Yukumoto v. Tawarahara.
400 P.3d 486, 140 Haw. 285 (2017)
Rule of Law:
A health insurer does not possess broad, unrestricted equitable or contractual subrogation rights against a third-party tortfeasor who causes injury to its insured; rather, its reimbursement rights are limited solely to the statutory scheme outlined in Hawai'i Revised Statutes (HRS) §§ 663-10 and 431:13-103(a)(10).
Facts:
- On March 20, 2014, Gregory Yukumoto was driving his moped in Honolulu.
- Ruth Tawarahara, driving an SUV, attempted a left turn in front of Gregory Yukumoto and struck him with her vehicle.
- Gregory Yukumoto sustained serious injuries, including brain injury, traumatic hemorrhagic shock, acute respiratory failure, and multiple fractures.
- Gregory Yukumoto's health insurance was provided by Hawai'i Medical Service Association (HMSA) through his employer, the State of Hawai'i.
- HMSA paid $325,824.33 for Gregory Yukumoto’s medical expenses as of September 20, 2014.
- The Yukumotos’ total wage loss and general damages claim was approximately $4,000,000.
- The Yukumotos and Ruth Tawarahara agreed to a settlement of $1,100,000 from Tawarahara's State Farm insurance policy, specified as a 'general damages only release,' along with a $50,000 underinsured motorist claim from GEICO Insurance.
- The Yukumotos contended they remained undercompensated by approximately $2,850,000 after the settlement.
Procedural Posture:
- Gregory and Diane Yukumoto filed a complaint against Ruth Tawarahara in the Circuit Court of the First Circuit.
- Hawai'i Medical Service Association (HMSA) subsequently filed a "Notice of Claim of Lien."
- The Yukumotos filed a Petition for Determination of Validity of Claim of Lien by HMSA, pursuant to Hawai'i Revised Statutes (HRS) § 663-10, in the Circuit Court.
- HMSA filed a memorandum in opposition to the Petition, arguing for its contractual lien and subrogation rights.
- HMSA filed an Amended Notice of Claim of Lien for $337,351.79 and a motion to intervene in the action.
- The Circuit Court orally granted HMSA's motion to intervene, limiting discovery to "what is contemplated under HRS § 663-10."
- The Circuit Court ruled that HRS § 663-10 abrogated HMSA’s right of subrogation against Defendant Tawarahara, holding the statute provided HMSA’s exclusive remedy.
- HMSA filed its complaint in intervention in January 2015 and a separate complaint against Tawarahara.
- Tawarahara filed a motion for partial dismissal of HMSA’s complaint.
- The Yukumotos filed a substantive joinder to Tawarahara’s motion and a motion to dismiss Tawarahara with prejudice (pursuant to Hawai'i Rules of Civil Procedure Rule 41(a)(2)).
- The Circuit Court granted the Yukumotos’ motion to dismiss Defendant Tawarahara, dismissing all claims against her with prejudice.
- The Circuit Court ordered the Yukumotos’ counsel to retain $339,255.40 from the settlement funds received from Tawarahara in their client trust account.
- Tawarahara filed a motion to consolidate HMSA’s separate lawsuit against her with the underlying Yukumotos’ lawsuit, which the court granted.
- HMSA filed a supplemental memorandum in opposition to the Yukumotos' Petition, asserting it would not be able to establish by a preponderance of the evidence that the settlement proceeds duplicated medical benefits paid by HMSA.
- Tawarahara filed a motion to dismiss the consolidated case.
- The Circuit Court orally granted Tawarahara’s motion to dismiss and agreed to release the Yukumotos’ settlement funds.
- The Circuit Court entered an order granting the Yukumotos’ Petition, ruling that "HMSA is not entitled to a payment of the amount of its claimed lien," and permitted Plaintiffs’ counsel to release the settlement proceeds.
- The Circuit Court entered final judgment on May 28, 2015.
- HMSA timely filed its Notice of Appeal, where HMSA was the appellant and the Yukumotos and Ruth Tawarahara were appellees.
- HMSA filed an application for transfer to the Supreme Court of the State of Hawai'i, which was granted.
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Issue:
Does a health insurer have a broad, unrestricted right of subrogation against a third-party tortfeasor who causes injury to its insured, either through common law equity or contractual provisions, or are its reimbursement rights limited exclusively to those established by Hawai'i Revised Statutes §§ 663-10 and 431:13-103(a)(10)?
Opinions:
Majority - Recktenwald, C.J.
No, a health insurer does not have a broad, unrestricted right of subrogation against a third-party tortfeasor who causes injury to its insured; rather, its reimbursement rights are limited solely to the statutory scheme outlined in Hawai'i Revised Statutes (HRS) §§ 663-10 and 431:13-103(a)(10). The court first distinguished between subrogation rights in property/casualty insurance and personal insurance. It noted that equitable subrogation is generally recognized in property insurance (citing State Farm Fire and Cas. Co. v. Pacific Rent-All, Inc.), where losses are quantifiable and prevent double recovery. However, in the context of personal insurance, such as health insurance, exact losses for intangible harms (like health, pain, and suffering) are difficult to ascertain, making a double recovery less certain. Adopting the majority rule, the court held that an insurer lacks equitable subrogation rights in personal insurance contexts absent an express policy provision. Second, the court found that the Hawai'i Legislature intended to limit a health insurer's subrogation rights through HRS §§ 663-10 and 431:13-103. The plain language of HRS § 663-10 (titled "Collateral sources; protection for liens and rights of subrogation") provides a comprehensive structure for addressing liens and applies specifically to health insurance benefits, limiting reimbursement to "special damages recovered." The legislative history reinforced this, indicating that these statutes provide the "uniform and comprehensive procedure" for health insurers' reimbursement and subrogation rights, intending to prevent insurers from limiting coverage or unfairly claiming settlement amounts. The legislature explicitly stated that health insurers are "always been subject to [the] limitations" under HRS § 663-10 and are "continue to be entitled to reimbursement of their subrogation liens" under that section. Finally, the court concluded that any contractual provision granting subrogation rights to HMSA that conflicts with HRS § 663-10 is invalid, as statutory language takes precedence over conflicting contract terms (citing Sol v. AIG Hawai#i Ins. Co.). The court also distinguished Coventry Health Care of Missouri, Inc. v. Nevils, a U.S. Supreme Court case involving federal employees, noting its inapplicability to this state employee's case, thus affirming that HMSA does not have contractual subrogation rights that contradict state law.
Analysis:
This case significantly clarifies the landscape of health insurer subrogation rights in Hawai'i, distinguishing it from property insurance and aligning with the national majority view on personal insurance. By affirming that a health insurer's reimbursement rights are strictly statutory under HRS §§ 663-10 and 431:13-103(a)(10), the court reinforces legislative intent to protect injured insureds from aggressive lien claims, particularly when they are not fully compensated. This decision prevents health insurers from asserting broad common law or contractual subrogation claims against tortfeasors or their insureds, thereby potentially shifting the burden of uncompensated damages more equitably towards those primarily responsible for the injury. Future cases involving health insurer liens will strictly scrutinize whether the claimed reimbursement originates from "special damages" and avoids "general damages," reducing the likelihood of insurers seizing portions of settlements intended for pain and suffering or other non-medical losses.
