What to know about what’s tying up a $4B settlement for Hawaii wildfire victims

(Jae C. Hong, Copyright 2023 The Associated Press. All rights reserved)
FILE – A general view shows the aftermath of a devastating wildfire in Lahaina, Hawaii, Aug. 22, 2023. (AP Photo/Jae C. Hong, File)
HONOLULU – Hawaii’s Supreme Court is set to hear arguments Thursday over insurance issues that are tying up a potential $4 billion settlement over Maui’s catastrophic 2023 wildfire, the deadliest in the U.S. in more than a century.
The massive inferno 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.
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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.
Here are things to know about the settlement and the issues that could thwart the deal:
The settlement won’t be enough
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.
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. Other defendants include the state, Maui County and Kamehameha Schools, the largest private landowner in Hawaii.
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.
Legal wrangling threatens the deal
Attorneys for the victims asked Judge Peter Cahill to bar insurance companies from going after the defendants separately to recoup money — a requirement that was key to the settlement. Cahill agreed, saying insurers could seek reimbursement only from the $4 billion pool the defendants have already agreed to pay.
That didn’t sit well with a group of about 200 property and casualty insurers that remain holdouts to the settlement. So far they have paid more than $2.3 billion to people and businesses and expect to pay $1 billion more. They want to be able to pursue their own claims against the defendants.
Cahill has asked the state high court questions about subrogation, or how insurance companies can go about recouping money.
Among the issues before the court is 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.
It’s not clear when the justices will issue a ruling.
A last-minute deal between victims’ lawyers last week averted a separate trial over how to split the $4 billion between individual plaintiffs and others covered by a class-action lawsuit. Some victims had been ready to take the witness stand, while others submitted pre-recorded testimony describing pain made all the more fresh by the recent destruction in Los Angeles.
What is subrogation?
Common in the insurance industry, subrogation is a legal process that allows an insurance company to pursue a party that caused a covered loss. It’s 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.
Hawaii’s governor has previously denounced subrogation.
When insurance companies collect huge profits and no disasters occur, they don’t send refunds back to policyholders, Green noted in comments quoted in court filings. But when a tragedy does happen, they look to recoup their payments to the victims.