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Sprague v. California Pacific Bankers & Insurance Ltd.12/27/2001
id not specifically award breach of contract damages against the Defendants, the jury concluded that Defendants James T. Nottage and Jim Nottage Insurance, Inc. were negligent in failing to provide aviation liability insurance coverage for the Grumman aircraft lost on November 5, 1992, and negligent for their failure to provide coverage for the deaths of William S. Adams and Grace P. Adams.
. . . There could have been no finding of bad faith against the out-of-state insurance carrier in the absence of a contract of insurance and a duty to perform on behalf of the insureds. In giving reasonable weight to the evidence presented during trial, that the insurance carrier, [California Pacific], had no direct contact whatsoever with Doris and Maydwell Millard, but that procurement of the policy, payment of premiums, issuance of Certificates of Insurance, and delivery of the policy were all handled by Defendants, James T. Nottage and Jim Nottage Insurance, Inc., and Allen Tokunaga, the trial court, as well as the jury, could reasonably conclude that those Defendants breached their duties owed to the Millards in this case.
(Record citation omitted.)
There being a legally enforceable insurance contract and no determination that if California Pacific was legally obligated to pay, it was not financially able to pay, the record does not explain how anybody was "negligent in failing to provide aviation liability insurance coverage[.]"
In their reply brief, Plaintiffs further argue, in relevant part, as follows:
In a bifurcated trial, the jury determined that Appellees James T. Nottage and Jim Nottage Insurance, Inc., and [California Pacific], the unauthorized insurer, were negligent, and that [California Pacific] breached its contract and acted in bad faith. The [Plaintiffs] thereafter filed a motion to amend the judgment, seeking to hold Appellees James T. Nottage and Jim Nottage Insurance, Inc. liable for the monetary damages imposed against [California Pacific], as provided in HRS section 431:8-204. [Plaintiffs'] theory was that [they] had established, through two trials, the negligence of the persons who aided and assisted the unauthorized carrier, the breach of contract and bad faith of the unauthorized insurer, and the fact that the unauthorized insurer, [California Pacific], had not paid the claim and loss as found by the jury in the Third Circuit Court trial. This approach was a reasonable attempt to achieve the statutory remedy as given to Hawaii consumers in the Insurance Code.
The instructions to the jury appear to assume that the mere placement of the insurance with an unauthorized insurer who breached the contract of insurance and who did so in bad faith was negligence that caused damages to the insured. This assumption is wrong. As will be seen, a contract of insurance with an unauthorized insurer is enforceable. Therefore, unless the person placing the insurance with the unauthorized insurer knows or should know that the unauthorized insurer cannot or will not defend and cover, placement of the insurance with the unauthorized insurer is not negligence.
III. DISCUSSION OF POINTS ON APPEAL
A.
HRS § 431-8 (1993) states, in relevant part, as follows:
§ 431:8-102 Definitions. As used in this article:
"Unauthorized insurer" means an insurer not holding a valid certificate of authority to transact an insurance business in this State.
§ 431:8-201 Transacting insurance business without certificate of authority prohibited. It shall be unlawful for any insurer to transact an insurance business in this State, . . . , without a certificate of authority, except that
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