What to know about what's tying up a $4B settlement for Hawaii wildfire victims

HONOLULU (AP) — Hawaii's Supreme Court heard arguments Thursday over insurance issues that are tying up a potential $4 billion settlement over Maui's catastrophic 2023 wildfire, the deadliest in the U.S. in more than a century.

The massive inferno decimated the historic town of Lahaina, killing more than 100 people, destroying thousands of properties and causing an estimated $5.5 billion in damage. Soon afterward, attorneys began lodging hundreds of lawsuits.

A settlement was announced last summer, but insurance companies held out, insisting that they should have the right to go after the defendants separately to recoup money paid out to policyholders.

The justices said they would take the matter under advisement and issue a ruling as soon as possible but didn't specify.

Here are things to know about the settlement and the issues that could thwart the deal:

The settlement won't be enough

A few days before the one-year anniversary of the Aug. 8, 2023, fire, Gov. Josh Green announced that seven defendants accused of causing the tragedy had agreed to pay $4 billion to resolve claims by thousands of people.

Attorneys representing the individual plaintiffs agreed to the deal amid fears that main defendant Hawaiian Electric, the power company blamed for sparking the blaze, could be on the brink of bankruptcy. Other defendants include the state, Maui County and Kamehameha Schools, the largest private landowner in Hawaii.

Victims' attorneys acknowledged that $4 billion wasn't enough to make up for what was lost but said the deal was worth accepting, given Hawaiian Electric's limited assets.

"They need every penny to restitch the fabric to bring the community back together,” attorney Jesse Creed told the justices Thursday.

Creed said he could relate to the losses the victims face because his own home, children's schools and place of worship just burned in the Palisades fire, one of the wildfires that brought widespread destruction around Los Angeles last month.

Legal wrangling threatens the deal

Attorneys for the victims asked Judge Peter Cahill to bar insurance companies from going after the defendants separately to recoup money — a requirement that was key to the settlement. Cahill agreed, saying insurers could seek reimbursement only from the $4 billion pool the defendants have already agreed to pay.

That didn't sit well with a group of about 200 property and casualty insurers that remain holdouts to the settlement. So far they have paid more than $2.3 billion to people and businesses and expect to pay $1 billion more. They want to be able to pursue their own claims against the defendants.

Cahill has asked the state high court questions about subrogation, or how insurance companies can go about recouping money.

Among the questions before the court is whether state laws controlling health care insurance reimbursement also apply to casualty and property insurance in limiting companies' ability to pursue independent legal action against those held liable.

A last-minute deal between victims' lawyers last week averted a separate trial over how to split the $4 billion between individual plaintiffs and others covered by a class-action lawsuit. Some victims had been ready to take the witness stand, while others submitted pre-recorded testimony describing pain made all the more fresh by the recent destruction in Los Angeles.

What is subrogation?

Common in the insurance industry, subrogation is a legal process that allows an insurance company to pursue a party that caused a covered loss. It's one way companies recover the amount of claims paid to policyholders.

Insurance companies say subrogation is a way to offset costs associated with a catastrophic event so premiums won’t have to go up. The process isn't for natural disasters such as hurricanes, but for when there is someone at fault.

Hawaii's governor has previously denounced subrogation.

When insurance companies collect huge profits and no disasters occur, they don't send refunds back to policyholders, Green noted in comments quoted in court filings. But when a tragedy does happen, they look to recoup their payments to the victims.

"It’s fundamentally unfair, and they call it subrogation,” he said.

Insurance companies say they have been unfairly villainized

The insurance industry has been unfairly villainized as outsiders taking resources from the community while those responsible for the fires won’t be held accountable, Vincent Raboteau, an attorney representing the insurers, told Cahill during a hearing last year.

Insurance lawyers have said they want to hold the defendants accountable and aren’t trying to get in the way of fire victims getting settlement money.

Origin and cause investigations are “time-intensive and costly," lawyers said in a court brief of insurers who “assume the burden of these investigations,” and take on the risk of those costs.

Insurers promptly paid claims, which are helping victims rebuild, the brief said: “For many wildfire victims, payment of claims by their insurer provided quick access to desperately needed funds.”

When will victims get paid?

Not for a while.

If the state Supreme Court agrees that an insurance company can sue defendants directly, “that would likely destroy the global settlement agreement,” said Jacob Lowenthal, an attorney representing individual plaintiffs. The plaintiffs would go back to Cahill's courtroom to figure out trial dates for their lawsuits.

If the justices rule the other way, the settlement could head toward finalization, putting in motion an administrative process for doling out money.

It's possible that whichever side loses will seek review at the U.S. Supreme Court.