Lahaina Fire Insurers Find a Way into Federal Court
Game Over for Hawaii’s Corrupt Political Insiders?
by Andrew Walden
In a September 26, 2024 motion, dozens of insurance companies who have paid out billions of dollars in Maui Fire claims are requesting to intervene in a fire-related Federal Class Action suit being heard before Judge Jill Otake. (Case 1:24-cv-00259-JAO-WRP)
Insurance company attorneys point out that “(State Judiciary) ‘global resolution settlement proceedings’ are a mere euphemism for a process that seeks to destroy the Subrogation Plaintiffs’ legal rights.”
The State Judiciary can be counted on to twist the law to serve KSBE and HECO. The Federal Judiciary doesn't even know who they are. Hence the mafia slogan, 'Defend Hawaii.'
Here are some key passages:
MEMORUANDUM IN SUPPORT OF MOTION
I. INTRODUCTION
In the aftermath of the devastating Lāhainā Wildfire, the insurance industry has collectively paid more than $2.3 billion to those individuals who suffered damage to their homes, businesses, and personal property. Those insurers (hereinafter the “Subrogation Plaintiffs”) have also compensated individuals for the costs of finding alternate housing and transportation, loss of business and rental income, and other expenses suffered because of the Fire. Importantly, the Subrogation Plaintiffs are not done paying claims, and expect to contribute approximately $1 billion in additional payments to aid recovery efforts.
Subrogation Plaintiffs are not parties to this class action proceeding, and their interests are not represented by the proposed interim class leadership. The proposed class definition explicitly excludes the Subrogation Plaintiffs; the Consolidated Complaint states that “insurers and insurance syndicates whose claims for damages regarding the August 8, 2023 Lāhainā Fire arise out of a right of subrogation, whether equitable, contractual, or otherwise” are “[e]xcluded from the Class[.]” While the class plaintiffs pursue recovery of their uninsured damages, the Subrogation Plaintiffs are entitled to pursue the underlying tortfeasors for recovery to the extent of the amount of their payments because “[s]ubrogation is an insurer’s remedy for torts against its insureds.”
Subrogation Plaintiffs have asserted their subrogation rights in state court and are actively pursuing recovery against the actual parties responsible for the Fire: the tortfeasor defendants. Since 1971, the Hawaiʻi Supreme Court has recognized that once an insured “had received insurance compensation for such damages, [the insured] was merely a nominal party” with respect to the ensuing subrogation claim. “Subrogation rights are common under policies of property or casualty insurance, wherein the insured sustains a fixed financial loss, and the purpose is to place that loss ultimately on the wrongdoer.” On that legal foundation, the Subrogation Plaintiffs and the proposed class members presently pursue separate and independent rights of recovery.
Even though the proposed class definition excludes subrogation claims, the proposed resolution of this class action proceeding now seeks to resolve and release all of the Subrogation Plaintiffs’ claims without their consent. On August 2, 2024, the tortfeasor Defendants — the parties who actually caused the Fire — and the proposed interim class leadership announced a “global settlement” which excludes Subrogation Plaintiffs from any recovery. An explicit term of the associated term sheet provides that the settlement “shall establish a framework to ensure it resolves and releases all Maui Fires Claims of any kind … including all subrogation claims by insurers that have been or could be brought[.]” On its face, the Term Sheet as drafted purports to provide the Defendants with an involuntary contractual release of Subrogation Plaintiffs’ claims. That tactic has been explicitly disallowed by controlling Hawaiʻi law, which provides “[w]here the insurer’s subrogation right clashes with the tortfeasor’s contractual release right, the insurer’s subrogation right will prevail[.]”
The proposed interim class leadership have explicitly represented to this Court that the class action litigation represents “an essential component of [the settlement’s] structure, by providing the necessary finality” required to resolve all claims. This is true because, to date, at least 88% of all property damage claims brought by the Subrogation Plaintiffs have no connection to any individual plaintiff who has filed a lawsuit in the parallel state court proceedings. (1) The “essential component” of the settlement provided by this class action proceeding is that it provides the settling parties with a procedural vehicle to release subrogated claims that cannot be tied to a specific individual plaintiff. In the state court proceedings, a group of settling plaintiffs’ attorneys explained the function of this class action proceeding in that context; stating that “[i]n light of the class actions currently on file and contemplated to be resolved by the Global Settlement, every policyholder is considered represented by all plaintiffs or class members.” Thus, the Defendants’ settlement of the proposed class action claims is intended to ensure that no subrogation claims will survive class certification.
The Defendants in this action — the parties who actually caused the Fire — clearly share the same understanding of this class action proceeding. In declining to oppose the appointment of class counsel, the Defendants report that the proposed interim class leadership seeks “appointment to help effectuate and in furtherance of the global resolution settlement proceedings.” Those “global resolution settlement proceedings” are a mere euphemism for a process that seeks to destroy the Subrogation Plaintiffs’ legal rights. Thus, as currently constituted, the actual function of this class action is to release claims that are explicitly excluded from the underlying class definition.
No party to this proceeding currently represents the Subrogation Plaintiffs’ interests, and all parties are demonstrably adverse to the Subrogation Plaintiffs’ claims. The attempt to release the Subrogation Plaintiffs’ claims using this class action device is obviously improper because a proposed class action may not bind non-parties. Furthermore, the purported relationship between the Subrogation Plaintiffs’ claims and unidentified class members is insufficient to release the Subrogation Plaintiffs’ claims in this forum because “preclusion based on identity of interests and some kind of relationship between parties and nonparties” represents a gross violation of the FRCP 23’s due process protections. In light of these plainly collusive efforts to prejudice the Subrogation Plaintiffs’ rights through this proceeding, intervention is warranted.
II. FACTUAL AND PROCEDURAL BACKGROUND
On the morning of August 8, 2023, foreseeable winds snapped an overloaded utility pole; causing the attached electrical conductors to fall to the ground. Inexplicably, the utility, Hawaiian Electric Company, chose to reenergize those downed electrical lines despite the obviously dangerous conditions on the island. Those conductors ignited a ground fire which spread to adjacent dried and overgrown flammable grasses located on land owned by Kamehameha Schools.
Less than a week later, on August 12, 2023, the proposed interim class leadership filed the first class action lawsuit in the First Circuit Court of the State of Hawaiʻi. The state court class actions were subsequently removed to Federal Court pursuant to the Class Action Fairness Act in November of 2023.
Subrogation Plaintiffs filed their Complaint in the same First Circuit Court on January 12, 2024. Subrogation Plaintiffs’ Complaint made allegations that differed in form and substance from the proposed class action complaint, but did not assert any new state law causes of action.
Separately, the Hon. Peter T. Cahill, a judge sitting in the Second Circuit Court, assumed jurisdiction over a special coordinated proceeding brought by a different group of individual action plaintiffs. As part of that proceeding, Judge Cahill ordered the parties before him into mediation.
Although Subrogation Plaintiffs were not parties to the coordinated proceeding, they attended and participated in several mediation sessions with mediators the Honorable Lou Meisinger, the Honorable Dan Buckley and Keith Case Hunter. At the conclusion of mediation, the Mediators presented all Plaintiffs with a single, global settlement figure and a mandate that Plaintiffs determine how to allocate it amongst themselves. The Plaintiffs and Defendants did not determine the settlement amount or the payment terms through arms-length bargaining, and the Plaintiffs were not told the amount each Defendant was contributing to the total settlement pool. Instead, the settlement figure was presented by the Mediators on a take-it-or-leaveit basis, and all requests for additional information about how the figure was determined were denied.
Throughout June and July of 2024, the parties attempted to negotiate an equitable allocation of the proposed settlement proceeds. During negotiations, Subrogation Plaintiffs repeatedly requested some form of documentation that could be used to calculate the actual amount of uninsured property and personal injury damages claimed by the other plaintiff groups. Despite repeated requests, documentation supporting the other plaintiffs’ damage claims was never produced. As a result, negotiations failed due to lack of transparency surrounding the Individual Plaintiffs’ damage claims.
On July 23, 2024, after the failure of the global mediation, Cynthia Wong, Esq., Liaison Counsel for Individual Plaintiffs, requested an “urgent” status conference with Judge Cahill regarding mechanisms to resolve purported insurance subrogation liens. In response to the letter, Judge Cahill set a status conference for all Maui Fire Cases for July 26, 2024. Subrogation Plaintiffs, who were not parties, did not participate.
The status conference was a highly irregular proceeding. At 9:05 a.m. Judge Cahill recessed the hearing and held a private in-chambers meeting with certain attorneys for the Individual Plaintiffs and the Defendants in this action. That in-chambers meeting was not open to the public and was not livestreamed on the Hawaiʻi State Judiciary’s YouTube channel. At 9:57 a.m. Judge Cahill reconvened the public hearing and discussed a “plan” or an “idea” developed during the meeting.
Approximately 30 minutes later, at 10:28 a.m., Judge Cahill issued a “sua sponte” order finding that it had “jurisdiction, authority, and legal duty to review and resolve subrogation liens” associated with the Lahaina Fire and setting an associated briefing schedule for a hearing on August 13th. No specific “subrogation liens” were identified as part of the sua sponte order, and no subrogation liens have been filed as part of this action. The sua sponte order further acknowledged that the Subrogation Plaintiffs were not “named as parties” in that proceeding and did not receive notification of the court’s proceedings.
Then, on August 2nd, proposed interim class leadership announced a “global settlement” with Defendants that excluded Subrogation Plaintiffs from any recovery. Moreover, the proposed settlement was specifically conditioned upon the settling Plaintiffs obtaining a “final and unappealable” order fully resolving all claims that “have been brought or could have been brought by the Subrogation Plaintiffs.” In effect, the proposed settlement represents an agreement between and among the Defendants and the settling plaintiffs to enrich themselves by eliminating the Subrogation Plaintiffs’ legal rights and splitting the proceeds.
The associated Term Sheet filed in connection with the settlement does not state the amounts each Defendant will contribute to the total settlement pool; nor does it include any evidence of each Defendant’s capacity to pay damages. The Motion and Term Sheet further do not provide any calculation of the Individual Plaintiffs’ claimed damages. All discovery was subsequently continued indefinitely; meaning Judge Cahill has never heard any evidence regarding either the ability of the Defendants to pay tort claims or the actual amount of uninsured property and personal injury damages.
That same day, the settling plaintiffs filed a motion seeking a ruling that the Subrogation Plaintiffs exclusive remedy for recovery was to seek reimbursement from their own insureds pursuant to HRS § 663-10. After hearing argument on August 19, 2024, Judge Cahill found that he possessed exclusive jurisdiction to review and resolve any and all subrogation liens “in the event the global settlement of the Maui Fires claims between Plaintiffs and Defendants becomes effective.” Judge Cahill further ruled that “to the extent the global settlement” becomes effective, the “Subrogating Insurers are barred from bringing or maintaining any independent claims against settling third party tortfeasors[.]”
In an effort to obtain a “final and unappealable order,” the settling parties sought leave to file an interlocutory appeal of Judge Cahill’s order. Notably, at oral argument on August 30, 2024, Judge Cahill orally agreed with Subrogation Plaintiffs that, because there were no liens or interventions filed in the Second Circuit, the Subrogation Plaintiffs were not parties to that action. Thus, although the court and the parties have engaged in a number of highly unusual procedures ostensibly designed to obtain jurisdiction over the Subrogation Plaintiffs, there are currently no valid orders impacting the Subrogation Plaintiffs’ filed claims. The use of this class action proceeding to dispose of Subrogation Claims is thus simply an extension of a months-long litigation pattern of procedural maneuvering intended to deprive Subrogation Plaintiffs of their legal rights.
Finally, on September 11, 2024, Judge Cahill reserved certain questions of state law for Hawai’i Supreme Court review pursuant to HRAP 15(a). The Hawaiʻi Supreme Court accepted review of the reserved questions on September 26, 2024 and established a briefing schedule that extends through the end of the year….
read … Full Memo
Footnote: (1) Subrogation Plaintiffs have reviewed the complaints for every filed lawsuit relating to the Maui wildfires in State Court. Only 12% of the total dollar amount of property damage claims brought by Subrogation Plaintiffs matches both an insured name and an insured address listed in one of those State Court filings.