Opinion ID: 2512331
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: Because the circuit court dismissed Young's first`amended complaint, pursuant to Hawai`i Rules of Civil Procedure (HRCP) Rule 12(b)(6), on the basis that it failed to state a claim upon which relief could be granted, we take the complaint's factual allegations as true for purposes of this appeal. See Kahala Royal Corp. v. Goodsill Anderson Quinn & Stifel, 113 Hawai`i 251, 266, 151 P.3d 732, 747 (2007) (observing that, `in reviewing the circuit court's order dismissing the plaintiffs' complaint in this case, our consideration is strictly limited to the allegations of the complaint, and we must deem those allegations to be true' (quoting Dunlea v. Dappen, 83 Hawai`i 28, 32, 924 P.2d 196, 200 (1996), overruled on other grounds by Hac v. Univ. of Hawai`i, 102 Hawai`i 92, 105-07, 73 P.3d 46, 59-61 (2003))). The first amended complaint included the following factual allegations.
In the mid-1990s, Allstate devised a plan to redesign the process by which it handled personal injury claims. This plan was referred to in internal implementation training manuals as the Claims Core Process Redesign or CCPR. Excerpts of those manuals were attached as exhibits to the first amended complaint. The CCPR plan was intended to increase profits by over $200,000,000.00 annually by underpaying claims and denying claimants just and reasonable compensation. According to the CCPR manual, one of the plan's primary goals was to manage specific components of severity (average amount paid per claim) to provide greater financial support to the company. One such component was the rate at which claimants were represented by legal counsel. Allstate's CCPR manual directed claim representatives to realiz[e] that the way we approach claimants and develop relationships will significantly alter representation rates and contribute to lower severities. The manual explained that when an attorney represents a claimant, we pay 2-3 times more to settle the claim. Consequently, Allstate instructed its claim personnel to do whatever it takes to remove any need for an attorney. Allstate implemented this directive by requiring representatives to [e]stablish a trust-based relationship with claimants through [e]xtremely rapid contact to educate claimants about Allstate's approach to fair claim settlement and through [a]nticipation and resolution of a broad range of claimant needs in a genuine and emphatic manner. Representatives were also directed to initiate a [p]roactive discussion of attorney economics with claimants through this process, and to follow up regularly with claimants to reduce the need for attorney involvement. In addition to oral assurances, Allstate representatives were supposed to provide a written quality service pledge. The pledge informed claimants that, [b]ecause you have been involved in an accident with an Allstate policyholder, we will provide you with quality service. The pledge additionally stated that Allstate will make an appropriate offer of compensation for any injuries you may have suffered. By dissuading claimants from seeking legal counsel, Allstate was able to prey upon injured and unrepresented claimants' trust and lack of knowledge and to deny or settle claims for a fraction of their value. In handling minor-impact, soft-tissue or MIST claims, Allstate calculated settlement offers through its Colossus computer valuation system. [2] Allstate's CCPR manual instructed adjusters that, [w]hile every case should be evaluated on its merits and adjustments in settlement value will often be required, the new evaluation approach should lead to more settlements in the base value range and fewer settlements greater than the historical median. The Colossus system was intended to create unreasonably low evaluations and settlements for personal injury claims. If a settlement offer were not accepted or the claimant hired an attorney, Allstate would fully litigate virtually every claim, irrespective of its insured's liability or the real physical harm and value of the injuries suffered by the claimant. Allstate thereby sought to subject claimants to unnecessary and oppressive litigation and expenses, or, in other words, scorched-earth litigation tactics. Allstate intended to force claimants and their attorneys through arbitration and trial unnecessarily. For example, if a non-binding arbitration award were anything more than nominal, Allstate's practice was to appeal the award. The insurer employed these tactics to discourage claimants from pursuing injury claims. Allstate also sought to discourage attorneys from representing claimants by creating so much work and expense that they could not afford to advocate for a client with minor, moderate, or sometimes even serious injuries. Aside from the rate at which claimants were represented by counsel, another significant severity component was the amount paid for bodily injury claims. According to the CCPR manual: Of the components that account for paid losses, [bodily injury] is by far the largest. Controlling loss payout is clearly the most effective means of controlling casualty costs. The manual illustrated that a five percent reduction in the amount paid on bodily injury claims would yield profits of $201,000,000.00 per year. The manual gave specific instructions to representatives handling MIST claims, which typically arose from minor-impact automobile accidents that caused connective tissue, organ, or muscle damage, but not broken bones. According to the CCPR manual, MIST claims rarely reached trial, because on a case-by-case basis, a settlement [could] be justified when litigation costs [were] considered. Consequently, Allstate instructed its claim representatives to meet with the claimants' attorneys to emphasize those costsÔÇö i.e., attorney economicsÔÇöthrough threats, intimidation, and strong-arm tactics. Representatives were directed [t]o send a message to attorneys of [Allstate's] proactive defense stance on MIST cases, which force[d] the claimant and attorney to think about the obstacles they must overcome to recover a significant settlement or the benefits of a small `walk-away' settlement. Allstate carried out its policies through the active participation of its attorneys. The Litigation Management section of the CCPR manual segmented, or targeted, certain claims for litigation and trial. One such litigation segment was referred to as Settle for `X' or lessÔÇödefault to trial. In outlining the nature of such cases, the manual noted that the [p]rimary reason [that the] case [wa]s being defended [wa]s that [the] plaintiff ha[d] not accepted Allstate's offer. Once a case was targeted for trial under the Settle for `X' or less segment, an Allstate attorney was required to appeal [the] non-binding arbitration/mediation award as directed by [the] claim rep[resentative]. Likewise, an intended resolution by Allstate's claim representative to try [a] case had to be followed by Allstate's staff counsel. Allstate's attorneys were required to increase trial activity in appropriate cases, such as where settlement [could not] be reached for [the] evaluated amount. The reason that Allstate's attorneys were expected to have more trials was to reduce loss payout. Allstate used incentive compensation programs to encourage its attorneys to try more cases, irrespective of whether such litigation was justified by the facts. For Allstate's staff attorneys, increased trial activity was an objective set forth in the CCPR manual, with compensation and financial reward programs for the attorneys who met CCPR objectives. The more cases they tried, the more they might qualify for awards and salary increases. Allstate's attorneys' performance was also measured by whether they achieved results at or below the evaluated claim amount. Allstate's managing attorneys were expected to monitor their staff counsel aggressively. For example, under the CCPR manual, one corrective action for poorly performing offices was to put managing attorney bonuses at risk or change [the] managing attorney.
On February 4, 1998, Young was stopped in traffic in Hilo, Hawai`i, when a car operated by an Allstate-insured driver, Daryl Fujimoto (insured), hit the rear of Young's 1984 Ford. The insured informed Allstate that he fell asleep while driving and caused the crash. As a result of the collision, Young's automobile (worth about $1,795) was destroyed, and Young, who was eighty-four years old at the time of the accident, sustained injuries to her neck, ribs, right knee, and thoracic and lumbar spine. Young had difficulty performing activities of daily living and, consequently, began suffering from depression.
An Allstate claim representative contacted Young on the same day of the collision and informed her that Allstate would provide `quality service' on her claim, treat her fairly, and [] that, because of these promises, she did not need any attorney. Shortly thereafter, Young received a letter dated February 4, 1998 from Allstate, which stated: I want to reaffirm Allstate's policy that we will provide quality service to anyone who has been involved in an accident with one of our policyholders. As your claim representative, my role is to ensure that you receive this quality service, outlined in the enclosed `Quality Service Pledge.' Accompanying the letter was a QUALITY SERVICE PLEDGE, which stated that YOU'RE IN GOOD HANDS WITH ALLSTATE and that: Because you have been involved in an accident with an Allstate policyholder, we will provide you with quality service. In an effort to provide you with this quality service, we promise you the following: 1) We will fully explain the process, take the time to answer all questions and concerns that you may have, and keep you informed throughout the claim process. 2) We will conduct a quick, fair investigation of the facts in your case. 3) To the extent that our policyholder was at fault in the accident, we will assist you in providing for the repair of your vehicle and in determining your temporary transportation needs. Your claim professional is dedicated to carrying out this Quality Service Pledge. (Emphases in original.) Thereafter, Allstate sent a second letter to Young requesting that she authorize Allstate to gather her medical and employment information to evaluate her injury claim. The quality service pledge attached to the second letter differed from the pledge attached to the first letter to the extent that the third promise, which concerned transportation and vehicular repair, instead stated: 3) If you qualify, we will make an appropriate offer of compensation for any injuries you may have suffered. (Emphasis in original.) Young relied upon Allstate's oral and written representations, believing that she did not need an attorney and that Allstate would treat her fairly, just as it would be expected to treat one of its own customers. As a result of those representations, Young attempted to resolve her bodily injury claim directly with Allstate without advice or assistance from an attorney. Additionally, Young released her medical information to Allstate.
On March 15, 1999, when Young had already incurred over $6,000 in medical expenses and was still receiving medical care for her injuries, Allstate offered Young $5,000 to settle her claims and release Allstate and the insured from liability. Allstate represented that it fairly evaluated [Young's] injury claim for settlement and that Young's no-fault insurance coverage should pay for her accident related treatment. Young rejected the $5,000 offer, and on April 22, 1999, Allstate raised its offer to $5,300. It presented the offer to Young, who it knew was still unrepresented by counsel, together with a joint tortfeasor release and indemnity agreement for her signature. Allstate was aware that Young was permanently injured, then eighty-five years of age, and in a very vulnerable position. In making the offer, Allstate represented to Young that she had sustained mere minor injuries and that she should accept the offer. Young was deeply distressed because she felt that Allstate was breaking its promises and violating its pledge to fairly evaluate her claim. She therefore sought the assistance of an attorney, who attempted to negotiate a fair settlement with Allstate, but Allstate refused to make any offer beyond $5,300.00.
On April 17, 2000, Young filed suit against the insured, seeking fair compensation for her injuries sustained from the February 1998 car crash. Allstate, through its attorney, Ichiyama, filed an answer on December 18, 2000, alleging, among other things, that Young was injured by her own negligence and that she failed to mitigate her injuries. The defenses caused Young, who was eighty-seven years old at the time, extreme distress and shame. After Young's deposition, Ichiyama indicated that he would recommend that Allstate pay Young its insured's $25,000 limit of coverage. Still, Allstate refused to increase its offer. The case proceeded to the court annexed arbitration program, but the Defendants never took the arbitration seriously; they entered the arbitration hearing with the intention of appealing any award that exceeded a nuisance value for the claim. On June 12, 2001, the arbitrator awarded Young medical expenses of $7,689.51 and general damages of $37,000, for a total award of $45,189.15. On June 26, 2001, Ichiyama filed a notice of appeal requesting a trial de novo. The circuit court ordered the parties to participate in mediation, which was unsuccessful because Allstate refused to improve its nuisance offer of $5,300.00. Thereafter, on July 19, 2001, Young filed a HRCP Rule 68 [3] general damages only offer of judgment for $25,000. Allstate rejected Young's offer, and, in November 2001, it filed an offer of judgment for $5,300. Young again rejected this offer. Following a four-day jury trial in January 2002, the jury awarded Young a total of $198,971.71 (special damages of $11,971.71 and general damages of $187,000). Allstate offered Young $260,000 to settle the lawsuit and give up any right to bring a suit for bad faith against Allstate. However, Young rejected that offer because she wanted to expos[e] Allstate's misconduct on her claim and case to other members of her community. On April 8, 2002, at Young's request and over the opposition of Defendants, the court awarded Young attorney's fees of $15,000, costs pursuant to Hawai`i Revised Statutes (HRS)  607-9 of $3,334.48, and costs pursuant to Hawai`i Arbitration Rules (HAR) Rule 26(B)(1). [4] The circuit court also awarded Young $35,090.03 in prejudgment interest.
On May 15, 2003, Young filed a complaint against Defendants. The following month, she filed her first amended complaint, alleging that she was a victim of Allstate's plan, Claim Core Process Redesign, because Allstate formed a trust-based relationship with her to coerce her into accepting a low settlement offer. Young argued that Defendants refused to make her a reasonable offer and forced the case through arbitration, then appealed the arbitration award and forced her through a jury trial, and finally, contested her motions for attorneys' fees and costs sanctions and prejudgment interest. Young argued that these tactics were designed for one purpose: to drive up [her] costs and to coerce, intimidate and punish [Young] for refusing to accept Allstate's $5,300 offer and getting an attorney. Young asserted Defendants were liable for, among other things, (1) abuse of process, (2) malicious defense, and (3) IIED, and that Allstate had breached an assumed duty of good faith and fair dealing. For each claim, she requested compensatory and punitive damages. On June 25, 2003, Defendants filed a motion to dismiss Young's complaint (motion to dismiss) under HRCP Rule 12(b)(6) [5] for failure to state a claim for which relief may be granted. In support of their motion, Defendants argued: (1) Defendants did not abuse process by refusing to make reasonable settlement offers, appealing the arbitration award, and alleging affirmative defenses in their answer because these acts were not judicial and, even if they were judicial, Defendants acted with the purpose for which the judicial processes are intended; (2) Hawai`i has not recognized a claim for relief of malicious defense; (3) Allstate did not owe Young a duty of good faith and fair dealing because the parties did not have a contractual relationship by virtue of Allstate sending Young its pledge; and (4) Defendants did not act without just cause or excuse and beyond all bounds of decency by defending the insured against Young's lawsuit and therefore, are not liable for IIED. On July 28, 2003, Young filed a memorandum in opposition to Defendants' motion to dismiss. The circuit court heard the motion on August 5, 2003. Young's abuse of process claim asserted that the Defendants had used legal process against her for an ulterior purpose not proper in the regular conduct of the proceedings ÔÇöto send a message to claimants and attorneys and to punish Young and her attorney through excessive litigation expenses, harassment, oppression, and abuse. According to Young, the Defendants' conduct was part of a nationwide practice, employed in Hawai`i, to use litigation, discovery procedures, arbitrations, appeals from arbitrations, and trials as a war of attrition. Young alleged that the Defendants did not intend to make any reasonable attempt to address or litigate the merits of the case. She also alleged that Ichiyama, while carrying out the instructions, wishes, and intent of his principal and employer, Allstate, engaged in the misuse of process and imprudent use of the courts for an end other than that for which they were designed. Relying on Wong v. Panis, 7 Haw.App. 414, 420-21, 772 P.2d 695, 699-700 (1989), abrogated on other grounds by Hac, 102 Hawai`i at 105-07, 73 P.3d at 59-61, the circuit court explained that settlement was a proper purpose of judicial process. As such, the circuit court concluded that Young's allegations did not state a claim for which relief could be granted. With respect to her malicious defense claim, Young alleged that the Defendants took an active part in the initiation, continuation, or procurement of the defense in Young's case against Allstate's insured. She alleged that the Defendants (1) maliciously defended the case and used the courts imprudently by acting without reasonable or probable cause and by acting with knowledge or notice that their positions lacked merit and (2) acted primarily for a purpose other than that of securing a proper adjudication of the claims and defenses, such as to harass, annoy, or injure or to cause an unnecessary delay or a needless increase in litigation costs. Despite these tactics, the underlying proceedings culminated in Young's favor. The circuit court declined to recognize the tort of malicious defense because it believed that a defendant, who has been haled into court involuntarily, should not be required to elect whether to vigorously defend and suffer the prospect of an additional lawsuit or to defend less vigorously. The circuit court further reasoned that, in cases in which a defendant acts improperly, sanctions could be imposed. Young's IIED claim asserted that, at all material times, the Defendants were aware that Young was an elderly woman who was in pain, incapacitated in her ability to care for herself, suffering from depression as a result of the injuries she sustained in the February 4, 1998 collision, and relying upon a fair recovery of the damages that she had sustained. Young alleged that the Defendants anticipated that, because of her age, Young might not survive to recover through the courts, and that when Young came to that realization, she would accept a nominal settlement amount. In short, Young asserted that the Defendants, through their abusive legal processes and malicious defense of Young's claims for personal injury damages, appealed the arbitration award and forced her to go to trial in order to obtain a fair recovery for her injuries, with the intention of inflicting severe emotional distress upon Young. The circuit court concluded that the Defendants' acts were not without just cause or excuse or beyond all bounds of decency or outrageous. With respect to the claim of assumed duty of good faith and fair dealing, Young alleged that Allstate had advised her that it would address her claim pursuant to a quality service pledge, in which Allstate promised her that (1) her third-party claim would be handled fairly and in a relationship of trust and (2) it would make a fair and appropriate settlement offer to her. According to Young, by making these representations, Allstate assumed a duty of good faith and fair dealing in handling Young's claims that arose out of the February 4, 1998 collision and then breached that duty by intentionally engaging in abusive and unfair practices. The circuit court concluded that these allegations failed to state a claim for which relief could be granted, because Allstate's representations did not result in an assumption by Allstate of a duty of good faith and fair dealing. The circuit court entered an order dismissing Young's claims of abuse of process, malicious defense, IIED, and assumed duty of good faith and fair dealing on July 19, 2004, and entered its final judgment on September 17, 2004. Young filed a timely notice of appeal on October 8, 2004.