STAND. COM. REP. NO. 713

                                   Honolulu, Hawaii
                                                     , 1999

                                   RE:  S.B. No. 1234
                                        S.D. 1




Honorable Norman Mizuguchi
President of the Senate
Twentieth State Legislature
Regular Session of 1999
State of Hawaii

Sir:

     Your Committee on Commerce and Consumer Protection, to which
was referred S.B. No. 1234 entitled: 

     "A BILL FOR AN ACT RELATING TO INSURERS,"

begs leave to report as follows:
     
     The purpose of this measure is to require an insurer to
provide an insured with independent counsel when a conflict of
interest arises on a claim under an insurance policy.

     The Consumer Lawyers of Hawaii presented testimony in
support of this measure.  One individual, while not present,
submitted testimony in support.  The Hawaii Insurers Council and
State Farm Insurance companies testified in opposition.  The
State Insurance Commissioner presented comments on the measure.

     Your Committee finds that this measure addresses the
conflict of interest between an insurance company and its insured
when the insurer contests coverage, yet provides a defense for
the insured.  A conflict of interest for the attorney may arise
due to several factors, including the potential of the insurer to
steer the underlying claim in a manner that will hurt the insured
and benefit the insurer, or by providing an inadequate defense in
order to save on expenses where the insurer believes that it will
ultimately prevail.

     Your Committee is concerned that while the law provides that
the attorney hired and paid by the insurer would owe a duty of
loyalty to the insured and not the insurer, that may be

 
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                                   STAND. COM. REP. NO. 713
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unrealistic, especially when the attorney receives a substantial
portion of his or her work from insurance companies.  

     Your Committee has amended this measure to:

     (1)  Include after "duty to defend" the phrase "and/or
          indemnify" in subsection (a) to reflect that most
          policies also include the duty to indemnify;

     (2)  Delete the language in subsection (a) regarding the
          insurer's legal counsel determination of right to
          coverage, as it is the court that makes the coverage
          determination;

     (3)  Add language in subsection (b) to clarify that
          independent legal counsel is selected by the insured;

     (4)  Add language to the waiver statement in subsection (b)
          to clarify that independent counsel is paid by the
          insurer;

     (5)  Replace the binding arbitration language in subsection
          (c) with language to require any disputes regarding
          fees to be submitted to the court in which the action
          was filed, or a court of competent jurisdiction if no
          action was filed;

     (6)  Clarify in subsection (d)(1) that attorneys selected as
          independent counsel must have substantial experience in
          handling similar claims or cases;

     (7)  Delete the language regarding privilege in subsection
          (e) to reflect that disclosure issues between
          independent counsel and the insurer are normally not
          over privileged material; and

     (8)  Make technical, nonsubstantive amendments for clarity.

     As affirmed by the record of votes of the members of your
Committee on Commerce and Consumer Protection that is attached to
this report, your Committee is in accord with the intent and
purpose of S.B. No. 1234, as amended herein, and recommends that
it pass Second Reading in the form attached hereto as S.B.
No. 1234, S.D. 1, and be placed on the calendar for Third
Reading.


 
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                                   STAND. COM. REP. NO. 713
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                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committee on Commerce and
                                   Consumer Protection,



                                   ______________________________
                                   BRIAN KANNO, Co-Chair



                                   ______________________________
                                   BRIAN T. TANIGUCHI, Co-Chair

 
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