Insurance Law Hawaii

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. 

    

Hawaii Court of Appeals Confirms Bad Faith Exists Even if No Contractual Duty to Pay Benefits

    The Hawaii Intermediate Court of Appeals reversed the trial court's granting of summary judgment to the insurer on the insured's bad faith claim. Carvalho v. AIG Hawaii Insurance Company, Inc., 2020 Haw. App. LEXIS 382 (Haw. Ct. App. Nov. 16, 2020).

    Plaintiff Carvalho's son was killed in a two-car accident. The other car and driver were uninsured. The deceased son was covered by a policy issued by AIG to his maternal grandparents. Plaintiff made a clam for uninsured motorist (UM) and underinsured motorist (UIM) benefits under the AIG policy. AIG claimed that only non-stacked UM and UIM coverages totaling $70,000 were available. 

    Carvalho filed suit against AIG seeking a declaratory judgment for increased and stacked UM and UIM coverage totaling $1.2 million under the AIG policy. AIG later agreed that the stacked maximum UM and UIMj coverage limits were $1.2 million. AIG maintained, however, that the value of the wrongful death claim had not yet been resolved. 

   The court proceeding was stayed so that an arbitration could take place pursuant to the policy. An arbitration award of $1.75 million was made to the son's estate and Carvalho. AIG paid $1.2 million to Carvalho, reflecting policy limits. Once the stay was lifted, AIG moved for summary judgment on all remaining claims. The trial court granted AIG's motion. 

    On appeal, AIG argued Carvalho could not establish that she had incurred any damages as of February 18, 2008, the date that AIG by letter recognized the increased UM/UIM policy limits, where it was not until April 2, 2009 that the arbitrator determined the amount of damages to be awarded.

    The appellate court noted, however, that under Hawaii law an insured could maintain a claim against an insurer for bad faith mishandling of the insured's claim even where the insurer had not contractual duty to pay any benefits. Further, Carvalho was not required to prove that she suffered economic loss caused by AIG's alleged bad faith in order to recover emotional distress damages caused by AIG's alleged bad faith, which she sought in her complaint. Accordingly, contrary to AIG's argument, summary judgment was not appropriate on the basis that the February 18, 2008 letter acknowledged the increased UM/UIM policy limits, before the arbitration award was made in excess of AIG's payment. AIG's obligation to act in good faith was independent from its contractual obligation to tender benefits to the insured.

    Therefore, summary judgment on the bad faith claim was not appropriate. Thanks to my blogging colleague, Mark Murakami (www.hawaiioceanlaw.com) for flagging this case.

Punitive Damage Award for Bad Faith Upheld

    Punitive damages that were reduced by the trial court to $1 million fro $4 million were affirmed by the appellate court. Mazik v. Geico Gen. Ins. Co., 2019 Cal. App LEXIS 454 (Cal. Ct. App. May 17, 2019). 

    Mazik was injured in a serious auto accident. He was diagnosed with a "grossly comminuted fracture of the left calcaneus," i.e., heel bone. Mazik's expert at trial described the injury to the heel as "devastating." Surgery was not an option because the bone had burst into to many pieces. The expert testified that Mazik would have a lifetime of chronic pain and issues related to his heel injury. 

    Mazik received $50,000 from Mercury Insurance Company, the insurer for the driver of the other car involved in the accident. Mazik submitted a claim to Geico, his insurer for underinsured motorist coverage, in the amount of the policy limits $50,000 after the offset from the $50,000 he had already received. 

    Geico initially offered $1000, then $13,800, then $18,000, then $18,887. An IME requested by Geico found that Mazik's injury did not restrict his occupation as a teacher and that no further medical care was indicated. His prognosis was "good." 

    An arbitration took place, and the arbitrator issued an award of the full policy limits. Geico finally paid Mazik $50,000.

    Mazik filed his bad faith action and the jury returned a verdict in Mazik's favor. Compensatory damages of $313,508 and punitive damages of $4 million were awarded. The trial court reduced the punitive damage award to $1 million.

    California law allowed punitive damages against the insurer when an "officer, director, or managing agent" was involved in any act of bad faith and acted with "oppression, fraud, or malice." A regional liability administrator from Geico, Lon Grothen, had initially rejected Mazik's $50,000 claim and offered $1,000. Grothen testified that his job was to establish settlement standards within his region. The court found there was sufficient evidence for the jury to conclude that Grothen engaged in oppressive conduct by ignoring information concerning the extent of Mazik's injuries for the purpose of saving Geico money. He approved unreasonably low offers to Mazik that ignored medical records showing the serious and permanent nature of the injuries. The jury could have reasonably found that Grothen ratified such egregious conduct in approving settlement offers that ignored Mazik's serious injuries.

    Therefore, the punitive damages award was affirmed. 

Hawaii Court Tackles Amount Due Under Stacking Provision for UIM Coverage

    The Hawaii Intermediate Court of Appeals (ICA) ruled in favor of the insurer in deciphering the policy's UIM coverage. Kohatsu v. State Farm Mut. Auto. Ins. Co., 2017 Haw. App. LEXIS 388 (Sept. 29, 2017).

    The insureds were in an automobile accident, which resulted in a $300,000 settlement with the other driver's insurance company. The insureds requested UIM coverage from their insurer, State Farm, for the remaining damages from the accident. The parties entered arbitration and an Arbitration Award of $2,304,652.12 was granted in the insureds' favor.

    The parties disputed the amount of coverage available under the policy and the insureds sued State Farm. In cross motions for summary judgment, the insureds argued that each policy for their four vehicles provided stacked UIM coverage of $400,000. Thus, the four policies together provided stacked UIM coverage totaling $1.6 million. State Farm argued that each policy for the four vehicles provided $100,000 in UIM coverage and the four policies together provided stacked UIM coverage totaling $400,000. The circuit court granted partial summary judgment in favor of State Farm. Judgment was entered on the UIM coverage issue and an appeal was filed.

    The Declarations Page for the Mercury Tracer, the car involved in the accident, provided a stacking option for UIM coverage with limits of $100,000 per person and $300,000 per accident. Renewal documents for the other three vehicles owned by the insureds also provided stacked UIM coverage for each vehicle in the amount of $100,000 per person and $300,000 per accident.

    The policy offered Non-Stacking Coverage or Stacking Coverage. Non-Stacking Coverage was defined as the limits carried on one vehicle. The Stacking Coverage, which was a more expensive option, consisted of the total of the limits on all the vehicles insured. The parties agreed that the insureds had four vehicles under four separate policies, and that they elected the UIM stacking option for each offer of UIM coverage. 

    An example of stacking was given in the policy. When two vehicles were insured under two separate policies, a UIM limit of $50,000/$100,000 would result in double limits, i.e., $100,000/$200,000 of stacked UIM benefits. Therefore, the per person UIM coverage limit of $100,000 multiplies by four vehicles resulted in a total of $400,000 of stacked UIM coverage for the claim at issue. The circuit court's judgment was affirmed. 

    Thanks to my Damon Key colleague, Mark Murakami [www.hawaiioceanlaw.com], for flagging this case. 

Relitigating UM Coverage in Hawaii Barred by Res Judicata

   Brown was injured when a passenger in a car on Kauai.  See Brown v. Progressive Direct Ins. Co., 2010 Haw. App. LEXIS 211 (Haw. Ct. App. May 5, 2010).  The driver of the vehicle in which Brown rode was uninsured.  The driver of the second vehicle involved in the accident fled the accident scene. 

   At the time of the accident, Brown was insured by two auto policies issued by Progressive.  Each policy provided UM coverage with a liability limit of $25,000 per person/$50,000 per accident.  Brown secured these policies as a resident of Nebraska.  The amount of the premiums paid was based on a Nebraska zip code. 

   Both policies had an "other insurance" provision which limited the total amount that could be recovered arising out of one accident to the highest limit of the available uninsured motorist coverage in any one policy.  Brown submitted claims and a settlement demand to Progressive for the maximum amount of UM benefits under both policies, or a total of $50,000.  Progressive, relying on the "other insurance' provisions, agreed to pay only $12,500 under each policy.   Brown argued that the "other insurance" provisions were invalid under Hawai`i law, which permitted the stacking of UM benefits under multiple policies.  Progressive contended that Nebraska law, which did not permit stacking, governed the policies.  In March 2007, Progressive sent two checks to Brown totaling $25,000, the maximum benefits permitted under the "other insurance" provision and Nebraska law.

   On March 14, 2007, Progressive filed suit for declaratory judgment against Brown in Nebraska.  Brown failed to answer and a default judgment was entered.  The default judgment found that Nebraska law governed the dispute and that Brown was not entitled to any further compensation from Progressive.

   Thereafter, on March 27, 2007, Brown filed a complaint against Progressive in Hawaii.  The complaint sought benefits of $25,000 under each policy, or a total of $50,000.  Brown's motion for summary judgment was granted by the Circuit Court.

   On appeal, the Intermediate Court of Appeals reversed.  Brown argued res judicata should not be applied by Hawai`i courts because Progressive never informed the Nebraska court that Brown's claims were made in Hawai`i, that his claims were be handled by a Hawai`i claims adjuster at Progressive's Hawai`i claims office, and that Brown was represented by counsel in Hawai`i.  Rejecting these arguments, the ICA found the full faith and credit clause of the U.S. Constitution and the doctrine of res judicata dictated that the Nebraska judgment barred the Hawai`i judgment as a matter of law.  

Arbitration Award Confirmed Even After Insurer Pays Award

   On its third trip to the Hawai`i appellate courts, the decision in Mikelson v. United Services Automobile Assoc., No. 28332 (Haw. Ct. App. March 24, 2010)(opinion here) addressed whether the Circuit Court's confirmation of the arbitration award was appropriate when the insurer had already paid the arbitration award.  (Disclosure - our office is involved in this case).

   The case involved the insured's injury sustained in 1999 in an accident while riding his motorcycle.  After settling with the other driver, the insured sued USAA for underinsured motorist benefits under his policy.  Pursuant to the terms of the policy, the dispute went to arbitration to determine the insured's damages.  On October 4, 2006, the Arbitrator's Final Award was issued.  On October 17, 2006, the insured filed a Motion to Confirm pursuant to Hawai`i's Arbitration Statute.  USAA opposed the Motion, arguing the Circuit Court lacked jurisdiction because USAA had paid the entire award, making the Motion moot.  The Circuit Court granted the Motion to Confirm and USAA appealed.

   Because the Hawai`i Arbitration Statute was virtually identical to the language in the federal arbitration statute, the court looked to federal authority to interpret the pertinent provisions.  Many federal cases held that whether an award had been satisfied had no bearing on whether the arbitration award should be confirmed.  Further, confirmation was concerned with the propriety of the award itself and was unrelated to enforcement of the award.  Other courts, however, did not distinguish between confirmation and enforcement of an arbitration award and, thus, would not confirm an award that had been satisfied.

   The Court of Appeals found the former cases demonstrating the need to separate confirmation and enforcement proceedings to be more persuasive.  Further, USAA's sole argument was that confirmation was moot.  Consequently, because USAA failed to challenge confirmation of the award based upon any of the specified statutory grounds in the Arbitration Statute, the Circuit Court was obligated to confirm the award.  Therefore, the Circuit Court did not err and its decision was affirmed.

Similar to Hawai`i, Montana Case Law Entitles Successful Insured to Attorney Fees

   By statute, Hawai`i allows a party who successfully sues the insurer for benefits to recover reasonable attorney fees.  Haw. Rev. Stat. 431:10-242.  In Riordan v. State Farm Mut. Auto. Ins. Co., No. 08-35874, 2009 U.S. App. LEXIS 26888 (9th Cir. Dec. 10, 2009), the court determined that Montana case law also allows the insured to recover fees after prevailing against the insurer for full benefits.

   The insured was injured in a car accident, entirely the fault of the other driver.  The insured had three State Farm automobile policies, which provided uninsured motorist ("UIM") coverage with limits of $50,000 per person and $100,000 per accident.  Before suit was filed, State Farm paid $30,586.59 in UIM benefits. 

   The insured filed suit, contending State Farm was required to provide $150,000 of UIM coverage, the "stacked" total of UIM coverage under the three policies.  Before answering the complaint, State Farm paid another $45,413.43, bringing the total UIM benefits paid to approximately $76,000 and leaving $74,000 in UIM benefits remaining under the policies' limits.  Then, on the eve of trial, State Farm paid the remaining $74,000 in UIM benefits.

   The insured then moved for attorney fees.  The magistrate recommended that $30,759 be awarded in fees.  The district court adopted the magistrate's recommendations.  State Farm appealed. 

   The Ninth Circuit affirmed.  Montana case law allowed the insured to recover attorney fees where the insurer forces the insured to sue to obtain full benefits.  See Mountain W. Farm Bureau Mut. Ins. Co. v. Brewer, 69 P.3d 652, 660 (Mont. 2003).  Here, State Farm unequivocally denied further liability to the insured and only settled on the eve of trial.  This forced the insured to litigate to obtain the full benefits under the policy.  Therefore, the insured was entitled to attorney fees under Montana case law.

Uninsured Motorist Coverage Properly Denied Where Insured Not At Fault

    Uninsured-motorist coverage after the insured died in an auto accident was the issue in Estate of Anderson v. Safeco Ins. Co. of Illinois, No. 08-3452 (8th Cir. May 29, 2009) [here].

    Anderson was riding in a car driven by his ex-wife when flood water swept the car off a driveway.  Anderson died after being thrown from the vehicle.  The vehicle was insured by Sagamore Insurance Company.  Sagamore denied the Estate's claim because the cause of the accident was not the fault of Ms. Anderson, but the contractor's poor repairs to the driveway.  

    Anderson had an auto policy with Safeco.  The Estate filed a claim with Safeco, arguing the policy's uninsured-motorist provisions applied.  Safeco's policy provided,

A. Safeco will pay damage which an insured is legally entitled to recover from the owner or operator of an uninsured motor vehicle because of bodily injury:

        1.  Sustained by the insured; and

        2. Caused by an accident.

. . .

C. "Uninsured motor vehicle" means a land motor vehicle or trailer of any type:

        1.  To which no bodily injury liability applies at the time of the accident . . . [or]

        4.  To which a bodily injury liability bond or policy applies at the time of the accident, but the bonding or insuring company:

                a.  denies coverage. . . .

      Relying on Part C.1 of its policy, Safeco denied coverage.  Although the Sagamore letter indicated the vehicle was insured under its policy, the Estate failed to present sufficient documentation that the death was the result of an auto accident caused by an uninsured motor vehicle.  The Estate argued Safeco should provide coverage under Party C.4(a) because Sagamore denied coverage.  The district court granted summary judgment to Safeco. 

    The Eighth Circuit affirmed.  Sagamore did not dispute that Ms. Anderson was covered by its policy; it denied payment because it contested her liability for the accident.  It would be unreasonable in the context of uninsured motorist insurance to define "coverage" to include a denial by the liability insurer of the insured's fault in the accident.  "Coverage" related to whether the policy was intended to apply to a particular claim, whereas "liability" addressed the viability of the claim on the facts.  Because Sagamore denied payment on the basis that the insured, Ms. Anderson, was not at fault but did not dispute that the accident was generally covered by the policy, there was no denial of "coverage" within the meaning of Safeco's definition of "uninsured motor vehicle." 

    The court also rejected the Estate's argument that Safeco was estopped from arguing that Ms. Anderson did not meet the definition of an "uninsured motor vehicle" under Part C.4(a) of the policy because Safeco failed to reference this provision in its declination letter.  Safeco was not required to anticipate the Estate's erroneous argument that it was asserting liability under Part C.4 because the definition of "coverage" encompassed a tortfeasor with liability insurance but whose underwriter denied liability in that particular instance.

Waiving Stacked Coverage Continues When Additional Cars Added to Policy

    Considering Pennsylvania law, the Third Circuit was asked whether the insured waived "stacked" UIM benefits in subsequent policies that listed additional automobiles?  See State Auto Prop. & Cas. Ins. Co. v. Pro Design, P.C., No. 08-3006 (3rd Cir. May 12, 2009) [here].  In a result consistent with Hawai`i law, the Third Circuit held the initial wavier applied when automobiles were later added to the policy.

    The insured was involved in an automobile accident while riding in a vehicle insured under a Business Auto Policy issued by State Auto.  When issued in June 2001, the policy covered only one vehicle and provided $35,000 in underinsured motorist (UIM) coverage.  The insured signed a written waiver of "stacked" UIM coverage.  The policy was renewed in subsequent years, including 2004, when the insured added a second vehicle.  In 2006, a third vehicle was added.  State Auto did not provide the insured with the opportunity to sign additional stacking waivers when adding the second and third vehicles. 

    After renewal of the policy in 2007, the accident occurred.  State Auto determined the stacking of UIM benefits was waived even when new automobiles were added and the liability limit was only $35,000.  The insured, on the other hand, contended it never waived stacking of coverage when adding automobiles to the policy.  Therefore, the liability limit was $105,000, or $35,000 for each of the three vehicles covered by the policy.  The District Court agreed with the insured and ruled the initial stacking waiver was invalid because of the addition of new vehicles to the policy.

    The Third Circuit reversed.  It noted a Pennsylvania statute that presumed stacking applied unless waived by the insured for a smaller premium.  The insured argued stacking applied to its policy because, while it waived stacking when purchasing a single-vehicle policy, the statute required the execution of an additional waiver upon the addition of vehicles to the policy.  State Auto, however, argued the stacking waiver executed upon purchase of the single-vehicle policy remained valid as to the multi-vehicle policy.  To settle this argument, the Third Circuit turned to two potentially conflicting decision of the Pennsylvania Supreme Court.

    In Sackett v. Nationwide Mut. Ins. Co., 919 A.2d 194 (Pa. 2007)(Sackett I), the court held the statute required when adding a new car to an existing policy, the insurer must provide a new stacking waiver in order to permit the insured to waive the increased amount of available stacked UM/UIM coverage.

    In Sackett II, however, the Pennsylvania Supreme Court modified Sackett I after rehearing.  See Sackett v. Nationwide Mut. Ins. Co., 940 A.2d 329 (Pa. 2007)(Sackett II).  The court held that the extension of coverage to a vehicle added to a pre-existing multi-vehicle policy was not a new purchase of coverage under the statute, and therefore did not obligate the insurer to obtain new or supplemental UM/UIM stacking waivers.  Notably, however, the court warned that its decision was limited to the addition of a vehicle to a multi-vehicle policy, leaving unresolved a situation where additions were made to single-vehicle policies.

    In Pro Design, the Third Circuit predicted the Pennsylvania Supreme Court would extend its ruling in Sackett II to a single-vehicle policy.  The statute did not require State Auto to provide the insured with the opportunity to waive stacking upon the addition of the second and third vehicles to the policy.  The waiver signed at the inception of the policy remained valid upon the addition of those vehicles and the subsequent renewals of the policy. 

    Under Hawai`i law, stacking of UM/UIM coverage is controlled by statute.  An insurer must offer UM/UIM coverage with the option to stack coverage.  Haw. Rev. Stat. 431:10C-301(d).  If UM or UIM coverage is rejected, no further offer is required to be included in any renewal or replacement policy issued to the insured.  See Dai-Tokyo Royal State Ins. Co. v. Yokote, 103 Haw. 181, 188 n. 9, 80 P.3d 1002, 1009 n. 9 (relying on Haw. Rev. Stat. 431:10C-301 (e).