Insurers object to order preventing lawsuits

Attorneys for more than 160 insurance companies claim that a Maui judge’s decision barring them from suing any party thought to be responsible for last year’s Maui wildfires has no precedent around the country.

“I don’t know of any state where we’re dealing with an attack on an insurance industries’ ability to seek recovery like we’re seeing in the court in Hawaii,” attorney Mark Grotefeld, who litigates insurance-related cases around the country, told the Honolulu Star-Advertiser.

The ability of property insurance companies to sue those found to be responsible for the Maui wildfires aligns with a standard industry practice needed in order to recoup some of the $2.3 billion already paid to policy holders on Maui, Grotefeld said. The insurance companies expect to pay out another $1 billion in property losses connected to the Aug. 8, 2023, wildfire that killed 102 people, decimated the heart of Lahaina and destroyed more than 3,500 structures, most of them homes.

In more than 30 years of practice, Grotefeld said he has seen successful lawsuits that have led to criminal charges and changes designed to prevent future disasters.

Grotefeld was involved in litigation against California utility Pacific Gas & Electric Co. following the 2010 explosion of a natural gas line in the Bay Area community of San Bruno that killed eight people and injured 58 others, and destroyed 38 homes and damaged dozens of others.

The National Transportation Safety Board in 2011 cited more than 100 violations by PG&E, and a federal jury in 2016 found it guilty of “multiple willful violations of the Natural Gas Pipeline Safety Act of 1968 (“PSA”) and obstructing an agency proceeding,” according to the U.S. Department of Justice at the time.

Last week on Maui, Judge Peter Cahill — chief judge for Hawaii’s 2nd Circuit Court — gave an Oct. 31 deadline for the insurance companies to decide between two options connected to a proposed $4 billion global settlement agreed to by attorneys for fire victims and entities blamed for the fire in hundreds of lawsuits: Give up their ability to sue the entities they believe are responsible or assess liens on policy holders of destroyed or damaged properties who may receive payment through insurance and settlements in excess of what is regarded as fair compensation.

The insurance companies do not want to go after their policy holders, according to Grotefeld.

“The property insurers are concerned they will not be able to pursue their independent rights of recovery against the parties responsible for causing the loss,” Grotefeld and his colleague, Vincent Raboteau, wrote in an email following a nearly two-hour interview with the Star-Advertiser.

Pursuing recovery

In court documents filed in Honolulu Circuit Court, the insurance company attorneys allege that those responsible for igniting the wildfires are Hawaiian Electric, Kamehameha Schools and three telecommunication companies.

Only Kamehameha Schools responded to requests for comment.

“Kamehameha Schools remains focused on participating in the global settlement to ensure the restoration of Lahaina’s people and community, to protect Ke Ali‘i Pauahi’s trust, and to offer future opportunities and hope,” it said in a statement. “We broadly support the settlement framework and respect the legal process that is now moving it forward. What’s most important is that all parties come together to ensure Lahaina’s full recovery.”

Grotefeld told the Star-­Advertiser that, “The insurers want to pursue recovery against the parties that caused the fire. They don’t want to seek recovery from their customers. We aren’t suing the state of Hawaii. We are not suing the County of Maui. We are suing the parties we believe proximately caused this fire that led into Lahaina.”

The standoff threatens to unravel the proposed $4 billion settlement announced by Gov. Josh Green days ahead of the one-year anniversary of the nation’s deadliest wildfire disaster in over a century.

The settlement would resolve more than 650 lawsuits filed in state and federal courts and would be funded by Hawaiian Electric, the state, Maui County, Kamehameha Schools, West Maui Land Co., Spectrum Oceanic LLC and Hawaiian Telcom.

Under the tentative settlement, Hawaiian Electric would pay $1.99 billion, Kamehameha Schools would pay $872.5 million and the state would pay around $750 million. Amounts by Maui County and other defendants have not been disclosed, but add up to about $400 million.

Unless there’s a resolution, the terms of the tentative settlement would expire 90 days from Aug. 2.

Asked what will happen if there’s no agreement by the deadline, Grotefeld and Raboteau said in their follow-­up email that, “We don’t want to speculate. The property insurers will continue to participate fairly in the litigation focusing on what is in the best, long-term interest of our policyholders and the residents of Hawaii.”

What lies ahead

Whatever happens next has broader implications for insurance customers on all islands, especially for dry leeward areas under growing threat of brushfires and drought.

Already it’s hard for homeowners in Hawaii island’s Puna District to find — let alone pay for — insurance for threats of fire, volcanic eruptions and hurricanes, said state Rep. Greggor Ilagan, (D, Hawaiian Paradise Park-Hawaiian Beaches-Leilani Estates).

During the last legislative session, Ilagan introduced 10 bills in an attempt to help homeowners in need of insurance in Puna and across the state.

Most of Ilagan’s bills were specific to Puna’s Lava Zones 1 and 2, where lava from a Kilauea Volcano eruption inundated the Leilani Estates subdivision in May 2018 before suddenly slowing, then stopping four months later.

In between, 723 structures were wiped out, including an estimated 200 primary residences. Property owners filed 152 insurance claims from the Kilauea eruption totaling $35 million, Ilagan said.

As a result, last year Universal Property & Casualty announced it was pulling out of the Hawaii market, leaving no company to underwrite new policies in Lava Zones 1 and 2, Ilagan said.

So having insurance companies issuing policies on Maui object to the terms of the proposed global settlement leaves Ilagan “extremely worried” about what could happen for policy holders across all of the islands.

“We definitely need to do something to stabilize the market,” Ilagan said. “We have to find some solutions, but here we are now. The Legislature is starting to realize that insurance is going to be a huge problem. It’s not going to be affordable. It’s going to be very expensive and the problem we have in Lava Zones 1 and 2 are now being experienced in Maui.”

Discussions are under way ahead of the next legislative session to possibly draft bills to cap insurance premiums or otherwise help consumers buy affordable insurance policies.

But Ilagan has seen first hand what happened in Puna.

“Capping premiums is not something that private entities like insurance companies will welcome with big arms,” he said. “They are going to feel that Hawaii is a very restrictive, small market, certainly compared to much larger markets like California and Florida where they’re already leaving.”

Following the Maui wildfires, Ilagan expects insurance companies that remain in Hawaii “are going to be much quicker to analyze where the risks are” and adjust premiums accordingly.

Asked about the possibility that the Maui wildfires could trigger an exodus of insurance companies, Grotefeld said “insurers aren’t leaving the islands because of that single event.”

But future disasters in Hawaii, including wildfires, “could very well lead, ultimately, to increased premiums for the insured,” Grotefeld said. “I’m not saying it will, but it could. It certainly won’t help, put it that way.”

Insurance companies typically buy insurance of their own on the global market to help cover payouts to policy holders in an industry practice known as “reinsurance.”

But Ilagan said that companies that sell reinsurance are also growing skittish following billion-dollar payouts in the aftermath of disasters that are increasing in frequency and severity around the planet.

Ability to sue

Grotefeld said the ability to buy reinsurance also hinges on insurance companies’ abilities to sue those responsible for damages in a practice known as “subrogation.”

“It’s a cornerstone of the insurance industry,” he said.

Grotefeld stressed that the ability to sue has led to safety innovations.

Following his work in the San Bruno explosion, Grotefeld said PG&E “changed the way it insulates conductors.”

Cases he handled in Florida also led to changes in construction and permitting practices, Grotefeld said.

In Texas, where he lives, Grotefeld said utilities there now seek “our guidance in assessing their risk. If you take the right of recovery away from insurers, the costs of insurance will rise significantly because insurers won’t be able to go after at-fault parties.”

But even successfully suing those responsible for disasters does not prevent future ones.

A federal jury eventually convicted PG&E of six felony charges connected to the 2010 San Bruno pipeline explosion. It was punished with a $3 million fine, five years of probation, independent safety monitoring and 10,000 hours of community service.

PG&E also had to buy full-page newspaper ads and 60-second television commercials outlining to the public what it planned to do to prevent similar crimes and disasters, according to news reports at the time.

But while still on probation for the San Bruno explosion, PG&E then pleaded guilty to 84 felony counts of involuntary manslaughter for the 2018 Camp Fire that destroyed the Northern California town of Paradise, whose recovery continues and has provided guidance for what lies ahead for Maui.

“Those that are attempting to demonize the insurance industry are doing no favor to the fire victims,” Grotefeld said. “And trying to demonize the insurance industry does nothing to try to resolve this case.”