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The insurance industry continues to argue that a state judge got it wrong when he issued an order last week clearing the way for a $4.04 billion settlement of hundreds of lawsuits related to the August 2023 fires that killed 102 people and destroyed much of Lahaina.

At issue is whether insurers can file separate lawsuits to recoup billions of dollars in claims paid from the parties the insurers allege are responsible for the catastrophic fires. The alleged wrongdoers include Hawaiian Electric Industries, Kamehameha Schools and Hawaiian Telcom, which collectively the industry has accused of starting the fires or allowing them to spread. 

Victims’ lawyers want the Hawaii Supreme Court to step in. They have asked Maui Judge Peter Cahill to let the high court determine the question central to his ruling, and want the insurance industry to join in on their request as a way to resolve the issue.

The outcome of the dispute – between the global insurance industry on one side and fire victims and some of Hawaii’s core institutions on the other – is likely to determine whether the pending settlement can be finalized. The alternative is likely to be a years-long legal quagmire.

Last week, in a major victory for proponents of the settlement, Cahill said the insurers couldn’t go after HECO, Kamehameha Schools and others to recoup claims paid. Now, having paid out $2.3 billion in claims to policyholders already, with an estimated $1 billion more yet to be paid, the insurance industry is carefully weighing its next move. 

Mark Grotefeld, a lead counsel for the insurance industry, insists that, contrary to Cahill’s order, the law allows the insurers to sue the defendants to recover the industry’s paid claims.

Although Grotefeld didn’t rule out an appeal, he said the industry wants to be part of a settlement and is “willing to relinquish what I consider to be a lion’s share of the ability to recover.” He declined to quantify “a lion’s share.”

Jesse Creed, one of four liaison counsel for fire victims, says Cahill got it right when he sided with Creed — and for practical purposes with the other parties to the settlement, including the state and Maui County, which are also defendants.

“We think the Hawaii law is very clear on this issue,” Creed said.

Insurers Say Law Lets Them Pursue Alleged Wrongdoers

In wide-ranging interviews last week, Grotefeld and other insurance industry lawyers laid out the reasons why Cahill’s order was not just contrary to the law, but also unfair and bad public policy. 

Critics of the insurance industry’s posture have argued that policyholders have paid billions of dollars in premiums over the years. So it’s only reasonable, the argument goes, that the insurers pay claims without trying to recoup the amounts paid. 

But insurance industry lawyers say there’s a basic flaw with that argument. It assumes the fire happened because of a freak accident like a lightning strike or accident on the part of the homeowner.

But the Maui fires are different, said one industry lawyer who spoke on the condition of anonymity because he was not authorized to speak for the parties in the suit. In these instances, the lawyer said, the fires weren’t caused by lightning or the homeowners. The Maui fires, he said, are analogous to a devastating fire caused by a neighbor negligently setting off fireworks. In that case, the insurer would pay the claim but bring a subrogation action against the negligent neighbor, the lawyer said.

So far, the industry has provided enormous relief to fire victims: some $2.3 billion in claims to home, business and auto owners as of June 30, according to the .

“The insurance companies have paid their own insureds, the people who paid for the insurance, for all of the claims made,” the lawyer said in a text message. “They did not agree to insure HECO, Kamehameha Schools, etc. Those companies did not pay for coverage from these insurers.”

Cahill’s order cuts off the option of the insurers suing HECO and the others to recoup claims paid. The judge’s legal rationale hinges in part on a  in which the state Supreme Court denied HMSA from bringing a subrogation claim against a driver who badly injured a moped rider when the driver attempted to turn left into the path of the moped. 

HMSA had paid out some $340,000 in medical expenses to the victim, Gregory Yukumoto. And the victim had settled a lawsuit for damages brought against the driver, Ruth Tawarahara, for $1.15 million. 

HMSA separately sought to bring a subrogation action against Tawarahara to recoup what it had paid Yukumoto. But the court said  prevented HMSA’s subrogation action in that case. HMSA’s recourse would be to enforce a lien against Yukumoto, the court said.

The Maui fire victims relied on the case when arguing the insurers couldn’t sue the defendants in the Maui fire cases. Cahill went along with the argument that the Yukumoto case was analogous to the Maui fire cases in an order issued Aug. 19.

In an interview, Grotefeld said a health insurance case like the Yukumoto case wasn’t the same as a case involving property and casualty insurance losses. 

“In the health insurance context, that’s what takes place,” he said, referring to the insurers being required to enforce liens on the insured policyholders. 

But property and casualty insurance cases are different, Grotefeld said.

Indeed, the Yukumoto opinion also distinguished medical or “personal” insurance cases from property cases, saying, “our courts have recognized the difference between property/casualty insurance and personal insurance by allowing the insured to maintain subrogation rights in a property insurance context … and limiting subrogation rights in personal insurance contexts.”

In the context of wildfire cases, Grotefeld said, the subrogation rights of the insurers have never been cut off, as Cahill has done here, “anywhere in the United States.”

Creed said there’s a simple way to clear up that legal question. On Wednesday, he filed a motion asking Cahill to have the Hawaii Supreme Court weigh in on whether the Yukumoto ruling extends “to property and casualty insurance carriers” and thereby bars the insurers from pursuing claims against the settling defendants.

Insurance Claims Paid Top HECO Settlement Offer

Beyond the legal question is one of fairness, the insurers say. Insurers had paid $2.3 billion in claims as of the end of June, and “every week, millions more are being paid out,” Grotefeld said. The Hawaii Insurance Division has reported that insured losses are estimated to reach $3.3 billion.

By contrast, under the proposed settlement, Hawaiian Electric Industries, which is widely accused of starting the fires, would pay $1.99 billion. 

“Asking the insurers to take $0 actually puts more responsibility on the insurance industry than on HECO,” the insurance industry lawyer said. “It actually holds us as ‘more responsible’ than the parties that caused the fire.”

In addition, Grotefeld said, the subrogation suits encourage wrongdoers to quit engaging in behavior that poses a threat to public safety.

“It’s by virtue of the cases that we bring that they make changes,” he said.

Will Hawaii Supreme Court Step In?

Creed, the victims’ liaison counsel, said the proposed settlement has given the defendants ample reason to change their behavior. Hawaiian Electric Industries, for example, has issued a statement to securities regulators announcing that it may no longer be able to continue as a going concern because of the $1.99 billion it has pledged to contribute. For its part, Kamehameha Schools has agreed to contribute more than $850 million. 

In light of this, Creed said the alleged wrongdoers don’t need subrogation suits to hold them accountable, adding that “$4.037 billion is accountability.”

As for the legal question at the heart of the dispute, Creed said the insurers “should join in the request to have the Hawaii Supreme Court decide” the central question.

If the subrogation issue can’t be resolved within nine months, the proposed settlement will terminate based on its terms, Creed wrote in his motion to send the question to the Supreme Court. 

“In the absence of resolution of these questions, sprawling litigation against core institutions of the State of Hawaii will ensue, jeopardizing their solvency and delaying much-needed resources from reaching the victims who need funds to rebuild the community,” he wrote.

Civil Beat’s coverage of Maui County is supported in part by a grant from the Nuestro Futuro Foundation.