There have been a lot of sharp words in the news lately surrounding a $4 billion “global settlement” relating to financial responsibility for the Maui wildfires. Homeowners’ property insurance has paid fire victims more than $2.3 billion and expect to pay $1 billion more, according to Property Insurers for Hawaii, a coalition of more than 160 insurers. The so-called global settlement puts together about $4 billion that seven defendants, including Hawaiian Electric, Bishop Estate, and state government, have agreed to pay and that the individual plaintiffs’ attorneys seem to be willing to accept.
The wrinkle, however, is that property insurers have “subrogation rights.” Almost all property insurance policies provide that if an insurer pays a claimant under its policy, it then succeeds to the claimant’s rights to sue whoever caused the damage. If the damage was purely caused by a natural disaster such as a hurricane, the subrogation rights aren’t worth much. But if the facts point to legal fault of one or more bad actors, then the insurers can try to recoup the money they have paid out from those bad actors. If the insurers are able to do that, the cost of insurance goes down except perhaps for the bad actors, who are then motivated to change their behavior so that they aren’t found to have fault in the future. So, in January more than 140 insurers filed a separate lawsuit in Circuit Court in Honolulu to do this.
Recently, the legal infighting has focused on these subrogation rights and whether the settlement process can force the insurers to give these up. Plaintiffs’ attorney Jesse Creed is quoted as saying, “At every step of the way we are facing obstacles and challenges from the insurance industry, every step of the way. They fought us every step of the way because they don’t want to see this settlement happen. They’ve rejected the settlement.” Governor Green also weighed in, saying that it is disappointing “that mainland insurance companies continue to demonstrate their contempt for the people of Hawaii as they put profits ahead of people.” The insurers, however, maintain that they have legal rights and are simply enforcing them.
This legal problem seems to be created by plaintiffs’ attorneys. They drafted a class action complaint that specifically excludes insurers, but in the global settlement terms they are insisting on releases of any insurers’ subrogation rights. Perhaps they thought that Hawaii is far enough out in the woods that they could persuade our politicians and courts to approve a “deal” that stomps on the insurers.
Looking at the situation objectively, though, it’s clear that there is no agreement to settle the case. To have a settlement, all parties with legal rights must agree to release, or extinguish, those legal rights in exchange for something, such as money. Like it or not, insurers have legal rights, so they need to be part of the agreement. If the courts force the insurers to agree to the “deal” and give up their subrogation rights, it isn’t a settlement. It would mean that the legal system is forcing the property insurance industry and market to bear additional costs, which would then translate into either higher premiums or the exodus of the insurers from the market. This danger is not imaginary. We are already seeing drastic changes in the condominium insurance market, enough for the Governor to issue emergency proclamations regarding condominium insurance stabilization.
Instead of name-calling and getting worked up before TV cameras, it’s time to go back to the bargaining table. There are new reports and evidence coming out that must be considered. It’s possible to negotiate a settlement fair to everyone involved, so let’s do it.