Opinion ID: 1205488
Heading Depth: 3
Heading Rank: 1

Heading: Case Law Dealing with Insurer Bad Faith

Text: In Gossinger v. Association of Apartment Owners, 73 Haw. 412, 835 P.2d 627 (1992), in which we held that a mistake as to the nature and extent of an insured's injury was not a proper basis for the insured to rescind a release agreement, we quoted with approval the following language from Justice Spear's dissent in Williams v. Glash, 789 S.W.2d 261 (Tex.1990): Insurers are now faced with a Hobson's choice. If they settle claims promptly, they are not protected from the later assertion of unknown claims. If they refuse to settle until all injuries are known, then they face potential liability under a bad faith claim. Gossinger, 73 Haw. at 424-25 n. 5, 835 P.2d at 634 n. 5 (emphasis added and citation omitted). In Stratis v. Pacific Ins. Co., Ltd., 7 Haw. App. 1, 739 P.2d 251 (1987), an insured brought an action against its insurer alleging breach of contract and bad faith settlement of the insurance claim. The jury found in favor of the defendant insurance company and the plaintiff appealed, challenging, inter alia, the trial court's refusal of plaintiff's proffered jury instructions. Among the instructions refused by the trial court was the following: An insurer may breach the covenant of good faith and fair dealing in an insurance contract when it fails to properly investigate [the] insured's claim. Id. at 10, 739 P.2d at 257. On appeal, the ICA held that the trial court properly refused the instruction because it was not obligated to accept an instruction that did not state the law with substantial correctness. Id. The ICA reasoned, however, that the jury instruction was incorrect because it failed to contain a qualifying clause, [6] not because it stated a cause of action that this jurisdiction would not recognize. In Colonial Penn Ins. Co. v. First Ins. Co. of Hawai`i, 71 Haw. 42, 780 P.2d 1112 (1989), an injured claimant sued a third-party tortfeasor's insurer for bad faith denial of no-fault benefits. This court affirmed the trial court's order granting the insurer's motion for summary judgment on grounds that the actions of the insurer did not constitute bad faith in its denial of no-fault benefits. We held that the trial court was correct because the insurer denied payment of benefits based on an unsettled question of law. In so holding, we implicitly recognized that an insurer may be liable for bad faith under the appropriate circumstances. [7]