Yukumoto v. Tawarahara.

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Electronically Filed
Supreme Court
SCAP-15-0000460
26-MAY-2017
07:55 AM

IN THE SUPREME COURT OF THE STATE OF HAWAI#I

---o0o---

GREGORY SHIGEO YUKUMOTO and DIANE YUKUMOTO,
Plaintiffs-Appellees,

vs.

RUTH TAWARAHARA,
Defendant-Appellee.
_________________________________________________________________

HAWAII MEDICAL SERVICE ASSOCIATION,
Intervenor-Plaintiff-Appellant,

vs.

RUTH TAWARAHARA,
Defendant-Appellee.

SCAP-15-0000460

APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT
(CAAP-15-0000460; CIV. NO. 14-1-001245; CIV. NO. 15-1-000105)

MAY 26, 2017

RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON, JJ.
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OPINION OF THE COURT BY RECKTENWALD, C.J.

This case presents an issue of first impression:

whether health insurers have subrogation rights against third-

party tortfeasors who cause injury to their insureds. For the

following reasons, we conclude that a health insurer does not

have a broad, unrestricted right of subrogation, but rather is

limited to reimbursement rights established by statute.
I. Background

A. The Accident

This case arises from an accident that occurred on

March 20, 2014, when Gregory Yukumoto was driving his moped in

Honolulu. Ruth Tawarahara, who was driving an SUV, attempted to

make a left turn in front of Yukumoto, and struck him with her

vehicle. Yukumoto sustained serious injuries, including brain

injury, traumatic hemorrhagic shock, acute respiratory failure,

left tibial fracture, right fibula fracture, L2 compression

fracture, multiple wounds, and multiple hematomas.

B. Circuit Court Proceedings

Gregory Yukumoto and his wife, Diane, filed a complaint

against Ruth Tawarahara in the Circuit Court of the First

Circuit. Hawai#i Medical Service Association (HMSA) subsequently

filed its “Notice of Claim of Lien,” contending that HMSA had

paid $325,824.33 for medical expenses associated with Yukumoto’s

injuries as of September 20, 2014.

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The Yukumotos filed a Petition for Determination of

Validity of Claim of Lien by HMSA pursuant to Hawai#i Revised

Statutes (HRS) § 663-10 (Petition). According to the Petition,

Yukumoto’s wage loss and general damages claim was “approximately

$4,000,000.” The Yukumotos contended that Ruth Tawarahara had

only $1,100,000 of insurance coverage through a State Farm

Insurance policy, which State Farm agreed to pay “pursuant to a
general damages only release.” The Yukumotos and Tawarahara had

agreed to their settlement on November 6, 2011. Tawarahara did

not admit fault for the accident. Coupled with a $50,000

“underinsured motorist claim” that the Yukumotos submitted to

GEICO Insurance, the Petition contended that the Yukumotos’

“total recovery, before payment of attorneys’ fees and costs, was

$1,150,000” and that “[t]hey remain undercompensated by

approximately $2,850,000.” Gregory Yukumoto’s HMSA health

insurance was provided through his employer, the State of

Hawai#i.

The Yukumotos sought “a ruling that HMSA has no lien

nor subrogation rights in their personal injury settlements

because HMSA cannot satisfy the provisions of” HRS § 663-10.1

1
HRS § 663-10 (Supp. 2002) provides:

(a) In any civil action in tort, the court,
before any judgment or stipulation to dismiss the
action is approved, shall determine the validity of
any claim of a lien against the amount of the judgment
or settlement by any person who files timely notice of
the claim to the court or to the parties in the
(continued...)

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1
(...continued)
action. The judgment entered, or the order subsequent
to settlement, shall include a statement of the
amounts, if any, due and owing to any person
determined by the court to be a holder of a valid lien
and to be paid to the lienholder out of the amount of
the corresponding special damages recovered by the
judgment or settlement. In determining the payment
due the lienholder, the court shall deduct from the
payment a reasonable sum for the costs and fees
incurred by the party who brought the civil action in
tort. As used in this section, lien means a lien
arising out of a claim for payments made or
indemnified from collateral sources, including health
insurance or benefits, for costs and expenses arising
out of the injury which is the subject of the civil
action in tort. If there is a settlement before suit
is filed or there is no civil action pending, then any
party may petition a court of competent jurisdiction
for a determination of the validity and amount of any
claim of a lien.

(b) Where an entity licensed under chapter 432
or 432D possesses a lien or potential lien under this
section:
(1) The person whose settlement or
judgment is subject to the lien or
potential lien shall submit timely notice
of a third-party claim, third-party
recovery of damages, and related
information to allow the lienholder or
potential lienholder to determine the
extent of reimbursement required. A
refusal to submit timely notice shall
constitute a waiver by that person of
section 431:13-103(a)(10). An entity
shall be entitled to reimbursement of any
benefits erroneously paid due to untimely
notice of a third-party claim;

(2) A reimbursement dispute shall be
subject to binding arbitration in lieu of
court proceedings if the party receiving
recovery and the lienholder agree to
submit the dispute to binding arbitration,
and the process used shall be as agreed to
by the parties in their binding
arbitration agreement; and

(3) In any proceeding under this section
to determine the validity and amount of
reimbursement, the court or arbitrator
(continued...)

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They alleged that under HRS § 663-10, “[f]or a health insurer to

receive any portion of a plaintiff’s recovery from the defendant,

the health insurer has the burden of proving that the settlement

or recovery duplicates medical expenses that were paid by the

health insurer.”

Lienor HMSA filed a memorandum in opposition, arguing

that the Petition should be denied because HRS § 663-10 “does not
abrogate HMSA’s contractual lien or subrogation rights, but

rather provides HMSA with an independent statutory right to

assert its lien on any amount that [the Yukumotos] recover.”

(Emphasis in original.) HMSA also filed an Amended Notice of

Claim of Lien for the amount of $337,351.79, and a motion to

intervene in the action.

At a hearing on the Petition, the court requested that

the parties submit supplemental briefing on the legislative

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(...continued)
shall allow a lienholder or person
claiming a lien sufficient time and
opportunity for discovery and
investigation.

For purposes of this subsection:

“Timely notice of a third-party claim” means a
reasonable time after any written claim or demand for
damages, settlement recovery, or insurance proceeds is
made by or on behalf of the person.

“Third-party claim” means any tort claim for
monetary recovery or damages that the individual has
against any person, entity, or insurer, other than the
entity licensed under chapter 432 or 432D.

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history and intent of HRS § 663-10.2 Following the submittal of

the supplemental briefing, the court held another hearing. At

that hearing, HMSA contended that its “rights under 663-10 to be

reimbursed by Plaintiffs . . . are greatly facilitated by

intervention” because it would be able to make “formal discovery

requests.” HMSA represented that the purpose of the discovery

would be to assist the court in making its “determinations under
[HRS §] 663-10” as to whether there was any duplication between

the settlement funds paid by Tawarahara and the medical expenses

paid by HMSA. The Yukumotos contended “that Hawaii’s Unfair

Claims Practices Act makes it illegal and an unfair claims

practice to limit the coverage to a Plaintiff who has a third-

party claim.” They argued that HRS § 431:13-103(10) was

“specifically applicable to mutual benefit societies and HMSA[,]”

and HMSA was violating the statute by “‘refusing to provide or

limiting coverage available to an individual because the

individual may have a third-party claim.’” The Yukumotos further

maintained that HRS § 663-10 was an “anti-subrogation statute”

and HMSA’s exclusive remedy, and that the legislative history of

HRS § 663-10 supported their position.

The court orally granted HMSA’s motion to intervene at

the hearing and subsequently filed an order limiting discovery to

“what is contemplated under HRS § 663-10.” The court also ruled

2
The Honorable Rhonda A. Nishimura presided.

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that HRS § 663-10 abrogated HMSA’s right of subrogation against

Defendant Tawarahara, holding that the statute provided HMSA’s

exclusive remedy “in this particular type of situation,” based on

“the statute itself, the legislative history, and the absence of

any particular case law[.]”

HMSA filed its complaint in intervention (Complaint) in

January 2015. HMSA contended that it was a mutual benefit
society as defined in HRS Chapter 432 and that it was a

“‘lienholder or person claiming a lien’ pursuant to applicable

laws, including but not limited to HRS § 663-10, and has rights

of subrogation and other reimbursement rights arising from its

contract with Plaintiff Gregory Yukumoto and at common law.”

HMSA asserted that it had “extended benefits on behalf of

Plaintiff Gregory Yukumoto in the amount of $339,255.40 as of

January 5, 2015.” HMSA sought judgment against Defendant

Tawarahara in the sum of $339,255.40 “with interest thereon at

the rate of 10% per annum from date of judgment until paid,” as

well as payment of its fees and costs. HMSA also filed a

separate complaint against Tawarahara, seeking to ensure its

subrogation claim was preserved and to obtain payment of medical

benefits it extended on behalf of Mr. Yukumoto.

Tawarahara filed a motion for partial dismissal of

HMSA’s Complaint, arguing that HMSA asserted subrogation claims

which the court determined “do not exist as a matter of law.”

The Yukumotos filed a substantive joinder to Defendant

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Tawarahara’s motion for partial dismissal and a motion to dismiss

Defendant Tawarahara with prejudice, pursuant to Hawai#i Rules of

Civil Procedure (HRCP) Rule 41(a)(2) (2012).3 HMSA opposed the

motion, largely reiterating previous arguments.

In their answer to HMSA’s Complaint, the Yukumotos

contended that the Complaint was barred by HRS § 431:13-

103(a)(10)4 and 663-10, and that because “[the Yukumotos’]

3
HRCP Rule 41(a)(2) (“Voluntary Dismissal: Effect Thereof”)
provides:

(2) By Order of Court. Except as provided in paragraph (1) of
this subdivision of this rule, an action shall not be dismissed at
the plaintiff’s instance save upon order of the court and upon
such terms and conditions as the court deems proper. If a
counterclaim has been pleaded by a defendant prior to the service
upon the defendant of the plaintiff’s motion to dismiss, the
action shall not be dismissed against the defendant’s objection
unless the counterclaim can remain pending for independent
adjudication by the court. Unless otherwise specified in the
order, a dismissal under this paragraph is without prejudice.

(Emphasis in original.)
4
HRS § 431:13-103(a)(10) (Supp. 2002) provides:

(a) The following are defined as unfair methods
of competition and unfair or deceptive acts or
practices in the business of insurance:
. . . .

(10) Refusing to provide or limiting coverage
available to an individual because the
individual may have a third-party claim for
recovery of damages; provided that:

(A) Where damages are recovered by
judgment or settlement of a third-party
claim, reimbursement of past benefits paid
shall be allowed pursuant to section
663-10;

(B) This paragraph shall not apply to
entities licensed under chapter 386 or
431:10C; and
(continued...)

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settlement with Defendant Ruth Tawarahara was for general damages

only,” HMSA “cannot meet its burden of proving a duplication of

benefits and therefore has no reimbursement rights herein.” In

response, HMSA argued that it would be prejudiced by Tawarahara’s

dismissal because it would lose its “contract and common law”

rights of subrogation against her.

4
(...continued)
(C) For entities licensed under chapter
432 or 432D:

(i) It shall not be a violation of
this section to refuse to provide or
limit coverage available to an
individual because the entity
determines that the individual
reasonably appears to have coverage
available under chapter 386 or
431:10C; and
(ii) Payment of claims to an
individual who may have a
third-party claim for recovery of
damages may be conditioned upon the
individual first signing and
submitting to the entity documents
to secure the lien and reimbursement
rights of the entity and providing
information reasonably related to
the entity’s investigation of its
liability for coverage.

Any individual who knows or reasonably
should know that the individual may have a
third-party claim for recovery of damages
and who fails to provide timely notice of
the potential claim to the entity, shall
be deemed to have waived the prohibition
of this paragraph against refusal or
limitation of coverage. “Third-party
claim” for purposes of this paragraph
means any tort claim for monetary recovery
or damages that the individual has against
any person, entity, or insurer, other than
the entity licensed under chapter 432 or
432D[.]

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At a hearing on the motions, the court noted that the

legislature has set up a protocol that is “very detailed in terms

of addressing HMSA’s lien regarding its validity, regarding the

dollar amount” and that, regarding duplication of funds, “they

have set up a process whereby discovery is intended, and the

court is allowing HMSA to conduct discovery as to whether or not

there is duplication such that their lien rights under [HRS §]
663-10 [are] protected because if it’s duplicative, then there is

a reimbursement.”

The court subsequently entered an order granting the

Yukumotos’ motion to dismiss Defendant Tawarahara, dismissing all

claims against her with prejudice. The court also ordered the

Yukumotos’ counsel to retain $339,255.40 from the settlement

funds received from Tawarahara in their client trust account, as

that was the amount set forth in HMSA’s Notice of Claim of Lien.

Tawarahara filed a motion to consolidate HMSA’s

separate lawsuit against her with the underlying Yukumotos’

lawsuit, which HMSA opposed. The court granted Tawarahara’s

motion to consolidate.

Two days before the court granted the motion to

consolidate, HMSA filed a supplemental memorandum in opposition

to the Yukumotos’ Petition. HMSA asserted that it did “not

believe it [would] be able to meet its burden to establish by a

preponderance of the evidence that the settlement proceeds paid

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by Defendant Ruth Tawarahara to Plaintiffs duplicate the medical

benefits paid by HMSA.”

Defendant Tawarahara filed a motion to dismiss the

case. Tawarahara argued that HMSA had no standing to bring an

action against her because the court had ruled that HMSA’s

subrogation rights were abrogated. In opposition, HMSA argued

that “its right of subrogation against Tawarahara is separate and
independent from its right of reimbursement from Mr. Yukumoto

under HRS § 663-10, and will survive the Court’s ruling as to a

distribution of the proceeds of the pending settlement under HRS

§ 663-10,” and that “a ruling by the Court that the settlement

does not duplicate the medical benefits paid by HMSA will

conclusively establish that Tawarahara is still liable to HMSA

for that element of damages resulting from her tortious conduct.”

The court held a hearing on both the Yukumotos’

Petition and Tawarahara’s motion to dismiss, and orally granted

the motion to dismiss and agreed to release the Yukumotos’

settlement funds to the Yukumotos’ counsel. The court entered

its order granting the Yukumotos’ Petition, ruling that “HMSA is

not entitled to a payment of the amount of its claimed lien,” and

permitting Plaintiffs’ counsel to release the settlement proceeds

that were being held in their client trust account to the

Yukumotos. The court entered final judgment on May 28, 2015.

HMSA timely filed its Notice of Appeal.

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C. HMSA’s Appeal and Application for Transfer

In its opening brief, HMSA argued that the “circuit

court erred in ruling that HRS § 663-10 and/or HRS § 431:13-

103(a)(10) abrogates Appellant HMSA’s contractual and common law

rights in subrogation against a third-party tortfeasor

responsible for injury to its insured.”

The Yukumotos and Tawarahara (Appellees) filed a joint
answering brief, which detailed the legislative history of the

two statutes, stating that the Hawai#i legislature “made clear

that health insurers have no subrogation rights in personal

injury settlements, and specifically defined a health insurer’s

‘right of reimbursement’ as codified under HRS § 663-10” and

“determined that a health insurer should be reimbursed from a

personal injury settlement to the extent that the settlement

duplicated benefits paid by the health insurer.”

In its reply brief, HMSA argued that there was no

evidence of legislative intent to abrogate its subrogation rights

and that “[n]one of [Appellees’] arguments provide citations to

the legislative history, because they find no support there.”

(Emphasis in original.) HMSA also argued that State Farm Fire

and Cas. Co. v. Pacific Rent-All, Inc., 90 Hawai#i 330, 978 P.2d

768 (1999) is directly applicable to this case, and should have

been applied by the circuit court.

HMSA filed an application for transfer to this court,

which we granted.

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II. Standards of Review

A. Statutory Interpretation

“Statutory interpretation is a question of law

reviewable de novo.” State v. Wheeler, 121 Hawai#i 383, 390, 219

P.3d 1170, 1177 (2009) (internal quotation marks omitted). This

court’s construction of statutes is guided by the following

rules:
First, the fundamental starting point for statutory
interpretation is the language of the statute itself.
Second, where the statutory language is plain and
unambiguous, our sole duty is to give effect to its
plain and obvious meaning. Third, 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. Fourth, when there is doubt, doubleness of
meaning, or indistinctiveness or uncertainty of an
expression used in a statute, an ambiguity exists.

Id. (quoting Citizens Against Reckless Dev. v. Zoning Bd. of

Appeals of the City & Cty. of Honolulu, 114 Hawai#i 184, 193, 159

P.3d 143, 152 (2007)).

“[W]e may only resort to the use of legislative history

when interpreting an ambiguous statute.” State v. Valdivia, 95

Hawai#i 465, 472, 24 P.3d 661, 668 (2001).

B. Motions to Dismiss

“A trial court’s ruling on a motion to dismiss is

reviewed de novo.” Kamaka v. Goodsill Anderson Quinn & Stifel,

117 Hawai#i 92, 104, 176 P.3d 91, 103 (2008) (citation omitted).

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III. Discussion

The issue presented here is whether health insurers

retain their subrogation rights against third-party tortfeasors

who cause injury to their insureds.

HMSA argues that under State Farm, its “equitable

common law right of subrogation” is protected in the context of

health insurance. According to HMSA, this common law right
allows for insurer’s rights in subrogation to be “independent

. . . and take priority over the insured’s interest in settling

with a third party.” HMSA additionally argues that the

legislative history of HRS §§ 663-10 and 431:13-103(a)(10) does

not support a finding that the laws abrogate its claimed

subrogation rights. Further, HMSA argues that it has contractual

subrogation rights, noting that Mr. Yukumoto’s agreement with

HMSA expressly provided a right of subrogation.

In response, Appellees argue that the legislative

history of HRS §§ 663-10 and 431:13-103 makes clear that health

insurers have “no subrogation rights in personal injury

settlements,” and that a health insurer “should be reimbursed

from a personal injury settlement to the extent that the

settlement duplicated benefits paid by the health insurer.” With

respect to HMSA’s contractual subrogation rights, Appellees argue

that the contract provision is void as against public policy in

light of HRS §431:13-103, and thus unenforceable.

We conclude that State Farm does not apply to

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situations involving an insurer’s right to subrogation in the

context of personal insurance such as the instant case, and thus,

here, HMSA does not have equitable subrogation rights. We also

conclude that the legislature intended to limit a health

insurer’s right of subrogation under HRS §§ 663-10 and 431:13-

103. Thus, we conclude that any contractual provision that

conflicts with HRS § 663-10 is invalid, and that HMSA is not
entitled to contractual subrogation rights. Therefore, the

circuit court properly granted the Yukumotos’ Petition and

Tawarahara’s motion to dismiss, and we affirm the circuit court’s

judgment.

A. HMSA Does Not Have Equitable Subrogation Rights Against a
Third-Party Tortfeasor

Subrogation is a “creature of equity,” and is premised

on the notion that an insured should not be able to “unduly

benefit from a loss and thereby enjoy a ‘double recovery’ from

both the insurer and the tortfeasor.” St. Paul Fire & Marine

Ins. Co. v. Liberty Mut. Ins. Co., 135 Hawai#i 449, 452, 353 P.3d

991, 994 (2015); Roger Baron, Subrogation: A Pandora’s Box

Awaiting Closure, 41 S.D. L. Rev. 237, 241 (1996); see also

Johnny C. Parker, The Made Whole Doctrine: Unraveling the Enigma

Wrapped in the Mystery of Insurance Subrogation, 70 Mo. L. Rev.

723 (2005). Subrogation exists to provide insurers with a

mechanism “to recover the costs of reimbursing injured insured

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parties.” Parker, supra, at 723; see St. Paul, 135 Hawai#i at

452, 353 P.3d at 994.

Because subrogation is designed to achieve an equitable

adjustment of rights between the insured and insurer, “its

contours cannot always be contractually defined,” meaning that

whether or not the right to subrogation arises depends on the

type of insurance involved. Parker, supra, at 728. Subrogation
rights in the “personal insurance” context are treated

differently from subrogation rights in the property or casualty

insurance context.5 See Perreira v. Rediger, 778 A.2d 429, 437

(N.J. 2001) (stating that “policies covering property damage such

as fire insurance have regularly been held to include an implied

right of subrogation,” but in the area of “personal insurance,”

which includes health and medical insurance, the “same has not

been true”). Subrogation in these contexts is treated

differently because the two types of insurance cover different

losses. See id. at 437-38 (citations omitted); see also Parker,

supra, at 730-32. Courts have applied the principle of equitable

subrogation to property and casualty insurance policies because

5
Personal insurance is distinguishable from indemnity insurance
such as property/casualty and liability because personal insurance is
“insurance upon the person of an individual or group of individuals.” Parker,
supra, at 730. Insurance other than personal insurance “in some way involves
a res different from the person of the policy holder. In personal insurance,
however, that is the sole object of concern, and liability of the insurer
arises, ordinarily, upon the insured’s death or, perhaps, disability resulting
from accident or illness.” Parker, supra, at 730. “Policies providing
benefits for medical or hospital expenses are generally viewed by courts as
contracts for personal insurance.” Parker, supra, at 731 (citing Cunningham
v. Metro. Life Ins. Co., 360 N.W.2d 33, 37-39 (Wis. 1985)).

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“the insured’s actual loss is generally liquidated in the context

of property insurance,” and “any excess compensation from the

combination of insurance proceeds and tort recovery can be

determined with certainty.”6 Parker, supra, at 729. Thus, the

right to equitable subrogation prevents the insured from

obtaining a double recovery by ensuring that the insured will pay

the insurer for any duplication of damages received as a result
of settlement. See id.

In contrast, many jurisdictions have treated rights to

equitable subrogation differently in the context of “personal

insurance.” Id. at 731-32. For the courts that have addressed

the “question of the existence of a common-law equitable right of

subrogation,” the “weight of authority” has concluded that “no

such right exists in the health insurance field.” Perreira, 778

A.2d at 437 (citing cases); see Parker, supra, at 731-32 (citing

cases) (“The overwhelming majority of jurisdictions that have

addressed the issue of whether equitable subrogation applies to

personal insurance contracts have concluded that such an insurer

has no right to subrogation absent an expressed provision in the

policy.”). The New Jersey Supreme Court stated the rationale

6
Two types of subrogation exists: (1) “equitable subrogation,”
which is a principle of equity that is “effected by operation of law and
arises out of a relationship that need not be contractually based;” and (2)
“conventional” or “contractual subrogation,” which “arises out of the
contractual relationship of the parties.” State Farm, 90 Hawai#i at 328, 978
P.2d at 766.

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behind the rule against finding equitable subrogation in personal

insurance:

Subrogation rights are common under policies of
property or casualty insurance, wherein the insured
sustains a fixed financial loss, and the purpose is to
place that loss ultimately on the wrongdoer. To
permit the insured in such instances to recover from
both the insurer and the wrongdoer would permit him to
profit unduly thereby.

In personal insurance contracts, however, the exact
loss is never capable of ascertainment. Life and
death, health, physical well being, and such matters
are incapable of exact financial estimation. There
are, accordingly, not the same reasons militating
against a double recovery. The general rule is,
therefore, that the insurer is not subrogated to the
insured’s rights or to the beneficiary’s rights under
contracts of personal insurance, at least in the
absence of a policy provision so providing. Nor would
a settlement by the insured with the wrongdoer bar his
cause of action against the insurer. However, if a
subrogation provision were expressly contained in such
contracts, it probably would be enforced quite
uniformly. Such a provision cannot be read into a
policy by calling it an indemnity contract, however.

Perreira, 778 A.2d at 438 (quoting 3 J.A. Appleman & J. Appleman,

Insurance Law & Practice, § 1675 at 495); see also Am. Pioneer

Life Ins. Co. v. Rogers, 753 S.W.2d 530, 532-33 (Ark. 1988) (“The

principles which cause us to recognize equitable subrogation in

property disputes are not present in the field of medical expense

payments for personal injuries.”).

In line with other jurisdictions’ rationale to support

the general rule that there is no right to equitable subrogation

in the health and medical insurance context, Hawai#i courts have

also recognized the differences between subrogation rights for

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property/casualty insurance and subrogation rights for personal

insurance. In State Farm, this court’s ruling follows the

majority rule for subrogation in the context of property

insurance. See 90 Hawai#i at 330, 978 P.2d at 768. In State

Farm, the insured rented a gas compressor from Pacific Rent-All

(Pacific). Id. at 319, 978 P.2d at 757. The gas compressor

malfunctioned, which resulted in fire damage to the insured’s
building and vehicle. Id. Following the accident, State Farm

paid for the damages that the insured incurred. Id.

Subsequently, the insured reached a settlement agreement with

Pacific, which released all claims “arising out of personal

injury and property damage” that resulted from the incident. Id.

at 319-20, 978 P.2d at 757-58. After the settlement, State Farm

filed a claim to assert its subrogation rights against Pacific

for damages that the insured suffered. Id. at 320, 978 P.2d at

758. Pacific moved to dismiss State Farm’s claim based on the

defenses of “release and accord and satisfaction.” Id. at 319-

20, 978 P.2d at 757-58. This court held that “in the context of

fire and casualty insurance . . . the insurer may maintain a

subrogation action against the tortfeasor” regardless of outside

settlement. Id. at 330, 978 P.2d at 768.

In contrast, in the personal insurance context, Hawai#i

courts have specifically limited an insurer’s right to

subrogation. In AIG Hawai#i Ins. Co., Inc. v. Rutledge, the

Intermediate Court of Appeals (ICA) addressed a similar issue to

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that in this case in the context of uninsured motorist (UM)

benefits.7 See 87 Hawai#i 337, 341, 955 P.2d 1069, 1073 (App.

1998). In Rutledge, the insured settled its claims against the

City and County of Honolulu, but not against the uninsured

tortfeasor. Id. at 340, 955 P.2d at 1072. Following settlement,

AIG sought recovery from its insured for the UM benefits that the

insured had received following the accident. Id. The ICA ruled
that an insurance carrier providing UM coverage is “entitled to

reimbursement for payments it makes to an accident victim to the

extent the victim’s total recovery from all sources exceeds his

or her damages [but] the carrier is entitled to no reduction of

UM coverage . . . where the victim is not fully compensated.”

Id. at 346, 955 P.2d at 1078 (quoting Bradley v. H.A. Manosh

Corp., 601 A.2d 978, 983-84 (1991)). Therefore, the ICA

concluded that “in the allocation of tort recovery proceeds and

UM benefits, we agree with the principle of full but not

duplicative recovery of damages by the injured insured.” Id.

Similarly in Sol v. AIG Hawai#i Ins. Co., this court

enforced a statutory limit under HRS § 431:10C-307 (Supp. 1992)

on subrogation for no-fault insurers against UM benefits.8 See

7
Uninsured-motorist coverage allows an insured to recover damages
for “injuries and losses negligently caused by a driver who has no liability
insurance.” Uninsured-Motorist Coverage, Black’s Law Dictionary (10th ed.
2014).
8
HRS § 431:10C-307 provides:

Whenever any person effects a tort liability recovery
(continued...)

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76 Hawai#i 304, 307-08, 875 P.2d 921, 924-25 (1994). In its

ruling, this court followed the legislature’s “intent to disallow

the subrogation rights of the no-fault carrier against ‘optional

additional’ coverages when it amended the statute in 1977”:

This section [Section 294–7, “Rights of Subrogation”]
is amended to clearly state the original intent of the
Legislature when it passed the Hawai#i No-fault Law.
Whenever any person effects a tort liability recovery
for accidental harm, whether by suit or by settlement,
the no-fault insurer is entitled to subrogate fifty
percent of the no-fault benefits, up to the maximum
limit specified by Section 294–3(c). That limit is in
the amount of $15,000. Therefore, if the no-fault
insurer paid no-fault benefits in excess of this
$15,000 amount; the proper application of the present
law as specified in Sections 294–2(10), 294–3, 294–4,
and 294–10, Hawai#i Revised Statutes, leaves no room
for interpretation; but that the maximum amount that
the no-fault insurer may subrogate is in the amount of
fifty per cent of $15,000. The no-fault insurer
cannot subrogate against the optional additional
coverages, which by rules and regulations of the
Commissioner of Motor Vehicle Insurance each insurer
is required to offer each applicant.

Id. at 307–08, 875 P.2d at 924–25 (citing S. Conf. Comm. Rep. No.

776, in 1977 Senate Journal at 1184) (other citations and

emphasis omitted).

This court stated that pursuant to HRS § 431:10C-

301(b)(3), insurance coverage for uninsured motorists is

“optional coverage” because HRS § 431:10C-301(b)(3) provides that

8
(...continued)
for accidental harm, whether by suit or settlement,
which duplicates no-fault benefits already paid under
the provisions of this article, the no-fault insurer
shall be reimbursed fifty per cent of the no-fault
benefits by such person receiving the duplicate
benefits, up to the maximum limit specified by section
431:10C–103(6).

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uninsured motorist coverage “may be rejected.”9 Id. at 308, 875

P.2d at 925. This court then concluded that it followed that

because the legislature “intended to prevent no-fault insurers

from subrogating against the optional additional coverages,

uninsured motorist coverage is exempt from no-fault

reimbursement.” Id.

Thus, our courts have recognized the difference between
property/casualty insurance and personal insurance by allowing

the insured to maintain subrogation rights in a property

insurance context in State Farm, and limiting subrogation rights

in personal insurance contexts in Rutledge and Sol. Situations

involving tort recovery in personal insurance contexts, like the

instant case, often include payment by the tortfeasor for

intangible losses such as life, death, health, pain and

suffering, and physical well being, where it is difficult to

ascertain exact measurements of loss. In this way, recovery for

9
HRS § 431:10C-301(b)(3) (1993) provides:

(b) A motor vehicle insurance policy shall include:
. . .

(3) With respect to any motor vehicle registered or
principally garaged in this State, liability coverage
provided therein or supplemental thereto, in limits
for bodily injury or death set forth in Paragraph (1),
under provisions filed with and approved by the
commissioner, for the protection of persons insured
thereunder who are legally entitled to recover damages
from owners or operators of uninsured motor vehicles
because of bodily injury, sickness, or disease,
including death, resulting therefrom; provided,
however, that the coverage required under this section
shall not be applicable where any insured named in the
policy shall reject the coverage in writing.

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medical insurance benefits and tort damages do not involve the

principles which support our recognition of equitable subrogation

in the property/casualty context, and recovery does not

necessarily produce a windfall or duplicative recovery to the

insured. We are therefore persuaded to join the majority rule,

and hold that an insurer does not have equitable subrogation

rights in personal insurance contexts.
B. The Hawai#i State Legislature Has Limited a Health Insurer’s
Right to Subrogation Under HRS §§ 663-10 and 431:13-103

It is clear from the plain language of HRS § 663-10

(Supp. 2002) that the legislature has limited the subrogation

rights of health insurers. As reflected in its title,

“Collateral sources; protection for liens and rights of

subrogation” (emphasis added), the statute provides a

comprehensive structure for addressing liens and subrogation

rights in this context. HRS § 663-10(a) (Supp. 2002) provides in

relevant part:

In any civil action in tort, the court, before
any judgment or stipulation to dismiss the action is
approved, shall determine the validity of any claim of
a lien against the amount of the judgment or
settlement by any person who files timely notice of
the claim to the court or to the parties in the
action. The judgment entered, or the order subsequent
to settlement, shall include a statement of the
amounts, if any, due and owing to any person
determined by the court to be a holder of a valid lien
and to be paid to the lienholder out of the amount of
the corresponding special damages recovered by the
judgment or settlement. In determining the payment
due the lienholder, the court shall deduct from the
payment a reasonable sum for the costs and fees

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incurred by the party who brought the civil action in
tort. As used in this section, lien means a lien
arising out of a claim for payments made or
indemnified from collateral sources, including health
insurance or benefits, for costs and expenses arising
out of the injury which is the subject of the civil
action in tort. If there is a settlement before suit
is filed or there is no civil action pending, then any
party may petition a court of competent jurisdiction
for a determination of the validity and amount of any
claim of a lien.10

10
HRS § 663-10 (Supp. 2002) continues on and provides:

(b) Where an entity licensed under chapter 432
or 432D possesses a lien or potential lien under this
section:

(1) The person whose settlement or judgment is
subject to the lien or potential lien shall submit
timely notice of a third-party claim, third-party
recovery of damages, and related information to allow
the lienholder or potential lienholder to determine
the extent of reimbursement required. A refusal to
submit timely notice shall constitute a waiver by that
person of section 431:13-103(a)(10). An entity shall
be entitled to reimbursement of any benefits
erroneously paid due to untimely notice of a third-
party claim;

(2) A reimbursement dispute shall be subject to
binding arbitration in lieu of court proceedings if
the party receiving recovery and the lienholder agree
to submit the dispute to binding arbitration, and the
process used shall be as agreed to by the parties in
their binding arbitration agreement; and

(3) In any proceeding under this section to
determine the validity and amount of reimbursement,
the court or arbitrator shall allow a lienholder or
person claiming a lien sufficient time and opportunity
for discovery and investigation.
For purposes of this subsection:

“Third-party claim” means any tort claim for
monetary recovery or damages that the individual has
against any person, entity, or insurer, other than the
entity licensed under chapter 432 or 432D.

“Timely notice of a third-party claim” means a
reasonable time after any written claim or demand for
damages, settlement recovery, or insurance proceeds is
(continued...)

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(Emphasis added.)

Thus, HRS § 663-10’s comprehensive scope is also

reflected in the statute’s declaration that it applies broadly to

“any claim of a lien.” See id. HRS § 663-10 also specifically

provides that the liens referred to in the statute include liens

arising out of payments made from collateral sources, including

“health insurance or benefits.” Id. Thus, HRS § 663-10 applies

to health insurers. Further, HRS § 663-10 specifically states

that any judgment entered shall include the amount due and owing

to any holder of a valid lien, to be paid to the lienholder from

“special damages recovered by the judgment or settlement.” Id.

(emphasis added). Thus, the legislature limited the type of

damages from which a lienholder may be reimbursed. The

legislature did not provide that the lienholder may be reimbursed

from an insured’s recovery of general damages which, as mentioned

previously, are difficult to determine exactly. Therefore, the

plain language of HRS § 663-10 supports the conclusion that

HMSA’s subrogation rights are limited.

10
(...continued)
made by or on behalf of the person.

(Emphasis added.)
As reflected in the broad definition of “third-party claim,” the statute
demonstrates a legislative purpose to establish a comprehensive scheme for
adjudicating reimbursement claims by health insurers, including a requirement
that the third-party claimant notify the insurer of the claim.

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Consistent with this interpretation, the legislative

history of HRS §§ 663-10 and 431-13:103(a)(10) demonstrates that

a health insurer’s sole rights to reimbursement and subrogation

are provided for in those statutes, and that a health insurer’s

right to subrogation is therefore limited. In 1986, the Hawai#i

legislature enacted comprehensive tort reform legislation. The

legislation, which was later codified as HRS § 663-10 (1993),11
addressed the issue of reimbursement for collateral sources who

made payments for “costs and expenses arising out of the injury.”

1986 Special Sess. Haw. Sess. Laws Act 2, § 16 at 10. The

legislation allowed for collateral sources to be reimbursed when

11
HRS § 663-10 (1993) (Collateral sources; protection for liens and
rights of subrogation) provides:

In any civil action in tort, the court, before any
judgment or stipulation to dismiss the action is
approved, shall determine the validity of any claim of
a lien against the amount of the judgment or
settlement by any person who files timely notice of
the claim to the court or to the parties in the
action. The judgment entered, or the order subsequent
to settlement, shall include a statement of the
amounts, if any, due and owing to any person
determined by the court to be a holder of a valid lien
and to be paid to the lienholder out of the amount of
the corresponding special damages recovered by the
judgment or settlement. In determining the payment
due the lienholder, the court shall deduct from the
payment a reasonable sum for the costs and fees
incurred by the party who brought the civil action in
tort. As used in this section, lien means a lien
arising out of a claim for payments made or
indemnified from collateral sources for costs and
expenses arising out of the injury which is the
subject of the civil action in tort.

1986 Special Session Haw. Sess. Laws Act 2, § 16 at 10.

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special damages recovered in a judgment or settlement duplicated

the amounts they had paid. Id.

In 2000, the legislature passed S.B. No. 2563, which

became Act 29, the purpose of which was to “make it an unfair or

deceptive act to limit or withhold coverage under insurance

policies because a consumer may have a third-party claim for

damages.” H. Stand. Comm. Rep. No. 1330-00, in 2000 House

Journal, at 1515; see HRS § 663-10 (Supp. 2000).12 Act 29 made

clear that collateral sources were required to pay benefits, and

were limited to reimbursement under the statute in third-party

12
HRS § 663-10 (Supp. 2000) (Collateral sources; protection for
liens and rights of subrogation) provides:

In any civil action in tort, the court, before any
judgment or stipulation to dismiss the action is
approved, shall determine the validity of any claim of
a lien against the amount of the judgment or
settlement by any person who files timely notice of
the claim to the court or the parties in the action.
The judgment entered, or the order subsequent to
settlement, shall include a statement of the amounts,
if any, due and owing to any person determined by the
court to be a holder of a valid lien and to be paid to
the lienholder out of the amount of the corresponding
special damages recovered by the judgment or
settlement. In determining the payment due the
lienholder, the court shall deduct from the payment a
reasonable sum for the costs and fees incurred by the
party who brought the civil action in tort. As used
in this section, lien means a lien arising out of a
claim for payments made or indemnified from collateral
sources, including health insurance or benefits, for
costs and expenses arising out of the injury which is
the subject of the civil action in tort. If there is
a settlement before suit is filed or if there is no
civil action pending, then any party may petition a
court of competent jurisdiction for a determination of
the validity and amount of any claim of a lien.

2000 Haw. Sess. Laws Act 29, § 2 at 57 (new language added underlined).

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personal injury situations. See H. Stand. Comm. Rep. No. 1330-

00, in 2000 House Journal, at 1515. Act 29 modified HRS § 663-10

by expressly including “health insurance or benefits” within its

provisions. 2000 Haw. Sess. Laws Act 29, § 2 at 57. The

legislature enacted Act 29 with the intent to “prevent duplicate

recoveries in personal injury claims while creating a fair,

uniform and comprehensive procedure governing the rights and
obligations of insurance companies and consumers for the

reimbursement of insurance benefits from third-party sources of

recovery.” H. Stand. Comm. Rep. No. 1330-00, in 2000 House

Journal, at 1515. The legislature also limited reimbursement and

subrogation for all insurance companies, excluding health

insurers, in HRS § 431:13-103(a)(10) (Supp. 2000), while also

applying the same restrictions to reimbursement and subrogation

to health insurers in HRS § 663-10.13 2000 Haw. Sess. Laws Act

13
Act 29 added HRS § 431:13-103(a)(10), which provided that an
insurer would have committed an unfair insurance practice by:

Refusing to provide or limiting coverage available to
an individual because the individual may have a third
party claim for recovery of damages; provided that:

(A) Where damages are recovered by judgment or
settlement of a third-party claim, reimbursement of
past benefits paid shall be allowed pursuant to
section 663-10; and

(B) The paragraph shall not apply to entities
licensed under chapter 386, 431:10C, 432, or 432D. . .
.

2000 Haw. Sess. Laws Act 29 § 1, at 55 (emphasis omitted).

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29, § 1 at 55; 2000 Haw. Sess. Laws Act 29, § 2 at 57. The House

Committee on Consumer Protection and Commerce noted that:

Health coverage and benefits are exempted from Section
431:13-103 and the same rights and obligations are
placed in Section 663-10 for health insurers. The
amendment extends health benefit providers’ third-
party liability rights to settlements, as well as
lawsuits under Section 663-10. This amendment places
all of the rights and obligations of health benefit
providers and consumers in Section 663-10 for third-
party liability situations to create a uniform and
comprehensive procedure.

H. Stand. Comm. Rep. No. 1330-00, in 2000 House Journal, at 1515

(emphasis added).

In the next legislative session in 2001, the

legislature considered and subsequently passed S.B. 940, which

amended to HRS 431:13-103(a)(10) to expressly make it an unfair

insurance practice for a health insurer to limit or exclude

insurance coverage to an insured who has a third-party claim for

damages. See S. Stand. Comm. Rep. No. 107, in 2001 Senate

Journal, at 987. According to the Senate Committee on Commerce,

Consumer Protection and Housing, the purpose of S.B. 940 was to

“make mutual benefit societies (societies) and health maintenance

organizations (HMOs) subject to the unfair methods of competition

and unfair and deceptive acts and practices of the business of

insurance, for refusing to provide or limiting coverage to an

individual having a third-party claim for damages.” S. Stand.

Comm. Rep. No. 107, in 2001 Senate Journal, at 987. The

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Committee cited testimony of the State Insurance Commissioner,

which indicated that this measure:

corrects an oversight in Act 29, Session Laws of
Hawai#i (SLH) 2000, which should not have exempted
societies and HMOs from insurance unfair practices for
refusing to provide or limiting coverage to the
insured who has a third-party claim. Act 29, SLH
2000, established lien rights for health insurance
benefits paid, which is a complement to revisions in
the same measure to the insurance code relating to
unfair insurance practices.

Id.

The Committee further explained its intent in enacting

S.B. 940:

The intent of your Committee is that societies and
HMOs promptly pay the benefits owing under their
policies, and recoup their payments from a third-party
claim by lien as provided under section 663-10, HRS.
Testimony indicated that under current law, societies
and HMOs may be interfering with a third-party
settlement by claiming that they are exempt from
insurance unfair trade practice as a result of Act 29,
SLH 2000. This was clearly not the intent of the
legislature. This measure clears up that confusion.

Id.

When deciding whether to enact S.B. 940, the House

Committee on Consumer Protection and Commerce received testimony

from HMSA that passage of the amendments would “eliminate the

ability of health plans to recover monies already paid on behalf

of members when these individuals receive a third party

settlement,” resulting in a “double payment” for the client and

shifting costs from auto insurance to private health insurance,

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which would “increase premiums borne by Hawaii’s employers.”

However, the President of the Hawai#i Claims Managers

Association, as well as private citizens, testified in support of

S.B. 940, stating that HMSA “unfairly claims a disproportionate

amount of settlements,” and in many cases, “claims to be entitled

to all of the settlement,” effectively depriving insureds of

large amounts of the settlement proceeds. The President of the
Hawai#i Claims Managers Association also testified that HMSA’s

practices made it “very difficult to settle cases quickly and

inexpensively” and has “unnecessarily delay[ed] payment of

benefits to injured consumers.”

S.B. 940 was carried over into the 2002 legislative

session, and was adopted despite the concerns expressed by HMSA

in its testimony. The Conference Committee, when considering

proposed amendments to Act 29, stated that:

Refusing to provide or limiting health coverage to
persons who have third-party claims for damages is not
permitted, except for reimbursement under section
663-10, Hawai#i Revised Statutes (HRS). This measure
makes such acts unfair insurance practices under
article 13 of the insurance code to eliminate any
doubt that health insurers have always been subject to
these limitations under section 663-10, HRS. Health
insurers continue to be entitled to reimbursement of
their subrogation liens under section 663-10, HRS.

Conf. Comm. Rep. No. 67-02, in 2002 House Journal, at 1783.

Thus, HRS § 663-10’s legislative history supports the

conclusion that HMSA’s sole rights to reimbursement and

subrogation are provided for in HRS §§ 663-10 and 431-

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13:103(a)(1). First, the drafters indicated that “all of the

rights and obligations of health benefit providers and consumers”

are provided for in HRS § 663-10 for third-party liability

situations, thus creating a “uniform and comprehensive procedure”

for health insurers’ subrogation and reimbursement rights. H.

Stand. Comm. Rep. No. 1330-00, in 2000 House Journal, at 1515.

The drafters also stated that “health insurers have always been
subject to [the] limitations” under HRS § 663-10, and “continue

to be entitled to reimbursement of their subrogation liens” under

HRS § 663-10. Conf. Comm. Rep. No. 67-02, in 2002 House Journal,

at 1783. Therefore, the legislature intended for HRS § 663-10 to

serve as the authority which controls all of a health insurer’s

obligations and rights regarding reimbursement and subrogation

benefits from third-party sources of recovery, which negates any

argument that HRS § 663-10 applies only to reimbursement of an

insurer by an insured. See H. Stand. Comm. No. 1330-00, in 2000

House Journal, at 1515. In conclusion, HRS §§ 663-10 and 431-

13:103(a)(10) comprehensively addresses and limits a health

insurers’ rights to reimbursement and subrogation.

C. Any Contractual Provision That Conflicts With HRS § 663-10
Is Invalid, and HMSA Is Not Entitled to Contractual
Subrogation Rights

HMSA argues that it has contractual subrogation rights

because Mr. Yukumoto’s agreement with HMSA expressly provides for

a right of subrogation. However, “[w]hen the terms of an

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insurance contract are in conflict with statutory language, the

statute must take precedence over the terms of the contract.”

Sol, 76 Hawai#i at 307, 875 P.2d at 924 (citation omitted)

(determining it unnecessary to address the clarity of the

contract provisions in an insurance contract because the “terms

of the contract contravened the statutory language intended to

prevent off-sets of no-fault benefits from uninsured motorist
benefits”). Here, it is clear that HRS § 663-10 limits HMSA’s

rights to subrogation against the tortfeasor, and thus, the

statute is in conflict with the contractual provision.

Therefore, because the statute must take precedence, the

contractual provision is invalid, and HMSA is not entitled to

contractual subrogation rights.14

14
We acknowledge a recent United States Supreme Court decision
involving a health insurer’s subrogation rights, but determine that it is
distinguishable from the instant case. See Coventry Health Care of Missouri,
Inc., fka Group Health Plan, Inc. v. Nevils, No. 16-149 (U.S. Apr. 18, 2017).
Coventry involved the Federal Employees Health Benefits Act of 1959 (FEHBA),
which “establishes a comprehensive program of health insurance for federal
employees.” Coventry, No. 16-149, slip op. at 2. The FEHBA authorizes the
Office of Personnel (OPM) to “contract with private carriers for federal
employees’ health insurance,” and includes a provision that expressly preempts
state law that “relates to health insurance or plans.” Id. at 1 (citation
omitted). The contracts that OPM negotiates with private carriers provide for
reimbursement and subrogation. Id. However, several states, including the
state at issue in that case, “bar enforcement of contractual subrogation and
reimbursement provisions.” Id. at 1-2.
In Coventry, a former federal employee, Jodie Nevils, was insured under
a FEHBA plan and was injured in an automobile accident. Id. at 3. Coventry
paid Nevils’ medical expenses, and Nevils subsequently sued the driver who
caused his injuries and obtained a settlement award. Id. Coventry asserted a
lien against part of the settlement to cover medical bills. Id. at 3-4.
Nevils repaid the lien amount, and then filed a class action in Missouri state
court, arguing that Coventry had unlawfully acquired reimbursement. Id. The
trial court granted summary judgment in Coventry’s favor, and the Missouri
Court of Appeals affirmed, but the Missouri Supreme Court reversed. Id. at 4.
The United States Supreme Court granted certiorari to resolve conflicting
(continued...)

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IV. Conclusion

For the foregoing reasons, we hold that: (1) a health

insurer does not have equitable subrogation rights against a

third-party tortfeasor in the context of personal insurance; (2)

a health insurer’s subrogation and reimbursement rights are

limited by HRS §§ 663-10 and 431-13:103(a)(10); and (3) any

contractual provision that conflicts with HRS § 663-10 is

invalid. We further hold that HRS § 663-10 takes precedence over

HMSA’s contractual subrogation rights. Therefore, the circuit

court properly granted the Yukumotos’ Petition and Tawarahara’s

motion to dismiss, and we affirm the circuit court’s May 28, 2015

judgment.

Dianne Winter Brookins /s/ Mark E. Recktenwald
for appellant
/s/ Paula A. Nakayama
Woodruff K. Soldner
for appellees Gregory Yukumoto /s/ Sabrina S. McKenna
and Diane Yukumoto (Charles J.
Ferrera for appellee Ruth /s/ Richard W. Pollack
Tawarahara, with him on the
brief) /s/ Michael D. Wilson

14
(...continued)
interpretations of the FEHBA provision. Id. at 5. Upon review, the Court
held that FEHBA’s provision preempted state law which prohibited subrogation
and reimbursement by a health insurer. Id. at 2, 5-8.
The instant case is distinguishable from Coventry because Yukumoto is a
State employee, not a federal employee, and thus this case does not involve
the FEHBA and its provision preempting state law relating to health insurance.
Therefore, Coventry does not affect our decision here, and HMSA does not have
contractual subrogation rights.

34