Insurance Law Hawaii

Despite Assignment, Insurer's Payment to Victim Not Recoverable From Victim's Insurer

     If, after being fully compensated for injuries, the insured assigns her rights to underinsured benefits to another insurer, is the insurer entitled to the insured's right to benefits?  The Hawaii Intermediate Court of Appeals answered no in AIG Hawaii Ins. Co. v. State Farm Ins. Co., No. 27789 (Haw. Ct. App. Oct. 8, 2008).

     Manuel, State Farm's insured, was rear-ended by Negron, AIG's insured.  Negron was insured for bodily injury coverage and Manuel was insured for uninsured (UM) and underinsured (UIM) coverage.  AIG agreed to pay Manuel $20,000 in exchange for an assignment of her interest in the UM benefits under her State Farm policy.  Manuel then demand UIM benefits from State Farm.  State Farm agreed to pay an additional $13,500 in UIM benefits.  Manuel accepted the settlement of her UIM claim.

     AIG then sued State Farm for damages in the amount AIG paid to Manuel.  Meanwhile, the underlying case went to arbitration where it was determined Manuel injuries totaled $33,500.  After applying the deductible of $10,000, Manual's claim was $23,500. 

     The Circuit Court subsequently granted State Farm's motion for summary judgment, finding that based on the Arbitration Award, Manuel had been fully compensated.  Consequently, neither she nor AIG had any right to UM benefits under her State Farm policy.

     On appeal, the ICA first held the assignment to AIG was valid even though State Farm had never consented.  Manuel had merely assigned her contractual right to receive UM payments, if available, to AIG.  This created no additional risk to State Farm.

     Nevertheless, AIG stood in the shoes of Manuel and was not entitled to recover more than Manuel would be entitled to under her State Farm policy.  Therefore, AIG was not entitled to seek UM benefits from State Farm because Manuel had been fully compensated. 

     Finally, the ICA affirmed the award of attorney fees to State Farm under the assumpsit statute, Haw. Rev. Stat. 607-14.  AIG's claim for UM benefits was in the nature of assumpsit under section 607-14.  Further, AIG sought "costs and reasonable attorney fees" in its Complaint, preventing AIG from denying the underlying action was in the nature of assumpsit. 

Insurer Entitled to Attorney Fees Under Assumpsit Statute

     In a recommended decision, a United States magistrate determined the insurer was entitled to attorney fees under Hawaii's assumpsit statute, Haw. Rev. Stat. 607-14.  See Deguchi v. Allstate Ins. Co., 2008 U.S. Dist. LEXIS 73072 (D. Haw. Sept. 23, 2008). 

     A prior post discussed the facts of Deguchi.   Briefly, Allstate insured a vessel which sank under suspicious circumstances.  Allstate denied coverage because the insureds failed to: complete their oral examination under oath; produce documents relating to the purchase and financing of the vessel; produce documents relating to their personal finances; and produce phone records from the night the vessel sank. 

     The insureds filed suit, alleging four counts, including breach of contract and bad faith.  In April 2008, the District Court granted Allstate's motion for summary judgment on all of the insureds' claims. 

     Allstate then moved for attorney fees and costs pursuant to Haw. Rev. Stat. 607-14.  The magistrate agreed Allstate was entitled to fees for the breach of contract claim, but not the bad faith or other claims.  Under Hawaii law, an award of attorney fees must be apportioned between assumpsit and non-assumpsit claims.  Where, however, it is impossible to separate assumpsit from non-assumpsit claims, allocation is not required.

     Here, with the exception of time devoted solely to the bad faith claim, Allstate's work appeared to have been devoted to the action as a whole.  An appropriate award, therefore, was 75% of the time attributable to the action as a whole. 

     Turning to the amount of fees to be awarded, the rates of $140 and $115 per hour were reasonable.  Duplicate billing for time spent at the same meeting was deleted.  Further, section 607-14 limited the award of attorney fees to 25% of the judgment.  Because Allstate, the Defendant, prevailed, the fee award was "assessed . . . upon the amount sued for . . . ."  Haw. Rev. Stat. 607-14.  The insureds' Complaint did not specify the amount of damages they sought.  But in exempting the case from the Court Annexed Arbitration Program, the Complaint stated that the jury award would likely exceed $150,000.  Therefore, the magistrate's recommended award of attorney fees was within 25% of this amount. 

Attorney Fees Denied Despite Insured's Successful Suit Securing Coverage

     The simple issue in Mohnkern v. The Professional Ins. Co. was: does a Florida statute automatically award attorneys' fees upon a successful outcome by the beneficiary/insured?  Or does the statute require the insurer to have wrongfully caused the insured/beneficiary to resort to litigation before attorneys' fees can be awarded?

      The Florida attorneys' fee statute reads, in part, "upon rendition of a judgment . . . against an insurer and in favor of any . . . named beneficiary under a policy, the trial court . . . shall adjudge . . . in favor of the . . . beneficiary a reasonable sum as fees or compensation for the beneficiary's attorney."  Fla. Stat. 627.428.  This statute is not too far off from the Hawaii statute that awards fees to successful policyholders: "Where an insurer has contested its liability under a policy and is ordered by the courts to pay benefits under the policy, the policyholder . . . shall be awarded reasonable attorney's fees and the costs of suit, in addition to the benefits under the policy."  Haw. Rev. Stat. 431:10-242.

     The facts in Mohnkern are a bit convoluted, so bear with me.  Professional Insurance Company ("PIC") issued a life insurance policy to Blacknell in the amount of $100,000.  When Blacknell had health problems, he sold the policy in return for a sum less than policy limits. 

     Meanwhile, Mohnkern invested $100,000 with Alpha Capital Group to purchase a life insurance policy sold by the policyholder, known as a viatical settlement.  She was later assigned the Blacknell policy in exchange for $49,995 of her initial $100,000 investment. 

     Alpha subsequently sued its escrow agent, alleging misappropriation of funds.  The federal district court appointed a receiver, who was instructed to satisfy claims of creditors and investors, including all interests in insurance policies funded by investors which were in the name of the defendant escrow agent. 

     Blacknell died in November 2000.  Mohnkern submitted her claim on the Blacknell policy to PIC.  PIC informed Mohnkern the policy was wrapped up in the receivership in the Alpha lawsuit.  Consequently,  there was a delay in making payment as the receiver filed a motion for directions from the court. Mohnkern intervened in the Alpha suit to get the funds released.  Her suit was dismissed, but the Sixth Circuit reversed and remanded for a hearing on the ownership of the Blacknell policy proceeds.  Mohnkern and the receiver finally settled in December 2005, when Mohnkern received $105,000. 

     Mohnkern then sued PIC for delay in payment and for attorney fees under the Florida statute.  The district court denied fees.  Mohnkern argued on appeal that because she was forced to litigate her entitlement to payment under the policy, the attorney fee statute was automatically triggered.  The Sixth Circuit agreed the statute's purpose was to place the insured where she would have been if the insurer had seasonably paid the claim without forcing the insured to file suit and incur fees.  Here, however, the insurer did not contest her valid claim.  Instead, PIC acted pursuant to a court order when it paid the Blacknell proceeds into the receiver's escrow account instead of to Mohnkern.  Because the insurer was without power to resolve Mohnkern's claim, the attorneys' fee statute did not apply.

Attorneys’ Fees and Bad Faith

Practitioners have noticed, and have been puzzled by, a schism in the Supreme Court of Hawai`i’s rulings on attorneys’ fees in bad faith actions.  At least one case held that a bad faith action was in the nature of assumpsit and, thus, awarded fees to the insurer from the insured.  Six months later, another case, without discussing the first case, came to the opposite conclusion.

Adding more flame to the fire, the Hawai`i Supreme Court recently denied cert in Jou v. Argonaut Ins. Co., 2007 Haw. LEXIS 367 (2007).  The ICA granted attorneys’ fees in a claim for bad faith claim, tortious interference with a prospective business advantage claim, and statutory tort claim under HRS § 663-1 (Supp. 1997).  In a dissent to the denial of the cert claim, Justice Acoba concluded that all of the claims sounded in tort, instead of assumpsit.

Obviously a denial of cert is not conclusive, but the Supreme Court’s refusal to address this issue only cautions an insured to be very careful before alleging bad faith against an insurer.

Attorneys’ Fees in Coverage Actions

    A quiet debate on whether an insurer is entitled to an award of attorneys’ fees in coverage actions is closer to resolution.  The argument generally focuses on what statute is applicable: Haw. Rev. Stat. § 607-14 (1993) (which mandates fees to be paid by the losing party in assumpsit actions) or Haw. Rev. Stat. § 431:10C-211 (fees may be awarded if the insured’s position is fraudulent or frivolous).

    In Enoka v. AIG Hawaii Ins. Co., 109 Hawai`i 537, 128 P.3d 850 (2006), the Hawai`i Supreme Court held these two statutes were in conflict and, thus, the more specific statute (431:10C-211) controlled.  Therefore, fees may only be awarded to an insurer if the insured’s position is fraudulent or frivolous.

    A recent Summary Disposition Order by the Intermediate Court of Appeals affirmed this position.  In Guajardo v. AIG Hawaii Ins. Co., the ICA rejected an insurer’s argument that Enoka is limited to the PIP context.

Attorneys’ Fees in Coverage Actions

        A quiet debate on whether an insurer is entitled to an award of attorneys’ fees in coverage actions is closer to resolution.  The argument generally focuses on what statute is applicable: Haw. Rev. Stat. § 607-14 (1993) (which mandates fees to be paid by the losing party in assumpsit actions) or Haw. Rev. Stat. § 431:10C-211 (fees may be awarded if the insured’s position is fraudulent or frivolous).

        In Enoka v. AIG Hawaii Ins. Co., 109 Hawai`i 537, 128 P.3d 850 (2006), the Hawai`i Supreme Court held these two statutes were in conflict and, thus, the more specific statute (431:10C-211) controlled.  Therefore, fees may only be awarded to an insurer if the insured’s position is fraudulent or frivolous.

        A recent Summary Disposition Order by the Intermediate Court of Appeals affirmed this position.  In Guajardo v. AIG Hawaii Ins. Co., the ICA rejected an insurer’s argument that Enoka is limited to the PIP context.  A copy of this decision is available here.