Opinion
No. SCWC–29539.
2013-06-27
Shilo WILLIS, Petitioner/Plaintiff–Appellant, v. Craig SWAIN, First Insurance Company of Hawai‘i, Ltd., Respondents/Defendants–Appellees.
Fernando L. Cosio, for petitioner. Bradford F.K. Bliss, Honolulu, for respondent.
Fernando L. Cosio, for petitioner. Bradford F.K. Bliss, Honolulu, for respondent.
RECKTENWALD, C.J., NAKAYAMA, ACOBA, and McKENNA, JJ., with Circuit Judge CHANG, Assigned due to Vacancy, Concurring and Dissenting.
Opinion of the Court by ACOBA, J.
[129 Hawai'i 479]We hold that (1) under the assigned claims procedure of the State of Hawai‘i Insurance Joint Underwriting Program (JUP), seeHawai‘i Revised Statutes (HRS) § 431:10C–408 (Supp.1998), 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, HRS § 431:10C–403 (Supp.1998); (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; (3) accordingly, Petitioner/Plaintiff–Appellant Shilo Willis (Petitioner), who was assigned by the JUP Bureau to Respondent/Defendant–Appellee First Insurance Company of Hawai‘i, Ltd. (Respondent) under the assigned claim procedure, was owed a duty of good faith by Respondent; and (4) whether Respondent acted in bad faith in this case as alleged by Petitioner is a question of fact to be determined by the trier of fact. Therefore, we vacate the December 11, 2008 Final Judgment of the Circuit Court of the First Circuit (the court) and the March 9, 2012 judgment of the Intermediate Court of Appeals (ICA) filed pursuant to its February 3, 2012 published opinion in Willis v. Swain, 126 Hawai‘i 312, 270 P.3d 1042 (App.2012)( Willis III ), affirming the court, because both reflect holdings to the contrary. We remand this case to the court for proceedings consistent with this opinion.
The Honorable Eden Elizabeth Hifo presided.
The opinion was filed by Chief Judge Craig H. Nakamura, and Associate Judges Katherine G. Leonard and Lisa M. Ginoza.
I.
On February 10, 1999, Petitioner was a passenger in an uninsured vehicle that rear-ended another vehicle. The uninsured vehicle was owned and operated by Craig Swain. At the time of the accident, Petitioner, a public assistance recipient, owned her own vehicle, and had a certificate policy issued by the State of Hawai‘i Department of Human Services (DHS) through its JUP. Respondent was designated to adjust the certificate policy.
The certificate policy was in effect from July 2, 1998 through July 2, 1999, but did not include uninsured motorist coverage. Petitioner sought medical treatment for injuries resulting from the collision. Willis v. Swain, 112 Hawai‘i 184, 187 n. 6, 145 P.3d 727, 730 n. 6 (2006)( Willis I ). On July 21, 1999, Petitioner[129 Hawai'i 480]applied for assigned claims coverage under the JUP. On August 11, 1999, the JUP Bureau determined that Petitioner was entitled to receive benefits available under JUP, and assigned Petitioner's claim to Respondent. On December 28, 1999, Respondent denied Petitioner's request for coverage on the ground that, at the time of the accident, Petitioner had a certificate policy and that policy did not include uninsured motorist coverage.
It appears that, as a recipient of public assistance, at least some of Petitioner's medical expenses were paid by DHS. Willis I, 112 Hawai‘i at 187 n. 6, 145 P.3d at 730 n. 6.
The Joint Underwriting Plan Bureau is established pursuant to HRS § 431:10C–402 (1993), which provides:
§ 431:10C–402. Bureau. (a) The commissioner shall establish and maintain a joint underwriting plan bureau in the insurance division to receive, assign and supervise the servicing of all assigned claims and all applications for joint underwriting plan coverage.
(b) The commissioner shall adopt regulations for the operation of the bureau, the assignment of applications for joint underwriting plan coverage and assigned claims, and the inspection, supervision and maintenance of this service on a fair and equitable basis in accordance with this article.
(Emphases added.)
On February 9, 2001, Petitioner sued Respondent for breach of contract, bad faith refusal to pay liability coverage, misrepresentation, unfair claims practices, and unfair or deceptive acts or practices in violation of HRS § 480–2 (1993). On May 6, 2003, the court entered summary judgment in favor of Respondent with respect to all of Petitioner's claims. This court reversed and remanded for Respondent to “tender the appropriate benefits under the assigned claims program.” Willis I, 112 Hawai‘i at 191, 145 P.3d at 734. Respondent paid Petitioner the bodily injury liability policy limit of $20,000.
Petitioner did not raise the HRS § 480–2 claim in her appeal to the ICA or in her Application for Writ of Certiorari (Application), and therefore this statute is not relevant to this appeal and is not quoted.
Subsequently, Petitioner requested attorneys' fees and costs as the prevailing party in Willis I. Willis v. Swain, 113 Hawai‘i 246, 151 P.3d 727 (2006)( Willis II ). This court held that Petitioner was not entitled to attorneys' fees, but that she should be awarded costs. Id. at 250, 151 P.3d at 731.
On June 8, 2007, Petitioner filed a motion to compel Respondent to answer Petitioner's interrogatories, and to respond to Petitioner's requests for production of documents. On June 28, 2007, Respondent moved for summary judgment with respect to Petitioner's remaining claims for breach of contract, bad faith, misrepresentation, unfair claims practices, and unfair or deceptive acts or practices in violation of HRS § 480–2. Petitioner did not move for summary judgment, but filed an opposition to Respondent's motion.
As to Petitioner's bad faith claim, Respondent argued, in relevant part, that under Hawai‘i law there is no bad faith if an insurance company denies benefits based on a reasonable interpretation of the policy or based on an open question of law. Respondent contended that the fact that the court had previously granted summary judgment to it on the merits of Petitioner's claim for benefits (a decision ultimately reversed in Willis I) demonstrated that there was reasonable disagreement over the interpretation of the law as applied to the facts of this case. Thus, Respondent urged, there was an open question of law and Petitioner had no basis to pursue its bad faith claim.
Petitioner answered that whether Respondent had acted unreasonably was a question of fact, and as such, was not the proper subject of a motion for summary judgment. Petitioner also argued that if an insurer honestly believes that its policy does not provide coverage, it must bear the risk of making the wrong judgment. Petitioner noted that this court in Willis I had criticized Respondent's argument, calling it “absurd,” and thus, whether Respondent acted reasonably when it denied benefits on an irrational argument was a question of fact that precluded summary judgment.
Additionally, Petitioner argued that because Respondent had not answered some of Petitioner's interrogatories, produced requested documents, or allowed Petitioner to depose its claims adjusters, Petitioner's expert, a former adjuster for the JUP program for another insurance company, was unable to fully evaluate whether Respondent had [129 Hawai'i 481]denied coverage in bad faith. However, the expert averred in an affidavit submitted along with Petitioner's opposition, that according to his reading of Willis I and the practice of the insurance industry, Respondent had unreasonably denied coverage to Petitioner.
On August 20, 2007, Respondent filed supplemental memorandum in support of its motion for summary judgment, and Petitioner filed a supplemental memorandum in opposition to the motion for summary judgment. Attached to Petitioner's Reply to Respondent's Supplemental Legal Memorandum was another affidavit from Petitioner's expert. In the affidavit, Petitioner's expert averred:
1. I reviewed the documents which were produced to [Petitioner] in response to [Petitioner's] request for production of documents relating to [Respondent's] denial of benefits.
2. Based on the review of the above documents, it is my professional opinion that [Respondent] unreasonably denied the JUP assigned claim benefits to [Petitioner].
3. [Respondent] unreasonably denied the JUP assigned claim benefits because it did not, among other things, have any legal basis to deny said benefits.
4. The above-referenced records produced by [Respondent] also do not show that a sufficient investigation was undertaken by [Respondent] in connection to its denial of the JUP assigned claim benefits.
5. [Respondent] unreasonably and wrongfully denied the assigned claim when it unilaterally confused the purpose and application of a certificate policy and an assigned claim, which are separate and apart from one another.
6. Within the insurance industry and community, it is common knowledge and understood that a certificate policy does not negate a JUP assigned claim.
7. [Respondent] owed [Petitioner] a duty of good faith and fair dealing, as the insurance company who was assigned to adjust the JUP assigned claim by the State of Hawai‘i under the [JUP].
8. To the extent that the JUP assigned claims, essentially, operates as an insurance relief measure and is a substitute to the mandated automobile bodily injury coverage requirements of the State of Hawai‘i, [Respondent's] duty of good faith and fair dealing arises from [Respondent's] assigned role as a servicing carrier and an insurer under the [JUP], and as such does not depend, necessarily, on whether [Petitioner] was a party to any written contract.
9. [Respondent breached its duty of good faith and fair dealing when when [sic] it unreasonably and wrongfully denied [Petitioner] the JUP assigned claim benefits.
10. The above opinions are preliminary and subject to change whenever further documents are produced by [Respondent] and/or other facts are developed through further discovery in the underlying lawsuit against [Respondent].
(Emphases added.)
On October 3, 2007, the court granted Respondent's motion, concluding, in relevant part, that there was no contract of insurance between Petitioner and Respondent, and thus, there could be no cognizable claim of bad faith in the absence of a contract. The court further concluded that the published opinion of this court in Willis I settled an open question of law and therefore pursuant to Enoka v. AIG Hawai‘i Ins. Co., 109 Hawai‘i 537, 128 P.3d 850 (2006), there was no bad faith on Respondent's part. The court [129 Hawai'i 482]also granted Respondent's motion for summary judgment with respect to the remainder of Petitioner's claims. Upon granting Respondent's motion for summary judgment, the court held that Petitioner's motion to compel was moot and denied it.
The court's order stated, in relevant part:
It is undisputed that [Respondent] has paid all benefits that [Petitioner] is entitled to recover as an assigned claims claimant under the [JUP] pursuant to and in compliance with the Supreme Court's opinion in this case. By this Order this Court hereby grants summary judgment in favor of [Respondent] and against [Petitioner] with respect to all remaining claims alleged against [Respondent] in this action, including, without limitation, any claim for breach of contract, misrepresentation, negligent or intentional infliction of emotional distress, unfair claims practices, unfair or deceptive acts [or] practices in violation of [HRS] § 480–2 or bad faith. With respect to [Petitioner's] bad faith claim this Court concludes as a matter of law that there is no cognizable claim for bad faith in the absence of a contract. This Court further finds that the published opinion of the Hawai‘i Supreme Court in this case settled an open question of law and therefore pursuant to the Hawai‘i Supreme Court's opinion under analogous circumstances in Enoka v. AIG Hawai‘i Ins. Co., Inc.,109 Hawai‘i 537, 128 P.3d 850 (2006), there was no bad faith on the part of [Respondent].
(Emphasis added.)
II.
On Petitioner's appeal to the ICA, the ICA held that an underlying insurance contract was required in order to assert a claim of bad faith against an insurer, and because Petitioner's claims did not arise from an insurance contract, the court did not err in granting summary judgment on Petitioner's bad faith claim. Willis III, 126 Hawai‘i at 315–17, 270 P.3d at 1045–47. In light of that holding, the ICA declined to address whether the court erred in concluding that Respondent did not act in bad faith. Id. The ICA also concluded that in light of its holding that no bad faith claim could lie against Respondent, the court properly denied Petitioner's motion to compel. Willis III, 126 Hawai‘i at 317, 270 P.3d at 1047.
Petitioner expressly stated in her opening brief to the ICA that she was not appealing the court's decision to dismiss her claims for breach of contract, misrepresentation, and unfair claims practices. Petitioner mentioned her emotional distress claim to the ICA in her points of error, but did not make any argument to the ICA as to that claim. As a result, the ICA held that any argument regarding the court's dismissal of such a claim had been waived. Willis III, 126 Hawai‘i at 314, 270 P.3d at 1044. Petitioner does not take issue with that holding in her Application.
In addition, Petitioner argued that she could bring a bad faith claim against Respondent because she was an intended beneficiary of the JUP program. Petitioner does not assert this theory in her Application, and therefore this theory is not addressed further.
III.
Petitioner presents the following questions in her Application:
[1.] Whether the ICA correctly decided that [Respondent] did not owe a duty of good faith in the absence of a contractual relationship when HRS § 431:10C–403 specifically and clearly states that an assignee insurance company has the same obligations as though it had sold the policy. [2.] Whether [Respondent] owed [Petitioner] a duty of good faith pursuant to its insurer and insured relationship regardless of whether [Petitioner] purchased a conventional motor vehicle insurance policy from [Respondent]. [3.] Whether it is rational to exempt Hawai‘i insurance companies from acting in good faith when adjusting [JUP] assigned claims when they have an independent duty implied in law to act in good faith as fiduciaries with their insureds.
(Emphasis added.)
IV.
In 1973, Hawai‘i overhauled its insurance law and created a no-fault insurance scheme to govern motor vehicle accident reparations. Chapter 294 was enacted in order to “create a system of reparations for accidental harm and arising from motor vehicle accidents, to compensate these damages without regard to fault, and to limit tort liability for these accidents.” HRS § 294–1(a) (1974). According to the legislature, the “system of no-fault insurance can only be truly effective ... if all drivers participate at least to the extent required by law” HRS § 294–1(b) (1974). For those persons “truly economically unable to afford insurance, the legislature ... provided for them under the public assistance provisions of [Chapter 294].” Id.
In 1974, the public assistance provisions of the plan, located in HRS §§ 294–20 through –23, were repealed and replaced with the JUP, HRS §§ 294–20 to –24 (1974). The JUP plan required all insurers authorized to write insurance in Hawai‘i to maintain membership in the plan. HRS § 294–20. The insurance commissioner was required to establish classifications of eligible persons for whom the JUP would provide no-fault policies and any additional coverage. HRS § 294–22.
[129 Hawai'i 483]In 1987, Hawaii's motor vehicle insurance law was again overhauled with the repeal of Chapter 294 and enactment of Article 10C of Chapter 431. The purpose of Article 10C was to
(1) Create a system of reparations for accidental harm and loss arising from motor vehicle accidents;
(2) Compensate these damages without regard to fault; and
(3) Limit tort liability for these accidents.
HRS § 431:10C–102 (Supp.1997). To encourage participation by all drivers, uninsured drivers were dealt with more severely in criminal and civil areas, and those who were unable to afford insurance were provided for under the JUP. Id.
The JUP was incorporated into Article 10C under HRS §§ 431:10C–401 through –412. The JUP has two options for coverage. The first allows individuals to obtain certificate policies, HRS § 431:10C–407 (Supp.1999), which are “intended to provide motor vehicle insurance and optional additional insurance in a convenient and expeditious manner for ... persons who otherwise are in good faith entitled to, but unable to obtain, motor vehicle insurance through ordinary methods.” Hawai‘i Administrative Rules (HAR) § 16–23–67(a) (1999). The second, the “assigned claims” program, allows individuals to obtain coverage even if they do not have a certificate policy. HRS § 431:10C–408. The assigned claims program “consists of the assignment ... of claims of victims for whom no policy is applicable, such as the hit-and-run victim who is not covered by a motor vehicle insurance policy.” HAR § 16–23–67(b).
For certificate policies, the DHS must provide a certificate of eligibility for JUP coverage to eligible licensed drivers and unlicensed permanently disabled individuals unable to operate their motor vehicle, who are receiving public assistance and who desire basic motor vehicle insurance coverage under the JUP. HAR § 16–23–73(a) (1999). The applicant then submits the certificate to the servicing carrier of the applicant's choice for a motor vehicle insurance policy. Id. Certificates received by the servicing carrier within thirty days from the date of certification eligibility by DHS “shall be accepted and treated as if it were payment in full” for a policy. Id. The servicing carrier must then “certify this certificate which will function as a motor vehicle insurance policy and issue the applicant a motor vehicle insurance identification card.” Id.
These licensed drivers and unlicensed permanently disabled individuals unable to operate their motor vehicle must be the sole registered owners of the motor vehicles to be insured under the JUP. HAR § 16–23–73(a).
The rest of HAR § 16–23–73 provides:
The servicing carrier shall develop the information necessary to validate the eligibility of the applicant. Only basic motor vehicle insurance policy coverages, as defined in sections 16–23–4, 16–23–5, and 16–23–9, shall be bound, and the effective date of coverage shall be the same date as the signature date on the certificate by the applicant; however, the effective date shall not precede the time and date of the certification of eligibility by the state department of human services, the date that the servicing carrier receives the certificate, or the second day after postmark, whichever is later. In the event that the applicant fails to date the certificate, the date that the servicing carrier receives the certificate or the second day after postmark, whichever is earlier, shall be considered the date the applicant signed the certificate. The servicing carrier shall promptly notify the director of human services of public assistance recipients which it insures.
In contrast, under the assigned claims program “a person sustaining accidental harm, or such a person's legal representative,” (except as provided in another subsection) may obtain motor vehicle insurance benefits through the plan whenever:
(1) No insurance benefits under motor vehicle insurance policies are applicable to the accidental harm;
(2) No such insurance benefits applicable to the accidental harm can be identified; or
(3) The only identifiable insurance benefits under motor vehicle insurance policies applicable to the accidental harm will not be paid in full because of financial inability of one or more self-insurers or insurers to fulfill their obligations.
[129 Hawai'i 484]HRS § 431:10C–408(a).
In 2001, HRS § 431:10C–408(a)(1) was amended by adding the following underscored language: “(1) No liability or uninsured motorist insurance benefits under motor vehicle insurance policies are applicable to the accidental harm....” The amendment is not material to this dispute.
Insurers operating in Hawai‘i are required to participate in the JUP (with some exceptions). HAR § 16–23–68(a) (1999). Under the program, insurers “pool their losses and bona fide expenses ... to prevent the imposition of any inordinate burden on any particular insurer.” HAR § 16–23–68(a). “All costs incurred in the operation of the [JUP], such as administrative, staff, and claims (other than assigned claims) paid, shall be allocated fairly and equitably among the JUP members.” HAR § 16–23–70 (1999). Losses and expenses “under the assigned claims program are pro-rated among and shared by all motor vehicle insurers and self-insurers.” HAR § 16–23–67(b). Every year, the commissioner “prorate[s] among and assess[es] all insurers and self-insurers all costs and claims paid under the assigned claims program.” HAR § 16–23–85 (1999).
The JUP also specifies the duties of insurers participating in the program. Under HRS § 431:10C–403, the JUP Bureau “shall promptly assign each claim and application, and notify the claimant or applicant” of the identity of the assignee insurer. (Emphasis added.) Importantly,
[t]he assignee, thereafter, has rights and obligations as if it had issued motor vehicle mandatory public liability and property damage policies complying with this article applicable to the accidental harm or other damage, or, in the case of financial inability of a motor vehicle insurer or self-insurer to perform its obligations, to perform its obligations as if the assignee had written the applicable motor vehicle insurance policy, undertaken the self-insurance, or lawfully obligated itself to pay motor vehicle insurance benefits.
Id. (emphasis added).
V.
The law of insurance fits largely within two domains. 1 New Appleman on Insurance Law Library Edition § 1.04 (Jeffrey E. Thomas, ed., 2011) (hereinafter Appleman ). The first involves the regulation of insurers, and is generally accomplished through statutes enacted by state legislatures and administrative regulations issued by state agencies. Id. The second involves regulation of the insured-insurer relationship, and for the most part consists of judicially-articulated rules. Id. This latter realm of insurance law largely overlaps with contract law because the insurance arrangement is usually articulated in a contract. Id. However, even if insurance law is generally understood as a specialized application of contract law, other bodies of law are also pertinent to its application. Id. Doctrines developed in contract law to facilitate the formation of agreements between parties negotiating at arms length have been adapted and expanded by incorporating principles from other areas of law in order to regulate the special relationship between policyholders and insurers. See id. Thus, “tort law as expressed through the law of bad faith is highly relevant to the regulation of the insurer-insured relationship.” Id.
For example, as explained in Appleman § 5.01:
Courts interpreting insurance policies often start from the premise that an insurance policy is a contract, and therefore the rules of contract interpretation apply. While at first blush this axiom seems true enough, insurance policies do not fit the traditional contract model very well. For example, the traditional contract model is not very helpful when it comes to the question of interpretation. Insureds do not generally have sufficient control or information to develop a specific intention about what is covered by their policy. Insurance policies are almost always standardized forms offered on a take-it-or-leave-it basis. As a result the assumption that a court engaged in the interpretation of an insurance policy will determine the “intention” of the parties when they “made” the contract is a fiction. While courts say they are looking for the intention of the parties, in reality they are making a judgment about the scope of coverage based on the text of the policy, the circumstances, and public policy[.]
(Emphases added.)
VI.
Broadly speaking, in first-party insurance, “the contract between the insurer and the [129 Hawai'i 485]insured indemnifies the insured for a loss suffered directly by the insured.” Appleman § 1.08[3]. Proceeds are paid to the insured to redress the insured's loss. Id. Liability insurance, on the other hand, is described as third-party insurance because the interests protected by the policy are ultimately those of third parties injured by the insured's conduct. Id. For example, if the insured negligently insures a third party, the third party will possess a claim against the insured. Id. If the claim is reduced to a judgment, the insured will suffer a loss. Id. The liability insurer will reimburse the insured for any liability the insured may have to the third party, but in the event of payment, the insured simply transfers the proceeds from the insurer to the third party. Id.
One kind of insurance that appears to straddle the first-party and third-party categories is uninsured motorist insurance. Id. As Appleman explains, after states began to require that operators of automobiles carry liability insurance for the purpose of compensating the victims of automobile accidents, “it became apparent that no mandatory system of liability insurance could compensate all of the situations in which persons were injured in vehicular accidents.” This led insurers to market uninsured motorist coverage, “which is essentially a first-party coverage where the insurer's obligation is defined by the scope of a third party's obligation to its own insured.” Id. (emphasis added). In other words, under uninsured motorist coverage, the insured pays a premium to his own insurer for coverage in the event a financially irresponsible or unknown person is legally responsible for the insured's injury. Id.
The assigned claims plan under JUP, which, as noted, allows persons to procure coverage when (1) no benefits are applicable to the accidental harm; (2) no benefits applicable to the harm can be identified; and (3) the only identifiable benefits will not be paid in full because of the financial inability of the insurer to fulfill its obligations, HRS § 431:10C–408(a), essentially fulfills the same goals as first-party uninsured motorist coverage.
This opinion concerns provisions relating to no fault insurance provisions under Chapter 431:10C relating to Motor Vehicle Insurance. It does not pertain to other statutory relationships, dissenting opinion at 498 n. 3, 304 P.3d at 639 n. 3, or the “family law area[,]” dissenting opinion at 506 n. 16, 304 P.3d at 647 n. 16, as the dissent suggests, and following the precepts of precedent would not afford a harbor for “zealous advocate,” as the dissent suggests. Dissenting opinion at 498 n. 3, 502 n. 11, 304 P.3d at 639 n. 3, 643 n. 11.
VII.
In Best Place, Inc. v. Penn America Insurance Co., 82 Hawai‘i 120, 920 P.2d 334 (1996), this court first recognized the tort of bad faith refusal to pay a valid insurance claim in the first-party insurance context. In that case, the insured, Best Place, insured a nightclub under a policy issued by Penn America. Id. A fire broke out and destroyed the nightclub. Id. Penn America suspected arson and refused to pay the proceeds that would have been due under the policy. Id. Best Place sued Penn America, alleging breach of contract and tortious breach of the implied covenant of good faith and fair dealing. Id.
Best Place considered whether Hawai‘i would allow a tort claim for bad faith against an insurer. Id. According to this court, the Hawai‘i legislature had recognized that the insurance industry affects the public interest, and, therefore, insurers are obligated to act in good faith. Id. at 125–26, 920 P.2d at 338–40[129 Hawai'i 486](citing HRS § 431:1–102 (1993)). The duty to act in good faith was consistent with other statutory provisions that contemplated a cause of action for insurer bad faith. Id. at 126, 920 P.2d at 340. For example, in the no-fault insurance context, HRS § 431:10C–315 (1993) sets forth the applicable statute of limitations for a bad faith cause of action against an insurer. Best Place, 82 Hawai‘i at 126, 920 P.2d at 340.
In Best Place, this court looked to California decisions that “led the way in the modern development of the bad faith cause of action for insurer misconduct.” Best Place, 82 Hawai‘i at 127, 920 P.2d at 341. This court noted that the Supreme Court of California's decision in Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032 (1973), “established that the defendant's duty of good faith and fair dealing, implied by law, is unconditional and independent of the performance of plaintiff's contractual obligations,” and that “insurance companies owe an absolute duty of good faith and fair dealing to their insureds.” Best Place, 82 Hawai‘i at 128, 920 P.2d at 342 (citing Gruenberg, 108 Cal.Rptr. 480, 510 P.2d at 1040) (emphasis in original). In Gruenberg it was established that when an insurer fails to deal fairly and in good faith with its insured “by refusing, without proper cause, to compensate its insured for a loss covered by the policy, such conduct may give rise to a cause of action in tort for breach of an implied covenant of good faith and fair dealing.” 108 Cal.Rptr. 480, 510 P.2d at 1037.
.HRS § 431:1–102 provides in relevant part:
The business of insurance is one affected by the public interest, requiring that all persons be actuated by good faith, abstain from deception and practice honesty and equity in all insurance matters. Upon the insurer, the insured and their representatives rests the duty of preserving inviolate the integrity of insurance.
(Emphasis added.)
.HRS § 431:10C–315 provides in relevant part:
Statute of limitations. (a) No suit shall be brought on any contract providing no-fault benefits or any contract providing optional coverage more than, the later of ....
(4) Two years after the entry of a final judgment in, or dismissal with prejudice of, a tort action arising out of a motor vehicle accident, where a cause of action for insurer bad faith arises out of the tort action.
(Emphasis added.)
This court held that there was a legal duty, implied in first and third-party insurance contracts, requiring the insurer to act in good faith in dealing with insureds, and a breach of that duty of good faith gave rise to an independent cause of action in tort. Id. at 131–32, 920 P.2d at 345–46. Although repeatedly alluding to the existence of a contractual relationship between the insurer and insured, this court grounded bad faith tort claims on the special relationship between insurers and their insureds. See id. It was reasoned that the tort of bad faith is not merely a tortious breach of contract, “but rather a separate and distinct wrong ‘which results from the breach of a duty imposed as a consequence of the relationship established by contract.’ ” Id. at 131, 920 P.2d at 345 (citation omitted) (emphasis added). Hence, there were sound reasons “for recognizing a cause of action in tort for breach of the implied covenant of good faith and fair dealing in the insurance context.” Id. at 132, 920 P.2d at 346. Specifically, the special relationship between insurer and insured was “atypical, and the adhesionary aspects of an insurance contract ... justif[ied] the availability of tort recovery.” Id. Finally, a bad faith cause of action would provide the necessary compensation to the insured for all damages suffered as a result of insurer misconduct. Id. Without the threat of a tort action, insurance companies had “very little incentive to promptly pay proceeds rightfully due to their insureds, as they stand to lose very little by denying payment.” Id.
VIII.
The reasoning articulated in Best Place supports Petitioner's contention that she can pursue a bad faith tort claim in connection with her assigned claim. To begin, the legislature incorporated specific language in the JUP statutes concerning the rights and obligations of insurers under the JUP. As noted, in HRS § 431:10C–403, the legislature stated:
The bureau shall promptly assign each claim and application, and notify the claimant or applicant of the identity and address of the assignee of the claim or application. Claims and applications shall be assigned so as to minimize inconvenience to claimants and applicants. The assignee, thereafter, has rights and obligations as if it had issued motor vehicle mandatory public liability and property damage policies complying with this article applicable to the accidental harm or other damage....
The first two sentences prescribe the process that the JUP Bureau must follow. But the language that follows sets forth, not the JUP Bureau's responsibilities, but those of the servicing carrier. Inasmuch as HRS § 431:10C–403 imposes obligations on the insurer as if it had issued a motor vehicle policy, the statute establishes a relationship between the insurer and the assigned claimant that is akin to a contract. As such, the underlying covenant of good faith and fair dealing applies, even in the absence of an actual contract. In other words, the legislature[129 Hawai'i 487]imposed a duty of good faith and fair dealing on insurers handling assigned claims by equating the relationship between an insurer and an assigned claimant to the contractual relationship between an insurer and an insured. This legislative goal is also manifest in HRS § 431:1–102. Best Place, 82 Hawai‘i at 125–26, 920 P.2d at 339–40 (“The Hawai‘i [l]egislature has recognized that the insurance industry affects the public interest, and, therefore, insurers are obligated to act in good faith.”) (citing HRS § 431:1–102). The legal basis for imposing a duty of good faith and fair dealing on insurers is thus set forth by statute. Consequently, by virtue of HRS § 431:10C–403, an insurer's “ obligations” would include dealing with the insured in good faith.
When construing a statute, the foremost obligation of this court is to ascertain and give effect to the intention of the legislature, which is to be obtained primarily from the language contained in the statute itself. State v. Reis, 115 Hawai‘i 79, 84, 165 P.3d 980, 985 (2007). This court reads the “statutory language in the context of the entire statute and construe[s] it in a manner consistent with its purpose.” Id. Since an insurer's obligations toward an insured include a duty to act in good faith, see Best Place, 82 Hawai‘i at 125–26, 920 P.2d at 339–40 (citing HRS § 431:1–102), the insurer's “rights and obligations” under the JUP must necessarily incorporate a duty of good faith toward the person whose claim has been assigned to the insurer. For all intents and purposes, that person becomes an “insured” once his or her claim has been assigned to the insurer.
Accordingly, “policy-making” is not involved, as the dissent contends, dissenting opinion at 500 n. 8, 304 P.3d at 641 n. 8, inasmuch as this court applies the plain language of the statute. Dejetley v. Kaho‘ohalahala, 122 Hawai‘i 251, 262, 226 P.3d 421, 432 (2010). The dissent's assertion that the legislature did not expressly deem an assigned claim to include a contract, see dissenting opinion at 501 n. 10, 505–06, 304 P.3d at 642 n. 10, 646–47, is negated by the express provisions of the referenced interrelated statutes, which plainly express a legislative policy by which this court, in the exercise of its interpretive role, must be guided.
That “[t]he parties have not cited” to similar “cases from any jurisdiction,” see dissenting opinion at 498 n. 6, 304 P.3d at 639 n. 6, is not a valid objection inasmuch as the dissent cites to no contrary case and, here, we interpret a particular statute from our jurisdiction.
IX.
The differences in statutory language applicable to the certificate policy program and the assigned claims program, i.e., that a certificate policy is “deemed a policy” for purposes of the statute, while insurers who service assigned claims have “rights and obligations as if [they] had issued motor vehicle mandatory public liability and property damage policies[,]” do not reflect an intent by the legislature to impose a duty of good faith on the former category of insurers, but not the latter. To the contrary, the different language reflects the fact that the two programs deal with factually different circumstances. The certificate program establishes a mechanism under which drivers who cannot afford insurance are provided coverage so that they can lawfully operate motor vehicles. See HRS §§ 431:10C–104(a) and (b) (Supp.1997); HAR § 16–23–73(a). HRS § 431:10C–104(a) provides in relevant part, that “no person shall operate or use a motor vehicle upon any public street, road, or highway of this State at any time unless such motor vehicle is insured at all times under a motor vehicle insurance policy.” (Emphasis added.) HRS § 431:10C–104(b) provides, “Every owner of a motor vehicle used or operated at any time upon any public street, road, or highway of the State shall obtain a motor vehicle insurance policy upon such vehicle which provides the coverage required by this article and shall maintain the motor vehicle insurance policy at all times for the entire motor vehicle registration period.” See alsoHRS § 431:10C–103 (Supp.1998) (“ ‘Motor vehicle insurance policy’ means an insurance policy that meets the requirements of [HRS § ] 431:10C–301.”); HRS § 431:10C–301 (Supp.1998) (setting forth the required insurance policy coverage for a motor vehicle). Accordingly, it is reasonable to refer to those individuals under the certificate program as having a [129 Hawai'i 488]“policy,” which satisfies the requirements of the no fault law.
In contrast, the assigned claims program addresses a different category of persons, i.e., individuals who have already been involved in an accident, and whose entitlement to lawfully operate a motor vehicle in the future is not at issue. SeeHRS § 431:10C–408(a) (determining that benefits under the assigned claims program are applicable to “[e]ach person sustaining an accidental harm, or such person's legal representative”); see alsoHAR § 16–23–67(b) (“Another part of the JUP consists of the assignment thereto of claims of victims for whom no policy is applicable, such as the hit-and-run victim who is not covered by a motor vehicle insurance policy.”). Rather, the question is whether the claimant will be covered for an accident that has already occurred. HRS § 431:10C–408(a). The language employed by the legislature—that the insurer assigned to handle such claims has the same rights and obligations as if it had issued a policy—appropriately addresses that differing context and reflects a clear legislative intent that such claimants are entitled to the same protections as policyholders, including having their claim considered in good faith.
Consequently, HRS § 431:10C–403 deems that an assigned claim claimant is to be treated as if the assignee had issued the claimant a “motor vehicle ... polic[y][.]” Further, as confirmed in HRS § 431:1–102, the relationship is imbued with a good faith obligation, inasmuch as in the business of insurance, all persons are “requir[ed]” to be “actuated by good faith[.]” Accordingly, the existence of an “actual contract of insurance,” dissenting opinion at 500, 304 P.3d at 641, is not required. Also, contrary to the dissent's position, see dissenting opinion at 500, 304 P.3d at 641, the “express” reference to “policy,” like that found in HRS § 431:10C–407(b)(2)(B), is not necessary in HRS § 431:10C–403 in light of equivalent statutory language in HRS §§ 431:1–102 and 431:10C. Thus, contrary to the dissent's assertion that this conclusion represents a leap, see dissenting opinion at 501 n. 10, 304 P.3d at 642 n. 10, or “that the legislature did not expressly deem an assigned claim to be based upon an insurance policy,” see dissenting opinion at 505 n. 14, 304 P.3d at 646 n. 14, this conclusion is mandated by the express statutory language providing that insurers who service assigned claims have “rights and obligations as if [they] had issued motor vehicle mandatory public liability and property damage policies....” HRS § 431:10C–403 (emphasis added).
X.
Moreover, to hold that an insurer does not owe a duty of good faith toward persons whose claims have been assigned to the insurer under the assigned claims portion of the JUP would also contravene public policy. As stated in Best Place, one of the reasons for allowing insureds to sue their insurers for bad faith is to ensure the insured receives the necessary compensation for all damages suffered as a result of insurer misconduct. 82 Hawai‘i at 132, 920 P.2d at 346. The denial of claims in bad faith does not cease to be misconduct simply because the insured has not purchased a policy, but, rather is entitled to coverage pursuant to a state program that specifically requires insurers to provide such coverage. The legislature intended for persons who qualify to have coverage under the JUP assigned claims program, and an insurer's bad faith denial of such claims undermines the statutory scheme, resulting in damages to the person whose claim has been improperly denied. A bad faith tort claim would allow recovery in cases of insurer misconduct.
The dissent argues that assigned claimants are not necessarily public assistance eligible, and therefore, may not be entitled to as much protection against bad faith conduct as certificate policy holders. See dissenting opinion at 500–01, 304 P.3d at 641–42. However, assigned claimants are, by definition, persons who have no other coverage available. Specifically, they are persons who have “no insurance benefits under [a] no-fault polic[y],” or for whom “no such insurance benefits applicable to the accidental harm can be identified,” or for whom “[t]he only identifiable insurance benefits under no-fault policies applicable to the accidental harm will not be paid in full....” HRS § 431:10C–408.
As noted before, an example of assigned claimants are those “victims for whom no policy is applicable, such as the hit-and-run victim who is not covered by a motor vehicle insurance policy.” HAR § 16–23–67(b). It is unlikely that the legislature believed hit-and-run victims without insurance had much in terms of resources at their disposal, and yet, created a program to provide last resort coverage for those individuals. Indeed, the idea that assigned claimants do not need protection is directly contradicted by the fact that the legislature chose to create a program specifically to protect them. Indeed, the legislature has afforded protection to such claimants through the creation of the JUP.
The dissent states that our holding would create an anomaly in the context of bad faith law in Hawai‘i. Dissenting opinion at 500–09 n. 9, 304 P.3d at 641–42 n. 9. But, based on the statutory language, the anomaly would be to extend bad faith protection to certificate policy holders, but deny the protections offered by the law of bad faith to insurance-needy assigned claimants, as the dissent would apparently hold. See dissenting opinion at 501, 304 P.3d at 642. Rather, our holding is consistent with the requirement of fair and equal treatment for both certificate policy holders and assigned claimants, as demanded by the statutory scheme.
Another reason cited in Best Place for allowing bad faith tort claims is the possibility[129 Hawai'i 489]that without the threat of a tort action, insurance companies have very little incentive to promptly pay proceeds, as they stand to lose very little by delaying payment. Id. That rationale may apply in this context. As noted, insurers are required to participate in the JUP as a condition of doing business in Hawai‘i. It appears that losses and expenses are pro-rated among and shared by all participating insurers. SeeHAR § 16–23–68(b). It is unclear whether these costs are passed on to the public in the form of higher insurance rates, or whether the state provides some other form of compensation to insurers.
It appears, for example, that certain insurers under the JUP program are selected as “servicing carriers” to provide services on behalf of the JUP members and are reimbursed for their “servicing expenses” at certain rates. SeeHAR §§ 16–23–71 (1999); 16–23–78 (1999).
If every claim that is paid out under the assigned claims program results in an immediate loss that is shared among participating insurers, and these losses are not offset by the claimant's payment of premiums (since under the assigned claims program the claimant does not pay to have his or her claim assigned to an insurer), it would seem that insurance companies may have an economic incentive to deny or delay payment of assigned claims in order to avoid losses associated with such claims. The threat of a tort action serves to inhibit those incentives. As articulated in Best Place, allowing bad faith tort claims encourages companies to pay proceeds rightfully due to insureds. 82 Hawai‘i at 132, 920 P.2d at 346. In any event, that the legislature intended to impose the same duties and obligations on insurers who are assigned claimants under the JUP, and that barring a bad faith tort action would undermine the statutory scheme, are enough to warrant allowing assigned claimants to pursue bad faith tort actions against insurers.
XI.
The ICA and Respondent, however, relied on Simmons v. Puu, 105 Hawai‘i 112, 94 P.3d 667 (2004), reasoning that an insurance contract is a prerequisite to a claim of bad faith, and that because an assigned claim is not a “contract,” Petitioner cannot sue Respondent under a bad faith tort theory. In Simmons, the petitioner was the driver of a vehicle struck by a rental car self-insured by Hertz. Id. at 115, 94 P.3d at 670. The petitioner alleged that the driver of the vehicle was negligent and ultimately asserted a claim of bad faith settlement practices against Hertz as the self-insurer of the rental vehicle. Id.
Hertz contended that there existed no common law claim for relief entitling third-party claimants such as the petitioner to sue self-insurers for bad faith settlement practices, inasmuch as Hertz was not an insurer and had no claims practices. Id. at 118, 94 P.3d at 673. This court agreed. Id. It was explained that a third party should not be permitted to enforce covenants not made for his or her benefit. Id. at 120–22, 94 P.3d at 675–77 (citing Murphy v. Allstate Ins. Co., 17 Cal.3d 937, 132 Cal.Rptr. 424, 553 P.2d 584 (1976)). Because the duty to settle claims in good faith was intended to benefit the insured (the rental car driver) and not the injured claimant (petitioner), the third party beneficiary doctrine did not furnish a basis for the injured claimant to recover. Id.
This court further elaborated that the insurer was in a fiduciary relationship with the insured but was in an adversarial relationship to the third-party claimant (petitioner). Id. In meeting its duty to the insured, an insurer was required to give as much consideration to the insured's interest as it did to its own interest. Id. But the insurer had no such relationship with a third party. Id. This court adopted the assignment theory of common law third-party claims of bad faith [129 Hawai'i 490]settlement practices, which required the existence of a contractual relationship between an insurer and an insured as a predicate to establishing an injured claimant's right to sue a tortfeasor's insurer. Id. In other words, a third-party claimant could sue an insurer for bad faith settlement practices only if the insured assigned his or her rights to the third party. Id. The third party would in effect step into the shoes of the first-party beneficiary, to which the insurer owed a duty of good faith. See id.
In Jou v. National Interstate Insurance Co. of Hawai‘i, 114 Hawai‘i 122, 157 P.3d 561 (App.2007), the ICA held for similar reasons that a doctor who provided services to an employee covered by workers' compensation could not sue the workers' compensation carrier for bad faith. The ICA noted that a workers' compensation scheme essentially created a three-party agreement between the employer, the employee, and the compensation carrier. Id. at 133, 157 P.3d at 572 (citation omitted). The ICA then explained that the purpose of workers' compensation was to compensate employees, not physicians. Id. The ICA held that the doctor was an incidental beneficiary and not a third-party beneficiary of the workers' compensation scheme, and therefore could not assert a bad faith tort claim against the workers' compensation carrier. Id. at 134, 157 P.3d at 573. Further, the ICA noted, without deciding, that even assuming, arguendo, that the doctor could qualify as an intended third-party beneficiary, the special circumstances that warranted extending the tort of bad faith to insureds and injured employees, did not exist between a physician and a compensation carrier. Id. According to the ICA, unlike a typical insured, a treating physician seeks commercial gain from the insurer rather than security, protection, and peace of mind. Id. In this case, the JUP program creates an insured-insurer relationship between the assigned claimant and the insurer, and the assigned claimant seeks the same security, protection, and peace of mind from the insurer that a policy-holder would.
The reason for disallowing a bad faith tort claim in Simmons does not apply in this context. As noted, an insurance contract was held to be a prerequisite for a bad faith settlement claim in Simmons because, absent a contract between the third party and the insurer (or its equivalent—an assignment of the first party's claim to the third party), the insurer owed no duty of good faith toward the third party. Id. Here, in contrast, as an assigned claimant, Petitioner stands in a first-party relationship to Respondent.
Contrary to the dissent's argument, this opinion does not rely on Simmons, see dissenting opinion at 502–03, 304 P.3d at 642–43, but distinguishes it.
The assigned claims plan under the JUP creates an insurer-insured relationship, and under that plan, no underlying contract is necessary to give rise to that relationship and its concomitant rights and obligations because that relationship is created by statute. SeeHRS § 431:10C–403 (stating that after an assigned claim is assigned to an insurer, the insurer is to have rights and obligations “as if it had issued motor vehicle mandatory public liability and property damage policies”). The statutory scheme requires insurers that are assigned claims to conduct their business as if there were in fact an underlying contract of insurance with a claimant.
The dissent incorrectly claims that good faith cannot be implied without an underlying contract. Dissenting opinion at 502 n. 11, 304 P.3d at 643 n. 11. As noted before, in this situation, HRS § 431:10C–403 establishes the equivalent of a policy contract by its terms, and HRS § 431:1–102 reiterates a good faith requirement. See discussion supra. The dissent maintains bad faith rights are denied to the assigned claimant because “the singular requirement [of] an actual contract ... [must] exist before good faith duties can be implied.” Dissenting opinion at 502, n. 11, 304 P.3d at 643, n. 11. However, this view would contravene the fundamental requirement of good faith that underlies HRS chapter 431. See HRS § 431:1–102 and HRS § 431:10C–403 (treating an assignee insurer “as if the assignee had written [a] motor vehicle insurance policy” to the individual claimant).
An underlying contract, therefore, is not the sine qua non of a bad faith tort claim. Cf. Best Place, 82 Hawai‘i at 132, 920 P.2d at 346 (“The breach of the express covenant to pay claims, however, is not the sine qua non for an action for breach of the implied covenant of good faith and fair dealing.”). This view is supported by Enoka, 109 Hawai‘i 537, 128 P.3d 850, which was decided in 2006, two years after Simmons. In Enoka, the petitioner was in an accident while she was riding in another person's truck. Id. at 541, 128 P.3d at 854. The petitioner's parents owned three automobiles that were insured under a single policy with AIG. Id. The petitioner was a named insured under a different policy [129 Hawai'i 491]with GEICO. Id. Three years after the accident, the petitioner filed a claim for no-fault benefits under the AIG policy. Id. at 542, 128 P.3d at 855. AIG denied the claim. Id. This court stated that an exclusion in AIG's policy for family members who are named insureds under another no-fault policy (here GEICO) clearly applied to the petitioner, and thus ostensibly the petitioner was not entitled to coverage under the AIG policy. Id. at 548, 128 P.3d at 861.
However, this court also held that an insured could bring a bad faith tort claim against an insurer even when the insurer had no contractual duty to pay benefits to the insured based on the clear and unambiguous language of an insurance policy. Id. at 552, 128 P.3d at 865. Thus, this court allowed the petitioner to sue AIG for bad faith mishandling of the insurance claim. Id. It was reasoned that an insurer must act in good faith in dealing with its insured and in handling the insured's claim, even when the policy clearly and unambiguously excluded coverage. Id. Accordingly, the trial court had erred in determining that because the insured's breach of contract claim failed, her bad faith claim must also fail. Id.
Enoka's reasoning does not support the proposition that the duty of good faith owed by the insurer to the insured is dependent on the existence of a contract. If the contract is the source of the duty to act in good faith, then mishandling or denying a claim when the insurer has no contractual duty to pay benefits should not give rise to a bad faith claim. Indeed, in Enoka, the insurer argued that in the absence of a contractual duty to pay benefits, there was no implied covenant of good faith and fair dealing to breach and, thus, no action for bad faith. Id. at 549, 128 P.3d at 862. Yet, this court held that the tort of bad faith did not turn on whether the claim for benefits was due or not; instead, it turned on “the conduct of the insurance company in handling the claim.” Id. at 551, 128 P.3d at 864. For, “[s]urely[,] an insurer must act in good faith in dealing with its insured and in handling the insured's claim, even when the policy clearly and unambiguously excludes coverage.” Id. (emphases added). The special relationship between the insurer and the insured and the conduct of the insurer toward the insured is what gives rise to the tort of bad faith, not solely the existence of a contract. See id.
Respectfully, the dissent does not distinguish Enoka as to its holding, but states the obvious, that Enoka did not “address ... a statutorily created relationship without a contract.” Dissenting opinion at 504, 304 P.3d at 645. However, Enoka is cited for recognizing that an insurer's good faith duty does not rest only in coverage under the insurance policy, but extends to the relationship between insured and insurer. See 109 Hawai‘i at 549, 128 P.3d at 862. Although the dissent suggests otherwise, dissenting opinion at 503 n. 13, 304 P.3d at 644 n. 13, as noted, Enoka recognized duties outside the contractual relationship.
The ICA came to the same conclusion in Christiansen v. First Insurance Company of Hawai‘i, Ltd., 88 Hawai‘i 442, 449, 967 P.2d 639, 646 (1998), stating that the tort of bad faith in the first-party insurance context “is unconditional and independent of [the insured's] contractual obligations.” (Emphasis and brackets in original.) (Internal quotation marks and citation omitted.) The issue in Christiansen was whether an action for bad faith was “on the policy” such that a statute of limitations provision in the policy would apply to the bad faith action. Id. at 450–51, 967 P.2d at 647–48. The ICA explained that jurisdictions were split on the question, and that some jurisdictions had ruled that because the alleged tortious conduct of the insurer arises out of its obligations under the provisions of the policy, an action for the bad faith handling of an insurance claim was governed by the limitation provision in the policy. Id. Those jurisdictions had concluded that since, absent the insurance contract, “there would be no legal relationship between the parties[,] [the insurer] could not be guilty of acting in bad faith.” Id.
The ICA rejected the rationale of those jurisdictions as inconsistent with Best Place. Id. at 451–52, 967 P.2d at 648–49. The ICA explained that in Best Place this court had clarified that “an insurer's duty of good faith and fair dealing [is] one implied by law that is independent of the performance of the insured's contractual obligations.” Id. at 451, 967 P.2d at 648. The ICA stated that “a [129 Hawai'i 492]tort of bad faith is a tort independent of the policy because its origins are not in the contract but in the common law imposition of good faith and fair dealing, the breach of which fiduciary duty may be considered an independent tort.” Id. at 452, 967 P.2d at 649 (emphasis added). Thus, the ICA held that the bad faith tort action is not “on the policy” and cannot be governed by the policy's limitation provision. Id.
Again, the dissent's assertion, that Christiansen, like Enoka, is not relevant because no written contract exists here, is subject to the same refutation—that the statutes involved in the instant case indicate that an automobile insurance policy should be deemed to exist.
In light of Christiansen and Enoka, the ICA's reliance on Simmons for the proposition that a contract is a prerequisite to a bad faith claim is incorrect. As discussed above, the insurer had no duty toward the petitioner in Simmons because the petitioner was the victim of the accident, not the insured, and the insurer owed no duty of good faith to a third-party victim. 105 Hawai‘i at 120–22, 94 P.3d at 675–77. In this case, Petitioner is the insured. To hold that Respondent owes no duty of good faith to its own insured because the insurer-insured relationship is created by statute instead of by contract would be an unwarranted departure from this court's post- Simmons holding in Enoka that the insurer must act in good faith in dealing with its insured and in handling the insured's claim, even in the absence of a contractual obligation owed the insured. Enoka, 109 Hawai‘i at 552, 128 P.3d at 865. Likewise, to 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. Such a result is not contemplated by cases such as Best Place, Enoka, and Christiansen, and does not follow from Simmons, which held only that a third party, to whom a tortfeasor's insurer owes no duty, could not bring a claim of bad faith settlement practices.
These cases are pertinent as they exemplify situations in which the contract was not central to the case but the court recognized duties outside of the express language of the contract.
The parties also cite to Mendes v. Hawai‘i Insurance Guaranty Assn., 87 Hawai‘i 14, 950 P.2d 1214 (1998). In that case, an insured sued the Hawai‘i Underwriters Insurance Company (HIGA), a non-profit, unincorporated legal entity created by HRS Chapter 431, Article 16, in order to provide a mechanism for the payment of covered claims when an insurer becomes insolvent. Id. at 17, 950 P.2d at 1217. This court held that HIGA could be sued for its failure to cover a claim, but that it was immune to a bad faith claim, pursuant to HRS § 431:16–116 (1993), which provided that there “shall be no liability on the part of and no cause of action of any nature shall arise against ... the association ... for any action taken by them in the performance of its duties.” Id. at 18, 950 P.2d at 1218. This court held that the legislature had made a policy determination to limit HIGA's liability because HIGA was not a traditional, for-profit insurance company, and therefore no bad faith claim could lie against HIGA. Id. There is no statute that limits Respondent's liability pursuant to the JUP. Therefore, Mendes does not resolve whether Petitioner can bring a bad faith claim against Respondent.
XII.
There are contexts, however, in which the existence of a contract does affect whether or not it is possible to bring a claim. For example, in Willis II, this court held that Petitioner could not seek attorneys fees under HRS § 431:10C–211(a) (Supp.1997), which provides in relevant part that
[a] person making a claim for personal injury protection benefits may be allowed an award of a reasonable sum for attorney's fees, and reasonable costs of suit in an action brought by or against an insurer who denies all or part of a claim for benefits under the policy....
113 Hawai‘i at 250, 151 P.3d at 731.
This court stated that the denial of an assigned claim did not qualify as the denial of a claim under a policy because assigned claims are creatures of statute and do not arise out of a contractual relationship. Id. at 249, 151 P.3d at 730. To the contrary, as noted above, HRS § 431:10C–403 explicitly provides that Respondent has the “same rights and obligations” with regard to Petitioner's assigned claim as would an insurer that issued a policy providing such coverage. It was explained in Willis II that whereas the legislature announced that a certificate [129 Hawai'i 493]policy was to be deemed a policy for purposes of the Insurance Code, the legislature did not similarly categorize assigned claims, and therefore an assigned claim was not a “policy” for purposes of HRS § 431:10C–211(a). 113 Hawai‘i at 249–50, 151 P.3d at 730–31.
In this case, the ICA decided that because this court determined in Willis II that Petitioner's claim was not contractual in nature, Petitioner's claim could not be treated as a policy for purposes of bringing a tort claim either. Willis III, 126 Hawai‘i at 316, 270 P.3d at 1046. But Willis II is not dispositive of Petitioner's tort claim. As noted, in Willis II, this court said that an assigned claim was not a policy for purposes of the attorneys' fees statute because an assigned claim was not a contract and the legislature had chosen to treat certificate policies and assigned claims differently. 113 Hawai‘i at 249–50, 151 P.3d at 730–31.
However, as noted herein, the statutory scheme treats certificate policies and assigned claims equally for purposes of an insurer's rights and duties to the insured. HRS § 431:10C–402(a) provides, “The commissioner shall establish and maintain a joint underwriting plan bureau in the insurance division to receive, assign and supervise the servicing of all assigned claims and all applications for joint underwriting plan coverage.” (Emphasis added.) “[A]pplications for joint underwriting plan coverage” refers to certificate applications, while “assigned claims” refers to the assigned claims program under the JUP. CompareHRS § 431:10C–407 (discussing applicants for certificate policy), withHRS § 431:10C–408 (discussing assigned claims). As noted, in the very next sentence in HRS § 431:10C–403, the legislature specified that the bureau “shall promptly assign each claim and application, and notify the claimant or applicant of the identity and address of the assignee of the claim or application.” To reiterate, “[t]he assignee, thereafter, has rights and obligations as if it had issued motor vehicle mandatory public liability and property damage policies....” Id. The legislature thus intended for insurers to have duties coincident with issuing a policy for both certificate applications and assigned claims.
In sum, the common law duty of good faith and fair dealing of insurers is incorporated in the insurance code. SeeHRS § 431:1–102 (“The business of insurance is one affected by the public interest, requiring that all persons be actuated by good faith[.]”). Hence, the dissent is wrong in claiming that this decision “depart[s] from fundamental common law principles” with respect to the bad faith doctrine. See dissenting opinion at 504, 304 P.3d at 644. To repeat, the legislature has further expressed its intent to specifically impose the same duty of “good faith” upon insurers who adjust assigned claims where no contractual relationship exists as that imposed on insurers who adjust contract based policies. SeeHRS § 431:10C–403. This decision thus effectuates legislative intent. Correlatively, this decision is consistent with established case law. Although not applying a statute, Best Place, Enoka, and Christiansen rest on the principle of a good faith obligation in the insurer-insured relationship, as set forth in this opinion. This decision recognizes the statutory relationship of good faith, HRS § 431:1–102, between an insurer and insured underlying HRS § 431:10C–403.
XIII.
Respondent, however, argues that a claimant under the assigned claims program is “a person for whom ‘[n]o insurance benefits under motor vehicle insurance policies are applicable[.]’ ” (Quoting HRS § 431:10C–408(a)(1) (1998).) Stated differently, “[Respondent maintains] there is no basis for [Petitioner] to contend that she is a policyholder to whom benefits under an insurance policy have been denied and there is no basis for [Petitioner] to pursue her alleged ‘bad faith’ claim against [Respondent].” It appears that Respondent interprets a person for whom “no insurance benefits under motor vehicle insurance policies are applicable,” HRS § 431:10C–408(a)(1), as requiring Petitioner to show that benefits have been “denied” to her under an existing policy.
The evidence in this case is that no insurance benefits were applicable to Petitioner at the time of the accident. As noted, although Petitioner had a certificate policy from July 2, 1998 through July 2, 1999, the policy did not include uninsured motorist coverage. The fact that the JUP Bureau determined that Petitioner was entitled to receive benefits under the JUP confirms that the agency [129 Hawai'i 494]that administers the JUP also believed that Petitioner satisfied HRS § 431:10C–408(a)(1). Respondent provides no authority for the proposition that Petitioner would not qualify under HRS § 431:10C–408(a)(1) because she cannot show that she is a person to whom “benefits under an insurance policy have been denied.” On its face, HRS § 431:10C–408(a)(1) is met if no benefits under a policy are applicable to the accidental harm. Thus, Respondent's interpretation of HRS § 431:10C–408(a)(1) is not supported by the statutory language.
At oral argument, Respondent took a slightly different position, arguing that HRS § 431:10C–408 is only satisfied if a person has no “identifiable” benefits under any motor vehicle policy, and that because Petitioner had a certificate policy at the time of the accident, she had “identifiable” benefits. However, again, Respondent's interpretation is not supported by the language of the statute. HRS § 431:10C–408(a)(1) applies to persons when “[n]o insurance benefits under motor vehicle insurance policies are applicable to the accidental harm [.]” (Emphasis added.) As noted, there is no question in this case that no insurance benefits under a motor vehicle insurance policy were applicable to Petitioner at the time of the accident because her certificate policy provided no coverage for the accidental harm as it lacked uninsured motorist coverage. HRS § 431:10C–408(a)(2), the section that contains the word “identified” (but which was not cited by Respondent in its Response when making this argument) is satisfied if “no such insurance benefits applicable to the accidental harm can be identified.” (Emphasis added.)
XIV.
Respondent also argues that this court has already implicitly rejected Petitioner's bad faith tort claim because this court only remanded in Willis I for a determination of benefits due pursuant to the assigned claim. Respondent's argument is, in essence, that this court implicitly denied Petitioner's bad faith claim by not saying anything about that claim when it remanded in Willis I. The exact language of this court's remand in Willis I was:
In light of the foregoing analysis, we hold that the circuit court erred in awarding summary judgment in favor of [Respondent] and against [Petitioner]. Accordingly, we vacate the circuit court's July 2003 judgment insofar as it dismissed [Petitioner]'s action against [Respondent] remand for further proceedings consistent with this opinion. On remand, to the extent that the trier of fact finds that [Petitioner]'s post-July 2, 1999 medical expenses remain unpaid and her assigned claim complies with the Motor Vehicle Insurance Law in other respects, the circuit court shall order [Respondent] to tender the appropriate benefits under the assigned claims program.
112 Hawai‘i at 191, 145 P.3d at 734. This language cannot reasonably be construed to resolve the rest of Petitioner's claims. As explained, in Willis I, the court had entered summary judgment in favor of Respondent because it had found that Petitioner was not due benefits under the assigned claim. This court noted that the court had also disposed of the rest of the claims in the lawsuit, “none of which is germane to this appeal.” Id. at 188 n. 8, 145 P.3d at 731 n. 8 (emphasis added). This court then vacated the court's judgment “insofar as it dismissed [Petitioner's] action against [Respondent.]” Id. at 191, 145 P.3d at 734. In other words, the court's judgment was vacated insofar as it dismissed the entirety of Petitioner's action against Respondent, which would include her bad faith claim. This court's silence as to what should happen on remand to the rest of Petitioner's claims that were not at issue in Willis I (and therefore not before this court) suggests only that the court would have to decide those claims on remand, not that this court silently and without explanation denied those claims.
XV.
Because we hold that Petitioner can bring a bad faith tort claim, the question of whether it was proper for the court to enter summary judgment on behalf of Respondent on the merits of Petitioner's bad faith claim remains. As noted, the ICA did not decide the question because it held that Petitioner could not, as a matter of law, assert a bad faith tort claim. Willis III, 126 Hawai‘i at 315–17, 270 P.3d at 1045–47.
On appeal, an order of summary judgment is reviewed under the same standard[129 Hawai'i 495]applied by the trial courts. Wong–Leong v. Hawaiian Indep. Refinery, Inc., 76 Hawai‘i 433, 438, 879 P.2d 538, 543 (1994). Summary judgment is proper where the moving party demonstrates that there are no genuine issues of material fact and it is entitled to judgment as a matter of law. Reed v. City & Cnty. of Honolulu, 76 Hawai‘i 219, 225, 873 P.2d 98, 104 (1994). “Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.” Pac. Int'l Servs. Corp. v. Hurip, 76 Hawai‘i 209, 213, 873 P.2d 88, 92 (1994).
In Best Place, this court articulated the applicable standard for a first-party bad faith claim as follows:
[T]he insured need not show a conscious awareness of wrongdoing or unjustifiable conduct, nor an evil motive or intent to harm the insured. An unreasonable delay in payment of benefits will warrant recovery for compensatory damages.... However, conduct based on an interpretation of the insurance contract that is reasonable does not constitute bad faith....
82 Hawai‘i at 133, 920 P.2d at 347. Further, “where an insurer denies the payment of no-fault benefits based on an ‘open question of law,’ there is ‘obviously no bad faith on the part of [the insurer] in litigating that issue.’ ” Enoka, 109 Hawai‘i at 552, 128 P.3d at 865.
The court concluded that Willis I had settled an open question of law, and therefore Respondent's denial of Petitioner's benefits was not in bad faith. Petitioner argues, however, that this court's language in Willis I suggests that Respondent's legal basis for denying Petitioner's claim was not reasonable. As noted, in Willis I, Petitioner had argued that she qualified for an assigned claim because there was no other insurance that she could turn to and the legislature intended for her to be covered. 112 Hawai‘i at 189, 145 P.3d at 732. Respondent countered that Petitioner did not qualify for assigned claims coverage because she was the named insured under her own certificate policy at the time of the accident, and therefore had “identifiable” motor vehicle insurance coverage on the date of the subject accident. Id.
Respondent cited to HRS § 431:10C–408(a), which provides that a person may seek coverage under the assigned claims program when no insurance benefits under motor vehicle insurance policies are applicable to the accidental harm or no such insurance benefits can be identified. Id. at 189, 145 P.3d at 732. Respondent argued that certificate policies were not required to include uninsured motorist coverage in order to comply with the statutory scheme, and that Petitioner had disregarded a prior offer Respondent had made to Petitioner to add uninsured motorist coverage to her certificate policy, and that by disregarding Respondent's offer, Petitioner forewent her eligibility for assigned benefits. Id.
This court explained that the “core issue as framed by the parties [was] whether an offer and a tacit refusal of UM coverage rendered the UM coverage ‘applicable’ and ‘identifi[able]’ so as to relieve the assignee insurer under HRS § 431:10C–408, [ ] of the duty to compensate the injured claimant.” Id. However, this court held that it did not have to decide that issue because Respondent had not “offered” uninsured motorist coverage to Petitioner but had, at most, made an invitation to initiate negotiations. Id. at 190, 145 P.3d at 733. It was explained that “[a]t most, [Respondent had] flagged for [Petitioner] the fact that no statute or regulation bestowed an [uninsured motorist] component on her certificate policy....” Id. This court stated, “[n]o reasonable reading of the statement [made by Respondent to Petitioner] [129 Hawai'i 496]could elucidate (1) which insurer(s) might underwrite [Petitioner's uninsured motorist] coverage or (2) the premiums or any other terms.” Id. (footnote omitted) (emphasis added).
In other words, if Petitioner had applicable coverage at the time of the accident, she would not have qualified for an assigned claim because not having applicable insurance coverage is a precondition for an assignment claim. See HRS § 431:10C–408(a) (“Each person sustaining accidental harm, or such person's legal representative, may ... obtain the motor vehicle insurance benefits through the plan whenever: (1) No insurance benefits under motor vehicle insurance policies are applicable to the accidental harm; (2) No such insurance benefits applicable to the accidental harm can be identified....”).
This court also explained that Respondent had argued, on public policy grounds, that if Petitioner's argument were accepted, there would be universal uninsured motorist coverage for anyone insured in a motor vehicle accident, and that there would be no point in paying a premium for uninsured motorist coverage if all one had to do was to apply to the JUP at no cost. Id. at 191, 145 P.3d at 734. Thus, Respondent's argument “distort[ed]” Petitioner's characterization of the assigned claims program. Id. The assigned claims program applied only in residual situations. Id. This court stated that the “absurd consequence” of Respondent's argument would be that insurers, merely by offering, could compel even those who do not own cars to purchase uninsured motorist coverage. Id.
As noted, this court characterized Respondent's arguments on this particular issue as “unreasonable” and “absurd.” Indeed, it was held that there was no need to resolve the core issue—the question of whether an offer and a tacit refusal of uninsured motorist coverage rendered certificate coverage applicable so as to relieve an assignee insurer of the duty to compensate the injured claimant, because the case could be resolved as a matter of law on the ground that Respondent had not made an offer to Petitioner. Therefore, Willis I did not resolve an “open question of law” posed by the parties and, consequently, the court's grant of summary judgment to Respondent on the ground that this court resolved an open question of law was wrong.
XVI.
In general, whether an insurer has acted in bad faith is a question of fact. See Guajardo v. AIG Hawai‘i Ins. Co., 118 Hawai‘i 196, 206, 187 P.3d 580, 590 (2008) (“allegations of bad faith between insurer and insured over fair dealing and meaning of policy were ‘exactly the type of issue[s], under Best Place, that the jury should consider, and one[s] that should not be made by the court[.]’ ”) (citation omitted). This court has held that “reasonableness can only constitute a question of law suitable for summary judgment ‘when the facts are undisputed and not fairly susceptible of divergent inferences,’ because, ‘where, upon all the evidence, but one inference may reasonably be drawn, there is no issue for the jury.’ ” Id. (quoting Courbat v. Dahana Ranch, Inc., 111 Hawai‘i 254, 263, 141 P.3d 427, 436 (2006)) (citations and brackets omitted).
In Guajardo, this court held there was a disputed issue of material fact concerning whether the insurer had refused to settle in good faith. Id. Further, this court explained that although the ICA had reasoned that there was an open question of law that precluded finding the insurer had acted in bad faith, there was “no mention of an ‘open question of law’ as a basis for [the insurer's] initial outright rejection of the possibility of a settlement, and, in any event, genuine issues of material fact regarding the reasonableness and good faith of [the insurer's] interpretation of its policy remain, wholly separate and apart from the applicability of [case law.]” Id.; see also Smith v. Safeco Ins. Co., 150 Wash.2d 478, 78 P.3d 1274 (2003) (stating that “[t]he existence of some theoretical reasonable basis for the insurer's conduct does not end the inquiry” into whether or not the insurer acted in bad faith, and that “[t]he insured may present evidence that the insurer's alleged reasonable basis was not the actual basis for its action, or that other factors outweighed the alleged reasonable basis”).
Petitioner argues that a fair-minded jury may find that it was unreasonable for Respondent to premise its denial of coverage on a legally invalid offer, to the extent that experienced claims adjusters should know better than to rely on faulty and insufficient offers as a basis to deny statutory benefits. Petitioner's expert had also averred that, in his professional opinion, Respondent acted in bad faith in delaying payment of benefits to Petitioner and in failing to properly investigate Petitioner's claim. According to the expert, it was common knowledge and understood within the insurance industry that a [129 Hawai'i 497]certificate policy does not negate an assigned claim. Petitioner's expert also opined that Respondent owed Petitioner a duty of good faith as the insurance company that was assigned to adjust the JUP assigned claim, and that to the extent that the JUP
operates as an insurance relief measure and is a substitute to the mandated automobile bodily injury requirements of the State of Hawai‘i, [Respondent's] duty of good faith and fair dealing arises from [its] assigned role as a servicing carrier and an insurer under the [JUP], and as such does not depend, necessarily, on whether [Petitioner] was a party to any written contract.
Respondent did not provide any affidavits to counter Petitioner's expert's statement.
In support of its motion for summary judgment, Respondent attached only a copy of Willis I and some documentation to establish that it had paid Petitioner all of the benefits due to her under the assigned claim. Respondent also attached a declaration to its Reply to Petitioner's Supplemental Legal Memorandum which stated that Petitioner had not provided proof of her medical expenses for treatment after January 26, 2006. However, it appears that Respondent did not attach any affidavits to counter Petitioner's expert opinion that the facts suggested Respondent acted in bad faith.
Petitioner's affidavits raise questions of fact for a fact finder about whether Respondent's reliance on a faulty offer was in bad faith and whether Respondent's conduct fell below that of a reasonable insurance adjuster. Thus, summary judgment for Respondent was wrongly granted.
On remand, the court should address Petitioner's June 8, 2007 motion to compel Respondent to answer Petitioner's interrogatories and to respond to Petitioner's requests for production of documents, which the court denied as moot upon granting Respondent's motion for summary judgment.
XVII.
We therefore vacate the judgments entered as aforesaid and remand to the court for proceedings consistent with this opinion. Concurring and Dissenting Opinion by Circuit Judge CHANG.
We respectfully cannot agree with Judge Chang's dissent, but appreciate his eloquent and gracious opinion.
I.
INTRODUCTION
I respectfully concur and dissent because 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. Additionally, today's decision to expose a Joint Underwriting Plan [hereinafter “JUP”] servicing carrier to bad faith liability is a policy question that should [129 Hawai'i 498]be deferred to the legislature, particularly in light of the decision's far-reaching implications.
I agree with the majority that there is great wisdom in imposing a duty of good faith and fair dealing upon a JUP servicing carrier. Otherwise, there is very little incentive built into the JUP for the servicing carrier to discharge its duties and responsibilities under the JUP in good faith and with fair dealing. The servicing carrier makes no profit from JUP business, the JUP beneficiary/claimant pays no premium, there is no formal contract between the servicing carrier and the HJUP beneficiary/claimant, and administering and adjusting the JUP assigned claim consumes resources of the servicing carrier with little or no pecuniary return. Therefore, I concur with the majority's discussion regarding the need for adopting a policy to support a JUP claimant. This statement should not be construed as a finding or a suggestion that the Respondent servicing carrier herein did, in fact, engage in any bad faith or other improper conduct. I make no such finding or suggestion, since such ultimate issues are clearly beyond the scope of the instant appeal.
The Hawai‘i Joint Underwriting Plan [“JUP”] requires all motor vehicle insurance carriers who are authorized to do business in Hawai‘i to participate in the Plan. There are two aspects of the JUP that are relevant to the instant case. First is the “no-fault certificate” that is governed by HRS § 431:10C–407(b)(2). The “no-fault certificate” is essentially a no-fault or personal injury protection policy for persons who are receiving certain public assistance benefits. Second is the “assigned claim,” which is governed by HRS § 431:10C–408. An “assigned claim” beneficiary or recipient is not necessarily a person who receives public assistance benefits. Any person, whether or not on public assistance, may qualify to apply for “assigned claims” benefits whenever such person is injured in a motor vehicle accident where no liability insurance is applicable. Subsequent to the subject accident, the legislature amended HRS § 431:10C–408(a)(1) to include “uninsured motorist insurance” in addition to “liability insurance” in determining who may qualify to receive “assigned claims” benefits.
Therefore, I would affirm the ICA and note, in the opinion of the court, the wisdom of imposing a duty of good faith and fair dealing upon the servicing carrier, if that be the legislature's intent. This would obviate the need to expand Hawai‘i bad faith law, thereby avoiding the potential for creating broad and onerous extra-contractual liability implications for those in statutorily created relationships.
May I state unequivocally that I am not suggesting, stating, or implying that the majority does intend today's decision to have any application to any statutorily created relationship other than the relationship between assigned claimants and their servicing carriers. However, I am certain that zealous advocates will be urging Hawai‘i courts to extend today's ruling to a wide variety of statutorily created relationships other than that which exists between assigned claimants and their servicing carriers. It is such an evolution of today's decision that concerns me the most. This is the primary reason why I respectfully take the position, in Part III, infra, that the matter of whether an assigned claim is or is not a contract or deemed to be a contract should be deferred to the legislature. While the majority did clarify in footnote 13 its intent that today's opinion relates only to no-fault insurance provisions, I am not sure that a zealous advocate pursuing an extension of the law or a new appellate court will be deterred by that.
My views diverge from the majority on two key issues: (1) whether Hawai‘i should recognize a bad faith cause of action where no actual contract between the parties exists and (2) whether establishing the policy of recognizing bad faith causes of action in the context of statutorily created relationships should be left to the legislature. These issues will be discussed seriatim.
II.
NO BASIS FOR BAD FAITH
It is clear that when Hawai‘i first recognized a cause of action for bad faith in the first-party insurance context , that claim was based upon the seminal principle that the duty of good faith and fair dealing is implied in a contract of insurance. This principle forms the bedrock of the bad faith claim because it is the implied duty of good faith and fair dealing that breathes life into a bad faith claim.
The landmark case in Hawai‘i that first recognized a bad faith cause of action in the first party insurance context in Best Place Inc. v. Penn America Insurance Co., 82 Hawai‘i 120, 920 P.2d 334 (1996).
“The cornerstone of the decisions in [early bad faith decisions] is that, in every contract there is an implied covenant of good faith and fair dealing.” Best Place Inc. v. Penn America Insurance Co., 82 Hawai‘i 120, 124, 920 P.2d 334, 338 (1996). “Accordingly, we hold that there is a legal duty implied in a first- and third-party insurance contract, that the insurer must act in good faith in dealing with its insured, and a breach of that duty of good faith gives rise to an independent tort cause of action.” Id. at 132, 920 P.2d at 346.
Instead of adhering to this seminal principle, today's decision expands the bad faith cause of action beyond the traditional confines of contractual relationships and can now arise out of statutorily created relationships. The instant landmark decision is not consistent with existing Hawai‘i case law.
The parties have not cited to a single case from any jurisdiction that recognized a bad faith cause of action based upon a statutory relationship without a contract. Every case that recognized a bad faith cause of action involved a contract between the parties. E.g., Best Place Inc. v. Penn America Insurance Co., 82 Hawai‘i 120, 920 P.2d 334 (1996); Simmons v. Puu, 105 Hawai‘i 112, 94 P.3d 667 (2004); Enoka v. AIG Hawaii Insurance Company, Inc., 109 Hawai‘i 537, 128 P.3d 850 (2006); Christiansen v. First Insurance Company of Hawaii, Ltd., 88 Hawai‘i 442, 967 P.2d 639 (App.1998). The reason for this is that the law recognizes that the implied covenant of good faith and fair dealing arises out of a contract between the parties and not out of the relationship between the parties in the absence of a contract.
The salient language from Best Place upon which the majority appears to rely is that bad faith is not merely a tortious breach of contract, “but rather a separate and distinct wrong ‘which results from the breach of a duty imposed as a consequence of the relationship established by contract.’ ” Best Place Inc. v. Penn America Insurance Co., 82 Hawai‘i 120, 131–32, 920 P.2d 334, 345–46 (1996)(emphasis added). The majority focused upon the word “relationship” in the above-quoted language from Best Place as the touchstone for the expanded bad faith claim that can now be triggered in a statutorily created relationship. However, this focus upon the word “relationship” expands the bad faith cause of action beyond that which Best Place appears to contemplate. The “relationship” that warrants protection by a bad faith cause of action is a relationship that is “established by a contract,” not by a statute. Best Place did not contemplate a bad faith causes of action that arises out of a statutorily created relationship because no jurisdiction (including Hawai‘i) had recognized such a claim until the case at bar. Therefore, Best Place is consistent with the universal notion that a bad faith cause of action is only recognized where the duty of good faith and fair dealing is implied in a contract between the parties. The majority's reliance only upon the word “relationship,” without the rest of that phrase, appears to be misplaced.
[129 Hawai'i 499]This court has expressly concluded in the past that an assigned claim is a statutory claim that does not arise out of a contract.
Assigned claims are creatures of statute and do not arise out of a contractual relationship....
Furthermore, whereas the legislature enunciated that a certificate policy “shall be deemed a policy for the purposes of [the Insurance Code, HRS c. Ch. 431],” the legislature did not similarly categorize assigned claims. CompareHRS 431:10C–407(b)(2) (concerning certificate policies), ... withHRS § 431:10C–408 (concerning assigned claims).
Willis v. Swain, 113 Hawai‘i 246, 249–50, 151 P.3d 727, 730–31 (2006)(emphasis added) (hereinafter referred to as “Willis II ”).
There is nothing in the Willis II analysis to suggest that the court's above-quoted understanding of an “assigned claim” is limited to attorneys' fees purposes. Id. In fact, the Willis II court appears to have stated, without equivocation, qualification, or limitation, that an “assigned claim” is a creature of statute and not of contract. Without a contract, the law recognizes no basis for implying a duty of good faith and fair dealing and any error or malfeasance associated with an assigned claim should not give rise to a bad faith claim under the current state of the JUP law.
Since there was no actual contract of insurance between the parties herein, the majority examined other JUP statutory language. A central pillar of the majority's analysis is the language of HRS § 431:10C–403, which states in relevant part:
§ 431:10C–403 Bureau's duties. The bureau shall promptly assign each claim and application, and notify the claimant or applicant of the identity and address of the assignee of the claim or application. Claims and applications shall be assigned so as to minimize inconvenience to claimants and applicants. The assignee, thereafter, has rights and obligations as if it had issued motor vehicle mandatory public liability and property damage policies complying with this article applicable to the accidental harm or other damage, or, in the case of financial inability of a motor vehicle insurer or self-insurer to perform its obligations, as if the assignee had written the applicable motor vehicle insurance policy, undertaken the self-insurance, or lawfully obligated itself to pay motor vehicle insurance benefits.
Haw.Rev.Stat. § 431:10C–403 (2005 Replacement)(emphasis added).
The majority relied in large part upon the above-quoted italicized language of § 403. However, it is the language that precedes the italicized language that actually clarifies the meaning of the italicized language.
The language that precedes the italicized language makes it clear that § 403 is not focused upon extra-contractual implied duties of good faith and fair dealing. Instead, what § 403 addresses is the duty of the servicing carrier to administer the JUP claim; i.e., to administer, investigate, process, and pay or deny the claim.
This section begins with a description of the JUP bureau's duties. Section 403 provides that the bureau shall promptly assign and notify the claimant of the assignment. Further, the bureau must minimize inconvenience to the claimant. After the bureau has completed these tasks, the assignee servicing carrier then has the “rights and obligations as if it had issued motor vehicle ... policies....” Id.
In the context of the entire § 403, the italicized language means that the servicing carrier must administer the JUP claim as if it had issued an insurance policy that provided JUP benefits. The majority interprets the italicized language of § 403 as expressing [129 Hawai'i 500]the legislative intent that the servicing carrier has a duty of good faith and fair dealing, notwithstanding that there is no actual contract of insurance from which to imply such a duty. This is a leap in which I am unable to join the majority.
The dissent is also consistent with the JUP provisions relating to a certificate policy and relevant case law. A person who qualifies under JUP for personal injury protection (no-fault) benefits is required to obtain a certificate from the Department of Human Services regarding that person's status as a public assistance recipient. That certificate is expressly deemed to be a policy contract for no-fault purposes:
A certificate shall be issued by the department of human services indicating that the person is a bona fide public assistance recipient.... The certificate shall be deemed a policy for the purposes of this chapter upon the issuance of a valid motor vehicle insurance identification card....
Id.§ 431:10C–407(b)(2)(B) (emphasis added).
Unlike the certificate policy (which is statutorily deemed to be a “policy”), the statutory provisions governing the assigned claim does not have any comparable language that deems an assigned claim to be a policy. This distinction between a certificate policy ( i.e., a contract) and an assigned claim ( i.e., no contract) was recognized in Willis II, 113 Hawai‘i at 249–50, 151 P.3d at 730–31.
The majority appears to equate the certificate policy with assigned claims for the purposes of bad faith claims. However, with respect to a claim for bad faith, a certificate policy and an assigned claim differ in one significant way: a certificate policy is expressly deemed to be a policy ( i.e., a contract) but assigned claims are not. Therefore, I am unable to agree with the proposition that the JUP statutory scheme treats a certificate policy and an assigned claim equally in terms of whether either is a contract.
The majority concludes that the legislature made a public policy decision to impose a duty of good faith and fair dealing upon insurers handling assigned claims. If the legislature did, in fact, make such a public policy decision, it would have reflected such a decision by expressly deeming an assigned claim to be a policy. It did not.
The majority's footnote 17 clarifies that policy-making is not involved in its decision today. The dissent respectfully submits that when (1) the legislature creates two statutory programs (one for certificate policies and one for assigned claims), (2) the legislature expressly deems a certificate policy to be a policy (i.e., a contract), (3) the legislature does not expressly deem an assigned claim to involve a contract, (4) enormous legal implications in the insurance context involving bad faith duties that arise out of a contract of insurance, and (5) the majority interprets the assigned claim statute to be deemed a policy or contract, policy-making is likely involved in this decision.
It is significant that the legislature chose not to deem an assigned claim to be a contract, particularly in light of the fact that § 403 (assigned claims) and § 407(b)(2)(B) (certificate policy) are juxtaposed in such close proximity. The distinction appears to be a deliberate choice rather than oversight.
Another consideration that is relevant to the question of legislative intent is that certificate policy holders are all public assistance eligible. As such, they would, generally speaking, have less resources available to raise a bad faith challenge. As a result, certificate policy holders would have a tendency to be a more vulnerable population. That population would benefit greatly from the protections afforded by a duty of good faith and faire dealing being imposed by implication upon the insurance carrier.
However, assigned claimants are not necessarily persons who are public assistance eligible. In fact, some assigned claimants may have an abundance of resources at their disposal. Therefore, assigned claimants may not, as a population, be as vulnerable or lacking in resources to raise a bad faith challenge. Hence, there may be a reduced need to protect assigned claimants. Therefore, the legislature may very well have made a deliberate and conscious choice of the precise language of § 403 so as to avoid imposing by implication the duty of good faith and fair dealing upon a servicing carrier.
The majority concludes at footnote 20 that it would be “an anomaly” to extend bad faith protections to a certificate policy claimant and not to assigned claimants. The use of the word “anomaly” is interesting because an “anomaly” is typically defined as a deviation from normal or common order, form, or rule. The American Heritage Dictionary of the English Language 54 (1979). It could be argued that, prior to today's decision, the normal or common order with respect to the law on bad faith in Hawai‘i was to limit such causes of action to circumstances where an actual contract existed between the parties. That was because there was no bad faith cause of action unless a duty of good faith and fair dealing first existed. And, that duty could not be conjured up without the existence of an actual host contract out of which the law could imply a covenant of good faith and fair dealing. Best Place Inc. v. Penn America Insurance Co., 82 Hawai‘i 120, 920 P.2d 334 (1996). That was the state of the law until today. There is no question that the legislature expressly deemed a certificate policy to be a “policy” (i.e., an actual contract). It is further without question that the legislature did not expressly deem assigned claim benefits to arise out of any contract. Therefore, one could conclude that, as between a certificate policy and an assigned claim, there is a contractual basis to imply a covenant of good faith and fair dealing in a certificate policy situation, but not in an assigned claim situation. That is the point of the dissent. As such, the analysis of the dissent may, therefore, represent the normal or common order, rather than the anomaly.
Finally with respect to footnote 20, the dissent did not advance “the idea that assigned claimants do not need protection....” Majority at footnote 20. In fact, the dissent agreed with the majority with respect to the need for protection of assigned claimants. See dissent at footnote 1. When read in its proper context, pages 8 and 9 of the dissent, instead, explains that the need to protect assigned claimants (as a population) may be less than that of certificate policy holders, not non-existent.
[129 Hawai'i 501]In any event, there are numerous reasons discussed throughout this dissent why I find it difficult to reach the conclusion that the legislature decided to impose a duty of good faith and fair dealing upon a servicing carrier. Indeed, it is unsettling that the road to the conclusion that the legislature intended to impose a duty of good faith upon a servicing carrier is riddled with contrary considerations.
The majority goes through a wonderful discussion and analysis in Section IX of its opinion comparing and contrasting the certificate policy program and the assigned claim program. Then, without an explanation, the majority leaps from the end of Section IX to the conclusion in footnote 19 that HRS § 431:10C–403 “deems” an assigned claim to be treated as a motor vehicle policy. The dissent agrees with the majority's discussion in Section IX that the certificate policy program and the assigned claim program are different programs with different intents. The certificate policy was created to get public assistance recipients driving on the road in a financially responsible fashion. On the other hand, the assigned claim program was designed as a program of last resort to afford persons harmed in motor vehicle accidents to receive minimum, basic payments if no other insurance is available. The dissent is struggling to see how the magnanimousness of the state, in affording last resort payment under the assigned claim program, can be construed as an intent to impose upon a servicing carrier a duty of good faith and fair dealing in favor of the assigned claimant. Other remedies may be available to a mistreated assigned claimant (e.g., tort claims, unfair business practices, etc.). But, today's decision goes beyond the comfort level of the dissent's capacity to agree that the legislature intended the assigned claim to arise out of a contract, so as to give rise to duties of good faith and fair dealing, which heretofore, were only implied from an actual contract. It seems to me, particularly after reading the applicable statutes and Section IX of the majority opinion, that it is clear that the legislature only intended to create a last resort program for assigned claimants, and nothing more. The express language of the assigned claim statute could not be any clearer. Creating any more implied benefits or remedies for an assigned claimant, such as a bad faith claim against the servicing carrier, is a policy decision that the legislature should make, not this esteemed court. There is no express language in the assigned claim context, such as is present in the certificate policy context, that indicates that the legislature intended to expose servicing insurance carriers with bad faith liability in the assigned claim context.
The majority also relies in part upon a trio of Hawai‘i cases in rejecting the conclusion that a contract is a prerequisite for a bad faith claim. It is respectfully submitted that our decision's reliance upon those three cases is subject to debate.
The first of the three cases is Simmons v. Puu, 105 Hawai‘i 112, 94 P.3d 667 (2004). The Simmons court held “that any formal recognition of a claim for relief in favor of an injured claimant against a third-party tortfeasor's insurance company for bad faith settlement practices would require the assignment [a contract] of the insured tortfeasor's rights arising from an underlying insurance contract to the injured plaintiff.” Id. at 122–23, 94 P.3d at 677–78. The Simmons court acknowledged that no other jurisdiction has recognized a bad faith cause of action without [129 Hawai'i 502]a contract, or an assignment of contractual rights, from which the covenant of good faith and fair dealing is implied. Id. at 121–22, 94 P.3d at 676–77.
The majority states in footnote 24 that “[t]he dissent incorrectly claims that good faith cannot be implied ‘without an underlying contract.’ ” To be clear, the dissent's view is based upon the principle that the assigned claim statute, in the absence of an express recognition by the legislature of the existence of an assigned claim contract, cannot constitute the sine qua non for a bad faith claim: an actual contract. It is the existence of a contract between the parties, from which the covenant of good faith and fair dealing is implied, that gives bad faith law its predictability. Today's decision has the potential to significantly expand the circumstances in which bad faith claims may be allowed where none existed before because of the absence of a contract. The majority states in the opinion text accompanying footnote 24 that “[t]he assigned claims plan under JUP creates an insurer-insured relationship, and no underlying contract is necessary to give rise to that relationship and its concomitant rights and obligations because that relationship is created by statute.” This is the gravamen underlying the dissent's inability to agree with the majority. Yes, the legislature did magnanimously create a minimum recovery for persons harmed in a motor vehicle accident. However, the dissent is unable to find persuasive evidence that the legislature intended the assigned claimant to have bad faith rights against the servicing carrier. As far as the legislature is concerned, the servicing carrier is doing a public service by participating in the assigned claim program. There is great wisdom and predictability in the law of bad faith that is attached to the singular requirement that an actual contract between the parties exist before good faith duties can be implied. The dissent is concerned that today may mark the demise of that predictability.
The majority contrasts the holding in Simmons with the case at bar as follows:
Here, in contrast, as an assigned claimant, Petitioner stands in a first-party relationship to Respondent.
The assigned claims plan under JUP creates an insurer-insured relationship, and no underlying contract is necessary to give rise to that relationship and its concomitant rights and obligations because that relationship is created by statute.
Majority opinion at 28–29.
Recognizing a bad faith claim without the necessity of an underlying contract is a profound departure from fundamental common law principles that spawned bad faith law. We are aware of no jurisdiction that has recognized the proposition that a covenant of good faith and fair dealing can be implied in a statutorily created relationship without an underlying contract.
This court noted in the past that the good faith duty does not arise out of just any relationship, but out of a “relationship established by contract.” See note 6, supra (emphasis added). The reason why a contract is necessary is because the foundation upon which the bad faith tort cause of action rests is the common law principle that a covenant of good faith and fair dealing is implied by law in a contract of insurance. Best Place, Inc. v. Penn America Insurance Co., 82 Hawai‘i 120, 123–24, 920 P.2d 334, 337–38 (1996). There is no comparable common law principle with regard to a non-contract based relationship. Therefore, in order for a relationship to support the implication of a duty of good faith, that relationship must be established by a contract, not by statute. Otherwise, there is no common law basis for implying a covenant of good faith and fair dealing. The unmistakable principle in Simmons is that a contract is a “necessary element” of a bad faith cause of action because the existence of a contract is the “analytical underpinning of this court's adoption of the [bad faith cause of action] in the first place.” Simmons is controlling and contrary to our decision today.
Notwithstanding the foregoing, the court observed in Best Place that “Hawai‘i might recognize a bad faith cause of action brought by an injured claimant even absent a contractual relationship between the injured claimant and the third-party tortfeasor's insurance company [,]” although this court “expressly decline[d] to rule on the viability of that particular cause of action in this jurisdiction at [that] time.” 82 Hawai‘i at 125 n. 7, 920 P.2d at 339 n. 7 (emphasis added). The suggestion contained in footnote seven, however, by no means implies that the existence of an insurance contract is not a necessary element of the tort of bad faith settlement practices, a proposition that would render nugatory the analytical underpinning of this court's adoption of the claim for relief in the first place.
Simmons v. Puu, 105 Hawai‘i 112, 120, 94 P.3d 667, 675 (2004)(emphasis in original).
The second of the three cases is [129 Hawai'i 503]Enoka v. AIG Hawaii Insurance Company, Inc., 109 Hawai‘i 537, 128 P.3d 850 (2006). Today's decision construes Enoka as supporting the proposition that a bad faith cause of action is not dependent upon the existence of a contract. The majority states with regard to Enoka that “this court held that the tort of bad faith did not turn on whether the claim for benefits was due or not; instead, it turned on ‘the conduct of the insurance company in handling the claim.’ ” Majority opinion at 31. The majority goes on to state that the “ special relationship between the insurer and the insured and the conduct of the insurer toward the insured is what gives rise to the tort of bad faith, not solely the existence of a contract.” Id.
The majority states:
Enoka's reasoning does not support the proposition that the duty of good faith owed by the insurer to the insured is dependent on the existence of a contract. If the contract is the source of the duty to act in good faith, then mishandling or denying a claim when the insurer has no contractual duty to pay benefits should not give rise to a bad faith claim.... The special relationship between the insurer and the insured and the conduct of the insurer toward the insured is what gives rise to the tort of bad faith, not solely the existence of a contract.
Majority opinion at 491, 304 P.3d at 632. Then at footnote 25, the majority concludes that “ Enoka is cited for recognizing that an insurer's good faith duty does not rest only in coverage under the insurance policy, but extends to the relationship between insured and insurer.”
The dissent is unable to agree with the majority's reading of Enoka. In Enoka , the plaintiff was injured while she was riding in the bed of a truck that was involved in an accident. Approximately 3 years and 2 months after the accident, Ms. Enoka filed a claim for nofault benefits under her parents' nofault policy. Ms. Enoka lived with her parents. The parents' nofault carrier denied the claim. Ms. Enoka sued the nofault carrier for nofault benefits and for bad faith, claiming that the carrier denied her claim on an invalid basis and that it mishandled her claim. The nofault carrier argued that it cannot be held liable for bad faith if the nofault claim denial was proper. This court held that Ms. Enoka was not precluded from bringing her bad faith claim against the nofault carrier even where there is no coverage for liability on the underlying nofault policy. In other words, this court held that an insured may pursue a claim for bad faith notwithstanding that the underlying insurance claim is denied.
The dissent is not quite clear what the majority was saying in footnote 25. If the majority is addressing the creation of the duty of good faith and fair dealing, then the dissent does disagree. Enoka can only be read that it was the contract of insurance, not the relationship of insurer and insured, that formed the basis upon which to imply the existence of the covenant of good faith and fair dealing. Once the existence of a contract of insurance is identified, a covenant of good faith and fair dealing is implied in said contract. That implied covenant can then give rise to obligations that go beyond the four corners of the insurance contract. For example, a duty not to subordinate the interests of the insured to those of the insurance carrier may not be expressly written in an insurance policy, but may be imposed by the duty of good faith and fair dealing.
However, if footnote 25 was explaining that a bad faith claim can exist in the absence of coverage under the contract, then the dissent is in total agreement with the majority. It is the existence of an insurance contract, not whether there is actual coverage thereunder, that impliedly gives rise to the covenant of good faith and fair dealing.
What Enoka stands for are the following propositions, none of which can be ignored: (1) Ms. Enoka and the insurance carrier had an actual contract of nofault insurance between them; (2) an insurerinsured relationship was created by that contract of insurance; (3) the insurance contract (not the relationship between insurer and insured) gave rise to an implied covenant of good faith and fair dealing that that formed the legal basis for Ms. Enoka's bad faith claim; (4) the implied covenant required the insurance carrier to deal with Ms. Enoka in good faith and with fair dealings even of her nofault claim had no basis; and (5) the bad faith claim is independent of the nofault claim to the extent that the viability of the bad faith claim did not depend upon the viability of the nofault claim in order to exist.
The duty of good faith and fair dealing is well known to create a wide variety of extracontractual duties, that relate to many aspects of the insurerinsured relationship. Such extracontractual duties include how a claim is investigated and adjusted, the timing of what the insurer does, not placing the interests of the insurer over that of the insured, treating the insured fairly, not jeopardizing the insured's personal assets without justification, and many others that are too numerous to mention. The duties involved in Enoka are just one example of extracontractual duties that are created once a duty of good faith and fair dealing is implied. However, no case in the country, before the case at bar, implied a covenant of good faith and fair dealing without the existence of an actual contract between the parties.
Where I differ in my reading of Enoka is that the principle for which Enoka stands is that the basis for determining whether the insurer committed bad faith does not depend upon whether the insurer breached the insurance[129 Hawai'i 504]contract. Instead, bad faith looks beyond the four corners of the insurance contract to the conduct of the insurer in discharging its duty of good faith that is implied in the insurance contract.
Enoka focused upon whether there can be a breach of the covenant of good faith that is implied in an insurance contract if there is no coverage under the insurance policy. Stated differently, is a bad faith plaintiff still entitled to pursue a bad faith claim if the bad faith plaintiff's claim for insurance benefits is found to be excluded from coverage under the insurance policy? Enoka held:
Inasmuch as Enoka has alleged that AIG handled the denial of her claim for no-fault benefits in bad faith, we conclude that she is not precluded from bringing her bad faith claim even where there is no coverage liability on the underlying policy. Accordingly, we hold that the trial court erred in determining that, because Enoka's breach of the contract claim failed, her bad faith claim must fail.
Enoka v. AIG Hawaii Insurance Co., Inc., 109 Hawai‘i 537, 552, 128 P.3d 850, 865 (2006).
Enoka addressed whether a bad faith claim can be maintained if the underlying claim is denied or not paid when it stated: “However, as explained by the Hawai‘i Supreme Court in Best Place, a claim for the tort of bad faith does not turn on whether the claim for benefits was due or not, instead it turns on the conduct of the insurance company in handling the claim.” Id. at 551, 128 P.3d at 864.Enoka really does not appear to address at all whether a covenant of good faith and fair dealing can be implied in a statutorily created relationship without a contract.
Enoka was published several years after Best Place and its progeny. Therefore, bad faith law was firmly established in Hawai‘i by the time Enoka was decided. As such, Enoka did not engage in any discussion regarding whether a covenant of good faith can be implied in a relationship where no contract of insurance exists. Moreover, no such discussion was implicated by the facts of that case since the AIG insurance policy was the contract from which the duty of good faith was implied.
The third of the three cases is Christiansen v. First Insurance Company of Hawaii, Ltd., 88 Hawai‘i 442, 967 P.2d 639 (App.1998). I agree with the majority that the teachings of Christiansen are similar to those of Enoka. As such, Christiansen also does not appear to suggest that the existence of a contract is not a prerequisite to a bad faith claim.
When the Christiansen court stated that “an insurer's duty of good faith and fair dealing as one implied by law that is ‘independent of the performance of [the insured's] contractual obligations[,]’ ” id. at 451, 967 P.2d at 648 (quoting Best Place, Inc. v. Penn America Insurance Co., 82 Hawai‘i 120, 128, 920 P.2d 334, 342 (1996)), it did not mean to suggest that the good faith duty can be implied by law in a relationship without a contract. On the contrary, Christiansen, like Enoka, involved an insurance contract from which the duty of good faith was implied.
The Christiansen court's reference to “implied by law” in the above-quoted language was a reference to the common law principle that a covenant of good faith and fair dealing is implied in an insurance contract. It was not a reference or implication that a duty of good faith can be implied in a relationship in the absence of a contract.
A similar observation can be made of the Christiansen court's statement that “a tort of bad faith is a tort independent of the policy because its origins are not in the contract but in the common law imposition of good faith and fair dealing, the breach of which fiduciary duty may be considered an independent tort.” Id. at 452, 967 P.2d at 649.
The context of the quoted language is that the Christiansen court was faced with the question whether a bad faith tort claim was subject to the one year statute of limitations stated in the underlying insurance policy or the two year statute of limitations that applied generally to all tort actions. The bad faith complaint in Christiansen was filed six months after the expiration of the one year statute of limitation and six months before [129 Hawai'i 505]the expiration of the two year statute of limitation.
Again, Christiansen involved a contract of insurance. Thus, when the Christiansen court used phrases such as a bad faith tort is “independent of the policy” or that bad faith “origins are not in the contract but in the common law imposition of good faith and fair dealing,” the court did not intend such language to suggest that a covenant of good faith and fair dealing can be implied in the absence of a contract.
When read in the context of deciding which statute of limitations applied, the Christiansen court's usage of phrases such as “independent of the policy” and “origins not in the contract but in the common law” were really addressing the same issue that was before Enoka: Whether the bad faith claim is subject to the provisions of the underlying insurance policy or whether the bad faith claims implicate duties that are broader than the four corners of the insurance contract. Christiansen and Enoka both held that the bad faith claim is based upon the implied covenant of good faith and fair dealing, which is separate and distinct from the duties that are established by the express provisions of the insurance policy.
It is equally apparent that neither the Christiansen nor the Enoka courts espoused the principle that a covenant of good faith and fair dealing can be implied in the absence of a contract. Christiansen involved a First Insurance insurance policy and Enoka involved an AIG insurance policy. The facts in both cases did not raise an issue regarding whether a good faith duty can be implied in the absence of a contract. Therefore, to interpret the quoted language from Christiansen as suggesting support for the proposition that a duty of good faith can be implied without a contract does not appear to be consistent with the essence of Christiansen.
The majority states in footnote 26 that “the statutes involved in the instant case indicate that an automobile insurance policy should be deemed to exist.” While this a correct statement with respect to the matter of certificate policies, this is certainly not correct with respect to assigned claims. The fact remains that the legislature did not expressly deem an assigned claim to be based upon an insurance policy. The fact also remains that the legislature did expressly “deem” a certificate policy to be a policy (an insurance contract).
Based upon the foregoing, I respectfully conclude that the statutory scheme for assigned claims does not impose a covenant of good faith and fair dealing upon the servicing carrier because there is no contract of insurance between the assigned claimant and the servicing carrier. If there is no contract between the parties, there is no basis for implying a covenant of good faith and fair dealing.
III.
POLICY MAKING SHOULD BE DEFERRED TO LEGISLATURE
[T]his court has said that “the power to decide what the policy of the law shall be resides with the legislature; ‘and if it has intimated its will, ... that will should be recognized and obeyed.’ ”
Washington v. Fireman's Fund Insurance Cos., 68 Haw. 192, 200–01, 708 P.2d 129, 135 (1985). Accord, In re Bowler, 9 Haw. 171, 176 (1893) (“It is not for [the Supreme Court of the Hawaiian Islands] to inquire into the policy or wisdom of such a law. That rests solely with the legislative body.”).
The decision to recognize that a bad faith cause of action can arise out of a statutorily created relationship is a policy question that is more appropriately addressed to the legislature. There are vast implications of such a policy that a law making process is better suited to vet with greater representation and participation by members of the effected population.
I am concerned that today's decision may initiate a march down the proverbial slippery slope that could expose many in statutorily created relationships to bad faith liability. I find it difficult to fathom that the legislature intended, when it created statutory relationships, particularly in the family law area, to subject such individuals and entities to bad faith liability.
[129 Hawai'i 506]For example, the interests of representatives of the overwhelming majority of the statutorily created relationships were not represented in the instant appeal. Only one such entity was represented herein and that was the Petitioner. Neither Petitioner nor Respondent appeared to speak for or on behalf of the multitude of other persons or entities in statutorily created relationships. If the question decided today were presented to the legislature, all interested segments of our society would have the opportunity to be heard on the question of adopting the policy that is established by our decision.
The family law area is teeming with persons and entities who are heavily invested in statutorily created relationships. Some of these may include guardians ad litem, masters, foster parents, adoptive parents, social workers, counselors, and many others. Each of these persons have duties and obligations toward vulnerable or at-risk persons. They may potentially be exposed to bad faith claims because of our decision today. Such exposure to bad faith liability would have a chilling effect upon persons' willingness to serve in these many family law capacities.
The government and the private sector have a multitude of persons in statutorily created relationships that may potentially be exposed to bad faith liability as a result of our decision in this case. It is precisely for this reason that the policy decision made today should be deferred to the legislature.
I do not quarrel with the wisdom of the majority. I simply and respectfully view the policy question decided today, and its potentially broad implications, as matters that should be left to the legislature.
The judicial process simply involves the parties before the court in this single case. The legislative process is much more global in its scope, which offers more notice to a broader segment of our population so that affected persons and organizations can participate in the decision whether to adopt such a novel policy.
If deferred to the legislature, the question of whether to expose servicing carriers to bad faith liability could be accomplished very surgically, without potentially exposing so many others in statutorily created relationships to bad faith liability. The legislature could accomplish this simply by amending HRS § 431:10C–403 (assigned claims) to provide that assigned claims rights and obligations of the servicing carrier “shall be deemed a policy for the purposes of this chapter.” The legislature has already done this with the certificate policy.
For example: “The certificate shall be deemed a policy for the purposes of this chapter upon the issuance of a valid motor vehicle insurance identification card....” Haw.Rev.Stat. § 431:10C–407(b)(2)(B) (2005 Replacement).
If the legislature were to enact such an amendment, it would supersede prior inconsistent case law , clearly and intentionally support the existence of a claim for bad faith by establishing a well-recognized basis ( i.e., a contract) for implying a duty of good faith and fair dealing, and obviate the need to expand bad faith law in such a novel and far-reaching manner as was necessary to achieve the result herein. A fundamental principle of the duty of good faith and fair dealing, which only arises out of a contract, would remain intact and all other statutorily created relationships would remain free from the specter of bad faith.
Such an amendment would neutralize the language of Willis II that interpreted the language prior to the amendment as follows: “Assigned claims are creatures of statute and do not arise out of a contractual relationship.” Willis v. Swain, 113 Hawai‘i 246, 249, 151 P.3d at 730 (2006).
IV.
CONCLUSION
I do not quarrel with the wisdom of the majority. I respectfully posit a more conservative perspective that would maintain the bad faith cause of action in its status quo and, given the potential implications of today's decision, defer to the legislature the policy issue of recognizing a bad faith claim in the context of assigned claims.
I share in the concern of the majority that a servicing carrier appears to have little incentive to deal with an assigned claim in good faith and with fair dealing. Often, the [129 Hawai'i 507]648assigned claim applicant has a vastly unequal capacity to challenge the servicing carrier's claims management and decisions. There appears to be great wisdom and social justice in imposing duties of good faith and fair dealing upon a servicing carrier; a standard to which many servicing carriers already adhere. However, I think it preferable to have the legislature address this policy question rather than having this court take the steps that were necessary for the judiciary to address the policy question decided today.