaster. Liability insurance, on the other hand, covers legal costs if a person or business is sued, protecting them from claims involving third parties.