Carvalho v. AIG Hawaii Insurance Company, Inc. ( 2022 )

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Electronically Filed
Supreme Court
SCWC-XX-XXXXXXX
11-JAN-2022
08:03 AM
Dkt. 17 OP
IN THE SUPREME COURT OF THE STATE OF HAWAIʻI
---o0o---
________________________________________________________________
BERNET CARVALHO, Individually, and as Personal
Representative of the Estate of ROYDEN KALAVI, Deceased,
Petitioner/Plaintiff-Appellant,
vs.
AIG HAWAIʻI INSURANCE COMPANY, INC.;
HAWAIʻI INSURANCE CONSULTANTS, LTD.,
Respondents/Defendants-Appellees.
________________________________________________________________
SCWC-XX-XXXXXXX
CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(CAAP-XX-XXXXXXX; CIVIL NO. 07-1-294K)
JANUARY 11, 2022
RECKTENWALD, C.J., NAKAYAMA, McKENNA, WILSON, AND EDDINS, JJ.
OPINION OF THE COURT BY WILSON, J.
I. INTRODUCTION
This case arises from a dispute regarding payment of
uninsured motorist and underinsured motorist benefits to
Petitioners/Plaintiffs-Appellants Bernet Carvalho (“Carvalho”),
individually, and as Personal Representative of the Estate of
her deceased son. Petitioner argues before this court that the
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Circuit Court of the Third Circuit (“circuit court”)1 (1)
improperly precluded evidence and (2) improperly denied her
Motion to Amend Complaint solely on the basis of undue delay.
We hold that the ICA did not err when it held that the
circuit court was within its discretion to exclude evidence
related to an unpleaded claim. To resolve the second issue
before this court, we must consider whether, under Hawaiʻi Rules
of Civil Procedure (“HRCP”) Rule 15(a), undue delay alone is a
sufficient basis to deny leave to amend a complaint. Consistent
with the requirement of Rule 15(a) that leave be freely given to
requests to amend a complaint, we hold that undue delay alone is
an insufficient basis to deny leave to amend a complaint under
HRCP Rule 15(a).
II. BACKGROUND
On September 23, 2005, Royden Kalavi (“Royden”) died
as a passenger in an automobile accident. The other car and
driver involved in the accident were uninsured. Carvalho
contended that Royden was covered by his maternal grandparents
John and Barbara Carvalho’s (“the Carvalhos”) insurance policy.
The Carvalhos purchased their insurance policy from
Respondents/Defendants-Appellees AIG Hawaiʻi Insurance Company,
Inc. and Hawaiʻi Insurance Consultants, Ltd. (collectively “AIG”).
1 The Honorable Ronald Ibarra presided.
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Carvalho was designated as the personal representative
of Royden’s estate and made a claim for uninsured motorist (“UM”)
and underinsured motorist (“UIM”) benefits under the Carvalhos’
AIG policy, stating that Royden was covered as a “resident
relative.” AIG told Carvalho that only non-stacked UM and UIM
coverages totaling $70,000 were available to Royden under the
Carvalhos’ AIG policy and stated that it had not determined
whether Royden was covered under the Carvalhos’ AIG policy as a
“resident relative.”
Carvalho filed a Complaint against AIG on December 31,
2007 with the circuit court seeking a declaratory judgment for
increased and stacked UM and UIM insurance coverage totaling
$1.2 million under the Carvalhos’ AIG policy arguing that AIG
improperly failed to recognize that stacked UM and UIM coverages
totaling $1.2 million were available to her.
On March 11, 2008, AIG filed a motion requesting that
the circuit court stay the case pending the resolution of a
separate declaratory judgment action filed by AIG. AIG filed a
separate action against, inter alia, Carvalho, the Carvalhos,
Royden’s father (“Kalavi”), and any other identified parties to
determine who, including Royden, was covered under the
Carvalhos’ AIG policy and who was covered under Kalavi’s AIG
policy. The circuit court granted the stay on April 15, 2008.
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The parties resolved AIG’s declaratory judgment action
by stipulated judgment filed on July 16, 2008. The parties
stipulated that Royden was covered as a resident “family member”
under the Carvalhos’ AIG policy but not under Kalavi’s AIG
policy. Following the stipulated judgment, the parties
submitted to private UM/UIM arbitration to resolve the value of
the loss sustained by Royden’s estate, Carvalho, and Kalavi as
provided under the Carvalhos’ AIG policy if the parties did not
agree on “the amount of damages.” The case was continued
pending a resolution by arbitration per the stipulation of the
parties. On April 2, 2009, an arbitration award totaling $3
million2 in damages was issued, with $500,000 awarded to Royden’s
estate, $1.25 million to Carvalho, and $1.25 million to Kalavi.
On April 29, 2009, AIG transmitted two checks to Carvalho
totaling $1.2 million as payment under the Carvalhos’ combined
UM and UIM policy limits.
Following the arbitration award, the case remained
dormant for multiple years3 until November 1, 2013, when the
circuit court filed a Notice of Status Hearing. On June 25,
2014, Plaintiff Carvalho filed a Notice of Trial Setting Status
2 The $3 million damage award included no deductions for any other
insurance.
3 As the ICA noted, the reason why the case remained dormant is
unclear from the record.
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Conference, and the circuit court set a trial date of January 12,
2016, and set all pretrial deadlines, including a discovery cut-
off date of November 13, 2015.
AIG sought to preclude “any and all evidence and
argument from being presented to the jury at the time of trial
in furtherance of [Carvalho’s] unpled claim that [AIG] somehow
breached a duty to settle the underlying UM and UIM claim . . .
prior to the issuance of the UM/UIM Arbitration Award” on June
12, 2015.4 AIG asserted that Carvalho did not make a bad faith
claim in her initial Complaint and that such allegations were
time-barred because seven years since the filing of Carvalho’s
original Complaint and five years since the UM/UIM arbitration
had passed. On August 12, 2015, the circuit court orally
granted AIG’s Motion to Preclude Evidence.
On August 10, 2015, Plaintiff Carvalho filed a Motion
to Amend Complaint. Carvalho’s motion did not include further
causes of action but included significant additional factual
allegations and assertions that AIG “deliberately, deceptively,
unfairly, and/or in bad faith unreasonably delayed their payment
of $1.2 million in UM and UIM benefits to [Carvalho] from at
4 The ICA stated that “AIG’s motion was apparently brought in
response to a settlement conference statement filed by Carvalho on February 6,
2015, and a discovery request on or around June 8, 2015, which made reference
to what AIG characterized as a previously unpled claim that AIG had acted in
bad faith for its failure to tender the policy limits to Plaintiff Carvalho
prior to the UM/UIM arbitration award.”
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least on or about April 16, 2007 until after the April 2, 2009
Arbitration Award was issued[.]” The circuit court denied
Carvalho’s Motion to Amend Complaint due to “undue delay.”5
Relevant to this appeal, before the ICA, Carvalho
asserted that the circuit court erred when it: (1) granted
AIG’s Motion to Preclude Evidence and (2) when it denied
Carvalho’s Motion to Amend Complaint. The ICA affirmed the
circuit court’s Order Precluding Evidence and Order Denying
Motion to Amend Complaint. The ICA agreed with Carvalho that
AIG’s Motion to Preclude Evidence was a motion in limine, but
held that that the circuit court did not abuse its discretion
when it granted AIG’s Motion to Preclude Evidence “because it
appropriately prohibited Plaintiff Carvalho from introducing
evidence not related to her Complaint.” The ICA also held that
the circuit court did not abuse its discretion when it denied
Carvalho’s Motion to Amend Complaint because Carvalho “had
waited multiple years to request leave to amend her Complaint,
5 Carvalho also filed “Plaintiff’s Motion for Reconsideration,
and/or clarification, and in the alternative, for leave to file an
interlocutory appeal pursuant to HRS § 641-1(b) (2011), of the Order Denying
Plaintiffs’ Motion to Amend Complaint” (“Motion for Reconsideration”). The
circuit court denied the Motion for Reconsideration because “1) there is no
new matter or evidence that could not have been presented to Judge Melvin
Fujio and 2) as an alternative, the petition was filed beyond the 30 day
period required to file an interlocutory appeal[.]” The ICA affirmed the
circuit court’s Order Denying Reconsideration. The Motion for
Reconsideration is not before this court and will not be addressed in this
opinion.
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and her motion was based on information that she had access to
since 2008[.]”
III. STANDARDS OF REVIEW
A. Motion to Preclude Evidence/Motion in Limine
The granting or denying of a motion in limine is reviewed
for abuse of discretion. The denial of a motion in limine, in
itself, is not reversible error. The harm, if any, occurs when
the evidence is improperly admitted at trial. Thus, even if the
trial court abused its discretion in denying a party’s motion,
the real test is not in the disposition of the motion but the
admission of evidence at trial.
Kobashigawa v. Silva, 129 Hawaiʻi 313, 320, 300 P.3d 579, 586
(2013) (citing State v. Eid, 126 Hawaiʻi 430, 440, 272 P.3d 1197,
1207 (2012) (quoting Miyamoto v. Lum, 104 Hawaiʻi 1, 7, 84 P.3d
509, 515 (2004) (internal quotation marks, citations, and
ellipsis omitted))).
“An abuse of discretion occurs where the trial court
has clearly exceeded the bounds of reason or disregarded rules
or principles of law or practice to the substantial detriment of
a party litigant.” Hart v. Ticor Title Ins. Co., 126 Hawaiʻi 448,
455, 272 P.3d 1215, 1222 (2012) (quoting Allstate Ins. Co. v.
Pruett, 118 Hawaiʻi 174, 179, 186 P.3d 609, 614 (2008)).
B. Motion to Amend Complaint
“This court reviews a denial of leave to amend a
complaint under HRCP Rule 15(a) or (b) under the abuse of
discretion standard.” Kamaka v. Goodsill Anderson Quinn &
Stifel, 117 Hawaiʻi 92, 104, 176 P.3d 91, 103 (2008) (citations
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omitted). See also Seki ex rel. Louie v. Hawaiʻi Gov’t Emps.
Ass’n, AFSCME Local No. 152, AFL-CIO, 133 Hawaiʻi 385, 400, 328
P.3d 394, 409 (2014). The trial court abuses its discretion if
its ruling is based on an erroneous view of the law or on a
clearly erroneous assessment of the evidence. The operative
question is whether the trial court has clearly exceeded the
bounds of reason or disregarded rules or principles of law or
practice to the substantial detriment of a party litigant.
Kamaka, 117 Hawaiʻi at 104, 176 P.3d at 103.
IV. DISCUSSION
Carvalho raises two primary issues before this court:
(1) whether the circuit court properly precluded evidence
related to an unpleaded claim and (2) whether the circuit court
properly denied Carvalho’s Motion to Amend Complaint solely on
the basis of undue delay. As discussed below, the ICA did not
err when it held that the circuit court was within its
discretion to grant AIG’s Motion to Preclude Evidence. However,
the ICA did err when it held that the circuit court did not
abuse its discretion when it denied Carvalho’s Motion to Amend
Complaint solely on the basis of undue delay. We now hold that
undue delay alone is an insufficient basis for denying leave to
amend a complaint.
A. The ICA did not err when it upheld the circuit court’s
grant of AIG’s Motion to Preclude Evidence.
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Carvalho does not appeal the ICA’s conclusion that
AIG’s Motion to Preclude Evidence is a motion in limine. Thus,
the issue before this court is whether the circuit court
properly excluded evidence. A motion in limine is “a procedural
device which requests a pretrial order enjoining opposing
counsel from using certain prejudicial evidence in front of a
jury at a later trial.” See Kobashigawa, 129 Hawaiʻi at 321, 300
P.3d at 587. We have held that a circuit court may properly
deny a motion in limine where the motion is “akin to a motion
for summary judgment or other dispositive motion.” O’Grady v.
State, 140 Hawaiʻi 36, 53 n.16, 398 P.3d 625, 642 n.16 (2017);
see also Kuroda v. Kuroda, 87 Hawaiʻi 419, 427, 958 P.2d 541, 549
(App. 1998) (stating that “a motion in limine is not an
authorized method for presenting issues involving genuine issues
of fact (in contrast to stipulated facts, questions of law, and
matters of discretion) to the court for decision”); Kawakami v.
Kahala Hotel Investors, LLC, 142 Hawaiʻi 507, 521-22, 421 P.3d
1277, 1291-92 (2018).
Here, the claim made in Carvalho’s Complaint was that
AIG had initially failed to recognize the increased stacked
UM/UIM policy limits due to her under the Carvalhos’ AIG policy.
AIG’s Motion to Preclude Evidence on the other hand was seeking
to “preclude[e] any and all evidence and argument from being
presented to the jury at the time of trial in furtherance of
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[Carvalho’s] unpled claim that [AIG] somehow breached a duty to
settle the underlying UM and UIM claim . . . prior to the
issuance of the UM/UIM Arbitration Award.” Thus, the bad faith
claim was not a part of Carvalho’s Complaint and not before the
court. Consequently, the circuit court properly excluded “any
and all evidence and argument from being presented to the jury
at the time of trial in furtherance of [Carvalho’s] unpled claim
that [AIG] somehow breached a duty to settle the underlying UM
and UIM claim . . . prior to the issuance of the UM/UIM
Arbitration Award” because it was not relevant to the issue of
whether AIG had initially failed to recognize the increased
stacked UM/UIM policy limits due to her under the Carvalhos’ AIG
policy. As the ICA noted, at the time of the Motion to Preclude
Evidence, Carvalho had not filed her Motion to Amend Complaint
which included her bad faith claim. When the circuit court
granted the Motion to Preclude Evidence, only Carvalho’s claims
in her Complaint were at issue. Thus, the circuit court did not
abuse its discretion when it granted AIG’s Motion to Preclude
Evidence.
B. The ICA erred when it held that the circuit court did not
abuse its discretion when it denied Carvalho’s Motion to
Amend Complaint.
Carvalho’s second point of error that the circuit
court erred in denying her Motion to Amend Complaint, is
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governed by HRCP Rule 15(a)(2).6 HRCP Rule 15(a) provides that
prior to trial, “leave shall be freely given when justice so
requires”:
(a) Amendments before trial.
. . . .
(2) OTHER AMENDMENTS. In all other cases, a party may amend the
party’s pleading only by leave of court or by written consent of
the adverse party; and leave shall be freely given when justice
so requires. A motion or stipulation to amend a pleading shall
be accompanied by the proposed amended pleading in Ramseyer
formatting (additions underscored and deletions bracketed and
stricken). A party filing or moving to file an amended pleading
shall reproduce the entire pleading as proposed and shall not
incorporate any part of the prior pleading by reference, except
with leave of court. If granted or allowed, the amended pleading
shall be filed, with Ramseyer formatting removed, and served
forthwith.
HRCP Rule 15(a)(2). This court has held that “unless there is
an apparent reason indicating otherwise, under HRCP Rule 15(a),
leave to amend shall be freely given to a party to amend its
complaint when justice so requires.” Dejetley v. Kaho‘ohalahala,
122 Hawaiʻi 251, 269, 226 P.3d 421, 439 (2010) (citation and
internal quotation marks omitted). We have further explained:
In the absence of any apparent or declared reason—such as
undue delay, bad faith or dilatory motive on the part of the
movant, repeated failure to cure deficiencies by amendments
previously allowed, undue prejudice to the opposing party by
virtue of allowance of the amendment, futility of amendment,
etc.—the leave sought should, as the rules requires, be “freely
given.”
6 Carvalho contends in the alternative that HRCP Rule 15(b)(1)
applies to her Motion to Amend, which governs “issues tried by consent” for
amendments during and after trial. Carvalho’s reliance on Rule 15(b)(1) is
misplaced as her Motion to Amend was filed prior to trial and therefore HRCP
Rule 15(a), which governs amendments made before trial, applies. See HRCP
Rule 15(a).
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Gonsalves v. Nissan Motor Corp. in Hawaiʻi, 100 Hawaiʻi 149, 160,
58 P.3d 1196, 1207 (2002); see also Kamaka, 117 Hawaiʻi at 112,
176 P.3d at 111 (affirming an order denying a motion to amend
complaint because the trial court had justifiable reasons for
denying the motion); Hirasa v. Burtner, 68 Haw. 22, 26, 702 P.2d
772, 775 (1985); Bishop Trust Co. v. Kamokila Dev. Corp., 57 Haw.
330, 337, 555 P.2d 1193, 1198 (1976) (quoting Foman v. Davis,
371 U.S. 178, 182 (1962)).
In its opinion, the ICA noted that “[u]pon review of
the record and arguments of the parties, it appears that
reasonable minds could differ as to whether Plaintiff Carvalho
was entitled to amend her complaint pursuant to HRCP Rule 15(a)”:
On one hand, the motion was filed approximately three
months prior to the discovery cut-off date and five months prior
to trial, which was by no means prompt, but not as late into the
court deadlines as other cases where our appellate courts have
determined undue delay provided justifiable reason to deny a
request to amend a complaint or answer.
Ultimately, the ICA concluded that the circuit court did not
abuse its discretion in denying Carvalho’s Motion to Amend
Complaint because it had “justifiable reasons,” namely undue
delay:
Here, Plaintiff Carvalho’s motion to amend was filed
approximately seven and a half years after her Complaint had been
filed, more than six years after the UM/UIM Arbitration award was
issued and the stay in this case had expired, and almost one and
a half years after she had filed her pretrial statement, which
made no reference or mention of the previously unpled allegations.
Also, Plaintiff Carvalho has stated, both to the circuit court
and now on appeal, that the additional factual allegations
alleged in her proposed First Amended Complaint were based on the
claim handling conduct documented in AIG’s claim file documents
that AIG had produced in discovery on May 1, 2008, and
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correspondence between her counsel and AIG’s counsel. This
indicates that Plaintiff Carvalho was aware of the circumstances
pertaining to her proposed amended complaint as early as 2008,
and yet chose not to request leave to amend her Complaint until
multiple years after the arbitration award was issued and the
stay in this case had expired.
The ICA erred in its conclusion that undue delay alone
was a sufficient basis to deny the Motion to Amend Complaint
brought pursuant to HRCP Rule 15(a). As this court has held,
HRCP Rule 15(a) is “functionally identical” to Rule 15(a) of the
Federal Rules of Civil Procedure (“FRCP”) and “[w]here a Hawai‘i
rule of civil procedure is identical to the federal rule, the
interpretation of this rule by federal courts is highly
persuasive.” Dejetley, 122 Hawaiʻi at 270, 226 P.3d at 440(quoting Fed. Home Loan Mortg. Corp v. Transamerica Ins. Co., 89
Hawai‘i 157, 162 n.1, 969 P.2d 1275, 1280 n.1. (1998)). We agree
with the Ninth Circuit Court of Appeals that undue delay alone
is an insufficient basis for denying leave to amend a complaint
under FRCP Rule 15(a). See United States v. United Healthcare
Ins. Co., 848 F.3d 1161, 1184 (9th Cir. 2016) (holding that the
district court erred when it denied leave to amend complaint
based on undue delay alone when the record did not support any
additional grounds--such as prejudice or bad faith--that would
justify the denial of leave to amend in combination with undue
delay); Owens v. Kaiser Found. Health Plan, Inc., 244 F.3d 708,
712–13 (9th Cir. 2001).
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As applied in this case, the circuit court relied
solely on undue delay when it denied Carvalho’s Motion to Amend
Complaint and did not provide support for any additional grounds
such as prejudice or bad faith. Thus, based on this record,
under HRCP Rule 15(a), the circuit court should have granted
Carvalho’s Motion to Amend Complaint.
V. CONCLUSION
For the foregoing reasons, the ICA was correct to
conclude that the circuit court did not abuse its discretion
when it granted AIG’s Motion to Preclude Evidence. However, the
ICA incorrectly concluded that under HRCP Rule 15(a), Carvalho
could not amend her Complaint due to undue delay. We reiterate
that under HRCP Rule 15(a), leave to amend a complaint shall be
freely given and now also hold that undue delay alone is an
insufficient basis for denying leave to amend a complaint. The
ICA’s December 23, 2020 judgment on appeal is accordingly
affirmed in part and vacated in part. This case is remanded to
the circuit court for proceedings consistent with this opinion.
Arthur Y. Park, /s/ Mark E. Recktenwald
(Patricia Kim Park,
Travis A. Yu, and /s/ Paula A. Nakayama
Lionel D. Meyer on the
briefs) for petitioner /s/ Sabrina S. McKenna
Steven L. Goto /s/ Michael D. Wilson
for respondents
/s/ Todd W. Eddins
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