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                                                               Electronically Filed
                                                               Supreme Court
                                                               SCCQ-14-0000727
                                                               29-JUN-2015
                                                               10:56 AM




             IN THE SUPREME COURT OF THE STATE OF HAWAII

                            ---o0o---
________________________________________________________________

              ST. PAUL FIRE & MARINE INSURANCE COMPANY,
            a Minnesota corporation, Plaintiff-Appellant,

                                     vs.

                LIBERTY MUTUAL INSURANCE COMPANY,
        a Massachusetts corporation, Defendant-Appellee.
________________________________________________________________

                              SCCQ-14-0000727

                           ORIGINAL PROCEEDING

                               JUNE 29, 2015

 RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON, JJ.

                  OPINION OF THE COURT BY WILSON, J.

            The United States District Court for the District of

Hawai‘i1 (district court) certified the following question to

this court:


      1
            The Honorable Helen Gillmor, United States District Judge,
presided.
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            May an excess liability insurer bring a cause of action,
            under the doctrine of equitable subrogation to the rights
            of the insured, against a primary liability insurer for
            failure to settle a claim against the mutual insured within
            the limits of the primary liability policy, when the
            primary insurer has paid its policy limit toward
            settlement?

We modify the certified question slightly to hold that an excess

liability insurer can bring a cause of action, under the

doctrine of equitable subrogation, against a primary liability

insurer who in bad faith fails to settle a claim within the

limits of the primary liability policy, when the primary insurer

has paid its policy limit toward settlement.2

                              I.    Background

            The factual background relevant to a certified

question proceeding “is based primarily upon the information

certified to this court by the district court . . . .”             Davis v.

Four Seasons Hotel Ltd., 122 Hawai‘i 423, 425, 228 P.3d 303, 305

(2010) (citing TMJ Hawaii, Inc. v. Nippon Trust Bank, 113 Hawai‘i

373, 374, 153 P.3d 444, 445 (2007)).

            Plaintiff St. Paul Fire & Marine Insurance Company

(St. Paul), the excess insurer, and Defendant Liberty Mutual

      2
            The district court’s “phrasing of the question[] should not
restrict [this] court’s consideration of the problems and issues involved.”
Allstate Ins. Co. v. Alamo Rent–A–Car, Inc., 137 F.3d 634, 637 (9th Cir.
1998) (first alteration in original) (citation omitted). This court “may
reformulate the relevant state law questions as it perceives them to be, in
light of the contentions of the parties.” Id. (citation omitted) (internal
quotation marks omitted).


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Insurance Company (Liberty Mutual), the primary insurer, issued

insurance policies to Pleasant Travel Service, Inc. dba Royal

Kona Resort and Hawaiian Hotels and Resort (Pleasant Travel).

Pleasant Travel was insured from January 1, 2010 through January

1, 2011 by both St. Paul and Liberty Mutual.           A primary insurer

provides insurance against liability risk from $0 up to the

limits of the policy.      An excess insurer provides insurance

beyond the limits of the primary insurance policy.            In this

case, the primary insurance policy covered up to $1 million.

            In July 2010, Pleasant Travel was sued in the Circuit

Court of the Third Circuit for the State of Hawai‘i for damages

resulting from an accidental death.3         As the primary insurer,

Liberty Mutual appointed counsel to represent Pleasant Travel.

As the excess insurer, St. Paul alleges that Liberty Mutual

rejected multiple pretrial settlement offers within the $1

million limit of its primary liability policy.

            The subsequent trial resulted in a finding of

liability against Pleasant Travel and a verdict of $4.1 million.

In 2012, after the verdict, the action was settled for a




      3
            Pleasant Travel was named as a defendant in the case entitled
Estate of Karen Celaya, et al. v. Pleasant Travel Service dba Royal Kona
Resort and Hawaiian Hotels and Resorts, et al., Case No. 10-01-265K.


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confidential amount in excess of the Liberty Mutual policy

limit.   St. Paul claims that it paid the amount in excess.

            On June 10, 2013, St. Paul filed a Complaint against

Liberty Mutual in the Circuit Court of the First Circuit for the

State of Hawai‘i (circuit court).         St. Paul, the excess insurer,

alleged that Liberty Mutual, the primary insurer, acted in bad

faith by rejecting multiple settlement offers within the limit

of its primary liability policy.          On July 22, 2013, Liberty

Mutual filed a Notice of Removal from the circuit court to the

district court.

            The certified question arose following the filing of

Liberty Mutual’s Motion for Judgment on the Pleadings on

November 20, 2013, in which Liberty Mutual argued that St. Paul

lacked standing to assert a claim for insurer bad faith and that

St. Paul had no claim against Liberty Mutual for equitable

subrogation.    On February 5, 2014, a hearing on the Motion for

Judgment on the Pleadings was held.          The district court ordered

the parties to meet and confer to frame a question for

submission to this court.       Because the parties were unable to

agree upon the question for submission, the district court

drafted the certified question.




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                         II.   Standard of Review

            This court has “jurisdiction and powers . . . [t]o

answer, in its discretion . . . any question or proposition of

law certified to it by a federal district or appellate court if

the supreme court shall so provide by rule[.]”            Hawai‘i Revised

Statutes (HRS) § 602–5(a)(2) (Supp. 2010).

            When a federal district or appellate court certifies to the
            Hawai‘i Supreme Court that there is involved in any
            proceeding before it a question concerning the law of
            Hawai‘i that is determinative of the cause and that there is
            no clear controlling precedent in the Hawai‘i judicial
            decisions, the Hawai‘i Supreme Court may answer the
            certified question by written opinion.

Hawai‘i Rules of Appellate Procedure Rule 13(a) (2010).

            A question of law presented by a certified question is

reviewable de novo under the right/wrong standard of review.

Miller v. Hartford Life Ins. Co., 126 Hawai‘i 165, 173, 268 P.3d

418, 426 (2011) (citing Francis v. Lee Enters., Inc., 89 Hawai‘i

234, 236, 971 P.2d 707, 709 (1999)).

                               III. Discussion

            We hold that St. Paul can bring a cause of action as

an excess insurer against Liberty Mutual, a primary insurer,

under the doctrine of equitable subrogation.           Hawai‘i state

courts broadly apply the doctrine of equitable subrogation and

thus, allowing the excess insurer a cause of action here



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comports with our prior jurisprudence.          Further, this broad

application is in line with the majority of jurisdictions, which

have recognized equitable subrogation claims under similar

circumstances.     Finally, permitting an excess insurer to

subrogate to the rights of the insured, and assert a claim

against a primary insurer for a bad faith failure to settle a

claim within the limits of the primary liability policy,

protects the public interest in ensuring equity in insurance

matters and encouraging settlement.

      A.    Hawai‘i Case Law Supports a Broad Application of the
            Doctrine of Equitable Subrogation

            Hawai‘i has recognized the doctrine of equitable

subrogation as an appropriate remedy when equity demands.

Through subrogation, the subrogee “is put in all respects in the

place of the party to whose rights he is subrogated.”             Peters v.

Weatherwax, 69 Haw. 21, 27, 731 P.2d 157, 161 (1987) (quoting

Kapena v. Kaleleonalani, 6 Haw. 579, 583 (Haw. Kingdom 1885))

(internal quotation mark omitted).         Subrogation is a “creature

of equity jurisprudence,” and is “so administered as to secure

real and essential justice without regard to form[.]”             Id.

(alteration in original) (citation omitted) (internal quotation

marks omitted).



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            Equitable subrogation has a broad scope4 and we have

defined the doctrine as “broad enough to include every instance

in which one party pays a debt for which another is primarily

answerable, and which, in equity and good conscience, should

have been discharged by the latter[.]”          Id. (alteration in

original) (citation omitted) (internal quotation mark omitted).

In considering this broad application, the district court has

previously explained that “[s]ubrogation is proper between a

primary and excess insurer.”        Reliance Ins. Co. v. Doctors Co.,

299 F. Supp. 2d 1131, 1151 (D. Haw. 2003), aff’d sub nom.

Reliance Ins. Co. v. Doctors’ Co., 132 F. App’x 730 (9th Cir.

2005).

            Notwithstanding the broad scope of equitable

subrogation, Liberty Mutual asserts that St. Paul’s claim should

be dismissed because “St. Paul has not paid a debt or satisfied

some liability for which another party . . . is primarily

responsible.”     Liberty Mutual explains that it defended Pleasant


      4
            Courts apply the doctrine of equitable subrogation in a “broad
and expansive” manner to take account of the need for “justice and equity
[in] particular situations.” Seabright Ins. Co. v. Matson Terminals, Inc.,
828 F. Supp. 2d 1177, 1194 (D. Haw. 2011) (quoting Han v. United States, 944
F.2d 526, 529 (9th Cir. 1991)). In Seabright, for example, the district
court permitted an insurer to seek recovery of attorneys’ fees from the
defendant under the doctrine of equitable subrogation despite a lack of
relevant case law because “[c]ommon sense dictates here that, to find
otherwise, would result in grave inequity.” Id. at 1193.



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Travel against the accidental death claim and paid its liability

up to the primary policy limit.           According to Liberty Mutual,

St. Paul did not pay for Liberty Mutual’s liability but “merely

discharged its own contractual obligations” to Pleasant Travel.

            While it is true that St. Paul discharged its

obligations to Pleasant Travel, Liberty Mutual, as the primary

insurer, also had an obligation to Pleasant Travel to pursue

settlement.    An insurer owes a duty of good faith and fair

dealing to its insured.       See Best Place Inc. v. Penn Am. Ins.

Co., 82 Hawai‘i 120, 132, 920 P.2d 334, 346 (1996).5            A breach of

this duty includes an insurer’s unreasonable refusal to settle a

      5
             We have previously relied on contract law to establish an
insurer’s duty of good faith and fair dealing to its insured. See Best Place
Inc., 82 Hawai‘i at 123, 920 P.2d at 337 (explaining that the duty of good
faith and fair dealing was “implied in contracts”). This court also declined
to extend the duty of good faith and fair dealing to claimants not part of
the subject insurance contract. Simmons v. Puu, 105 Hawai‘i 112, 127, 94
P.3d 667, 682 (2004). Liberty Mutual argues that it owes no duty of good
faith and fair dealing to St. Paul because this duty is based on the
contractual relationship between the insurer and insured. St. Paul does not
argue that Liberty Mutual owes it a direct duty, however, but rather seeks to
apply the doctrine of equitable subrogation. Through equitable subrogation,
St. Paul “steps into the shoes” of Pleasant Travel to enforce Liberty
Mutual’s duty to Pleasant Travel to act in good faith. See State Farm Fire &
Cas. Co. v. Pac. Rent-All, Inc., 90 Hawai‘i 315, 329, 331, 978 P.2d 753, 767,
769 (1999).

            To apply the doctrine of equitable subrogation, St. Paul does not
need a contract with Liberty Mutual. The doctrine of equitable subrogation
is a principle of equity that “arises out of a relationship that need not be
contractually based.” Id. at 328-29, 978 P.2d at 766-67 (comparing equitable
subrogation to conventional subrogation that arises out of a contract between
parties). As we have previously explained, equitable subrogation should be
administered “to secure real and essential justice without regard to form,
and is independent of any contractual relations between the parties to be
affected by it.” Kapena, 6 Haw. at 583 (emphasis added) (citation omitted).


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claim on behalf of the insured.           Id. at 124, 920 P.2d at 338.

We have explained that “[e]ven if the ultimate judgment was in

excess of the policy limits, the insurer may still be liable for

the entire amount if its refusal to settle was unreasonable.”

Delmonte v. State Farm Fire & Cas. Co., 90 Hawai‘i 39, 52 n.9,

975 P.2d 1159, 1172 n.9 (1999) (citing Crisci v. Security Ins.

Co., 426 P.2d 173 (Cal. 1967) (in bank)).          Applying the doctrine

of equitable subrogation in this context permits an excess

insurer to hold a primary insurer to its obligation to the

insured.

            Upholding Liberty Mutual’s characterization of St.

Paul’s actions, in contrast, would permit primary insurers to

chance litigation and choose to “‘gambl[e]’ with the excess

carrier’s money when potential judgments approach the primary

insurer’s policy limits,” rather than settle.           Hartford Accident

& Indem. Co. v. Aetna Cas. & Sur. Co., 792 P.2d 749, 753 (Ariz.

1990) (in banc) (quoting Commercial Union Ins. Co. v. Med.

Protective Co., 393 N.W.2d 479, 483 (Mich. 1986)).            For example,

suppose that in the instant case, the underlying plaintiff’s

claim was for $3 million in damages, but the plaintiff agreed to

settle for $1 million.      Liberty Mutual, however, determines that

at trial, the plaintiff’s chance of prevailing is 50%.             In such


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a situation, Liberty Mutual would have no incentive to settle.

If the plaintiff prevailed at trial, winning an amount in excess

of $1 million, Liberty Mutual would be in the same position as

if it settled, given that St. Paul would cover the excess

amount.   However, if the plaintiff lost at trial, Liberty Mutual

would be in a better position than if it settled, saving itself

from payment of $1 million.        Such a hypothetical demonstrates

how allowing St. Paul’s claims to go forward can function to

mitigate the “potential that a primary insurer will forgo fair

and reasonable settlements and roll the dice with, what is in

essence, the excess insurer’s money.”          Nat’l Sur. Corp. v.

Hartford Cas. Ins. Co., 493 F.3d 752, 758 (6th Cir. 2007).6

            Liberty Mutual also argues that St. Paul cannot

subrogate to the rights of Pleasant Travel because Pleasant

Travel “never faced the prospect of direct liability for the

amount of the [] verdict in excess of [Liberty Mutual’s]

liability limit because that amount was within St. Paul’s


      6
             The Sixth Circuit and Seventh Circuit provided similar
hypotheticals in holding that an excess insurer could step into the shoes of
the insured and sue a primary insurer under the doctrine of equitable
subrogation. See Nat’l Sur. Corp., 493 F.3d at 757; Twin City Fire Ins. Co.
v. Country Mut. Ins. Co., 23 F.3d 1175, 1179 (7th Cir. 1994). The Sixth
Circuit recognized that in evaluating such a hypothetical, the costs of
litigation to the insurer must also be considered, but noted that “[a]lthough
the presence of litigation costs diminishes the incentive an insurer has to
go to trial, the underlying problem still remains.” Nat’l Sur. Corp., 493
F.3d at 758.


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liability limit.”     Equitable subrogation may, however, be

applied even “without any showing that the insured ha[s]

suffered any loss.”      Seabright Ins. Co. v. Matson Terminals,

Inc., 828 F. Supp. 2d 1177, 1194 (D. Haw. 2011) (quoting Nw.

Mut. Ins. Co. v. Farmers’ Ins. Grp., 143 Cal. Rptr. 415, 423

(Cal. Ct. App. 1978)).       In Seabright, the district court

explained that “[i]t is not a prerequisite to equitable

subrogation that the subrogor suffered actual loss; it is

required only that he would have suffered loss had the subrogee

not discharged the liability or paid the loss.”            Id. at 1193

(emphasis added) (quoting Nw. Mut. Ins. Co., 143 Cal. Rptr. at

423).   In other words, because an insured can recover from a

primary insurer that refused reasonable settlement offers, “the

excess carrier, who discharged the insured’s liability as a

result of this tort, stands in the shoes of the insured and

should be permitted to assert all claims against the primary

carrier which the insured himself could have asserted.”

Commercial Union Ins. Co., 393 N.W.2d at 482 (quoting Commercial

Union Assurance Cos. v. Safeway Stores, Inc., 610 P.2d 1038,

1041 (Cal. 1980)) (internal quotation mark omitted).             St. Paul

can thus bring a cause of action under the doctrine of equitable

subrogation against Liberty Mutual if Pleasant Travel could


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assert such a claim, even when Pleasant Travel suffers no actual

loss.   This court’s line of cases advocating for a broad and

equity-based application of subrogation supports such a finding.

      B.    The Majority of Jurisdictions Permit an Excess Insurer
            To File a Claim Against a Primary Insurer Under the
            Doctrine of Equitable Subrogation

            Hawaii’s broad application of the doctrine of

equitable subrogation comports with the majority of

jurisdictions, which have held that, under the state law

applicable in those cases, an excess insurer can seek relief

from a primary insurer under the doctrine.7          For example, the

United States Court of Appeals for the Ninth Circuit allowed an

excess insurer to bring a claim against a primary insurer under

the doctrine of equitable subrogation for the primary insurer’s

bad faith refusal to settle.        Valentine v. Aetna Ins. Co., 564
      7
            See, e.g., Nat’l Sur. Corp., 493 F.3d at 756 (concluding that “an
excess insurer is permitted to step into the shoes of the insured and sue a
primary insurer pursuant to the doctrine of equitable subrogation to enforce
the primary insurer’s duty to avoid excessive judgments against an insured”);
Certain Underwriters of Lloyd’s v. Gen. Accident Ins. Co., 909 F.2d 228, 233
(7th Cir. 1990) (holding that “Indiana would allow an excess carrier to sue a
primary carrier on the basis of equitable subrogation”); U.S. Fire Ins. Co.
v. Royal Ins. Co., 759 F.2d 306, 309 (3d Cir. 1985) (holding that “an excess
insurer who has discharged an insured’s liability stands in the shoes of the
insured and as subrogee may maintain an action for breach of the primary
carrier’s duty to act in good faith”); Commercial Union Assurance Cos., 610
P.2d at 1041 (explaining that “[i]t has been held in California and other
jurisdictions that the excess carrier may maintain an action against the
primary carrier for [] [wrongful] refusal to settle within the latter’s
policy limits” (alterations in original)); Truck Ins. Exch. v. Century Indem.
Co., 887 P.2d 455, 458 (Wash. Ct. App. 1995) (recognizing that “[a]n excess
insurer is subrogated to the rights of its insured to recover on claims the
insured has against the primary insurer”).



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F.2d 292, 297 (9th Cir. 1977).         The court explained: “When there

is no excess insurer, the insured becomes his own excess

insurer, and his [] primary insurer owes him a duty of good

faith in protecting him from an excess judgment and personal

liability.”     Id. (quoting Cont’l Cas. Co. v. Reserve Ins. Co.,

238 N.W.2d 862, 864 (Minn. 1976)).          If the insured purchases

excess insurance, “he in effect substitutes an excess insurer

for himself.”     Id. (quoting Cont’l Cas. Co., 238 N.W.2d at 864).

The Supreme Court of Michigan further explained that when an

insured does not have excess insurance, the insured has “every

incentive to enforce the primary insurer’s contractual duty to

defend or to attempt to settle within policy limits in good

faith.”   Commercial Union Ins. Co., 393 N.W.2d at 482.            But, if

the insured does carry excess coverage, “that incentive

dissolves” and “[t]he excess carrier, and not the insured, bears

the injury resulting from the primary insurer’s breach, and is

therefore the party with the greatest incentive to enforce the

primary insurer’s duties.”       Id.

            In a case similar to the one before this court, the

Supreme Court of Arizona held that an excess insurer could

assert a claim against a primary insurer, under the doctrine of

equitable subrogation, for a bad faith failure to settle within


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primary policy limits.       Hartford Accident & Indem. Co. v. Aetna

Cas. & Sur. Co., 792 P.2d 749, 757 (Ariz. 1990).8            The court

noted that “[a] number of jurisdictions have expanded the duty

of good faith by recognizing a duty to an excess [insurer] by

the primary [insurer]”9 and adopted the doctrine of equitable

subrogation.    Id. at 752-53.      The court explained that these

jurisdictions adopted the doctrine of equitable subrogation in

part because subrogation serves “to encourage fair and

reasonable settlements of lawsuits.”         Id. at 753.     Based on this

public policy analysis, the court determined that “[a]n excess

insurer should not have to pay a judgment if the primary insurer

caused the excess judgment by a bad faith failure to settle

within primary limits” and held that the excess insurer could

bring such a claim against the primary insurer.            Id. at 754.

            The Supreme Court of Oregon also held that an excess

insurer can bring a claim against the primary insurer under the

      8
            Specifically, the question before the court was: “May an excess
insurance carrier, under the doctrine of equitable subrogation, assert a
claim against a primary insurance carrier for bad faith failure to settle
within primary policy limits?” Hartford Accident & Indem. Co., 792 P.2d at
751.
      9
            In Arizona, as in Hawai‘i, a primary insurer owes its insured “a
duty of good faith in deciding whether to accept or reject settlement
offers.” Hartford Accident & Indem. Co., 792 P.2d at 752. Through the
doctrine of equitable subrogation, the duty of good faith has been expanded
to allow an excess insurer to “step[] into the shoes” of the insured and
assert a claim against the primary insurer. Id. at 753.



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doctrine of equitable subrogation.         In the case at issue,

evidence suggested that the primary insurer “made little or no

effort to attempt to negotiate a settlement” and as a result,

the excess insurer claimed that its “share of the settlement

[was] higher than it otherwise would have been.”              Maine Bonding

& Cas. Co. v. Centennial Ins. Co., 693 P.2d 1296, 1298, 1302-03

(Or. 1985).    The court explained that “[a] primary insurer owes

an excess insurer essentially the same duty of due diligence in

claims handling and settlement negotiating it owes to an

insured—due care under all the circumstances.”            Id. at 1302.

The court further noted that a primary insurer is responsible

for considering the interests of all parties involved in a

claim, including those of the excess insurer.           Id.

            The majority of courts faced with the issue before us

have permitted excess insurers to bring a claim of bad faith

against a primary insurer under the doctrine of equitable

subrogation.    As discussed further below, the doctrine enables

an excess insurer to seek relief from a primary insurer who can

otherwise take advantage of a situation that leaves the excess

insurer with no other remedy.




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      C.    Application of the Doctrine of Equitable Subrogation
            Protects the Public Interest

            The doctrine of equitable subrogation is an equitable

remedy that protects an insurer from paying a debt that should

be discharged by another.       The Hawai‘i Insurance Code, Chapter

431 explains that “[t]he business of insurance is one affected

by the public interest, requiring that all persons be actuated

by good faith, abstain from deception and practice honesty and

equity in all insurance matters.”          HRS § 431:1-102 (2005)

(emphases added).     Allowing excess insurers to subrogate to the

rights of the insured upholds the Hawai‘i Insurance Code by

enabling excess insurers to litigate bad faith claims against

the primary insurer and to seek equitable relief.

            In addition, subrogation promotes the duty of insurers

“to accept reasonable settlements.”         Best Place Inc., 82 Hawai‘i

at 128, 920 P.2d at 342 (quoting Gruenberg v. Aetna Ins. Co.,

510 P.2d 1032, 1037 (Cal. 1973) (in bank)) (internal quotation

mark omitted).     Settlement is a goal of proper process.          Young

v. Allstate Ins. Co., 119 Hawai‘i 403, 414, 198 P.3d 666, 677

(2008).    Subrogation enables an excess insurer to hold a primary

insurer to its duty to pursue reasonable settlements and not to

gamble on litigation.      Hartford Accident & Indem. Co., 792 P.2d

at 753; see also W. Am. Ins. Co. v. RLI Ins. Co., 698 F.3d 1069,

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1076 (8th Cir. 2012) (“When the primary insurer has control of

defending underlying claims, permitting subrogation claims by

the excess insurer increases the likelihood of fair and

efficient settlement of lawsuits . . . .”); Nat’l Sur. Corp.,

493 F.3d at 757 (“Absent a rule permitting excess insurers to

recover against primary insurers, primary insurers could, in bad

faith, fail to accept settlement offers at or near policy limits

with impunity.”); Valentine, 564 F.2d at 297 (stating that

subrogation allows enforcement of the primary insurer’s duty to

settle, a breach of which would “imperil[] the public and

judicial interests in fair and reasonable settlement of

lawsuits” (quoting Cont’l Cas. Co., 238 N.W.2d at 864-65)).

            Liberty Mutual argues that subrogation is not

necessary because St. Paul could have funded a settlement, and

thereafter sought reimbursement from Liberty Mutual.             If an

excess insurer was left with the solution urged by Liberty

Mutual, however, then “the excess insurer risks losing the

policy-limit contributions of the primary insurer and being

forced to pay the entire settlement itself, even though the

settlement may have been in the overall best interests of the

insured.”    Valentine, 564 F.2d at 297 (quoting Cont’l Cas. Co.,

238 N.W.2d at 865).      In addition, “[a]n excess carrier owes no


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duty to the insured nor to the primary carrier either to defend

the insured or to enter into settlement negotiations.”             Certain

Underwriters of Lloyd’s v. Gen. Accident Ins. Co., 699 F. Supp.

732, 740 (S.D. Ind. 1988), aff’d, 999 F.2d 228 (7th Cir. 1990);

see also Cont’l Cas. Co. v. U.S. Fid. & Guaranty Co., 516 F.

Supp. 384, 392 (N.D. Cal. 1981) (stating that where a primary

insurer is “in control of the litigation . . . it would [be]

improper for the . . . excess carrier to step in and try to

settle it”).    To force an excess insurer to settle would thus

provide a “disincentive” for the primary insurer to seek

settlement.    Valentine, 564 F.2d at 298.10        In sum, the public

interest in encouraging reasonable settlement is best served by

permitting an excess insurer to seek relief under the doctrine

of equitable subrogation.

                              IV.   Conclusion

            For the foregoing reasons, we hold that an excess

liability insurer can bring a cause of action, under the

doctrine of equitable subrogation, against a primary liability

      10
            The Ninth Circuit also explains that forcing an excess insurer to
cover part of a primary liability insurance policy would “[distort] the
coverages and rate structures of the two different types of insurance—primary
and excess . . . .” Valentine, 564 F.2d at 298. This would further violate
the policy set forth in the Hawai‘i Insurance Code to “promote the public
welfare by regulating insurance rates to the end that they shall not be
excessive, inadequate, or unfairly discriminatory . . . .” HRS § 431:14-101
(2005).


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insurer who in bad faith fails to settle a claim within the

limits of the primary liability policy, when the primary insurer

has paid its policy limit toward settlement.


Wesley H.H. Ching and               /s/ Mark E. Recktenwald
Sheree Kon-Herrera
for plaintiff                       /s/ Paula A. Nakayama

Richard B. Miller and               /s/ Sabrina S. McKenna
David R. Harada-Stone
for defendant                       /s/ Richard W. Pollack

                                    /s/ Michael D. Wilson




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