Requires an insurer to provide an insured with independent
counsel when a conflict of interest arises on a claim under an
insurance policy.

HOUSE OF REPRESENTATIVES                H.B. NO.963        
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



 1      SECTION 1.  Chapter 431:13, Hawaii Revised Statutes, is
 2 amended by adding a new section to be appropriately designated
 3 and to read as follows:
 4      "431:13-     Conflict of interest; provision of independent
 5 counsel.  (a)  It shall be deemed a conflict of interest between
 6 an insurer and its insured when a policy of insurance imposes
 7 upon an insurer the duty to defend an insured, the insurer
 8 defends a claim against the insured under a reservation of its
 9 right to deny or contest coverage, and the insurer's legal
10 counsel determines the insured's right to coverage on the claim.
11 No conflict of interest shall be deemed to exist solely because a
12 claim for punitive damages or a claim for amounts in excess of
13 the insured's policy limits has been brought against the insured.
14      (b)  When a conflict of interest arises between an insurer
15 and its insured, the insurer shall inform the insured of the
16 conflict of interest and provide the insured with independent
17 legal counsel to represent the insured on the insured's claim.
18 The insured may waive its right to be provided with independent
19 counsel by signing a statement with wording substantially similar

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                                     H.B. NO.963        

 1 to the following:
 2      "I have been advised and informed of my right to select
 3      independent counsel to represent me in this lawsuit.  I have
 4      been advised that there is a potential conflict between my
 5      interest and the interest of my insurer.  I have considered
 6      this matter fully and freely waive my right to select
 7      independent counsel at this time.  I authorize my insurer to
 8      select a defense attorney to represent me in this lawsuit.
 9      I have been advised that I should contact independent
10      counsel before signing this waiver."
11      (c)  The insurer's obligation to pay the independent
12 counsel's fees is limited to the reasonable attorneys' fees and
13 costs typically charged in the community in which the claim arose
14 or is being defended, for an attorney with similar experience or
15 of similar reputation.  Any dispute concerning attorneys' fees
16 charged by the independent counsel shall be resolved by final and
17 binding arbitration under the Commercial Rules of the American
18 Arbitration Association by a single arbitrator mutually selected
19 by the parties to the dispute.
20      (d)  An insurer may require that the independent counsel
21 representing the insured possess a minimum of: 
22      (1)  Five years of civil litigation experience including
23           substantial experience defending claims of the same

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                                     H.B. NO.963        

 1           nature or type as the claim brought against the
 2           insured; and
 3      (2)  Errors and omissions coverage of $50,000.
 4      (e)  Where independent counsel has been selected by the
 5 insured pursuant to this section, the independent counsel and the
 6 insured shall disclose to the insurer all information concerning
 7 the legal action, except privileged materials relevant to
 8 coverage disputes, and shall timely inform and consult with the
 9 insurer on all matters related to the legal action.  Any claim of
10 privilege asserted shall be subject to an in camera review in the
11 court in which the action is pending.  Any information disclosed
12 by the insured or the independent counsel shall not be deemed a
13 waiver of the privilege as to any other party.
14      (f)  Where independent counsel has been selected by the
15 insured pursuant to this section, both the counsel provided by
16 the insurer and the independent counsel selected by the insured
17 shall be allowed to participate in all aspects of the litigation.
18 Counsel shall cooperate fully in the exchange of information
19 consistent with each counsel's ethical and legal obligations to
20 the insured.  Nothing in this section shall relieve the insured
21 of the insured's duty to cooperate with the insurer under the
22 terms of the insurance agreement."
23      SECTION 2.  New statutory material is underscored.

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                                     H.B. NO.963        

 1      SECTION 3.  This Act shall take effect upon its approval.
 3                           INTRODUCED BY:  _______________________