Maui Fire Victims Sue Insurers To Make Sure They Get Fully Paid In Any Settlement

A group of Maui wildfire victims has sued several of Hawaii’s largest insurance carriers, alleging the insurers are wrongly seeking compensation from a limited litigation settlement fund before the fire victims are fully compensated for their damages.

The suit, which was filed Friday in Circuit Court on Maui, is important because it centers on what sources say is the main obstacle preventing a global settlement of nearly 500 lawsuits related to the Aug. 8 fires, which destroyed much of Lahaina and killed 102 people. 

Defendants in the wildfire litigation include Hawaiian Electric Industries and its utility subsidiaries, the State of Hawaii, Maui County, Hawaiian Telcom, Spectrum Communications and Kamehameha Schools.

Following a week-long mediation session in late June, a Los Angeles-based mediator proposed a global settlement of the litigation. Plaintiffs would have received more than $4 billion under the agreement, sources familiar with the litigation say. 

The mediator had set a Friday deadline for the parties to agree to participate in the settlement.

While most of the defendants were on board ahead of Friday’s deadline, there was, sources say, one major sticking point: how plaintiffs — specifically insurers versus fire victims — would divide proceeds of the proposed settlement.

Insurers have paid out billions of dollars in claims so far and, in separate so-called subrogation lawsuits, have said they should be reimbursed for the claims they’ve paid before all the individual plaintiffs are completely paid off for their damages. But plaintiffs say they are the real victims of the fire and that they should be made whole before insurers get paid. 

With the insurers and individual plaintiffs at an impasse, Friday’s deadline passed without a deal, and the plaintiffs filed their suit. Sources familiar with the litigation say the suit could help break the impasse.

Central To Suit Is Made-Whole Doctrine

Central to the complaint is a legal principle known as the “made-whole doctrine.” It holds that in the context of mass catastrophes like the Maui fire, the insurers can’t seek to enforce or recover funds under their subrogation rights until each has shown that all their insureds have been made whole for losses as a result of the catastrophe. 

The suit alleges that the insurers sought to jump ahead of fire victims with subrogation lawsuits that are contrary to Hawaii’s made-whole doctrine. A central theme in the complaint is that the insurance companies are motivated by greed, putting their profits ahead of fire victims.

“After having made $4.2 billion in profits over the past 10 years in one of the most lucrative insurance markets in the entire nation, Hawaii’s insurance industry seeks a ‘refund’ of payments they made to their premium-paying customers under contract,” the suit alleges. “This refund is in the guise of a ‘subrogation’ action that in effect seeks to recover money from a limited settlement fund before each and every one of their insureds — who are the only real victims of the Maui Fires — has been fully compensated. 

“Hawaii’s insurance industry’s bad faith subrogation claims represent a gross departure from Hawaii law and the ‘spirit of aloha’ in the name of profits,” the complaint adds. 

Named as defendants are two of the largest Hawaii-based insurers, First Insurance and Zephyr Insurance. First Insurance spokeswoman Kaela Wasnich did not return a call for comment. Zephyr declined to comment.

Suit Recounts Stories Of Loss — And Insurance Payments

The complaint was filed by Jesse Creed, a Los Angeles-based lawyer who serves as one of the lead attorneys in the litigation as one of the plaintiffs’ liaison counsel. Creed also declined to comment. 

Still, Creed’s complaint recounts the heart-rending stories of several plaintiffs who received payments from insurance companies but still have not been made whole for their losses. The stories also illustrate the nature of the dispute holding up the global settlement.

Among the stories is that of Nelda Pagdilao. She saved herself, but her husband, Pablo Pagdilao, who was paralyzed and unable to flee, died in the fire, the complaint says. 

“She lost her home where she raised her four children and their own young families,” the complaint says. “She lost her entire Lahaina community. Her husband, her home and her community perished in the Maui Fires.”

She filed a claim with her insurer, First Insurance, which paid Pagdilao up to her policy limits but not enough to cover her losses. Because she hasn’t been fully compensated for her losses, the suit says, Pagdilao has filed suit against the defendants in Maui court. 

“Mrs. Pagdilao seeks recovery for losses that her property insurance coverage did not cover or that exceeded her policy limits, including her wrongful death losses arising out of the death of her husband Mr. Pagdilao, severe emotional distress for having lived through the Lahaina Fire, the costs to rebuild her home which far exceed her insurance coverage, loss of use and enjoyment of her property and alternative living expenses that are estimated to far exceed her policy coverage given the length of time it will take to rebuild her home and the Lahaina community,” the complaint says. 

It says that First Insurance — along with more than 100 others — have sought to recover the compensation paid to the victims like Pagdilao.

“These insurance companies raced to the courthouse without any investigation or inquiry into — let alone a judicial determination of — whether their insureds had been fully compensated or made whole for their losses,” the suit alleges. “In fact, FICOH knows full well that Mrs. Pagdilao has not been made whole when FICOH paid its full policy limits to Mrs. Pagdilao.”

The suit also gets to the crux of the financial issue facing the plaintiffs and defendants, referred to as “tortfeasors,” as they try to craft a settlement.

“The insurers know full well that any settlement of the Lahaina Fires will consist of a limited fund due to the solvency concerns and limited assets and insurance coverage of the Tortfeasors,” the complaint says. “Because the limited fund is expected to be insufficient to cover the full losses of all Maui Fire victims, the insurers know that any money they take from the limited sources of recovery is money that effectively comes from Mrs. Pagdilao and their other insureds.” 

Among other things, the suit asks the court to make sure individual victims are made whole before the insurers can receive money for the claims they have paid out.

Beyond the legal questions raised in the complaint are practical ones about what the complaint will mean for the broader settlement talks: specifically, whether the complaint will motivate the insurers to negotiate an agreement individual plaintiffs can live with over how to divide the more than $4 billion proposed for the plaintiffs.

The mediator, Louis Meisinger, has extended the deadline for the parties to reach an agreement until Wednesday.