Stakes Are High As Maui Wildfire Settlement Case Goes Before Supreme Court

The Hawaiʻi Supreme Court on Thursday is scheduled to hear a case that will impact Hawaiʻi’s economy regardless of which side wins. The results could be bankruptcy for the state’s biggest electric utility or rising insurance premiums.

On one side of the legal fight are parties to a proposed settlement of Maui wildfire litigation, including fire victims and Hawaiian Electric Company, whose equipment sparked the catastrophe. They want to settle the lawsuits from more than 1,000 homeowners, businesses and others harmed by the fire for $4.04 billion and move on.

On the other side are the insurance companies who covered those harmed homeowners and businesses. They want no part of the settlement. Instead, they want to sue HECO, it’s parent company and others responsible for the fire to recoup some of the $2.3 billion they’ve paid out in claims related to the fires, which killed 102 people, destroyed more than 2,200 structures and leveled much of Lahaina in 2023. 

Such lawsuits are standard practice in the insurance industry — an insurer seeking to recoup some of the money it paid out to policyholders from entities that caused the policyholder harm. Such lawsuits are called subrogation.

But if the Supreme Court, which is hearing oral arguments in the case on Thursday, rules for the insurers, it could have cascading consequences. Such a ruling could upend the proposed settlement, delaying payments to wildfire victims. For HECO, one of Hawaiʻi’s oldest corporations, it could mean bankruptcy.

On the other hand, a loss for the insurers could hammer a Hawaiʻi insurance market already reeling from risks related to climate change.

Carl Bonham, executive director of the University of Hawaiʻi Economic Research Organization, says either outcome could significantly disrupt the local economy. A HECO bankruptcy, he said, would likely lead to job losses, while insurers losing their right to sue those responsible parties is sure to affect the state’s insurance rates.

“I’m worried about the very things both sides are worried about,” he said.

“I think HECO’s position with respect to the utility is very valid,” Bonham said. “And if subrogation gets thrown out, I can’t imagine that’s not going to have an impact on our insurance market.”

How We Got Here

The case dates back to August 2024, when the parties that played a role in the fire’s origin or spread joined with the fire’s victims and announced a “global settlement,” putting to rest hundreds of lawsuits.

The $4.04 billion deal includes $1.99 billion from HECO; $872.5 million from Kamehameha Schools, the state’s largest land owner, whose unmaintained grasslands allowed the fire to spread; and about $800 million from the State of Hawaiʻi, which also was accused of allowing the fire to spread.

The rest would come from West Maui landowners and telecommunications companies such as Hawaiian Telcom and Spectrum, which loaded equipment onto a utility pole that broke and allowed a power line to fall onto the ground, where it sparked the fire.

While the so-called global settlement had been mediated with stunning speed — less than a year after the fires — it wasn’t global after all. In fact, it wasn’t even a settlement. Since the insurers hadn’t signed on, it was merely a proposal.

To be final, the document said the insurers’ claims against HECO, Kamehameha Schools and others had to be dealt with. If the insurers wouldn’t settle, the court would have to issue an order saying the insurers couldn’t sue.

Instead, the proposed settlement said, the insurers would have to file liens against their policyholders, and try to get back any money the policyholders won in court that exceeded the value of the harm they suffered. That’s not likely to sit well with customers.

With billions of dollars at stake, and the insurers unwilling to settle, Maui Circuit Court Judge Peter Cahill asked the Supreme Court for guidance. Could he approve the settlement without the insurers on board and require them to go after their policyholders instead of suing the wrongdoers?

What The Insurers Want

The insurers include 192 companies that have paid more than $2.3 billion to victims so far, although the final tally could be more than $3 billion after all claims are paid. Their lawyers argue that the right of subrogation, the doctrine regarding suing wrongdoers to recoup claims paid, is longstanding law in Hawaiʻi, with a line of legal cases dating to the monarchy.

In extensive court filings to the Supreme Court, the insurance lawyers cite a seminal 1885 case in which the Supreme Court of the Kingdom of Hawaiʻi stated that subrogation “is recognized in every cultivated system of jurisprudence.” The legal throughline continues to 2017, when the Hawaiʻi Supreme Court ruled insurers may seek clawbacks “regardless of outside settlement.”

The insurers say it’s what they do as a matter of course, which is pay claims to policyholders then sue the party at fault.

“The Settling Parties know that they are asking this Court not to apply Hawaiʻi law, but to rewrite it for their benefit,” insurance industry lawyers wrote in a brief.

What The Settling Parties Want

But the parties who are part of the settlement say the insurers are wrong, and the insurers’ rights to recoup claims are limited to what’s in Hawaiʻi statutes, which require insurers to pursue liens on policyholders’ awards rather than suing the wrongdoers.

Jesse Creed, a lead counsel for the settling parties, said there’s also an issue of fairness.

The insurers bore the risk when they issued policies, Creed said, so it’s only fair that they take a financial hit when there’s a fire, even if it means losing billions of dollars. Even with that money, Creed said, Lahaina will be pressed to rebuild.

“They need to come up with the shortfall or this community will not be rebuilt,” he said.

“It’s not just their homes that burned,” said Creed, whose own home in L.A.’s Pacific Palisades neighborhood recently burned down. “It’s their schools, their workplaces, their churches and other houses of worship, their community centers, their playgrounds.” 

Gov. Josh Green, who appoints Supreme Court justices, has taken a clear side in the case, pushing for the settlement and openly criticizing the insurers for not getting on board.

“Remember that while [the insurance companies] make these giant profits, they don’t send refunds back to the people when there aren’t incidents,” Creed’s brief says, quoting Green. “They invest in the stock market or pay their CEO $25 million like this year at State Farm. But when a tragedy occurs they want to recoup payments that go to the victims. It’s fundamentally unfair, and they call it subrogation.”

Green declined an interview request for this story.

What’s At Stake For Insurers

The U.S. insurance industry, meanwhile, is weighing in with a friend of the court brief from three insurance organizations laying out what’s at stake.

The groups say that denying insurers the right to sue wrongdoers, known as tortfeasors in legal parlance, would undermine the stability of Hawaiʻi’s insurance market and hurt customers.

The insurers dispute Green’s comment that subrogation allows insurers to recoup payments ahead of victims. The insurers say the policy merely allows them to hold wrongdoers accountable.

A victory for the settling parties, they say, would change that.

“At the expense of the insurance-buying public, tortfeasors would avoid the full costs of their conduct, and key considerations for the underwriting and issuance of property and casualty coverage would be cast aside,” the associations wrote in their brief.

The associations declined an interview request. But in a statement, Paul Martin, a vice president at the National Association of Mutual Insurance Companies, said the consequences could be significant if the Hawaiʻi Supreme Court rules against the insurers.

A loss “undermines their ability to offer competitive rates and sustain doing business in the state,” he said. “This could lead to higher rates for consumers in the short term and fewer choices of providers in the long term.”

Hawaiʻi’s new acting insurance commissioner, Jerry Bump, also declined to answer questions, including about whether the court’s ruling could hurt Hawaiʻi’s insurance market.

What’s At Stake For HECO

HECO also declined to comment, but the company said in it’s most recent quarterly report that a loss at the Supreme Court would unwind the sweeping settlement and leave the utility facing hundreds of suits.

“There is no assurance that the Company will be successful in the defense of the litigation or that insurance proceeds will be available to fund any potential settlements, judgments, or costs associated with the litigation,” the company said.

Even if the settlement is approved, the company still needs to raise $1.99 billion to pay for its portion. If it can’t do so, the company has said, HECO might need to seek “relief under the U.S. Bankruptcy Code.”

Whether it comes to that might depend as much on politics as it does on the law. The theory of legal realism holds that judges may overturn precedent to follow social and political interests, as the U.S. Supreme Court did when it reversed Roe v. Wade’s protection of abortion rights.

In this case, some of the state’s biggest power brokers have lined up to help save HECO, including the governor and Kamehameha Schools. Lawmakers are also stepping in this session to support the company’s finances with a bill to finance a new wildfire recovery fund.

Whether a handful of unelected judges would get in the way of that tide of support, even if the law favors the insurers, remains to be seen.

Colin Moore, a political scientist and associate professor with UHERO, said it’s an overstatement to think politics alone will guide the court’s decision. But, he said, “I think it’s undoubtedly true that politics will influence the decision.”

Judges who end up on the Hawaiʻi Supreme Court certainly understand politics, Moore said. But he said Hawaiʻi justices haven’t overturned laws based on open politically partisan motives as the U.S. Supreme Court has done.

“In a case like this, context will absolutely matter,” he said. “But I think that any decision they make they will find through… the law.”