In most jurisdictions, the concept of a bad faith cause of action against an insurer is recognized. However, the standard and tests for bad faith vary by state. In California, the "unreasonableness" standard for bad faith is widely recognized, but the standard is high. If there’s no breach of contract cause of action, then very plainly put, there is no bad faith cause of action to be litigated.
As each State’s bad faith laws have evolved, it is very interesting to see that the law in Hawaii, although influenced by the case law in California, has evolved very differently. In a past blog, I talked about the recent June 7, 2013 Hawaii court decision wherein the supreme court of Hawaii ruled a Plaintiff could have a bad faith cause of action against an insurer completely independent and separate from a breach of contract cause of action.1 That means in Hawaii, potentially, a plaintiff may have a bad faith finding against an insurer even if there is not breach of the actual contract of the policy of insurance.
When looking at the evolution of cases and how we got to the Willis v. Swain ruling in June 2013, it’s important to look at the evolving case law of Hawaii’s past. A seminal case to look at is Guajardo v. AIG Hawaii Insurance Company.2 In Guajardo, an uninsured motorist case, the court of appeals outlined that the reasonableness standard for a bad faith cause of action was quite low. In fact, the court held "reasonableness can only constitute a question of law suitable for summary judgment when the facts are undisputed and not fairly susceptible of divergent inference because where, upon all the evidence, but one inference may reasonably be drawn, there is no issue for the jury."3
Essentially, the Guajardo appellate court indicates review of a trial court dismissal of the bad faith cause of action on summary judgment, that the reasonableness standard used to weigh a bad faith cause of action is a low standard and a finding of no genuine issue as to any material fact is very difficult. The appellate court interprets that it is not very likely that looking at this low reasonableness standard that a trial court can make a finding that there is no genuine issue as to material fact. Thus, a bad faith cause of action must survive summary judgment and be heard by a jury.
As Hawaii’s case law on bad faith continues to evolve, it is incredibly fortunate that the ideas of consumer protection, and protection of an insured when dealing with their own carrier, is a priority. With appellate decisions such as Guajardo, the actions of an insurer can be adjudicated in front of a jury to denote the acceptability and reasonableness of the insurer’s actions.
1 Willis v. Swain, 129 Haw. 478, 304 P.3d 619 (2013).
2 Guajardo v. AIG Hawaii Insurance Company, Inc., 118 Hawai`i 196, 206, 187 P.3d 580, 590 (2008).
3 Courbat v. Dahara Ranch, Inc., 111 Hawaii 254, 263, 141 P.3d 427, 436 (2006) (quoting Amfac, Inc. v. Waikiki Beachcomber Inv. Co., 74 Haw. 85, 108).