Insurance Law Hawaii

Lower Policy Limits for Nonowners of Vehicle Do Not Violate Public Policy

    The federal district court granted the insurer's motion for summary judgment deciding that lower policy limits for nonowners of a vehicle did not violate public policy. Talana v. Liberty Surplus Ins. Co., 2023 U.S. Dist. LEXIS 50222 (D. Haw. March 24, 2023). 

    Judy Talana collided with a car while operating a moped and suffered serious injuries. Two years later, she filed a declaratory judgment action against Liberty Mutual, which had issued an excess policy covering the car driver at the time of the accident. Talana sought a declaration that the applicable liability coverage limit was $1,000,000. Liberty Mutual contended that the proper limit was $50,000, the limit set by the policy for nonowner drivers such as the driver involved in the accident with Talana. 

    Although the policy set the limit for nonowner drivers at $50,000, Talana argued that the court should rule as a matter of statutory interpretation or public policy that the higher coverage limit of $1,000,000 applicable to the car owner should also to the car driver. 

    Talana argued the policy unlawfully differentiated between a nonowner driver by applying limits of $50,000 while the car owner had limits of $1,000,000. Talana argued this difference violated state laws that emphasised the primary nature of a vehicle owner's policy. The court rejected the argument. State laws concerning policies issued to car owners had no bearing here because the Liberty Mutual policy was not issued to a car owner. The policy was an excess policy issued to a company that did not own the insured vehicle. 

    Further Talana presented no evidence that Hawaii's public policy disfavoured policies setting different liability limits for different parties. No authority prohibited auto policies from assigning different limits to different insureds. 

    The court denied Alana's motion for summary judgment and granted summary judgment to Liberty Mutual. The clerk was directed to enter judgment for Liberty Mutual and to close the case. 

After Withdrawing from Case, Insurer's Defense Counsel Cannot Reenter Case Without Insured's Consent

    The Hawaii Intermediate Court of Appeals found that after defense counsel withdrew from the case after the trial court found no coverage. defense counsel could not reenter the case without the insured's consent. Franco v. Reinhardt, 2023 Haw. App. LEXIS 63 (Feb. 28, 2023).

    Fabio Reinhardt was driving a truck owned by his girlfriend, Reinette Kama, with Tiare Franco as a passenger. Reinhardt crashed the truck while driving and Franco died at the scene. The truck was insured by National Interstate Insurance Company, Inc. Franco's estate sued Reinhardt for wrongful death. National retained defense counsel and issued a reservation of rights. 

    National filed a separate action for declaratory judgment to determine whether it owed a duty to defend and indemnify Reinhardt. The circuit court granted National's motion for summary judgment, concluding there was no possibility of coverage for Reinhardt under the policy. Plaintiffs appealed the coverage action. Retained defense counsel for Reinhardt withdrew from further representation in the underlying case because there was no representation under the policy. Reinhardt continued to defend the underlying case pro se. 

    By the time trial in the underlying case took place, Reinhardt had disappeared. Without his participation in the trial, the jury returned a verdict in favor of plaintiffs and against Reinhardt. The circuit court entered a final judgment.

  After final judgment was entered, the Intermediate Court of Appeals reversed the circuit court's judgment in favor of National, finding there were genuine issues of material fact regarding whether Reinhardt reasonably believed he was entitled to operate the truck at the time of the accident. Following the reversal, National again retained the same law firm and attorney to represent Reinhardt under a reservation of rights. Retained counsel then filed a Motion to Set Aside the Final Judgment even though retained counsel had still not found Reinhardt. Plaintiffs responded with a Motion to Disqualify, arguing that retained counsel failed to obtain Reinhardt's informed consent and waiver of any potential conflicts of interest, and that Reinhardt had no idea he was being represented in the underlying action. The circuit court granted the Motion to Set Aside and denied the Motion to Disqualify. 

    On appeal, the appellate court noted that Reinhardt had a right to refuse representation under a reservation of rights. Retained counsel did not establish an attorney-client relationship and was not authorised to file motions on Reinhardt's behalf. Therefore, because retained counsel did not have the authority to file the Motion to Set Aside or appear in court on Reinhardt's behalf, the circuit court erred in granting the Motion to Set Aside and denying the Motion to Disqualify Counsel. 

Filed-Rate Doctrine Does Not Prevent Challenge to Insurers' Auto Rates During COVID-19 Pandemic

    The federal district court considered a challenge to GEICO's premium rates as unconscionably excessive in light of a reduction in the insurance risk pool due to the COVID-19 pandemic. Thomas v. GEICO Cas. Co., 2023 U.S. Dist. LEXIS 19332 (N. D. Ill. Feb. 6, 2023).

    During the COVID-19 pandemic, there was a reduction in driving. In response to fewer accidents, GEICO instituted a "GEICO Giveback" program, which applied a 15% premium reduction to new and renewed auto insurance policies. Plaintiffs sued, alleging that the premium deduction was insufficient as compared to the overall reduction in GEICO's customers' risk profiles. Therefore, the program was unfair and deceptive, in violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. GEICO moved for judgment on the pleadings.

    The issue was whether the "filed-rate" doctrine prevented the court from awarding plaintiffs damages. The doctrine prohibited courts from invalidating or modifying a rate that was filed with a public utility or common carrier's regulator. As a result, plaintiffs generally could not seek damages based on the difference between the actual rate and a hypothetical lawful rate. Deference to regulator agencies was prudent because rate regulation was one of legislative control and was not a judicial function. 

    The court considered whether the Illinois' version of the filed-rate doctrine applied to rates for personal automobile insurance, which were filed with the Illinois Department of Insurance. The Illinois Supreme Court had not addressed the issue. An Illinois intermediate appellate court, however, had found that the filed-rate doctrine was not applicable to auto insurance rates in Illinois. Corbin v. Allstate Corp., 140 N.E. 3d 810 (Ill. Ct. App. 2019). 

    The court adopted the persuasive reasoning in Corbin. One aim of the filed-rate doctrine was deference to the regulatory authority of state regulatory agencies. But when the relevant state agency played no role in insurance rate approval, application of the doctrine made little sense. Accordingly, the court declined to abdicate the responsibility to assess whether GEICO's pandemic-era rates were deceptive or unfair in deference to non-existent state rate-setting authority. Therefore, GEICO's motion was denied. 

    

Insurer's Communications with In-House Counsel Not Privileged and Not To Be Sealed

    In a case involving the sealing of records generated by an insurance company, the Hawaii Intermediate Court of Appeals found that communications between the insurer and its in-house counsel were not privileged and should not be sealed. Roy v. Government Employees Ins. Co., 2023 Haw. App. LEXIS 13 (Haw. Ct. App. Jan. 23, 2023).

    GEICO employed Stephen Roy as Managing Attorney for its litigation department. One of Roy's duties was to defend GEICO's insureds against lawsuits arising from motor vehicle accidents. Roy sued GEICO, alleging GEICO violated the Hawaii Whistlebloers' Protection Act and defamed Roy. The complaint also alleged GEICO  interfered with Roy's ethical obligations in exercising independent judgment for GEICO's insureds. GEICO never filed a motion to seal or to redact Roy's complaint or any of the exhibits before the lawsuit was settled. When approving the settlement, the court ordered the entire case file sealed.

    Ed Wagner was a GEICO policy holder. His insured vehicle was damaged and he submitted a claim to GEICO. A dispute arose over GEICO's repair estimate. Wagner became a vocal critic of GEICO by submitting testimony to the Hawaii state House of Representatives, creating his own YouTube channel, and posting a story about GEICO on an internet website. 

    After dismissal of the Roy lawsuit, Wagner sent a letter to the circuit court Chief Judge with an unfilled motion to unseal the Court's file in the Roy case. After a hearing, the circuit court entered an order to unseal. The court determined that the prior sealing order failed to satisfy the procedural requirements for public notice and findings to support the sealing. The court ordered the clerk to unseal the file, but delayed implementation of the order to allow GEICO to file a motion to re-seal and file redacted versions of specific documents in the file. GEICO filed its motion, but it was denied based on Wagner's constitutional right of access to court proceedings and records. 

    GEICO appealed. It contended some of the exhibits in the file were subject to the attorney-client privilege. GEICO argued an email contained confidential communications created by Roy acting in his capacity as in-house counsel for GEICO. The document was made to facilitate his professional legal services between both GEICO and GEICO's insureds. The second email contained communications to Roy solicited by GEICO's staff counsel director requesting legal advice and analysis from Roy in his capacity as in-house counsel. GEICO made similar assertions of privilege regarding the paragraphs of the complaint it sought to reseal. 

    The circuit court found that the communications with Roy did not solicit legal advice. Instead, there were discussions between GEICO's staff counsel and his supervisor questioning GEICO's policy about what staff counsel may tell staff counsel's client, GEICO's insured, about whether GEICO would indemnify its insured for liability in excess of policy limits in cases where GEICO rejectrd a policy limits settlement demand. Similarly, none of the allegations contained in the complaint were protected by attorney-client privilege. GEICO was not asking Roy for legal advice and Roy did not offer legal advice to GEICO as GEICO's lawyer. 

    Therefore, the circuit court did not err in determining that GEICO failed to meet its burden to prove that the communications were made for the purpose of facilitating the offering of professional legal services by Roy to GEICO. Further, the circuit court did not err in finding the communications were not protected by work product because GEICO failed to establish the materials were created in anticipation of litigation. Finally, the complaint did not reveal trade secrets with regard to GEICO's managing litigation, specific techniques and alleged practices for creating and enforcing GEICO's internal policies, or metrics for ensuring control of costs and calculating remuneration of employees. 

    Therefore, the unsealing order was affirmed.

    Special thanks to my Damon Key blogging colleague, Mark Murakami, for forwarding this case. 

    

Injured Parties Granted Right to Intervene in Insurer's Coverage Action

    The federal district court granted the injured parties' motion to intervene in the insurer's coverage action because there was a protectable interest in being compensated for their injuries. Island Premier Ins. Co. v. Campus, 2022 U.S. Dist. LEXIS 179787 (D. Haw. Sept. 30, 2022).

    Defendant Terrence Campos was involved in a auto collision while operating a vehicle owned by a third party, Jamie Barinas. Two underlying lawsuits were filed against Campos in state court.  Island Premier Insurance Company issued both an auto policy and an umbrella policy to Jamie Barinas that were in effect at the time of the accident. 

    Island filed the coverage action seeking a declaratory judgment that the two policies issued to Barinas did not provide coverage to Defendant Campos. The victims in one accident, Sanghyuk Hong and Mi Yon Hong, moved to intervene in the coverage action, asserting that they had an interest in the court finding that Island had a duty to indemnify. 

    The court found that the movants had a significant protectable interest. They sought damages in the Hawaii state court lawsuit as a result of the injuries they sustained. Their ability to be compensated turned on whether Island had a duty to indemnify Defendant Campos for the collision. 

    Therefore, the motion to intervene ws granted. 

    

Insurer's Motion To Dispose of Bad Faith Claim Fails

    The court denied the insurer's motion for partial summary judgment seeking to dismiss the insured's claim for bad faith in handling his claim. Davis v. Allstate Indem. Co., 2022 U.S. Dist. LEXIS 93475 (C.D. Cal. April 15, 2022).

    On February 5, 2012, Terry Davis had an auto policy with Allstate providing $30,000 in uninsured motorist (UM) bodily injury coverage and $100,000 in medical payments coverage. Mr. Davis was involved in an auto accident with an uninsured motorist. The next day, he reported the accident to Allstate. Allstate confirmed that the at-fault driver was uninsured and opened a UM bodily injury claim file. 

    On January 15, 2014, counsel for Mr. Davis sent Allstate a letter demanding UM coverage. An Allstate claim handler reviewed Mr. Davis' medical records and noted they were related to prostate, urinary tract, and constipation issues which pre-dated the accident. In March 2014, Allstate asked Mr. Davis to provide there years of historical medical records. Starting in October 2014, Allstate sent Mr. Davis monthly letters that claimed it still did not have the information needed to evaluate the claim. On February 25, 2015, an Allstate representative told Mr. Davis's counsel that the medial records revealed many illnesses that were not acute and appeared to be unrelated to the accident. Counsel did not return subsequent calls from Allstate. Allstate closed Mr. Davis's claim on June 16, 2015. The parties never commenced UM arbitration.

    Davis filed suit alleging Allstate breached the covenant of good faith and fair dealing. Allstate moved for summary judgment arguing (1) Mr. Davis's claim was time barred or (2) there was a genuine fact dispute as to when his injuries originated which precluded a finding of bad faith. 

    The court first found that the claim was not time-barred. At no point within five years did Allstate commence, or offer to commence, arbitration proceedings after Mr. Davis's request. Under California law, a cause of action to compel arbitration of an uninsured motorist claim did to accuse, and the statute of limitations did not begin to run, until one party refused to submit to arbitration. Mr. Davis's cause of action accrued on January 15, 2019 and he filed his complaint on June 3, 2020. Therefore, he filed within the two year statute of limitations. 

    Next the court found that the investigation could be found to have been conducted in bad faith. Therefore, Allstate was not entitled to a genuine dispute defense. Based upon the medical records, Allstate believed the injuries were due to a pre-existing condition. Allstate ignored that a severe car accident, in which Mr. Davis's car was t-boned and suffered major damage, may have caused new issues that related to his prior condition but were in fact novel. A reasonable jury could find that Allstate acted unreasonably in determining that Mr. Davis's injuries were not caused by the accident but instead were pre-existing conditions. Therefore, Allstate's motion on the bad faith claim was denied. 

Hawaii Supreme Court Confirms Insured's Right to Amend Complaint

    The Hawaii Supreme Court reversed the lower courts' denial of the insured's motion for leave to amend despite its being filed several years after the initial complaint. Carvalho v. AIG Hawaii Ins. Co., 2022 Haw. LEXIS 3 (Haw. Jan. 11, 2022).

    Royden Kalavi died in an auto accident on September 23, 2005. The personal representative, Carvalho, sought uninsured motorist (UM) and underinsured motorist (UIM) benefits under the Carvalhos' AIG policy stating that Royden was covered as a "resident relative." AIG offered non-stacked UM and UIM coverages totaling $70,000, but did not make a determination on whether Royden was a "resident relative" under the policy.

    Carvalho sued AIG on December 31, 2007 seeking a declaratory judgment for increased and stacked UM and UIM coverage totaling $1.2 million under the Carvalho policy. She also argued that stacked UM and UIM coverages totaling $1.2 million were available under the Kalavi policy.  AIG filed a separate action for a declaratory judgment to decide who was covered under the Carvalhos' AIG policy and the Kalavi's AIG policy.

    The dispute went to arbitration and $3 million in damages was awarded. Of this amount $500,000 was awarded to Royden's estate, $1.25 million to Carvalho, and $1.25 million to Royden's father. AIG sent two checks to Carvalho totaling $1.2 million as payment under the Carvalhos' combined UM and UIM policy limits.

    The case then remained dormant for several years until the trial court issued a Notice of Status Hearing. At this hearing, a trial date was set for January 12, 2016. On August 10, 2015, Carvalho filed a Motion to Amend Complaint. The amended complaint did not include further causes of action but included additional factual allegations and assertions that AIG had acted in bad faith in unreasonably delaying their payment of $1.2 million in UM and UIM benefits from April 16, 2007 to April 2, 2009. The trial court denied the motion to amend due to "undue delay." The Intermediate Court of Appeals affirmed.

    The Supreme Court reversed. Leave to amend was to be freely given when justice so required. The ICA erred in concluding that undue delay alone was insufficient basis to deny the motion to amend. On this record, the trial court should have granted the motion to amend.

    Thanks to my blogging colleague, Mark Murakami, for flagging this case.

 

Denial of Bad Faith Claims Reversed and Remanded

    The Kentucky Supreme Court reversed the court of appeals' affirmance of the trial court's denial of bad faith claims. Nichols v. Zurich Am. Ins. Co., 630 S.W. 3d 683 (Ky. 2021).

    Miller Pipeline Corporation had a commercial fleet policy with Zurich. The policy provided UIM coverage of $1,000,000. 

    Miller's employee, James Nichols, was severely injury on June 4, ,2002, in an automobile accident. For over two years and eight months, Nichols and his counsel negotiated with Zurich over UIM coverage. Seven Zurich employees examined the policy terms and acknowledged the policy included UIM coverage with $1,000,000 limits. Nichols relied on this representation when settling with the tortfeasor. 

    In February 2005, Zurich, through adjuster David Gusman, advised Nichols' that the policy did not include UMI coverage. Zurich's documents, however, showed that the underwriter produced a copy of the policy showing UIM coverage. The underwriter refused to comply with Gusman's request for an endorsement showing no UIM coverage. Zurich eventually produced an endorsement "effective 4/1/02" which was created in September 2005. The endorsement noted no additional premium was charged and no return of premium, and the second page provided "No Change in Premium," suggesting no UIM coverage.

    In October 2005, Nichols filed suit against Zurich to collect under the UIM provision. Initially, Zurich defended on the grounds that the endorsement explicitly excluded UIM coverage and filed a motion for summary judgment on that basis. The trial court denied the motion because, among other reasons, Zurich never made any assertion of lack of UIM coverage until almost three years after the accident and while the policy set forth effective premiums for UIM coverage, the change endorsement made no mention of premium refund. 

    Almost three years later, Nichols filed a motion for summary judgment that the UIM coverage was included. Zurich filed a cross motion and changed strategy, asserting for the first time that the policy's UIM coverage was issued due to a mutual mistake and should be reformed. The trial court allowed Zurich to amend its answer to allege mutual mistake and to request reformation. The trial court then granted Zurich's motion for summary judgment. The court of appeals affirmed.

    The supreme court reversed, holding that mutual mistake was not available as ground to reform the policy since no facts indicated that Zurich was aware of Miller's desire to exclude optional coverages, such as UIM. The supreme court held that Nichols was entitled to partial summary judgment on the issue of UIM coverage.

    On remand, the trial court granted Nichols' motion to amend his compliant to assert bad faith. Zurich then settled Nichols' UIM claim for the policy limits of $1,000,000. 

    After discovery, the parties filed cross motions for summary judgment on the bad faith claim. The trial court granted Zurich's motion and the court of appeals affirmed.

    The supreme court found that Nichols presented evidence from which a jury could determine that Zurich did not act reasonably in denying his claim. Further, there was evidence that Zurich acted with reckless disregard. For four years after the accident, Zurich failed to investigate, negotiate, or otherwise meaningfully interact with Nichols. Thereafter, Zurich continued to delay and litigate despite having no legal foundation upon which to base its case, only fulfilling its contractual obligations nine years after Nichols' accident. 

    The bad faith claim was remanded to the trial court for further proceedings. 

    

Rule 30 (b) (6) Deposition of Insurer Representative Ordered to Go Forward

    The Texas Supreme Court ordered that a Rule 30 (b) (6) deposition could go forward with appropriate limitations. In re USAA Gen. Indem. Co., 2021 Tex. LEXIS 540 (Tex. June 18, 2021). 

    Frank Wearden was insured under a automobile policy issued by USAA. Wearden was involved in a car accident with Michelle Bernal, who Wearden said was uninsured and at fault. Wearden settled with Bernal and then sued USAA for benefits under his policy's uninsured/underinsured  (UIM) coverage.

    Wearden served a Rule 30 (b) (6) notice to depose a USAA representative on identified topics. USAA filed a motion to quash the notice and accompanying subpoena duces tecum. USAA conceded that Wearden was an insured, he was driving an insured vehicle under the policy, and the $100,000 per person UIM benefits were available if Wearden established his right to recover such benefits. In light of these concessions, USAA argued that neither how it investigated and evaluated Weaden's claim nor how it evaluated the lawsuit was probative of the only issues the jury would be required to decide. 

    The trial court denied the motion to quash. The court of appeals denied USAA's petition for writ of mandamus.

    On appeal to the Texas Supreme Court, USAA argued the trial court abused it discretion in failing to quash the notice because no USAA employees had relevant personal knowledge regarding the disputed car wreck issues.

    The Supreme Court found that the representative's deposition would be relevant. USAA had conceded some facts regarding coverage, but disputed both Bernal's liability for the underlying accident and the existence and amount of Wearden's damages. Presumably, USAA had information that supported its position on these issues. This information was discoverable unless privileged, regardless of its admissibility at trial. Therefore, the deposition was not categorically prohibited on relevance grounds. The deposition, however, could not exceed the bounds of the claims at issue. 

    Therefore, Wearden's inquiry into the "facts supporting USAA's legal theories and defenses," whether "Bernal was an uninsured/underinsured motorist," and USAA's "claims and defenses regarding Wearden's assertions in this lawsuit" were permitted because these topics were limited to disputed issues. 

    On the other hand, deposing USAA about all aspects of the UIM policy when USAA had already conceded the policy provided coverage for up to the $100,000 limits if Wearden established Bernal's liability and sufficient damages went too far. Also, a general inquiry into the UIM policy, Wearden's compliance with the policy's "contractual provisions," and the occurrence of and compliance with "all conditions precedent to recovery," exceeded the relevant subject matter of the suit and were improper. 

    Finally, inquiry into extracontractual matters such as the claims-handling process was improper before entitlement to benefits under the policy was established. 

    With these limits, the deposition of USAA's representative was permissible under the discovery rules. 

Insurer's In-House Counsel's Involvement in Coverage Decision Opens Door to Discovery

    The Mississippi Supreme Court held that the insurer must produce written communications from and make available for deposition the in-house counsel who orchestrated the denial of coverage. Travelers Pro. Cas. Co. of Am. v. 100 Renaissance, LLC, 2020 Miss. LEXIS 409 (Miss. Oct. 29, 2020). 

    An unidentified driver struck a flagpole owned by the insured Renaissance, causing $2,134 in damages. Renaissance filed a claim with Travelers for uninsured-motorist coverage. The Travelers' claims handler, Charlene Duncan, determined there was no coverage because the flagpole was not a covered auto. Before corresponding with the insured, Duncan sought legal advice from Travelers' in-house counsel, Jim Harris. 

    Renaissance sued Travelers for coverage and bad faith. Renaissance then took Duncan's deposition and asked that she explain both the denial letter and the reasons Travelers denied the claim. Duncan repeatedly said she did not know the basis of the denial and that she had consulted with Harris. 

    Travelers  later paid  for the damage to the flagpole, but Renaissance continue to litigate its bad faith claim. Travelers moved for summary judgment. Renaissance asked for a continuance to conduct additional discovery, including the production of emails between Duncan and Harris and the deposition of Harris. The court ordered that the emails be produced for in camera review. The court then found that Travelers had waived the attorney-client privilege as it related to Harris. The court ordered that the emails be produced and Harris be deposed. Travelers filed an interlocutory appeal. 

    The Mississippi Supreme Court affirmed. The attorney-client privilege did not apply. Although Duncan signed the denial letter, it was prepared by someone else, most likely Harris. If so, Harris did not act as legal counsel by giving advice to Duncan to include in the denial letter. Instead, the denial letter contained Harris's reasons to deny the claim. 

    Travelers was ordered to produce the written communications between Duncan and Harris and to produce Harris for a deposition to discover his knowledge about Travelers' basis for denial of the claim.