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Sprague v. California Pacific Bankers & Insurance Ltd.12/27/2001
this section shall not apply to:
(1) The lawful transaction of surplus lines insurance;
§ 431:8-202 Acting for or aiding unauthorized insurer prohibited. (a) No person in this State shall directly or indirectly act as agent for, or otherwise represent or aid on behalf of another, any unauthorized insurer on the solicitation, negotiation, procurement, or effectuation of insurance or renewals thereof, or forwarding of applications, or delivery of policies or contracts or inspections of risks, or fixing of rates, or investigation or adjustment of claims or losses, or collection or forwarding of premiums, or in any other manner represent or assist such insurer in the transaction of an insurance business.
§ 431:8-203 Validity of contracts illegally effectuated. A contract of insurance effectuated by an unauthorized insurer in violation of this article shall be voidable except at the instance of the insurer.
§ 431:8-204 Liability of person assisting unauthorized insurer. In the event of failure of any such unauthorized insurer to pay any claim or loss within the provisions of such insurance contract, any person who assisted or in any manner aided directly or indirectly in the procurement of such insurance contract and who knew of should have known the transaction was illegal shall be liable to the insured for the full amount of the claim or loss in the manner provided by the provisions of the insurance contract.
In their opening brief, Plaintiffs state that California Pacific "was an out of state unauthorized carrier." There appears to be no disagreement with this statement. In light of HRS §§ 431:8-203 and 431:8-204, it appears that the placement of the policy with California Pacific was illegal but enforceable unless voided by the insured.
When the jury was instructed at Phase One of the trial, HRS § 431:8-202(a) was read to the jury. When the jury was instructed at Phase Two of the trial, Plaintiffs requested that HRS § 431:8-204 be read to the jury.In refusing this proposed instruction, the trial court "concluded that the insurance code established the standard of care, but not a private cause of action[.]"
On appeal, Plaintiffs assert that a private cause of action exists under HRS § 431:8-204 and that " he jury, having determined negligence which legally caused damage to the Millards, then prejudicially denied the instruction under H.R.S. § 431:8-204 which would have advised them that those who aid and assist the unauthorized carrier 'shall be liable to the insured for the full amount of the claim or loss[.]'"
HRS Article 431:13 (1993) governs "UNFAIR METHODS OF COMPETITION AND UNFAIR AND DECEPTIVE ACTS AND PRACTICES IN THE BUSINESS OF INSURANCE[.]" The following three cases conclude that HRS Article 431:13 does not authorize a private cause of
action for persons injured by insurance companies who violate it. Hough v. Pacific Ins. Co., Ltd., 83 Hawaii 457, 469-70, 927 P.2d 858, 869-70 (1996); Best Place, Inc. v. Penn America Ins. Co., 82 Hawaii 120, 126, 920 P.2d 334, 340 (1996); Hunt v. First Ins. Co. of Hawaii, Ltd., 82 Hawaii 363, 371-72, 922 P.2d 976, 985 (App. 1996).
In contrast, HRS §§ 431:8-202, 431:8-203, and 431:8-204 together expressly create a private cause of action based on a breach of an illegal and voidable insurance contract with an unauthorized insurer. A material element of this cause of action is the "failure of any such unauthorized insurer to pay any claim or loss within the provisions of such insurance contract[.]" This cause of action extends liability to "any person who assisted or in any manner aided directly or indirectly in the procurement of such insuran
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