Insurance Bad Faith Demand Letter - Hawaii

INSURANCE BAD FAITH DEMAND LETTER

State of Hawaii

[LAW FIRM LETTERHEAD]

PRIVILEGED AND CONFIDENTIAL
SETTLEMENT COMMUNICATION — FOR RESOLUTION PURPOSES ONLY
PROTECTED UNDER HAWAII RULES OF EVIDENCE RULE 408 AND F.R.E. 408

VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED
AND VIA EMAIL TO: [________________________________]

Date: [__/__/____]

To:
[________________________________]
[________________________________] (Insurance Company Name)
Attn: Claims Department / Legal Department
[________________________________]
[________________________________], [____] [____]

Attention: [________________________________], [________________________________] (Adjuster/Manager Name and Title)

Re: FORMAL BAD FAITH DEMAND — HAWAII LAW

Dear [________________________________]:

I. INTRODUCTION AND NATURE OF DEMAND

This firm represents [________________________________] ("our client") in connection with the above-referenced insurance claim under the laws of Hawaii. This letter constitutes a formal demand for payment of all benefits wrongfully withheld and serves as notice of [________________________________]'s (the "Carrier's") bad faith conduct in the handling of our client's claim under Hawaii law.

This is a time-limited demand. The Carrier has until [__/__/____] at 5:00 p.m. Hawaii Standard Time to tender $[________________________________] and resolve all claims arising from this matter. Failure to do so will result in immediate litigation in the State of Hawaii seeking all available remedies, including compensatory damages, consequential damages, emotional distress damages, punitive damages, and statutory treble damages under Hawaii's Unfair and Deceptive Trade Practices Act.

This demand is made in the shadow of Best Place, Inc. v. Penn Am. Ins. Co., 82 Haw. 120, 920 P.2d 334 (1996) — the landmark Hawaii Supreme Court decision recognizing first-party bad faith as an independent tort. Hawaii courts have since made clear that this duty runs directly to the insured and may be enforced with substantial damages, including punitive damages, without requiring proof of a conscious awareness of wrongdoing.

II. HAWAII BAD FAITH LAW — LEGAL FRAMEWORK

A. Recognition of the Bad Faith Tort in Hawaii

In Best Place, Inc. v. Penn Am. Ins. Co., 82 Haw. 120, 920 P.2d 334 (1996), the Hawaii Supreme Court unanimously held:

"There is a legal duty, implied in a first- and third-party insurance contract, that the insurer must act in good faith in dealing with its insured, and a breach of that duty of good faith gives rise to an independent tort cause of action. The breach of the express covenant to pay claims, however, is not the sine qua non for an action for breach of the implied covenant of good faith and fair dealing. The implied covenant is breached, whether the carrier pays the claim or not, when its conduct damages the very protection or security which the insured sought to gain by buying insurance."

Best Place, 920 P.2d at 346–347.

This doctrine arises from the nature of the insurance relationship: the public interest in insurance (Haw. Rev. Stat. § 431:1-102), the adhesionary character of insurance contracts, and the unequal bargaining power between insurer and insured.

B. Bad Faith Standard — No Conscious Wrongdoing Required

The Hawaii Supreme Court adopted the Gruenberg standard for first-party bad faith: the insurer is liable if it "fails to deal fairly and in good faith with its insured by refusing, without proper cause, to compensate its insured for a loss covered by the policy." Best Place, 920 P.2d at 347 (citing Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566 (1973)).

Critical elements of Hawaii's standard:

1. The insured does not need to prove a conscious awareness of wrongdoing or evil motive
2. An unreasonable delay in payment of benefits that are due warrants recovery for compensatory damages
3. Conduct based on an interpretation of the insurance contract that is reasonable does not constitute bad faith
4. An erroneous decision not to pay a claim does not by itself justify damages — the decision must be in bad faith (i.e., reflecting unfair dealing rather than mere mistaken judgment)

Best Place, 920 P.2d at 347–348.

The bad faith standard was extended to UM/UIM claims by the Hawaii Supreme Court in Guajardo v. AIG Haw. Ins. Co., 118 Haw. 196, 187 P.3d 580 (2008), confirming that a UM/UIM carrier owes the same duty of good faith and fair dealing to its own insured.

C. Punitive Damages Standard

Punitive damages in a Hawaii bad faith action require proof by clear and convincing evidence that the Carrier:

"acted wantonly or oppressively or with such malice as implies a spirit of mischief or criminal indifference to civil obligations, or where there has been some wilful misconduct or that entire want of care which would raise the presumption of a conscious indifference to consequences."

Best Place, 920 P.2d at 348 (quoting Masaki v. General Motors Corp., 71 Haw. 1, 11 (1989)).

This is a higher standard than the standard for compensatory bad faith damages. As the record in this case makes clear, the Carrier's conduct meets or exceeds this threshold.

D. Hawaii Unfair Claims Settlement Practices Act — Haw. Rev. Stat. § 431:13-103(a)(11)

Hawaii prohibits the following as unfair claims settlement practices when committed with such frequency as to indicate a general business practice:

(A) Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue

(B) Failing to respond with reasonable promptness — in no case more than 15 working days — to communications received from:

• The policyholder
• Any other persons (including the Commissioner)
• The insurer of another party involved in the same incident

The response must be more than an acknowledgment; it must adequately address the concerns stated in the communication.

(C) Failing to adopt and implement reasonable standards for the prompt investigation of claims

(D) Refusing to pay claims without conducting a reasonable investigation based upon all available information

(E) Failing to affirm or deny coverage within a reasonable time after proof of loss statements have been completed

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

(G) Failing to provide the insured with a reasonable written explanation for any delay on every claim remaining unresolved for 30 calendar days from the date it was reported

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

(I) Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered

(J) Attempting to settle a claim for less than the amount to which a reasonable person would have believed they were entitled by reference to written advertising material

(K) Attempting to settle claims on the basis of an application that was altered without notice, knowledge, or consent of the insured

(L) Making claims payments not accompanied by a statement setting forth the coverage under which payments are being made

(M) Making known to insureds a policy of appealing from arbitration awards in favor of insureds for the purpose of compelling them to accept less than the arbitration award

(N) Delaying investigation or payment by requiring submission of preliminary and formal proof of loss forms containing substantially the same information

(O) Failing to promptly settle claims under one portion of a policy to influence settlements under other portions

(P) Failing to promptly provide a reasonable written explanation of the basis in the policy for denial or compromise settlement

(Q) Indicating on a payment draft, check, or accompanying letter that the payment is "final" or a "release" of any claim when additional benefits are probable under the policy, unless the policy limit has been paid or there is a bona fide coverage/amount dispute

Haw. Rev. Stat. § 431:13-103(c): Three or more written complaints received by the Insurance Commissioner within any 12-month period charging separate violations of this section constitute a rebuttable presumption of a general business practice.

E. Hawaii UDAP — Haw. Rev. Stat. §§ 480-2 and 480-13

Unfair or deceptive acts or practices in the conduct of any trade or commerce are unlawful under Haw. Rev. Stat. § 480-2. A consumer who suffers damages due to a violation may recover:

• Three times actual damages (treble damages) under Haw. Rev. Stat. § 480-13(a)(1)
• Attorney's fees and costs under Haw. Rev. Stat. § 480-13(a)(1)
• Minimum damages of $1,000 per consumer under Haw. Rev. Stat. § 480-13(b)

In construing Haw. Rev. Stat. § 480-2, Hawaii courts give due consideration to FTC Act § 5 interpretations. Insurer misconduct in claim handling that rises to the level of unfair or deceptive conduct in the insurance trade may give rise to independent UDAP liability.

III. POLICY INFORMATION AND COVERAGE

A. Policy Details

B. Coverage Obligation

The policy clearly covers [________________________________] (the "Loss"). The Carrier [☐ has acknowledged coverage / ☐ has accepted coverage without reservation / ☐ denied coverage on the basis of [________________________________], which is without merit for the reasons stated below].

Under Hawaii law, having [accepted / acknowledged] coverage, the Carrier is obligated to:

☐ Conduct a thorough, fair, and objective investigation
☐ Evaluate the claim in good faith against all available information
☐ Promptly affirm or deny coverage within a reasonable time after submission of proof of loss
☐ Offer payment within 30 calendar days of affirming liability where the amount is not in dispute
☐ Communicate honestly and transparently with the insured
☐ Provide a written explanation for any delay exceeding 30 calendar days
☐ Refrain from compelling litigation through unreasonable underpayment or delay

IV. FACTUAL BACKGROUND AND CLAIM HISTORY

A. The Underlying Loss

On [__/__/____], [________________________________] (the "Loss").

[________________________________]
(Provide a detailed, specific narrative of the loss event, including date, location on which Hawaii island, nature of harm, and why coverage is clear.)

Hawaii-Specific Context:
☐ Loss occurred on the island of [________________________________]
☐ Loss involves [☐ hurricane damage / ☐ volcanic activity / ☐ flood / ☐ motor vehicle collision / ☐ property damage / ☐ other: [____]]
☐ [________________________________]

B. Chronological Timeline of Bad Faith Conduct

The following timeline documents the Carrier's unreasonable and bad faith conduct:

V. SPECIFIC BAD FAITH CONDUCT

[________________________________]'s (the "Carrier's") handling of this claim violates the implied covenant of good faith and fair dealing and constitutes bad faith under Best Place, 920 P.2d 334 (1996) and Haw. Rev. Stat. § 431:13-103(a)(11):

A. Unreasonable Delay

The Carrier has unreasonably delayed investigation, determination of coverage, and/or payment in violation of Hawaii's 15-working-day and 30-calendar-day standards:

☐ Failed to respond to written correspondence dated [__/__/____] within 15 working days as required by Haw. Rev. Stat. § 431:13-103(a)(11)(B)
☐ Failed to provide a written explanation for the unresolved claim as required by Haw. Rev. Stat. § 431:13-103(a)(11)(G) after 30 calendar days from [__/__/____]
☐ Failed to offer payment within 30 calendar days of affirming liability on [__/__/____] per Haw. Rev. Stat. § 431:13-103(a)(11)(F)
☐ [________________________________]

Total delay attributable to Carrier's bad faith conduct: [____] days / [____] months

Harm caused by delay: [________________________________] (e.g., inability to make repairs, additional living expenses, financial distress, property deterioration, business interruption, emotional harm)

B. Inadequate or Biased Investigation

The Carrier failed to conduct the fair, objective, and thorough investigation required under Best Place and Haw. Rev. Stat. § 431:13-103(a)(11)(C)–(D):

☐ The Carrier retained a cause-and-origin expert known to routinely produce insurer-favorable opinions without conducting an objective analysis
☐ The Carrier failed to consider [________________________________] evidence submitted by our client
☐ The Carrier relied exclusively on its own adjuster's estimate without obtaining independent contractor bids in the Hawaii market
☐ The Carrier's inspector failed to inspect [________________________________] during the site visit
☐ The Carrier denied the claim without interviewing [________________________________], a key witness
☐ The Carrier failed to review [________________________________] (e.g., USGS volcanic activity data, NHC hurricane tracking, NOAA weather records) relevant to the cause of loss
☐ [________________________________]

C. Unreasonable and Pretextual Denial

The Carrier denied this claim on the basis of [________________________________]. This denial is:

☐ Contrary to the plain language of the policy's insuring agreement
☐ Based on a misrepresentation of the applicable exclusion — specifically, [________________________________]
☐ Inconsistent with the Carrier's prior acceptance of similar claims
☐ Pretextual, as the true reason for denial appears to be [________________________________]
☐ Contrary to applicable Hawaii law and industry standards
☐ Based on an interpretation of the policy that is not reasonable under the circumstances

Under Best Place, an erroneous claim decision is not automatically bad faith. However, where the denial lacks a reasonable basis — as here — and was made without an adequate investigation, bad faith liability attaches even without proof of malicious intent.

D. Grossly Inadequate Settlement Offers

The Carrier's settlement conduct violates Haw. Rev. Stat. § 431:13-103(a)(11)(H)–(J):

These offers are so far below the actual value of the claim as to compel litigation — the precise conduct condemned by Haw. Rev. Stat. § 431:13-103(a)(11)(I).

E. Misrepresentation of Policy Provisions

The Carrier misrepresented the policy by stating [________________________________], when the policy in fact [________________________________]. This constitutes a violation of Haw. Rev. Stat. § 431:13-103(a)(11)(A).

F. Failure to Communicate

The Carrier failed to respond to communications from our client dated: [________________________________]. Despite written requests, the Carrier has [☐ failed to provide a written explanation for the delay / ☐ failed to provide a coverage determination / ☐ failed to provide the claim file / ☐ other: [________________________________]].

G. Additional Hawaii-Specific Bad Faith Conduct

☐ UM/UIM Bad Faith (per Guajardo): The Carrier, as our client's own UM/UIM insurer, unreasonably denied/delayed UM/UIM benefits owed to its own insured, in violation of the principles established in Guajardo v. AIG Haw. Ins. Co., 118 Haw. 196, 187 P.3d 580 (2008).

☐ PIP Bad Faith: The Carrier failed to pay personal injury protection benefits within the 30-day payment deadline of Haw. Rev. Stat. § 431:10C-304(3)(A), requiring our client to [________________________________].

☐ Consent-to-Settle Abuse: The Carrier unreasonably withheld consent to settle with the tortfeasor's insurer, conditioning consent on actions not required under Hawaii law and contrary to the policy of 90 Haw. 302.

☐ Volcanic Loss Denial: The Carrier improperly denied a covered volcanic eruption/lava flow loss by misapplying the earth movement exclusion to loss events that constitute volcanic peril under the policy and Hawaii law.

☐ Hurricane Deductible Manipulation: The Carrier improperly applied the hurricane deductible to non-hurricane losses, artificially reducing payment in violation of Haw. Rev. Stat. § 431:13-103(a)(11)(A).

☐ [________________________________]

VI. STATUTORY VIOLATIONS

A. Hawaii Unfair Claims Settlement Practices — Haw. Rev. Stat. § 431:13-103(a)(11)

The Carrier's conduct constitutes violations of the following specific provisions of Haw. Rev. Stat. § 431:13-103(a)(11):

Pursuant to Haw. Rev. Stat. § 431:13-103(c), this pattern of violations constitutes a rebuttable presumption of a general business practice, supporting regulatory action by the Hawaii Insurance Commissioner in addition to our client's private remedies.

B. Hawaii UDAP — Haw. Rev. Stat. §§ 480-2 and 480-13

The Carrier's systematic misconduct in handling this claim constitutes unfair or deceptive acts or practices in the conduct of the insurance trade under Haw. Rev. Stat. § 480-2, entitling our client to:

• Treble damages (3x actual damages) under Haw. Rev. Stat. § 480-13(a)(1)
• Attorney's fees and costs under Haw. Rev. Stat. § 480-13(a)(1)
• Minimum damages of $1,000 under Haw. Rev. Stat. § 480-13(b)

VII. DAMAGES

A. Contract Damages — Policy Benefits Owed

B. Consequential Damages

Damages that foreseeably resulted from the Carrier's bad faith delay and/or denial:

C. Emotional Distress Damages

Hawaii expressly recognizes emotional distress as an element of compensatory damages in a first-party bad faith action. Best Place, 920 P.2d at 342 (tort recovery makes available "damages for emotional stress"). Our client has experienced:

[________________________________]
(Describe specific, documented emotional distress: anxiety, inability to sleep, depression, impact on family, medical treatment for emotional harm, etc.)

Estimated Emotional Distress Damages: $[________________________________]

D. Punitive Damages

The Carrier's conduct satisfies the Hawaiian standard for punitive damages — clear and convincing evidence of wanton, oppressive, or malicious conduct reflecting a conscious indifference to consequences — for the following reasons:

☐ The Carrier denied coverage based on an exclusion it knew was inapplicable
☐ The Carrier manufactured a pretextual denial to avoid paying a substantial claim
☐ The Carrier's adjuster altered or cherry-picked documentation to support a denial
☐ The Carrier's misconduct is part of a pattern — [____] complaints filed with the Hawaii Insurance Division within the last 12 months
☐ The Carrier's internal documents reflect that the claims were evaluated from the standpoint of minimizing payment rather than fair investigation
☐ [________________________________]

Estimated Punitive Damages: $[________________________________] (to be determined by trier of fact)

E. UDAP Statutory Damages

F. Total Demand Summary

VIII. DEMAND

Based on the foregoing, we hereby demand that [________________________________]:

A. Immediate Monetary Payment

Pay the total sum of $[________________________________] as full and final settlement of all claims arising from this loss, as follows:

Note: This demand does not include punitive damages or full UDAP treble damages, which our client reserves the right to seek in full at trial in the event this demand is rejected.

B. Additional Demands

In addition to the monetary payment, we demand:

☐ Immediate reinstatement of coverage and authorization to proceed with repairs / treatment
☐ A written retraction of any coverage denial letter or reservation of rights that misrepresented the policy
☐ Correction of any adverse information reported to ISO ClaimSearch, CLUE, or other industry databases arising from this claim
☐ Withdrawal of any subrogation demand or lien improperly asserted against our client
☐ A written confirmation that the Carrier will not retaliate against our client by canceling or non-renewing the policy based on this claim or demand
☐ [________________________________]

IX. TIME-LIMITED NATURE OF THIS DEMAND

THIS DEMAND EXPIRES AT 5:00 P.M. HAWAII STANDARD TIME ON [__/__/____].

This deadline is firm. If the Carrier fails to accept this demand in full by the deadline, the demand will be withdrawn and our client will pursue all available remedies without further notice.

Consequences of Non-Response

If [________________________________] fails to accept this demand by the deadline:

1. Litigation will be filed immediately in the Circuit Court of the [________________________________] Circuit, State of Hawaii, seeking:
   - Full policy benefits plus prejudgment interest
   - All consequential and emotional distress damages
   - Punitive damages without limitation — the Carrier's conduct already establishes the Best Place standard for exemplary damages
   - Treble damages and attorney's fees under Haw. Rev. Stat. §§ 480-2 and 480-13
   - All costs of investigation, litigation, and expert witnesses

2. Regulatory complaints will be filed with:
   - Hawaii Insurance Division (DCCA), 335 Merchant Street, Room 213, Honolulu, HI 96813, Tel: (808) 586-2790 — formal complaint for violation of Haw. Rev. Stat. § 431:13-103(a)(11)
   - National Association of Insurance Commissioners (NAIC)

3. Media notice: If warranted, this matter may be referred to appropriate media or consumer protection organizations as part of a broader pattern of conduct by the Carrier in Hawaii.

Statutes of Limitation: Contract claims — 6 years (Haw. Rev. Stat. § 657-1); bad faith tort — 2 years (Haw. Rev. Stat. § 657-7); no-fault bad faith — Haw. Rev. Stat. § 431:10C-315. This demand does not toll any applicable limitations period.

X. DOCUMENT PRESERVATION NOTICE

This letter constitutes formal notice to [________________________________], its parent company, subsidiaries, agents, employees, adjusters, and outside counsel to immediately preserve all documents and electronically stored information (ESI) related to this claim, including but not limited to:

• The complete claim file in all versions and drafts
• All internal communications and emails regarding this claim, the insured, and the coverage determination
• Adjuster notes, diaries, activity logs, inspection reports, and photos
• All expert reports, estimates, cause-and-origin analyses, and IME records
• All reserve information and every reserve change with documentation of the reason for the change
• Supervisor notes, approvals, and escalation records
• Claims handling guidelines, manuals, and procedures in effect at the time of this claim
• Training materials relevant to [☐ hurricane / ☐ volcanic / ☐ flood / ☐ UM-UIM / ☐ property / ☐ other: [____]] claims
• Quality assurance, audit, and compliance records
• All communications with the Hawaii Insurance Division or other regulators regarding this claim or this policyholder
• Financial information relevant to the insurer's profitability analysis, loss ratios, and reserve practices for Hawaii claims

Failure to preserve this material after receipt of this notice may constitute spoliation of evidence and will be raised before the court.

XI. CONCLUSION

[________________________________]'s handling of this claim represents precisely the type of conduct that Hawaii bad faith law was designed to prevent and punish. Best Place recognized that without the threat of a tort action, "insurance companies have little incentive to promptly pay proceeds rightfully due to their insureds, as they stand to lose very little by delaying payment." 920 P.2d at 345. That warning is directly applicable here.

The Carrier sold our client a policy promising protection. The loss occurred. The coverage is clear. The Carrier's conduct has been unreasonable. This demand provides a final opportunity to make our client whole and avoid the substantial liability — compensatory, punitive, and statutory — that awaits in litigation.

Please direct all communications regarding this matter to the undersigned. We are available to discuss settlement at any time before the deadline.

Respectfully submitted,

[________________________________] (Law Firm Name)

By: ___________________________________
[________________________________] (Attorney Name)
Hawaii Bar No. [________________________________]
[________________________________]
[________________________________], HI [____]
Tel: [________________________________]
Fax: [________________________________]
Email: [________________________________]

Counsel for [________________________________]

ENCLOSURES:

• Policy declarations page and relevant policy provisions
• Claim correspondence chronology (organized by date)
• Damage documentation (photos, videos, contractor estimates)
• Medical records and billing (if personal injury component)
• Expert reports and public adjuster reports (if applicable)
• Written communications demonstrating Carrier's delay and non-responses
• Evidence supporting consequential and emotional distress damages
• Evidence of prior complaints / pattern of bad faith conduct (if applicable)

CC:

• [________________________________] (Client)
• Hawaii Insurance Division (DCCA), 335 Merchant Street, Room 213, Honolulu, HI 96813 (via complaint filing, as appropriate)

HAWAII BAD FAITH LAW QUICK REFERENCE

SOURCES AND REFERENCES

• Best Place, Inc. v. Penn Am. Ins. Co., 82 Haw. 120, 920 P.2d 334 (1996): https://law.justia.com/cases/hawaii/supreme-court/1996/16065-2.html
• Guajardo v. AIG Haw. Ins. Co., 118 Haw. 196, 187 P.3d 580 (2008) (Westlaw / Lexis)
• Haw. Rev. Stat. § 431:13-103 (2025): https://law.justia.com/codes/hawaii/title-24/chapter-431/section-431-13-103/
• Haw. Rev. Stat. § 480-2 and § 480-13 (UDAP): https://law.justia.com/codes/hawaii/title-26/chapter-480/section-480-2/
• Haw. Rev. Stat. § 431:1-102 (public interest in insurance): https://law.justia.com/codes/hawaii/title-24/chapter-431/
• Foster Law Offices, Hawaii Bad Faith Insurance Attorney (overview): https://www.fosterattorney.com/Hawaii-Bad-Faith-Claim-Attorney---Bad-Faith-Lawsuits-in-Hawaii
• Hawaii DCCA Insurance Division: https://cca.hawaii.gov/ins/
• Masaki v. General Motors Corp., 71 Haw. 1, 780 P.2d 566 (1989) (punitive damages standard underlying Best Place)