Opinion ID: 2599393
Heading Depth: 4
Heading Rank: 2

Heading: Caselaw and statutes

Text: Defendants cite to various caselaw and statutes, mainly from other jurisdictions, to support their contention that we should interpret HRS § 386-8 as imposing a duty on the employer, in favor of the tortfeasor, not to unreasonably withhold consent to the settlement agreement. The State contends that the statutes and cases upon which Defendants rely are irrelevant and distinguishable. Again, we agree with the State. The only Hawai`i case cited by Defendants is State Farm v. Pacific Rent-All, Inc., in which we [w]eigh[ed] the policy considerations underlying an insurer's right of subrogation against those considerations supporting the finality of settlement, and held that in the context of fire and casualty insurance, a settlement agreement between an insured and a tortfeasor does not bar an insurer's subrogation action. 90 Hawai`i 315, 332, 978 P.2d 753, 770 (1999). As Pacific Rent-All makes clear, HRS § 386-8 supports our holding in that case because it statutorily preserves an employer's subrogation rights from third-party settlement. See id. It is unclear, however, how that case supports Defendants' position that an employer/insurer has a duty not to unreasonably refuse to consent to a settlement agreement. [10] Rather, the case seems to support the State's position insofar as it emphasizes that an employer's subrogation interest outweighs the tortfeasor's interest in reaching a settlement with an employee. Defendants also rely on Eckhardt v. Village Inn (Vicorp), 826 P.2d 855 (Colo.1992), in which the Colorado Supreme Court held that an insurance carrier's refusal to approve a settlement between an injured employee and third-party tortfeasor must be reasonable. In that case, Eckhardt, the injured employee, received workers' compensation benefits from his employer, via the insurance carrier, after being injured in a truck accident. Id. at 857. Eckhardt subsequently sued the tortfeasor. Id. Realizing that a recovery in his third-party suit was unlikely, Eckhardt entered into settlement negotiations, and the tortfeasor offered $12,500.00. Id. Eckhardt sought the carrier's approval, pursuant to a Colorado statute requiring the carrier's consent prior to settlement when the amount to be recovered is less than the total compensation owed by the carrier. Id. The carrier offered to approve a settlement in which it would receive $7,000.00 and a complete release from its obligation to pay Eckhardt any future benefits related to his claim. Id. After Eckhardt refused the offer, the carrier refused to consent to any settlement not sufficient to indemnify fully the carrier for its subrogated interest. Id. at 857-58. Eckhardt nevertheless settled with the tortfeasor for $12,500.00. Id. at 858. The Colorado Court of Appeals affirmed the administrative law judge's conclusion that Eckhardt had forfeited future benefits by settling the suit against the tortfeasor without the carrier's consent. Id. The Colorado Supreme Court granted certiorari and reversed, holding that an insurance carrier, which has been properly notified about a suit brought in good faith by the injured employee, has an obligation to act reasonably when an injured employee requests approval of a settlement in such a suit. Id. The court reasoned that imposing no duty on the carrier to act reasonably when refusing to consent to a settlement offer would only work to diminish the number of actions initiated by employees against third-party tortfeasors. The result would be contrary to the intent and purposes of the Act and to employers' best interests because their carriers will not receive any reimbursement from the third parties responsible. Id. The key fact that distinguishes Eckhardt from the instant case is that in that case, unlike here, the injured employee, not the tortfeasor, brought suit against the employer/carrier. In other words, Eckhardt stands for the proposition that the insurer owes a duty to the employee not to unreasonably withhold consent. The Eckhardt Court's reasoning, as set forth above, indicates that its holding promoted the public policy interest of not discouraging employees from suing tortfeasors, thereby also ensuring that employers receive reimbursements from responsible tortfeasors. The court did not mention any public policy supporting the imposition of a duty on the employer owed to the tortfeasor. Therefore, Eckhardt does not support Defendants' position. Defendants also direct this court to several states that permit an employee to seek court approval of the settlement in lieu of obtaining the consent of the employer or carrier, [11] and argue that because Hawai`i does not have such a statute, we should fashion a remedy for tortfeasors whose settlements are held hostage by unreasonable employers or insurers. We look to HRS § 386-8 and its legislative history for guidance in determining whether tortfeasors should be protected by imposing a duty on employers, as Defendants contend.