Jou v. Schmidt.

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Electronically Filed
Supreme Court
SCWC-29868
16-APR-2013
08:27 AM
IN THE SUPREME COURT OF THE STATE OF HAWAI#I
---o0o---
EMERSON M.F. JOU, M.D., Petitioner/Provider-Appellant,
vs.
J.P. SCHMIDT, Insurance Commissioner,
Department of Commerce and Consumer Affairs, State of Hawai#i,
Respondent/Respondent-Appellee,
and
DAI-TOKYO ROYAL INSURANCE COMPANY,
Respondent/Respondent-Appellee.
SCWC-29868
CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(ICA NO. 29868; CIV. NO. 05-1-1053)
APRIL 16, 2013
NAKAYAMA, ACTING C.J., ACOBA, MCKENNA, AND POLLACK,1 JJ.,
AND CIRCUIT JUDGE KIM, IN PLACE OF RECKTENWALD, C.J., RECUSED
1
Associate Justice Pollack was initially assigned to this case as a
substitute justice by reason of vacancy while he was a judge of the Circuit
Court of the First Circuit. He subsequently became a member of this court on
August 6, 2012.
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OPINION OF THE COURT BY NAKAYAMA, ACTING C.J.
When a medical provider has challenged a reduction or
denial of payment from an insurer prior to exhaustion of benefits
under an insured’s policy, the provider’s pursuit of his or her
claim for those benefits, even if ultimately unsuccessful, is not
unreasonable for the purpose of seeking attorney’s fees and costs
pursuant to Hawai#i Revised Statutes (HRS) § 431:10C-211(a).
In this case, Petitioner/Provider-Appellant Emerson
M.F. Jou, M.D. challenged the partial denial of personal injury
protection benefits after treating a patient insured by
Respondent/Respondent-Appellee Dai-Tokyo Royal Insurance Company
(DTRIC). While Jou’s request for an administrative hearing was
pending in the Insurance Division of the State Department of
Commerce and Consumer Affairs (DCCA), the insured’s available
benefits under her policy were exhausted on account of payments
to Jou and other medical providers. Due to the exhaustion, the
Insurance Division dismissed Jou’s claim, and the Circuit Court
of the First Circuit2 and the ICA affirmed that decision.
Jou also requested attorney’s fees and costs under HRS
§ 431:10C-211(a), which allows fees and costs to be awarded even
when a party does not prevail on its claim for benefits; pursuant
to a remand order of the ICA, the circuit court denied the
2
The Honorable Eden Elizabeth Hifo presided.
2
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request because it found Jou’s pursuit of the benefits to be
unreasonable given that DTRIC’s obligation to pay benefits to the
insured’s medical providers was satisfied once the insured’s
policy limits had been reached. The ICA also affirmed that
decision; consequently, only the issue of fees and costs is
before us in this case.
Because we disagree with the circuit court and the ICA
that Jou’s claim was unreasonable for the purpose of awarding
attorney’s fees and costs under HRS § 431:10C-211(a), we vacate
the judgments of both the ICA and the circuit court and remand
this case to the circuit court for further proceedings.
I. BACKGROUND
A. Background in Appeal No. 28106
1. Factual Background and DCCA Hearing
Norma Agbayani was injured in a motor vehicle accident
on November 27, 1995; she was insured by DTRIC and treated by Jou
and other doctors. After treatment, Jou sent a total of three
separate bills to DTRIC requesting payment; DTRIC paid Jou, but
based on reductions in payments made after the billing statements
were reviewed by DTRIC, Jou claimed that DTRIC wrongly withheld
payment in a total amount of $1,189.65 between December 1995 and
May 1996.
On December 9, 1998, Jou requested a hearing with
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DCCA’s Insurance Division to review the payment reductions. On
May 2, 2002, the Insurance Division’s Office of Administrative
Hearings docketed Jou’s request for a hearing; however, on May
20, 2002, the status conference on the matter was taken off the
calendar due to Jou’s failure to file a prehearing statement.3
Thereafter, on February 10, 2003, DTRIC notified Jou
that Agabayani’s no-fault benefits in the amount of $20,000.00
had been exhausted as of February 3, 1999.
On January 27, 2005, after the matter had been restored
to the calendar, the administrative hearings officer held a
hearing on DTRIC’s motion for summary judgment. The hearings
officer held that because Agbayani’s no-fault benefits had been
exhausted, Jou’s request for payment of the withheld $1,189.65
amount was moot; accordingly, the hearings officer recommended on
April 13, 2005 that DTRIC’s motion for summary judgment be
granted and that the matter be dismissed. On May 12, 2005,
Insurance Commissioner J.P. Schmidt adopted the hearings
officer’s findings and recommended order, granted DTRIC’s motion,
and dismissed the matter. As the hearings officer recommended,
3
The Office of Administrative Hearings notified Jou on June 18,
2004, over two years later, that it proposed to dismiss the matter because a
prehearing statement had not yet been filed. On June 23, 2004, Jou filed a
request for a hearing to contest the proposed dismissal. Although there is no
indication in the record that such a hearing was held or that a prehearing
statement was received from Jou, the administrative hearings officer dissolved
the notice of proposed dismissal and scheduled a new status conference on
June 29, 2004. Jou then filed his prehearing statement on July 29, 2004.
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Schmidt also ordered that the parties bear their own attorney’s
fees and costs.
2. Circuit Court Proceedings
On June 13, 2005, Jou filed his notice of agency appeal
to circuit court pursuant to Hawai#i Revised Statutes (HRS) § 91-
14.4 In his agency appeal, Jou primarily argued that Schmidt
erred by deciding that the case was moot, due to the exhaustion
of Agbayani’s no-fault benefits, in lieu of reaching the merits
of the case regarding the billing dispute between Jou and DTRIC.
Jou also argued that DTRIC was required, but failed, to issue a
formal notice of denial after it reduced his payments. In
response, both Schmidt and DTRIC pointed out that Jou never
challenged the hearing officer’s finding of fact that Agbayani’s
no-fault benefits were exhausted as of February 3, 1999.
However, they maintained that even if Jou had challenged the
finding, his claim for payment would still fail because DTRIC’s
4
HRS § 91-14 (Supp. 2004) provided then, as it does now, in
pertinent part:
(a) Any person aggrieved by a final decision and order in a
contested case . . . is entitled to judicial review thereof
under this chapter; but nothing in this section shall be
deemed to prevent resort to other means of review, redress,
relief, or trial de novo, including the right of trial by
jury, provided by law. . . .
(b) Except as otherwise provided herein, proceedings for
review shall be instituted in the circuit court within
thirty days after the preliminary ruling or within thirty
days after service of the certified copy of the final
decision and order of the agency pursuant to rule of court .
. . .
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contractual obligation to pay no-fault benefits ceased once DTRIC
had paid all of the $20,000 in benefits provided for in
Agbayani’s policy. DTRIC also argued in its brief that Jou’s
claims were barred because, pursuant to HRS § 431:10C-212,5 Jou
was required to request a hearing regarding DTRIC’s denial of his
claim for payment within sixty days of the denial; however, he
did so on December 9, 1998, more than two years after the last
challenged denial dated June 13, 1996. In an order dated July
18, 2006, the circuit court affirmed Schmidt’s decision,
concluding that the Insurance Division’s findings of fact were
not erroneous and conclusions of law were correct. Final
judgment was also entered on July 18, 2006.
3. The ICA’s August 27, 2008 Summary Disposition Order
Jou timely appealed on August 16, 2006. In the ICA,
Jou argued that the circuit court
(1) erred in finding DTRIC was not required to issue a
Notice of Denial after it made reduced and partial payments
on his claims; (2) erred in finding his claim against DTRIC
was moot on the grounds that [Agbayani]’s no-fault benefits
had already been exhausted; (3) erred in failing to order
5
HRS § 431:10C-212 (1993) provided then, as it does now, in
pertinent part:
(a) If a claimant or provider of services objects to the
denial of benefits by an insurer or self-insurer pursuant to
section 431:10C-304(3)(B) and desires an administrative
hearing thereupon, the claimant or provider of services
shall file with the commissioner, within sixty days after
the date or denial of the claim, the following:
(1) Two copies of the denial;
(2) A written request for review; and
(3) A written statement setting forth specific reasons
for the objections. . . .
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DTRIC to pay interest, attorney’s fees and costs; (4) erred
in affirming erroneous Findings of Fact and Conclusions of
Law; and (5) violated his due process and equal protection
rights, and made a “regulatory taking” of his interest in
balances, in violation of the Hawai#i and U.S.
constitutions.
Jou v. Schmidt, No. 28106, 2008 WL 3919856, at *1 (Haw. App. Aug.
27, 2008) (SDO) (formatting altered). Pursuant to a different
case also entitled Jou v. Schmidt, 117 Hawai#i 477, 486, 184 P.3d
792, 801 (App. 2008), the ICA agreed with Jou’s first point of
error that the circuit court “erred in finding that DTRIC was not
required to issue a formal notice of denial of benefits pursuant
to HRS § 431:10C-304(3)(B)[6] after it made both reduced and
partial payments on Jou’s claims.” Id. However, the ICA
rejected Jou’s other arguments or otherwise found them to be
without merit, noting that insurers may limit liability by the
terms of an insurance policy and agreeing with Schmidt and the
circuit court that Jou was not entitled to payment after Agbayani
reached the $20,000 limit of available no-fault benefits. See
id. at *2 (citing Salviejo v. State Farm Fire & Cas. Co., 87
Hawai#i 430, 434-35, 958 P.2d 552, 556-57 (App. 1998); Crawley v.
6
HRS § 431:10C-304(3)(B) (Supp. 1998) provided then, as it does
now:
If the insurer elects to deny a claim for benefits in whole
or in part, the insurer shall, within thirty days, notify
the claimant in writing of the denial and the reasons for
the denial. The denial notice shall be prepared and mailed
by the insurer in triplicate copies and be in a format
approved by the commissioner. In the case of benefits for
services specified in section 431:10C-103.5(a) the insurer
shall also mail a copy of the denial to the provider[.]
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State Farm Mut. Auto. Ins. Co., 90 Hawai#i 478, 484, 979 P.2d 74,
80 (App. 1999); Foote v. Royal Ins. Co. of Am., 88 Hawai#i 122,
125, 962 P.2d 1004, 1007 (App. 1998); Hosp. for Joint Diseases v.
State Farm Mut. Auto. Ins. Co., 779 N.Y.S.2d 534, 535 (N.Y. App.
Div. 2004)). The ICA so concluded based on a plain reading of
HRS § 431:10C-304(1) (Supp. 1998), which provided:
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, 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[.]
Id. at *1 (emphasis in original). Thus, “[o]nce DTRIC paid the
full amount of the policy limits, its obligation to pay any
additional outstanding bills due to the providers was
extinguished.” Id. at *2. The ICA specifically noted that Jou
never challenged that the policy limit was $20,000, but only the
conclusion that DTRIC “had no further responsibility for the
bills incurred by the insured.” Id. Because Jou did not appeal
the finding of fact that Agbayani’s benefits were exhausted, the
ICA concluded that “the [c]ircuit [c]ourt did not err in
rejecting Jou’s claim that he was entitled to additional payment
from DTRIC.” Id.
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The ICA also rejected Jou’s argument that he should
have been granted costs, attorney’s fees, and interest pursuant
to HRS § 431:10C-304(4) and (5). HRS § 431:10C-304(4) provided:
Amounts of benefits which are unpaid thirty days after the
insurer has received reasonable proof of the fact and the
amount of benefits accrued, and demand for payment thereof,
after the expiration of the thirty days, shall bear interest
at the rate of one and one-half per cent per month[.]
On this point, the ICA concluded that Jou did not “present any
discernible argument that DTRIC failed to pay interest on any
amounts that were determined to be due to him, but had remained
unpaid after the expiration of the thirty-day period specified in
the statute.” Jou, 2008 WL 3919856, at *3. HRS § 431:10C-304(5)
provided:
No part of no-fault benefits paid shall be applied in any
manner as attorney’s fees in the case of injury or death for
which the benefits are paid. The insurer shall pay, subject
to section 431:10C-211, in addition to the no-fault benefits
due, all attorney’s fees and costs of settlement or suit
necessary to effect the payment of any or all no-fault
benefits found due under the contract. Any contract in
violation of this provision shall be illegal and
unenforceable. It shall constitute an unlawful and
unethical act for any attorney to solicit, enter into, or
knowingly accept benefits under any contract[.]
The ICA pointed out that according to this section, costs and
fees are available “only if a claimant prevails in a settlement
or suit for no-fault benefits.” Jou, 2008 WL 3919856, at *3
(citing Iaea v. TIG Ins. Co., 104 Hawai#i 375, 380, 90 P.3d 267,
272 (App. 2004)). Because Jou did not prevail on his claim for
no-fault benefits due to their exhaustion, the ICA concluded that
subsection (5) did not support his argument for fees and costs.
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Id. Nevertheless, the ICA pointed to a section not cited by Jou,
HRS § 431:10C-211(a),7 to suggest that fees and costs may be
awarded even when a claimant is unsuccessful in seeking benefits.
Id. The ICA thus affirmed the circuit court’s judgment. Id.
Subsequent to the filing of the SDO, Jou filed a
“Request for Attorney’s Fees and Costs on Appeal” on September 5,
2008, citing HRS § 431:10C-211(a). On October 8, 2008, the ICA
issued an order remanding the case to the circuit court for the
determination of an award of appellate attorney’s fees, if any.
In the order, the ICA noted that although $8,760.00 of the
requested $9,172.77 in fees appeared to be reasonably incurred,
Jou was the non-prevailing party in both the circuit court and on
appeal, and therefore further proceedings in circuit court were
necessary pursuant to Kawaihae v. Hawaiian Insurance Cos., 1 Haw.
App. 355, 362, 619 P.2d 1086, 1092 (1980), to determine whether
Jou’s claim was “unreasonable, fraudulent, excessive, or
frivolous” under HRS § 431:10C-211(a) and Iaea. The ICA then
7
HRS § 431:10C-211(a) (1993) provided, in pertinent part:
A person making a claim for no-fault benefits may be allowed
an award of a reasonable sum for attorney’s fees, and
reasonable costs of suit in an action brought by or against
an insurer who denies all or part of a claim for benefits
under the policy, unless the court upon judicial proceeding
or the commissioner upon administrative proceeding
determines that the claim was unreasonable, fraudulent,
excessive or frivolous. Reasonable attorney’s fees, based
upon actual time expended, shall be treated separately from
the claim and be paid directly by the insurer to the
attorney.
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filed its judgment on appeal in No. 28106 on November 19, 2008.
B. Background in Appeal No. 29868 (The Present Appeal)
1. Proceedings in Circuit Court on Remand
On February 3, 2009, Jou filed his motion in circuit
court for appellate attorney’s fees and costs. Schmidt and DTRIC
both opposed the motion, and the circuit court held a hearing on
March 18, 2009. At that hearing, the circuit court made the
finding, pursuant to HRS § 431:10C-211(a), that Jou’s claim was
unreasonable and thus denied Jou’s motion. Specifically, the
circuit court stated that “the insurance company had zero, none,
not any obligation to pay beyond the policy limit which it was
always agreed, understood and uncontested had been exhausted and,
therefore, I find the claim to be unreasonable and therefore deny
the motion.” The circuit court subsequently filed a written
order on May 19, 2009.
After the hearing, Jou filed a motion on March 30, 2009
“to amend/correct or reconsider” his original motion for fees and
costs. In that motion, Jou essentially argued that although he
did not prevail due to the finding that benefits were exhausted,
the circuit court should not deny fees because his claim was not
unreasonable when originally made. Only DTRIC opposed this
motion; its position was that all of the fees requested were
incurred by Jou starting in 2004, after the subject benefits were
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already exhausted, and therefore it was unreasonable for him to
incur those fees in pursuit of his claim. On May 19, 2009, the
circuit court entered an order denying the motion. Accordingly,
the circuit court also entered the Final Judgment on Remand on
May 19, 2009.
2. The ICA’s April 2, 2012 Summary Disposition Order
Jou timely appealed on June 2, 2009. On this second
appeal of the case, Jou argued that, in light of the ICA’s remand
order, the circuit court erred by not only declining to award him
appellate attorney’s fees but also his fees for pursuing his
claim before DCCA and the circuit court. Jou also pointed out
that because Agbayani’s no-fault benefits were not exhausted at
the time he originally filed his claim with DCCA, his claim was
reasonable and the circuit court erred in concluding otherwise.
Jou also noted that he had prevailed with respect to the issue of
whether DTRIC was obliged to provide him formal notices of the
denial of payment.
In response, DTRIC argued that the circuit court did
not abuse its discretion in denying Jou’s request for fees
because it “correctly applied HRS § 431:10C-211(a).” In response
to Jou’s contention that he should be awarded fees because he was
the prevailing party on the first appeal, DTRIC noted that
although the ICA agreed with Jou that DTRIC had to issue formal
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notices of denial of benefits, it also rejected his argument that
he was entitled to payment after the available no-fault benefits
had been exhausted and therefore affirmed the circuit court’s
judgment in favor of DTRIC. According to DTRIC, Jou was
therefore not the prevailing party on the first appeal and was
not entitled to an award of fees and costs. Regarding an
insurance claimant who does not prevail, DTRIC noted that the
trial court has complete discretion in awarding fees and costs.
(Citing Wong v. Hawaiian Ins. Cos., 64 Haw. 189, 192, 637 P.2d
1144, 1146 (1981)). Thus, DTRIC argued that it was within the
circuit court’s discretion to deny Jou’s request for fees and
costs based on its conclusion that pursuing the claim for
benefits was unreasonable where there was no dispute that the
benefits had long been exhausted. Finally, DTRIC challenged
Jou’s argument that it was “‘exculpat[ing] itself’ from an extra-
contractual liability” it owed to him for the claimed benefits,
attorney’s fees, and costs because it did not send him the
required formal notice of denial of benefits pursuant to HRS §
431:10C-304(3)(B). On that issue, DTRIC simply pointed out that
the only issue before the ICA on appeal from the circuit court’s
final judgment on remand was whether the circuit court properly
denied Jou’s request for appellate attorney’s fees and costs, not
whether DTRIC was otherwise liable to Jou. Schmidt filed a short
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brief with the ICA in this second appeal largely echoing DTRIC’s
brief. Nevertheless, he also emphasized that the only issue
within the scope of the ICA’s remand was Jou’s request for
appellate attorney’s fees and costs; consequently, the circuit
court did not have jurisdiction to consider any of Jou’s other
arguments seeking to have the circuit court change or modify its
previous rulings against him.
In its SDO, the ICA first recognized that Jou’s points
of error addressing issues other than his request for appellate
attorney’s fees and costs were beyond the scope of remand and
thus without merit. Jou v. Schmidt, No. 29868, 127 Hawai#i 3,
274 P.3d 1247, 2012 WL 1088713, at *2 (App. Apr. 2, 2012) (SDO).
As for the fees and costs issue, the ICA concluded that the
circuit court did not abuse its discretion in denying Jou’s
request. Id. at *3. The ICA acknowledged but rejected Jou’s
contention that the circuit court should have awarded attorney’s
fees and costs on the ground that his claim was reasonable when
first instituted. Id. While initial reasonableness was one
factor in considering the request, the ICA noted that because the
request was only for appellate fees, “it was also appropriate for
the court to consider . . . whether it was reasonable to continue
to pursue the claim through a secondary appeal, even though the
PIP [no-fault] benefits had long been exhausted and the claimant
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had, in effect, conceded that the benefits were exhausted.” Id.
(citing Kawaihae, 1 Haw. App. at 362, 619 P.2d at 1092 (“[T]he
fact that appellee has been awarded attorney’s fees incurred with
respect to the trial does not require that she be awarded
attorney’s fees incurred with respect to the appeal . . . the
issue of fees on appeal should be decided by the trial court in
the exercise of its discretion[.]”)). The ICA also rejected
Jou’s argument that he should be awarded fees because it agreed
with him in the previous appeal that DTRIC was required to issue
formal notices of denial of benefits pursuant to HRS § 431:10C-
304(3)(B). Id. On that issue, the ICA noted that DTRIC’s
failure to issue the notices only exposed it to potential civil
penalties under HRS § 431:10C-117(b) and (c).8 Id. The ICA
specifically noted, however, that such failure did not
individually provide Jou a remedy against DTRIC. Id.
Accordingly, the ICA entered its judgment on May 14, 2012
affirming the circuit court’s judgment on remand.
8
HRS § 431:10C-117 (2005) provided then, as it does now, in
pertinent part:
(b) Any person, in the capacity of a licensed or
unlicensed motor vehicle insurer, self-insurer, producer, or
other representative, who violates any provision of this
article shall be assessed a civil penalty not to exceed
$5,000 for each violation.
(c) Any person, in the capacity of a licensed or
unlicensed motor vehicle insurer, self-insurer, producer, or
other representative, who knowingly violates any provision
of this article shall be assessed a civil penalty of not
less than $3,000 and not to exceed $10,000 for each
violation.
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Jou then filed his application for writ of certiorari
on May 14, 2012. Neither Schmidt nor DTRIC filed a response to
the application.
II. STANDARD OF REVIEW
A. Motion for Attorney’s Fees and Costs
This court reviews the trial court’s grant or denial of
attorney[’s] fees and costs under the abuse of discretion
standard. Price[ v. AIG Haw. Ins. Co.], 107 Hawai#i [106,]
110, 111 P.3d [1,] 5 [(2005)] (citations omitted).
The trial court abuses its discretion if it bases its ruling
on an erroneous view of the law or on a clearly erroneous
assessment of the evidence. Stated differently, 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.
Id. (citations omitted).
Enoka v. AIG Haw. Ins. Co., 109 Hawai#i 537, 544, 128 P.3d 850,
857 (2006).
III. DISCUSSION
The only issue in this case is whether Jou is entitled
to attorney’s fees and costs under HRS § 431:10C-211(a) on the
ground that it was reasonable for him to pursue the first appeal
in this case even though he acknowledged that the no-fault
benefits under the policy were already exhausted. Although there
are no prior Hawai#i cases defining “unreasonable” for purposes
of HRS § 431:10C-211(a), we are guided by Black’s Law Dictionary,
which defines “unreasonable” as “[n]ot guided by reason;
irrational or capricious.” Black’s Law Dictionary 1679 (9th ed.
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2009). Based on the following, because Jou requested a hearing
to challenge the reduced billings long before the no-fault
benefits in Agbayani’s policy were exhausted, we disagree with
the conclusion of the circuit court and the ICA that Jou’s claim
was unreasonable under HRS § 431:10C-211(a).
The ICA’s remand order in the first appeal, No. 28106,
specifically stated that “a further proceeding is necessary to
determine whether [Jou’s] claim was ‘unreasonable, fraudulent,
excessive, or frivolous[]’” because he was not the prevailing
party in that appeal with respect to the claim for the unpaid no-
fault benefits. The ICA recognized that, pursuant to HRS §
431:10C-211(a), a party that does not prevail as to the benefits
can nevertheless be awarded attorney’s fees and costs. (Citing
Iaea, 104 Hawai#i at 183, 90 P.3d at 274). However, the ICA
remanded for further proceedings in circuit court on the
authority of Kawaihae, which stated that “the issue of fees on
appeal should be decided by the trial court in the exercise of
its discretion pursuant to HRS § 294-30.” (Quoting Kawaihae, 1
Haw. App. at 362, 619 P.2d at 1092) (internal quotation marks
omitted). HRS § 294-30 was the predecessor statute to HRS §
431:10C-211(a). See, e.g., Enoka, 109 Hawai#i at 561, 128 P.3d
at 874. On remand, as noted, the circuit court subsequently
found that Jou’s claim was unreasonable and thus denied the
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request for appellate fees and costs.
In affirming the circuit court’s judgment on remand in
this second appeal, the ICA noted in particular that the no-fault
benefits at issue were exhausted long before any appeal was taken
and that Jou never challenged the factual finding that the
benefits were completely exhausted. Jou, 2012 WL 1088713, at *2.
Accordingly, the ICA concluded that “therefore, further fees
incurred in pursuing [the no-fault] benefits on appeal from the
[c]ircuit [c]ourt to [the ICA] were not reasonably incurred.”
Id. The ICA also further explained that the reasonableness
inquiry included questioning “whether it was reasonable to
continue to pursue the claim through a secondary appeal, even
though the [no-fault] benefits had long been exhausted and [Jou]
had, in effect, conceded that the benefits were exhausted.” Id.
at *3.
The statutes that govern attorney’s fees and costs in
suits seeking payment of no-fault benefits pursuant to an
insurance contract are HRS §§ 431:10C-211(a) and 431:10C-304(5).
As the ICA has summarized these two related statutes:
Construing HRS §§ 431:10C-211(a) and 431:10C-304(5)
according to the foregoing principles of statutory
construction, we conclude [. . .] that: (1) an award of
attorney’s fees and costs is mandatory [under HRS § 431:10C-
304(5)] if a claimant prevails in a settlement or suit for
no-fault benefits; and (2) an award of attorney’s fees and
costs may, in the exercise of a court’s or the [Insurance]
Commissioner’s discretion, be awarded to a nonprevailing
claimant [under HRS § 431:10C-211(a)], as long as the claim
is not determined to be unreasonable, fraudulent, excessive,
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or frivolous.
Iaea, 104 Hawai#i at 379, 90 P.3d at 271. Thus, first, we
recognize that Jou is not entitled to fees and costs under HRS §
431:10C-304(5). Under that section, an insurer “shall pay”
attorney’s fees and costs “in addition to[,]” and thus separately
from, personal injury protection benefits due to a medical
provider, but only when those fees and costs are “necessary to
effect the payment of any or all personal injury protection
benefits found due under the contract.” (Emphases added). Here,
fees and costs could not be awarded under HRS § 431:10C-304(5)
because Jou did not succeed in recovering the payments withheld
by DTRIC in the amount of $1,189.65.
However, pursuant to HRS § 431:10C-211(a) and Iaea,
fees and costs may be allowed in the situation where a claimant
does not prevail “in an action brought by or against an insurer
who denies all or part of a claim for benefits under the
policy[.]” Nevertheless, the claimant cannot be awarded fees and
costs under that section where “the court upon judicial
proceeding . . . determines that the claim was unreasonable,
fraudulent, excessive, or frivolous.” HRS § 431:10C-211(a).
Here, the circuit court on remand entered a finding on the record
that Jou’s claim was unreasonable at the appellate level because
the benefits were already exhausted and there was no way Jou
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could effect payment of the disputed amount; the circuit court
thus denied Jou’s request for costs and fees. Our review of the
circuit court’s decision is for an abuse of discretion.
A. The circuit court and the ICA erred in concluding that Jou’s
claim was unreasonable due to exhaustion of benefits where Jou
had made his claim prior to that exhaustion
Jou filed his agency appeal in circuit court on June
13, 2005, and he subsequently appealed to the ICA on August 16,
2006. On December 7, 2005, this court decided Orthopedics
Associates of Hawai#i, Inc. v. Hawaiian Insurance & Guaranty Co.,
109 Hawai#i 185, 124 P.3d 930 (2005). In that case, numerous
medical providers brought a complaint against several insurers
for the alleged underpayment of claims for services rendered
under the insurers’ respective no-fault insurance contracts. Id.
at 191, 124 P.3d at 936. The complaint sought injunctive and
declaratory relief against down-coding of the providers’ bills,
as well as damages for the underpaid amounts of the bills. Id.
at 192, 124 P.3d at 937. The circuit court had entered summary
judgment for the insurers. Id. at 193, 124 P.3d at 938.
This court reversed, beginning our analysis by
reaffirming an insurer’s obligation, codified in statute, to pay
no-fault benefits within thirty days after the insurer had
received from the provider reasonable proof of the fact and
amount of benefits. Id. at 194-95, 124 P.3d at 939-40. This
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court held both that an insurer had an obligation to give notice
to a provider if the insurer elected to deny a claim for
treatment and/or costs in whole or in part, and that an insurer
was not authorized to down-code providers’ bills. Id. at 194-96,
124 P.3d at 939-41. The case was remanded for further
proceedings. Id. at 198, 124 P.3d at 943.
Jou therefore filed the first appeal to the ICA in this
case in light of the Orthopedics Associates decision, a favorable
ruling for medical providers in a case factually similar to this
one. The ICA nevertheless held in this case that because the no-
fault benefits under Agbayani’s policy had become exhausted in
the course of litigation--specifically, after Jou initially
sought review of the insurer’s denial but before Jou appealed--
DTRIC’s obligation to pay Jou’s outstanding bills was
extinguished. Jou, 2008 WL 3919865, at *1-2. This, however, was
by no means a foregone conclusion.
When Jou first appealed, there were no published cases
in this jurisdiction holding that a provider who filed a claim
with an insurer before a policy was exhausted could not recover
for a wrongfully denied claim if the benefits subsequently became
exhausted. The circuit court, however, assumed that Jou would
not be able to recover after the policy limits were reached in
the course of litigation. Thus, at the conclusion of the hearing
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on Jou’s motion for fees and costs, the circuit court stated:
[I]n reading the decision of the [ICA] that led to the order
of remand, it’s perfectly clear as was pointed out at page
two from [DTRIC’s] memo in op[position] that the insurance
company had zero, none, not any obligation to pay beyond the
policy limit which it was always agreed, understood and
uncontested had been exhausted, and therefore I find the
claim to be unreasonable and therefore deny the motion.
It may be that the ICA’s first SDO in this case
suggested that there was greater certainty surrounding this
issue. The ICA reasoned that it was well-recognized that an
insurer had the right to limit its liability by the terms of its
policy. Jou, 2008 WL 3919865, at *1-2. However, the Hawai#i
cases cited by the ICA to support the corollary that a provider
in Jou’s circumstances could not recover were neither directly on
point nor dispositive of Jou’s case. Id. The cited cases all
addressed whether an insurer could limit its liability through
the language of a policy, an issue that was not relevant to this
case as there was no dispute over whether Agbayani was entitled
to benefits under the policy. See id. (citing Salviejo v. State
Farm Fire & Cas. Co., 87 Hawai#i 430, 958 P.2d 552 (App. 1998)
(holding that an insurer could limit its liability through a
household exclusion in its policy and that the exclusion did not
violate public policy); Crawley v. State Farm Mut. Auto. Ins.
Co., 90 Hawai#i 478, 979 P.2d 74 (App. 1999) (affirming that
insurers have the right to limit liability and holding that a
clause in a mother’s automobile policy did not provide coverage
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for her imputed statutory liability for her nonresident minor
child’s accident); Foote v. Royal Ins. Co. of Am., 88 Hawai#i
122, 962 P.2d 1004 (App. 1998) (holding that a “family member”
clause did not render a policy ambiguous and that an officer or
shareholder of a closely-held corporation was not entitled to
uninsured motorist benefits as a “named insured” under a business
policy)).
The ICA also cited a New York case to support its
holding, but that case was also distinguishable. In Hospital for
Joint Diseases v. State Farm Mutual Automobile Insurance Co., the
court held that an insurer was not required to pay a hospital for
services provided to an insured where the insurer had already
paid the full policy benefits. 779 N.Y.S.2d 534, 535 (N.Y. App.
Div. 2004). However, in that case, it appeared that the
hospital’s claim to the insurer was not made until after the
benefits under the policy were already exhausted: “The evidence
submitted by the defendant was sufficient to establish that the
subject policy limits for personal injury protection benefits had
been exhausted by prior claims.” Id. (emphasis added).
In fact, the uncertainty in Hawai#i as to whether a
provider whose claim was wrongfully denied prior to the
exhaustion of benefits is entitled to recover was noted in a
federal district court as late as 2010, approximately four years
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after Jou filed his first appeal to the ICA in this case. In
Painsolvers, Inc. v. State Farm Mutual Automobile Insurance Co.,
the plaintiff sought a preliminary injunction, arguing that the
insurer would contend that even if it was found to be liable for
several claims, the insurer “could then claim benefits had been
exhausted and thus not pay the claims.” 685 F. Supp. 2d 1123,
1139 (D. Haw. 2010). In a lengthy footnote, the district court
responded that “[t]wo unpublished dispositions [the plaintiff
did] not cite might support [the plaintiff’s] position, but
neither is dispositive.” Id. at 1139 n.17 (emphasis added). The
district court then cited the ICA’s SDO from the first appeal in
this case and described the SDO as follows:
[T]his is an unpublished and nonbinding decision of the
Intermediate Court of Appeals of Hawai#i, which the court
there specifically limited to the facts of that case.
Furthermore, the factual background can be distinguished as
it references “any additional outstanding bills” and it is
unclear whether the plaintiff’s claims there were made prior
to the exhaustion of the limit.
Id. (emphases added).9 The district court thus suggested that
whether a plaintiff can recover from an insurer after a policy
has been exhausted might depend on whether a plaintiff’s claim
9
The district court also cited AIG Hawai#i Insurance Co. v. Pain
Management Clinic of Hawai#i, Inc., No. 26743, 109 Hawai#i 468, 128 P.3d 350,
2006 WL 380183 (Jan. 9, 2006) (mem. op.). In that unpublished disposition,
this court determined that an insurer did not have to pay certain benefits
because policy limits had been reached. Painsolvers, 685 F. Supp. 2d at 1139
n.17. The district court explained that AIG Hawai#i was distinguishable
because exhaustion of benefits was the insurer’s defense in the first instance
and not, as the plaintiff had suggested would occur, a defense asserted after
the insurer was found to be liable. Id.24
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was made before or after the policy limits were reached. See id.As noted, the only Hawai#i cases addressing the issue have been
unpublished and are therefore not dispositive.
Not only was there uncertainty in Hawai#i as to whether
Jou could recover, but as Jou noted, liability in excess of
policy limits had been imposed on an insurer in a case where the
insurer engaged in wrongful conduct toward the claimant. See
Delmonte v. State Farm Fire & Cas. Co., 90 Hawai#i 39, 52 n.9,
975 P.2d 1159, 1172 n.9 (1999) (“Even 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.”); see also Coleman v. Holecek, 542 F.2d 532, 538
n.7 (10th Cir. 1976) (“[L]iability for a judgment in excess of
the policy limits will be imposed where there was something the
insurance company could have and should have done that would have
relieved the insured of his excess liability[.]”) (internal
quotation marks and citation omitted); S. Gen. Ins. Co. v.
Wellstar Health Sys., Inc., 726 S.E.2d 488 (Ga. App. 2012)
(holding that an insurer was liable to a health care provider for
the amount of the provider’s hospital liens even though the
insurer had already paid its policy limits directly to the
insured, because the insurer could have satisfied the insured’s
claim by verifying the liens, making payment directly to the
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health care provider, and then remitting any balance of the
policy limits to the insured).
In addition, as Jou noted, there are good policy
reasons for adopting the view that a person in Jou’s position
could recover. Because Jou filed his claim before the policy was
exhausted, his claim would be superior to that of other providers
who might have been paid by DTRIC after Jou filed his claim. As
between the insurer and the medical provider, it would seem that
the insurer should bear the loss if its wrongful conduct resulted
in the provider not obtaining payment for services rendered.
Further, Jou could have reasonably believed, and in
fact argued, that the courts of this state would not adopt a rule
that left providers who would have been compensated if not for an
insurer’s wrongful conduct without a remedy because such a rule
would create stronger incentives for insurance companies to
withhold, reduce, or deny payments to the providers.
If an insurer has no obligation to pay a provider once
the policy limits are exhausted, the insurer can defeat a lawsuit
alleging wrongful conduct as soon as the policy limits are
reached. This may also cause doctors to hesitate in providing
services to insureds because the doctor would incur the risk of
not being paid by an insurance company even if benefits were
still available at the time the doctor treated the insured and
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presented his or her bills to the insurer for payment.
Thus, when Jou first appealed, it was uncertain whether
he could recover on his claim under the circumstances, and, more
importantly, there was favorable authority and policy supporting
his position. As such, it would seem that Jou’s pursuit of his
appeal was not irrational or without reason.
B. Jou’s request for fees and costs is further supported by the
success of his prior claim that insurers are required to provide
formal written notice of a denial or reduction of benefits to a
medical provider
In addition, it would seem that Jou’s pursuit and
eventual vindication of his claim that DTRIC failed to provide
proper notice of the denial should have factored into the circuit
court’s consideration of whether Jou’s appeal was reasonable.
Jou argued to the circuit court on remand that he had prevailed
on the question of whether insurers had to provide formal notice
to medical providers upon reducing or denying a provider’s claim.
Jou explained that the ruling was important because if the
insurer does not send out formal notice, then the “provider’s
remedies are not triggered under companion statutes in the then
no-fault system” and this could leave a provider without “a
triggering point to take their remedies forward.”
Jou further explained that “after years and years of
litigation[,] the [Hawai#i] Supreme Court agreed with [Jou] on
that point.” Indeed, as noted, the ICA agreed with Jou in
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concluding that DTRIC was required to provide formal notice upon
reduction or denial of benefits. It would seem eminently
reasonable for Jou to pursue a claim that was later adjudicated
in his favor, the result of which was to reaffirm an insurer’s
obligation to give notice when it reduces or denies a provider’s
claim. However, at the hearing on Jou’s motion for costs and
fees on remand, the circuit court did not address the denial of
notice issue and only referred to the lack of an obligation on
DTRIC’s part to pay once the policy benefits were exhausted.10
In this regard, the ICA concluded that DTRIC’s failure
to give statutorily required notice merely exposed it to
potential civil penalties and did not provide a remedy to Jou on
appeal. Jou, 2012 WL 1088713, at *3. However, obtaining a
remedy on appeal is not required in order to obtain attorney’s
fees under HRS § 431:10C-211(a). As stated in Kawaihae, even if
a “claim is denied in its entirety,” 1 Haw. App. at 362, 619 P.2d
at 1092, a plaintiff may nevertheless recover reasonable
10
Moreover, the circuit court’s May 19, 2009 written order stated:
Pursuant to the remand of the ICA, this [c]ourt does not
find that JOU’s claim was fraudulent, excessive or
frivolous. However, this [c]ourt is mindful of the body of
case law holding that an insurance company has no obligation
to pay on a claim for No-fault/PIP benefits beyond the No-
fault/PIP policy limit. This [c]ourt further finds that the
finding by the Hearings Officer that the policy benefits
were exhausted as of February 3, 1999 was clear and was
never challenged by JOU. Accordingly, this [c]ourt finds
JOU’s arguments and his claims that reimbursement should
have been paid under the provisions of the No-fault/PIP
insurance policy of DTRIC were unreasonable.
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attorney’s fees and costs under that statute upon a determination
by the trial court that the claim was not unreasonable,
fraudulent, excessive, or frivolous. Moreover, because Jou’s
claim was not denied in its entirety, an award of attorney’s fees
would seem even more appropriate.
Based on all of the foregoing reasons, we therefore
conclude that Jou’s request for attorney’s fees and costs was not
unreasonable under HRS § 431:10C-211(a) because his underlying
claim for personal injury protection benefits based on medical
services rendered to the insured had been made before the
insured’s policy limit was reached.
IV. CONCLUSION
Accordingly, we vacate the ICA’s May 14, 2012 Judgment
on Appeal and the circuit court’s May 19, 2009 Final Judgment on
Remand, and we remand this case to the circuit court for further
proceedings consistent with this opinion.
Stephen M. Shaw, for /s/ Paula A. Nakayama
petitioner/provider-appellant
/s/ Simeon R. Acoba, Jr.
J. Patrick Gallagher, for
respondent/respondent- /s/ Sabrina S. McKenna
appellee Dai-Tokyo Royal /s/ Richard W. Pollack
Insurance Company
/s/ Glenn J. Kim
Elmira K.L. Tsang, for
respondent/respondent-
appellee J.P. Schmidt,
Insurance Commissioner,
Department of Commerce and
Consumer Affairs, State of
Hawai#i
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