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Lee v. Government Employees Insurance Co.

United States District Court, D. Hawai'i

November 28, 2012

Cindy LEE, Plaintiff,
v.
GOVERNMENT EMPLOYEES INSURANCE COMPANY, a Maryland corporation, Does One through One Hundred, inclusive, and of each them, Defendant.

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John Y. Choi, Auto Accident Law Center, Honolulu, HI, for Plaintiff.

Erin Iliana MacDonald, J. Patrick Gallagher, Gallagher Kane Amai, Honolulu, HI, for Defendant.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT GOVERNMENT EMPLOYEES INSURANCE COMPANY'S MOTION FOR SUMMARY JUDGMENT AND DENYING PLAINTIFF CINDY LEE'S CROSS MOTION FOR SUMMARY JUDGMENT

LESLIE E. KOBAYASHI, District Judge.

Before the Court are: (1) Defendant Government Employees Insurance Company's (" GEICO" ) Motion for Summary Judgment (" Motion" ), filed on July 11, 2012 [dkt. no. 28]; and (2) Plaintiff Cindy Lee's (" Plaintiff" ) Cross Motion for Summary Judgment (" Cross Motion" ), filed on September 5, 2012 [dkt. no. 34]. The parties filed their respective memoranda in opposition on October 5, 2012 (" Plaintiff's Opposition" and " GEICO's Opposition" ), [dkt. nos. 44, 42,] and their replies on

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October 12, 2005 (" GEICO's Reply" and " Plaintiff's Reply" ) [dkt. nos. 47, 46].

These matters came on for hearing on November 1, 2012. Appearing on behalf of GEICO was Patrick Gallagher, Esq., and appearing on behalf of Plaintiff was John Choi, Esq. After careful consideration of the Motion and Cross Motion, supporting and opposing memoranda, and the arguments of counsel, GEICO's Motion is HEREBY GRANTED IN PART AND DENIED IN PART, and Plaintiff's Cross Motion is HEREBY GRANTED IN PART AND DENIED IN PART for the reasons set forth below.

BACKGROUND

On November 29, 2011, Plaintiff filed her First Amended Complaint (" Complaint" ) against GEICO in state court. On December 23, 2011, GEICO removed the instant action to this district court based on diversity jurisdiction. [Dkt. no. 1.]

On and prior to October 4, 2008, GEICO insured Plaintiff and her husband, Clarence Lee (" Mr. Lee," collectively, " the Lees" ), under an automobile insurance policy that Mr. Lee first purchased on December 13, 2001 (" GEICO Policy" ). When Mr. Lee purchased the GEICO Policy, he rejected uninsured motorist (" UM" ) and underinsured motorist (" UIM" ) coverage for his two vehicles. [Complaint at ¶¶ 10-11, 15.]

Plaintiff claims that, in selecting from the different GEICO insurance coverage options, " the Lees relied on the expertise of Defendant GEICO, and/or other Defendants to advise them, in accordance with Hawaii law, on selecting insurance coverage under the GEICO policy." [ Id. at ¶ 12.] Plaintiff alleges that GEICO failed to inform Mr. Lee of the benefits of UM and UIM coverage, such as additional protection in case of loss where the liable party was uninsured or underinsured. Plaintiff contends that GEICO only informed Mr. Lee that rejecting UM and UIM coverage would result in " ‘ cheaper premium payments.’ " [ Id. at ¶ 16.] Plaintiff thus argues that Mr. Lee had no meaningful understanding of GEICO's presentation of UM and UIM coverage. [ Id. at ¶¶ 16, 25, 27.]

On October 24, 2004, the Lees added a third vehicle to the GEICO Policy. Plaintiff contends that, because this addition constituted a material change in the GEICO Policy, GEICO was required, but failed, to make a new offer to Mr. Lee to purchase or reject stacked and/or increased UM and UIM coverage. On or about July 23, 2008, the Lees added a fourth vehicle to the GEICO Policy. [1] Again, Plaintiff contends that GEICO failed to offer Mr. Lee the option to purchase or reject stacked and/or increased UM and UIM coverage when adding the fourth vehicle to the GEICO Policy. [ Id. at ¶¶ 17-22 (citing Allstate Ins. Co. v. Kaneshiro, 93 Hawai'i 210, 221, 998 P.2d 490, 501 (2000)).]

On or about October 4, 2008, Plaintiff was driving her 1994 Toyota Camry, when it was struck by another vehicle (" subject collision" ), rendering Plaintiff's vehicle a " total loss." [ Id. at ¶ 6.] The vehicle of the liable driver, Jas Rae Nesmith, was also insured by GEICO for $20,000/$40,000 per person/accident in bodily injury (" BI" ) coverage. [ Id. at ¶¶ 7-8.] Plaintiff contends that the negligence of Jas Rae Nesmith

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caused the subject collision, triggering all applicable UIM coverage. [ Id. at ¶ 9.]

As of the date of the subject collision, the Lees had four vehicles insured under the GEICO Policy, including Plaintiff's 1994 Toyota Camry, the vehicle involved in the subject collision. The GEICO Policy provided the following coverage: (a) BI limits of $100,000/$300,000 each person/accident; (b) property damage (" PD" ) limits of $100,000 each accident; and (c) personal injury protection (" PIP" ) limits of $10,000 each person. [ Id. at ¶ 24; Cross Motion, Decl. of Counsel (" Pltf.'s Counsel Decl." ), Exh. 2 (summary of insurance purchases and policy declaration sheets).] In sum, with respect to Mr. Lee's purchase of the GEICO Policy on December 13, 2001 and the addition of vehicles on October 24, 2004 and July 23, 2008 (collectively, " relevant dates" ), Plaintiff alleges that: (1) GEICO failed to explain to Mr. Lee what UM and UIM insurance provided under the GEICO Policy; (2) Mr. Lee reasonably relied on the expertise of GEICO to offer UM and UIM coverage; and (3) GEICO failed to offer UM and UIM coverage, as required by Hawaii law. [Complaint at ¶¶ 25-35.]

According to the Complaint, on October 24, 2004 and July 23, 2008, GEICO's maximum available limit for UM and UIM stacked or non-stacked coverage under its policies was $300,000/$300,000 each person/accident for each insured vehicle. [ Id. at ¶¶ 36, 40.] Plaintiff alleges in the Complaint that, if GEICO had offered UM/UIM coverage on these two dates, Mr. Lee would have purchased stacked UM/UIM coverage at the same amount as his bodily injury liability coverage, $100,000 available limit under the GEICO Policy for the Lees' four covered vehicles. [ Id. at ¶¶ 38, 42.]

GEICO has informed Plaintiff, through her counsel, that no UIM coverage is available to the Lees under the GEICO Policy. [ Id. at ¶ 43; Pltf.'s Counsel Decl., Exh. 4 (letter from GEICO denying Plaintiff's UIM claim).] Plaintiff asserts that she is entitled to make a claim for stacked UIM coverage under the GEICO Policy because of GEICO's failure to make new offers to the Lees to purchase or reject stacked UM and/or UIM coverage between December 23, 2001 and October 4, 2008. In essence, Plaintiff urges this Court to conclude that, based on Kaneshiro and/or Hawai'i law, the GEICO Policy provided stacked UIM coverage with limits of $100,000 for each of the Lees' four covered vehicles, totaling $400,000 in UIM coverage for the subject collision. [ Id. at ¶¶ 44-45 (citing Kaneshiro, 93 Hawai'i at 221, 998 P.2d at 501).] Both of the instant motions focus on Plaintiff's First Cause of Action, which seeks a declaratory judgment with respect to the issue of whether Plaintiff is entitled to UIM benefits under the GEICO Policy.

The Complaint also asserts the following: Second Cause of Action— Negligence; Third Cause of Action— Breach of Contract and/or Contractual Warranties; Fourth Cause of Action— Unfair and/or Deceptive Trade Practices, in violation of Haw.Rev.Stat. Chapter 480; Fifth Cause of Action— Breaches of Covenant of Good Faith and Fair Dealing; Sixth Cause of Action— Negligent and/or Intentional Infliction of Emotional Distress; and Seventh Cause of Action— Punitive Damages.

In her Second Cause of Action, Plaintiff asserts that, as late as December 13, 2001, GEICO knew or reasonably should have known that it had duties to timely offer Mr. Lee an opportunity to purchase or reject stacked and/or increased UM and UIM coverage whenever a material change was made to the GEICO Policy. [ Id. at ¶ 47 (citing Kaneshiro, 93 Hawai'i at 221, 998 P.2d at 501).] Plaintiff alleges that GEICO breached its aforementioned duties from December 13, 2001 through

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October 4, 2008. Due to GEICO's breach, Plaintiff asserts that she sustained general and special damages. [ Id. at ¶¶ 48-51.]

Plaintiff alleges breach of contract and/or contractual warranties in her Third Cause of Action. According to Plaintiff, the Hawai'i Supreme Court's " ‘ material change’ to an existing policy' doctrine ... is a public policy that is included in and governs the terms and conditions of UM and UIM coverages in the GEICO [P]olicy." [ Id. at ¶ 54 (quoting Kaneshiro, 93 Hawai'i at 221, 998 P.2d at 501).] Plaintiff contends that GEICO failed to offer stacked and/or increased UM and UIM coverage to the Lees and, relying on Kaneshiro, contests GEICO's position that the GEICO Policy does not provide UIM coverage for the subject collision. Plaintiff therefore argues that GEICO's actions constitute breaches of contract and/or breaches of contractual warranties. [ Id. at ¶¶ 55-57.]

In Plaintiff's Fourth Cause of Action, she alleges that GEICO's acts and/or omissions were unfair and/or deceptive trade practices, in violation of Haw.Rev.Stat. § 480-2. [ Id. at ¶¶ 59-63.]

Plaintiff's Fifth Cause of Action alleges that GEICO's refusal to acknowledge that Plaintiff is entitled to stacked UIM coverage totaling $400,000 for the subject collision constitutes a breach of the covenant of good faith and fair dealing. [ Id. at ¶¶ 64-66.]

Plaintiff's Sixth Cause of Action is for GEICO's negligent and/or intentional infliction of emotional distress. [ Id. at ¶¶ 67-69.]

Finally, Plaintiff's Seventh Cause of Action is for punitive damages. Plaintiff asserts that, in denying Plaintiff stacked UM and UIM coverages under the GEICO Policy, GEICO's acts and/or omissions were " willful, wanton, oppressive, reckless, committed with such malice as implies a sprit of mischief or criminal indifference to civil obligations, and/or exhibits and entire want of care that would raise the presumption of a conscious indifference to the consequences." [ Id. at ¶ 71.]

Plaintiff seeks: a declaratory judgment; special, general, treble, and/or exemplary damages; attorneys' fees and costs pursuant to Haw.Rev.Stat. §§ 431:10-242, 480-13 or other Hawaii law; prejudgment interest; and any other appropriate relief. [ Id. at pgs. 12-13.]

I. GEICO's Motion

First, GEICO argues that, since the time of purchase, the GEICO Policy did not provide UIM coverage. [Mem. in Supp. of Motion at 1-2; Concise Statement of Facts in Supp. of Motion (" GEICO's CSOF" ), Decl. of Linda Langley (" Langley Decl." ),[2] Exh. C (the Lees' policy declaration sheet and policy contract form).] According to GEICO, under Hawaii law, automobile insurance policies do not include UM or UIM coverage if " ‘ any named insured in the policy’ rejects such coverage in writing." [Mem. in Supp. of Motion at 6 (quoting Haw.Rev.Stat. §§ 431:10C-301(b)(3), (4)).] GEICO points to Plaintiff's own admission that Mr. Lee initially rejected UM and UIM coverage when purchasing the GEICO Policy for his first two vehicles on December 13, 2001. [ Id. (citing Complaint at ¶ 15).]

Second, GEICO contends that it is entitled to summary judgment because, as a matter of law, the Lees' subsequent addition of two vehicles to the GEICO Policy did not require GEICO to re-offer UM/UIM coverage to the Lees. GEICO heavily relies on Kaneshiro for the proposition that " ‘ a new offer of [UM/UIM] coverage is not required with every policy change,

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but only when there is a material change in the policy.’ " [ Id. at 8 (quoting Kaneshiro, 93 Hawai'i at 216, 998 P.2d at 496).] GEICO contends that, " [t]o constitute a ‘ material change,’ a change ‘ must have a significant impact on the legal relationship and obligations between insurer and insured under the policy, and the impact of that change must be considered in light of any other changes in the policy and the public policies [behind the UM/UIM statute].’ " [ Id. (quoting Kaneshiro, 93 Hawai'i at 220, 998 P.2d at 500).] GEICO maintains that, pursuant to Kaneshiro, the events since Mr. Lee's purchase of the GEICO Policy did not constitute material changes so as to require GEICO to extend a new offer of UM/UIM coverage to the Lees. [ Id. at 9 (citing Haw.Rev.Stat. § 431:10C-301(e)(2)).] By analogy to the facts of Kaneshiro, GEICO asserts that the Lees never made a material change to the GEICO Policy so as to significantly impact the legal relationship between the parties, and thus GEICO was not required to extend a new offer of UM/UIM coverage. [ Id. at 9-11.]

Specifically, GEICO emphasizes the fact that UM/UIM coverage attaches to the named insureds, rather than the insured vehicles. GEICO then points out that the Lees have been named insureds throughout the duration of the GEICO Policy, whereas Kaneshiro involved the change of the policy holder as a result of the insureds' divorce. Compare Mem. in Supp. Motion at 13, with Kaneshiro, 93 Hawai'i at 220, 998 P.2d at 500. GEICO therefore argues that the addition of vehicles had no impact on the legal relationship between GEICO and the Lees, and did not constitute material changes in the GEICO Policy. [Mem. in Supp. of Motion at 13.]

GEICO further argues that the additions of the Lees' third and fourth vehicles cannot have constituted material changes because the GEICO Policy " already contemplated the extension of existing coverage to any vehicles acquired during the policy period." [ Id. at 14 (emphasis in original).] GEICO argues that this position is consistent with the holdings in similar cases from other jurisdictions. [ Id. at 14-16 (citing Makela v. State Farm Mutual Auto. Ins. Co., 147 Ill.App.3d 38, 100 Ill.Dec. 505, 497 N.E.2d 483, 489 (Ill.Ct.App.1986); El-Habr v. Mountain States Mutual Casualty Co., 626 S.W.2d 171 (Tex.Ct.App.1981); Torgerson v. State Farm Mutual Auto. Ins. Co., 957 P.2d 1283, 1287 (Wash.Ct.App.1998); Wright v. Pemco Mutual Ins. Co., No. 64233-2-I, 2010 Wash.App. LEXIS 727, at *11 (Wash.Ct.App. Feb. 25, 2010)).]

GEICO further contends that the public policy behind § 431:10C-301 does not support the requirement that a new offer of UM/UIM coverage be made each time vehicles are added to a policy. [ Id. at 18-19.] According to GEICO, " public policy favors avoiding the expense and inconvenience (to both insureds and insurers) of obtaining written rejection of UIM each time a new car is added to the policy." [ Id. at 20.] GEICO therefore argues that it was not obligated to re-offer UM/UIM coverage to the Lees for each of their subsequently added vehicles after Mr. Lee rejected such coverage when he initially purchased the GEICO Policy. [ Id. ]

Based on these arguments, GEICO urges the Court to grant summary judgment in its favor.

II. Plaintiff's Opposition

A. GEICO's Withholding of Information

As an initial matter, Plaintiff asserts that GEICO failed to disclose to the Court the fact that Karen was added to the GEICO Policy on July 23, 2008. [Cindy Aff. at ¶¶ 10-11; Clarence Aff. at ¶¶ 9-11.] Plaintiff urges the Court to deny GEICO's

Page 953

Motion based on GEICO's omission alone. [Pltf.'s Opp. at 12-13.]

Furthermore, according to Plaintiff, GEICO should have offered the Lees the option to purchase UM/UIM coverage when they purchased another policy for their fourth vehicle in 2008. Plaintiff contends that, when Mr. Lee purchased an insurance policy for the Lees' fourth vehicle, he informed GEICO that Karen would be the primary driver. Plaintiff asserts that GEICO's memorandum to the Court includes no mention of Karen in the GEICO Policy. Plaintiff, therefore, urges the Court to deny the Motion on the ground that it is based on an incomplete record, which, Plaintiff asserts, is contrary to summary judgment law. [ Id. at 12-13.]

B. The Addition of Karen to the GEICO Policy

Plaintiff argues that the addition of Karen to the GEICO Policy altered the legal relationship between GEICO and the Lees so as to constitute a material change. Plaintiff contends that, because Karen was a newly licensed teenager, adding her to the GEICO Policy increased GEICO's exposure to loss.[3] [ Id. at 14 (citing Kaneshiro, 93 Hawai'i at 220, 998 P.2d at 500).]

Relying on Matheny v. Glen Falls Insurance Co., 152 F.3d 348 (5th Cir.1998), Plaintiff asserts that the " addition of a newly licensed driver to an automobile policy constitutes a material change." [ Id. ] In Matheny, the Fifth Circuit Court of Appeals, applying Louisiana law, held that, when the insured added his newly licensed child as an insured driver to the automobile insurance policy, the insurer was required to make a new offer of UM/UIM coverage to the insured. 152 F.3d at 354.

Plaintiff asserts that the Lees paid GEICO $200.20 every six months to cover their fourth vehicle under the GEICO Policy, which reflected a thirty-seven percent increase from the three-vehicle policy premium, and a forty-six percent increase [4] from the two-vehicle policy premium. [Pltf.'s Opp. at 15; Pltf.'s Counsel Decl., Exh. 2 at 1, 8.[5]] By purchasing insurance for their fourth vehicle, the Lees' six-month insurance premium increased by $133.90. [Pltf.'s Opp. at 15-16; Pltf.'s Counsel Decl., Exh. 2 at 1.] Plaintiff interprets GEICO's acknowledgment that the addition of a driver to a policy is " ‘ in persona’ " to mean " any insurance company bears more risk of loss[.]" [ Id. at 16 (citing Mem. in Supp. of Motion at 11).]

Plaintiff also contests GEICO's argument that the Kaneshiro court did not even consider whether the addition of a vehicle constitutes a material change to a policy. [ Id. at 16.] Plaintiff's next argument relies on Kaneshiro for the proposition that an increase in their premium significantly impacted the legal relationship and obligations between GEICO and the Lees. According to Plaintiff, Kaneshiro establishes that " insurance premiums are vital in assessing whether a material

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change has been made to the policy [.]" [ Id. at 17.] On October 24, 2004, when the Lees purchased automobile insurance for their third vehicle, their six-month premium increased from $431.40 to $538.40. [ Id.; Pltf.'s Counsel Decl., Exh. 2 at 1.] Then, on July 23, 2008, the Lees' six-month premium increased to $673.30 after they purchased automobile insurance for their fourth vehicle. [Pltf.'s Opp. at 17; Pltf.'s Counsel Decl., Exh. 2 at 1.] Plaintiff therefore asserts that these increases in the GEICO Policy premium altered the legal relationship and obligations between the parties so as to constitute material changes. [Pltf.'s Opp. at 17.]

Plaintiff also argues that the Lees' increase in the number of insured vehicles under the GEICO Policy from two to three vehicles constituted a material change. In support of her argument, Plaintiff relies on Donaghey v. Cumis Insurance Society, 600 So.2d 829, 831 (La.Ct.App.1992), which was also cited by the Kaneshiro court. In Donaghey, the trial court granted the defendant insurance company's motion for summary judgment, finding that the addition of a car to the automobile insurance policy was not a material change. On appeal, the Louisiana Court of Appeals reversed, holding that the plaintiff's addition of a vehicle to his automobile insurance policy was not a " renewal or reinstatement" under the policy, and therefore required a separate rejection of UM insurance. Donaghey, 600 So.2d at 830-31.[6]

According to Plaintiff, the Donaghey court based its reasoning on the fact that the " addition of the third car increased the coverage provided by the insurer even though none of the other coverage levels had changed." [Pltf.'s Opp. at 19 (citing Donaghey, 600 So.2d at 831).] Plaintiff thus argues that the Lees' subsequent purchases of insurance for their third and fourth vehicles increased the GEICO Policy's coverage, even though the Lees made no changes to the bodily injury limits. [ Id. ]

Plaintiff argues that, pursuant to Kaneshiro, Hawaii's UIM statute " ‘ is a remedial statute that must be liberally construed[.]’ " [ Id. at 19-20 (quoting Kaneshiro, 93 Hawai'i at 218, 998 P.2d at 498).] Plaintiff asserts that, under the totality of the circumstances, GEICO is required to provide her with stacked UIM coverage, and thus Plaintiff urges the Court to deny the Motion as to the First Cause of Action. [ Id. ]

C. Bad Faith

With regard to her allegation of GEICO's bad faith, Plaintiff asserts that GEICO unreasonably denied her claim and, therefore, failed to consider her interest with equal footing to its own. Plaintiff urges the Court to consider the following list of principles when considering the Motion as to her Fifth Cause of Action:

• An insurer [sic] is not precluded from bringing her bad faith claim even where there is no coverage liability on the underlying policy. Enoka v. AIG Hawaii Ins. Co., 109 Hawai'i 537, 128 P.3d 850 (2006).
• An insurer is liable for bad faith where it unreasonably delays or denies payment of benefits.

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Best Place Inc. v. Penn America Ins. Co., 82 Hawai'i 120, 133[, 920 P.2d 334, 347] (1996).
• An insurer that acts maliciously towards its insured may be held liable for punitive damages. Id.
• The implied covenant is breached, whether the carrier pays the claim or not, when its conduct damages the very protection or security which the insured sought to gain by buying insurance. Id. at 131[, 920 P.2d 334].
• Where insurance company fails to deal fairly and in good faith with its insured by refusing, without proper cause, to compensate its insured for a loss covered by the policy, such conduct may give rise to a cause of action in tort for breach of the implied covenant of good faith and fair dealing. Id. (citation omitted).
• In securing the reasonable expectations of the insured under the insurance policy, there is usually an unequal bargaining position between the insured and the insurance company. Id. at 128[, 920 P.2d 334].
• In delineating the benefits which flow from an insurance contract relationship, we must recognize that in buying insurance an insured usually does not seek to realize a commercial advantage, but, instead, seeks protection and security from economic catastrophe. Id. at 129[, 920 P.2d 334].
• The whole purpose of insurance is defeated if an insurance company can refuse or fail, without justification, to pay a valid claim. Id. at 128-9 [, 920 P.2d 334].
• An insurance company must treat its insured's interest equally with its own. Delmonte v. State Farm Fire and Cas. Co., 90 ...

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