Hawaii court blocks insurance companies’ legal claims in Maui wildfire, allowing $4 billion settlement to proceed

Hawaii’s Supreme Court ruled Monday that insurance companies can’t bring their own legal actions against those blamed for Maui’s catastrophic 2023 wildfire, allowing a $4 billion settlement that was on the verge of collapse to proceed.

Other steps remain in finalizing the deal between thousands of people who lodged lawsuits and various defendants, including Hawaiian Electric Company.

The massive inferno that was the deadliest in the U.S. in more than a century decimated the historic town of Lahaina, killing more than 100 people, destroying thousands of properties and causing an estimated $5.5 billion in damage. Soon afterward, attorneys began lodging hundreds of lawsuits.

A settlement was announced last summer, but insurance companies held out, insisting that they should have the right to go after the defendants separately to recoup money paid out to policyholders.

Monday’s ruling resolves a key roadblock to finalizing the deal and sends the case back to a Maui judge to determine next steps.

Insurance companies that want to recoup billions paid to policyholders by pursuing legal action against the defendants said in a statement they’re disappointed, but didn’t say whether they’ll seek review at the U.S. Supreme Court.

A key question that was before Hawaii Supreme Court was whether state laws controlling health care insurance reimbursement also apply to casualty and property insurance in limiting companies’ ability to pursue independent legal action against those held liable. The justices answered yes.

Plaintiff lawyers were worried allowing insurers to pursue reimbursement separately would be a deal-breaker, drain what is available to pay fire victims and lead to prolonged litigation.

Gerald Singleton, one of the many attorneys representing the plaintiffs, said they’re still trying to make sense of the ruling but are pleased with it. “Now the settlement can take the next step forward,” he said.

A few days before the one-year anniversary of the Aug. 8, 2023, fire, Gov. Josh Green announced that seven defendants accused of causing the tragedy had agreed to pay $4 billion to resolve claims by thousands of people. They include the main defendant, Hawaiian Electric, as well as the state of Hawaii, Maui County and Kamehameha Schools, the largest private landowner in Hawaii.

Attorneys representing the individual plaintiffs agreed to the deal amid fears that main defendant Hawaiian Electric, the power company blamed for sparking the blaze, could be on the brink of bankruptcy.

Victims’ attorneys acknowledged that $4 billion wasn’t enough to make up for what was lost but said the deal was worth accepting, given Hawaiian Electric’s limited assets.

“They need every penny to restitch the fabric to bring the community back together,” attorney Jesse Creed told the justices during a hearing before the state Supreme Court last week.

Creed said he could relate to the losses the victims face because his own home, children’s schools and place of worship just burned in the Palisades fire, one of the wildfires that brought widespread destruction around Los Angeles last month.

“Today’s decision will help our people heal much sooner, as we continue to rebuild and recover,” the governor said in a text message to the AP. Green had previously denounced as unfair insurance companies’ moves to recoup money they’ve paid to policyholders in a legal process that’s called “subrogation.”

Subrogation is one way companies recover the amount of claims paid to policyholders.

Insurance companies say subrogation is a way to offset costs associated with a catastrophic event so premiums won’t have to go up. The process isn’t for natural disasters such as hurricanes, but for when there is someone at fault.

So far they have paid more than $2.3 billion to people and businesses affected by the Maui tragedy and expect to pay $1 billion more.

Subrogation is “vital to a healthy and stable insurance market,” and allows insurers to hold at-fault parties legally and financially accountable,” the insurance companies said in their statement reacting to the ruling: “Preserving the rights of insurers to utilize subrogation is of importance to the insurance industry, and is ultimately beneficial to all policyholders and residents statewide.”

Jacob Lowenthal, another attorney representing the individual plaintiffs, said the ruling doesn’t totally prevent insurance companies from getting reimbursed. Instead of going after the defendants, insurers will have to prove to a judge that they deserve to be reimbursed because a policyholder received money from the settlement that was more than their claim.

Now that the ruling answered the subrogation question, work can focus on the administrative claims process to determine awards based on facts of each case, he said.

“The Hawaii Supreme Court’s ruling was the correct outcome,” Lowenthal said. “The resolution of this critical issue allows the global settlement to now move forward, putting money into the hands of the Maui fire victims sooner than later.”

—Jennifer Sinco Kelleher, Associated Press

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