Hawaii Insurance Bad Faith Demand Letter

INSURANCE BAD FAITH DEMAND LETTER

STATE OF HAWAII

PRIVILEGED AND CONFIDENTIAL

SETTLEMENT COMMUNICATION

DATE: [__/__/____]

VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED
AND ELECTRONIC MAIL

TO:

[________________________________]
[Insurance Company Name]
[________________________________]
[Street Address]
[________________________________]
[City, State, ZIP Code]

ATTENTION: Claims Manager / Bad Faith Claims Unit

CC:

[________________________________]
[Registered Agent for Service of Process in Hawaii]
[________________________________]
[Address]

CLAIM AND POLICY INFORMATION

I. INTRODUCTION AND PURPOSE OF THIS DEMAND

This letter constitutes a formal demand for the immediate payment of all benefits owed under the above-referenced insurance policy and serves as notice that [________________________________] ("Insurer") has engaged in conduct constituting bad faith under Hawaii law.

The undersigned represents [________________________________] ("Insured/Claimant") in connection with Insurer's handling of the above-referenced claim. After thorough review of the claim file, policy documents, and Insurer's conduct throughout the claims process, we have determined that Insurer has breached its duty of good faith and fair dealing and violated standards established under Hawaii law for fair claims handling.

THIS LETTER DEMANDS:

1. Immediate payment of all policy benefits owed in the amount of $[________________________________];
2. Compensatory damages resulting from Insurer's bad faith conduct;
3. Punitive damages for Insurer's wanton, oppressive, or malicious conduct;
4. Interest on all amounts owed from the date payment was due;
5. Reimbursement of all attorney's fees and costs incurred as a result of Insurer's bad faith.

IF FULL PAYMENT AND RESOLUTION IS NOT RECEIVED WITHIN THIRTY (30) DAYS of Insurer's receipt of this demand, we will immediately commence litigation seeking all available remedies under Hawaii law, including compensatory damages, punitive damages, attorney's fees, and costs.

II. LEGAL FRAMEWORK: HAWAII BAD FAITH LAW

A. Recognition of Bad Faith Tort in Hawaii – Best Place, Inc. v. Penn America

Hawaii recognizes the tort of insurance bad faith based on the landmark decision Best Place, Inc. v. Penn America Insurance Company, 82 Haw. 120, 920 P.2d 334 (1996). In that case, the Hawaii Supreme Court held:

"There is a legal duty, implied in a first and third-party insurance contract, that the insurer must act in good faith and fair dealing with its insured, and a breach of that duty of good faith gives rise to an independent tort cause of action."

The Court adopted the standard set out by the California Supreme Court in Gruenberg v. Aetna Insurance Co., 9 Cal. 3d 566 (1973), which Hawaii had previously applied in third-party cases and extended to first-party claims in Best Place.

B. Elements of Bad Faith Under Hawaii Law

To establish a claim for bad faith under Hawaii law, the Insured must demonstrate:

1. Existence of the Insurance Contract: A valid insurance policy existed between the parties;
2. Duty of Good Faith: The insurer owed the insured a duty of good faith and fair dealing;
3. Breach of Duty: The insurer breached that duty through its conduct in handling the claim;
4. Causation: The breach was the proximate cause of damages; and
5. Damages: The insured suffered damages as a result.

C. The "Unreasonable Conduct" Standard

Importantly, Hawaii follows the California/Gruenberg approach to the mental state required for bad faith:

"To determine bad faith, the insured need not show a conscious awareness of wrongdoing or unjustifiable conduct, nor an evil motive or intent to harm the insured."

Best Place, 82 Haw. at 132, 920 P.2d at 346 (citing Gruenberg).

However, conduct that is based on an interpretation of the insurance contract that is reasonable does not constitute bad faith, even if that interpretation is ultimately determined to be incorrect.

D. HRS § 431:13-103 – Unfair Claims Settlement Practices

Hawaii Revised Statutes § 431:13-103 defines unfair methods of competition and unfair or deceptive acts or practices in the business of insurance. Subsection (a)(11) specifically addresses unfair claims settlement practices.

Key Provisions of HRS § 431:13-103(a)(11):

An insurer commits unfair claims settlement or determination practices by:

☐ Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies

☐ Refusing to pay claims without conducting a reasonable investigation based upon all available information

☐ Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed

☐ Failing to offer payment within thirty (30) calendar days of affirmation of liability, if the amount of the claim has been determined and is not in dispute

☐ Failing to provide the insured, or when applicable the insured's beneficiary, with a reasonable written explanation for any delay, on every claim remaining unresolved for thirty (30) calendar days from the date it was reported

☐ Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear

☐ Attempting to settle a claim for less than the amount to which a reasonable person would believe the claimant was entitled

☐ Attempting to settle claims on the basis of an application that was altered without notice to or knowledge or consent of the insured

☐ Making claims payments to insureds or beneficiaries not accompanied by a statement setting forth the coverage under which the payments are being made

☐ Unreasonably delaying the investigation or payment of claims by requiring the insured, claimant, or physician of either to submit a preliminary claim report, and then requiring subsequent submission of formal proof of loss forms

E. Use of Statutory Violations as Evidence of Bad Faith

While HRS § 431:13-103 does not create a private right of action (Hunt v. First Insurance Co. of Hawaii, Ltd., 922 P.2d 976 (Haw. 1996)), violations of the statute may be used as evidence of bad faith in a common law bad faith action.

As stated in 27 F. Supp. 2d 1211 (1998):

"Violations of the unfair settlement provision, § 431:13-103(a), may be used as evidence to indicate bad faith in accordance with the guidelines of Best Place, Inc. v. Penn America Ins. Co."

F. Punitive Damages in Hawaii

Punitive damages are available in Hawaii bad faith cases, but require a heightened showing. The insured must establish by clear and convincing evidence that the insurer acted:

☐ "Wantonly or oppressively"
☐ "With such malice as implies a spirit of mischief or criminal indifference to civil obligations"
☐ With "willful misconduct"
☐ With "conscious indifference to consequences"

Masaki v. General Motors Corp., 71 Haw. 1, 780 P.2d 566 (1989).

G. Statute of Limitations

As an action for bad faith against an insurer is an independent tort, the proper statute of limitations is two (2) years under HRS § 657-7, not any limitations period in the insurance policy. 88 Haw. 442, 967 P.2d 639 (App. 1998).

H. Damages Available Under Hawaii Law

1. Compensatory Damages

The insured may recover all compensatory damages flowing from the insurer's bad faith, including:

• Full policy benefits wrongfully withheld
• Interest on unpaid benefits
• Consequential economic damages
• Emotional distress damages
• Out-of-pocket expenses caused by the denial

2. Punitive Damages

Where the insured can establish the heightened standard for punitive damages, such damages may be awarded to punish the insurer and deter similar conduct.

3. Attorney's Fees

Attorney's fees may be recoverable as consequential damages flowing from the insurer's bad faith conduct.

III. FACTUAL BACKGROUND

A. The Insurance Policy

On or about [__/__/____], the Insured purchased the above-referenced insurance policy from Insurer, Policy Number [________________________________]. The policy provides coverage for [________________________________] with policy limits of $[________________________________].

Policy Effective Dates: [__/__/____] through [__/__/____]

Premiums Paid: The Insured has paid all premiums due under the policy totaling $[________________________________] and was in good standing at all relevant times.

Coverage Type and Scope:
[________________________________]
[________________________________]
[________________________________]

B. The Loss Event

On [__/__/____], the Insured suffered a covered loss when:

[________________________________]
[________________________________]
[________________________________]
[________________________________]
[________________________________]

Location of Loss: [________________________________]

Island/County: ☐ Oahu (Honolulu County) ☐ Maui County ☐ Hawaii County (Big Island) ☐ Kauai County

Nature of Loss:
☐ Property Damage
☐ Hurricane/Tropical Storm Damage
☐ Volcanic Activity
☐ Flood Damage
☐ Bodily Injury
☐ Business Interruption
☐ Personal Property Loss
☐ Additional Living Expenses
☐ Vehicle Damage
☐ Fire Damage
☐ Water Damage
☐ Other: [________________________________]

Detailed Description of Loss:
[________________________________]
[________________________________]
[________________________________]
[________________________________]
[________________________________]
[________________________________]
[________________________________]
[________________________________]

C. Claim Submission and Documentation

Initial Claim Notice

On [__/__/____], the Insured promptly notified Insurer of the loss by:
☐ Telephone call to claims department
☐ Written notice via certified mail
☐ Online claim submission
☐ In-person report to agent
☐ Other: [________________________________]

Claim Number Assigned: [________________________________]

Initial Adjuster Assigned: [________________________________]

Documentation Provided

The Insured has provided the following documentation in support of the claim:

Supporting Documentation Included:
☐ Proof of loss statement (sworn)
☐ Police report / incident report
☐ Photographs and video of damage
☐ Repair estimates from licensed contractors
☐ Inventory of damaged/lost property
☐ Receipts and proof of purchase
☐ Medical records and bills
☐ Expert reports and opinions
☐ Witness statements
☐ Building permits and inspection reports
☐ Prior inspection reports
☐ Appraisal reports
☐ Engineering reports
☐ Other: [________________________________]

D. Insurer's Response and Claim Handling

Timeline of Insurer's Conduct

Current Claim Status

☐ Claim Denied – Date of denial: [__/__/____]
☐ Claim Underpaid – Amount paid: $[____________] vs. Amount owed: $[____________]
☐ Claim Unreasonably Delayed – Days pending: [____] days
☐ Claim Partially Paid with Improper Reservation of Rights
☐ Other: [________________________________]

IV. SPECIFIC ALLEGATIONS OF BAD FAITH

Based on our investigation and review of Insurer's handling of this claim, we assert the following specific acts of bad faith:

A. Breach of the Duty of Good Faith and Fair Dealing

Under Best Place, Inc. v. Penn America Insurance Co., Insurer owed Insured a duty to act in good faith and deal fairly with the claim. Insurer has breached this duty by:

[________________________________]
[________________________________]
[________________________________]
[________________________________]
[________________________________]

B. Violations of HRS § 431:13-103 (Evidence of Bad Faith)

Insurer's conduct violates multiple provisions of Hawaii's unfair claims settlement practices statute, which may be used as evidence of bad faith:

Violation 1: Failure to Adopt Reasonable Investigation Standards [§ 431:13-103(a)(11)(A)]

☐ Applicable to this claim

Insurer failed to adopt and implement reasonable standards for prompt investigation:
[________________________________]
[________________________________]
[________________________________]

Violation 2: Denial Without Reasonable Investigation [§ 431:13-103(a)(11)(B)]

☐ Applicable to this claim

Insurer refused to pay the claim without conducting a reasonable investigation based upon all available information:
[________________________________]
[________________________________]
[________________________________]

Violation 3: Failure to Affirm or Deny Coverage Timely [§ 431:13-103(a)(11)(C)]

☐ Applicable to this claim

Insurer failed to affirm or deny coverage within a reasonable time after proof of loss:

• Date proof of loss completed: [__/__/____]
• Date coverage affirmed/denied: [__/__/____] (or still pending)
• Days elapsed: [____] days
  [________________________________]
  [________________________________]

Violation 4: Failure to Pay Within 30 Days After Affirming Liability [§ 431:13-103(a)(11)(D)]

☐ Applicable to this claim

Insurer failed to offer payment within 30 calendar days of affirmation of liability:

• Date liability affirmed: [__/__/____]
• 30-day deadline: [__/__/____]
• Date payment made/offered: [__/__/____] (or still unpaid)
  [________________________________]
  [________________________________]

Violation 5: Failure to Provide Written Explanation for Delay [§ 431:13-103(a)(11)(E)]

☐ Applicable to this claim

Insurer failed to provide a reasonable written explanation for delays on claims unresolved for 30+ days:
[________________________________]
[________________________________]

Violation 6: Failure to Effectuate Good Faith Settlement [§ 431:13-103(a)(11)(F)]

☐ Applicable to this claim

Insurer failed to attempt in good faith to effectuate prompt, fair, and equitable settlement when liability was reasonably clear:
[________________________________]
[________________________________]
[________________________________]

Violation 7: Inadequate Settlement Attempt [§ 431:13-103(a)(11)(G)]

☐ Applicable to this claim

Insurer attempted to settle the claim for less than a reasonable person would believe entitled:
[________________________________]
[________________________________]

C. Unreasonable Denial of Coverage

☐ Applicable to this claim

Insurer denied coverage on [__/__/____] based on the following stated reason(s):
[________________________________]
[________________________________]
[________________________________]

This denial was unreasonable and constitutes bad faith because:
[________________________________]
[________________________________]
[________________________________]
[________________________________]

The policy language at issue provides:
[________________________________]
[________________________________]
[________________________________]

Under any reasonable interpretation, this loss is covered. Insurer's interpretation is:
☐ Contrary to the plain language of the policy
☐ Inconsistent with Hawaii rules of policy interpretation
☐ Based on ambiguous provisions that must be construed against Insurer
☐ Contrary to the reasonable expectations of the Insured
☐ Not supported by the factual record
☐ Other: [________________________________]

D. Inadequate or Biased Investigation

☐ Applicable to this claim

Insurer failed to conduct a fair, thorough, and unbiased investigation:

☐ Failed to promptly acknowledge receipt of the claim
☐ Failed to begin investigation within a reasonable time
☐ Assigned an adjuster who was not properly qualified
☐ Changed adjusters multiple times without justification
☐ Failed to interview key witnesses
☐ Failed to obtain or consider relevant documentation
☐ Relied on biased or unqualified experts
☐ Ignored evidence supporting coverage
☐ Conducted investigation designed to deny rather than fairly evaluate
☐ Failed to consider all available information
☐ Other: [________________________________]

Specific investigation failures:
[________________________________]
[________________________________]
[________________________________]

E. Unreasonable Delay in Claim Handling

☐ Applicable to this claim

Insurer has unreasonably delayed the processing and payment of this claim:

☐ Failed to acknowledge the claim within a reasonable time
☐ Failed to affirm or deny coverage within a reasonable time
☐ Requested unnecessary or duplicative documentation
☐ Failed to communicate status of claim as required
☐ Made repeated requests for information already provided
☐ Failed to explain basis for delays
☐ Exceeded the 30-day payment deadline under HRS § 431:13-103(a)(11)(D)
☐ Other: [________________________________]

Days elapsed since claim submitted: [____] days

F. Inadequate Settlement Offer / Underpayment

☐ Applicable to this claim

Insurer has offered an unreasonably low settlement or made an inadequate payment:

G. Conduct Warranting Punitive Damages

☐ Applicable to this claim

Insurer's conduct rises to the level warranting punitive damages:

☐ Wanton or oppressive conduct
☐ Malice implying a spirit of mischief or criminal indifference to civil obligations
☐ Willful misconduct
☐ Conscious indifference to consequences

Specific evidence supporting punitive damages:
[________________________________]
[________________________________]
[________________________________]
[________________________________]

V. DAMAGES CLAIMED

A. Contract Damages – Policy Benefits Owed

B. Compensatory Damages

C. Punitive Damages

Insurer's conduct warrants the imposition of punitive damages under Hawaii law. The conduct described herein demonstrates wanton, oppressive, or malicious behavior warranting punishment and deterrence.

Estimated Punitive Damages Sought: $[________________________________]

D. Attorney's Fees and Costs

E. Summary of Total Damages Claimed

VI. SETTLEMENT DEMAND

In order to resolve this matter without litigation, the Insured demands payment of the following:

This demand is made in good faith and represents a significant discount from the full damages that will be sought if litigation becomes necessary, including punitive damages.

VII. DEADLINE FOR RESPONSE

Insurer must provide a substantive written response to this demand within THIRTY (30) DAYS of receipt.

Response Deadline: [__/__/____]

The response must include:

☐ Acceptance of the settlement demand and payment of all amounts owed; OR
☐ A detailed, good-faith counter-offer supported by specific factual and legal analysis; OR
☐ A complete and detailed written explanation of any continued denial, including:

• Specific policy provisions relied upon
• Factual basis for the denial
• All documents and evidence considered
• Identification of any additional information needed

FAILURE TO RESPOND WITHIN THE DEADLINE will result in immediate commencement of litigation.

VIII. PRESERVATION OF EVIDENCE

LITIGATION HOLD NOTICE

You are hereby placed on notice to preserve all documents, communications, and evidence related to this claim, including but not limited to:

☐ The complete claim file and all related files
☐ The insurance policy and all endorsements
☐ All underwriting files
☐ All communications (emails, letters, phone records, text messages)
☐ All internal memoranda and notes
☐ All adjuster reports and notes
☐ All expert reports and communications
☐ All photographs, videos, and recordings
☐ All training materials related to claims handling
☐ All claims handling manuals and guidelines
☐ All reserve information and documents
☐ All documents related to similar claims
☐ Electronic data, metadata, and backup tapes

Destruction of any relevant evidence may result in sanctions and adverse inference instructions.

IX. RESERVATION OF RIGHTS

The Insured expressly reserves all rights and remedies available under Hawaii law, including but not limited to:

• Claims for breach of contract
• Claims for breach of the implied covenant of good faith and fair dealing
• Tort claims for bad faith under Best Place, Inc. v. Penn Am. Ins. Co.
• Claims for punitive damages
• Claims for attorney's fees and costs
• Any other claims or remedies available at law or in equity

Nothing in this demand letter shall be construed as a waiver or limitation of any rights or claims.

X. CONCLUSION

Insurer's conduct in handling this claim has been unreasonable and in bad faith under Hawaii law as established in Best Place, Inc. v. Penn America Insurance Co. The Insured has fully complied with all policy requirements and has submitted a valid, covered claim supported by substantial documentation.

Multiple violations of HRS § 431:13-103 provide compelling evidence of Insurer's bad faith. We urge Insurer to reconsider its position and resolve this matter promptly. Continued bad faith conduct will result in litigation seeking all available damages, including punitive damages.

Respectfully submitted,

[________________________________]
Attorney for [________________________________]

[________________________________]
[Law Firm Name]
[________________________________]
[Street Address]
[________________________________]
[City, State, ZIP Code]

Telephone: [________________________________]
Facsimile: [________________________________]
Email: [________________________________]

Hawaii Bar Number: [________________________________]

VERIFICATION

STATE OF HAWAII

☐ CITY AND COUNTY OF HONOLULU
☐ COUNTY OF MAUI
☐ COUNTY OF HAWAII
☐ COUNTY OF KAUAI

I, [________________________________], being first duly sworn, state that I am the ☐ Insured ☐ Authorized Representative of the Insured in the above-referenced matter. I have reviewed the foregoing Insurance Bad Faith Demand Letter and verify that the factual statements contained herein are true and accurate to the best of my knowledge, information, and belief.

_______________________________________________
Signature

Subscribed and sworn to before me this [____] day of [____________], 20[____].

_______________________________________________
Notary Public

My Commission Expires: [__/__/____]

CERTIFICATE OF SERVICE

I hereby certify that on [__/__/____], a true and correct copy of the foregoing Insurance Bad Faith Demand Letter was served upon:

[________________________________]
[Insurance Company Name]
[________________________________]
[Address]

Via:
☐ Certified Mail, Return Receipt Requested
☐ Federal Express or other overnight delivery
☐ Electronic mail to: [________________________________]
☐ Facsimile to: [________________________________]
☐ Personal delivery

_______________________________________________
Signature

_______________________________________________
Printed Name

Date: [__/__/____]