Willis v. Swain
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Petitioner was a passenger in an uninsured vehicle that was in an accident. At the time, Petitioner had a certificate policy issued by the Department of Human Services through its Joint Underwriting Program (JUP). The JUP Bureau determined Petitioner was entitled to receive benefits under the JUP and assigned Petitioner's claim to Respondent. Respondent, however, denied Petitioner's request for coverage because Petitioner's certificate policy did not include uninsured motorist coverage. Petitioner sued Respondent, alleging claims of, inter alia, bad faith. The circuit court entered summary judgment for Respondent. The intermediate court of appeals (ICA) affirmed, concluding that an underlying insurance contract was required to assert a claim of bad faith against an insurer. The Supreme Court vacated the judgments of the lower courts, holding (1) under the JUP, the insurer assigned to a claim owes the same rights to the person whose claim is assigned to it as the insurer would owe to an insured to whom the insurer had issued a mandatory motor vehicle insurance policy; (2) the insurer's good faith covenant implied in such motor vehicle policies applies to claimants under the assigned claim procedure despite the absence of an insurance policy; and (3) accordingly, Respondent owed Petitioner a duty of good faith.
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Electronically Filed
Supreme Court
SCWC-29539
07-JUN-2013
10:42 AM
IN THE SUPREME COURT OF THE STATE OF HAWAI#I
---o0o--SHILO WILLIS, Petitioner/Plaintiff-Appellant,
vs.
CRAIG SWAIN, FIRST INSURANCE COMPANY OF HAWAI#I, LTD.,
Respondents/Defendants-Appellees.
SCWC-29539
CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(ICA NO. 29539; CIV. NO. 01-1-0467)
June 7, 2013
RECKTENWALD, C.J., NAKAYAMA, ACOBA, AND MCKENNA, JJ.,
WITH CIRCUIT JUDGE CHANG, ASSIGNED DUE TO VACANCY,
CONCURRING AND DISSENTING
OPINION OF THE COURT BY ACOBA, J.
We hold that (1) under the assigned claims procedure of
the State of Hawai#i Insurance Joint Underwriting Program (JUP),
see Hawai#i Revised Statutes (HRS) § 431:10C-408 (Supp. 1998),
the insurer assigned to a claim owes the same rights and
obligations to the person whose claim is assigned to it as the
insurer would owe to an insured to whom the insurer had issued a
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motor vehicle mandatory public liability and property insurance
policy, HRS § 431:10C-403 (Supp. 1998); (2) the insurer’s good
faith covenant implied in such motor vehicle policies applies to
claimants under the assigned claim procedure irrespective of the
absence of a written insurance policy; (3) accordingly,
Petitioner/Plaintiff-Appellant Shilo Willis (Petitioner), who was
assigned by the JUP Bureau to Respondent/Defendant-Appellee First
Insurance Company of Hawai#i, Ltd. (Respondent) under the
assigned claim procedure, was owed a duty of good faith by
Respondent; and (4) whether Respondent acted in bad faith in this
case as alleged by Petitioner is a question of fact to be
determined by the trier of fact.
Therefore, we vacate the
December 11, 2008 Final Judgment of the Circuit Court of the
First Circuit (the court)1 and the March 9, 2012 judgment of the
Intermediate Court of Appeals (ICA) filed pursuant to its
February 3, 2012 published opinion in Willis v. Swain, 126
Hawai#i 312, 270 P.3d 1042 (App. 2012) (Willis III),2 affirming
the court, because both reflect holdings to the contrary.
We
remand this case to the court for proceedings consistent with
this opinion.
I.
On February 10, 1999, Petitioner was a passenger in an
uninsured vehicle that rear-ended another vehicle.
1
The uninsured
The Honorable Eden Elizabeth Hifo presided.
2
The opinion was filed by Chief Judge Craig H. Nakamura, and
Associate Judges Katherine G. Leonard and Lisa M. Ginoza.
2
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vehicle was owned and operated by Craig Swain.
At the time of
the accident, Petitioner, a public assistance recipient, owned
her own vehicle, and had a certificate policy issued by the State
of Hawai#i Department of Human Services (DHS) through its JUP.
Respondent was designated to adjust the certificate policy.
The certificate policy was in effect from July 2, 1998
through July 2, 1999, but did not include uninsured motorist
coverage.
Petitioner sought medical treatment for injuries
resulting from the collision.
Willis v. Swain, 112 Hawai#i 184,
187 n.6, 145 P.3d 727, 730 n.6 (2006) (Willis I).3
On July 21,
1999, Petitioner applied for assigned claims coverage under the
On August 11, 1999, the JUP Bureau4 determined that
JUP.
Petitioner was entitled to receive benefits available under JUP,
and assigned Petitioner’s claim to Respondent.
On December 28,
1999, Respondent denied Petitioner’s request for coverage on the
ground that, at the time of the accident, Petitioner had a
3
It appears that, as a recipient of public assistance, at least
some of Petitioner’s medical expenses were paid by DHS. Willis I, 112 Hawai#i
at 187 n.6, 145 P.3d at 730 n.6.
4
The Joint Underwriting Plan Bureau is established pursuant to HRS
§ 431:10C-402 (1993), which provides:
§ 431:10C-402. Bureau. (a) The commissioner shall
establish and maintain a joint underwriting plan bureau in
the insurance division to receive, assign and supervise the
servicing of all assigned claims and all applications for
joint underwriting plan coverage.
(b) The commissioner shall adopt regulations for the
operation of the bureau, the assignment of applications for
joint underwriting plan coverage and assigned claims, and
the inspection, supervision and maintenance of this service
on a fair and equitable basis in accordance with this
article.
(Emphases added.)
3
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certificate policy and that policy did not include uninsured
motorist coverage.
On February 9, 2001, Petitioner sued Respondent for
breach of contract, bad faith refusal to pay liability coverage,
misrepresentation, unfair claims practices, and unfair or
deceptive acts or practices in violation of HRS § 480-2 (1993).5
On May 6, 2003, the court entered summary judgment in favor of
Respondent with respect to all of Petitioner’s claims.
This
court reversed and remanded for Respondent to “tender the
appropriate benefits under the assigned claims program.”
I, 112 Hawai#i at 191, 145 P.3d at 734.
Willis
Respondent paid
Petitioner the bodily injury liability policy limit of $20,000.
Subsequently, Petitioner requested attorneys’ fees and
costs as the prevailing party in Willis I.
Willis v. Swain, 113
Hawai#i 246, 151 P.3d 727 (2006) (Willis II).
This court held
that Petitioner was not entitled to attorneys’ fees, but that she
should be awarded costs.
Id. at 250, 151 P.3d at 731.
On June 8, 2007, Petitioner filed a motion to compel
Respondent to answer Petitioner’s interrogatories, and to respond
to Petitioner’s requests for production of documents.
On June
28, 2007, Respondent moved for summary judgment with respect to
Petitioner’s remaining claims for breach of contract, bad faith,
misrepresentation, unfair claims practices, and unfair or
5
Petitioner did not raise the HRS § 480-2 claim in her appeal to
the ICA or in her Application for Writ of Certiorari (Application), and
therefore this statute is not relevant to this appeal and is not quoted.
4
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deceptive acts or practices in violation of HRS § 480-2.
Petitioner did not move for summary judgment, but filed an
opposition to Respondent’s motion.
As to Petitioner’s bad faith claim, Respondent argued,
in relevant part, that under Hawai#i law there is no bad faith if
an insurance company denies benefits based on a reasonable
interpretation of the policy or based on an open question of law.
Respondent contended that the fact that the court had previously
granted summary judgment to it on the merits of Petitioner’s
claim for benefits (a decision ultimately reversed in Willis I)
demonstrated that there was reasonable disagreement over the
interpretation of the law as applied to the facts of this case.
Thus, Respondent urged, there was an open question of law and
Petitioner had no basis to pursue its bad faith claim.
Petitioner answered that whether Respondent had acted
unreasonably was a question of fact, and as such, was not the
proper subject of a motion for summary judgment.
Petitioner also
argued that if an insurer honestly believes that its policy does
not provide coverage, it must bear the risk of making the wrong
judgment.
Petitioner noted that this court in Willis I had
criticized Respondent’s argument, calling it “absurd,” and thus,
whether Respondent acted reasonably when it denied benefits on an
irrational argument was a question of fact that precluded summary
judgment.
Additionally, Petitioner argued that because
Respondent had not answered some of Petitioner’s interrogatories,
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produced requested documents, or allowed Petitioner to depose its
claims adjusters, Petitioner’s expert, a former adjuster for the
JUP program for another insurance company, was unable to fully
evaluate whether Respondent had denied coverage in bad faith.
However, the expert averred in an affidavit submitted along with
Petitioner’s opposition, that according to his reading of Willis
I and the practice of the insurance industry, Respondent had
unreasonably denied coverage to Petitioner.
On August 20, 2007, Respondent filed supplemental
memorandum in support of its motion for summary judgment, and
Petitioner filed a supplemental memorandum in opposition to the
motion for summary judgment.
Attached to Petitioner’s Reply to
Respondent’s Supplemental Legal Memorandum was another affidavit
from Petitioner’s expert.
In the affidavit, Petitioner’s expert
averred:
1. I reviewed the documents which were produced to
[Petitioner] in response to [Petitioner’s] request for
production of documents relating to [Respondent’s] denial of
benefits.
2. Based on the review of the above documents, it is
my professional opinion that [Respondent] unreasonably
denied the JUP assigned claim benefits to [Petitioner].
3. [Respondent] unreasonably denied the JUP assigned
claim benefits because it did not, among other things, have
any legal basis to deny said benefits.
4. The above-referenced records produced by
[Respondent] also do not show that a sufficient
investigation was undertaken by [Respondent] in connection
to its denial of the JUP assigned claim benefits.
5. [Respondent] unreasonably and wrongfully denied
the assigned claim when it unilaterally confused the purpose
and application of a certificate policy and an assigned
claim, which are separate and apart from one another.
6. Within the insurance industry and community, it is
common knowledge and understood that a certificate policy
does not negate a JUP assigned claim.
7. [Respondent] owed [Petitioner] a duty of good
faith and fair dealing, as the insurance company who was
assigned to adjust the JUP assigned claim by the State of
Hawai#i under the [JUP].
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8. To the extent that the JUP assigned claims,
essentially, operates as an insurance relief measure and is
a substitute to the mandated automobile bodily injury
coverage requirements of the State of Hawai#i,
[Respondent’s] duty of good faith and fair dealing arises
from [Respondent’s] assigned role as a servicing carrier and
an insurer under the [JUP], and as such does not depend,
necessarily, on whether [Petitioner] was a party to any
written contract.
9. [Respondent breached its duty of good faith and
fair dealing when when [sic] it unreasonably and wrongfully
denied [Petitioner] the JUP assigned claim benefits.
10. The above opinions are preliminary and subject to
change whenever further documents are produced by
[Respondent] and/or other facts are developed through
further discovery in the underlying lawsuit against
[Respondent].
(Emphases added.)
On October 3, 2007, the court granted Respondent’s
motion, concluding, in relevant part, that there was no contract
of insurance between Petitioner and Respondent, and thus, there
could be no cognizable claim of bad faith in the absence of a
contract.
The court further concluded that the published opinion
of this court in Willis I settled an open question of law and
therefore pursuant to Enoka v. AIG Hawai#i Ins. Co., 109 Hawai#i
537, 128 P.3d 850 (2006), there was no bad faith on Respondent’s
part.6
6
The court also granted Respondent’s motion for summary
The court’s order stated, in relevant part:
It is undisputed that [Respondent] has paid all benefits
that [Petitioner] is entitled to recover as an assigned
claims claimant under the [JUP] pursuant to and in
compliance with the Supreme Court’s opinion in this case.
By this Order this Court hereby grants summary judgment in
favor of [Respondent] and against [Petitioner] with respect
to all remaining claims alleged against [Respondent] in this
action, including, without limitation, any claim for breach
of contract, misrepresentation, negligent or intentional
infliction of emotional distress, unfair claims practices,
unfair or deceptive acts [or] practices in violation of
[HRS] §480-2 or bad faith. With respect to [Petitioner’s]
bad faith claim this Court concludes as a matter of law that
there is no cognizable claim for bad faith in the absence of
a contract. This Court further finds that the published
(continued...)
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judgment with respect to the remainder of Petitioner’s claims.
Upon granting Respondent’s motion for summary judgment, the court
held that Petitioner’s motion to compel was moot and denied it.
II.
On Petitioner’s appeal to the ICA,7 the ICA held that
an underlying insurance contract was required in order to assert
a claim of bad faith against an insurer, and because Petitioner’s
claims did not arise from an insurance contract, the court did
not err in granting summary judgment on Petitioner’s bad faith
claim.8
Willis III, 126 Hawai#i at 315-17, 270 P.3d at 1045-47.
In light of that holding, the ICA declined to address whether the
court erred in concluding that Respondent did not act in bad
faith.
Id.
The ICA also concluded that in light of its holding
that no bad faith claim could lie against Respondent, the court
6
(...continued)
opinion of the Hawai#i Supreme Court in this case settled an
open question of law and therefore pursuant to the Hawai#i
Supreme Court’s opinion under analogous circumstances in
Enoka v. AIG Hawai#i Ins. Co., Inc., 109 Hawai#i 537, 128
P.3d 850 (2006), there was no bad faith on the part of
[Respondent].
(Emphasis added.)
7
Petitioner expressly stated in her opening brief to the ICA that
she was not appealing the court’s decision to dismiss her claims for breach of
contract, misrepresentation, and unfair claims practices. Petitioner
mentioned her emotional distress claim to the ICA in her points of error, but
did not make any argument to the ICA as to that claim. As a result, the ICA
held that any argument regarding the court’s dismissal of such a claim had
been waived. Willis III, 126 Hawai#i at 314, 270 P.3d at 1044. Petitioner
does not take issue with that holding in her Application.
8
In addition, Petitioner argued that she could bring a bad faith
claim against Respondent because she was an intended beneficiary of the JUP
program. Petitioner does not assert this theory in her Application, and
therefore this theory is not addressed further.
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properly denied Petitioner’s motion to compel.
Willis III, 126
Hawai#i at 317, 270 P.3d at 1047.
III.
Petitioner presents the following questions in her
Application:
[1.] Whether the ICA correctly decided that [Respondent]
did not owe a duty of good faith in the absence of a
contractual relationship when HRS § 431:10C-403 specifically
and clearly states that an assignee insurance company has
the same obligations as though it had sold the policy.
[2.] Whether [Respondent] owed [Petitioner] a duty of good
faith pursuant to its insurer and insured relationship
regardless whether [Petitioner] purchased a conventional
motor vehicle insurance policy from [Respondent].
[3.] Whether it is rational to exempt Hawai#i insurance
companies from acting in good faith when adjusting [JUP]
assigned claims when they have an independent duty implied
in law to act in good faith as fiduciaries with their
insureds.
(Emphasis added.)
IV.
In 1973, Hawai#i overhauled its insurance law and
created a no-fault insurance scheme to govern motor vehicle
accident reparations.
Chapter 294 was enacted in order to
“create a system of reparations for accidental harm and arising
from motor vehicle accidents, to compensate these damages without
regard to fault, and to limit tort liability for these
accidents.”
HRS § 294-1(a) (1974).
According to the
legislature, the “system of no-fault insurance can only be truly
effective . . . if all drivers participate at least to the extent
required by law”
HRS § 294-1(b) (1974).
For those persons
“truly economically unable to afford insurance, the legislature
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. . . provided for them under the public assistance provisions of
[Chapter 294].”
Id.
In 1974, the public assistance provisions of the plan,
located in HRS §§ 294-20 through -23, were repealed and replaced
with the JUP, HRS §§ 294-20 to -24 (1974).
The JUP plan required
all insurers authorized to write insurance in Hawai#i to maintain
membership in the plan.
HRS § 294-20.
The insurance
commissioner was required to establish classifications of
eligible persons for whom the JUP would provide no-fault policies
and any additional coverage.
HRS § 294-22.
In 1987, Hawaii’s motor vehicle insurance law was again
overhauled with the repeal of Chapter 294 and enactment of
Article 10C of Chapter 431.
The purpose of Article 10C was to
(1)
Create a system of reparations for accidental harm and
loss arising from motor vehicle accidents;
(2)
Compensate these damages without regard to fault; and
(3)
Limit tort liability for these accidents.
HRS § 431:10C-102 (Supp. 1997).
To encourage participation by
all drivers, uninsured drivers were dealt with more severely in
criminal and civil areas, and those who were unable to afford
insurance were provided for under the JUP.
Id.
The JUP was incorporated into Article 10C under HRS §§
431:10C-401 through -412.
The JUP has two options for coverage.
The first allows individuals to obtain certificate policies, HRS
§ 431:10C-407 (Supp. 1999), which are “intended to provide motor
vehicle insurance and optional additional insurance in a
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convenient and expeditious manner for . . . persons who otherwise
are in good faith entitled to, but unable to obtain, motor
vehicle insurance through ordinary methods.”
Hawai#i
Administrative Rules (HAR) § 16-23-67(a) (1999).
The second, the
“assigned claims” program, allows individuals to obtain coverage
even if they do not have a certificate policy.
408.
HRS § 431:10C-
The assigned claims program “consists of the assignment . .
. of claims of victims for whom no policy is applicable, such as
the hit-and-run victim who is not covered by a motor vehicle
insurance policy.”
HAR § 16-23-67(b).
For certificate policies, the DHS must provide a
certificate of eligibility for JUP coverage to eligible licensed
drivers and unlicensed permanently disabled individuals unable to
operate their motor vehicle, who are receiving public assistance
and who desire basic motor vehicle insurance coverage under the
JUP.9
HAR § 16-23-73(a) (1999).
The applicant then submits the
certificate to the servicing carrier of the applicant’s choice
for a motor vehicle insurance policy.
Id.
Certificates received
by the servicing carrier within thirty days from the date of
certification eligibility by DHS “shall be accepted and treated
as if it were payment in full” for a policy.
Id.
The servicing
carrier must then “certify this certificate which will function
9
These licensed drivers and unlicensed permanently disabled
individuals unable to operate their motor vehicle must be the sole registered
owners of the motor vehicles to be insured under the JUP.
HAR § 16-23-73(a).
11
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as a motor vehicle insurance policy and issue the applicant a
motor vehicle insurance identification card.”10
Id.
In contrast, under the assigned claims program “a
person sustaining accidental harm, or such a person’s legal
representative,” (except as provided in another subsection) may
obtain motor vehicle insurance benefits through the plan
whenever:
(1)
No insurance benefits under motor vehicle insurance
policies are applicable to the accidental harm;
(2)
No such insurance benefits applicable to the
accidental harm can be identified; or
(3)
The only identifiable insurance benefits under motor
vehicle insurance policies applicable to the accidental harm
will not be paid in full because of financial inability of
one or more self-insurers or insurers to fulfill their
obligations.
HRS § 431:10C-408(a).11
Insurers operating in Hawai#i are required to
participate in the JUP (with some exceptions).
10
HAR § 16-23-68(a)
The rest of HAR § 16-23-73 provides:
The servicing carrier shall develop the information
necessary to validate the eligibility of the applicant.
Only basic motor vehicle insurance policy coverages, as
defined in sections 16-23-4, 16-23-5, and 16-23-9, shall be
bound, and the effective date of coverage shall be the same
date as the signature date on the certificate by the
applicant; however, the effective date shall not precede the
time and date of the certification of eligibility by the
state department of human services, the date that the
servicing carrier receives the certificate, or the second
day after postmark, whichever is later. In the event that
the applicant fails to date the certificate, the date that
the servicing carrier receives the certificate or the second
day after postmark, whichever is earlier, shall be
considered the date the applicant signed the certificate.
The servicing carrier shall promptly notify the director of
human services of public assistance recipients which it
insures.
11
In 2001, HRS § 431:10C-408(a)(1) was amended by adding the
following underscored language: “(1) No liability or uninsured motorist
insurance benefits under motor vehicle insurance policies are applicable to
the accidental harm . . . .” The amendment is not material to this dispute.
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(1999).
Under the program, insurers “pool their losses and bona
fide expenses . . . to prevent the imposition of any inordinate
burden on any particular insurer.”
HAR § 16-23-68(a).
“All
costs incurred in the operation of the [JUP], such as
administrative, staff, and claims (other than assigned claims)
paid, shall be allocated fairly and equitably among the JUP
members.”
HAR § 16-23-70 (1999).
Losses and expenses “under the
assigned claims program are pro-rated among and shared by all
motor vehicle insurers and self-insurers.”
HAR § 16-23-67(b).
Every year, the commissioner “prorate[s] among and assess[es] all
insurers and self-insurers all costs and claims paid under the
assigned claims program.”
HAR § 16-23-85 (1999).
The JUP also specifies the duties of insurers
participating in the program.
Under HRS § 431:10C-403, the JUP
Bureau “shall promptly assign each claim and application, and
notify the claimant or applicant” of the identity of the assignee
insurer.
(Emphasis added.)
Importantly,
[t]he assignee, thereafter, has rights and obligations as if it had
issued motor vehicle mandatory public liability and property damage
policies complying with this article applicable to the accidental harm
or other damage, or, in the case of financial inability of a motor
vehicle insurer or self-insurer to perform its obligations, to perform
its obligations as if the assignee had written the applicable motor
vehicle insurance policy, undertaken the self-insurance, or lawfully
obligated itself to pay motor vehicle insurance benefits.
Id. (emphasis added).
V.
The law of insurance fits largely within two domains.
1 New Appleman on Insurance Law Library Edition § 1.04 (Jeffrey
E. Thomas, ed., 2011) (hereinafter Appleman).
13
The first involves
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the regulation of insurers, and is generally accomplished through
statutes enacted by state legislatures and administrative
regulations issued by state agencies.
Id.
The second involves
regulation of the insured-insurer relationship, and for the most
part consists of judicially-articulated rules.
Id.
This latter
realm of insurance law largely overlaps with contract law because
the insurance arrangement is usually articulated in a contract.
Id.
However, even if insurance law is generally understood as a
specialized application of contract law, other bodies of law are
also pertinent to its application.
Id.
Doctrines developed in
contract law to facilitate the formation of agreements between
parties negotiating at arms length have been adapted and expanded
by incorporating principles from other areas of law in order to
regulate the special relationship between policyholders and
insurers.12
12
See id.
Thus, “tort law as expressed through the
For example, as explained in Appleman § 5.01:
Courts interpreting insurance policies often start from the
premise that an insurance policy is a contract, and
therefore the rules of contract interpretation apply. While
at first blush this axiom seems true enough, insurance
policies do not fit the traditional contract model very
well. For example, the traditional contract model is not
very helpful when it comes to the question of
interpretation. Insureds do not generally have sufficient
control or information to develop a specific intention about
what is covered by their policy. Insurance policies are
almost always standardized forms offered on a take-it-orleave-it basis. As a result the assumption that a court
engaged in the interpretation of an insurance policy will
determine the “intention” of the parties when they “made”
the contract is a fiction. While courts say they are
looking for the intention of the parties, in reality they
are making a judgment about the scope of coverage based on
the text of the policy, the circumstances, and public
policy[.]
(continued...)
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law of bad faith is highly relevant to the regulation of the
insurer-insured relationship.”
Id.
VI.
Broadly speaking, in first-party insurance, “the
contract between the insurer and the insured indemnifies the
insured for a loss suffered directly by the insured.”
1.08[3].
Appleman §
Proceeds are paid to the insured to redress the
insured’s loss.
Id.
Liability insurance, on the other hand, is
described as third-party insurance because the interests
protected by the policy are ultimately those of third parties
injured by the insured’s conduct.
Id.
For example, if the
insured negligently insures a third party, the third party will
possess a claim against the insured.
Id.
If the claim is
reduced to a judgment, the insured will suffer a loss.
Id.
The
liability insurer will reimburse the insured for any liability
the insured may have to the third party, but in the event of
payment, the insured simply transfers the proceeds from the
insurer to the third party.
Id.
One kind of insurance that appears to straddle the
first-party and third-party categories is uninsured motorist
insurance.
Id.
As Appleman explains, after states began to
require that operators of automobiles carry liability insurance
for the purpose of compensating the victims of automobile
12
(...continued)
(Emphases added.)
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accidents, “it became apparent that no mandatory system of
liability insurance could compensate all of the situations in
which persons were injured in vehicular accidents.”
This led
insurers to market uninsured motorist coverage, “which is
essentially a first-party coverage where the insurer’s obligation
is defined by the scope of a third party’s obligation to its own
insured.”
Id. (emphasis added).
In other words, under uninsured
motorist coverage, the insured pays a premium to his own insurer
for coverage in the event a financially irresponsible or unknown
person is legally responsible for the insured’s injury.
Id.
The assigned claims plan under JUP, which, as noted,
allows persons to procure coverage when (1) no benefits are
applicable to the accidental harm; (2) no benefits applicable to
the harm can be identified; and (3) the only identifiable
benefits will not be paid in full because of the financial
inability of the insurer to fulfill its obligations, HRS §
431:10C-408(a), essentially fulfils the same goals as first-party
uninsured motorist coverage.13
VII.
In Best Place, Inc. v. Penn America Insurance Co., 82
Hawai#i 120, 920 P.2d 334 (1996), this court first recognized the
tort of bad faith refusal to pay a valid insurance claim in the
13
This opinion concerns provisions relating to no fault insurance
provisions under Chapter 431:10C relating to Motor Vehicle Insurance. It does
not pertain to other statutory relationships, dissenting opinion at 3 n.3, or
the “family law area[,]” dissenting opinion at 22 n.16, as the dissent
suggests, and following the precepts of precedent would not afford a harbor
for “zealous advocate,” as the dissent suggests. Dissenting opinion at 3 n.3,
12 n.11.
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first-party insurance context.
In that case, the insured, Best
Place, insured a nightclub under a policy issued by Penn America.
Id.
A fire broke out and destroyed the nightclub.
Id.
Penn
America suspected arson and refused to pay the proceeds that
would have been due under the policy.
Id.
Best Place sued Penn
America, alleging breach of contract and tortious breach of the
implied covenant of good faith and fair dealing.
Id.
Best Place considered whether Hawai#i would allow a
tort claim for bad faith against an insurer.14
Id.
According to
this court, the Hawai#i legislature had recognized that the
insurance industry affects the public interest, and, therefore,
insurers are obligated to act in good faith.
Id. at 125-26, 920
P.2d at 338-40 (citing HRS § 431:1-102 (1993)).15
The duty to
act in good faith was consistent with other statutory provisions
14
In Best Place, this court looked to California decisions that “led
the way in the modern development of the bad faith cause of action for insurer
misconduct.” Best Place, 82 Hawai#i at 127, 920 P.2d at 341. This court
noted that the Supreme Court of California’s decision in Gruenberg v. Aetna
Ins. Co., 510 P.2d 1032 (Cal. 1973), “established that the defendant’s duty of
good faith and fair dealing, implied by law, is unconditional and independent
of the performance of plaintiff’s contractual obligations,” and that
“insurance companies owe an absolute duty of good faith and fair dealing to
their insureds.” Best Place, 82 Hawai#i at 128; 920 P.2d at 342 (citing
Gruenberg, 510 P.2d at 1040) (emphasis in original). In Gruenberg it was
established that when an insurer fails to deal fairly and in good faith with
its insured “by refusing, without proper cause, to compensate its insured for
a loss covered by the policy, such conduct may give rise to a cause of action
in tort for breach of an implied covenant of good faith and fair dealing.”
510 P.2d at 1037.
15
HRS § 431:1-102 provides in relevant part:
The business of insurance is one affected by the public
interest, requiring that all persons be actuated by good
faith, abstain from deception and practice honesty and
equity in all insurance matters. Upon the insurer, the
insured and their representatives rests the duty of
preserving inviolate the integrity of insurance.
(Emphasis added.)
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that contemplated a cause of action for insurer bad faith.
at 126, 920 P.2d at 340.
Id.
For example, in the no-fault insurance
context, HRS § 431:10C-315 (1993)16 sets forth the applicable
statute of limitations for a bad faith cause of action against an
insurer.
Best Place, 82 Hawai#i at 126, 920 P.2d at 340.
This court held that there was a legal duty, implied in
first and third-party insurance contracts, requiring the insurer
to act in good faith in dealing with insureds, and a breach of
that duty of good faith gave rise to an independent cause of
action in tort.
Id. at 131-32, 920 P.2d at 345-46.
Although
repeatedly alluding to the existence of a contractual
relationship between the insurer and insured, this court grounded
bad faith tort claims on the special relationship between
insurers and their insureds.
See id.
It was reasoned that the
tort of bad faith is not merely a tortious breach of contract,
“but rather a separate and distinct wrong ‘which results from the
breach of a duty imposed as a consequence of the relationship
established by contract.’”
Id. at 131, 920 P.2d at 345 (citation
omitted) (emphasis added).
Hence, there were sound reasons “for
16
HRS § 431:10C-315 provides in relevant part:
Statute of limitations. (a) No suit shall be brought
on any contract providing no-fault benefits or any contract
providing optional coverage more than, the later of
. . . .
(4) Two years after the entry of a final judgment in,
or dismissal with prejudice of, a tort action arising out of
a motor vehicle accident, where a cause of action for
insurer bad faith arises out of the tort action.
(Emphasis added.)
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recognizing a cause of action in tort for breach of the implied
covenant of good faith and fair dealing in the insurance
context.”
Id. at 132, 920 P.2d at 346.
Specifically, the
special relationship between insurer and insured was “atypical,
and the adhesionary aspects of an insurance contract . . .
justif[ied] the availability of tort recovery.”
Id.
Finally, a
bad faith cause of action would provide the necessary
compensation to the insured for all damages suffered as a result
of insurer misconduct.
Id.
Without the threat of a tort action,
insurance companies had “very little incentive to promptly pay
proceeds rightfully due to their insureds, as they stand to lose
very little by denying payment.”
Id.
VIII.
The reasoning articulated in Best Place supports
Petitioner’s contention that she can pursue a bad faith tort
claim in connection with her assigned claim.
To begin, the
legislature incorporated specific language in the JUP statutes
concerning the rights and obligations of insurers under the JUP.
As noted, in HRS § 431:10C-403, the legislature stated:
The bureau shall promptly assign each claim and application,
and notify the claimant or applicant of the identity and
address of the assignee of the claim or application. Claims
and applications shall be assigned so as to minimize
inconvenience to claimants and applicants. The assignee,
thereafter, has rights and obligations as if it had issued
motor vehicle mandatory public liability and property damage
policies complying with this article applicable to the
accidental harm or other damage . . . .
The first two sentences prescribe the process that the
JUP Bureau must follow.
But the language that follows sets
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forth, not the JUP Bureau’s responsibilities, but those of the
servicing carrier.
Inasmuch as HRS § 431:10C-403 imposes
obligations on the insurer as if it had issued a motor vehicle
policy, the statute establishes a relationship between the
insurer and the assigned claimant that is akin to a contract.
As
such, the underlying covenant of good faith and fair dealing
applies, even in the absence of an actual contract.
In other
words, the legislature imposed a duty of good faith and fair
dealing on insurers handling assigned claims by equating the
relationship between an insurer and an assigned claimant to the
contractual relationship between an insurer and an insured.
legislative goal is also manifest in HRS § 431:1-102.
This
Best
Place, 82 Hawai#i at 125-26, 920 P.2d at 339-40 (“The Hawai#i
[l]egislature has recognized that the insurance industry affects
the public interest, and, therefore, insurers are obligated to
act in good faith.”) (citing HRS § 431:1-102).
The legal basis
for imposing a duty of good faith and fair dealing on insurers is
thus set forth by statute.
Consequently, by virtue of HRS §
431:10C-403, an insurer’s “obligations” would include dealing
with the insured in good faith.
When construing a statute, the foremost obligation of
this court is to ascertain and give effect to the intention of
the legislature, which is to be obtained primarily from the
language contained in the statute itself.
State v. Reis,
115 Hawai#i 79, 84, 165 P.3d 980, 985 (2007).
This court reads
the “statutory language in the context of the entire statute and
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construe[s] it in a manner consistent with its purpose.”17
Id.
Since an insurer’s obligations toward an insured include a duty
to act in good faith, see Best Place, 82 Hawai#i at 125-26, 920
P.2d at 339-40 (citing HRS § 431:1-102), the insurer’s “rights
and obligations” under the JUP must necessarily incorporate a
duty of good faith toward the person whose claim has been
assigned to the insurer.
For all intents and purposes, that
person becomes an “insured” once his or her claim has been
assigned to the insurer.18
IX.
The differences in statutory language applicable to the
certificate policy program and the assigned claims program, i.e.,
that a certificate policy is “deemed a policy” for purposes of
the statute, while insurers who service assigned claims have
“rights and obligations as if [they] had issued motor vehicle
mandatory public liability and property damage policies[,]” do
not reflect an intent by the legislature to impose a duty of good
faith on the former category of insurers, but not the latter.
To
the contrary, the different language reflects the fact that the
17
Accordingly, “policy-making” is not involved, as the dissent
contends, dissenting opinion at 8-9 n.8, inasmuch as this court applies the
plain language of the statute. Dejetley v. Kaho#ohalahala, 122 Hawai#i 251,
262, 226 P.3d 421, 432 (2010). The dissent’s assertion that the legislature
did not expressly deem an assigned claim to include a contract, see dissenting
opinion at 10-11 n.10, 21-24, is negated by the express provisions of the
referenced interrelated statutes, which plainly express a legislative policy
by which this court, in the exercise of its interpretive role, must be guided.
18
That “[t]he parties have not cited” to similar “cases from any
jurisdiction,” see dissenting opinion at 4 n.6, is not a valid objection
inasmuch as the dissent cites to no contrary case and, here, we interpret a
particular statute from our jurisdiction.
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two programs deal with factually different circumstances.
The
certificate program establishes a mechanism under which drivers
who cannot afford insurance are provided coverage so that they
can lawfully operate motor vehicles.
See HRS §§ 431:10C-104(a)
and (b) (Supp. 1997); HAR § 16-23-73(a).
HRS § 431:10C-104(a)
provides in relevant part, that “no person shall operate or use a
motor vehicle upon any public street, road, or highway of this
State at any time unless such motor vehicle is insured at all
times under a motor vehicle insurance policy.”
(Emphasis added.)
HRS § 431:10C-104(b) provides, “Every owner of a motor vehicle
used or operated at any time upon any public street, road, or
highway of the State shall obtain a motor vehicle insurance
policy upon such vehicle which provides the coverage required by
this article and shall maintain the motor vehicle insurance
policy at all times for the entire motor vehicle registration
period.”
See also HRS § 431:10C-103 (Supp. 1998) (“‘Motor
vehicle insurance policy’ means an insurance policy that meets
the requirements of [HRS §] 431:10C-301.”); HRS § 431:10C-301
(Supp. 1998) (setting forth the required insurance policy
coverage for a motor vehicle).
Accordingly, it is reasonable to
refer to those individuals under the certificate program as
having a “policy,” which satisfies the requirements of the no
fault law.
In contrast, the assigned claims program addresses a
different category of persons, i.e., individuals who have already
been involved in an accident, and whose entitlement to lawfully
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operate a motor vehicle in the future is not at issue.
See HRS §
431:10C-408(a) (determining that benefits under the assigned
claims program are applicable to “[e]ach person sustaining an
accidental harm, or such person’s legal representative”); see
also HAR § 16-23-67(b) (“Another part of the JUP consists of the
assignment thereto of claims of victims for whom no policy is
applicable, such as the hit-and-run victim who is not covered by
a motor vehicle insurance policy.”).
Rather, the question is
whether the claimant will be covered for an accident that has
already occurred.
HRS § 431:10C-408(a).
The language employed
by the legislature -- that the insurer assigned to handle such
claims has the same rights and obligations as if it had issued a
policy -- appropriately addresses that differing context and
reflects a clear legislative intent that such claimants are
entitled to the same protections as policyholders, including
having their claim considered in good faith.19
19
Consequently, HRS § 431:10C-403 deems that an assigned claim
claimant is to be treated as if the assignee had issued the claimant a “motor
vehicle . . . polic[y][.]” Further, as confirmed in HRS § 431:1-102, the
relationship is imbued with a good faith obligation, inasmuch as in the
business of insurance, all persons are “requir[ed]” to be “actuated by good
faith[.]” Accordingly, the existence of an “actual contract of insurance,”
dissenting opinion at 7, is not required. Also, contrary to the dissent’s
position, see dissenting opinion at 8, the “express” reference to “policy,”
like that found in HRS § 431:10C-407(b)(2)(B), is not necessary in HRS §
431:10C-403 in light of equivalent statutory language in HRS §§ 431:1-102 and
431:10C. Thus, contrary to the dissent’s assertion that this conclusion
represents a leap, see dissenting opinion at 10-11 n.10, or “that the
legislature did not expressly deem an assigned claim to be based upon an
insurance policy,” see dissenting opinion at 20 n.14, this conclusion is
mandated by the express statutory language providing that insurers who service
assigned claims have “rights and obligations as if [they] had issued motor
vehicle mandatory public liability and property damage policies. . . .” HRS §
431:10C-403 (emphasis added).
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X.
Moreover, to hold that an insurer does not owe a duty
of good faith toward persons whose claims have been assigned to
the insurer under the assigned claims portion of the JUP would
also contravene public policy.
As stated in Best Place, one of
the reasons for allowing insureds to sue their insurers for bad
faith is to ensure the insured receives the necessary
compensation for all damages suffered as a result of insurer
misconduct.
82 Hawai#i at 132, 920 P.2d at 346.
The denial of
claims in bad faith does not cease to be misconduct simply
because the insured has not purchased a policy, but, rather is
entitled to coverage pursuant to a state program that
specifically requires insurers to provide such coverage.
The
legislature intended for persons who qualify to have coverage
under the JUP assigned claims program, and an insurer’s bad faith
denial of such claims undermines the statutory scheme, resulting
in damages to the person whose claim has been improperly denied.
A bad faith tort claim would allow recovery in cases of insurer
misconduct.20
20
The dissent argues that assigned claimants are not necessarily
public assistance eligible, and therefore, may not be entitled to as much
protection against bad faith conduct as certificate policy holders. See
dissenting opinion at 9-10. However, assigned claimants are, by definition,
persons who have no other coverage available. Specifically, they are persons
who have “no insurance benefits under [a] no-fault polic[y],” or for whom “no
such insurance benefits applicable to the accidental harm can be identified,”
or for whom “[t]he only identifiable insurance benefits under no-fault
policies applicable to the accidental harm will not be paid in full . . . .”
HRS § 431:10C-408.
As noted before, an example of assigned claimants are those
“victims for whom no policy is applicable, such as the hit-and-run victim who
is not covered by a motor vehicle insurance policy.” HAR § 16-23-67(b). It
(continued...)
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Another reason cited in Best Place for allowing bad
faith tort claims is the possibility that without the threat of a
tort action, insurance companies have very little incentive to
promptly pay proceeds, as they stand to lose very little by
delaying payment.
Id.
That rationale may apply in this context.
As noted, insurers are required to participate in the JUP as a
condition of doing business in Hawai#i.
It appears that losses
and expenses are pro-rated among and shared by all participating
insurers.
See HAR § 16-23-68(b).
It is unclear whether these
costs are passed on to the public in the form of higher insurance
rates, or whether the state provides some other form of
compensation to insurers.21
If every claim that is paid out under the assigned
claims program results in an immediate loss that is shared among
participating insurers, and these losses are not offset by the
20
(...continued)
is unlikely that the legislature believed hit-and-run victims without
insurance had much in terms of resources at their disposal, and yet, created a
program to provide last resort coverage for those individuals. Indeed, the
idea that assigned claimants do not need protection is directly contradicted
by the fact that the legislature chose to create a program specifically to
protect them. Indeed, the legislature has afforded protection to such
claimants through the creation of the JUP.
The dissent states that our holding would create an anomaly in the
context of bad faith law in Hawai#i. Dissenting opinion at 10 n.9. But,
based on the statutory language, the anomaly would be to extend bad faith
protection to certificate policy holders, but deny the protections offered by
the law of bad faith to insurance-needy assigned claimants, as the dissent
would apparently hold. See dissenting opinion at 10. Rather, our holding is
consistent with the requirement of fair and equal treatment for both
certificate policy holders and assigned claimants, as demanded by the
statutory scheme.
21
It appears, for example, that certain insurers under the JUP
program are selected as “servicing carriers” to provide services on behalf of
the JUP members and are reimbursed for their “servicing expenses” at certain
rates. See HAR §§ 16-23-71 (1999); 16-23-78 (1999).
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claimant’s payment of premiums (since under the assigned claims
program the claimant does not pay to have his or her claim
assigned to an insurer), it would seem that insurance companies
may have an economic incentive to deny or delay payment of
assigned claims in order to avoid losses associated with such
claims.
The threat of a tort action serves to inhibit those
incentives.
As articulated in Best Place, allowing bad faith
tort claims encourages companies to pay proceeds rightfully due
to insureds.
82 Hawai#i at 132, 920 P.2d at 346.
In any event,
that the legislature intended to impose the same duties and
obligations on insurers who are assigned claimants under the JUP,
and that barring a bad faith tort action would undermine the
statutory scheme, are enough to warrant allowing assigned
claimants to pursue bad faith tort actions against insurers.
XI.
The ICA and Respondent, however, relied on Simmons v.
Puu, 105 Hawai#i 112, 94 P.3d 667 (2004), reasoning that an
insurance contract is a prerequisite to a claim of bad faith, and
that because an assigned claim is not a “contract,” Petitioner
cannot sue Respondent under a bad faith tort theory.
In Simmons,
the petitioner was the driver of a vehicle struck by a rental car
self-insured by Hertz.
Id. at 115, 94 P.3d at 670.
The
petitioner alleged that the driver of the vehicle was negligent
and ultimately asserted a claim of bad faith settlement practices
against Hertz as the self-insurer of the rental vehicle.
26
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Hertz contended that there existed no common law claim
for relief entitling third-party claimants such as the petitioner
to sue self-insurers for bad faith settlement practices, inasmuch
as Hertz was not an insurer and had no claims practices.
118, 94 P.3d at 673.
This court agreed.
Id.
Id. at
It was explained
that a third party should not be permitted to enforce covenants
not made for his or her benefit.
Id. at 120-22, 94 P.3d at 675-
77 (citing Murphy v. Allstate Ins. Co., 553 P.2d 584 (Or. Ct.
App. 1976)).
Because the duty to settle claims in good faith was
intended to benefit the insured (the rental car driver) and not
the injured claimant (petitioner), the third party beneficiary
doctrine did not furnish a basis for the injured claimant to
recover.
Id.
This court further elaborated that the insurer was in a
fiduciary relationship with the insured but was in an adversarial
relationship to the third-party claimant (petitioner).
Id.
In
meeting its duty to the insured, an insurer was required to give
as much consideration to the insured’s interest as it did to its
own interest.
a third party.
Id.
Id.
But the insurer had no such relationship with
This court adopted the assignment theory of
common law third-party claims of bad faith settlement practices,
which required the existence of a contractual relationship
between an insurer and an insured as a predicate to establishing
an injured claimant’s right to sue a tortfeasor’s insurer.
Id.
In other words, a third-party claimant could sue an insurer for
bad faith settlement practices only if the insured assigned his
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or her rights to the third party.22
Id.
The third party would
in effect step into the shoes of the first-party beneficiary, to
which the insurer owed a duty of good faith.
See id.
The reason for disallowing a bad faith tort claim in
Simmons does not apply in this context.23
As noted, an insurance
contract was held to be a prerequisite for a bad faith settlement
claim in Simmons because, absent a contract between the third
party and the insurer (or its equivalent -- an assignment of the
first party’s claim to the third party), the insurer owed no duty
of good faith toward the third party.
Id.
Here, in contrast, as
an assigned claimant, Petitioner stands in a first-party
relationship to Respondent.
The assigned claims plan under the JUP creates an
insurer-insured relationship, and under that plan, no underlying
22
In Jou v. National Interstate Insurance Co. of Hawai#i, 114 Hawai#i
122, 157 P.3d 561 (App. 2007), the ICA held for similar reasons that a doctor
who provided services to an employee covered by workers’ compensation could
not sue the workers’ compensation carrier for bad faith. The ICA noted that a
workers’ compensation scheme essentially created a three-party agreement
between the employer, the employee, and the compensation carrier. Id. at 133,
157 P.3d at 572 (citation omitted). The ICA then explained that the purpose
of workers’ compensation was to compensate employees, not physicians. Id.
The ICA held that the doctor was an incidental beneficiary and not a thirdparty beneficiary of the workers’ compensation scheme, and therefore could not
assert a bad faith tort claim against the workers’ compensation carrier. Id.
at 134, 157 P.3d at 573. Further, the ICA noted, without deciding, that even
assuming, arguendo, that the doctor could qualify as an intended third-party
beneficiary, the special circumstances that warranted extending the tort of
bad faith to insureds and injured employees, did not exist between a physician
and a compensation carrier. Id. According to the ICA, unlike a typical
insured, a treating physician seeks commercial gain from the insurer rather
than security, protection, and peace of mind. Id. In this case, the JUP
program creates an insured-insurer relationship between the assigned claimant
and the insurer, and the assigned claimant seeks the same security,
protection, and peace of mind from the insurer that a policy-holder would.
23
Contrary to the dissent’s argument, this opinion does not rely on
Simmons, see dissenting opinion at 11-12, but distinguishes it.
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contract is necessary to give rise to that relationship and its
concomitant rights and obligations because that relationship is
created by statute.24
See HRS § 431:10C-403 (stating that after
an assigned claim is assigned to an insurer, the insurer is to
have rights and obligations “as if it had issued motor vehicle
mandatory public liability and property damage policies”).
The statutory scheme requires insurers that are assigned claims
to conduct their business as if there were in fact an underlying
contract of insurance with a claimant.
An underlying contract, therefore, is not the sine qua
non of a bad faith tort claim.
Cf. Best Place, 82 Hawai#i at
132, 920 P.2d at 346 (“The breach of the express covenant to pay
claims, however, is not the sine qua non for an action for breach
of the implied covenant of good faith and fair dealing.”).
This
view is supported by Enoka, 109 Hawai#i 537, 128 P.3d 850, which
was decided in 2006, two years after Simmons.
In Enoka, the
petitioner was in an accident while she was riding in another
person’s truck.
Id. at 541, 128 P.3d at 854.
The petitioner’s
parents owned three automobiles that were insured under a single
24
The dissent incorrectly claims that good faith cannot be implied
without an underlying contract. Dissenting opinion at 12 n. 11. As noted
before, in this situation, HRS §431:10C-403 establishes the equivalent of a
policy contract by its terms, and HRS §431:1-102 reiterates a good faith
requirement. See discussion supra. The dissent maintains bad faith rights
are denied to the assigned claimant because “the singular requirement [of] an
actual contract . . . [must] exist before good faith duties can be implied.”
Dissenting opinion at 12, n.11. However, this view would contravene the
fundamental requirement of good faith that underlies HRS chapter 431. See HRS
§ 431:1-102 and HRS § 431:10C-403 (treating an assignee insurer “as if the
assignee had written [a] motor vehicle insurance policy” to the individual
claimant).
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policy with AIG.
Id.
The petitioner was a named insured under a
different policy with GEICO.
Id.
Three years after the
accident, the petitioner filed a claim for no-fault benefits
under the AIG policy.
the claim.
Id.
Id. at 542, 128 P.3d at 855.
AIG denied
This court stated that an exclusion in AIG’s
policy for family members who are named insureds under another
no-fault policy (here GEICO) clearly applied to the petitioner,
and thus ostensibly the petitioner was not entitled to coverage
under the AIG policy.
Id. at 548, 128 P.3d at 861.
However, this court also held that an insured could
bring a bad faith tort claim against an insurer even when the
insurer had no contractual duty to pay benefits to the insured
based on the clear and unambiguous language of an insurance
policy.
Id. at 552, 128 P.3d at 865.
Thus, this court allowed
the petitioner to sue AIG for bad faith mishandling of the
insurance claim.
Id.
It was reasoned that an insurer must act
in good faith in dealing with its insured and in handling the
insured’s claim, even when the policy clearly and unambiguously
excluded coverage.
Id.
Accordingly, the trial court had erred
in determining that because the insured’s breach of contract
claim failed, her bad faith claim must also fail.
Id.
Enoka’s reasoning does not support the proposition that
the duty of good faith owed by the insurer to the insured is
dependent on the existence of a contract.
If the contract is the
source of the duty to act in good faith, then mishandling or
denying a claim when the insurer has no contractual duty to pay
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benefits should not give rise to a bad faith claim.
Indeed, in
Enoka, the insurer argued that in the absence of a contractual
duty to pay benefits, there was no implied covenant of good faith
and fair dealing to breach and, thus, no action for bad faith.
Id. at 549, 128 P.3d at 862.
Yet, this court held that the tort
of bad faith did not turn on whether the claim for benefits was
due or not; instead, it turned on “the conduct of the insurance
company in handling the claim.”
Id. at 551, 128 P.3d at 864.
For, “[s]urely[,] an insurer must act in good faith in dealing
with its insured and in handling the insured’s claim, even when
the policy clearly and unambiguously excludes coverage.”
(emphases added).
Id.
The special relationship between the insurer
and the insured and the conduct of the insurer toward the insured
is what gives rise to the tort of bad faith, not solely the
existence of a contract.25
See id.
The ICA came to the same conclusion in Christiansen v.
First Insurance Company of Hawai#i, Ltd., 88 Hawai#i 442, 449, 967
P.2d 639, 646 (1998), stating that the tort of bad faith in the
first-party insurance context “is unconditional and independent
of [the insured’s] contractual obligations.”
(Emphasis and
brackets in original.) (Internal quotation marks and citation
25
Respectfully, the dissent does not distinguish Enoka as to its
holding, but states the obvious, that Enoka did not “address . . . a
statutorily created relationship without a contract.” Dissenting opinion at
17. However, Enoka is cited for recognizing that an insurer’s good faith duty
does not rest only in coverage under the insurance policy, but extends to the
relationship between insured and insurer. See 109 Hawai#i at 549, 128 P.3d at
862. Although the dissent suggests otherwise, dissenting opinion at 14-16
n.13, as noted, Enoka recognized duties outside the contractual relationship.
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omitted.)
The issue in Christiansen was whether an action for
bad faith was “on the policy” such that a statute of limitations
provision in the policy would apply to the bad faith action.
at 450-51, 967 P.2d at 647-48.
Id.
The ICA explained that
jurisdictions were split on the question, and that some
jurisdictions had ruled that because the alleged tortious conduct
of the insurer arises out of its obligations under the provisions
of the policy, an action for the bad faith handling of an
insurance claim was governed by the limitation provision in the
policy.
Id.
Those jurisdictions had concluded that since,
absent the insurance contract, “there would be no legal
relationship between the parties[,] [the insurer] could not be
guilty of acting in bad faith.”
Id.
The ICA rejected the rationale of those jurisdictions
as inconsistent with Best Place.
49.
Id. at 451-52, 967 P.2d at 648-
The ICA explained that in Best Place this court had
clarified that “an insurer’s duty of good faith and fair dealing
[is] one implied by law that is independent of the performance of
the insured’s contractual obligations.”
648.
Id. at 451, 967 P.2d at
The ICA stated that “a tort of bad faith is a tort
independent of the policy because its origins are not in the
contract but in the common law imposition of good faith and fair
dealing, the breach of which fiduciary duty may be considered an
independent tort.”
Id. at 452, 967 P.2d at 649 (emphasis added).
Thus, the ICA held that the bad faith tort action is not “on the
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policy” and cannot be governed by the policy’s limitation
provision.26
Id.
In light of Christiansen and Enoka,27 the ICA’s
reliance on Simmons for the proposition that a contract is a
prerequisite to a bad faith claim is incorrect.
As discussed
above, the insurer had no duty toward the petitioner in Simmons
because the petitioner was the victim of the accident, not the
insured, and the insurer owed no duty of good faith to a thirdparty victim.
105 Hawai#i at 120-22, 94 P.3d 675-77.
case, Petitioner is the insured.
In this
To hold that Respondent owes no
duty of good faith to its own insured because the insurer-insured
relationship is created by statute instead of by contract would
be an unwarranted departure from this court’s post-Simmons
holding in Enoka that the insurer must act in good faith in
dealing with its insured and in handling the insured’s claim,
even in the absence of a contractual obligation owed the insured.
Enoka, 109 Hawai#i at 552, 128 P.3d at 865.
Likewise, to hold
that the insurer does have a duty of good faith toward its
insured but that a tort of bad faith does not lie because the
insured lacks a contract would be to recognize a duty that cannot
be enforced.
Such a result is not contemplated by cases such as
26
Again, the dissent’s assertion, that Christiansen, like Enoka, is
not relevant because no written contract exists here, is subject to the same
refutation -- that the statutes involved in the instant case indicate that an
automobile insurance policy should be deemed to exist.
27
These cases are pertinent as they exemplify situations in which
the contract was not central to the case but the court recognized duties
outside of the express language of the contract.
33
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Best Place, Enoka, and Christiansen, and does not follow from
Simmons, which held only that a third party, to whom a
tortfeasor’s insurer owes no duty, could not bring a claim of bad
faith settlement practices.28
XII.
There are contexts, however, in which the existence of
a contract does affect whether or not it is possible to bring a
claim.
For example, in Willis II, this court held that
Petitioner could not seek attorneys fees under HRS § 431:10C211(a) (Supp. 1997), which provides in relevant part that
[a] person making a claim for personal injury protection
benefits may be allowed an award of a reasonable sum for
attorney's fees, and reasonable costs of suit in an action
brought by or against an insurer who denies all or part of a
claim for benefits under the policy . . . .
113 Hawai#i at 250, 151 P.3d at 731.
This court stated that the denial of an assigned claim
did not qualify as the denial of a claim under a policy because
assigned claims are creatures of statute and do not arise out of
a contractual relationship.
Id. at 249, 151 P.3d at 730.
28
To the
The parties also cite to Mendes v. Hawai#i Insurance Guaranty
Assn., 87 Hawai#i 14, 950 P.2d 1214 (1998). In that case, an insured sued the
Hawai#i Underwriters Insurance Company (HIGA), a non-profit, unincorporated
legal entity created by HRS Chapter 431, Article 16, in order to provide a
mechanism for the payment of covered claims when an insurer becomes insolvent.
Id. at 17, 950 P.2d at 1217. This court held that HIGA could be sued for its
failure to cover a claim, but that it was immune to a bad faith claim,
pursuant to HRS § 431:16-116 (1993), which provided that there “shall be no
liability on the part of and no cause of action of any nature shall arise
against . . . the association . . . for any action taken by them in the
performance of its duties.” Id. at 18, 950 P.2d at 1218. This court held
that the legislature had made a policy determination to limit HIGA’s liability
because HIGA was not a traditional, for-profit insurance company, and
therefore no bad faith claim could lie against HIGA. Id. There is no statute
that limits Respondent’s liability pursuant to the JUP. Therefore, Mendes
does not resolve whether Petitioner can bring a bad faith claim against
Respondent.
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contrary, as noted above, HRS § 431:10C-403 explicitly provides
that Respondent has the “same rights and obligations” with regard
to Petitioner’s assigned claim as would an insurer that issued a
policy providing such coverage.
It was explained in Willis II
that whereas the legislature announced that a certificate policy
was to be deemed a policy for purposes of the Insurance Code, the
legislature did not similarly categorize assigned claims, and
therefore an assigned claim was not a “policy” for purposes of
HRS § 431:10C-211(a).
113 Hawai#i at 249-50, 151 P.3d 730-31.
In this case, the ICA decided that because this court
determined in Willis II that Petitioner’s claim was not
contractual in nature, Petitioner’s claim could not be treated as
a policy for purposes of bringing a tort claim either.
III, 126 Hawai#i at 316, 270 P.3d at 1046.
dispositive of Petitioner’s tort claim.
Willis
But Willis II is not
As noted, in Willis II,
this court said that an assigned claim was not a policy for
purposes of the attorneys’ fees statute because an assigned claim
was not a contract and the legislature had chosen to treat
certificate policies and assigned claims differently.
113
Hawai#i at 249-50, 151 P.3d 730-31.
However, as noted herein, the statutory scheme treats
certificate policies and assigned claims equally for purposes of
an insurer’s rights and duties to the insured.
HRS § 431:10C-
402(a) provides, “The commissioner shall establish and maintain a
joint underwriting plan bureau in the insurance division to
receive, assign and supervise the servicing of all assigned
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claims and all applications for joint underwriting plan
coverage.”
(Emphasis added.)
“[A]pplications for joint
underwriting plan coverage” refers to certificate applications,
while “assigned claims” refers to the assigned claims program
under the JUP.
Compare HRS § 431:10C-407 (discussing applicants
for certificate policy), with HRS § 431:10C-408 (discussing
assigned claims).
As noted, in the very next sentence in HRS §
431:10C-403, the legislature specified that the bureau “shall
promptly assign each claim and application, and notify the
claimant or applicant of the identity and address of the assignee
of the claim or application.”
To reiterate, “[t]he assignee,
thereafter, has rights and obligations as if it had issued motor
vehicle mandatory public liability and property damage policies .
. . .”
Id.
The legislature thus intended for insurers to have
duties coincident with issuing a policy for both certificate
applications and assigned claims.29
XIII.
Respondent, however, argues that a claimant under the
29
In sum, the common law duty of good faith and fair dealing of
insurers is incorporated in the insurance code. See HRS § 431:1-102 (“The
business of insurance is one affected by the public interest, requiring that
all persons be actuated by good faith[.]”). Hence, the dissent is wrong in
claiming that this decision “depart[s] from fundamental common law principles”
with respect to the bad faith doctrine. See dissenting opinion at 13. To
repeat, the legislature has further expressed its intent to specifically
impose the same duty of “good faith” upon insurers who adjust assigned claims
where no contractual relationship exists as that imposed on insurers who
adjust contract based policies. See HRS § 431:10C-403. This decision thus
effectuates legislative intent. Correlatively, this decision is consistent
with established case law. Although not applying a statute, Best Place,
Enoka, and Christiansen rest on the principle of a good faith obligation in
the insurer-insured relationship, as set forth in this opinion. This decision
recognizes the statutory relationship of good faith, HRS § 431:1-102, between
an insurer and insured underlying HRS § 431:10C-403.
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assigned claims program is “a person for whom ‘[n]o insurance
benefits under motor vehicle insurance policies are
applicable[.]’”
(Quoting HRS § 431:10C-408(a)(1) (1998).)
Stated differently, “[Respondent maintains] there is no basis for
[Petitioner] to contend that she is a policyholder to whom
benefits under an insurance policy have been denied and there is
no basis for [Petitioner] to pursue her alleged ‘bad faith’ claim
against [Respondent].”
It appears that Respondent interprets a
person for whom “no insurance benefits under motor vehicle
insurance policies are applicable,” HRS § 431:10C-408(a)(1), as
requiring Petitioner to show that benefits have been “denied” to
her under an existing policy.
The evidence in this case is that no insurance benefits
were applicable to Petitioner at the time of the accident.
As
noted, although Petitioner had a certificate policy from July 2,
1998 through July 2, 1999, the policy did not include uninsured
motorist coverage.
The fact that the JUP Bureau determined that
Petitioner was entitled to receive benefits under the JUP
confirms that the agency that administers the JUP also believed
that Petitioner satisfied HRS § 431:10C-408(a)(1).
Respondent
provides no authority for the proposition that Petitioner would
not qualify under HRS § 431:10C-408(a)(1) because she cannot show
that she is a person to whom “benefits under an insurance policy
have been denied.”
On its face, HRS § 431:10C-408(a)(1) is met
if no benefits under a policy are applicable to the accidental
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harm.
Thus, Respondent’s interpretation of HRS §
431:10C-408(a)(1) is not supported by the statutory language.30
XIV.
Respondent also argues that this court has already
implicitly rejected Petitioner’s bad faith tort claim because
this court only remanded in Willis I for a determination of
benefits due pursuant to the assigned claim.
Respondent’s
argument is, in essence, that this court implicitly denied
Petitioner’s bad faith claim by not saying anything about that
claim when it remanded in Willis I.
The exact language of this
court’s remand in Willis I was:
In light of the foregoing analysis, we hold that the circuit
court erred in awarding summary judgment in favor of
[Respondent] and against [Petitioner]. Accordingly, we
vacate the circuit court’s July 2003 judgment insofar as it
dismissed [Petitioner]’s action against [Respondent] remand
for further proceedings consistent with this opinion. On
remand, to the extent that the trier of fact finds that
[Petitioner]’s post-July 2, 1999 medical expenses remain
unpaid and her assigned claim complies with the Motor
Vehicle Insurance Law in other respects, the circuit court
shall order [Respondent] to tender the appropriate benefits
under the assigned claims program.
112 Hawai#i at 191, 145 P.3d at 734.
This language cannot
30
At oral argument, Respondent took a slightly different position,
arguing that HRS § 431:10C-408 is only satisfied if a person has no
“identifiable” benefits under any motor vehicle policy, and that because
Petitioner had a certificate policy at the time of the accident, she had
“identifiable” benefits. However, again, Respondent’s interpretation is not
supported by the language of the statute. HRS § 431:10C-408(a)(1) applies to
persons when “[n]o insurance benefits under motor vehicle insurance policies
are applicable to the accidental harm[.]” (Emphasis added.) As noted, there
is no question in this case that no insurance benefits under a motor vehicle
insurance policy were applicable to Petitioner at the time of the accident
because her certificate policy provided no coverage for the accidental harm as
it lacked uninsured motorist coverage. HRS § 431:10C-408(a)(2), the section
that contains the word “identified” (but which was not cited by Respondent in
its Response when making this argument) is satisfied if “no such insurance
benefits applicable to the accidental harm can be identified.” (Emphasis
added.)
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reasonably be construed to resolve the rest of Petitioner’s
claims.
As explained, in Willis I, the court had entered summary
judgment in favor of Respondent because it had found that
Petitioner was not due benefits under the assigned claim.
This
court noted that the court had also disposed of the rest of the
claims in the lawsuit, “none of which is germane to this appeal.”
Id. at 188 n.8, 145 P.3d at 731 n.8 (emphasis added).
This court
then vacated the court’s judgment “insofar as it dismissed
[Petitioner’s] action against [Respondent.]”
P.3d at 734.
Id. at 191, 145
In other words, the court’s judgment was vacated
insofar as it dismissed the entirety of Petitioner’s action
against Respondent, which would include her bad faith claim.
This court’s silence as to what should happen on remand to the
rest of Petitioner’s claims that were not at issue in Willis I
(and therefore not before this court) suggests only that the
court would have to decide those claims on remand, not that this
court silently and without explanation denied those claims.
XV.
Because we hold that Petitioner can bring a bad faith
tort claim, the question of whether it was proper for the court
to enter summary judgment on behalf of Respondent on the merits
of Petitioner’s bad faith claim remains.
As noted, the ICA did
not decide the question because it held that Petitioner could
not, as a matter of law, assert a bad faith tort claim.
III, 126 Hawai#i at 315-17, 270 P.3d at 1045-47.
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On appeal, an order of summary judgment is reviewed
under the same standard applied by the trial courts.
Wong-Leong
v. Hawaiian Indep. Refinery, Inc., 76 Hawai#i 433, 438, 879 P.2d
538, 543 (1994).
Summary judgment is proper where the moving
party demonstrates that there are no genuine issues of material
fact and it is entitled to judgment as a matter of law.
Reed v.
City & Cnty. of Honolulu, 76 Hawai#i 219, 225, 873 P.2d 98, 104
(1994). “Summary judgment is appropriate if the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no
genuine issue of material fact and the moving party is entitled
to judgment as a matter of law.”
Pac. Int’l Servs. Corp. v.
Hurip, 76 Hawai#i 209, 213, 873 P.2d 88, 92 (1994).
In Best Place, this court articulated the applicable
standard for a first-party bad faith claim as follows:
[T]he insured need not show a conscious awareness of
wrongdoing or unjustifiable conduct, nor an evil motive or
intent to harm the insured. An unreasonable delay in
payment of benefits will warrant recovery for compensatory
damages . . . . However, conduct based on an interpretation
of the insurance contract that is reasonable does not
constitute bad faith. . . .
82 Hawai#i at 113, 920 P.2d at 347.
Further, “where an insurer
denies the payment of no-fault benefits based on an ‘open
question of law,’ there is ‘obviously no bad faith on the part of
[the insurer] in litigating that issue.’”
Enoka, 109 Hawai#i at
552, 128 P.3d at 865.
The court concluded that Willis I had settled an open
question of law, and therefore Respondent’s denial of
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Petitioner’s benefits was not in bad faith.
Petitioner argues,
however, that this court’s language in Willis I suggests that
Respondent’s legal basis for denying Petitioner’s claim was not
reasonable.
As noted, in Willis I, Petitioner had argued that
she qualified for an assigned claim because there was no other
insurance that she could turn to and the legislature intended for
her to be covered.
112 Hawai#i at 189, 145 P.3d at 732.
Respondent countered that Petitioner did not qualify for assigned
claims coverage because she was the named insured under her own
certificate policy at the time of the accident, and therefore had
“identifiable” motor vehicle insurance coverage on the date of
the subject accident.
Id.
Respondent cited to HRS § 431:10C-408(a), which
provides that a person may seek coverage under the assigned
claims program when no insurance benefits under motor vehicle
insurance policies are applicable to the accidental harm or no
such insurance benefits can be identified.
at 732.
Id. at 189, 145 P.3d
Respondent argued that certificate policies were not
required to include uninsured motorist coverage in order to
comply with the statutory scheme, and that Petitioner had
disregarded a prior offer Respondent had made to Petitioner to
add uninsured motorist coverage to her certificate policy, and
that by disregarding Respondent’s offer, Respondent forewent her
eligibility for assigned benefits.
Id.
This court explained that the “core issue as framed by
the parties [was] whether an offer and a tacit refusal of UM
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coverage rendered the UM coverage ‘applicable’ and
‘identifi[able]’ so as to relieve the assignee insurer under HRS
§ 431:10C-408, [] of the duty to compensate the injured
claimant.”31
Id.
However, this court held that it did not have
to decide that issue because Respondent had not “offered”
uninsured motorist coverage to Petitioner but had, at most, made
an invitation to initiate negotiations.
733.
Id. at 190, 145 P.3d at
It was explained that “[a]t most, [Respondent had] flagged
for [Petitioner] the fact that no statute or regulation bestowed
an [uninsured motorist] component on her certificate policy . . .
.”
Id.
This court stated, “[n]o reasonable reading of the
statement [made by Respondent to Petitioner] could elucidate (1)
which insurer(s) might underwrite [Petitioner’s uninsured
motorist] coverage or (2) the premiums or any other terms.”
Id.
(footnote omitted) (emphasis added).
This court also explained that Respondent had argued,
on public policy grounds, that if Petitioner’s argument were
accepted, there would be universal uninsured motorist coverage
for anyone insured in a motor vehicle accident, and that there
would be no point in paying a premium for uninsured motorist
coverage if all one had to do was to apply to the JUP at no cost.
31
In other words, if Petitioner had applicable coverage at the time
of the accident, she would not have qualified for an assigned claim because
not having applicable insurance coverage is a precondition for an assignment
claim. See HRS § 431:10C-408(a) (“Each person sustaining accidental harm, or
such person’s legal representative, may . . . obtain the motor vehicle
insurance benefits through the plan whenever: (1) No insurance benefits under
motor vehicle insurance policies are applicable to the accidental harm;
(2) No such insurance benefits applicable to the accidental harm can be
identified . . . .”).
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Id. at 191, 145 P.3d at 734.
Thus, Respondent’s argument
“distort[ed]” Petitioner’s characterization of the assigned
claims program.
Id.
residual situations.
The assigned claims program applied only in
Id.
This court stated that the “absurd
consequence” of Respondent’s argument would be that insurers,
merely by offering, could compel even those who do not own cars
to purchase uninsured motorist coverage.
Id.
As noted, this court characterized Respondent’s
arguments on this particular issue as “unreasonable” and
“absurd.”
Indeed, it was held that there was no need to resolve
the core issue -- the question of whether an offer and a tacit
refusal of uninsured motorist coverage rendered certificate
coverage applicable so as to relieve an assignee insurer of the
duty to compensate the injured claimant, because the case could
be resolved as a matter of law on the ground that Respondent had
not made an offer to Petitioner.
Therefore, Willis I did not
resolve an “open question of law” posed by the parties and,
consequently, the court’s grant of summary judgment to Respondent
on the ground that this court resolved an open question of law
was wrong.
XVI.
In general, whether an insurer has acted in bad faith
is a question of fact.
See Guajardo v. AIG Hawai#i Ins. Co., 118
Hawai#i 196, 206, 187 P.3d 580, 590 (2008) (“allegations of bad
faith between insurer and insured over fair dealing and meaning
of policy were ‘exactly the type of issue[s], under Best Place,
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that the jury should consider, and one[s] that should not be made
by the court[.]’”) (citation omitted).
This court has held that
“reasonableness can only constitute a question of law suitable
for summary judgment ‘when the facts are undisputed and not
fairly susceptible of divergent inferences,’ because, ‘where,
upon all the evidence, but one inference may reasonably be drawn,
there is no issue for the jury.’”
Id. (quoting Courbat v. Dahana
Ranch, Inc., 111 Hawai#i 254, 263, 141 P.3d 427, 436 (2006))
(citations and brackets omitted).
In Guajardo, this court held there was a disputed issue
of material fact concerning whether the insurer had refused to
settle in good faith.
Id.
Further, this court explained that
although the ICA had reasoned that there was an open question of
law that precluded finding the insurer had acted in bad faith,
there was “no mention of an ‘open question of law’ as a basis for
[the insurer’s] initial outright rejection of the possibility of
a settlement, and, in any event, genuine issues of material fact
regarding the reasonableness and good faith of [the insurer’s]
interpretation of its policy remain, wholly separate and apart
from the applicability of [case law.]”
Id.; see also Smith v.
Safeco Ins. Co., 78 P.3d 1278 (Wash. 2003) (stating that “[t]he
existence of some theoretical reasonable basis for the insurer’s
conduct does not end the inquiry” into whether or not the insurer
acted in bad faith, and that “[t]he insured may present evidence
that the insurer’s alleged reasonable basis was not the actual
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basis for its action, or that other factors outweighed the
alleged reasonable basis”).
Petitioner argues that a fair-minded jury may find that
it was unreasonable for Respondent to premise its denial of
coverage on a legally invalid offer, to the extent that
experienced claims adjusters should know better than to rely on
faulty and insufficient offers as a basis to deny statutory
benefits.
Petitioner’s expert had also averred that, in his
professional opinion, Respondent acted in bad faith in delaying
payment of benefits to Petitioner and in failing to properly
investigate Petitioner’s claim.
According to the expert, it was
common knowledge and understood within the insurance industry
that a certificate policy does not negate an assigned claim.
Petitioner’s expert also opined that Respondent owed Petitioner a
duty of good faith as the insurance company that was assigned to
adjust the JUP assigned claim, and that to the extent that the
JUP
operates as an insurance relief measure and is a substitute
to the mandated automobile bodily injury requirements of the
State of Hawai#i, [Respondent’s] duty of good faith and fair
dealing arises from [its] assigned role as a servicing
carrier and an insurer under the [JUP], and as such does not
depend, necessarily, on whether [Petitioner] was a party to
any written contract.
Respondent did not provide any affidavits to counter Petitioner’s
expert’s statement.32
32
In support of its motion for summary judgment, Respondent attached
only a copy of Willis I and some documentation to establish that it had paid
Petitioner all of the benefits due to her under the assigned claim.
Respondent also attached a declaration to its Reply to Petitioner’s
Supplemental Legal Memorandum which stated that Petitioner had not provided
(continued...)
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Petitioner’s affidavits raise questions of fact for a
fact finder about whether Respondent’s reliance on a faulty offer
was in bad faith and whether Respondent’s conduct fell below that
of a reasonable insurance adjuster.
Thus, summary judgment for
Respondent was wrongly granted.33
XVII.
We therefore vacate the judgments entered as aforesaid
and remand to the court for proceedings consistent with this
opinion.34
Fernando L. Cosio,
for petitioner
/s/ Mark E. Recktenwald
/s/ Paula A. Nakayama
Bradford F.K. Bliss,
for respondent
/s/ Simeon R. Acoba, Jr.
/s/ Sabrina S. McKenna
32
(...continued)
proof of her medical expenses for treatment after January 26, 2006. However,
it appears that Respondent did not attach any affidavits to counter
Petitioner’s expert opinion that the facts suggested Respondent acted in bad
faith.
33
On remand, the court should address Petitioner’s June 8, 2007
motion to compel Respondent to answer Petitioner’s interrogatories and to
respond to Petitioner’s requests for production of documents, which the court
denied as moot upon granting Respondent’s motion for summary judgment.
34
We respectfully cannot agree with Judge Chang’s dissent, but
appreciate his eloquent and gracious opinion.
46
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