353 P.3d 991
Haw.2015Background
- St. Paul (excess insurer) and Liberty Mutual (primary insurer) both insured Pleasant Travel for the same policy period; Liberty Mutual's primary policy limit was $1 million and St. Paul provided excess coverage above that limit.
- An underlying wrongful-death suit resulted in liability against Pleasant Travel and a $4.1 million verdict, later resolved by confidential settlement for an amount above Liberty Mutual's $1 million limit; St. Paul alleges it paid the excess portion.
- St. Paul contends Liberty Mutual, which controlled the defense and had paid its policy limits, refused multiple pretrial settlement offers within its $1 million limit in bad faith.
- St. Paul sued Liberty Mutual alleging bad-faith failure to settle; Liberty Mutual removed the action to federal court and moved for judgment on the pleadings arguing St. Paul lacked standing and could not pursue equitable subrogation.
- The U.S. District Court certified a question to the Hawai‘i Supreme Court: whether an excess insurer may bring an equitable-subrogation claim against a primary insurer who (despite paying policy limits) acted in bad faith by failing to settle within those limits.
- The Hawai‘i Supreme Court answered: an excess insurer may pursue equitable subrogation against a primary insurer who in bad faith fails to settle within primary limits even if the primary insurer paid its policy limit toward settlement.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Can an excess insurer sue a primary insurer via equitable subrogation for bad-faith refusal to settle within primary limits? | St. Paul: Yes — it may "step into the insured’s shoes" and assert the insured’s claim because it paid the excess and the primary insurer breached its duty to the insured. | Liberty Mutual: No — St. Paul lacks standing; it paid its own contractual obligation and did not discharge Liberty Mutual’s liability, so equitable subrogation is unavailable. | Yes — Hawai‘i permits equitable subrogation here when the primary insurer in bad faith fails to settle within limits, even if the primary paid its policy limit. |
Key Cases Cited
- Peters v. Weatherwax, 731 P.2d 157 (Haw. 1987) (defines equitable subrogation as an equitable remedy to secure justice when one pays a debt another primarily owed)
- Best Place, Inc. v. Penn Am. Ins. Co., 920 P.2d 334 (Haw. 1996) (insurer owes insured a duty of good faith and unreasonable refusal to settle can be breach)
- Delmonte v. State Farm Fire & Cas. Co., 975 P.2d 1159 (Haw. 1999) (insurer may be liable for entire judgment if refusal to settle was unreasonable)
- Valentine v. Aetna Ins. Co., 564 F.2d 292 (9th Cir. 1977) (excess insurer may step into insured’s shoes to enforce primary insurer’s duty to avoid excess judgments)
- Hartford Accident & Indem. Co. v. Aetna Cas. & Sur. Co., 792 P.2d 749 (Ariz. 1990) (recognizes excess insurer’s subrogation claim against primary insurer for bad-faith failure to settle)
- Commercial Union Ins. Co. v. Med. Protective Co., 393 N.W.2d 479 (Mich. 1986) (supports permitting excess carriers to sue primary carriers for wrongful refusal to settle within limits)