Chung Mi Ahn v. Liberty Mutual Fire Insurance Co. , 126 Haw. 1 ( 2011 )

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Electronically Filed
Supreme Court
SCWC-28315
04-OCT-2011
02:54 PM
IN THE SUPREME COURT OF THE STATE OF HAWAI#I
---O0O---
CHUNG MI AHN,
Respondent/Claimant/Appellant/Appellee-Appellee,
vs.
LIBERTY MUTUAL FIRE INSURANCE COMPANY,
Petitioner/Respondent/Appellee/Appellant-Cross-Appellee,
and
GORDON I. ITO,1 Insurance Commissioner,
Department of Commerce and Consumer Affairs,
Respondent/Appellee/Appellee-Cross-Appellant.
(SCWC NO. 28314)
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KEE SUN KIM,
Respondent/Claimant/Appellant/Appellee-Appellee,
vs.
LIBERTY MUTUAL FIRE INSURANCE COMPANY,
Petitioner/Respondent/Appellee/Appellant-Cross-Appellee,
and
GORDON I. ITO, Insurance Commissioner,
Department of Commerce and Consumer Affairs,
Respondent/Appellee/Appellee-Cross-Appellant.
(SCWC NO. 28315)
1
During the pendency of this action, Gordon I. Ito (Ito or
Insurance Commissioner Ito) succeeded J.P. Schmidt (Schmidt, Insurance
Commissioner, or Insurance Commissioner Schmidt) as Insurance Commissioner.
Therefore, pursuant to Hawai#i Rules of Appellate Procedure (HRAP) Rule
43(c)(1) (2010), Ito has been substituted for Schmidt.
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CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(ICA NO. 28314 (CIV. N0. 05-1-2265) and
ICA NO. 28315 (CIV. NO. 06-1-0994))
OCTOBER 4, 2011
NAKAYAMA, ACTING C.J., ACOBA, DUFFY, AND MCKENNA, JJ., AND
CIRCUIT JUDGE CHANG, IN PLACE OF RECKTENWALD, C.J., RECUSED
OPINION OF THE COURT BY MCKENNA, J.
I. SUMMARY
In Wilson v. AIG Hawaii Ins. Co., 89 Hawai#i 45, 50-51, 968
P.2d 647, 652-53 (1998), we held that unless an insurer’s non-
payment of personal injury protection (PIP) benefits2 jeopardizes
an insured’s ability to reach the minimum amount of medical
expenses required to file a tort lawsuit,3 insureds are not “real
parties in interest” allowed to pursue lawsuits seeking payment
of PIP benefits to providers. Although a statute expressly gave
insureds the right to seek court review of PIP denials, we
concluded that insureds do not have legal rights under
2
PIP benefits are currently defined by Hawai#i Revised Statutes
(HRS) § 431:10C-103.5, and generally refer to expenses for treatment of
physical and psychological injuries caused by motor vehicle accidents. The
underlying facts in Wilson occurred before the Legislature’s 1997 overhaul of
the no-fault law, in which the Legislature removed PIP benefits from the
definition of no-fault benefits under HRS § 431:10C-103(10)(A), and created
the new section HRS § 431:10C-103.5. See generally 1997 Haw. Sess. Laws Act
251, §§ 2 and 13 at 520-25; see Wilson, 89 Hawai#i at 48-49, 968 P.2d. 650-51,
for the prior definition of “no-fault benefits,” which also included wage loss
and other benefits. The terms PIP benefits and no-fault benefits are used
interchangeably in this opinion.
3
This amount, which changes, is commonly referred to as the “tort
threshold.”
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substantive law to enforce payment of PIP benefits to providers
See 89 Hawai#i at 48, 968 P.2d at 650. We also stated that
“preservation of the integrity of the therapeutic relationship
between physician and patient” was merely an “altruistic
concern,” because PIP benefit laws insulated an insured from the
billing and payment process. 89 Hawai#i at 50, 968 P.2d at 652.
Due to developments after Wilson, “cogent reasons and
inescapable logic” compel us to overrule its holding, and we now
hold that insureds are real parties in interest in actions
against insurers regarding PIP benefits.
II. BACKGROUND OF THE LAW
An explanation of Wilson and its progeny, as well as
of Act 198 of 2006, is provided for a better understanding of our
analysis.
A. Wilson and Its Progeny
1. Wilson v. AIG Hawaii Ins. Co.
In Wilson, AIG Hawaii Insurance Company (AIG) denied a no-
fault claim for surgical treatment based on a peer review
organization (PRO) report concluding the treatment was neither
appropriate nor reasonable. 89 Hawai#i at 46, 968 P.2d at 648.
Wilson brought suit in the District Court of the First Circuit
(district court) based on the then existing PRO statute, HRS §
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431:10C-308.6(f),4 which expressly provided that “any insured or
provider may . . . seek an administrative hearing, arbitration,
or court review of a denial of no-fault benefits based, in whole
or in part, upon a peer review organization determination.” Id.
(some emphasis in original).
Despite the statute, AIG moved for summary judgment based on
arguments that (1) Wilson lacked standing to pursue payment of
medical bills to her provider; and (2) that the controversy was
moot because there was no effective remedy because Wilson bore no
liability under the law for payment of the provider’s services.
See id.
We acknowledged that HRS § 431:10C-308.6(f) expressly gave
Wilson the right to seek court review of AIG’s denial of PIP
benefits, but noted her admission that she was “effectively
bringing the action for the benefit of her primary treating
physician.” 89 Hawai#i at 48, 968 P.2d at 650. We agreed with
the ICA that the issue was not whether Wilson had standing, but
whether she was a real party in interest pursuant to District
4
HRS § 431:10C-308.6(f) provided, in pertinent part:
(f) An insurer, provider, or insured may request a
reconsideration by the peer review organization of its
initial determination . . . . Any insured or provider may,
in addition to or in lieu of reconsideration, seek an
administrative hearing, arbitration, or court review of a
denial of no-fault benefits based, in whole or in part, upon
a peer review organization determination.
(Emphasis added). HRS § 431:10C-308.6 was repealed in 1998. See 1997
Haw. Sess. Laws Act 251, § 59 at 551. The PRO system was repealed
because it had “become expensive and time consuming,” and had “resulted
in litigation between insureds and their insurance companies.” See H.
Stand. Comm. Rep. No. 250, in 1997 House Journal, at 1211.
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Court Rules of Civil Procedure (DCRCP) Rule 17(a).5 89 Hawai#i
at 47-48, 968 P.2d at 649-50.
DCRCP Rule 17(a) provided then, as it does now:
(a) Real Party in Interest. Every action shall be
prosecuted in the name of the real party in interest; except
that (1) . . . a party authorized by statute may sue in such
party’s own name without joining with such party the party
for whose benefit the action is brought[.]
Because HRS § 431:10C-308.6(f) expressly gave Wilson the
right to pursue court action, based on the clear language of
DCRCP Rule 17(a), the ICA had deemed Wilson a real party in
interest.6
Despite the language of DCRCP Rule 17(a), however, we stated
that the inquiry could not end there. See 89 Hawai#i at 48, 968
P.2d at 650. We stated, “to qualify as a real party in interest,
a party must also have a legal right under substantive law to
enforce the claim in question.” Id.
We then discussed HRS §§ 431:10C-304(1)(A) and (1)(B),7
5
In discussing “real party in interest” analysis, we referred to
the ICA’s decision in Lagondino v. Maldonado, 7 Haw. App. 591, 789 P.2d 1129(1990). See Wilson, 89 Hawai#i at 47-48, 968 P.2d at 649-50.
6
Wilson v. AIG Haw. Ins. Co., No. 20349, slip op. (App. Oct. 16,
1997) (depublished by Wilson, 89 Hawai#i at 51, 968 P.2d at 653).
7
When suit was commenced in Wilson, HRS §§ 431:10C-304(1)(A) and
(1)(B) read as follows:
Obligation to pay no-fault benefits. Every no-fault
insurer shall provide no-fault benefits for accidental harm
as follows:
(1) Except as otherwise provided in section 431:10C-
305(d):
(A) In the case of injury arising out of a motor
vehicle accident, the insurer shall pay, without
regard to fault, to the following persons who
sustain accidental harm as a result of the
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pursuant to which insurers are required to pay medical expenses
directly to providers. 89 Hawai#i at 48-49, 968 P.2d at 650-51.
We noted that under HRS § 431:10C-304(1), an insurer is obligated
to make direct payment to the insured only for wage loss,
expenses incurred as a result of accidental harm, funeral
operation, maintenance or use of the vehicle, an
amount equal to the no-fault benefits payable
for wage loss and other expenses to that person
under section 431:10C-103(10)(A)(iii) and (iv)
as a result of the injury:
(i) Any person, including the owner, operator,
occupant, or user of the insured motor
vehicle;
(ii) Any pedestrian (including bicyclist); or
(iii) Any user or operator of a moped as defined
in section 249-1;
(B) In the case of injury arising out of a motor
vehicle accident, the insurer shall pay, without
regard to fault, to a provider of services on
behalf of the persons listed in item (1)(A)
charges for services covered under section
431:10C-103(10)(A)(i) and (ii)[.]
HRS § 431:10C-103(10)(A)(i) and (ii) related to medical and rehabilitation
expenses. In 1997, HRS § 431:10C-304 was amended and the language of HRS §
431:10C-304(1)(B) was inserted in HRS § 431:10C-304(1). See 1997 Haw. Sess.
Laws Act 251, § 41 at 538-39 (effective January 1, 1998). HRS § 431:10C-304
now reads, in pertinent part, as follows:
Obligation to pay personal injury protection benefits.
. . . Every personal injury protection insurer shall provide
personal injury protection benefits for accidental harm as
follows:
(1) Except as otherwise provided in section 431:10C-
305(d), in the case of injury arising out of a
motor vehicle accident, the insurer shall pay,
without regard to fault, to the provider of
services on behalf of the following persons who
sustain accidental harm as a result of the
operation, maintenance, or use of the vehicle,
an amount equal to the personal injury
protection benefits as defined in section
431:10C-103.5(a) payable for expenses to that
person as a result of the injury:
(A) Any person, including the owner, operator,
occupant, or user of the insured motor
vehicle;
(B) Any pedestrian (including a bicyclist); or
(C) Any user or operator of a moped as defined
in section 249-1; . . .
HRS § 431:10C-304 (2000). No substantive changes were made to HRS § 431:10C-
304 (1)(A)-(C) when HRS Chapter 431:10C was amended in 1998 and 2000.
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services, and attorney’s fees and costs.8 See 89 Hawai#i at 49,
968 P.2d at 651. We pointed out that H.R.S. § 431:10C-304(1)
does not confer upon an insured the right to receive payment of
medical benefits on behalf of one’s provider, but rather
designates billing and payment of medical expenses to flow
between insurer and provider. See id. We noted that the insured
plays no role in this process. See id. We also cited HRS §§
431:10C-308.5(e)9 and 431:10C-308.6(j)(1993),10 which prohibited a
provider from collecting payment of medical services from an
insured. See id.
We concluded, “viewing these statutes in pari materia,[11]
. . . it is clear that the no-fault law does not allow an insured
to enforce a claim for unpaid medical expenses against an insurer
on behalf of his or her provider[;]” rather, we stated, “[t]he
no-fault statutory scheme strongly suggests that the provider,
not the insured, is entitled to pursue payment from the insurer
for the cost of unreimbursed medical services to the insured.”
89 Hawai#i at 49-50, 968 P.2d at 651-52. Accordingly, we held
8
These provisions have been moved from HRS § 431:10C-304(1), and
HRS §§ 431:10C-302(2), (4), and (5) now provide optional coverage for wage
loss, funeral expenses, and other expenses. See HRS § 431:10C-302 (1998).
Attorney’s fees are now addressed in HRS § 431:10C-211.
9
Now HRS § 431:10C-308.5(f).
10
Repealed in 1998. See 1997 Haw. Sess. Laws Act 251, § 59 at 551.
11
HRS § 1-16 provides, as it did in 1998:
Laws in pari materia. Laws in pari materia, or upon
the same subject matter, shall be construed with reference
to each other. What is clear in one statute may be called
in aid to explain what is doubtful in another.
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that Wilson was not a real party in interest with respect to her
claim against AIG for no-fault benefits to satisfy her provider’s
unpaid bill. See 89 Hawai#i at 50, 968 P.2d at 652.
In so holding, we reversed the ICA’s holding that Wilson was
a real party in interest. See 89 Hawai#i at 51, 968 P.2d at 653.
We opined that the ICA’s concerns regarding the insured’s
continuing relationship with the provider, and her personal
interest in having the insurer pay the provider, were merely
altruistic. See 89 Hawai#i at 50, 968 P.2d at 652.
2. Gamata v. Allstate Ins. Co.
Wilson was decided while the appeal in Gamata v. Allstate
Ins. Co., 90 Hawai#i 213, 978 P.2d 179 (App. 1999) was pending.
In Gamata, Allstate Insurance Company (Allstate) denied continued
PIP benefits based on a medical opinion that the insured’s
continued complaints were not caused by the accident. See 90
Hawai#i at 215, 978 P.2d at 181. Gamata brought suit pursuant to
HRS § 431:10C-31412 in district court, claiming that Allstate
violated its statutory and contractual duties to provide no-fault
benefits. See id. After filing his complaint, Gamata received
and paid for the contested treatment despite Allstate’s denial.
See 90 Hawai#i at 214, 978 P.2d at 180.
The ICA vacated and remanded the district court’s ruling
12
HRS § 431:10C-314 provides, as it did in 1999:
Jurisdiction. Any person may bring suit for breach of
any contractual obligation assumed by an insurer under a
policy of insurance containing such mandatory or optional
provisions in any state court of competent jurisdiction.
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affirming Allstate’s denial because the court had applied an
incorrect legal standard.13 90 Hawai#i at 220-22, 978 P.2d at
186-88. Due to Wilson, however, the ICA ruled that any payments
made by Gamata to the provider must, “as a logical consequence,
be returned to [Gamata].” 14 90 Hawai#i at 224, 978 P.2d at 190.
In addition, the ICA ruled that if the provider sought
reimbursement, he had to become a party plaintiff. See id.
3. Dacanay v. Liberty Mut. Ins. Co.
In Dacanay v. Liberty Mut. Ins. Co., 108 Hawai#i 393, 396,
120 P.3d 1128, 1131 (App. 2005), Dacanay initiated proceedings
with the Insurance Commissioner pursuant to HRS § 431:10C-212,
after Liberty Mutual Insurance Co. (Liberty Mutual) refused to
pay several claims for PIP benefits submitted by providers who
had treated him after an automobile accident. Liberty Mutual
then reached settlement with the providers. See 108 Hawai#i at
395, 120 P.3d at 1130. When Dacanay requested attorney’s fees
and costs, however, Liberty Mutual asserted, in light of Wilson
and Gamata, that Dacanay was not a real party in interest and was
therefore not entitled to an award of attorney’s fees and costs.
See 108 Hawai#i at 396, 120 P.3d at 1131.
13
The district court had affirmed Allstate’s denial on the basis
that it considered the treatment “palliative” rather than “curative,” not
“whether the expenses were appropriate, reasonable, and necessarily incurred.”
Gamata, 90 Hawai#i at 220-22, 978 P.2d at 186-88.
14
The ICA also cited to this court’s statement in Gov’t Emp. Ins.
Co. v. Hyman, 90 Hawai#i 1, 7, 975 P.2d 211, 217 (1999) that “the insured has
a right to receive treatment of injuries, [while] the provider has a right to
receive payment for treatment rendered.” (Brackets in original.)
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The ICA declined to address the real party in interest
issue, deeming its resolution unnecessary. See 108 Hawai#i at
399, 120 P.3d at 1134. Based on its review of the record, the
ICA concluded that Liberty Mutual had waived any objections to
Dacanay’s status as a real party in interest.15 See id.
The ICA stated in dicta, however, that unlike Wilson and
Gamata, which involved lawsuits filed in district court, Dacanay
stemmed from an administrative proceeding, and thus, DCRCP Rule
17 did not appear applicable.16 See id.
B. Act 198 of 2006
1. Circumstances Leading to Act 198
15
The circumstances the ICA considered when concluding that Liberty
Mutual had waived any objection included that Liberty Mutual (1) addressed its
denial of Dacanay’s health providers’ claims directly to Dacanay and
specifically alerted her to the option of seeking an administrative review, if
she wished to challenge the denials; (2) did not object to Dacanay’s status as
a real party in interest when she sought review by the Commissioner; (3)
settled the claims with Dacanay’s providers; (4) stipulated with Dacanay that
the dispute relating to the denials had been resolved; (5) stipulated to the
dismissal of Dacanay’s claims before the Commissioner for the denied PIP
benefits; and (6) only questioned Dacanay’s status as a real party in interest
after she sought an award of attorney’s fees and costs and it was too late for
her to substitute her health care providers as the real parties to her case.
See 108 Hawai#i at 400, 120 P.3d at 1135.
16
Because we overrule Wilson, we do not address a question raised by
the insureds in these cases but not addressed by the ICA: whether the real
party interest holding, which is based on DCRCP Rule 17(a), is applicable to
administrative proceedings. One of the purposes of administrative remedies is
to enable parties to resolve disputes in a less cumbersome and expensive
manner than normally encountered in a trial in court. 2 Am. Jur. 2d
Administrative Law § 4. Based on Hawai#i Administrative Rules (HAR) § 16-201-
1, however, which provides that “[w]henever this chapter is silent on a
matter, the authority or hearings officer may refer to the Hawaii Rules of
Civil Procedure for guidance,” Insurance Commissioner Schmidt’s Final Orders
applied Wilson’s real party in interest holding to these insureds. Although
we do not decide the issue, we note that “[i]t is axiomatic that an
administrative rule cannot contradict or conflict with the statute it attempts
to implement[,]" Kaleikini v. Thielen, 124 Hawai#i 1, 33, 237 P.3d 1067, 1099
(2010) (Acoba, J., concurring) (citation omitted), and HRS § 431:10C-212
expressly gives insureds the right seek to administrative review.
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Act 198 was triggered by our holding in Orthopedic Assocs.
of Haw., Inc. v. Haw. Ins. & Guar. Co., Ltd., 109 Hawai#i 185,
124 P.3d 930 (2005). This case involved the “down-coding” of
bills submitted by providers to PIP insurers:
Between January 1, 1993 and December 31, 1999, each of the
providers submitted bills to one or more of the insurers for
non-emergency treatments rendered to thousands of personal
injury protection (PIP) insureds allegedly injured in motor
vehicle accidents. The insurers were obligated to pay
appropriate PIP benefits under HRS chapter 431:10C on behalf
of their insureds. . . . The insurers, however, rather than
pay the bills as submitted, or deny the claim (in whole or
in part), altered the treatment code because they believed
that, "based on the available information, the services
rendered appear to be best described by [a different medical
treatment] code." The resulting effect of changing the
treatment codes was a reduction in the payment for the
service rendered, which the parties generally refer to as
"down-coding." The insurers, thus, (1) paid the bills
pursuant to the adjusted treatment codes and (2) offered to
negotiate with the providers as to the unpaid portions.
109 Hawai#i at 191, 124 P.3d at 936 (footnote omitted).
We held:
In light of the unambiguous mandatory language of HRS §
431:10C-304(3)(B), an insurer is required to provide written
notice of its denial--in whole or in part--of the claim for
benefits. Written notice to the claimant is required where
the denial or partial denial relates to the treatment
service and/or the charges therefor. Where the denial or
partial denial involves treatment services, the insurer must
also provide written notice to the provider.
109 Hawai#i at 196, 124 P.3d at 941.
Before Orthopedic Associates, HRS § 431:10C-304(3)(B), which
requires that an insurer mail denial notices in triplicate to the
claimant, and mail another copy to the provider, was followed by
insurers only for complete denials of a provider’s PIP billing.
This holding, however, required that such notices be mailed any
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time an insurer partially denied a provider’s PIP billing.
2. Text of Act 198 of 2006
The Legislature responded to Orthopedic Associates through
Act 198 of 2006. Act 198 provides as follows:
SECTION 1. The legislature notes that section 431:10C-
308.5, Hawaii Revised Statutes, limits the charges for and
frequency of medical treatment covered by personal injury
protection (PIP) benefits. In accordance with this
limitation on charges, the motor vehicle insurer has an
obligation to limit payment of the insured's benefits for
treatment.
The legislature finds that, as a result of the Hawaii
Supreme Court's ruling in Orthopedic Associates of Hawaii,
Inc. v. Hawaiian Insurance & Guaranty Co., Ltd., No. 24634,
slip. op. (Dec. 7, 2005), insurers have implemented a
process of issuing denials of benefits on all payments that
are less than the amount billed. Some of the larger insurers
are issuing several thousand denials each month. Copies of
these denials are given to both the provider and the
insured. This has prompted many calls from insureds who do
not understand the process and are concerned that the
insurer might be denying them access to medical treatment.
This Act is intended to clarify the process to be
followed in any billing adjustment or dispute where an
insurer receives and does not dispute the treatment rendered
but finds the billing to exceed the permissible charges.
This Act is not intended to affect the merits of the amount
billed or the amount owed under PIP. Specifically, this Act
clarifies that any adjustments to payment of the amount
billed is an acceptance of the treatment and not a denial of
benefit. Therefore, section 431:10C-304(3), which requires a
written denial of benefit, is not applicable to an
adjustment to the amount payable under PIP benefits. Rather
than issue a denial, this Act clarifies that the insurer's
obligation is to "pay all undisputed charges" and "negotiate
in good faith with the provider on the disputed charges."
SECTION 2. Section 431:10C-308.5, Hawaii Revised
Statutes, is amended by amending subsection (e) to read as
follows:
"(e) In the event of a dispute between the provider
and the insurer over the amount of a charge or the correct
fee or procedure code to be used under the workers'
compensation supplemental medical fee schedule, the insurer
shall:
(1) Pay all undisputed charges within thirty days
after the insurer has received reasonable proof of
the fact and amount of benefits accrued and demand
for payment thereof; and
(2) Negotiate in good faith with the provider on the
disputed charges for a period up to sixty days
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after the insurer has received reasonable proof of
the fact and amount of benefits accrued and demand
for payment thereof.
If the provider and the insurer are unable to resolve
the dispute[,] after a period of sixty days pursuant to
paragraph (2), the provider, insurer, or claimant may submit
the dispute to the commissioner, arbitration, or court of
competent jurisdiction. The parties shall include
documentation of the efforts of the insurer and the provider
to reach a negotiated resolution of the dispute. This
section shall not be subject to the requirements of section
431:10C-304(3) with respect to all disputes about the amount
of a charge or the correct fee and procedure code to be used
under the workers' compensation supplemental medical fee
schedule. An insurer who disputes the amount of a charge or
the correct fee or procedure code under this section shall
not be deemed to have denied a claim for benefits under
section 431:10C-304(3); provided that the insurer shall pay
what the insurer believes is the amount owed and shall
furnish a written explanation of any adjustments to the
provider and to the claimant at no charge, if requested. The
provider, claimant, or insurer may submit any dispute
involving the amount of a charge or the correct fee or
procedure code to the commissioner, to arbitration, or to a
court of competent jurisdiction."
SECTION 3. Statutory material to be repealed is
bracketed and stricken. New statutory material is
underscored.
SECTION 4. This Act shall take effect upon its
approval.
2006 Haw. Sess. Laws Act 198, §§ 1-4 at 840-41 (effective June
14, 2006).
III. BACKGROUND OF THESE CONSOLIDATED CASES
A. Administrative Proceedings
These cases arose from Liberty Mutual Fire Insurance
Company’s (Liberty Mutual) denial of PIP benefits to Chung Mi Ahn
(Ahn) and Kee Sun Kim (Kim) (collectively Insureds) for
treatments after motor vehicle accidents in 2004 and 2005. After
the denials, Insureds each sought administrative reviews with the
Insurance Division of the Department of Commerce and Consumer
Affairs (DCCA) pursuant to HRS § 431:10C-212, which allows
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insureds to seek administrative review of PIP denials.
Based upon our holding in Wilson, Liberty Mutual filed motions
for summary judgment, contending that Insureds were not real
parties in interest to pursue PIP benefits, and that the claims
had to be pursued directly by the providers. The Insurance
Commissioner’s Final Orders granting the motions were filed on
November 23, 2005, and May 12, 2006, respectively.
B. Circuit Court Appeal
Insureds appealed to the Circuit Court of the First Circuit
(circuit court) pursuant to HRS § 91-14. After a consolidated
hearing in October of 2006, the circuit court concluded that Act
198 of 2006, effective June 14, 2006, had “legislatively
overruled” Wilson. The circuit court concluded that Insureds
were real parties in interest to challenge Liberty Mutual’s
denials despite having reached the tort threshold.
C. ICA Appeal
Both Liberty Mutual and the Insurance Commissioner appealed
the circuit court’s ruling to the ICA. In a published opinion in
Kim v. Liberty Mut. Fire Ins. Co., 124 Hawai#i 415, 416, 245 P.3d
488, 489 (App. 2010), the ICA upheld the circuit court, stating:
In this appeal, we must determine the impact that Act 198
and its legislative history have on Wilson v. AIG’s real-
party-in-interest analysis. We conclude that the
Legislature, through Act 198 and its accompanying
legislative history, has clarified its intent and the nature
of an insured claimant’s interest in enforcing his or her
medical provider’s claim for payment, such that Kim
qualifies as a real party in interest. Accordingly, we hold
that Kim is a real party in interest and is entitled to
pursue her administrative action which challenged Liberty
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Mutual’s refusal to pay Kim’s medical provider for the
acupuncture treatments provided to Kim.
The ICA analyzed our decision in Wilson, Act 198 of 2006, and the
legislative history of Act 198 in reaching this conclusion. See
generally 124 Hawai#i at 418-24, 245 P.3d at 491-97.
The ICA then ruled in favor of Ahn through a summary
disposition order based on its opinion in Kim. See Ahn v.
Liberty Mut. Fire Ins. Co., No. 28314 (App. Jan. 25, 2011) (SDO).
D. Certiorari Applications
Liberty Mutual filed applications for writs of certiorari in
both cases.17 Liberty Mutual argues the ICA gravely erred in
concluding that HRS § 431:10C-308.5(e), as amended by Act 198 of
2006, conferred real party in interest status on Insureds. It
argues that the statute governs fee disputes, not complete
denials, and that the ICA’s decision conflicts with our holding
in Wilson. We accepted certiorari and consolidated the cases for
oral argument and disposition.
IV. DISCUSSION
A. Act 198 of 2006 is not retrospective; therefore, the
ICA erred in affirming the circuit court’s reversal of
the Insurance Commissioner’s Final Orders
“Review of a decision made by a court upon its review of an
17
Although Insurance Commissioner Schmidt appealed the circuit
court’s consolidated decision to the ICA, Insurance Commissioner Ito did not
file certiorari applications or responses, and at oral argument, counsel
stated that Ito defers to our decision on the real party in interest issue.
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administrative decision is a secondary appeal.” Brescia v. North
Shore Ohana, 115 Hawai#i 477, 491, 168 P.3d 929, 943
(2007)(citations omitted). The standard of review is one in
which this court must determine whether the court under review,
in this case the ICA, was right or wrong in its decision. See
id. (citation omitted). The standards as set forth in HRS §
91-14(g) (1993) are applied to the agency's decision. See id.
HRS § 91-14(g) provides:
(g) Upon review of the record the court may affirm the
decision of the agency or remand the case with instructions
for further proceedings; or it may reverse or modify the
decision and order if the substantial rights of the
petitioners may have been prejudiced because the
administrative findings, conclusions, decisions, or orders
are:
....
(4) Affected by other error of law[.]
Therefore, the ICA’s conclusion regarding the impact of Act 198
on our holding in Wilson is a question of law reviewed under the
right/wrong standard of review. We now address whether the ICA’s
conclusion was right or wrong.
Article VI, section 7 of the Hawai#i Constitution provides
that the "supreme court shall have power to promulgate rules
. . . in all civil . . . cases for all courts relating to . . .
procedure . . . , which shall have the force and effect of law."
Wilson interpreted a rule of civil procedure inconsistently with
a prior act of the legislature, HRS § 431:10C-308.6(f),18 which
18
See n.4, supra.
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provided that an insured could seek court review of a PIP denial.
Our procedural rule, DCRCP Rule 17(a), was actually consistent
with the statute, and provided that a party given a statutory
right of action is a real party in interest. We interpreted the
rule in the context of the no-fault statutory scheme, however,
and concluded that Wilson was not a real party in interest. In
general, when a conflict between two laws is irreconcilable, the
later enactment governs. See 73 Am. Jur. 2d Statutes § 169.
Therefore, Wilson’s holding prevailed over the statute.
In these consolidated cases, the Insurance Commissioner’s
Final Orders were issued well before the June 14, 2006 effective
date of Act 198 of 2006. Assuming Wilson’s interest holding
applied to administrative agencies,19 the Insurance Commissioner
was required to follow it. Although the circuit court’s agency
appeal hearing took place in October 2006, after the effective
date of Act 198, pursuant to HRS § 91-14(g), the circuit court
sat as an appellate court reviewing an agency decision, and was
ruling on whether the Insurance Commissioner’s Final Orders were
correct under the law at the time of issuance. Likewise, the ICA
was then reviewing whether the circuit court’s decision was
correct under the law.
Act 198 of 2006, however, was an enactment of the
Legislature after Wilson. If, as concluded by the circuit court
and the ICA, Act 198 conferred real party in interest on the
19
See n. 16, supra.
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Insureds, the Act would have had to have retrospective effect to
be of benefit to these Insureds.
HRS § 1-3 governs whether a legislative enactment has
retrospective effect, and provides:
§1-3 Laws not retrospective. No law has any
retrospective operation, unless otherwise expressed or
obviously intended.
Although the Legislature could have expressed its intent to give
Act 198 retrospective application, as noted above, Section 4 of
Act 198 of 2006 states that “(t)his Act shall take effect upon
its approval.” Therefore, the Act does not express an intent to
have retrospective application.
The parties agreed that the Act had retrospective effect,
but party agreements on questions of law are not binding on a
court. See Beclar Corp. v. Young, 7 Haw. App. 183, 190, 750 P.2d
934, 938 (App. 1988) (citation omitted); see also State v.
Tangalin, 66 Haw. 100, 101, 657 P.2d 1025, 1026 (1983) (“[I]t is
well established that matters affecting the public interest
cannot be made the subject of stipulation so as to control the
court's action with respect thereto.") (Citation omitted.)
Therefore, Act 198 of 2006 was not effective until June 14,
2006, after the Insurance Commissioner’s Final Orders.
Accordingly, the ICA erred in affirming the judgment of the
circuit court reversing the Commissioner’s Final Orders on the
basis of Act 198 of 2006.
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B. Wilson is overruled
Although the ICA erred in affirming the circuit court, it
correctly analyzed Act 198 of 2006 and its legislative history,
which expounded upon the nature of an insured’s interest in
pursuing PIP benefits. Act 198 of 2006 and these consolidated
cases provide occasion for us to revisit our holding in Wilson.
We do not lightly overrule precedent. As we stated in State
v. Garcia, 96 Hawai#i 200, 205-06, 29 P.3d 919, 924-25 (2001):
. . . The "policy of courts to stand by precedent and not to
disturb settled points" is referred to as the doctrine of
stare decisis, id. at 1406, and operates "as a principle of
self-restraint . . . with respect to the overruling of prior
decisions." Robinson v. Ariyoshi, 65 Haw. 641, 653 n.10,
658 P.2d 287, 297 n.10 (1982). . . . The benefit of stare
decisis is that it "furnishes a clear guide for the conduct
of individuals, to enable them to plan their affairs with
assurance against untoward surprise; . . . eliminates the
need to relitigate every relevant proposition in every case;
and . . . maintains public faith in the judiciary as a
source of impersonal and reasoned judgments." Id. (citing
Moragne v. States Marine Lines, Inc., 398 U.S. 375, 403, 26
L. Ed. 2d 339, 90 S. Ct. 1772 (1970)).
While "there is no necessity or sound legal reason to
perpetuate an error under the doctrine of stare decisis[,]"
id. (internal quotation marks and citation omitted), we
agree with the proposition expressed by the United States
Supreme Court that a court should "not depart from the
doctrine of stare decisis without some compelling
justification." Hilton v. South Carolina Pub. Ry. Comm’n,
502 U.S. 197, 202, 116 L. Ed. 2d 560, 112 S. Ct. 560 (1991)
(emphasis added). Cf. Dairy Road Partners v. Island Ins.
Co., Ltd., 92 Hawai#i 398, 421, 992 P.2d 93, 116 (2000)
(stating that "a court should not overrule its earlier
decisions unless the most cogent reasons and inescapable
logic require it") (internal quotation marks and citations
omitted)). . . .
(Emphasis added.)
When we decided Wilson, the Legislature’s intent to allow
insureds the right to bring court action to contest denials of
PIP benefits, as evidenced by the plain language of the statutes,
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was clear.20 We concluded, however, that the PIP statutory
scheme strongly suggested that only the provider, not the
insured, was entitled to pursue PIP payments from the insurer.
Various developments, however, compel us to revisit Wilson.
In this regard, although Act 198 of 2006 is not retrospective, it
may still be instructive. Liberty Mutual argues that, although
an insured contesting the amount of PIP benefits paid is now a
real party in interest due to the amendment to HRS § 431:10C-
308.5(e), the effect of Act 198 is limited by its own language to
disputes between a provider and insurer over the amount of a
charge and/or the use of a procedural code. It argues that PIP
denials are still governed by our holding in Wilson. The
Insureds, on the other hand, argue that Act 198 called into
question this court’s real party in interest analysis as to both
fee disputes and PIP denials.
Statutory analysis begins by examining the plain language of
the statute at issue. Zanakis-Pico v. Cutter Dodge, Inc., 98
Hawai#i 309, 316, 47 P.3d 1222, 1229 (2002). Where the language
of the statute is plain and unambiguous, the court’s only duty is
to give effect to its plain and obvious meaning. Allstate Ins.
Co. v. Schmidt, 104 Hawai#i 261, 265, 88 P.3d 196, 200 (2004).
Courts may, however, look to legislative history, including
20
Both HRS § 431:10C-308.6(f), at issue in Wilson, and § 431:10C-
314, at issue in Gamata, allowed for court review of PIP denials. Although §
431:10C-308.6 was repealed in 1997 along with the PRO scheme, see n. 4, supra,
§ 431:10C-314 remains in effect, but due to Wilson and Gamata, restricts
insureds from pursuing court action for PIP disputes.
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committee reports, to aid in ascertaining legislative intent, or
as a interpretive tool, when the language of the statute is
ambiguous or produces an absurd or unjust result. Estate of
Roxas v. Marcos, 121 Hawai#i 59, 68, 214 P.3d 598, 607 (2009)
(emphasis added).
At first glance, the plain language of HRS § 431:10C-
308.5(e), as amended by Act 198, appears to support Liberty
Mutual’s argument. Indeed, HRS § 431:10C-308.5 is entitled,
“[l]imitation on charges.” In amending subsection (e), however,
the Act added a redundant phrase in the last sentence: “The
provider, claimant, or insurer may submit any dispute involving
the amount of a charge or the correct fee or procedure code to
the commissioner, to arbitration, or to a court of competent
jurisdiction.” Before the amendment, subsection (e) already
stated that “the provider, insurer, or claimant may submit the
dispute [over the amount of a charge or the correct fee or
procedure code to be used] to the commissioner, arbitration, or a
court of competent jurisdiction.” Moreover, the added last
sentence now allows “any dispute” as compared to “the dispute” to
be submitted. In addition, granting real party in interest
status only to insureds contesting amounts of PIP benefits, but
not to insureds contesting PIP denials, would produce an absurd
or unjust result.21
21
Because we overrule Wilson, we do not need to decide whether Act
198 of 2006 overruled Wilson in its entirety, and not just with respect to
disputes covered under HRS § 431:10C-308.5. "[A] fundamental and longstanding
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Therefore, it is appropriate to review the legislative
history of Act 198, in this context. In this regard, Conference
Committee Report No. 128, is useful. It states:
The purpose of this measure is to streamline the process
for adjusting fee charges for medical services provided
under a motor vehicle insurance policy's personal injury
protection provisions.
Specifically, this measure allows insurers to adjust fee
charges to conform them to the applicable fee schedule
without issuing formal denial notices. This measure also
provides that fee adjustments constitute the acceptance of
treatments and not the denials of benefits.
Your Committee on Conference finds that recent litigation
over an insurer's practice of adjusting medical procedure
codes provided to an insured under a motor vehicle insurance
policy, paying the provider the undisputed amount billed,
then seeking to negotiate with the provider over the
disputed portion of the bill has revealed ambiguities in the
current law. Pursuant to Orthopedic Assoc. of Hawaii, Inc.
v. Hawaiian Ins. & Guar. Co., Ltd., 109 Haw. 185 (2005),
the Supreme Court ruled that in situations where the insurer
disputes billing codes or billing amounts, but not the
treatment provided, and pays the undisputed portion of the
bill, the insurer is still required to issue a formal denial
notice pursuant to section 431:10C-304(3)(B), Hawaii Revised
Statutes. Your Committee on Conference further finds that,
as a result of the Court's ruling in Orthopedic Assoc. of
Hawaii, insurers are required to issue denial notices in the
thousands, in triplicate, each month for billing
discrepancies, even though the amount disputed may be as
little as one dollar. The issuance of these denial notices
has not only significantly increased the amount of paperwork
required of insurers, but has also created a great deal of
stress and concern for the insureds who are confused as to
whether and why their treatments have been denied.
Your Committee on Conference believes that changes to the
law are necessary to streamline the onerous process required
by the Supreme Court and to clarify the legislative intent
that treatment denials and payment disputes should be
treated differently. Your Committee on Conference further
believes that an insured or claimant should not be denied
the opportunity to contest an insurer's decision to dispute
a provider's charges. In Wilson v. AIG Hawaii Ins. Co., 89
Haw. 45 (1998), the Court held that the statutory scheme
insulating claimants from personal liability for unpaid
portions of medical bills reflected a legislative intent not
to permit insureds to contest payment disputes,
notwithstanding statutory language permitting any insured to
contest such disputes. The law should provide a claimant
principle of judicial restraint requires that courts avoid reaching
constitutional questions in advance of the necessity of deciding them."
Hawai#i Gov’t Emps. Ass'n, AFSCME Local 152, AFL-CIO v. Lingle, 124 Hawai#i
197, 208, 239 P.3d 1, 12 (2010) (citation omitted).
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with the ability to submit a dispute to the commission,
arbitration, or a court, reflecting the legislative intent
to allow claimants to contest fee disputes. Patients have a
direct interest in proper payment to their doctors to
maintain appropriate treatment and patient-doctor
relationships. Your Committee on Conference finds that it is
necessary to permit claimants to contest fee disputes to
maintain the pool of doctors willing to treat accident
patients, as many doctors have stopped accepting accident
patients because of the Wilson case, making needed medical
treatment unavailable to many patients. Accordingly,
claimants, insurers, and providers should be statutorily
afforded real party in interest status and standing to
contest all fee disputes.
2006 House Journal, at 1893, 2006 Senate Journal, at 966
(emphasis added).
Although the statutory language of Act 198 of 2006 is
limited to disputes regarding amounts of PIP payments, its
legislative history clearly expresses the Legislature’s view that
insureds should be real parties in interest to pursue all PIP
disputes, not just disputes under HRS § 431:10C-308.5(e), whether
through the Insurance Commissioner, arbitration, or a court.
In addition, after Wilson, insureds were denied court review
of PIP denials except when the tort threshold had not been met,
and providers were required to personally become party plaintiffs
to pursue claims against insurance companies for denials of PIP
benefits.
The consequences of Wilson were not limited to court review
of PIP denials. Despite restricting court review,22 Wilson and
its progeny seemingly left insureds the statutory options of
22
Although the statute at issue in Wilson, HRS § 431:10C-308.6(f)
has been repealed, see n. 4, supra, HRS § 431:10C-314, at issue in Gamata, see
n.12, supra, remains in effect.
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administrative review23 or arbitration24 to pursue PIP disputes.
The Insurance Commissioner followed Wilson, however, and also
denied insureds with PIP expenses above the tort threshold access
to administrative review.25
Moreover, pursuant to Gamata, which followed Wilson,
providers were required to reimburse insureds who advanced PIP
payments while awaiting resolution of PIP payment disputes.
Finally, and most importantly, as indicated in the legislative
findings, due to Wilson, many doctors stopped accepting accident
patients, making needed medical treatment unavailable to many.
For these reasons, we are led to the conclusion that
legislative clarification, “compelling justification,” and
“cogent reasons and inescapable logic” require us to overrule
Wilson. Indeed, adherence to Wilson would result in “manifest
injustice,” as insureds with PIP expenses above the tort
threshold are denied avenues to pursue their contractual rights.
23
HRS § 431:10C-212.
24
HRS § 431:10C-213.
25
See text accompanying n. 16, and n. 16, supra. The record does
not reflect whether insureds have been able to continue to resort to
arbitration under HRS § 431:10C-213 to pursue claims for PIP denials.
However, subsection (d) of that statute provides that “[a]ny fee or cost of
the arbitrator shall be borne equally by the parties unless otherwise
allocated by the arbitrator[,]” a factor that would appear to discourage
insureds from pursuing this avenue.
Also, at oral argument, the Insurance Commissioner requested guidance on
whether providers would have to be noticed or named should we uphold the ICA’s
judgment and hold insureds to be real parties in interest. Resolution of this
question is inappropriate here because no party has argued or briefed it.
Lucas v. Liggett & Myers Tobacco Co., 51 Haw. 346, 350, 461 P.2d 140, 144
(1969).
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Accordingly, we overrule Wilson, and hold that insureds are real
parties in interest in actions against insurers regarding PIP
benefits.
V. CONCLUSION
The ICA erred in affirming the circuit court’s judgment
overruling the Insurance Commissioner’s Final Orders because Act
198 of 2006 was not retrospective, and our real party in interest
holding of Wilson was still in effect. “Cogent reasons and
inescapable logic,” however, compel us to overrule Wilson.
Therefore, we vacate the ICA’s judgments on appeal and the
circuit court’s judgments, and remand these cases to the circuit
court with instructions for the circuit court to, in turn, remand
these cases back to the Insurance Division for proceedings
consistent with this opinion.
James H. Monma of Matsui, Chung /s/ Paula A. Nakayama
& Ikehara (Randall Y.S. Chung
of Matsui, Chung & Ikehara /s/ Simeon R. Acoba, Jr.
with him on the briefs) for
Petitioner/Respondent/Appellee /s/ James E. Duffy, Jr.
/Appellant-Cross-Appellee
Liberty Mutual Fire Insurance /s/ Sabrina S. McKenna
Company
/s/ Gary W.B. Chang
Melvin Y. Agena of The Law
Offices of Melvin Y. Agena
(Andrew A. Agard of The
Andrew A. Agard Law Office
with him on the briefs) for
Chung Mi Ahn and Kee Sun Kim
Respondents/Claimants/Appellants
/Appellees-Appellees
Elmira K.L. Tsang, Deputy
Attorney General, State of
Hawai#i (David A. Webber and
Deborah Day Emerson, Deputy
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Attorneys General, State of
Hawai#i, on the briefs)
for Respondent/Respondent/
Appellee/Appellee-Cross Appellant
Insurance Commissioner of the
Department of Commerce and
Consumer Affairs
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