After enduring a tortured, ultimately failed attempt to negotiate a settlement under a renter's protection policy, the insured sued. The trial court granted United Services Automobile Association's motion for summary judgment, but the Hawaii Intermediate Court of Appeals vacated the decision and remanded for a determination of whether USAA's interpretation of its policy language and delay in making payment was in bad faith. See Flowers v. United Services Automobile Assoc., 2008 Haw. App. LEXIS 449 (Haw. Ct. App. July 30, 2008).
The Hawaii ICA first decided whether USAA breached its policy by determining it would not pay the replacement cost of a weight bench that the insured claimed was damaged before shipment, but eventually lost in shipment. The policy required USAA to pay the full replacement cost of items costing less than $500 to replace. For an item costing $500 or more to replace, USAA would initially pay the cash value of the allegedly lost or stolen item. Then, if the policy holder actually replaced the item, USAA would pay the amount withheld for depreciation of the item.
Although the weight bench was rusted and missing pieces prior to shipping, the record was unclear as to whether the bench was ever actually delivered. Consequently, based on the policy language, a genuine issue of material fact existed on USAA's contractual liability for the replacement cost of the weight bench.
There was also a dispute over whether the policy entitled the insured to actual cash value of missing household items or replacement cost. USAA initially determined the policy holder was only entitled to actual cash value. USAA later acknowledged this was an erroneous interpretation of its policy. Therefore, the ICA agreed there was a genuine issue of material fact as to whether USAA engaged in bad faith in attempting to pay cash value and in delaying payment for replacement cost. Further, there was a genuine issue of material fact on whether USAA acted in bad faith in denying the insured's claim for the allegedly missing weight bench.
