On June 7, 2013, the HAWSCT issued an opinion in Shilo Willis v. Craig Swain, First Insurance Company of Hawaii, Ltd., No. SCWC-29539, a case we designated as a writ to watch here, on the issue of whether an insurance company owes a duty of good faith in the absence of a contractual relationship related to a claim under the Hawaii Joint Underwriting Program (HJUP). The court answered the question in the affirmative, holding that “the insurer’s good faith covenant implied in such motor vehicle policies applies to claimants under the assigned claim procedure irrespective of the absence of a written insurance policy." Slip. Op. at 2.
The underlying case involved a rear-end motor vehicle collision. Willis was a passenger in the uninsured vehicle that rear-ended another vehicle. At the time of the accident, Willis had been issued a certificate policy under HJUP. The claim was assigned to First Insurance. First Insurance denied her claim because the policy did not include uninsured motorist coverage.
Specifically, the HAWSCT held:
(1) “under the assigned claims procedure of the State of [(HJUP, HRS § 431:10C-408)], the insurer assigned to a claim owes the same rights and obligations to the person whose claim is assigned to it as the insurer would owe to an insured to whom the insurer had issued a motor vehicle mandatory public liability and property insurance policy” (Slip. Op. at 1-2),
(2) “the insurer’s good faith covenant implied in such motor vehicle policies applies to claimants under the assigned claim procedure irrespective of the absence of a written insurance policy” (Slip. Op. at 2),
(3) Willis was owed a duty of good faith by First Insurance, and
(4) whether First Insurance violated the duty of good faith was a question of fact that still needs to be addressed by the trier of fact, therefore, the court remanded the case.
The court based its decision both on the statutory language of HJUP and public policy. According to the court, the statutory language “reflects a clear legislative intent that such claimants are entitled to the same protections as policyholders, including having their claim considered in good faith.” Slip. Op. at 23. As to public policy, the court explained that allowing bad faith tort claims in this type of situation is in accord with the general policy to “ensure the insured receives the necessary compensation for all damages suffered as a result of insurer misconduct.” Slip. Op. at 24.
The court also emphasized the first-party relationship between Willis and First Insurance, and explained that a contract is not a prerequisite to a bad faith claim. “[T]o hold that the insurer does have a duty of good faith toward its insured but that a tort of bad faith does not lie because the insured lacks a contract would be to recognize a duty that cannot be enforced.” Slip. Op. at 33.
Circuit Judge Chang, sitting by reason of vacancy, issued an concurring and dissenting opinion stating “I am unable to agree with the expansion of Hawaii’s bad faith law from a contract based cause of action to include relationship based causes of action.”
The HAWSCT’s full opinion (authored by Justice Acoba) is available here.
Judge Chang’s concurring/dissenting opinion is available here.