Willis v. Swain

***FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER***

Electronically Filed
Supreme Court
SCWC-29539
07-JUN-2013
10:42 AM

IN THE SUPREME COURT OF THE STATE OF HAWAI#I

---o0o---

SHILO WILLIS, Petitioner/Plaintiff-Appellant,

vs.

CRAIG SWAIN, FIRST INSURANCE COMPANY OF HAWAI#I, LTD.,
Respondents/Defendants-Appellees.

SCWC-29539

CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(ICA NO. 29539; CIV. NO. 01-1-0467)

June 7, 2013

RECKTENWALD, C.J., NAKAYAMA, ACOBA, AND MCKENNA, JJ.,
WITH CIRCUIT JUDGE CHANG, ASSIGNED DUE TO VACANCY,
CONCURRING AND DISSENTING

OPINION OF THE COURT BY ACOBA, J.

We hold that (1) under the assigned claims procedure of

the State of Hawai#i Insurance Joint Underwriting Program (JUP),

see Hawai#i Revised Statutes (HRS) § 431:10C-408 (Supp. 1998),

the insurer assigned to a claim owes the same rights and

obligations to the person whose claim is assigned to it as the

insurer would owe to an insured to whom the insurer had issued a
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motor vehicle mandatory public liability and property insurance

policy, HRS § 431:10C-403 (Supp. 1998); (2) the insurer’s good

faith covenant implied in such motor vehicle policies applies to

claimants under the assigned claim procedure irrespective of the

absence of a written insurance policy; (3) accordingly,

Petitioner/Plaintiff-Appellant Shilo Willis (Petitioner), who was

assigned by the JUP Bureau to Respondent/Defendant-Appellee First

Insurance Company of Hawai#i, Ltd. (Respondent) under the

assigned claim procedure, was owed a duty of good faith by

Respondent; and (4) whether Respondent acted in bad faith in this

case as alleged by Petitioner is a question of fact to be

determined by the trier of fact. Therefore, we vacate the

December 11, 2008 Final Judgment of the Circuit Court of the

First Circuit (the court)1 and the March 9, 2012 judgment of the

Intermediate Court of Appeals (ICA) filed pursuant to its

February 3, 2012 published opinion in Willis v. Swain, 126

Hawai#i 312, 270 P.3d 1042 (App. 2012) (Willis III),2 affirming
the court, because both reflect holdings to the contrary. We

remand this case to the court for proceedings consistent with

this opinion.

I.

On February 10, 1999, Petitioner was a passenger in an

uninsured vehicle that rear-ended another vehicle. The uninsured

1
The Honorable Eden Elizabeth Hifo presided.

2
The opinion was filed by Chief Judge Craig H. Nakamura, and
Associate Judges Katherine G. Leonard and Lisa M. Ginoza.

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vehicle was owned and operated by Craig Swain. At the time of

the accident, Petitioner, a public assistance recipient, owned

her own vehicle, and had a certificate policy issued by the State

of Hawai#i Department of Human Services (DHS) through its JUP.

Respondent was designated to adjust the certificate policy.

The certificate policy was in effect from July 2, 1998

through July 2, 1999, but did not include uninsured motorist

coverage. Petitioner sought medical treatment for injuries

resulting from the collision. Willis v. Swain, 112 Hawai#i 184,

187 n.6, 145 P.3d 727, 730 n.6 (2006) (Willis I).3 On July 21,

1999, Petitioner applied for assigned claims coverage under the

JUP. On August 11, 1999, the JUP Bureau4 determined that

Petitioner was entitled to receive benefits available under JUP,

and assigned Petitioner’s claim to Respondent. On December 28,

1999, Respondent denied Petitioner’s request for coverage on the

ground that, at the time of the accident, Petitioner had a

3
It appears that, as a recipient of public assistance, at least
some of Petitioner’s medical expenses were paid by DHS. Willis I, 112 Hawai#i
at 187 n.6, 145 P.3d at 730 n.6.

4
The Joint Underwriting Plan Bureau is established pursuant to HRS
§ 431:10C-402 (1993), which provides:

§ 431:10C-402. Bureau. (a) The commissioner shall
establish and maintain a joint underwriting plan bureau in
the insurance division to receive, assign and supervise the
servicing of all assigned claims and all applications for
joint underwriting plan coverage.
(b) The commissioner shall adopt regulations for the
operation of the bureau, the assignment of applications for
joint underwriting plan coverage and assigned claims, and
the inspection, supervision and maintenance of this service
on a fair and equitable basis in accordance with this
article.

(Emphases added.)

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certificate policy and that policy did not include uninsured

motorist coverage.

On February 9, 2001, Petitioner sued Respondent for

breach of contract, bad faith refusal to pay liability coverage,

misrepresentation, unfair claims practices, and unfair or

deceptive acts or practices in violation of HRS § 480-2 (1993).5

On May 6, 2003, the court entered summary judgment in favor of

Respondent with respect to all of Petitioner’s claims. This

court reversed and remanded for Respondent to “tender the

appropriate benefits under the assigned claims program.” Willis

I, 112 Hawai#i at 191, 145 P.3d at 734. Respondent paid

Petitioner the bodily injury liability policy limit of $20,000.

Subsequently, Petitioner requested attorneys’ fees and

costs as the prevailing party in Willis I. Willis v. Swain, 113

Hawai#i 246, 151 P.3d 727 (2006) (Willis II). This court held

that Petitioner was not entitled to attorneys’ fees, but that she

should be awarded costs. Id. at 250, 151 P.3d at 731.
On June 8, 2007, Petitioner filed a motion to compel

Respondent to answer Petitioner’s interrogatories, and to respond

to Petitioner’s requests for production of documents. On June

28, 2007, Respondent moved for summary judgment with respect to

Petitioner’s remaining claims for breach of contract, bad faith,

misrepresentation, unfair claims practices, and unfair or

5
Petitioner did not raise the HRS § 480-2 claim in her appeal to
the ICA or in her Application for Writ of Certiorari (Application), and
therefore this statute is not relevant to this appeal and is not quoted.

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deceptive acts or practices in violation of HRS § 480-2.

Petitioner did not move for summary judgment, but filed an

opposition to Respondent’s motion.

As to Petitioner’s bad faith claim, Respondent argued,

in relevant part, that under Hawai#i law there is no bad faith if

an insurance company denies benefits based on a reasonable

interpretation of the policy or based on an open question of law.

Respondent contended that the fact that the court had previously

granted summary judgment to it on the merits of Petitioner’s

claim for benefits (a decision ultimately reversed in Willis I)

demonstrated that there was reasonable disagreement over the

interpretation of the law as applied to the facts of this case.

Thus, Respondent urged, there was an open question of law and

Petitioner had no basis to pursue its bad faith claim.

Petitioner answered that whether Respondent had acted

unreasonably was a question of fact, and as such, was not the

proper subject of a motion for summary judgment. Petitioner also
argued that if an insurer honestly believes that its policy does

not provide coverage, it must bear the risk of making the wrong

judgment. Petitioner noted that this court in Willis I had

criticized Respondent’s argument, calling it “absurd,” and thus,

whether Respondent acted reasonably when it denied benefits on an

irrational argument was a question of fact that precluded summary

judgment.

Additionally, Petitioner argued that because

Respondent had not answered some of Petitioner’s interrogatories,

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produced requested documents, or allowed Petitioner to depose its

claims adjusters, Petitioner’s expert, a former adjuster for the

JUP program for another insurance company, was unable to fully

evaluate whether Respondent had denied coverage in bad faith.

However, the expert averred in an affidavit submitted along with

Petitioner’s opposition, that according to his reading of Willis

I and the practice of the insurance industry, Respondent had

unreasonably denied coverage to Petitioner.

On August 20, 2007, Respondent filed supplemental

memorandum in support of its motion for summary judgment, and

Petitioner filed a supplemental memorandum in opposition to the

motion for summary judgment. Attached to Petitioner’s Reply to

Respondent’s Supplemental Legal Memorandum was another affidavit

from Petitioner’s expert. In the affidavit, Petitioner’s expert

averred:
1. I reviewed the documents which were produced to
[Petitioner] in response to [Petitioner’s] request for
production of documents relating to [Respondent’s] denial of
benefits.
2. Based on the review of the above documents, it is
my professional opinion that [Respondent] unreasonably
denied the JUP assigned claim benefits to [Petitioner].
3. [Respondent] unreasonably denied the JUP assigned
claim benefits because it did not, among other things, have
any legal basis to deny said benefits.
4. The above-referenced records produced by
[Respondent] also do not show that a sufficient
investigation was undertaken by [Respondent] in connection
to its denial of the JUP assigned claim benefits.
5. [Respondent] unreasonably and wrongfully denied
the assigned claim when it unilaterally confused the purpose
and application of a certificate policy and an assigned
claim, which are separate and apart from one another.
6. Within the insurance industry and community, it is
common knowledge and understood that a certificate policy
does not negate a JUP assigned claim.
7. [Respondent] owed [Petitioner] a duty of good
faith and fair dealing, as the insurance company who was
assigned to adjust the JUP assigned claim by the State of
Hawai#i under the [JUP].

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8. To the extent that the JUP assigned claims,
essentially, operates as an insurance relief measure and is
a substitute to the mandated automobile bodily injury
coverage requirements of the State of Hawai#i,
[Respondent’s] duty of good faith and fair dealing arises
from [Respondent’s] assigned role as a servicing carrier and
an insurer under the [JUP], and as such does not depend,
necessarily, on whether [Petitioner] was a party to any
written contract.
9. [Respondent breached its duty of good faith and
fair dealing when when [sic] it unreasonably and wrongfully
denied [Petitioner] the JUP assigned claim benefits.
10. The above opinions are preliminary and subject to
change whenever further documents are produced by
[Respondent] and/or other facts are developed through
further discovery in the underlying lawsuit against
[Respondent].

(Emphases added.)

On October 3, 2007, the court granted Respondent’s

motion, concluding, in relevant part, that there was no contract

of insurance between Petitioner and Respondent, and thus, there

could be no cognizable claim of bad faith in the absence of a

contract. The court further concluded that the published opinion

of this court in Willis I settled an open question of law and

therefore pursuant to Enoka v. AIG Hawai#i Ins. Co., 109 Hawai#i

537, 128 P.3d 850 (2006), there was no bad faith on Respondent’s

part.6 The court also granted Respondent’s motion for summary

6
The court’s order stated, in relevant part:

It is undisputed that [Respondent] has paid all benefits
that [Petitioner] is entitled to recover as an assigned
claims claimant under the [JUP] pursuant to and in
compliance with the Supreme Court’s opinion in this case.
By this Order this Court hereby grants summary judgment in
favor of [Respondent] and against [Petitioner] with respect
to all remaining claims alleged against [Respondent] in this
action, including, without limitation, any claim for breach
of contract, misrepresentation, negligent or intentional
infliction of emotional distress, unfair claims practices,
unfair or deceptive acts [or] practices in violation of
[HRS] §480-2 or bad faith. With respect to [Petitioner’s]
bad faith claim this Court concludes as a matter of law that
there is no cognizable claim for bad faith in the absence of
a contract. This Court further finds that the published
(continued...)

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judgment with respect to the remainder of Petitioner’s claims.

Upon granting Respondent’s motion for summary judgment, the court

held that Petitioner’s motion to compel was moot and denied it.

II.

On Petitioner’s appeal to the ICA,7 the ICA held that

an underlying insurance contract was required in order to assert

a claim of bad faith against an insurer, and because Petitioner’s

claims did not arise from an insurance contract, the court did

not err in granting summary judgment on Petitioner’s bad faith

claim.8 Willis III, 126 Hawai#i at 315-17, 270 P.3d at 1045-47.

In light of that holding, the ICA declined to address whether the

court erred in concluding that Respondent did not act in bad

faith. Id. The ICA also concluded that in light of its holding

that no bad faith claim could lie against Respondent, the court

6
(...continued)
opinion of the Hawai#i Supreme Court in this case settled an
open question of law and therefore pursuant to the Hawai#i
Supreme Court’s opinion under analogous circumstances in
Enoka v. AIG Hawai#i Ins. Co., Inc., 109 Hawai#i 537, 128
P.3d 850 (2006), there was no bad faith on the part of
[Respondent].

(Emphasis added.)

7
Petitioner expressly stated in her opening brief to the ICA that
she was not appealing the court’s decision to dismiss her claims for breach of
contract, misrepresentation, and unfair claims practices. Petitioner
mentioned her emotional distress claim to the ICA in her points of error, but
did not make any argument to the ICA as to that claim. As a result, the ICA
held that any argument regarding the court’s dismissal of such a claim had
been waived. Willis III, 126 Hawai#i at 314, 270 P.3d at 1044. Petitioner
does not take issue with that holding in her Application.

8
In addition, Petitioner argued that she could bring a bad faith
claim against Respondent because she was an intended beneficiary of the JUP
program. Petitioner does not assert this theory in her Application, and
therefore this theory is not addressed further.

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properly denied Petitioner’s motion to compel. Willis III, 126

Hawai#i at 317, 270 P.3d at 1047.

III.

Petitioner presents the following questions in her

Application:
[1.] Whether the ICA correctly decided that [Respondent]
did not owe a duty of good faith in the absence of a
contractual relationship when HRS § 431:10C-403 specifically
and clearly states that an assignee insurance company has
the same obligations as though it had sold the policy.
[2.] Whether [Respondent] owed [Petitioner] a duty of good
faith pursuant to its insurer and insured relationship
regardless whether [Petitioner] purchased a conventional
motor vehicle insurance policy from [Respondent].
[3.] Whether it is rational to exempt Hawai#i insurance
companies from acting in good faith when adjusting [JUP]
assigned claims when they have an independent duty implied
in law to act in good faith as fiduciaries with their
insureds.

(Emphasis added.)

IV.

In 1973, Hawai#i overhauled its insurance law and

created a no-fault insurance scheme to govern motor vehicle

accident reparations. Chapter 294 was enacted in order to

“create a system of reparations for accidental harm and arising

from motor vehicle accidents, to compensate these damages without

regard to fault, and to limit tort liability for these

accidents.” HRS § 294-1(a) (1974). According to the

legislature, the “system of no-fault insurance can only be truly

effective . . . if all drivers participate at least to the extent

required by law” HRS § 294-1(b) (1974). For those persons

“truly economically unable to afford insurance, the legislature

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. . . provided for them under the public assistance provisions of

[Chapter 294].” Id.

In 1974, the public assistance provisions of the plan,

located in HRS §§ 294-20 through -23, were repealed and replaced

with the JUP, HRS §§ 294-20 to -24 (1974). The JUP plan required

all insurers authorized to write insurance in Hawai#i to maintain

membership in the plan. HRS § 294-20. The insurance

commissioner was required to establish classifications of

eligible persons for whom the JUP would provide no-fault policies

and any additional coverage. HRS § 294-22.

In 1987, Hawaii’s motor vehicle insurance law was again

overhauled with the repeal of Chapter 294 and enactment of

Article 10C of Chapter 431. The purpose of Article 10C was to
(1) Create a system of reparations for accidental harm and
loss arising from motor vehicle accidents;
(2) Compensate these damages without regard to fault; and
(3) Limit tort liability for these accidents.

HRS § 431:10C-102 (Supp. 1997). To encourage participation by

all drivers, uninsured drivers were dealt with more severely in

criminal and civil areas, and those who were unable to afford
insurance were provided for under the JUP. Id.

The JUP was incorporated into Article 10C under HRS §§

431:10C-401 through -412. The JUP has two options for coverage.

The first allows individuals to obtain certificate policies, HRS

§ 431:10C-407 (Supp. 1999), which are “intended to provide motor

vehicle insurance and optional additional insurance in a

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convenient and expeditious manner for . . . persons who otherwise

are in good faith entitled to, but unable to obtain, motor

vehicle insurance through ordinary methods.” Hawai#i

Administrative Rules (HAR) § 16-23-67(a) (1999). The second, the

“assigned claims” program, allows individuals to obtain coverage

even if they do not have a certificate policy. HRS § 431:10C-

408. The assigned claims program “consists of the assignment . .

. of claims of victims for whom no policy is applicable, such as

the hit-and-run victim who is not covered by a motor vehicle

insurance policy.” HAR § 16-23-67(b).

For certificate policies, the DHS must provide a

certificate of eligibility for JUP coverage to eligible licensed

drivers and unlicensed permanently disabled individuals unable to

operate their motor vehicle, who are receiving public assistance

and who desire basic motor vehicle insurance coverage under the

JUP.9 HAR § 16-23-73(a) (1999). The applicant then submits the

certificate to the servicing carrier of the applicant’s choice
for a motor vehicle insurance policy. Id. Certificates received

by the servicing carrier within thirty days from the date of

certification eligibility by DHS “shall be accepted and treated

as if it were payment in full” for a policy. Id. The servicing

carrier must then “certify this certificate which will function

9
These licensed drivers and unlicensed permanently disabled
individuals unable to operate their motor vehicle must be the sole registered
owners of the motor vehicles to be insured under the JUP. HAR § 16-23-73(a).

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as a motor vehicle insurance policy and issue the applicant a

motor vehicle insurance identification card.”10 Id.

In contrast, under the assigned claims program “a

person sustaining accidental harm, or such a person’s legal

representative,” (except as provided in another subsection) may

obtain motor vehicle insurance benefits through the plan

whenever:
(1) No insurance benefits under motor vehicle insurance
policies are applicable to the accidental harm;
(2) No such insurance benefits applicable to the
accidental harm can be identified; or
(3) The only identifiable insurance benefits under motor
vehicle insurance policies applicable to the accidental harm
will not be paid in full because of financial inability of
one or more self-insurers or insurers to fulfill their
obligations.

HRS § 431:10C-408(a).11

Insurers operating in Hawai#i are required to

participate in the JUP (with some exceptions). HAR § 16-23-68(a)

10
The rest of HAR § 16-23-73 provides:

The servicing carrier shall develop the information
necessary to validate the eligibility of the applicant.
Only basic motor vehicle insurance policy coverages, as
defined in sections 16-23-4, 16-23-5, and 16-23-9, shall be
bound, and the effective date of coverage shall be the same
date as the signature date on the certificate by the
applicant; however, the effective date shall not precede the
time and date of the certification of eligibility by the
state department of human services, the date that the
servicing carrier receives the certificate, or the second
day after postmark, whichever is later. In the event that
the applicant fails to date the certificate, the date that
the servicing carrier receives the certificate or the second
day after postmark, whichever is earlier, shall be
considered the date the applicant signed the certificate.
The servicing carrier shall promptly notify the director of
human services of public assistance recipients which it
insures.

11
In 2001, HRS § 431:10C-408(a)(1) was amended by adding the
following underscored language: “(1) No liability or uninsured motorist
insurance benefits under motor vehicle insurance policies are applicable to
the accidental harm . . . .” The amendment is not material to this dispute.

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(1999). Under the program, insurers “pool their losses and bona

fide expenses . . . to prevent the imposition of any inordinate

burden on any particular insurer.” HAR § 16-23-68(a). “All

costs incurred in the operation of the [JUP], such as

administrative, staff, and claims (other than assigned claims)

paid, shall be allocated fairly and equitably among the JUP

members.” HAR § 16-23-70 (1999). Losses and expenses “under the

assigned claims program are pro-rated among and shared by all

motor vehicle insurers and self-insurers.” HAR § 16-23-67(b).

Every year, the commissioner “prorate[s] among and assess[es] all

insurers and self-insurers all costs and claims paid under the

assigned claims program.” HAR § 16-23-85 (1999).

The JUP also specifies the duties of insurers

participating in the program. Under HRS § 431:10C-403, the JUP

Bureau “shall promptly assign each claim and application, and

notify the claimant or applicant” of the identity of the assignee

insurer. (Emphasis added.) Importantly,
[t]he assignee, thereafter, has rights and obligations as if it had
issued motor vehicle mandatory public liability and property damage
policies complying with this article applicable to the accidental harm
or other damage, or, in the case of financial inability of a motor
vehicle insurer or self-insurer to perform its obligations, to perform
its obligations as if the assignee had written the applicable motor
vehicle insurance policy, undertaken the self-insurance, or lawfully
obligated itself to pay motor vehicle insurance benefits.

Id. (emphasis added).

V.

The law of insurance fits largely within two domains.

1 New Appleman on Insurance Law Library Edition § 1.04 (Jeffrey

E. Thomas, ed., 2011) (hereinafter Appleman). The first involves

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the regulation of insurers, and is generally accomplished through

statutes enacted by state legislatures and administrative

regulations issued by state agencies. Id. The second involves

regulation of the insured-insurer relationship, and for the most

part consists of judicially-articulated rules. Id. This latter

realm of insurance law largely overlaps with contract law because

the insurance arrangement is usually articulated in a contract.

Id. However, even if insurance law is generally understood as a

specialized application of contract law, other bodies of law are

also pertinent to its application. Id. Doctrines developed in

contract law to facilitate the formation of agreements between

parties negotiating at arms length have been adapted and expanded

by incorporating principles from other areas of law in order to

regulate the special relationship between policyholders and

insurers.12 See id. Thus, “tort law as expressed through the

12
For example, as explained in Appleman § 5.01:

Courts interpreting insurance policies often start from the
premise that an insurance policy is a contract, and
therefore the rules of contract interpretation apply. While
at first blush this axiom seems true enough, insurance
policies do not fit the traditional contract model very
well. For example, the traditional contract model is not
very helpful when it comes to the question of
interpretation. Insureds do not generally have sufficient
control or information to develop a specific intention about
what is covered by their policy. Insurance policies are
almost always standardized forms offered on a take-it-or-
leave-it basis. As a result the assumption that a court
engaged in the interpretation of an insurance policy will
determine the “intention” of the parties when they “made”
the contract is a fiction. While courts say they are
looking for the intention of the parties, in reality they
are making a judgment about the scope of coverage based on
the text of the policy, the circumstances, and public
policy[.]

(continued...)

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law of bad faith is highly relevant to the regulation of the

insurer-insured relationship.” Id.

VI.

Broadly speaking, in first-party insurance, “the

contract between the insurer and the insured indemnifies the

insured for a loss suffered directly by the insured.” Appleman §

1.08[3]. Proceeds are paid to the insured to redress the

insured’s loss. Id. Liability insurance, on the other hand, is

described as third-party insurance because the interests

protected by the policy are ultimately those of third parties

injured by the insured’s conduct. Id. For example, if the

insured negligently insures a third party, the third party will

possess a claim against the insured. Id. If the claim is

reduced to a judgment, the insured will suffer a loss. Id. The

liability insurer will reimburse the insured for any liability

the insured may have to the third party, but in the event of

payment, the insured simply transfers the proceeds from the
insurer to the third party. Id.

One kind of insurance that appears to straddle the

first-party and third-party categories is uninsured motorist

insurance. Id. As Appleman explains, after states began to

require that operators of automobiles carry liability insurance

for the purpose of compensating the victims of automobile

12
(...continued)
(Emphases added.)

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accidents, “it became apparent that no mandatory system of

liability insurance could compensate all of the situations in

which persons were injured in vehicular accidents.” This led

insurers to market uninsured motorist coverage, “which is

essentially a first-party coverage where the insurer’s obligation

is defined by the scope of a third party’s obligation to its own

insured.” Id. (emphasis added). In other words, under uninsured

motorist coverage, the insured pays a premium to his own insurer

for coverage in the event a financially irresponsible or unknown

person is legally responsible for the insured’s injury. Id.

The assigned claims plan under JUP, which, as noted,

allows persons to procure coverage when (1) no benefits are

applicable to the accidental harm; (2) no benefits applicable to

the harm can be identified; and (3) the only identifiable

benefits will not be paid in full because of the financial

inability of the insurer to fulfill its obligations, HRS §

431:10C-408(a), essentially fulfils the same goals as first-party
uninsured motorist coverage.13

VII.

In Best Place, Inc. v. Penn America Insurance Co., 82

Hawai#i 120, 920 P.2d 334 (1996), this court first recognized the

tort of bad faith refusal to pay a valid insurance claim in the

13
This opinion concerns provisions relating to no fault insurance
provisions under Chapter 431:10C relating to Motor Vehicle Insurance. It does
not pertain to other statutory relationships, dissenting opinion at 3 n.3, or
the “family law area[,]” dissenting opinion at 22 n.16, as the dissent
suggests, and following the precepts of precedent would not afford a harbor
for “zealous advocate,” as the dissent suggests. Dissenting opinion at 3 n.3,
12 n.11.

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first-party insurance context. In that case, the insured, Best

Place, insured a nightclub under a policy issued by Penn America.

Id. A fire broke out and destroyed the nightclub. Id. Penn

America suspected arson and refused to pay the proceeds that

would have been due under the policy. Id. Best Place sued Penn

America, alleging breach of contract and tortious breach of the

implied covenant of good faith and fair dealing. Id.

Best Place considered whether Hawai#i would allow a

tort claim for bad faith against an insurer.14 Id. According to

this court, the Hawai#i legislature had recognized that the

insurance industry affects the public interest, and, therefore,

insurers are obligated to act in good faith. Id. at 125-26, 920

P.2d at 338-40 (citing HRS § 431:1-102 (1993)).15 The duty to

act in good faith was consistent with other statutory provisions

14
In Best Place, this court looked to California decisions that “led
the way in the modern development of the bad faith cause of action for insurer
misconduct.” Best Place, 82 Hawai#i at 127, 920 P.2d at 341. This court
noted that the Supreme Court of California’s decision in Gruenberg v. Aetna
Ins. Co., 510 P.2d 1032 (Cal. 1973), “established that the defendant’s duty of
good faith and fair dealing, implied by law, is unconditional and independent
of the performance of plaintiff’s contractual obligations,” and that
“insurance companies owe an absolute duty of good faith and fair dealing to
their insureds.” Best Place, 82 Hawai#i at 128; 920 P.2d at 342 (citing
Gruenberg, 510 P.2d at 1040) (emphasis in original). In Gruenberg it was
established that when an insurer fails to deal fairly and in good faith with
its insured “by refusing, without proper cause, to compensate its insured for
a loss covered by the policy, such conduct may give rise to a cause of action
in tort for breach of an implied covenant of good faith and fair dealing.”
510 P.2d at 1037.

15
HRS § 431:1-102 provides in relevant part:

The business of insurance is one affected by the public
interest, requiring that all persons be actuated by good
faith, abstain from deception and practice honesty and
equity in all insurance matters. Upon the insurer, the
insured and their representatives rests the duty of
preserving inviolate the integrity of insurance.

(Emphasis added.)

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that contemplated a cause of action for insurer bad faith. Id.

at 126, 920 P.2d at 340. For example, in the no-fault insurance

context, HRS § 431:10C-315 (1993)16 sets forth the applicable

statute of limitations for a bad faith cause of action against an

insurer. Best Place, 82 Hawai#i at 126, 920 P.2d at 340.

This court held that there was a legal duty, implied in

first and third-party insurance contracts, requiring the insurer

to act in good faith in dealing with insureds, and a breach of

that duty of good faith gave rise to an independent cause of

action in tort. Id. at 131-32, 920 P.2d at 345-46. Although

repeatedly alluding to the existence of a contractual

relationship between the insurer and insured, this court grounded

bad faith tort claims on the special relationship between

insurers and their insureds. See id. It was reasoned that the

tort of bad faith is not merely a tortious breach of contract,

“but rather a separate and distinct wrong ‘which results from the

breach of a duty imposed as a consequence of the relationship
established by contract.’” Id. at 131, 920 P.2d at 345 (citation

omitted) (emphasis added). Hence, there were sound reasons “for

16
HRS § 431:10C-315 provides in relevant part:

Statute of limitations. (a) No suit shall be brought
on any contract providing no-fault benefits or any contract
providing optional coverage more than, the later of
. . . .

(4) Two years after the entry of a final judgment in,
or dismissal with prejudice of, a tort action arising out of
a motor vehicle accident, where a cause of action for
insurer bad faith arises out of the tort action.

(Emphasis added.)

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recognizing a cause of action in tort for breach of the implied

covenant of good faith and fair dealing in the insurance

context.” Id. at 132, 920 P.2d at 346. Specifically, the

special relationship between insurer and insured was “atypical,

and the adhesionary aspects of an insurance contract . . .

justif[ied] the availability of tort recovery.” Id. Finally, a

bad faith cause of action would provide the necessary

compensation to the insured for all damages suffered as a result

of insurer misconduct. Id. Without the threat of a tort action,

insurance companies had “very little incentive to promptly pay

proceeds rightfully due to their insureds, as they stand to lose

very little by denying payment.” Id.

VIII.

The reasoning articulated in Best Place supports

Petitioner’s contention that she can pursue a bad faith tort

claim in connection with her assigned claim. To begin, the

legislature incorporated specific language in the JUP statutes
concerning the rights and obligations of insurers under the JUP.

As noted, in HRS § 431:10C-403, the legislature stated:
The bureau shall promptly assign each claim and application,
and notify the claimant or applicant of the identity and
address of the assignee of the claim or application. Claims
and applications shall be assigned so as to minimize
inconvenience to claimants and applicants. The assignee,
thereafter, has rights and obligations as if it had issued
motor vehicle mandatory public liability and property damage
policies complying with this article applicable to the
accidental harm or other damage . . . .

The first two sentences prescribe the process that the

JUP Bureau must follow. But the language that follows sets

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forth, not the JUP Bureau’s responsibilities, but those of the

servicing carrier. Inasmuch as HRS § 431:10C-403 imposes

obligations on the insurer as if it had issued a motor vehicle

policy, the statute establishes a relationship between the

insurer and the assigned claimant that is akin to a contract. As

such, the underlying covenant of good faith and fair dealing

applies, even in the absence of an actual contract. In other

words, the legislature imposed a duty of good faith and fair

dealing on insurers handling assigned claims by equating the

relationship between an insurer and an assigned claimant to the

contractual relationship between an insurer and an insured. This

legislative goal is also manifest in HRS § 431:1-102. Best

Place, 82 Hawai#i at 125-26, 920 P.2d at 339-40 (“The Hawai#i

[l]egislature has recognized that the insurance industry affects

the public interest, and, therefore, insurers are obligated to

act in good faith.”) (citing HRS § 431:1-102). The legal basis

for imposing a duty of good faith and fair dealing on insurers is
thus set forth by statute. Consequently, by virtue of HRS §

431:10C-403, an insurer’s “obligations” would include dealing

with the insured in good faith.

When construing a statute, the foremost obligation of

this court is to ascertain and give effect to the intention of

the legislature, which is to be obtained primarily from the

language contained in the statute itself. State v. Reis,

115 Hawai#i 79, 84, 165 P.3d 980, 985 (2007). This court reads

the “statutory language in the context of the entire statute and

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construe[s] it in a manner consistent with its purpose.”17 Id.

Since an insurer’s obligations toward an insured include a duty

to act in good faith, see Best Place, 82 Hawai#i at 125-26, 920

P.2d at 339-40 (citing HRS § 431:1-102), the insurer’s “rights

and obligations” under the JUP must necessarily incorporate a

duty of good faith toward the person whose claim has been

assigned to the insurer. For all intents and purposes, that

person becomes an “insured” once his or her claim has been

assigned to the insurer.18

IX.

The differences in statutory language applicable to the

certificate policy program and the assigned claims program, i.e.,

that a certificate policy is “deemed a policy” for purposes of

the statute, while insurers who service assigned claims have

“rights and obligations as if [they] had issued motor vehicle

mandatory public liability and property damage policies[,]” do

not reflect an intent by the legislature to impose a duty of good
faith on the former category of insurers, but not the latter. To

the contrary, the different language reflects the fact that the

17
Accordingly, “policy-making” is not involved, as the dissent
contends, dissenting opinion at 8-9 n.8, inasmuch as this court applies the
plain language of the statute. Dejetley v. Kaho#ohalahala, 122 Hawai#i 251,
262, 226 P.3d 421, 432 (2010). The dissent’s assertion that the legislature
did not expressly deem an assigned claim to include a contract, see dissenting
opinion at 10-11 n.10, 21-24, is negated by the express provisions of the
referenced interrelated statutes, which plainly express a legislative policy
by which this court, in the exercise of its interpretive role, must be guided.

18
That “[t]he parties have not cited” to similar “cases from any
jurisdiction,” see dissenting opinion at 4 n.6, is not a valid objection
inasmuch as the dissent cites to no contrary case and, here, we interpret a
particular statute from our jurisdiction.

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two programs deal with factually different circumstances. The

certificate program establishes a mechanism under which drivers

who cannot afford insurance are provided coverage so that they

can lawfully operate motor vehicles. See HRS §§ 431:10C-104(a)

and (b) (Supp. 1997); HAR § 16-23-73(a). HRS § 431:10C-104(a)

provides in relevant part, that “no person shall operate or use a

motor vehicle upon any public street, road, or highway of this

State at any time unless such motor vehicle is insured at all

times under a motor vehicle insurance policy.” (Emphasis added.)

HRS § 431:10C-104(b) provides, “Every owner of a motor vehicle

used or operated at any time upon any public street, road, or

highway of the State shall obtain a motor vehicle insurance

policy upon such vehicle which provides the coverage required by

this article and shall maintain the motor vehicle insurance

policy at all times for the entire motor vehicle registration

period.” See also HRS § 431:10C-103 (Supp. 1998) (“‘Motor

vehicle insurance policy’ means an insurance policy that meets
the requirements of [HRS §] 431:10C-301.”); HRS § 431:10C-301

(Supp. 1998) (setting forth the required insurance policy

coverage for a motor vehicle). Accordingly, it is reasonable to

refer to those individuals under the certificate program as

having a “policy,” which satisfies the requirements of the no

fault law.

In contrast, the assigned claims program addresses a

different category of persons, i.e., individuals who have already

been involved in an accident, and whose entitlement to lawfully

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operate a motor vehicle in the future is not at issue. See HRS §

431:10C-408(a) (determining that benefits under the assigned

claims program are applicable to “[e]ach person sustaining an

accidental harm, or such person’s legal representative”); see

also HAR § 16-23-67(b) (“Another part of the JUP consists of the

assignment thereto of claims of victims for whom no policy is

applicable, such as the hit-and-run victim who is not covered by

a motor vehicle insurance policy.”). Rather, the question is

whether the claimant will be covered for an accident that has

already occurred. HRS § 431:10C-408(a). The language employed

by the legislature -- that the insurer assigned to handle such

claims has the same rights and obligations as if it had issued a

policy -- appropriately addresses that differing context and

reflects a clear legislative intent that such claimants are

entitled to the same protections as policyholders, including

having their claim considered in good faith.19

19
Consequently, HRS § 431:10C-403 deems that an assigned claim
claimant is to be treated as if the assignee had issued the claimant a “motor
vehicle . . . polic[y][.]” Further, as confirmed in HRS § 431:1-102, the
relationship is imbued with a good faith obligation, inasmuch as in the
business of insurance, all persons are “requir[ed]” to be “actuated by good
faith[.]” Accordingly, the existence of an “actual contract of insurance,”
dissenting opinion at 7, is not required. Also, contrary to the dissent’s
position, see dissenting opinion at 8, the “express” reference to “policy,”
like that found in HRS § 431:10C-407(b)(2)(B), is not necessary in HRS §
431:10C-403 in light of equivalent statutory language in HRS §§ 431:1-102 and
431:10C. Thus, contrary to the dissent’s assertion that this conclusion
represents a leap, see dissenting opinion at 10-11 n.10, or “that the
legislature did not expressly deem an assigned claim to be based upon an
insurance policy,” see dissenting opinion at 20 n.14, this conclusion is
mandated by the express statutory language providing that insurers who service
assigned claims have “rights and obligations as if [they] had issued motor
vehicle mandatory public liability and property damage policies. . . .” HRS §
431:10C-403 (emphasis added).

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X.

Moreover, to hold that an insurer does not owe a duty

of good faith toward persons whose claims have been assigned to

the insurer under the assigned claims portion of the JUP would

also contravene public policy. As stated in Best Place, one of

the reasons for allowing insureds to sue their insurers for bad

faith is to ensure the insured receives the necessary

compensation for all damages suffered as a result of insurer

misconduct. 82 Hawai#i at 132, 920 P.2d at 346. The denial of

claims in bad faith does not cease to be misconduct simply

because the insured has not purchased a policy, but, rather is

entitled to coverage pursuant to a state program that

specifically requires insurers to provide such coverage. The

legislature intended for persons who qualify to have coverage

under the JUP assigned claims program, and an insurer’s bad faith

denial of such claims undermines the statutory scheme, resulting

in damages to the person whose claim has been improperly denied.
A bad faith tort claim would allow recovery in cases of insurer

misconduct.20

20
The dissent argues that assigned claimants are not necessarily
public assistance eligible, and therefore, may not be entitled to as much
protection against bad faith conduct as certificate policy holders. See
dissenting opinion at 9-10. However, assigned claimants are, by definition,
persons who have no other coverage available. Specifically, they are persons
who have “no insurance benefits under [a] no-fault polic[y],” or for whom “no
such insurance benefits applicable to the accidental harm can be identified,”
or for whom “[t]he only identifiable insurance benefits under no-fault
policies applicable to the accidental harm will not be paid in full . . . .”
HRS § 431:10C-408.
As noted before, an example of assigned claimants are those
“victims for whom no policy is applicable, such as the hit-and-run victim who
is not covered by a motor vehicle insurance policy.” HAR § 16-23-67(b). It
(continued...)

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Another reason cited in Best Place for allowing bad

faith tort claims is the possibility that without the threat of a

tort action, insurance companies have very little incentive to

promptly pay proceeds, as they stand to lose very little by

delaying payment. Id. That rationale may apply in this context.

As noted, insurers are required to participate in the JUP as a

condition of doing business in Hawai#i. It appears that losses

and expenses are pro-rated among and shared by all participating

insurers. See HAR § 16-23-68(b). It is unclear whether these

costs are passed on to the public in the form of higher insurance

rates, or whether the state provides some other form of

compensation to insurers.21

If every claim that is paid out under the assigned

claims program results in an immediate loss that is shared among

participating insurers, and these losses are not offset by the

20
(...continued)
is unlikely that the legislature believed hit-and-run victims without
insurance had much in terms of resources at their disposal, and yet, created a
program to provide last resort coverage for those individuals. Indeed, the
idea that assigned claimants do not need protection is directly contradicted
by the fact that the legislature chose to create a program specifically to
protect them. Indeed, the legislature has afforded protection to such
claimants through the creation of the JUP.
The dissent states that our holding would create an anomaly in the
context of bad faith law in Hawai#i. Dissenting opinion at 10 n.9. But,
based on the statutory language, the anomaly would be to extend bad faith
protection to certificate policy holders, but deny the protections offered by
the law of bad faith to insurance-needy assigned claimants, as the dissent
would apparently hold. See dissenting opinion at 10. Rather, our holding is
consistent with the requirement of fair and equal treatment for both
certificate policy holders and assigned claimants, as demanded by the
statutory scheme.

21
It appears, for example, that certain insurers under the JUP
program are selected as “servicing carriers” to provide services on behalf of
the JUP members and are reimbursed for their “servicing expenses” at certain
rates. See HAR §§ 16-23-71 (1999); 16-23-78 (1999).

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claimant’s payment of premiums (since under the assigned claims

program the claimant does not pay to have his or her claim

assigned to an insurer), it would seem that insurance companies

may have an economic incentive to deny or delay payment of

assigned claims in order to avoid losses associated with such

claims. The threat of a tort action serves to inhibit those

incentives. As articulated in Best Place, allowing bad faith

tort claims encourages companies to pay proceeds rightfully due

to insureds. 82 Hawai#i at 132, 920 P.2d at 346. In any event,

that the legislature intended to impose the same duties and

obligations on insurers who are assigned claimants under the JUP,

and that barring a bad faith tort action would undermine the

statutory scheme, are enough to warrant allowing assigned

claimants to pursue bad faith tort actions against insurers.

XI.

The ICA and Respondent, however, relied on Simmons v.

Puu, 105 Hawai#i 112, 94 P.3d 667 (2004), reasoning that an
insurance contract is a prerequisite to a claim of bad faith, and

that because an assigned claim is not a “contract,” Petitioner

cannot sue Respondent under a bad faith tort theory. In Simmons,

the petitioner was the driver of a vehicle struck by a rental car

self-insured by Hertz. Id. at 115, 94 P.3d at 670. The

petitioner alleged that the driver of the vehicle was negligent

and ultimately asserted a claim of bad faith settlement practices

against Hertz as the self-insurer of the rental vehicle. Id.

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Hertz contended that there existed no common law claim

for relief entitling third-party claimants such as the petitioner

to sue self-insurers for bad faith settlement practices, inasmuch

as Hertz was not an insurer and had no claims practices. Id. at

118, 94 P.3d at 673. This court agreed. Id. It was explained

that a third party should not be permitted to enforce covenants

not made for his or her benefit. Id. at 120-22, 94 P.3d at 675-

77 (citing Murphy v. Allstate Ins. Co., 553 P.2d 584 (Or. Ct.

App. 1976)). Because the duty to settle claims in good faith was

intended to benefit the insured (the rental car driver) and not

the injured claimant (petitioner), the third party beneficiary

doctrine did not furnish a basis for the injured claimant to

recover. Id.

This court further elaborated that the insurer was in a

fiduciary relationship with the insured but was in an adversarial

relationship to the third-party claimant (petitioner). Id. In

meeting its duty to the insured, an insurer was required to give
as much consideration to the insured’s interest as it did to its

own interest. Id. But the insurer had no such relationship with

a third party. Id. This court adopted the assignment theory of

common law third-party claims of bad faith settlement practices,

which required the existence of a contractual relationship

between an insurer and an insured as a predicate to establishing

an injured claimant’s right to sue a tortfeasor’s insurer. Id.

In other words, a third-party claimant could sue an insurer for

bad faith settlement practices only if the insured assigned his

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or her rights to the third party.22 Id. The third party would

in effect step into the shoes of the first-party beneficiary, to

which the insurer owed a duty of good faith. See id.

The reason for disallowing a bad faith tort claim in

Simmons does not apply in this context.23 As noted, an insurance

contract was held to be a prerequisite for a bad faith settlement

claim in Simmons because, absent a contract between the third

party and the insurer (or its equivalent -- an assignment of the

first party’s claim to the third party), the insurer owed no duty

of good faith toward the third party. Id. Here, in contrast, as

an assigned claimant, Petitioner stands in a first-party

relationship to Respondent.

The assigned claims plan under the JUP creates an

insurer-insured relationship, and under that plan, no underlying

22
In Jou v. National Interstate Insurance Co. of Hawai#i, 114 Hawai#i
122, 157 P.3d 561 (App. 2007), the ICA held for similar reasons that a doctor
who provided services to an employee covered by workers’ compensation could
not sue the workers’ compensation carrier for bad faith. The ICA noted that a
workers’ compensation scheme essentially created a three-party agreement
between the employer, the employee, and the compensation carrier. Id. at 133,
157 P.3d at 572 (citation omitted). The ICA then explained that the purpose
of workers’ compensation was to compensate employees, not physicians. Id.
The ICA held that the doctor was an incidental beneficiary and not a third-
party beneficiary of the workers’ compensation scheme, and therefore could not
assert a bad faith tort claim against the workers’ compensation carrier. Id.
at 134, 157 P.3d at 573. Further, the ICA noted, without deciding, that even
assuming, arguendo, that the doctor could qualify as an intended third-party
beneficiary, the special circumstances that warranted extending the tort of
bad faith to insureds and injured employees, did not exist between a physician
and a compensation carrier. Id. According to the ICA, unlike a typical
insured, a treating physician seeks commercial gain from the insurer rather
than security, protection, and peace of mind. Id. In this case, the JUP
program creates an insured-insurer relationship between the assigned claimant
and the insurer, and the assigned claimant seeks the same security,
protection, and peace of mind from the insurer that a policy-holder would.

23
Contrary to the dissent’s argument, this opinion does not rely on
Simmons, see dissenting opinion at 11-12, but distinguishes it.

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contract is necessary to give rise to that relationship and its

concomitant rights and obligations because that relationship is

created by statute.24 See HRS § 431:10C-403 (stating that after

an assigned claim is assigned to an insurer, the insurer is to

have rights and obligations “as if it had issued motor vehicle

mandatory public liability and property damage policies”).

The statutory scheme requires insurers that are assigned claims

to conduct their business as if there were in fact an underlying

contract of insurance with a claimant.

An underlying contract, therefore, is not the sine qua

non of a bad faith tort claim. Cf. Best Place, 82 Hawai#i at

132, 920 P.2d at 346 (“The breach of the express covenant to pay

claims, however, is not the sine qua non for an action for breach

of the implied covenant of good faith and fair dealing.”). This

view is supported by Enoka, 109 Hawai#i 537, 128 P.3d 850, which

was decided in 2006, two years after Simmons. In Enoka, the

petitioner was in an accident while she was riding in another
person’s truck. Id. at 541, 128 P.3d at 854. The petitioner’s

parents owned three automobiles that were insured under a single

24
The dissent incorrectly claims that good faith cannot be implied
without an underlying contract. Dissenting opinion at 12 n. 11. As noted
before, in this situation, HRS §431:10C-403 establishes the equivalent of a
policy contract by its terms, and HRS §431:1-102 reiterates a good faith
requirement. See discussion supra. The dissent maintains bad faith rights
are denied to the assigned claimant because “the singular requirement [of] an
actual contract . . . [must] exist before good faith duties can be implied.”
Dissenting opinion at 12, n.11. However, this view would contravene the
fundamental requirement of good faith that underlies HRS chapter 431. See HRS
§ 431:1-102 and HRS § 431:10C-403 (treating an assignee insurer “as if the
assignee had written [a] motor vehicle insurance policy” to the individual
claimant).

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policy with AIG. Id. The petitioner was a named insured under a

different policy with GEICO. Id. Three years after the

accident, the petitioner filed a claim for no-fault benefits

under the AIG policy. Id. at 542, 128 P.3d at 855. AIG denied

the claim. Id. This court stated that an exclusion in AIG’s

policy for family members who are named insureds under another

no-fault policy (here GEICO) clearly applied to the petitioner,

and thus ostensibly the petitioner was not entitled to coverage

under the AIG policy. Id. at 548, 128 P.3d at 861.

However, this court also held that an insured could

bring a bad faith tort claim against an insurer even when the

insurer had no contractual duty to pay benefits to the insured

based on the clear and unambiguous language of an insurance

policy. Id. at 552, 128 P.3d at 865. Thus, this court allowed

the petitioner to sue AIG for bad faith mishandling of the

insurance claim. Id. It was reasoned that an insurer must act

in good faith in dealing with its insured and in handling the
insured’s claim, even when the policy clearly and unambiguously

excluded coverage. Id. Accordingly, the trial court had erred

in determining that because the insured’s breach of contract

claim failed, her bad faith claim must also fail. Id.

Enoka’s reasoning does not support the proposition that

the duty of good faith owed by the insurer to the insured is

dependent on the existence of a contract. If the contract is the

source of the duty to act in good faith, then mishandling or

denying a claim when the insurer has no contractual duty to pay

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benefits should not give rise to a bad faith claim. Indeed, in

Enoka, the insurer argued that in the absence of a contractual

duty to pay benefits, there was no implied covenant of good faith

and fair dealing to breach and, thus, no action for bad faith.

Id. at 549, 128 P.3d at 862. Yet, this court held that the tort

of bad faith did not turn on whether the claim for benefits was

due or not; instead, it turned on “the conduct of the insurance

company in handling the claim.” Id. at 551, 128 P.3d at 864.

For, “[s]urely[,] an insurer must act in good faith in dealing

with its insured and in handling the insured’s claim, even when

the policy clearly and unambiguously excludes coverage.” Id.

(emphases added). The special relationship between the insurer

and the insured and the conduct of the insurer toward the insured

is what gives rise to the tort of bad faith, not solely the

existence of a contract.25 See id.

The ICA came to the same conclusion in Christiansen v.

First Insurance Company of Hawai#i, Ltd., 88 Hawai#i 442, 449, 967
P.2d 639, 646 (1998), stating that the tort of bad faith in the

first-party insurance context “is unconditional and independent

of [the insured’s] contractual obligations.” (Emphasis and

brackets in original.) (Internal quotation marks and citation

25
Respectfully, the dissent does not distinguish Enoka as to its
holding, but states the obvious, that Enoka did not “address . . . a
statutorily created relationship without a contract.” Dissenting opinion at
17. However, Enoka is cited for recognizing that an insurer’s good faith duty
does not rest only in coverage under the insurance policy, but extends to the
relationship between insured and insurer. See 109 Hawai#i at 549, 128 P.3d at
862. Although the dissent suggests otherwise, dissenting opinion at 14-16
n.13, as noted, Enoka recognized duties outside the contractual relationship.

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omitted.) The issue in Christiansen was whether an action for

bad faith was “on the policy” such that a statute of limitations

provision in the policy would apply to the bad faith action. Id.

at 450-51, 967 P.2d at 647-48. The ICA explained that

jurisdictions were split on the question, and that some

jurisdictions had ruled that because the alleged tortious conduct

of the insurer arises out of its obligations under the provisions

of the policy, an action for the bad faith handling of an

insurance claim was governed by the limitation provision in the

policy. Id. Those jurisdictions had concluded that since,

absent the insurance contract, “there would be no legal

relationship between the parties[,] [the insurer] could not be

guilty of acting in bad faith.” Id.

The ICA rejected the rationale of those jurisdictions

as inconsistent with Best Place. Id. at 451-52, 967 P.2d at 648-

49. The ICA explained that in Best Place this court had

clarified that “an insurer’s duty of good faith and fair dealing
[is] one implied by law that is independent of the performance of

the insured’s contractual obligations.” Id. at 451, 967 P.2d at

648. The ICA stated that “a tort of bad faith is a tort

independent of the policy because its origins are not in the

contract but in the common law imposition of good faith and fair

dealing, the breach of which fiduciary duty may be considered an

independent tort.” Id. at 452, 967 P.2d at 649 (emphasis added).

Thus, the ICA held that the bad faith tort action is not “on the

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policy” and cannot be governed by the policy’s limitation

provision.26 Id.

In light of Christiansen and Enoka,27 the ICA’s |

reliance on Simmons for the proposition that a contract is a

prerequisite to a bad faith claim is incorrect. As discussed

above, the insurer had no duty toward the petitioner in Simmons

because the petitioner was the victim of the accident, not the

insured, and the insurer owed no duty of good faith to a third-

party victim. 105 Hawai#i at 120-22, 94 P.3d 675-77. In this

case, Petitioner is the insured. To hold that Respondent owes no

duty of good faith to its own insured because the insurer-insured

relationship is created by statute instead of by contract would

be an unwarranted departure from this court’s post-Simmons

holding in Enoka that the insurer must act in good faith in

dealing with its insured and in handling the insured’s claim,

even in the absence of a contractual obligation owed the insured.

Enoka, 109 Hawai#i at 552, 128 P.3d at 865. Likewise, to hold
that the insurer does have a duty of good faith toward its

insured but that a tort of bad faith does not lie because the

insured lacks a contract would be to recognize a duty that cannot

be enforced. Such a result is not contemplated by cases such as

26
Again, the dissent’s assertion, that Christiansen, like Enoka, is
not relevant because no written contract exists here, is subject to the same
refutation -- that the statutes involved in the instant case indicate that an
automobile insurance policy should be deemed to exist.

27
These cases are pertinent as they exemplify situations in which
the contract was not central to the case but the court recognized duties
outside of the express language of the contract.

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Best Place, Enoka, and Christiansen, and does not follow from

Simmons, which held only that a third party, to whom a

tortfeasor’s insurer owes no duty, could not bring a claim of bad

faith settlement practices.28

XII.

There are contexts, however, in which the existence of

a contract does affect whether or not it is possible to bring a

claim. For example, in Willis II, this court held that

Petitioner could not seek attorneys fees under HRS § 431:10C-

211(a) (Supp. 1997), which provides in relevant part that
[a] person making a claim for personal injury protection
benefits may be allowed an award of a reasonable sum for
attorney's fees, and reasonable costs of suit in an action
brought by or against an insurer who denies all or part of a
claim for benefits under the policy . . . .

113 Hawai#i at 250, 151 P.3d at 731.

This court stated that the denial of an assigned claim

did not qualify as the denial of a claim under a policy because

assigned claims are creatures of statute and do not arise out of

a contractual relationship. Id. at 249, 151 P.3d at 730. To the

28
The parties also cite to Mendes v. Hawai#i Insurance Guaranty
Assn., 87 Hawai#i 14, 950 P.2d 1214 (1998). In that case, an insured sued the
Hawai#i Underwriters Insurance Company (HIGA), a non-profit, unincorporated
legal entity created by HRS Chapter 431, Article 16, in order to provide a
mechanism for the payment of covered claims when an insurer becomes insolvent.
Id. at 17, 950 P.2d at 1217. This court held that HIGA could be sued for its
failure to cover a claim, but that it was immune to a bad faith claim,
pursuant to HRS § 431:16-116 (1993), which provided that there “shall be no
liability on the part of and no cause of action of any nature shall arise
against . . . the association . . . for any action taken by them in the
performance of its duties.” Id. at 18, 950 P.2d at 1218. This court held
that the legislature had made a policy determination to limit HIGA’s liability
because HIGA was not a traditional, for-profit insurance company, and
therefore no bad faith claim could lie against HIGA. Id. There is no statute
that limits Respondent’s liability pursuant to the JUP. Therefore, Mendes
does not resolve whether Petitioner can bring a bad faith claim against
Respondent.

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contrary, as noted above, HRS § 431:10C-403 explicitly provides

that Respondent has the “same rights and obligations” with regard

to Petitioner’s assigned claim as would an insurer that issued a

policy providing such coverage. It was explained in Willis II

that whereas the legislature announced that a certificate policy

was to be deemed a policy for purposes of the Insurance Code, the

legislature did not similarly categorize assigned claims, and

therefore an assigned claim was not a “policy” for purposes of

HRS § 431:10C-211(a). 113 Hawai#i at 249-50, 151 P.3d 730-31.

In this case, the ICA decided that because this court

determined in Willis II that Petitioner’s claim was not

contractual in nature, Petitioner’s claim could not be treated as

a policy for purposes of bringing a tort claim either. Willis

III, 126 Hawai#i at 316, 270 P.3d at 1046. But Willis II is not

dispositive of Petitioner’s tort claim. As noted, in Willis II,

this court said that an assigned claim was not a policy for

purposes of the attorneys’ fees statute because an assigned claim
was not a contract and the legislature had chosen to treat

certificate policies and assigned claims differently. 113

Hawai#i at 249-50, 151 P.3d 730-31.

However, as noted herein, the statutory scheme treats

certificate policies and assigned claims equally for purposes of

an insurer’s rights and duties to the insured. HRS § 431:10C-

402(a) provides, “The commissioner shall establish and maintain a

joint underwriting plan bureau in the insurance division to

receive, assign and supervise the servicing of all assigned

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claims and all applications for joint underwriting plan

coverage.” (Emphasis added.) “[A]pplications for joint

underwriting plan coverage” refers to certificate applications,

while “assigned claims” refers to the assigned claims program

under the JUP. Compare HRS § 431:10C-407 (discussing applicants

for certificate policy), with HRS § 431:10C-408 (discussing

assigned claims). As noted, in the very next sentence in HRS §

431:10C-403, the legislature specified that the bureau “shall

promptly assign each claim and application, and notify the

claimant or applicant of the identity and address of the assignee

of the claim or application.” To reiterate, “[t]he assignee,

thereafter, has rights and obligations as if it had issued motor

vehicle mandatory public liability and property damage policies .

. . .” Id. The legislature thus intended for insurers to have

duties coincident with issuing a policy for both certificate

applications and assigned claims.29

XIII.

Respondent, however, argues that a claimant under the

29
In sum, the common law duty of good faith and fair dealing of
insurers is incorporated in the insurance code. See HRS § 431:1-102 (“The
business of insurance is one affected by the public interest, requiring that
all persons be actuated by good faith[.]”). Hence, the dissent is wrong in
claiming that this decision “depart[s] from fundamental common law principles”
with respect to the bad faith doctrine. See dissenting opinion at 13. To
repeat, the legislature has further expressed its intent to specifically
impose the same duty of “good faith” upon insurers who adjust assigned claims
where no contractual relationship exists as that imposed on insurers who
adjust contract based policies. See HRS § 431:10C-403. This decision thus
effectuates legislative intent. Correlatively, this decision is consistent
with established case law. Although not applying a statute, Best Place,
Enoka, and Christiansen rest on the principle of a good faith obligation in
the insurer-insured relationship, as set forth in this opinion. This decision
recognizes the statutory relationship of good faith, HRS § 431:1-102, between
an insurer and insured underlying HRS § 431:10C-403.

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assigned claims program is “a person for whom ‘[n]o insurance

benefits under motor vehicle insurance policies are

applicable[.]’” (Quoting HRS § 431:10C-408(a)(1) (1998).)

Stated differently, “[Respondent maintains] there is no basis for

[Petitioner] to contend that she is a policyholder to whom

benefits under an insurance policy have been denied and there is

no basis for [Petitioner] to pursue her alleged ‘bad faith’ claim

against [Respondent].” It appears that Respondent interprets a

person for whom “no insurance benefits under motor vehicle

insurance policies are applicable,” HRS § 431:10C-408(a)(1), as

requiring Petitioner to show that benefits have been “denied” to

her under an existing policy.

The evidence in this case is that no insurance benefits

were applicable to Petitioner at the time of the accident. As

noted, although Petitioner had a certificate policy from July 2,

1998 through July 2, 1999, the policy did not include uninsured

motorist coverage. The fact that the JUP Bureau determined that

Petitioner was entitled to receive benefits under the JUP

confirms that the agency that administers the JUP also believed

that Petitioner satisfied HRS § 431:10C-408(a)(1). Respondent

provides no authority for the proposition that Petitioner would

not qualify under HRS § 431:10C-408(a)(1) because she cannot show

that she is a person to whom “benefits under an insurance policy

have been denied.” On its face, HRS § 431:10C-408(a)(1) is met

if no benefits under a policy are applicable to the accidental

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harm. Thus, Respondent’s interpretation of HRS §

431:10C-408(a)(1) is not supported by the statutory language.30

XIV.

Respondent also argues that this court has already

implicitly rejected Petitioner’s bad faith tort claim because

this court only remanded in Willis I for a determination of

benefits due pursuant to the assigned claim. Respondent’s

argument is, in essence, that this court implicitly denied

Petitioner’s bad faith claim by not saying anything about that

claim when it remanded in Willis I. The exact language of this

court’s remand in Willis I was:
In light of the foregoing analysis, we hold that the circuit
court erred in awarding summary judgment in favor of
[Respondent] and against [Petitioner]. Accordingly, we
vacate the circuit court’s July 2003 judgment insofar as it
dismissed [Petitioner]’s action against [Respondent] remand
for further proceedings consistent with this opinion. On
remand, to the extent that the trier of fact finds that
[Petitioner]’s post-July 2, 1999 medical expenses remain
unpaid and her assigned claim complies with the Motor
Vehicle Insurance Law in other respects, the circuit court
shall order [Respondent] to tender the appropriate benefits
under the assigned claims program.

112 Hawai#i at 191, 145 P.3d at 734. This language cannot

30
At oral argument, Respondent took a slightly different position,
arguing that HRS § 431:10C-408 is only satisfied if a person has no
“identifiable” benefits under any motor vehicle policy, and that because
Petitioner had a certificate policy at the time of the accident, she had
“identifiable” benefits. However, again, Respondent’s interpretation is not
supported by the language of the statute. HRS § 431:10C-408(a)(1) applies to
persons when “[n]o insurance benefits under motor vehicle insurance policies
are applicable to the accidental harm[.]” (Emphasis added.) As noted, there
is no question in this case that no insurance benefits under a motor vehicle
insurance policy were applicable to Petitioner at the time of the accident
because her certificate policy provided no coverage for the accidental harm as
it lacked uninsured motorist coverage. HRS § 431:10C-408(a)(2), the section
that contains the word “identified” (but which was not cited by Respondent in
its Response when making this argument) is satisfied if “no such insurance
benefits applicable to the accidental harm can be identified.” (Emphasis
added.)

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reasonably be construed to resolve the rest of Petitioner’s

claims. As explained, in Willis I, the court had entered summary

judgment in favor of Respondent because it had found that

Petitioner was not due benefits under the assigned claim. This

court noted that the court had also disposed of the rest of the

claims in the lawsuit, “none of which is germane to this appeal.”

Id. at 188 n.8, 145 P.3d at 731 n.8 (emphasis added). This court

then vacated the court’s judgment “insofar as it dismissed

[Petitioner’s] action against [Respondent.]” Id. at 191, 145

P.3d at 734. In other words, the court’s judgment was vacated

insofar as it dismissed the entirety of Petitioner’s action

against Respondent, which would include her bad faith claim.

This court’s silence as to what should happen on remand to the

rest of Petitioner’s claims that were not at issue in Willis I

(and therefore not before this court) suggests only that the

court would have to decide those claims on remand, not that this

court silently and without explanation denied those claims.

XV.

Because we hold that Petitioner can bring a bad faith

tort claim, the question of whether it was proper for the court

to enter summary judgment on behalf of Respondent on the merits

of Petitioner’s bad faith claim remains. As noted, the ICA did

not decide the question because it held that Petitioner could

not, as a matter of law, assert a bad faith tort claim. Willis

III, 126 Hawai#i at 315-17, 270 P.3d at 1045-47.

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On appeal, an order of summary judgment is reviewed

under the same standard applied by the trial courts. Wong-Leong

v. Hawaiian Indep. Refinery, Inc., 76 Hawai#i 433, 438, 879 P.2d

538, 543 (1994). Summary judgment is proper where the moving

party demonstrates that there are no genuine issues of material

fact and it is entitled to judgment as a matter of law. Reed v.

City & Cnty. of Honolulu, 76 Hawai#i 219, 225, 873 P.2d 98, 104

(1994). “Summary judgment is appropriate if the pleadings,

depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no

genuine issue of material fact and the moving party is entitled

to judgment as a matter of law.” Pac. Int’l Servs. Corp. v.

Hurip, 76 Hawai#i 209, 213, 873 P.2d 88, 92 (1994).

In Best Place, this court articulated the applicable

standard for a first-party bad faith claim as follows:
[T]he insured need not show a conscious awareness of
wrongdoing or unjustifiable conduct, nor an evil motive or
intent to harm the insured. An unreasonable delay in
payment of benefits will warrant recovery for compensatory
damages . . . . However, conduct based on an interpretation
of the insurance contract that is reasonable does not
constitute bad faith. . . .

82 Hawai#i at 113, 920 P.2d at 347. Further, “where an insurer

denies the payment of no-fault benefits based on an ‘open

question of law,’ there is ‘obviously no bad faith on the part of

[the insurer] in litigating that issue.’” Enoka, 109 Hawai#i at

552, 128 P.3d at 865.

The court concluded that Willis I had settled an open

question of law, and therefore Respondent’s denial of

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Petitioner’s benefits was not in bad faith. Petitioner argues,

however, that this court’s language in Willis I suggests that

Respondent’s legal basis for denying Petitioner’s claim was not

reasonable. As noted, in Willis I, Petitioner had argued that

she qualified for an assigned claim because there was no other

insurance that she could turn to and the legislature intended for

her to be covered. 112 Hawai#i at 189, 145 P.3d at 732.

Respondent countered that Petitioner did not qualify for assigned

claims coverage because she was the named insured under her own

certificate policy at the time of the accident, and therefore had

“identifiable” motor vehicle insurance coverage on the date of

the subject accident. Id.

Respondent cited to HRS § 431:10C-408(a), which

provides that a person may seek coverage under the assigned

claims program when no insurance benefits under motor vehicle

insurance policies are applicable to the accidental harm or no

such insurance benefits can be identified. Id. at 189, 145 P.3d

at 732. Respondent argued that certificate policies were not

required to include uninsured motorist coverage in order to

comply with the statutory scheme, and that Petitioner had

disregarded a prior offer Respondent had made to Petitioner to

add uninsured motorist coverage to her certificate policy, and

that by disregarding Respondent’s offer, Respondent forewent her

eligibility for assigned benefits. Id.

This court explained that the “core issue as framed by

the parties [was] whether an offer and a tacit refusal of UM

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coverage rendered the UM coverage ‘applicable’ and

‘identifi[able]’ so as to relieve the assignee insurer under HRS

§ 431:10C-408, [] of the duty to compensate the injured

claimant.”31 Id. However, this court held that it did not have

to decide that issue because Respondent had not “offered”

uninsured motorist coverage to Petitioner but had, at most, made

an invitation to initiate negotiations. Id. at 190, 145 P.3d at

733. It was explained that “[a]t most, [Respondent had] flagged

for [Petitioner] the fact that no statute or regulation bestowed

an [uninsured motorist] component on her certificate policy . . .

.” Id. This court stated, “[n]o reasonable reading of the

statement [made by Respondent to Petitioner] could elucidate (1)

which insurer(s) might underwrite [Petitioner’s uninsured

motorist] coverage or (2) the premiums or any other terms.” Id.

(footnote omitted) (emphasis added).

This court also explained that Respondent had argued,

on public policy grounds, that if Petitioner’s argument were

accepted, there would be universal uninsured motorist coverage

for anyone insured in a motor vehicle accident, and that there

would be no point in paying a premium for uninsured motorist

coverage if all one had to do was to apply to the JUP at no cost.

31
In other words, if Petitioner had applicable coverage at the time
of the accident, she would not have qualified for an assigned claim because
not having applicable insurance coverage is a precondition for an assignment
claim. See HRS § 431:10C-408(a) (“Each person sustaining accidental harm, or
such person’s legal representative, may . . . obtain the motor vehicle
insurance benefits through the plan whenever: (1) No insurance benefits under
motor vehicle insurance policies are applicable to the accidental harm;
(2) No such insurance benefits applicable to the accidental harm can be
identified . . . .”).

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Id. at 191, 145 P.3d at 734. Thus, Respondent’s argument

“distort[ed]” Petitioner’s characterization of the assigned

claims program. Id. The assigned claims program applied only in

residual situations. Id. This court stated that the “absurd

consequence” of Respondent’s argument would be that insurers,

merely by offering, could compel even those who do not own cars

to purchase uninsured motorist coverage. Id.

As noted, this court characterized Respondent’s

arguments on this particular issue as “unreasonable” and

“absurd.” Indeed, it was held that there was no need to resolve

the core issue -- the question of whether an offer and a tacit

refusal of uninsured motorist coverage rendered certificate

coverage applicable so as to relieve an assignee insurer of the

duty to compensate the injured claimant, because the case could

be resolved as a matter of law on the ground that Respondent had

not made an offer to Petitioner. Therefore, Willis I did not

resolve an “open question of law” posed by the parties and,

consequently, the court’s grant of summary judgment to Respondent

on the ground that this court resolved an open question of law

was wrong.

XVI.

In general, whether an insurer has acted in bad faith

is a question of fact. See Guajardo v. AIG Hawai#i Ins. Co., 118

Hawai#i 196, 206, 187 P.3d 580, 590 (2008) (“allegations of bad

faith between insurer and insured over fair dealing and meaning

of policy were ‘exactly the type of issue[s], under Best Place,

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that the jury should consider, and one[s] that should not be made

by the court[.]’”) (citation omitted). This court has held that

“reasonableness can only constitute a question of law suitable

for summary judgment ‘when the facts are undisputed and not

fairly susceptible of divergent inferences,’ because, ‘where,

upon all the evidence, but one inference may reasonably be drawn,

there is no issue for the jury.’” Id. (quoting Courbat v. Dahana

Ranch, Inc., 111 Hawai#i 254, 263, 141 P.3d 427, 436 (2006))

(citations and brackets omitted).

In Guajardo, this court held there was a disputed issue

of material fact concerning whether the insurer had refused to

settle in good faith. Id. Further, this court explained that

although the ICA had reasoned that there was an open question of

law that precluded finding the insurer had acted in bad faith,

there was “no mention of an ‘open question of law’ as a basis for

[the insurer’s] initial outright rejection of the possibility of

a settlement, and, in any event, genuine issues of material fact

regarding the reasonableness and good faith of [the insurer’s]

interpretation of its policy remain, wholly separate and apart

from the applicability of [case law.]” Id.; see also Smith v.

Safeco Ins. Co., 78 P.3d 1278 (Wash. 2003) (stating that “[t]he

existence of some theoretical reasonable basis for the insurer’s

conduct does not end the inquiry” into whether or not the insurer

acted in bad faith, and that “[t]he insured may present evidence

that the insurer’s alleged reasonable basis was not the actual

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basis for its action, or that other factors outweighed the

alleged reasonable basis”).

Petitioner argues that a fair-minded jury may find that

it was unreasonable for Respondent to premise its denial of

coverage on a legally invalid offer, to the extent that

experienced claims adjusters should know better than to rely on

faulty and insufficient offers as a basis to deny statutory

benefits. Petitioner’s expert had also averred that, in his

professional opinion, Respondent acted in bad faith in delaying

payment of benefits to Petitioner and in failing to properly

investigate Petitioner’s claim. According to the expert, it was

common knowledge and understood within the insurance industry

that a certificate policy does not negate an assigned claim.

Petitioner’s expert also opined that Respondent owed Petitioner a

duty of good faith as the insurance company that was assigned to

adjust the JUP assigned claim, and that to the extent that the

JUP
operates as an insurance relief measure and is a substitute
to the mandated automobile bodily injury requirements of the
State of Hawai#i, [Respondent’s] duty of good faith and fair
dealing arises from [its] assigned role as a servicing
carrier and an insurer under the [JUP], and as such does not
depend, necessarily, on whether [Petitioner] was a party to
any written contract.

Respondent did not provide any affidavits to counter Petitioner’s

expert’s statement.32

32
In support of its motion for summary judgment, Respondent attached
only a copy of Willis I and some documentation to establish that it had paid
Petitioner all of the benefits due to her under the assigned claim.
Respondent also attached a declaration to its Reply to Petitioner’s
Supplemental Legal Memorandum which stated that Petitioner had not provided
(continued...)

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Petitioner’s affidavits raise questions of fact for a

fact finder about whether Respondent’s reliance on a faulty offer

was in bad faith and whether Respondent’s conduct fell below that

of a reasonable insurance adjuster. Thus, summary judgment for

Respondent was wrongly granted.33

XVII.

We therefore vacate the judgments entered as aforesaid

and remand to the court for proceedings consistent with this

opinion.34

Fernando L. Cosio, /s/ Mark E. Recktenwald
for petitioner
/s/ Paula A. Nakayama
Bradford F.K. Bliss,
for respondent /s/ Simeon R. Acoba, Jr.

/s/ Sabrina S. McKenna

32
(...continued)
proof of her medical expenses for treatment after January 26, 2006. However,
it appears that Respondent did not attach any affidavits to counter
Petitioner’s expert opinion that the facts suggested Respondent acted in bad
faith.

33
On remand, the court should address Petitioner’s June 8, 2007
motion to compel Respondent to answer Petitioner’s interrogatories and to
respond to Petitioner’s requests for production of documents, which the court
denied as moot upon granting Respondent’s motion for summary judgment.

34
We respectfully cannot agree with Judge Chang’s dissent, but
appreciate his eloquent and gracious opinion.

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