Attorney Kale Feldman joins producer/host Coralie Chun Matayoshi to discuss whether insurance companies have a right to sue defendants (e.g. HEI, Kamehameha Schools) in the Maui wildfire settlement to recover payouts to their insurers (right of subrogation), or whether their exclusive remedy is to put a lien on settlement recoveries to the extent that plaintiffs received excess compensation for their damages; and consequences of the Hawaii Supreme Court’s decision on the settlement and insurance industry.
A year and a half ago, the Maui wildfire devastated the town of Lahaina killing 102 people. Residents and businesses affected by the wildfire are struggling to rebuild their lives. There was lots of speculation surrounding the cause of the fire. The long-awaited report by the Maui Fire Department and federal Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) concluded that a downed Hawaiian Electric Company (HECO) power line set fire to dry overgrown grass. Hurricane-driven winds caused the fire to flare up later in the day which rapidly spread and engulfed the town of Lahaina. Hundreds of lawsuits were filed against HECO, Maui County, State of Hawaii, landowners Kamehameha Schools and West Maui Land Company, and Spectrum and Hawaiian Telcom which shared the power line. Without admitting fault, all of these defendants agreed to a $4.037 billion settlement to dispose of all claims. This would be a major feat, as there are over 650 lawsuits. As the former CEO of the American Red Cross, I know how important it is for those affected to regain a sense of normalcy as quickly as possible. The global settlement would streamline compensation to the plaintiffs without having to go to trial and face possible appeals and give certainty to the defendants regarding the extent of their financial exposure.
But some sticky issues need to be resolved before the settlement can be finalized, including whether insurance companies who are not part of the settlement can go after those responsible for the fire, how the settlement funds should be split among the plaintiffs, and how attorneys’ fees should be calculated and divided.
On Monday, the Hawaii Supreme Court ruled unanimously in favor of the settling parties, barring insurance companies from seeking recovery through subrogation actions against defendants who caused the wildfire to ignite and spread. The high court held that the exclusive remedy for property and casualty insurance companies to recover claims paid for damages caused by a party deemed responsible for a wrongful act, when there is a settlement between the responsible party and the insured, is to seek recover from their own insurance policy holders. It is uncertain whether the insurance companies will appeal this ruling.
Q. First let’s talk about what happens when you buy an insurance policy and something bad happens?
You buy a homeowners insurance policy, and an act of nature like a hurricane causes a fire. Your insurance company pays your expenses to rebuild. But what if someone is at fault for causing the hole in your roof – like your neighbor’s illegal arial? Assuming the homeowner does not file suit against the neighbor and only recovers under its policy, the insurance company can “step into your shoes” and go after your neighbor to pay for the damage under a legal principle called subrogation. Subrogation refers to the legal right of an insurance company to pursue claims against a third party responsible for a loss. This allows the insurance company to recover the funds they paid out to the insured on a claim from the at-fault party or their insurance company.
Q. In this case, all the plaintiffs and defendants reached a global settlement except for the insurance companies. What did Maui Circuit Court Judge Peter Cahill do?
In August, Judge Cahill entered a written order limiting the ability of insurers to file separate lawsuits against the defendants accused of starting the fires or allowing them to spread (i.e. insurers are barred from pursuing subrogation lawsuits in light of the tentative settlement). Earlier that year, the insurance companies had filed a separate subrogation suit in Honolulu state court before Judge Dean Ochiai, who indicated that he would defer to Judge Cahill’s order. The insurance companies threatened to appeal. Although Judge Cahill asserted that he had jurisdiction to bar the subrogation lawsuits, he reserved three questions regarding insurers’ subrogation rights in the context of a proposed settlement for the Hawaii Supreme Court to decide:
“Question 1: Does the holding of Yukumoto v. Tawarahara, 140 Hawaiʻi 285, 400 P.3d 486 (2017)[,] that limited 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?”
“Question 2: Is a property and casualty insurer’s subrogation right of reimbursement prejudiced by its insured’s release of any tortfeasor when the settlement documents and release preserve those same rights under HRS § 663-10?”
“Question 3: Under the circumstances of the Maui Fire Cases and the terms of the “Global Settlement,” does the law of the State of Hawaiʻi 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 thirty-party tortfeasor?”
- The settling parties (plaintiffs and defendants) argue that in cases where there is a judgement or outside settlement, Hawaii Revised Statute Section 663-10 applies to “any civil action in tort” and is the exclusive remedy for insurance carriers (including property insurers) to recover payouts by putting a lien on settlement payments that exceed the plaintiff’s damages. Insurance companies cannot pursue separate subrogation actions directly against the defendant wrongdoers who settled with the plaintiffs. According to State Farm v. Pacific Rent-All, 90 Hawaii 315 (1999)insurance companies do not have the right of subrogation unless the insured has been fully compensated (i.e. “made whole”) for their loss. The insurance companies bore the risk when they insured the policies so they shouldn’t get to recover their losses. If the insurance companies are allowed to pursue the settling defendants, it will nullify the settlement. The insurance companies paid out $2.3 billion so far and expect to pay out another $1.0 billion. It is unclear how much they expect to recover from their insureds. The settling parties contend that the insurance companies will recover at least part of their losses from their insureds. In addition, they collected and invested premiums for years.
- The insurance companies argue that Yukumoto v. Tawarahara affirmed State Farm v. Pacific Rent-All and held that fire and casualty insurers may take subrogation action against wrongdoers regardless of an outside settlement. The insurance companies are not seeking liens against insureds’ recovery and Hawaii Revised Statute Section 663-10 does not apply to subrogation plaintiffs. The “made whole” doctrine only applies when there is a limited fund where insureds are competing with insurance companies for funds. The $4.037 billion global settlement figure represents the mediators’ calculation of the amount parties could reasonably and fairly contribute based on the facts of the case, and not an amount that would exhaust the defendants’ available funds. The insurance companies argue that the settling plaintiffs (their insureds) do not have the right to release or waive their rights to subrogation because they do not own that claim.
Q. Does the global settlement include the lawsuits for wrongful death in addition to property and other damages like business interruption? Wasn’t there a One Ohana Fund which offered to pay up to $1.5 million to families of the deceased in lieu of going to court?
Shortly after the wildfire, the One Ohana Fund was established and funded by defendants, including the State of Hawaii, who contributed $175 million to quickly settle with families of the deceased and avoid litigation. 47 families opted to settle for up to $1.5 million for the wrongful death of family member instead of going to court. This represents roughly half of the 102 people who died. The One Ohana Fund payouts got folded into the global settlement.
Q. What are the consequences of the Hawaii Supreme Court’s decision?
If the Court allows the insurance companies to pursue subrogation claims against the defendant wrongdoers, the global settlement agreement will collapse, and HEI could go bankrupt. If the Court takes away the insurance companies’ right of subrogation, the global settlement agreement could be finalized but insurance premiums could soar even further, or carriers could leave the market. Either party could also appeal the decision.
Q. In anticipation of the $4 billion settlement being finalized, Judge Cahill scheduled a trial at the end of January to decide how the settlement funds would be split among plaintiffs and how attorneys’ fees should be calculated and divided. Right before the trial was to begin, the parties to the settlement reached an agreement. Although the contents of the agreement are not yet public, what do we know right now.
Judge Cahill limited the recovery of attorney’s fees to 25% as opposed to the customary 33% to 40%. The parties reached a settlement which allocated a certain percentage of the $4.037 billion to the Individual Plaintiff Group and the balance to the Class Action Plaintiff Group. The actual percentages are confidential at this time.
Q. What are the different categories of plaintiffs in this case and how might the settlement be split among them?
- Individual plaintiffs – these plaintiffs filed individual lawsuits and may have suffered the most egregious losses (e.g. wrongly death)
- Class action plaintiffs – these plaintiffs are alleging a wide variety of losses (e.g. property damage, business interruption, tourists who had to cancel their trip to Maui) and include those who haven’t been identified or haven’t yet joined the lawsuit.
The judge may decide to appoint a Claims Administrator, a neutral third party who can manage the settlement process and carry out the terms of the settlement, including notifying class members, reviewing claims, and paying out awards. This is similar to what was set up for 911 victims.
Q. Attorneys representing individual plaintiffs argue that they did the bulk of the work while attorneys representing class action plaintiffs have done very little. How are plaintiff fees normally set?
Plaintiff attorneys often work on a contingency fee basis because it allows individuals who may not be able to afford upfront legal costs to access legal representation since the lawyer only gets paid if they win the case and recover compensation for the client. Plaintiff attorneys may charge a relatively high contingency fee (e.g. 33% to 40% of what is recovered) because they are taking on the risk of not getting paid at all if they lose the case. In this case where the settlement fund is limited, there has been a push for attorneys to receive a smaller percentage than their normal fee, and for attorneys representing individual plaintiffs to get a higher percentage than those representing class action plaintiffs. As stated above, Judge Cahill capped the legal fees at a maximum of 25%. It could be less depending on how much work the lawyer did before reaching a settlement.
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Disclaimer: this material is intended for informational purposes only and does not constitute legal advice. The law varies by jurisdiction and is constantly changing. For legal advice, you should consult a lawyer that can apply the appropriate law to the facts in your case.