6.1 Hawaii Unfair Claim Settlement Practices (HRS § 431:13-103(a)(11))
Key Takeaways
Hawaii defines unfair claim settlement practices as committing any of the listed acts with such frequency as to indicate a general business practice (HRS § 431:13-103(a)(11)).
Three or more written complaints to the commissioner within any 12-month period charging separate violations create a rebuttable presumption of a general business practice (HRS § 431:13-103(c)).
Insurers must respond to policyholders, claimants, the commissioner and other insurers within 15 working days, and the response must adequately address the concerns raised, not merely acknowledge receipt (HRS § 431:13-103(a)(11)(B)).
Insurers must offer payment within 30 calendar days after affirming liability when the amount is determined and undisputed, and must explain in writing any delay on a claim unresolved 30 calendar days after it was reported (HRS § 431:13-103(a)(11)(F), (G)).
Holding up settlement under one coverage to influence settlement under another, and marking a payment 'final' or 'a release' when more benefits are probable, are listed unfair practices (HRS § 431:13-103(a)(11)(O), (Q)).
6.1 Hawaii Unfair Claim Settlement Practices (HRS § 431:13-103(a)(11))
Hawaii's insurance code prohibits unfair methods of competition and unfair or deceptive acts or practices in the business of insurance (HRS § 431:13-102). The definitions in § 431:13-103 include advertising, defamation, boycotts, rebates and unfair discrimination, and — most important for adjusters — unfair claim settlement practices in paragraph (11). The adjuster outline lists these sections under "Marketing practices: unfair and deceptive practices" (§§ 431:13-101 to 103). Enforcement and penalties are covered in 6.3, and day-counting in 6.2.
The Standard: General Business Practice
Paragraph (11) defines unfair claim settlement practices as "committing or performing with such frequency as to indicate a general business practice" any of the listed acts. Two consequences follow:
- The administrative violation is a pattern offense. A single mishandled file is evidence, but the statute targets practices repeated often enough to show how the insurer does business.
- Three or more written complaints received by the commissioner within any 12-month period charging separate violations create a rebuttable presumption of a general business practice (§ 431:13-103(c)). Complaint numbers and comparisons with similar insurers are admissible, but complaint counts alone do not establish a violation if the presumption is rebutted (§ 431:13-103(d)).
Once a violation is found after notice and hearing, each instance of noncompliance may be treated as a separate violation for penalty purposes (§ 431:13-103(e)).
Some other states use a two-prong test that also covers single "flagrant" acts committed in conscious disregard of the law. Hawaii's statute uses only the general business practice standard. An adjuster's single error can still support a bad faith claim in court, however (6.3).
The 17 Listed Practices, in Statutory Order
| Subparagraph | Unfair practice (paraphrased) | What it means for the adjuster |
|---|---|---|
| (A) | Misrepresenting pertinent facts or policy provisions relating to coverages at issue | Quote the policy accurately; never tell a claimant a covered loss is excluded |
| (B) | Failing to respond with reasonable promptness — in no case more than 15 working days — to communications from the policyholder, any other person (including the commissioner), or the insurer of another person involved in the incident; the response must be more than an acknowledgment and adequately address the concerns | Track every letter, email and call; give substantive answers |
| (C) | Failing to adopt and implement reasonable standards for the prompt investigation of claims | Insurer-level duty: written claim procedures and training |
| (D) | Refusing to pay claims without conducting a reasonable investigation based on all available information | No denial on assumptions; document the investigation |
| (E) | Failing to affirm or deny coverage within a reasonable time after proof of loss statements have been completed | Decide coverage once the proof is in |
| (F) | Failing to offer payment within 30 calendar days of affirming liability, if the amount is determined and not in dispute | Calendar the 30 days from the affirmation |
| (G) | Failing to provide the insured (or beneficiary) a reasonable written explanation for any delay on every claim remaining unresolved 30 calendar days from the date it was reported | Send a delay letter by day 30 |
| (H) | Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear | Settle clear-liability claims promptly and fairly |
| (I) | Compelling insureds to sue by offering substantially less than the amounts ultimately recovered in their lawsuits | No low-ball offers to force litigation |
| (J) | Attempting to settle for less than a reasonable person would have believed was due, based on advertising material accompanying or made part of the application | Honor what the advertising promised |
| (K) | Attempting to settle on the basis of an application altered without the insured's notice, knowledge or consent | Never rely on an altered application |
| (L) | Making claim payments without a statement of the coverage under which they are made | Identify the coverage on each payment |
| (M) | Making known a policy of appealing arbitration awards in the claimant's favor to force acceptance of lower settlements | No threats to appeal awards as leverage |
| (N) | Delaying investigation or payment by requiring a preliminary claim report and then formal proof of loss forms containing substantially the same information | Do not demand duplicate paperwork |
| (O) | Failing to promptly settle claims under one portion of the policy, where liability is reasonably clear, to influence settlement under other portions | Pay the undisputed dwelling claim while contents are still being discussed |
| (P) | Failing to promptly provide a reasonable explanation of the basis in the policy, in relation to the facts or applicable law, for a denial or compromise offer | Explain denials and compromises in writing |
| (Q) | Indicating on a payment draft, check or accompanying letter that a payment is "final" or "a release" when additional benefits are probable under the policy, unless the policy limit has been paid or there is a bona fide dispute over coverage or amount | Do not label a partial payment "final" |
Applying the List: Three File Examples
1. The contents leverage (O). After a Kāneʻohe kitchen fire, the dwelling estimate of $62,000 is agreed. The contents inventory is incomplete. The adjuster tells the insured that the dwelling check will be released only when the insured accepts $4,000 for contents. That conditions the clear dwelling payment on a contents compromise, which is the practice described in (O). If repeated as a practice, it also raises (F), because the dwelling amount was determined and undisputed.
2. The "final payment" draft (Q). An adjuster pays $8,500 on a vehicle repair estimate, but a teardown is still pending and supplements are likely. The draft says "Full and final settlement of all claims." Because further benefits are probable and the limit has not been paid, the wording is prohibited by (Q). The correct practice is to identify the payment as a partial payment under collision coverage, which also satisfies (L).
3. The duplicate forms (N). An insurer requires a detailed preliminary loss report and then insists on a formal sworn proof of loss containing the same information before it will start the investigation. That sequence is the delay tactic in (N).
Related Unfair Practices That Touch Claims
Other paragraphs of § 431:13-103 also arise on claim files:
- (10) Refusing or limiting coverage because of a third-party claim. An insurer may not refuse to provide or limit coverage because the individual may have a third-party claim for damages. Reimbursement of past benefits after a recovery follows HRS § 663-10. The paragraph does not apply to workers' compensation (chapter 386) or motor vehicle (article 10C) insurers, and it has special rules for health plans.
- (12) Failure to maintain complaint handling procedures. Each insurer must keep a complete record of all complaints received since its last examination. The record shows the total number, classification by line, nature, disposition, and processing time of each complaint. A "complaint" is any written communication primarily expressing a grievance (6.3).
- (13) Misrepresentation in insurance applications. Making false or fraudulent statements on an application to obtain a fee, commission or other benefit is an unfair practice. It may also be insurance fraud under § 431:2-403 (5.1).
- Inquiries from the commissioner. An insurer or licensee must answer the commissioner's written inquiry about a claim or complaint within 15 working days with a substantive response (§ 431:13-103(f); § 431:2-208(c)).
- Complaint notice. The commissioner notifies the insurer's designated agent, by certified mail, of each complaint filed under the section (§ 431:13-103(b)).
Under HRS § 431:13-103(a)(11), what must be shown for an insurer's claim conduct to be an unfair claim settlement practice?
That the claimant lost at least $10,000 because of the conduct
That the insurer acted with criminal intent proven beyond a reasonable doubt
That the National Association of Insurance Commissioners first certified the practice as unfair
That a listed act was committed with such frequency as to indicate a general business practice
An insurer issues a $6,000 partial payment on a burglary claim while other stolen items are still being verified. The check stub reads "final payment and release of all claims." Which statement is correct?
It is an unfair practice, because more benefits are probable
The wording is an unfair practice only if the payment exceeds $10,000
The wording is allowed, because the insured may simply refuse to cash the check
The wording is required by Hawaii law to close each claim file
Within what period must an insurer respond to a written communication about a claim from the insurer of another driver involved in the accident?
No deadline applies to communications from other insurers
Within 15 working days, with a substantive response
Within 30 calendar days, with an acknowledgment of receipt
Within 10 calendar days of receipt, by telephone or in writing
Sections you finish are checked off in the contents.