Article 13 of the Unfair Methods of Competition and Unfair Deceptive Acts and Practices in the Business of Insurance subjects insurers toward regulatory, as opposed to private enforcement, and as such, a private cause of action can not be brought under it. Nonetheless, insureds bringing a common law claim for bad faith in insurer’s settlement practices can use violations of the statutory unfair settlement provision as evidence of the insurer’s bad faith. Therefore, HRS § 431:13-103 (11), provides that:
Committing or performing with such frequency as to indicate a general business practice any of the following: . . . (H) [n]ot attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear; (I) [c]ompelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by the insureds; . . . (O) [f]ailing to promptly settle claims, where liability has become reasonably clear, under one portion of the insurance policy coverage to influence settlements under other portions of the insurance policy coverage; and (P) [f]ailing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement.
Hawaii, like many jurisdictions, looked to the standard set out by the California Supreme Court in Gruenberg when analyzing first and third-party bad faith claims. The Hawaii Supreme Court has held that there is a legal duty, implied in a first and third-party insurance contract, that the insurer must act in good faith and fair dealing with its insured, and a breach of that duty of good faith gives rise to an independent tort cause of action. Best Place v. Penn Am. Ins. Co., 82 Haw. 120 (1996). To determine bad faith, the insured need not show a conscious awareness of wrongdoing or unjustifiable conduct, nor an evil motive or intent to harm the insured. Id. at 133 (citing to Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566 (1973)). However, conduct that is based on an interpretation of the insurance contract that is reasonable does not constitute bad faith. Id. (citing to Gruenberg 9 Cal. 3d 566). Furthermore, an erroneous decision not to pay a claim for benefits due under a policy does not by itself prove liability. Miller v. Hartford Life Ins. Co., 126 Haw. 165 (2011). Rather, the decision not to pay a claim must be made in bad faith to prove liability. Id.
Hawaii courts have also held that an excess liability insurer can bring a cause of action, under the doctrine of equitable subrogation, against a primary liability insurer who in bad faith fails to settle a claim within the limits of the primary liability policy, when the primary insurer has paid its policy limit toward settlement. St. Paul Fire & Marine Ins. Co. v. Liberty Mut. Ins. Co., 135 Haw. 449 (2015).
Chartwell Law represents the interests of insurers and employers, as such, we continue to continue to monitor the legal landscape. If you have any questions about issues associated with right of action for bad faith claims, our attorneys are available to help. Please contact your Chartwell Law attorney.