State v. Hawaii Government Employees Association, AFSCME Local No. 152, AFL-CIO.Â

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Electronically Filed
Supreme Court
SCWC-29352
14-FEB-2014
08:56 AM

IN THE SUPREME COURT OF THE STATE OF HAWAI#I

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STATE OF HAWAI#I, ex rel. DAVID M. LOUIE, Attorney General, and
DEAN H. SEKI, Comptroller of the State of Hawai#i,
Petitioners/Plaintiffs-Appellants, Cross-Appellees,

vs.

HAWAII GOVERNMENT EMPLOYEES ASSOCIATION, AFSCME LOCAL NO. 152,
AFL-CIO; UNITED PUBLIC WORKERS, AFSCME LOCAL NO. 646, AFL-CIO;
ROYAL STATE CORPORATION; ROYAL STATE NATIONAL INSURANCE COMPANY,
LIMITED; THE ROYAL INSURANCE AGENCY, INC.; VOLUNTARY EMPLOYEES’
BENEFIT ASSOCIATION OF HAWAII; MANAGEMENT APPLIED PROGRAMMING,
INC., Respondents/Defendants-Appellees, Cross-Appellants.

SCWC-29352

CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(ICA NO. 29352; CIV. NO. 02-1-0685)

FEBRUARY 14, 2014

RECKTENWALD, C.J., ACOBA, and McKENNA, JJ., WITH
NAKAYAMA, J., DISSENTING, WITH WHOM POLLACK, J., JOINS

OPINION OF THE COURT BY RECKTENWALD, C.J.

This case arises out of the Hawaii Public Employees

Health Fund’s “porting” program. Under the program, state and
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county employees could choose to enroll in health benefits and

long-term care benefits plans offered by their respective

employee unions, rather than Health Fund-sponsored plans. For

employees who chose a union-sponsored plan, the Health Fund would

transfer or “port” to the unions the government employers’

contributions to the cost of providing insurance. See Hawai#i

Revised Statutes (HRS) §§ 87-4, 87-22.3, 87-22.5, 87-23

(repealed).1 The instant action centers on the State’s

contention that public funds ported to certain unions exceeded

the amounts allowed by law.2

Specifically, the Health Fund statutes provided that

amounts ported to the unions would be either the public

employer’s contribution as determined in relevant collective

bargaining agreements, or the “actual monthly cost of the

coverage,” whichever was less. HRS §§ 87-4, 87-22.3, 87-22.5,

87-23. The State alleged that public funds ported to the Hawai#i

Government Employees Association (HGEA) and the United Public

1
HRS chapter 87 was repealed in 2001, effective July 1, 2003. 2001
Haw. Sess. Laws Act 88, §§ 3, 10 at 150-51. Reference to chapter 87’s repeal
is not repeated with each citation. Chapter 87 was replaced by chapter 87A,
governing the Hawaii Employer-Union Benefits Trust Fund. See id. § 1 at 138;
HRS ch. 87A.
2
This suit was initially brought by former Attorney General Earl I.
Anzai, and former Comptroller Glen M. Okimoto, on behalf of the State. The
present petitioners/plaintiffs-appellants/cross-appellees were substituted
automatically pursuant to Hawai#i Rules of Appellate Procedure (HRAP) Rule
43(c)(1) (2010).

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Workers (UPW) exceeded the “actual [monthly] cost of coverage.”3

The circuit court ultimately bifurcated the case, requiring the

State to seek a declaratory judgment with regard to the

interpretation of the statutory phrase “actual monthly cost of

the coverage” before allowing litigation on the State’s remaining

claims. The State then argued that the phrase means
(1) premiums paid to insurance carriers in arm’s
length transactions, less any refunds, rate credits,
and reimbursements, where the carrier is independent
of HGEA and UPW, meaning, not controlled by, related
to, or conspiring with leaders of HGEA and UPW to
circumvent statutory limits on amounts ported by the
Health Fund, or (2) allowable claims paid or incurred,
plus reasonable administrative fees and profits where
the carrier is not independent of HGEA and UPW.

The circuit court rejected the State’s interpretation

and concluded that the term means “the premium charged by and

paid to the carrier.” Because there was no dispute that the

ported amount equaled the premium charged and paid, the circuit

court’s declaratory ruling essentially ended the State’s case,

and the circuit court entered judgment against the State.4

The State appealed, arguing, inter alia, that (1) the

circuit court erred when it interpreted the phrase “actual

monthly cost of the coverage” to mean “the premium charged by and

paid to the carrier,” and (2) the circuit court erred when it

3
The respondents/defendants-appellees/cross-appellants in the
instant case include the Hawaii Government Employees Association (HGEA);
United Public Workers (UPW); Royal State Corporation (Royal State), Royal
State National Insurance Company, Ltd.; The Royal Insurance Agency, Inc.;
Voluntary Employees’ Benefit Association of Hawai#i; and Management Applied
Programming, Inc.
4
The Honorable Eden Elizabeth Hifo presided.

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denied the State leave to file a second amended complaint and

“rewrote” the State’s complaint.

The Intermediate Court of Appeals affirmed the circuit

court’s judgment with respect to its interpretation of “actual

monthly cost of the coverage.” The ICA further determined, inter

alia, that in light of its affirming the circuit court’s

interpretation, the issue of whether the circuit court erred when

it denied the State leave to file a second amended complaint and

“rewrote” the State’s complaint was no longer justiciable. The

ICA thus declined to reach that issue.

In its application for writ of certiorari, the State

raises the following questions:
1. Did the [ICA] gravely err when it interpreted the
phrase “actual monthly cost of the coverage” from
Hawai#i Revised Statutes (HRS) §§ 87-22.3, 87-22.5 and
87-23 to mean the premium set by an insurance carrier,
even if the State of Hawaii alleges that (a) the
insurance carriers had extraordinarily high gross
profits, (b) the insurance carriers had
extraordinarily high administrative fees, and (c) the
amount charged for the premium was grossly inflated
and did not reflect the “actual cost” of the coverage
in a legitimate arm’s-length business transaction?

2. Did the ICA gravely err when it failed to vacate
the circuit court’s orders denying the State leave to
amend its complaint, when the circuit court (a) denied
leave to amend even though the court had previously
granted leave to file similar causes of action, (b)
interpreted Hawaii Rules of Civil Procedure (HRCP)
[Rule] 9 incorrectly to conclude that the State’s
civil conspiracy to defraud claim was insufficiently
precise, (c) misused HRCP [Rule] 12(f) in order to
edit the State’s complaint itself, and (d) precluded
the State from amending its definition of “actual cost
of coverage” to make the definition consistent with
the complaint as amended by the court?

(Emphasis in original).

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We hold that the circuit court did not err in

interpreting “actual monthly cost of the coverage” in chapter 87

to mean “the premium charged by and paid to the [insurance]

carrier.” We recognize that the State has raised serious and

troubling allegations regarding improper financial dealings

amongst the defendants. However, the State chose to tie its

allegations to the statutes, and conceded at oral argument that

its claims, including conspiracy to defraud the State, depended

entirely on its interpretation of the statutory phrase “actual

monthly cost of the coverage.” We cannot rewrite the State’s

complaint to allege causes of action the State did not pursue.

Nor can we rewrite the statutes to include prohibitions that the

legislature never contemplated. Even if the State could have

asserted a claim for conspiracy to defraud wholly apart from the

provisions of chapter 87, it did not do so. The question here,

as framed by the State, is a narrow one: do the factual

allegations constitute a violation of the provisions of chapter

87? The answer to that question is no.

The State concedes that such a disposition would render

moot its second argument regarding the pleadings process. Thus,

we do not reach that issue. Accordingly, we affirm the judgment

of the ICA.

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I. Background

The following factual background is taken from the

record on appeal.

A. Health Fund

In 1961, the Legislature established the Health Fund

for the purpose of providing public employees and their

dependents with a health benefits plan. 1961 Haw. Sess. Laws Act

146, § 1 at 191. The Health Fund was defined to consist of

“contributions, interest, income, dividends, refunds, rate

credits and other returns.” Id. at 192. Act 146 required the

State to make monthly contributions to the Health Fund for health

benefits for employees and their dependents. Id. at 192-93.

Employees also were required to make a monthly contribution to

the Health Fund for “the difference between the monthly charge of

the health benefits plan selected by the employee-beneficiary and

the State’s contribution to the fund.” Id. at 193. The Health

Fund board was authorized to contract with carriers to provide

health benefits plans. Id. at 194. During the life of the

Health Fund, which was replaced by the Hawaii Employer-Union

Health Benefits Trust Fund (EUTF) on July 1, 2003, the Health

Fund expanded the benefits provided to public employees to

include plans such as prescription drug, vision, dental, and

group life insurance plans. See 1965 Haw. Sess. Laws Act 235,

§ 2 at 393; 1967 Haw. Sess. Laws Act 110, § 3 at 101; 1985 Haw.

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Sess. Laws Act 304, §§ 1-2 at 816-17. Initially, the public

employer’s contribution was a specific dollar amount determined

by statute. See, e.g., 1961 Haw. Sess. Laws Act 146, § 1 at 192.

However, effective July 1, 1985, the legislature amended the

Health Fund statute to require government employers to contribute

amounts as set forth in “the applicable public sector collective

bargaining agreement” or as established under HRS chapter 89C,

which pertains to public officers and employees excluded from

collective bargaining. 1984 Haw. Sess. Laws Act 254, §§ 4, 9 at

570-71, 573; HRS § 87-4(a) (1985 & 1993).

Beginning at various times during the existence of the

Health Fund, the applicable statutes were amended to allow state

and county employees to choose to enroll in union-sponsored

insurance plans, in lieu of Health Fund-sponsored plans. See

1967 Haw. Sess. Laws Act 110, § 3, at 101; 1984 Haw. Sess. Laws

Act 71, § 1, at 123. For employees who chose a union-sponsored

plan, the Health Fund would pay or “port” to the unions the

government employers’ contributions to the cost of providing

insurance. See HRS §§ 87-4, 87-22.3, 87-22.5, 87-23.

Under the statutory scheme at the time of the instant

case, the Health Fund was to provide health benefits to public

employees in the following manner:
(1) For those employee-beneficiaries who are not
participating in a health benefits plan of an
employee organization . . . , the [Health Fund]
shall establish health benefits plans and the

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requirements for eligibility under the health
benefits plans; or

(2) For employee-beneficiaries who participate in
the health benefits plan of an employee
organization, the [Health Fund] shall pay a
monthly contribution for each employee-
beneficiary, in the amount provided in section
87-4(a),[5] or the actual monthly cost of the
coverage, whichever is less, towards the
purchase of health benefits under the health
benefits plan of an employee organization.

HRS § 87-22.3 (Supp. 2002) (emphasis added).

Similar language appeared in HRS § 87-22.56

(determining dental plan benefits) and HRS § 87-237 (determining

5
See infra note 8.
6
HRS § 87-22.5 (Supp. 2002) required the Health Fund to provide
dental plan benefits to the children of employee-beneficiaries younger than 19
in the following manner, in relevant part:

(1) For those children of employee-beneficiaries who
are not participating in a dental program of an
employee organization . . . , the [Health Fund]
shall determine a dental plan and eligibility
requirements for such benefits based upon a
statutory monthly contribution per enrolled
child;

(2) For those children of employee-beneficiaries who
participate in the dental program of an employee
organization, the [Health Fund] shall allot the
statutory monthly contribution per enrolled
child or the actual monthly cost of the child’s
coverage, whichever is less, towards the
purchase of dental plan benefits under the
dental program of an employee organization[.]

(Emphasis added).
7
HRS § 87-23 (Supp. 2002) required the Health Fund to provide
benefits under a group life benefit program or group life insurance program to
employees, in relevant part:

(1) For those employees who are not participating in
a group life benefit program or group life
insurance program of an employee organization
. . . , the [Health Fund] shall determine a
group life insurance benefit plan and
eligibility requirements for such benefits based
upon the amount to be contributed per employee
(continued...)

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group life benefits). Under this statutory scheme, the Health

Fund’s contribution ported to the union would be either (1) the

public employer’s contribution for the cost of insurance, as

determined by the applicable collective bargaining agreement, see

HRS § 87-4;8 or (2) the actual monthly cost of the coverage,

7
(...continued)
under section 87-4(c);

(2) For those employees who participate in a group
life benefit program or group life insurance
program of an employee organization, the [Health
Fund] shall pay a monthly contribution for each
employee, in the amount determined under section
87-4(c), or the actual monthly cost of the
coverage, whichever is less, towards the
purchase of benefits under the group life
benefit program or group life insurance program
of an employee organization[.]

(Emphasis added).
8
HRS § 87-4 (1993) provided, in relevant part, that the State and
the several counties pay to the Health Fund a monthly contribution equal to:

(a) . . . the amount established under chapter 89C
[governing public officers and employees excluded from
collective bargaining] or specified in the applicable
public sector collective bargaining agreement,
whichever is appropriate, for each of their respective
employee-beneficiaries and employee-beneficiaries with
dependent-beneficiaries, which shall be used toward
the payment of costs of a health benefits plan;
provided that the monthly contribution shall not
exceed the actual cost of a health benefits plan.
. . .
(b) . . . the amount established under chapter 89C or
specified in the applicable public sector collective
bargaining agreement, whichever is appropriate, for
each child who has not attained the age of nineteen of
all employee-beneficiaries who are enrolled for dental
benefits. The contributions shall be used towards the
payment of costs of dental benefits of a health
benefits plan. . . .
(c) . . . the amount established under chapter 89C or
specified in the applicable public sector collective
bargaining agreement, whichever is applicable, for
each of their respective employees, to be used towards
the payment of group life insurance benefits for each
employee.

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whichever was less. As aptly explained by the ICA majority

opinion:
First, say the applicable collective bargaining
agreement provided that the public employer would pay
60% of the monthly health premiums for the unionized
employees. This calculation was based on the monthly
premium of the medical plan sponsored by the Health
Fund, which in turn was defined as the plan with the
largest number of active employee enrollments as of
December 31st of the previous fiscal year.[9] If the
most popular plan’s monthly premium was, say, $100,
the amount ported to the union would be, at the most,
$60. If, however, the “actual cost of coverage” of
the union’s health benefits plan was $50, then the
maximum amount that could be ported under this
statutory provision would be $50.

Before participating in the Health Fund’s porting

program, unions were required to submit to the Health Fund a copy

of their charters and by-laws and a letter that:
(1) Identifies the name and address of the person
who is authorized to represent the employee
organization;
(2) Certifies that its health benefits plan complies
with all applicable State laws; and
(3) Agrees that its health benefits plan complies
and will continue to comply with the following
requirements:
(A) Maintain reasonable accounting and
enrollment records and furnish such
records and reports as may be requested by
the board, its administrator, or the State
comptroller;
(B) Permit representatives of the board and
State comptroller to audit and examine its
records that pertain to its health
benefits plan at reasonable times and
places as may be designated by the board
or the State comptroller; and
(C) Accept adjustments for error or other
reasons as may be required under chapter
87, Hawaii Revised Statutes, and chapters
30 through 36 of title 6, administrative
rules.

9
The aforementioned language appeared in the State’s collective
bargaining agreements with UPW and HGEA for July 1, 1999 through June 30,
2003, which were attached to the State’s motion for summary judgment.

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Hawai#i Administrative Rules (HAR) § 6-34-9; see also HAR §§ 6-

35-5 (dental plan) & 6-36-7 (life insurance plan).

In June 1989, HGEA submitted a letter to the Health

Fund that certified that its plans complied with state laws, and

agreed to, inter alia, permit the Health Fund and state

comptroller to audit and examine its records. UPW submitted

similar certifications to the Health Fund in June 1989 and June

1990. Both HGEA and UPW identified Melvin Higa, chief executive

officer of Royal State Corporation (Royal State) and Mutual

Benefit Association of Hawaii, as HGEA’s and UPW’s representative

regarding their benefit plans.

In 1999, the State Auditor conducted an operational

audit of the Health Fund and reported that the Health Fund board

never audited the union benefit plans and thus “[fell] short of

fulfilling its fiduciary responsibility to carry out the purposes

of the health fund.”10 The State Auditor’s report stated that

“in spite of the significant increases in premiums ported to

union health plans, the current board [had] not requested the

unions to provide information on their health benefit plans’

operations until this study.” The Auditor’s report further

stated that:
By statute, the amount ported is determined by
collective bargaining agreements or the actual monthly
cost of the coverage, whichever is less. However,
without auditing the union health benefit plans, the

10
A copy of a portion of the State Auditor’s report was attached as
Exhibit 7 to the State’s motion for a preliminary injunction.

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board has no way of verifying the actual monthly cost
of the coverage. Beyond the unions’ assertion, the
board has no assurance that the ported funds are used
for purchasing health benefits for union plan
enrollees. At least one union that was about to
receive a premium refund from a health insurance
carrier has contacted the health fund inquiring about
the disposition of the refund. None of the union
plans has ever returned any difference between what it
cost to provide coverage and what was ported to them.

As a result of the State Auditor’s report, the State

Comptroller sent notices to public employee unions, including

HGEA and UPW, requesting that they make their records available

for an audit.

B. Circuit Court Proceedings

On March 15, 2002, the State filed a complaint against

HGEA, UPW, and Royal State, alleging that the State sought to

audit the public employee unions’ welfare benefit plans, and that

every union except for HGEA and UPW produced or agreed to produce

their records for audit. According to the complaint and

correspondence attached as exhibits to the complaint, UPW

responded by requesting, inter alia, copies of the Health Fund’s

administrative rules authorizing the audit, a specific list of

records requested “in order for the UPW to determine whether the

records you require are subject to the audit and to retrieve the

records from storage[,]” and a list of names of the people who

would be conducting the audit. The comptroller sent UPW a letter

that, inter alia, provided copies of applicable sections of the

Health Fund’s administrative rules and identified Ernst & Young

LLP as conducting the audit. On February 8, 2002, the

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comptroller sent letters to the unions, including HGEA and UPW,

with a description of the scope of the audit and a list of the

required financial records for the audit. In a memo dated

February 11, 2002, UPW’s state director requested copies of “the

state and federal laws” that, inter alia, “require audits of the

UPW Health.” In a letter dated March 1, 2002, the comptroller

stated that the Hawaii Administrative Rules authorizing the audit

were already provided to UPW, and stated that unless UPW stated

in writing that it would “unconditionally make the previously

described records available[,]” the comptroller would seek a

court order requiring UPW to make its records available. In a

letter dated February 27, 2002, but time-stamped as received by

the comptroller on March 5, 2002, UPW stated its “willingness to

fully cooperate” with the audit “if such an audit is permissible

by law.” UPW stated that “fundamental issues of authority,

purpose, scope and objectives of the independent audit have not

been satisfactorily resolved between the parties[,]” and

requested a copy of the “RFP used in the procurement of an

independent auditor and the contract with Ernst & Young to

perform the independent audit.” In response, the comptroller

stated, inter alia, that copies of the “RFP used to select E&Y

and the E&Y engagement letter” would be made available for

examination, but that such information was unnecessary “for UPW

to honor its certified and unconditional commitment to make the

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subject records available for audit[.]” The comptroller further

stated that unless UPW sends a written “commitment to make the

subject records available” for the audit, “we will assume that

UPW has no intention of honoring its agreement without a court

order[.]” The State alleged that HGEA and HGEA’s representative,

Voluntary Employees’ Benefit Association of Hawaii (VEBAH), also

did not cooperate with the State’s audit.

The State’s complaint against UPW, HGEA, and Royal

State alleged five claims for relief, including violation of the

Health Fund’s administrative rules, right to an accounting,

breach of contract, breach of fiduciary duty, and promissory

estoppel. The State sought an order granting a preliminary and

permanent injunction requiring the defendants and their officers

and agents to fully comply with the audit. The State also sought

“an accounting of the payments made by the [Health] Fund since

July 1, 1994 through June 30, 2001 and the actual cost of

providing health, dental and group life insurance benefits to

those enrolled in Defendants’ Welfare Benefit Plans, including

any premium credits or refunds received by the Defendants.” The

State also requested a decree of specific performance requiring

HGEA and UPW to honor their certification to make their records

available for inspection.

On March 22, 2002, the State filed a motion for

preliminary and permanent injunction requiring HGEA and UPW to

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make records available for the audit, and restraining defendants

from obstructing the audit or destroying or altering records

within the scope of the audit. On April 23, 2002, the circuit

court granted the State’s motion for a preliminary injunction,

and ordered HGEA, UPW, and their agents to make their records

available to the State for review and audit.

On April 26, 2002, HGEA filed a motion for

clarification or instructions regarding the circuit court’s

injunction order, stating that although HGEA wanted to comply

with the order, the records at issue were physically possessed by

VEBAH, which asserted that it was not an “agent” bound by the

order. UPW joined HGEA’s motion. On May 31, 2002, the circuit

court granted HGEA’s motion for clarification, and ordered UPW

and HGEA to serve subpoenae duces tecum on VEBAH, the Royal

Insurance Company, and Management Applied Programming, Inc. (MAP)

for the required documents.

On October 1, 2003, the State moved for leave to file a

first amended complaint. The proposed first amended complaint

added VEBAH11 and MAP12 as defendants, and county finance

officials as “Necessary Party Defendants.” The proposed first

amended complaint asserted nine causes of action: (1) conspiracy

11
The proposed first amended complaint described VEBAH as a Hawai#i
mutual benefit society affiliated with Royal State and alleged that VEBAH was
“subject to the control of persons affiliated with HGEA and UPW.”
12
The proposed first amended complaint alleged that MAP was a
Hawai#i corporation “engaged in the business of providing data processing
services that is affiliated with Royal State Corp.”

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to defraud the State, (2) interference with contract, (3)

assumpsit, (4) restitution and constructive trust, (5) equitable

accounting, (6) specific performance, (7) injunction, (8) unjust

enrichment, and (9) breach of fiduciary duty. The proposed first

amended complaint alleged, inter alia, that the defendants

“purchased” contracts for insurance from various third-party

insurers, under which the insurers were required to reimburse

amounts paid by the defendants if the amounts paid exceeded

allowable claims plus an agreed profit. The proposed first

amended complaint further alleged that the defendants received

reimbursements from insurers under such contracts that should

have been returned to the Health Fund, but were not. The

proposed first amended complaint also alleged that the Health

Fund ported funds to provide insurance for HGEA and UPW members

under plans that supplemented a spouse’s health insurance, and

that the actual cost of providing coverage under these

supplemental plans was less than the ported amount. The proposed

first amended complaint further alleged that the difference

should have been returned to the Health Fund, but was not.

According to the proposed first amended complaint, the defendants

“used or allowed the use of Welfare Benefit Plan funds to

improperly make payments to or for the benefit of insiders” such

as then-UPW executive director Gary W. Rodrigues and Rodrigues’

daughter Robin Sabatini.

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On November 18, 2003, the circuit court granted the

State’s motion for leave to file a first amended complaint “on

condition that (1) there is specificity regarding alleged fraud

and alleged civil conspiracy to defraud as required by [HRCP]

Rule 9 and as interpreted by the Court, and (2) Plaintiffs make

clear which defendants did certain things or failed to do certain

things, rather than referring generically to ‘Defendants.’”

However, the State did not file the proposed first amended

complaint. On June 10, 2004, the parties stipulated, inter alia,

that VEBAH would disclose the requested records and the State

would “withhold” filing the first amended complaint.

More than a year later, on January 18, 2006, the State

filed a motion for leave to serve and file a second amended

complaint and supplemental summons. The proposed second amended

complaint (January 2006 proposed second amended complaint) was

based on a December 1, 2005 report from the California accounting

firm Biggs & Co., which reviewed VEBAH’s records. The Biggs

Summary Report13 (Biggs report) concluded, inter alia, that it

appeared that premiums received for benefit coverage underwritten

by “independent insurance companies such as HMSA, Kaiser and

Kapiolani” were “being used to cover the cost of insurance at an

estimated break even basis, after excluding administrative fees

and risk charges assessed by Royal State and VEBAH.” The Biggs

13
The Biggs report was attached to the State’s motion to file a
second amended complaint.

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report also concluded that “self insured programs maintained by

Royal State and VEBAH generated extremely high gross profits

calculated on the amount of premiums collected less the cost of

related claims paid.” In particular, the Biggs report discussed

the high profitability of supplemental health programs

underwritten by Royal State and VEBAH. The Biggs report stated

that such programs were “believed to generate high profitability

and low risk to Royal State” for two principal reasons:
First, these are both supplemental health care
programs which generally provide excess health care
coverage over and above the medical benefits provided
under basic medical care programs such as HMSA,
Kaiser, and Kapiolani. In other words, the
supplemental health care programs provide coverage for
the insured’s deductible portions and medical care
costs beyond the limits of coverage of the basic
medical programs. Since the basic medical care
programs are structured to provide coverage for the
majority of the health care costs, the supplemental
programs inherently provide coverage for the less
risky portion of medical care.
Second, the amounts ported (i.e. porting rates)
from the Health Fund for coverage of the supplemental
programs are the same as for the major medical
programs under HMSA, Kaiser, Kapiolani, etc. For
instance, the medical coverage porting rates for HGEA
AFSCME Local 152, AFL-CIO Unit single and family are
$79.80 and $239.40 respectively, regardless of whether
the employee maintains [supplemental or basic medical
care programs]. A basic premise of insurance is that
risk and cost are directly related in that the higher
the risk, the higher the cost. In this instance, the
cost of the programs (i.e. the premium received) is
the same but the supplemental programs are less risky
and, correspondingly, more profitable.

(Emphases added).

According to the Biggs report, the gross profit

generated by Royal State and VEBAH on their self insured programs

“was excessively high compared to that realized by independent

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insurance companies providing similar products.”14 For example,

the Biggs report stated that the gross profit – calculated as

premiums less the cost of related claims paid – on Royal State’s

supplemental programs averaged 58.7 percent between July 1994 to

June 2003. According to the Biggs report, the “gross profit

realized by Royal State on its self insured life program was

significantly lower than for the other self insured programs but

was still a healthy 36.1% for [fiscal year 1999-2000] and

averaged 35.2% over the three fiscal years from July 1998 through

June 2001. The Biggs report further stated that while some

administrative fees and costs assessed by Royal State and VEBAH

“appeared reasonable and were consistent with contractual

allowances, the totality of all the fees assessed appeared

excessive, particularly in consideration of the high gross profit

realized on self insured programs.”

The January 2006 proposed second amended complaint,

which added as defendants Royal State National Insurance Company,

Ltd. (RSN) and The Royal Insurance Agency (TRIA), alleged that

HGEA and UPW transferred ported funds to VEBAH, Royal State, and

TRIA to purchase or provide insurance coverage or related

services for HGEA and UPW members. The January 2006 proposed

second amended complaint further alleged, inter alia, that

between July 1, 1994 and June 30, 2003, the Health Fund ported

14
The Biggs summary report did not state the gross profits “realized
by independent insurance companies providing similar products.”

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funds to HGEA and UPW for supplemental health plans known as

Comprehensive Health and Medical Plan (CHAMP), supplemental adult

dental, drug, and vision plan (DDV), and Supplemental Health Plan

(SHP).15 CHAMP and SHP were underwritten by RSN, and DDV was

underwritten by VEBAH. The January 2006 proposed second amended

complaint also alleged that the Health Fund ported funds to HGEA

and UPW for life insurance underwritten by RSN. The January 2006

proposed second amended complaint further alleged that the ported

amounts for the foregoing plans exceeded the “actual cost of

providing coverage[.]” For example, the January 2006 proposed

second amended complaint alleged:
27. . . . During the period from July 1, 1994 to
June 30, 2003, [the Health Fund] ported to HGEA over
$68 million in employer contributions for [CHAMP, DDV
and SHP] and almost $15 million to UPW. The actual
cost of providing coverage under HGEA’s plans did not
exceed, however, $36 million, and under UPW’s plans,
it did not exceed $7 million. The difference,
approximately $40 million, should have been returned
to [the Health Fund], but it was not.
28. Amounts that [the Health Fund] ported to
HGEA and UPW were used to provide life insurance
underwritten by RSN. Premiums contributed by State
and County employers for the three years ended June
30, 2003 were almost $22 million, while the actual
cost of providing coverage did not exceed $16 million.
The difference, approximately $6 million, plus any
excess porting for other years, should have been
returned to [the Health Fund], but it was not.

15
Attached as Exhibit L to the Biggs report were documents
describing CHAMP, DDV, and SHP programs offered to HGEA and UPW members who
were covered under their spouse’s private sector or federal government medical
plans. CHAMP was described as a “high deductible benefit plan” that works
with coverage under the spouse’s plan to reduce costs of catastrophic illness
or injury. DDV was described as a supplemental benefit plan that pays a
benefit on a claim for a covered dental, prescription drug, and vision
expense. Finally, SHP was described as paying a benefit on a claim for a
covered expense regardless of any other plan coverage. CHAMP, DDV, and SHP
premiums were fully paid for by public employers; in other words, employees
were not required to contribute.

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29. Defendants HGEA, UPW, and VEBAH, either
directly or through others, purchased insurance
contracts from various third parties that required the
insurer to refund or credit premiums that exceeded
allowable claims plus an agreed profit. Defendants
received reimbursements or rate credits under such
contracts that should have been returned to [the
Health Fund], but they were not.
30. Defendants HGEA and UPW used or permitted
others to use amounts ported by [the Health Fund] to
pay unreasonable administrative expenses and fees.
Those amounts should have been returned to the Health
Fund, but they were not.
31. Defendants RSC, RSN, TRIA, VEBAH, and MAP
retained or received, or allowed the use of ported
funds by others for, unreasonable administrative
expenses and fees. Those funds exceeded the actual
cost of insurance coverage and should have been
returned to [the Health Fund], but they were not.
32. Defendants HGEA, UPW, RSC, TRIA, and VEBAH
used, or allowed the use of, ported funds to make
payments to themselves or to related parties for
Welfare Benefit Plans in amounts that exceeded the
actual cost of coverage. Such excessive payments
should have been returned to [the Health Fund], but
they were not.

(Emphases added).

The January 2006 proposed second amended complaint also

alleged, inter alia, that at various times, VEBAH executives

representing HGEA, a Royal State Group executive representing

HGEA and UPW, and UPW director Gary Rodrigues requested that the

Health Fund port monthly employer contributions for certain

employee or retiree health and group life plans, and that such

requests “certified falsely that the amounts specified therein

did not exceed the actual monthly cost of covering” employees,

dependents and/or retirees under those plans. (Emphasis added).

The January 2006 proposed second amended complaint alleged ten

causes of action, including conspiracy to defraud the State,

interference with contract, assumpsit, false claims, restitution

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and constructive trust, equitable accounting, specific

performance, injunction, unjust enrichment, and breach of

fiduciary duty.

HGEA, Royal State, and UPW opposed the State’s motion

to file a second amended complaint. On June 2, 2006, the circuit

court denied without prejudice the State’s motion for leave to

file a second amended complaint and bifurcated the case.

Specifically, the circuit court ruled as follows:
1. The motion is denied without prejudice as to
the proposed First Cause of Action (Conspiracy to
Defraud the State) on the grounds that it fails to
comply with Rule 9(b) of the Hawaii Rules of Civil
Procedure.[16] Failure to comply with Rule 9(b) in
any further proposed amended complaint will result in
denial of the fraud and conspiracy claims with
prejudice;
2. [The State] may move to amend its complaint
to seek a declaratory ruling as to the meaning of the
term “actual monthly cost of the coverage,” as used in
former Sections 87-22.3, 87-22.5, and 87-23 of the
Hawaii Revised Statutes;
3. The motion is denied in all other respects
at this time. If [the State] amends the complaint as
provided in paragraph numbered 2 above, and the court
issues a ruling that is consistent with the theory
underlying the proposed Second Amended Complaint, then
[the State] may further seek leave to amend to assert
its remaining causes of action.

(Emphases added).

On June 26, 2006, the State filed a second motion for

leave to file a second amended complaint. The second proposed

second amended complaint (June 2006 proposed second amended

complaint) asserted only one cause of action, a “Claim for

16
HRCP Rule 9(b) (2000) provides: “In all averments of fraud or
mistake, the circumstances constituting fraud or mistake shall be stated with
particularity. Malice, intent, knowledge, and other condition of mind of a
person may be averred generally.”

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Declaratory Judgment[,]” and sought a declaratory judgment that

the term “actual monthly cost of the coverage” as used in HRS

§§ 87-22.3, 87-22.5, and 87-23 means
(1) premiums paid to insurance carriers in arm’s
length transactions, less any refunds, rate credits,
and reimbursements, where the carrier is independent
of HGEA and UPW, meaning, not controlled by, related
to, or conspiring with leaders of HGEA and UPW to
circumvent statutory limits on amounts ported by the
Health Fund, or (2) allowable claims paid or incurred,
plus reasonable administrative fees and profits where
the carrier is not independent of HGEA and UPW.

Although the June 2006 proposed second amended

complaint asserted only a declaratory judgment claim, it included

many of the factual allegations asserted in the January 2006

proposed second amended complaint, including allegations that

ported amounts exceeded the actual cost of coverage and that HGEA

and UPW representatives “certified falsely” that requests for

ported funds did not exceed the actual monthly cost of the

coverage.

On September 15, 2006, the circuit court issued an

order granting in part and denying in part the State’s second

motion for leave to file a second amended complaint.

Specifically, the circuit court allowed the State to file a

second amended complaint “consistent with” an attached version of

the State’s June 2006 second proposed second amended complaint as

edited by the circuit court. The circuit court denied the

State’s motion “in all other respects.” On the first page of the

attached proposed second amended complaint was a handwritten note

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stating: “Per Rule 12(f) HRCP[17] – Edited/stricken per minute

order granting in part [Plaintiff’s] second [motion] to file

[second amended complaint].” The circuit court’s edited version

struck most of the factual allegations from the State’s June 2006

proposed second amended complaint, including the allegations that

HGEA, UPW, and VEBAH failed to cooperate with the audit; that the

actual cost of providing coverage under HGEA’s and UPW’s plans

were less than the ported amounts; that the defendants used

ported funds to make improper payments; and that the defendants’

requests for ported funds falsely certified that the amounts

requested did not exceed the actual monthly cost of the coverage.

The circuit court’s edited version left intact the declaratory

judgment claim.

Ten days later, on September 25, 2006, the State filed

a motion for reconsideration of (1) the circuit court’s June 2,

2006 order denying without prejudice the State’s motion for leave

to file a second amended complaint, and (2) the circuit court’s

September 15, 2006 order granting in part and denying in part the

State’s second motion for leave to file a second amended

17
HRCP Rule 12(f) (2000) provides:

Motion to strike. Upon motion made by a party before
responding to a pleading or, if no responsive pleading
is permitted by these rules, upon motion made by a
party within 20 days after the service of the pleading
upon the party or upon the court’s own initiative at
any time, the court may order stricken from any
pleading any insufficient defense or any redundant,
immaterial, impertinent, or scandalous matter.

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complaint. The circuit court denied the motion for

reconsideration.

On November 20, 2006, the State filed a second amended

complaint that eliminated the factual allegations that the

circuit court struck in the court’s September 15, 2006 order.

The State’s declaratory judgment claim sought a new definition of

the phrase “actual monthly cost of the coverage”; that is, the

proposed definition differed from that in the complaint approved

by the circuit court in the court’s September 15, 2006 order.

The second amended complaint filed November 20, 2006 sought a

declaratory judgment that the term “actual monthly cost of

coverage,” means “(1) premiums paid to insurance carriers in bona

fide transactions at arm’s length, less any refunds, rate

credits, and reimbursements, or (2) allowable claims paid or

incurred, plus reasonable administrative fees and profits, in

transactions that are not bona fide and at arm’s length.”

(Emphasis in original).

Royal State, UPW, and HGEA filed motions to strike the

second amended complaint, arguing that the declaratory judgment

claim in the second amended complaint was “distinctly different”

from what the circuit court had approved. The circuit court

granted the motions to strike the second amended complaint.18

18
The circuit court denied the motions to strike as to HGEA’s, Royal
State’s, and UPW’s request for an award of attorney’s fees incurred in
relation to the motion.

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However, the circuit court ruled sua sponte that the State be

granted leave to file a third amended complaint consistent with

the circuit court’s edited version that was attached to the

court’s September 15, 2006 order.

On April 5, 2007, the State filed the operative third

amended complaint. The third amended complaint asserted a single

claim for declaratory judgment, seeking a declaratory judgment

that the term “actual monthly cost of [the] coverage,” as used in

HRS §§ 87-22.3, 87-22.5, and 87-23 means
(1) premiums paid to insurance carriers in arm’s
length transactions, less any refunds, rate credits,
and reimbursements, where the carrier is independent
of HGEA and UPW, meaning, not controlled by, related
to, or conspiring with leaders of HGEA and UPW to
circumvent statutory limits on amounts ported by the
Health Fund, or (2) allowable claims paid or incurred,
plus reasonable administrative fees and profits where
the carrier is not independent of HGEA and UPW.

Royal State, RSN, TRIA, VEBAH, and MAP (collectively,

Royal State Group) moved to dismiss the complaint, arguing, inter

alia, that any claim for excess porting belonged to the EUTF, and

thus the state attorney general needed the authorization of the

EUTF to bring the instant action. Royal State Group also argued

that the county defendants were neither necessary nor proper

parties. UPW and HGEA also filed motions to dismiss, adopting

Royal State Group’s arguments. The circuit court denied the

motions to dismiss, except as to the counties, which were

dismissed.

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On August 14, 2007, the State filed a motion for

summary judgment regarding the meaning of the phrase “actual

monthly cost of the coverage” in HRS chapter 87. The State

argued that “actual cost” means:
the cost negotiated with insurers in a bona fide
transaction at arm’s length, which is:

premiums paid to insurance carriers in arm’s length
transactions, less any refunds, rate credits, and
reimbursements, where the carrier is independent of
HGEA and UPW, meaning, not controlled by, related to,
or conspiring with leaders of HGEA and UPW to
circumvent statutory limits on amounts ported by the
Health Fund.

The State further argued that where, in the case of

HGEA and UPW, “the carriers were not independent, ‘actual cost’

means allowable claims paid or incurred, plus reasonable

administrative fees and profits.” The State argued that

construing “actual cost” to mean premiums paid would “frustrate”

the legislature’s purpose “by allowing insiders to inflate

premiums and then skim off windfall profits.” The State argued

that equating “actual cost” with “premiums” would render the word

“actual” meaningless and that other Hawai#i statutes use the term

“actual cost” to “avoid deceptive or unfair trade practices and

misuse of public funds” and the term “usually refers to the fair

market value of goods and services.” The State also argued,

inter alia, that a 1993 management review report of the Health

Fund indicated the Health Fund understood “actual cost of

coverage” included health benefits and reasonable administrative

expenses but excluded surplus or experience gains, and that in a

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1994 response to the report, HGEA and UPW leaders “did not

disagree” with that understanding.

Royal State Group provided a lengthy response to these

arguments in its opposition to the State’s summary judgment

motion, arguing, inter alia, that there was no admissible

evidence that HGEA and UPW controlled, were related to, or

conspired with any defendant, and that thus, “even under the

statutory interpretation urged by the State, the ‘actual monthly

cost of [the] coverage’ means the premiums paid to RSN and

VEBAH[.]” Royal State Group also argued, inter alia, that there

was no evidence that HGEA, UPW or their officers had any

ownership interest in or obtained any payment from any defendant,

that the opinions in the Biggs report were “incompetent,

deliberately misleading and irrelevant,” and that the statutory

language and legislative history are contrary to the State’s

interpretation of “actual monthly cost of the coverage.” Royal

State Group further argued that the State’s summary judgment

motion mischaracterized the 1993 report regarding the Health Fund

as well as the union’s responses, and that the State’s

interpretation of “actual monthly cost of the coverage” was not

supported by or conflicted with prior state Attorney General

advisory opinions regarding the Health Fund.

HGEA and UPW adopted the arguments made in Royal State

Group’s opposition to the State’s motion for summary judgment.

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UPW further argued, inter alia, that the State failed to present

any admissible evidence of HGEA or UPW’s control over VEBAH,

Royal State or Royal State entities, and that as such, the

State’s definition of “actual monthly cost of the coverage” as it

related to HGEA and UPW controlling or conspiring with insurance

carriers should be disregarded. UPW also argued that the

legislative history did not support the State’s definition of

“actual monthly cost of the coverage.” Finally, UPW argued that

the Health Fund had understood “actual monthly cost of the

coverage” to mean premiums. UPW pointed to a March 24, 1994

memorandum from the Health Fund administrator to “Executive

Director, Employee Organization Plan,” instructing the unions on

the information required in submitting porting requests.19 The

memorandum provided, inter alia:
2. On each schedule, enter the following
information by benefit plan and enrollment type
in the appropriate box:

A. Name and Cost – enter plan name and
monthly premium for that benefit plan

B. Port – enter the public employer
contribution amount requested

The form letter included with the memorandum, which was

to be prepared on the union’s stationery and returned to the

Health Fund, stated:
Gentlemen:

19
Royal State Group pointed to the same memorandum in its opposition
to the State’s motion for summary judgment.

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Re: REQUEST FOR TRANSMITTAL OF FY 1994-95 EMPLOYER
CONTRIBUTIONS

Effective July 1, 1994, please transmit or “port”
monthly employer contributions to our employee
organization plan in accordance with Sections 87-4,
87-22.3, 87-22.5 and 87-23, HRS, and our collective
bargaining agreements.

I certify that our Plan’s requested contributions as
shown on the attached Schedule(s) No. []______ are the
proper amounts to purchase benefits for our eligible
members under Sections 87-4(a), (b), and (c) or the
actual monthly cost of the coverage, whichever is
less.

UPW argued that therefore, “in practice the [Health

Fund] for years instructed the unions to provide schedules that

stated ‘the proper amounts to purchase benefits for their members

. . . or the actual monthly cost of [the] coverage’ which meant

the premiums charged.”

In reply, the State disputed, inter alia, the

defendants’ contention that there was a lack of admissible

evidence, and stated that in any event, the issue to be resolved

was the definition of “actual cost” rather than factual issues.

On July 9, 2009, the circuit court issued an Order

Denying Plaintiffs’ Motion for Summary Judgment and Granting

Summary Judgment Against Plaintiffs. The order stated, in

relevant part, the following:
4. . . . [T]he Court has before it, as admissible
evidence, prior Attorney General interpretations
of the law which referred to cost as the premium
and, among other things, the forms that the
Administrator of the [Health Fund] required the
Defendants to use to certify the cost every
year, indicating that the cost referred to the
premium;
5. In addition, in interpreting a statute, the
Court must give meaning that appears clear from

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the Legislative history and the language of the
statute itself, in a common sense approach;
6. The Court finds and concludes that the Alleged
Meaning asserted by Plaintiffs is NOT correct;
7. Based upon Flint v. MacKenzie, 53 Haw. 672[, 501
P.2d 357] (1972) and Cordero v. Burns, 7 Haw.
App. 463[, 776 P.2d 411] ([] 1989), there being
no genuine issue of material fact in this Rule
56 HRCP motion to interpret statutory language,
no good purpose would be served by requiring a
cross motion for summary judgment and instead,
in the interest of judicial economy, efficiency
and integrity and consistency of ruling, the
Court GRANTS summary judgment AGAINST Plaintiffs
and in favor of all of the Defendants, that the
term “actual monthly cost of [the] coverage” as
used in HRS Sections 87-22.3, -22.5, and -23
(repealed 2003) means the premium charged by and
paid to the carrier.

The circuit court entered judgment against the State on

September 29, 2008.20

C. ICA Appeal

On September 11, 2008, the State timely filed its

notice of appeal to the ICA.21 On appeal, the State raised five

points of error. Relevant to the issues before this court, the

State argued that the circuit court erred when it interpreted the

term “actual monthly cost of the coverage” from HRS §§ 87-22.3,

87-22.5, and 87-23 to mean “the premium charged by and paid to

the carrier[.]” The State asserted that the definition of

“actual monthly cost of the coverage” should “require an arm’s-

length transaction and consideration of refunds, rate credits,

20
Royal State Group, UPW, and HGEA sought attorney’s fees, which the
circuit court denied. The State moved to require Royal State Group and UPW to
pay Samuel Biggs reasonable fees for preparing and appearing at Biggs’
deposition. The circuit court denied the State’s motion.
21
Royal State Group cross-appealed, arguing that the circuit court
erred in denying them an award of attorney’s fees and costs. Fees and costs
are not at issue before this court.

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and reimbursements, and reasonable administrative costs, in

determining the actual cost of coverage.” The State also argued

that the circuit court erred when it denied the State leave to

file a second amended complaint and “rewrote” the State’s

complaint.

The ICA affirmed in part and vacated in part the

circuit court’s judgment. Relevant to the issues before us, the

ICA majority concluded that the circuit court did not err when it

interpreted “actual monthly cost of the coverage” to mean “the

premium charged by and paid to the [insurance] carrier” for the

union-sponsored coverage. (Alteration in original). The ICA

majority first noted that there was no statutory definition of

“actual cost of the coverage” in chapter 87, and thus relied on

the dictionary definitions of “actual” as “[e]xisting in fact;

real” and “cost” as “[t]he amount paid or charged for something;

price or expenditure.” (Alterations in original). The ICA

majority also stated that “coverage” plainly referred to the

insurance coverage provided to the state employee participating

in the union’s plan. Although the ICA majority found no

ambiguity in “actual cost of coverage,” it looked to the

legislative history of chapter 87 and stated that nothing in the

legislative history “even remotely suggests that the Legislature

intended a meaning other than the plain meaning of ‘actual

cost.’” The ICA majority acknowledged the State’s argument that

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the premiums charged did not reflect the “actual value” of the

coverage provided, but stated that “[a]lthough the State’s money-

saving goal is laudable, this court simply cannot rewrite the

Health Fund statute in order to drive down the State’s expense

stemming from the union-sponsored coverage.” The ICA majority

also stated:
The State is not alleging that the ported funds
exceeded the cost of Health Fund-provided coverage.
Nor is the State alleging that the ported funds
exceeded the actual amounts that the unions paid to
the insurance carriers. Instead, the State is
suggesting that the unions paid too much for the
coverage because of the close ties between the unions
and the insurers. The State’s theory of legal
liability based on a violation of Chapter 87, however,
is untethered from the plain language of the statutes
and the State’s suggested interpretation is
unsupported by the legislative history, except for the
general aspiration that the union-sponsored plans
might be less expensive than the Health Fund-sponsored
plans. Additional limitations, checks, and/or
restraints certainly could have been written into the
statute, but they were not.

The ICA majority further stated that in light of its

rejection of the State’s interpretation of the “actual cost of

coverage,” the issue of whether the circuit court erred when it

denied the State leave to file a second amended complaint and

“rewrote” the State’s complaint was no longer justiciable. The

ICA majority therefore affirmed the circuit court’s judgment with

respect to its interpretation of the term “actual monthly cost of

the coverage,” and declined to reach the issues raised with

regard to the State’s proposed second amended complaint.

In his concurring and dissenting opinion, Chief Judge

Nakamura disagreed with the majority’s interpretation of “actual

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monthly cost of the coverage.” Judge Nakamura stated that the

circuit court’s interpretation that “actual monthly cost of

coverage” meant “the premium charged by and paid to the carrier”

was too restrictive because it did not allow for “the possibility

that the premium charged and paid could be tainted by bad faith,

collusion, or fraud.” Judge Nakamura stated that the circuit

court’s interpretation “should have been qualified by the proviso

that ‘actual monthly cost of coverage’ means ‘the premium charged

by and paid to the carrier,’ except if the premium charged was

determined in bad faith or through fraud.” Judge Nakamura stated

that the background and history of the Health Fund showed that

the legislature intended to “provide public employees with health

and life insurance benefits in a manner that was economical and

cost-effective to both public employers and employees.” Judge

Nakamura also stated that the legislative history of the Health

Fund did not suggest a legislative intent that public funds be

“wasted or spent to cover amounts determined fraudulently or in

bad faith[,]” and that thus, interpreting the phrase “actual

monthly cost of coverage” to mean “the premium charged by and

paid to the carrier” without an exception for premiums charged

and paid as a result of “bad faith, collusion, or fraud, would

lead to an absurd and unjust result.”

Judge Nakamura also noted that at the time the

legislature adopted the phrase “actual monthly cost of coverage,”

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Black’s Law Dictionary defined “actual cost” to mean: “The

actual price paid for goods by a party, in the case of a real

bona fide purchase, which may not necessarily be the market value

of the goods. It is a general or descriptive term which may have

varying meanings according to the circumstances in which it is

used.” Black’s Law Dictionary at 33 (5th ed. 1979) (emphases in

original). Judge Nakamura further noted that the term “bona

fide” was defined as “[i]n or with good faith; honestly, openly,

and sincerely; without deceit or fraud.” Id. at 160. Judge

Nakamura stated that therefore, considering the above dictionary

definitions and the purpose of the Health Fund statute, the

circuit court’s interpretation of “actual monthly cost of

coverage” was too restrictive because it did not account for the

possibility that the premium charged by and paid to the carrier

could be the result of bad faith or fraud.

While expressing no opinion on the validity of the

State’s allegations, Judge Nakamura also concluded that the State

should be permitted to amend its complaint “to pursue its

allegations of fraud and to provide the proper context and

background for evaluating the ‘actual monthly cost of coverage’

limitation and the State's claims for relief.”22

22
In response to Judge Nakamura’s dissent, the ICA majority stated
that while it shared Judge Nakamura’s concern that the legislature did not
intend to pay for the cost of fraudulently set premiums, that was not an
accurate or fair characterization of the issues before the ICA. The ICA
majority noted that chapter 87 established limits on ported funds using the
lesser of either the amount determined by collective bargaining, or the actual
(continued...)

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The ICA entered its judgment on appeal on April 26,

2013. The State timely filed an application for writ of

certiorari.

III. Standards of Review

A. Statutory Interpretation

“Statutory interpretation is a question of law

reviewable de novo.” Kaleikini v. Yoshioka, 128 Hawai#i 53, 67,

283 P.3d 60, 74 (2012) (citation omitted).

B. Motion for Leave to Amend the Complaint

“Orders denying motions for leave to amend a complaint

are reviewed for an abuse of discretion.” Jou v. Dai-Tokyo Royal

State Ins. Co., 116 Hawai#i 159, 163, 172 P.3d 471, 475 (2007)

(citation omitted).

IV. Discussion

A. “Actual monthly cost of the coverage” means the premium
charged by and paid to the insurance carrier

The State argues that the ICA erred when it interpreted

“actual monthly cost of the coverage” to mean the premium charged

by and paid to the insurance carrier. The State argues that

“actual [monthly] cost of coverage” must be interpreted as a

“bona fide transaction,” or premiums paid in “arm’s length

22
(...continued)
monthly cost of the coverage. The ICA majority stated that “nothing in the
statute or legislative history [] required [] unions to seek the hoped-for
savings, or prohibited any particular level of fees and/or profit by the
unions’ insurers, or prohibited related-party transactions, or required ‘bona
fide negotiations,’ bidding, or other procurement procedures.” (Emphases in
original).

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transactions, less any refunds, rate credits, and reimbursements,

. . . plus reasonable administrative fees and profits[.]” In

other words, “actual monthly cost of the coverage” means “the

real cost for the coverage, that is, the cost in a legitimate

arm’s-length business transaction.” The State contends that the

ICA erred in two ways. First, “the ICA acted as if the statute

had used the word ‘premium’ and gave the phrase ‘actual cost’ no

meaning.” Second, the State argues that the ICA’s result is

“illogical” because “[i]t is absurd to suggest that the price set

by the purveyor of something always and necessarily reflects its

actual value.” As set forth below, the ICA majority did not err.

It is well-established that the “fundamental starting

point for statutory interpretation is the language of the statute

itself.” State v. Wheeler, 121 Hawai#i 383, 390, 219 P.3d 1170,

1177 (2009) (quoting Citizens Against Reckless Dev. v. Zoning Bd.

of Appeals of the City & County of Honolulu, 114 Hawai#i 184,

193, 159 P.3d 143, 152 (2007)). “[W]here the statutory language

is plain and unambiguous, our sole duty is to give effect to its

plain and obvious meaning.” Id. Moreover, “implicit in the task

of statutory construction is our foremost obligation 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.” Id. “[A] rational, sensible and practicable

interpretation of [a statute] is preferred to one which is

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unreasonable or impracticable[.]” Haw. Gov’t Emps. Ass’n, AFSCME

Local 152, AFL-CIO v. Lingle, 124 Hawai#i 197, 207 n.16, 239 P.3d

1, 12 n.16 (2010) (citation omitted) (brackets in original).

As stated above, HRS § 87-22.3 required the Health Fund

to provide health benefits to public employees in the following

manner:
(1) For those employee-beneficiaries who are not
participating in a health benefits plan of an
employee organization . . . , the [Health Fund]
shall establish health benefits plans and the
requirements for eligibility under the health
benefits plans; or

(2) For employee-beneficiaries who participate in
the health benefits plan of an employee
organization, the [Health Fund] shall pay a
monthly contribution for each employee-
beneficiary, in the amount provided in section
87-4(a), or the actual monthly cost of the
coverage, whichever is less, towards the
purchase of health benefits under the health
benefits plan of an employee organization.

(Emphases added).

Similar language appeared in HRS § 87-22.5 (determining

dental plan benefits) and HRS § 87-23 (determining group life

benefits). Under this statutory scheme, the Health Fund’s

contribution ported to the union would be either (1) the public

employer’s contribution for the cost of insurance, as determined

by the applicable collective bargaining agreement, see HRS § 87-

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4;23 or (2) the actual monthly cost of the coverage, whichever is

less.

As a preliminary matter, HRS chapter 87 did not define

“actual monthly cost of the coverage.” However, “it is well-

settled that, when a term is not statutorily defined, this court

may resort to legal or other well accepted dictionaries as one

way to determine its ordinary meaning.” State v. Jing Hua Xiao,

123 Hawai#i 251, 259, 231 P.3d 968, 976 (2010); see also Gillan

v. Gov#t Employees Ins. Co., 119 Hawai#i 109, 115, 194 P.3d 1071,

1077 (2008). The word “actual” is defined in part as “existing

in fact or reality” or “existing or occurring at the time[.]”

Merriam-Webster’s Collegiate Dictionary 13 (11th ed. 2009).

23
HRS § 87-4 (1993) provided, in relevant part, that the State and
the several counties pay to the Health Fund a monthly contribution equal to:

(a) . . . the amount established under chapter 89C or
specified in the applicable public sector collective
bargaining agreement, whichever is appropriate, for
each of their respective employee-beneficiaries and
employee-beneficiaries with dependent-beneficiaries,
which shall be used toward the payment of costs of a
health benefits plan; provided that the monthly
contribution shall not exceed the actual cost of a
health benefits plan. . . .
(b) . . . the amount established under chapter 89C or
specified in the applicable public sector collective
bargaining agreement, whichever is appropriate, for
each child who has not attained the age of nineteen of
all employee-beneficiaries who are enrolled for dental
benefits. The contributions shall be used towards the
payment of costs of dental benefits of a health
benefits plan. . . .
(c) . . . the amount established under chapter 89C or
specified in the applicable public sector collective
bargaining agreement, whichever is applicable, for
each of their respective employees, to be used towards
the payment of group life insurance benefits for each
employee.

(Emphases added).

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“Cost” is defined as “the amount or equivalent paid or charged

for something; price[.]” Id. at 282. “Coverage” is defined in

the insurance context as “inclusion within the scope of an

insurance policy or protective plan[.]” Id. at 288.

Accordingly, the foregoing ordinary meanings support the circuit

court’s and the ICA’s interpretation; that is, that “actual

monthly cost of the coverage” means the monthly premium that was

in fact charged and paid for insurance.24

Moreover, the plain language of the statute is

completely devoid of any of the restrictions or requirements

regarding the monthly cost of coverage that the State advocates

for, such as express limits on the reasonableness of profits or

administrative expenses. As the ICA majority pointed out, the

legislature could easily have written such express limitations,

checks, and/or restraints into the Health Fund statutes.

However, lawmakers did not do so.

Nonetheless, the State argues that the circuit court’s

interpretation is contrary to the legislature’s intent, and that

the legislative history of the phrase “actual monthly cost of the

coverage” was meant to decrease the public employers’ cost of

providing insurance.

24
This interpretation does not render the word “actual” superfluous.
See dissenting opinion at 6. The word “actual” indicates that the ported
amount constituted the cost that was, in fact, charged and paid for the
insurance.

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However, upon close inspection, the legislative history

of the Health Fund and the statutory phrase “actual monthly cost

of the coverage” does not support the State’s interpretation.

Rather, an examination of the relevant history of the Health Fund

supports the view that the legislature intended for “actual

monthly cost of the coverage” to mean the premium charged.

Indeed, as set forth below, this interpretation is supported by

viewing the statutory language “in the context of the entire

statute and constru[ing] it in a manner consistent with its

purpose.” Lingle v. Haw. Gov’t Emps. Ass’n, AFSCME, Local 152,

AFL-CIO, 107 Hawai#i 178, 183, 111 P.3d 587, 592 (2005) (citation

omitted).

The Health Fund was established in 1961 via Act 146 to

provide employee-beneficiaries and dependents with a health

benefits plan. 1961 Haw. Sess. Laws Act 146, § 1 at 191-92. As

shown in Act 146 and subsequent amendments to the Health Fund

law, the legislature had anticipated that the insurance policies

would generate refunds. Indeed, Act 146 provided that the health

trust fund “shall consist of contributions, interest, income,

dividends, refunds, rate credits and other returns.” Id. at 192

(emphasis added). The State’s monthly contribution to the Health

Fund was $3 for each employee-beneficiary and $10 for each

employee with a dependent. Id. Each employee-beneficiary was to

make a monthly contribution equal to the “difference between the

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monthly charge of the health benefits plan selected by the

employee-beneficiary and the State’s contribution to the fund.”

Id. at 193.

In 1967, the Health Fund added group life insurance

benefits. See 1967 Haw. Sess. Laws Act 110, § 3 at 101. This

legislation, enacted as Act 110, also introduced the concept of

porting, and began the porting program with respect to group life

insurance. Id. Specifically, Act 110 provided that the Health

Fund would provide group life insurance benefits to employees in

the following manner:
(a) For those employees who are not participating
in a group life insurance program of an employee
organization (hereafter “nonparticipating employees”),
the board shall determine a group life insurance
benefit plan and eligibility requirements for such
benefits based upon the contribution of $2.25 per
month per employee. Any rate credit or reimbursement
from any carrier of any earnings or interest derived
from the group life insurance plan of nonparticipating
employees shall be used to improve the group life
insurance benefits of nonparticipating employees.
(b) For those employees who participate in a group
life insurance program of an employee organization,
the board shall allot $2.25 per month towards the
purchase of group life insurance benefits under the
group life insurance program of an employee
organization, provided that no employee shall have
more than one allotment of $2.25 per month.

Id. (emphases added).

In approving the above legislation, the Senate Ways and

Means Committee explained that for employees not participating in

union group life insurance programs, the Health Fund would “allot

$2.25 each month for each employee towards the cost of employees’

premiums.” S. Stand. Comm. Rep. No. 922, in 1967 Senate Journal,

at 1256 (emphasis added). Act 110 also required that “[a]ny rate

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credit or reimbursement” from the insurance carrier for the

Health Fund group life insurance plan be used to “improve the

group life insurance benefits” of employees not participating in

a union plan. 1967 Haw. Sess. Laws Act 110, § 3 at 101.

Notably, although the above language demonstrates the

legislature’s awareness that refunds or reimbursements could be

realized from certain insurance contracts, lawmakers did not

insert any requirements or restrictions with regard to any

refunds or reimbursements associated with union plans.

In 1970, the legislature amended chapter 87 to increase

the State’s contributions to the Health Fund, “provided, that the

monthly contribution shall not exceed the actual cost of a health

benefits plan.” 1970 Haw. Sess. Laws Act 154, § 1 at 277

(emphasis added). The legislative history of this measure

contains several references to “premiums.” In passing this

legislation, lawmakers noted that with raises in insurance rates,

some employees were paying about “two thirds of the premiums[,]”

a result that was contrary to the intent of the program, which

began with the government and employees sharing the premium cost

on a “50-50 basis[.]” H. Stand. Comm. Rep. No. 661-70, in 1970

House Journal, at 1121 (emphasis added); S. Stand. Comm. Rep. No.

728-70, in 1970 Senate Journal, at 1322 (emphasis added). Early

drafts of the bill required the State to make monthly

contributions equal to 50 percent of “the total cost of the

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premium” for health plans, “provided that the State shall pay as

its share . . . not more than 50 percent of the premium of the

lowest available medical plan.” S. Stand. Comm. Rep. No. 93-70,

in 1970 Senate Journal, at 1054 (emphases added). Accordingly,

the legislative history of the 1970 amendment suggests that the

legislature equated the “cost” of a plan with the premiums

charged for it.

The legislature first added the phrase at issue in the

instant case – actual monthly cost of the coverage – to chapter

87 in 1980, with regard to children’s dental benefits. This

legislation, enacted as Act 61, introduced the concept that the

porting amount for certain plans would equal the lesser of either

the collectively bargained-for amount or the actual monthly cost

of the coverage. See 1980 Haw. Sess. Laws Act 61, § 1 at 77.

The State relied heavily on the legislative history of

Act 61 in its opening brief. Specifically, the State argued that

the legislative history demonstrates that the “‘actual [monthly]

cost of coverage’ limitation on the amount of ported funds was

intended to lower the cost of providing insurance.” (Emphasis in

original). However, upon close examination, the legislative

history of the phrase “actual monthly cost of the coverage”

suggests that the legislature had several purposes in mind and

that its cost savings considerations were more modest than the

State suggests.

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The purpose of Act 61 was to allow the Health Fund to

port funds for children’s dental benefits to a union plan. See

H. Stand. Comm. Rep. No. 463, in 1979 House Journal, at 1359; H.

Stand. Comm. Rep. No. 195, in 1979 House Journal, at 1233; S.

Stand. Comm. Rep. No. 893-80, in 1980 Senate Journal, at 1448.

Specifically, Act 61 required the Health Fund to provide dental

plan benefits to employees’ children in the following manner, in

relevant part:
(1) For those children of employees who are not
participating in a dental program of an employee
organization (hereafter called “nonparticipating
employees”), the [Health Fund] shall determine a
dental plan and eligibility requirements for
such benefits based upon a statutory monthly
contribution per enrolled child. Any rate
credit or reimbursement from any carrier of any
earnings or interest derived from the dental
plan of nonparticipating employees shall be used
to improve the dental plan benefits of
nonparticipating employees.[25]
(2) For those children of employees who participate
in the dental program of an employee
organization, the [Health Fund] shall allot the
statutory monthly contribution per enrolled
child or the actual monthly cost of the child’s
coverage, whichever is less, towards the
purchase of dental plan benefits under the
dental program of an employee organization;
provided that no enrolled child shall have more
than one allotment a month.

25
In 1997, the legislature deleted provisions requiring that rate
credits or reimbursements with regard to Health Fund children’s dental plans
and life insurance plans be used to improve the benefits of such plans.
1997 Haw. Sess. Laws Act 276, §§ 3-4, at 610-11. The legislature instead
provided that rate credits or reimbursements from carriers or self-insured
plans may be used to “stabilize health benefits plan or long-term care
benefits plan rates[.]” Id. § 1, at 609. The legislature further provided
that any rate credits or reimbursements in excess of funds used to stabilize
such plans must be returned to the State or county if the moneys are returned
from, inter alia, a plan that provides health benefits to employees, so long
as “the amount returned to the general fund shall be only that portion
financed by the State or by the county on behalf of the employee.” Id. § 1,
at 609-10.

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Id. (emphases added).

The Senate Ways and Means Committee expressly stated

that the purpose of the bill was “to allow the public employees’

health fund to transmit employer contributions for a public

employee’s child . . . to the dental plan of an employee

organization if the employee participates in the employee

organization’s dental plan.” S. Stand. Comm. Rep. No. 893-80, in

1980 Senate Journal, at 1448. This was necessary because the

Health Fund at that time provided dental benefits to children of

public employees, but not to public employees themselves, which

prompted some unions to offer dental plans for their employee

members. Id. As a result, employees and their children had

separate dental plans. The Senate Ways and Means Committee

stated that authorizing the porting of “employers’ statutory

contributions for children to the dental plan of their employee-

parents” would facilitate both employee-parents and their

children to be covered by the same dental plan. Id.

The Senate Ways and Means Committee report then stated

that the legislation “may also have the effect of lowering

employer contributions.” Id. (emphasis added). The committee

noted that the legislation provided that,
the contributions to the employee organizations’
dental plans must be the lesser of the statutory
contribution amount or the actual cost. If the actual
cost is lower than the statutory amount, the employer
contributions will be lower. The bill provides that
employer contributions cannot exceed the statutory
amount even if the actual cost is higher.

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Id.

The committee further noted testimony from, inter alia,

the Health Fund board that “this method of distributing employer

contributions for dental benefits is similar to the method

presently used under the fund’s group life insurance plan.” Id.

At the time, the Health Fund was required to port to the unions

$2.25 a month – the public employers’ monthly contribution – for

employees participating in a union life insurance plan. HRS

§ 87-23 (1985).

The committee also noted testimony from one employee

union that “employer contributions may in fact be reduced if a

family dental plan, instead of an exclusively parent plan, could

be organized.” S. Stand. Comm. Rep. No. 893-80, in 1980 Senate

Journal, at 1448. Ultimately, the committee found the

legislation “favorable” because: (1) it may be “economically

beneficial to public employees”; (2) it does not significantly

impact upon the Health Fund’s operations; and (3) “[i]t does not

require additional employer contributions and may potentially

decrease employer contributions.” Id. (emphases added).

According to the State, the Senate Ways and Means

Committee report “shows that the Legislature clearly contemplated

an ‘actual cost’ that was less than [the] amount for porting set

by statute — an impossibility if the ‘actual cost’ is deemed to

always equal a premium set to match the porting amount.” This

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reasoning, however, is flawed. First, as stated above, the

committee reports, including that of the Senate Ways and Means

Committee, demonstrate that the primary purpose of the

portability concept in Act 61 was not to reduce employer

contributions, but to allow employees and their children to be

covered under the same plan. See, e.g., S. Stand. Comm. Report

No. 893-80, in 1980 Senate Journal, at 1448. The potential

reduction in employer contributions was considered a secondary,

possible result. See id. (“The bill may also have the effect of

lowering employer contributions. . . . [I]t does not require

additional employer contributions and may potentially decrease

employer contributions.” (emphases added)). Second, the Senate

Ways and Means Committee report contemplated not only that the

actual monthly cost of the coverage could be lower than the

statutory amount, but that the actual monthly cost could in fact

be higher than the employer contribution. Id. (“The bill

provides that the employer contribution cannot exceed the

statutory amount even if the actual cost is higher.” (emphasis

added)). Indeed, the statute provided that the ported amount

would equal the lesser of the statutory employer contribution or

the “actual monthly cost of the child’s coverage[.]” 1980 Haw.

Sess. Laws Act 61, § 1, at 77.

The State also quoted a House Public Employment and

Government Operations Committee report supporting the above

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legislation as stating that “providing the ported funds would

allow employees to access children’s dental coverage ‘at a much

lower cost than would otherwise be possible.’”26 (Citing H.

Stand. Comm. Rep. No. 195, in 1979 House Journal, at 1233). This

language in the committee report, however, does not support the

State’s position because it does not relate to the “actual

monthly cost of the coverage,” but rather refers to the

anticipated effect that the ported employer contribution would

have on a potential family dental plan. Indeed, the committee

report, read in its proper context, does not support the State’s

interpretation and in fact includes a reference to premiums:
Your Committee finds that the aforesaid proposal
will make available through the unions a family dental
plan at a reasonable cost. Since the premium relating
to the children’s portion will be contributed by the
employer, insurance companies will be willing to offer
a lower rate, thereby providing employees with a
single plan at a much lower cost than would otherwise
be possible.

H. Stand. Comm. Rep. No. 195, in 1979 House Journal, at 1233

(emphasis added).

The legislative history of other provisions in chapter

87 that employed the phrase “actual monthly cost of the coverage”

also does not support the State’s position. Specifically, the

history of subsequent legislation adding “actual monthly cost of

26
The State also relies on language from legislative committee
reports stating that the foregoing legislation would have “no significant
impact in terms of cost or program operations . . . as the amount of dental
contributions is limited by statute.” (Citing H. Stand. Comm. Rep. No. 463,
in 1979 House Journal, at 1359). This language, however, is unpersuasive.
Indeed, nothing in this language indicates that dental contributions would
decrease; rather, Health Fund officials expected “no significant” change.

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the coverage” language elsewhere in chapter 87 does not suggest

that the legislature intended a meaning other than the monthly

premiums paid for such coverage. In 1984, the legislature

incorporated similar “actual monthly cost of the coverage”

language into legislation that established porting for health

benefits plans.27 1984 Haw. Sess. Laws. Act 71, § 1 at 123. The

House Finance Committee stated that the purpose of that

legislation was to authorize the Health Fund to port monthly

contributions “towards the purchase of health benefits” under

union plans. H. Stand. Comm. Rep. No. 734-84, in 1984 House

Journal, at 1224. The legislative history does not indicate that

the purpose of the legislation was to reduce employer

contributions; rather, the legislature’s intent appeared to focus

27
Specifically, Act 71 required the Health Fund to provide health
benefits to employees in following manner:

(1) For [employees not participating in a union
health benefits plan], the [Health Fund] shall
establish health benefits plans and the
requirements for eligibility under the health
benefits plans. Any rate credit or
reimbursement from any carrier of any earnings
or interest derived from the health benefits
plans of nonparticipating employee-beneficiaries
shall be used to improve the respective health
benefits plans of nonparticipating employee-
beneficiaries or to reduce the employee-
beneficiary’s respective share of monthly
contributions to a health plan.
(2) For [employees participating in a union health
benefits plan], the [Health Fund] shall pay a
monthly contribution for each employee-
beneficiary, in the amount provided in
section 87-4(a), or the actual monthly cost of
the coverage, whichever is less, towards the
purchase of health benefits under the [union]
health benefits plan[.]

1984 Haw. Sess. Laws. Act 71, § 1 at 123 (emphases added).

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on providing public employees a variety of health benefits plans

to choose from. See, e.g., id. (concurring with “the intent of

this bill to allow employee[-]beneficiaries a choice of health

benefit plans, other than those sponsored by the . . . Health

Fund, to meet their medical care needs”); S. Stand. Comm. Rep.

No. 352-84, in 1984 Senate Journal, at 1150 (“Your Committee

finds that this bill will expand the options of employee-

beneficiaries by making available a wider variety of health

benefits plans. Your Committee considers the expansion good

public policy.”).

Finally, in 1987, the legislature incorporated the

“actual monthly cost of the coverage” language to the existing

life insurance plan porting program. 1987 Haw. Sess. Laws Act

32, § 1 at 49. Act 32 deleted the specific dollar figure of

$2.25 for the employer contributions for life insurance plans,

and instead provided that employer contributions for employees

participating in union plans total the collective bargained

amount “or the actual monthly cost of the coverage, whichever is

less[.]”28 Id.

28
Specifically, Act 32 required the Health Fund to provide group
life insurance to employees in the following manner:

(1) For those employees [not participating in a
union group life plan], the [Health Fund] shall
determine a group life insurance benefit plan
and eligibility requirements for such benefits
based upon the based upon the amount to be
contributed per employee under section 87-4(c).
Any rate credit or reimbursement from any
carrier of any earnings or interest derived from
(continued...)

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Again, the legislative history does not reflect an

understanding by lawmakers that “actual monthly cost of the

coverage” meant anything other than premiums. Rather, the

purpose of Act 32 was to “conform the language pertaining to

group life insurance benefits . . . to other sections on employee

benefit plans governing” health benefits and dental plan

benefits.29 See H. Stand. Comm. Rep. No. 1163, in 1987 House

Journal, at 1655; S. Stand. Comm. Rep. No. 386, in 1987 Senate

Journal, at 1050.

Accordingly, contrary to the State’s contention, the

legislative history of the phrase “actual monthly cost of the

coverage” does not suggest that the legislature intended a

28
(...continued)
the group life insurance plan of
nonparticipating employees shall be used to
improve the group life insurance benefits of
nonparticipating employees.
(2) For those employees [participating in a union
group life insurance plan], the [Health Fund]
shall pay a monthly contribution for each
employee, in the amount determined under section
87-4(c), or the actual monthly cost of the
coverage, whichever is less, towards the
purchase of the group life insurance benefits
under [the union plan].

Id. (emphases added).
29
The House Finance Committee noted that eliminating the fixed-
dollar contribution amounts

enables the Board to purchase group life insurance
under a pooled concept for basic benefits and a
supplemental plan for excess benefits as may be
required by future collective bargaining negotiations.
By providing the Board with greater flexibility, this
bill will facilitate the more efficient administration
of group life insurance programs for public employees.

H. Stand. Comm. Rep. No. 1163, in 1987 House Journal, at 1655.

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meaning other than the monthly insurance premium. Although the

legislature hoped that savings would result if the union plans

were priced lower than the Health Fund’s plans, it did not

mandate that result or include provisions requiring the unions

and insurers to achieve it.

As stated above, the State essentially contends that

“actual monthly cost of the coverage” was meant to be a

restriction on the profits and administrative expenses of the

insurers that provided the coverage. However, such a reading is

not supported by the plain language of the statute or the

legislative history, which this court is bound to follow. As the

ICA majority noted, the legislature could have written express

restrictions, qualifiers and/or limitations in chapter 87, but

did not do so. For example, the legislature could have defined

“actual monthly cost of the coverage” as excluding a certain

level of profits and administrative fees of insurers. However,

the legislature did not. Moreover, the language of the statutes

in chapter 87 demonstrates an awareness by the legislature that

certain types of insurance plans could generate rebates and

reimbursements, see, e.g., 1980 Haw. Sess. Laws Act 61, § 1 at

77, but the legislature chose not to require their return with

respect to the union plans.

This court has stated that
[w]e cannot change the language of the statute, supply
a want, or enlarge upon it in order to make it suit a
certain state of facts. We do not legislate or make

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laws. Even when the court is convinced in its own
mind that the [l]egislature really meant and intended
something not expressed by the phraseology of the
[a]ct, it has no authority to depart from the plain
meaning of the language used.

State v. Klie, 116 Hawai#i 519, 525, 174 P.3d 358, 364 (2007)

(brackets in original) (quoting State v. Sakamoto, 101 Hawai#i

409, 413, 70 P.3d 635, 639 (2003)); Ross v. Stouffer Hotel Co.

Ltd., 76 Hawai#i 454, 467, 879 P.2d 1037, 1050 (1994) (Klein, J.,

concurring and dissenting) (“[W]e are not at liberty to interpret

a statutory provision to further a policy that is not articulated

in either the language of the statute or the relevant legislative

history, even if we believe that such an interpretation would

produce a more beneficent result, for ‘[t]he Court’s function in

the application and interpretation of such laws must be carefully

limited to avoid encroaching on the power of [the legislature] to

determine policies and make laws to carry them out.’” (brackets

in original) (citation omitted)). Accordingly, the State’s

proposed interpretation fails.

Moreover, adopting the State’s interpretation would

lead to illogical results. The statutory language at issue is

“actual monthly cost of the coverage” rather than simply “actual

cost of coverage.”30 See HRS § 87-22.3. The inclusion of the

word “monthly” supports the understanding that the legislature

intended “actual monthly cost of the coverage” to mean premiums

30
The State’s arguments largely appear to use the phrase “actual
cost of coverage” rather than “actual monthly cost of the coverage.”

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charged. Indeed, it would appear illogical to apply the State’s

definition – for example, allowing for “reasonable administrative

fees and profits” – on a monthly basis, since the amount of such

items may not be known until the completion of the relevant

fiscal year.31

We recognize that the State has raised serious and

troubling allegations regarding improper financial dealings

amongst the defendants. However, the State chose to tie its

allegations to the statutes, and conceded at oral argument that

its claims, including conspiracy to defraud the State, depended

entirely on its interpretation of the statutory phrase “actual

monthly cost of the coverage.”32 If, as the State suggests, the

defendants conspired to charge inflated premiums in order to make

improper payments to individuals, these facts could constitute a

31
Moreover, the State’s reliance on case law for the proposition
that the phrase “actual cost” does not mean “premium” in the insurance context
also fails. For example, the State cited United States v. Am. Bar Endowment,
477 U.S. 105, 108 (1986), for the proposition that “if, as is uniformly true,
the insurance company’s actual cost of providing insurance to the group is
lower than the premium paid in a given year, the insurance company pays a
refund of the excess[.]” However, this reasoning is unpersuasive insofar as
the “actual cost” in the aforementioned case refers to the insurer’s cost of
providing insurance. In the instant case, however, the statutory phrase at
issue – “actual monthly cost of the coverage” – contemplates the cost to the
policyholder, not the insurer. Additionally, the case law the State relied
on, such as American Bar Endowment, describes so-called “experience-rated”
insurance contracts, in which “the cost of insurance to the group is based on
that group’s claims experience, rather than general actuarial tables.” Am.
Bar Endowment, 477 U.S. at 107-08. It is undisputed that the supplemental
plans at issue in the instant case are not experience-rated.
32
Moreover, at oral argument, the State was unwilling to confirm
that there was a good faith basis for the allegations in the complaint that
might support a common law fraud claim.

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claim for conspiracy to defraud, irrespective of the statutory

definition of “actual monthly cost of the coverage.”33

However, that is not the theory that the State chose to

pursue here, and we cannot rewrite the State’s complaint to

allege causes of action the State did not assert. The sole

question here, as framed by the State, is a narrow one: do such

allegations constitute a violation of the provisions of chapter

87? The answer to that question is no.

Chapter 87 limited the porting of funds to the lesser

of either the cost of Health Fund-provided coverage pursuant to

collective bargaining agreements, or the “actual monthly cost” of

the coverage under the union benefits plans. The State has not

alleged that the ported funds exceeded this statutory limit.

Rather, the State’s allegations hinge on the suggestion that the

unions paid too much for the insurance coverage. However,

neither the statutory language nor legislative history suggested

that the union plans were required to result in cost savings, or

that a certain amount of administrative fees or profits were

prohibited. Again, the legislature was free to impose

restrictions or limits addressing the issues that the State

complains of, but such restraints and requirements were not

33
A claim for fraud involves “a knowing misrepresentation of the
truth or concealment of a material fact to induce another to act to his or her
detriment.” Fisher v. Grove Farm Co., Inc., 123 Hawai#i 82, 116, 230 P.3d
382, 416 (2009). Conspiracy to defraud requires a concerted action to defraud
by two or more persons or entities. Id.

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written into the statutes, and the legislative history does not

reflect an intent to impose them. Indeed, the proper remedy with

respect to the State’s concerns about the implementation of

chapter 87 was legislative action, which ultimately occurred in

2001 with the repeal of the Health Fund. See 2001 Haw. Sess.

Laws Act 88, § 3, at 150.

Finally, we note that the dissent’s position that the

phrase “actual monthly cost of the coverage” must be interpreted

as a prohibition against fraud is divorced from both the context

in which the porting program arose and the procedural posture of

this case. The dissent thereby constructs an argument that

chapter 87 was designed to be an enforcement mechanism by which

the State could police the relationships between employee

organizations and insurers.

However, as explained in detail above, both the plain

language of the statute and its legislative history support the

view that the legislature intended the phrase “actual monthly

cost of the coverage” to mean the premium charged by and paid to

the insurer. Certainly, the legislature would not have intended

for the porting program to “embrace” fraud, collusion,

embezzlement or bad faith. See dissenting opinion at 7-9. At

the same time, nothing in chapter 87 or its legislative history

indicates this statute was intended to punish any such abuses by

allowing the State to recover funds that were actually paid by

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the unions for employee health benefits plans, but which the

State retrospectively viewed as excessive. Instead, the

legislature imposed reasonable cost control measures by limiting

the ported amount to the actual monthly cost of coverage or the

amount negotiated through collective bargaining, whichever was

less. HRS § 87-22.3. Additionally, the legislature presumably

assumed that other remedies -- such as a common law fraud claim

or criminal prosecution -- would deter further abuse. It is a

cardinal canon of statutory interpretation that “this court

cannot change the language of the statute, supply a want, or

enlarge upon it in order to make it suit a certain state of

facts. This is because we do not legislate or make laws.” State

v. Smith, 103 Hawai#i 228, 233, 81 P.3d 408, 413 (2003) (internal

quotation marks and citations omitted). Thus, it is not for this

court to incorporate into HRS chapter 87 a prohibition against

fraud, collusion, embezzlement or bad faith that does not

otherwise exist.

Similarly, the dissent’s reliance on HAR § 6-34-9 is

misplaced. Dissenting opinion at 9-11. That provision required

the unions to “[m]aintain reasonable accounting and enrollment

records,” and to “[p]ermit representatives of the board and the

state comptroller to audit and examine its records that pertain

to its health benefits plan.” HAR §§ 6-34-9(3)(A)-(B). The

focus on “reasonable accounting and enrollment records” indicates

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that the Health Fund board was primarily concerned with whether

the ported funds were actually used to enroll employees in

benefits plans. Additionally, although this provision allowed

the board to audit the union’s records, it made no mention of the

board’s ability to audit the insurer’s records to determine

whether the “actual monthly cost of the coverage” was excessive,

or fraudulently or collusively set.

Additionally, article VII, section 4 of the Hawai#i

Constitution does not support the dissent’s conclusion. See

dissenting opinion at 11-13. Article VII, section 4 provides:

“No tax shall be levied or appropriation of public money or

property made, nor shall the public credit be used, directly or

indirectly, except for a public purpose. . . . No grant of public

money or property shall be made except pursuant to standards

provided by law.” Respectfully, there are no allegations in the

instant case that the porting program did not serve a public

purpose, or that the legislature’s funding of that program did

not comply with standards provided by law. Additionally,

allowing the government to recover from the unions and the

insurers on the ground that the porting expenditures ultimately

did not serve a “public purpose” would indicate that the State is

entitled to recover funds any time it concludes, post hoc, that

an expenditure was ill conceived or did not achieve its intended

goal of serving the public.

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Finally, we note again that, at oral argument, the

State was unable to articulate a cause of action for fraud

independent of its proffered interpretation of the phrase “actual

monthly cost of the coverage” or to confirm that there was a good

faith basis for the factual allegations of fraud contained in its

complaint.

Based on the foregoing, we conclude that the circuit

court did not err in interpreting “actual monthly cost of the

coverage” to mean the premium charged by the carrier.

B. Leave to Amend

The State argues that the circuit court abused its

discretion by denying the State leave to file its second amended

complaint and by essentially “rewrit[ing]” the State’s complaint.

Specifically, the State contends that this abuse of discretion

occurred over the course of four developments in the proceedings,

namely, when the circuit court
(1) denied leave to file the second amended complaint
even though leave had been granted earlier to file a
broader complaint premised on the same central
allegations, (2) read the particularity requirement
incorrectly in HRCP [Rule] 9, (3) misused HRCP [Rule]
12(f) to rewrite the State’s complaint itself, and (4)
refused to allow the State to align its definition of
“actual cost of coverage” with the amendments the
court made to the complaint.

(Emphasis in original).

Royal State Group, on the other hand, argues that the

circuit court acted within its discretion and that the court’s

orders throughout the litigation were a result of “persistent bad

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faith” by the State. Royal State Group also stated that even if

the circuit court abused its discretion, any errors would be

harmless because the issue in the instant case was the

interpretation of the statutes.

As stated above, on January 18, 2006, the State sought

leave to file a second amended complaint. The proposed January

2006 second amended complaint asserted ten causes of action,

including conspiracy to defraud the State, interference with

contract, assumpsit, false claims, restitution and constructive

trust, equitable accounting, specific performance, injunction,

unjust enrichment, and breach of fiduciary duty. On June 2,

2006, the circuit court denied without prejudice the State’s

motion for leave to file the second amended complaint.

Specifically, the circuit court’s June 2, 2006 order (1) denied

the motion without prejudice as to the proposed conspiracy to

defraud the State claim on grounds that it failed to comply with

HRCP Rule 9(b); (2) allowed the State to amend its complaint to

seek a declaratory ruling regarding the meaning of “actual

monthly cost of the coverage”; and (3) stated that if the State

seeks a declaratory ruling, and the circuit court ruled

“consistent with the theory underlying the proposed Second

Amended Complaint,” the State may further seek leave to amend to

assert its remaining claims.

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Even assuming, arguendo, that the circuit court’s

rulings with regard to amendment of the pleadings constituted an

abuse of discretion, the State cannot show that it was prejudiced

as a result. Specifically, the State concedes that its remaining

causes of action in its proposed second amended complaint would

not have survived the circuit court’s declaratory judgment

ruling.34 Indeed, the State has not identified any of its claims

as being viable independent from the statutory interpretation

issue, nor has the State urged this court to remand any of its

remaining claims even in the event that the circuit court’s

statutory interpretation is upheld.

Therefore, in light of our affirming the circuit

court’s interpretation of “actual monthly cost of the coverage,”

we do not address the State’s second question presented.35

V. Conclusion

In sum, the circuit court did not err in interpreting

the term “actual monthly cost of the coverage,” as it appeared in

HRS §§ 87-22.3, 87-22.5, and 87-23, to mean “the premium charged

34
The State acknowledged during oral argument that the claims in its
proposed second amended complaint were based on the interpretation of actual
monthly cost of the coverage and further stated: “[T]he ICA ruled that if the
State lost on the statutory interpretation issue that the leave to amend is
moot, and we agree with that statement.” Oral Argument, Hawai#i Supreme
Court, at 1:00:32-1:01:21 (Oct. 17, 2013), available at
http://www.courts.state.hi.us/courts/oral_arguments/archive/oasc29352.html.
35
We note that in declining to address the State’s argument, we are
not expressing any opinion as to the merits of the State’s allegations.
However, as stated above, the State chose to tether its causes of action to
the statutory language “actual monthly cost of the coverage” as it appeared in
Chapter 87. Thus, as the State concedes, in light of our interpretation, the
issue of whether the State should have be granted leave to amend is moot.

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by and paid to the carrier.” Accordingly, the judgment of the

ICA is affirmed.

Deirdre Marie-Iha /s/ Mark E. Recktenwald
for petitioner
/s/ Simeon R. Acoba, Jr.
Paul A. Schraff
for Royal respondent /s/ Sabrina S. McKenna
Charles A. Price
for respondent HGEA

Adrian W. Rosehill
for respondent UPW

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