This one is a break from our usual programming because it involves … insurance law. Specifically the law of “bad faith.”

We highlight the case because we represent the prevailing petitioner. (See, we don’t just do property appeals.) And come on, everyone should be interested in insurance law. Especially the law of how health insurers behave, because when you are ill, it is the worst time to be dealing with questions of coverage, claims, and the like; but that’s often when you do have to deal with these questions.

We won’t trouble you with all of the details of the Hawaii Supreme Court’s unanimous opinion in Adams v. Haw. Med. Service Ass’n, No. SCWC-15-396 (Sep. 30, 2019), but if you have health insurance or have ever dealt with an insurer (and who hasn’t?), you might find this interesting and useful. Our research shows this case to be the first of its kind in the country.

The short story is that the Supreme Court concluded that all insurers have a duty to treat their insureds in good faith, and the duty in handling claims arises at the time of the formation of the relationship. The insurance company in Adams asserted that its duty of good faith claims handling meant only that it must respond to an insured’s inquiries and claims, and that prior to the formal filing of a claim, it had no duty at all.

Adams’s complaint alleged bad faith claims handling, but the court held that “[t]o determine whether an insurer reasonably handled a claim, we consider the conduct of the parties to the contract before and after the formal submission of the claim.” Slip op. at 18 (emphasis added). Here, the fact that HSMA quickly responded to Adams’ actual claim was not dispositive, because “[i]t is not sufficient to determine only whether the insurer complied with the terms of the contract.” Id. at 19. This is an important point, because it means that insurers have an obligation to treat their insureds decently at all stages of their relationship, not merely when dealing with claims under the contract. This case was one of first impression, and, we think, significantly levels the playing field. 

The opinion isn’t all that long, and the facts are pretty egregious, so it might be worth your time to read it. The short story is that Ms. Adams was prepared to present evidence that the insurance company knew that it did not cover the procedure that Mr. Adams desperately needed to treat his cancer, but did not communicate the lack of coverage to him until he formally filed a claim. The cancer was very aggressive, and the treatment he sought was very time-sensitive, and by the time the insurance company denied the claim, it was too late for Mr. Adams.

No one questioned whether the insurance company responded to his claim in a timely manner, and the only question was whether the evidence of pre-claim lack of communication that Ms. Adams proffered in opposition to the insurer’s motion for summary judgment was relevant to bad faith claims processing claim. Both the trial court and the court of appeals said no.

In our cert application we argued that the duty of good faith isn’t defined by the insurance contract, and that a jury is entitled to consider the evidence of pre-claim bad faith by the insurer. The Supreme Court agreed, and remanded the case. 

A big win for our client, for insureds, for consumers, and for my Damon Key colleague, insurance law maven Tred Eyerly, who led our case team.

Adams v. Haw. Med. Service Ass’n, No. SCWC-15-396 (Haw. Sep. 30, 3019)