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Sprague v. California Pacific Bankers & Insurance Ltd.12/27/2001
ce contract and who knew or should have known the transaction was illegal[.]" The liability is "to the insured for the full amount of the claim or loss in the manner provided by the provisions of the insurance contract." An HRS §§ 431:8-202, 431:8-203, and 431:8-204 cause of action does not pertain to a duty to defend.
In other words, the private cause of action created by HRS § 431:8-204 has the following six material elements: (1) the unauthorized insurer (2) failed to pay (3) any claim or loss (4) within the provisions of such insurance contract, (5) the defendant (a) assisted or in any manner aided directly or indirectly in the procurement of such insurance contract and (b) knew or should have known the transaction was illegal, and (6) the defendant is liable for the full amount of the claim or loss in the manner provided by the provisions of the insurance contract.
For the following two reasons, Plaintiffs' point has no merit. First, Plaintiffs' argument 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[,]'" indicates a fundamental misunderstanding of the HRS §§ 431:8-202, 431:8-203, and 431:8-204 cause of action. Negligence is not a material element of it. Moreover, the liability is "for the full amount of the claim or loss in the manner provided by the provisions of the insurance contract." The liability is not "for the full amount of the claim or loss."
Second, Plaintiffs did not expressly plead an HRS §§ 431:8-202, 431:8-203, and 431:8-204 cause of action and such a cause of action is not reasonably encompassed within its pleadings.
B.
Plaintiffs contend that the trial court reversibly erred when it instructed the jury that " he entry of a final judgment against an insured may constitute damage to him or her." Defendants/Cross-Appellants contend that, in light of the covenant not to execute, the trial court erred in not eliminating any damages that were based on the stipulated judgment.
In McClellan v. Atchison, 81 Hawaii 62, 68, 912 P.2d 559, 565 (App. 1996), this court concluded that "a covenant not to execute upon the Stipulated Judgment, by itself, did not eliminate the fact of damages[.]" In other words, as indicated by the following quote, Hawaii follows the "judgment rule" which concludes that damage to credit and general reputation, loss of business opportunities, and the like, may be a basis for recovery. Id. at 67, 912 P.2d at 564.
We recognize that the minority view raises acute concerns with regard to the likelihood of collusion between the insured and assignee, especially when a stipulated judgment is involved. However, rather than allowing a negligent party to escape liability because of a covenant not to execute, we believe that the better choice is to hold that a covenant not to execute does not per se eliminate the fact of damages and then to permit an injured plaintiff to recover damages from the insurer.
Id. at 68, 912 P.2d at 565.
During Phase Two of the trial, Plaintiffs requested that the court instruct the jury as follows:
The fact that an insured makes no out-of-pocket payments and incurs no personal liability because of the covenant not to execute, does not necessarily mean that the insured suffers no damage. The entry of a final judgment against an insured may constitute damage to him or her. Intangible harms are remedial in suits of this kind; factors such as damage to credit and genera
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