Guajardo v. Aig Hawai'I Ins. Co. Inc.

Decision Date08 July 2008
Docket NumberNo. 27893.,27893.
Citation187 P.3d 580,118 Haw. 196
PartiesBang Ja GUAJARDO and Richard Guajardo, Plaintiffs-Appellants/Cross-Appellees-Petitioners, v. AIG HAWAI'I INSURANCE COMPANY, INC., Defendant-Appellee/Cross-appellant-Respondent.
CourtHawaii Supreme Court

Ian L. Mattoch and Daniel P. Kirley, Honolulu, for the plaintiffs-appellants/cross-appellees-petitioners, on the application.

Jonathan H. Steiner and R. John Seibert, Honolulu, for the defendant-appellee/cross-appellant-respondent, on the opposition to the application.

MOON, C.J., LEVINSON, NAKAYAMA, AND DUFFY, JJ., and ACOBA, J., concurring separately.

Opinion of the Court by LEVINSON, J.

On February 11, 2008, the plaintiffs-appellants/cross-appellees-petitioners Bang Ja Guajardo (Mrs. Guajardo) and Richard Guajardo (Mr. Guajardo) (collectively, the Guajardos) filed an application for a writ of certiorari, urging this court to review the summary disposition order (SDO) of the Intermediate Court of Appeals (ICA) in Guajardo v. AIG Hawai'i Insurance Co., No. 27893, 116 Hawai'i 72, 169 P.3d 1024, 2007 WL 3122676 (Hawai'i Ct.App. Oct. 25, 2007). They argue that the ICA gravely erred in concluding (1) that the defendant-appellee/cross-appellant-respondent AIG Hawai'i Insurance Company, Inc. (AIG) did not definitely deny the Guajardos' request for consent to their settlement with the third-party tortfeasor, Gary Senaga (Senaga), who injured Mrs. Guajardo, (2) that the first circuit court, the Honorable Bert I. Ayabe presiding, correctly ruled that AIG did not misrepresent the terms of its insurance policy to them in response to their claim for underinsured motorist (UIM) benefits, (3) that, even if AIG misrepresented the terms of the policy, the misrepresentation did not prejudice the Guajardos, (4) that AIG was not subject to a duty to conduct an independent investigation into Senaga's assets, (5) that the circuit court correctly granted summary judgment in favor of AIG, because the ICA misstated the standard of review of summary judgments and because the reasonableness of AIG's handling of the Guajardos' claim remains a genuine issue of material fact, and (6) that the circuit court correctly declined to grant the Guajardos' request to conduct further discovery pursuant to Hawai'i Rules of Civil Procedure (HRCP) Rule 56(f).1

We hold that the ICA erred in affirming the circuit court's grant of partial summary judgment in AIG's favor and against the Guajardos with respect to the Guajardos' bad faith claim and in concluding, as a matter of law, that any unreasonable interpretation of the Guajardos' policy by AIG did not prejudice them. Accordingly, we vacate the circuit court's judgment and remand this case to the circuit court for further proceedings consistent with this opinion.

I. BACKGROUND
A. Factual Background

On May 23, 2002, Mrs. Guajardo was crossing Channel Street near its intersection with Ala Moana Boulevard when she was struck by a van driven by Senaga. As a result of the accident, Mrs. Guajardo suffered a "severe lower extremity injury." On the date of the injury, the Guajardos were insured for $100,000.00 in UIM coverage through AIG, and Senaga was insured for $100,000.00 in liability coverage through Progressive Insurance Company (Progressive).

On July 29, 2003, Mrs. Guajardo's counsel, Ian L. Mattoch, wrote to AIG's litigation manager, Jeffrey Ross, advising Ross of Mrs. Guajardo's intention to make a UIM claim against her AIG automotive insurance policy. Mattoch stated that Senaga possessed $100,000.00 in bodily injury liability (BI) coverage with Progressive and noted that Progressive anticipated tendering the full $100,000.00 in liability coverage. The letter advised Ross that, although Senaga was an attorney, he was also divorced, living with his parents, and without any major assets. The letter also requested that AIG determine whether it would consent to the underlying BI settlement.

On the following day, July 30, 2003, Ross responded thusly:

Thank you for your letter dated July 29, 2003. Pursuant to your request we have established a claim file for your client's UIM claim.... Nevertheless we are unable to give our consent for your client to settle her BI claim with ... Senaga's insurance carrier. As you have indicated in your letter ... Senaga is a deputy attorney general living at home with his parents. He certainly earns a good salary and has limited living expenses. On that basis we will not consent to the BI settlement since even though he may not have tangible assets he certainly has future income to pay any excess judgement against him.

If you[r] client desires to make a UIM claim it will be necessary for her to obtain judgment against ... Senaga to protect our subrogation rights as required under her policy. I should advise you [that] this issue has come up several times in the past on other cases and is making its way to the Hawai[']i Supreme Court. At some point they will set the standard by which consent must be given to settle a BI claim. Right now we only have Taylor v. GEICO[, 90 Hawai'i 302, 978 P.2d 740 (1999),] as the case law on this subject and the Hawai[']i Supreme Court has clearly recognized a carrier's right to protect its subrogation.

On July 31, 2003, Mattoch wrote to Ross informing him that Mrs. Guajardo had sent an assets questionnaire to Senaga. He added that, "[o]bviously, AIG's present position prevents Mrs. Guajardo from doing anything to resolve the third-party claim and to pursue her claim for first-party BI insurance." As an alternative, Mattoch proposed that AIG could "buy" the BI claim, and he concluded by emphasizing that "[Mrs. Guajardo] did not pay her UIM premium to be saddled with AIG's collection efforts."

On August 4, 2003, Ross responded by letter to Mattoch, again suggesting that he review Taylor specifically for the proposition that "a policy's consent to settle provision `perform[s] the crucial function of protecting a UIM carrier's potential subrogation interests.'" (Quoting Taylor, 90 Hawai'i at 310, 978 P.2d at 748.) Ross stated that he would be "more than willing" to work with Senaga through his attorney to determine the extent of his wealth, but that without those facts they could not make an informed decision regarding whether to settle the BI claim, and therefore AIG was "unable to either give or decline" its consent at that time. Finally, Ross noted that he was unaware of any case law that would require AIG to "buy" Mrs. Guajardo's claim and asserted that such an act would "severely prejudice" AIG's subrogation interests because Mrs. Guajardo would then have "absolutely no incentive to cooperate with [AIG] during the litigation against [Senaga]." On August 7, 2003, Mattoch wrote to Ross that, "[i]n the instance of `buying' out my client's [BI] claim, we would happily sign an agreement pledging full cooperation during the course of litigation against [Senaga]." Mattoch added that, "when you see the answers to the [asset questionnaire] submitted by ... Senaga, you will realize that he has no present capacity which would justify refusal to consent to the settlement." (Emphasis in original.)

On August 13, 2003, Mattoch submitted a demand for tender of Mrs. Guajardo's UIM benefits to AIG through Ross. The letter included a description of the accident and a summary of the relevant medical care.

On August 14, 2003, Ross wrote to Mattoch and highlighted Part C of Mrs. Guajardo's policy, which reads: "We will pay under this coverage only after the limits of liability under any applicable [BI] liability bonds or policies have been exhausted by payment of judgments or settlements." Ross noted that, in light of this provision, Mrs. Guajardo's demand for UIM benefits was premature because the underlying BI claim had not settled. Ross reiterated AIG's position with regard to Senaga's earning potential, estimating that "he earns in the neighborhood of $70,000.00 to $80,000.00 per year with ... [minimal] living expenses." Ross again asserted AIG's right to protect its subrogation interest as follows:

It was ... Senaga who made the decision to only carry $100,000.00 in [BI] coverage. For that reason AIG will not give its consent for your client to settle [Mrs. Guajardo's BI] claim. Should she release ... Senaga from any further obligations in this matter AIG will deny UIM coverage for this accident for violating the policy conditions.

I would also note that despite your contentions that liability is clear the police report shows Mrs. Guajardo as jaywalking at the time of the accident. I understand her story is different than what's depicted on the police report[;] however[,] there is a question of fact as to how the accident occurred which may have to be decided by a jury in this case.

On August 18, 2003, Mattoch sent Ross an opinion letter outlining the parties' respective positions. On August 19, 2003, Ross responded to Mattoch and claimed that, under Taylor, consent to settle provisions were valid in Hawai'i and that an insurance carrier had a right to protect its UIM subrogation rights.2 Ross further noted that no Hawai'i law or case required AIG to purchase the BI claim. He concluded that, "[u]ntil the Supreme Court so rules[,] AIG will not agree to advance any money to your client which may be offered by ... Senaga's carrier."

On September 8, 2003, Mattoch wrote to Ross asking whether AIG, following the Guajardos securing a judgment against Senaga, would consent to settle, cover the costs of such action, and/or pay the Guajardos' attorney's fees. Mattoch cited Best Place, Inc. v. Penn Am. Ins. Co., 82 Hawai'i 120, 920 P.2d 334 (1996), seemingly to assert that the case required AIG to take the foregoing actions if the Guajardos obtained the judgment. In a response letter of the same date, September 8, 2003, Ross notified Mattoch that AIG would not cover the expenses incurred in the action against Senaga, nor would it pay Mrs. Guajardo's attorney's fees.

On September 12,...

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