Authorizes the use of private attorneys to prosecute insurance fraud.

A BILL FOR AN ACT

SECTION 1. Chapter 431, Hawaii Revised Statutes, is amended by adding five new sections to part III of article 10C to be appropriately designated and to read as follows:

"§431:10C-A Action by private attorneys in insurance fraud actions; intervention by State. (a) Subject to 431:10C-D, a private attorney may bring a civil action for a violation of section 431:10C-307.8 on behalf of the State. The action shall be brought in the name of the State. The action may be dismissed only with the written consent of the court.

(b) A copy of the complaint and written disclosure of substantially all material evidence and information the private attorney possesses shall be served on the attorney general in accordance with the Hawaii rules of civil procedure. The complaint shall be filed in camera, shall remain under seal for at least sixty days, and shall not be served on the defendant until the court so orders. The State may elect to intervene and proceed with the action within sixty days after it receives both the complaint and the material evidence and information.

(c) The State, for good cause shown, may move the court for extensions of the time during which the complaint remains under seal under subsection (b). Any such motions may be supported by affidavits or other submissions in camera. The defendant shall not be required to respond to any complaint filed under this section until twenty days after the complaint is unsealed and served upon the defendant in accordance with the Hawaii rules of civil procedure.

(d) Before the expiration of the sixty-day period or any extension obtained, the State shall:

(e) When a private attorney brings an action under this section, no person other than the State may intervene or bring a related action based on the facts underlying the pending action.

(f) If multiple complaints are filed for the same action under subsection (b), then the attorney general may select the private attorney that has met the filing requirements of subsection (b) whom the attorney general deems to be the best candidate to represent the State's interest in successfully resolving the action in favor of the State.

(g) In no event may a private attorney bring an action under section 431:10C-307.8 that is based upon allegations or transactions that are the subject of a civil or criminal investigation by the State, civil suit, or an administrative civil money penalty proceeding in which the State is already a party.

§431:10C-B Rights of parties to insurance fraud actions. (a) If the State proceeds with an action under section 431:10C-307.8, the State shall have the primary responsibility for prosecuting the action and shall not be bound by an act of the private attorney bringing the action under section 431:10C-A. The private attorney shall have the right to continue as a party to the action, subject to the following limitations:

(b) The defendant, by motion upon the court, may show that unrestricted participation during the course of the litigation by the private attorney initiating the action would be for purposes of harassment or would cause the defendant undue burden or unnecessary expense. At the court's discretion, the court may limit the participation by the private attorney in the litigation.

(c) If the State elects not to proceed with the action, the private attorney who initiated that action shall have the right to conduct the action, except as provided in section 431:10C-A(f). If the State so requests, it shall be served with copies of all pleadings filed in the action and shall be supplied with copies of all deposition transcripts at the State's expense. When a person proceeds with the action, the court, without limiting the status and rights of the private attorney initiating the action, may nevertheless permit the State to intervene at a later date upon showing of good cause.

(d) Regardless of whether the State proceeds with the action, upon motion and a showing by the State that certain actions of discovery by the private attorney initiating the action would interfere with the State's investigation or prosecution of a criminal or civil matter arising out of the same facts, the court may stay the discovery for a period of not more than sixty days. The court may extend the sixty-day period upon a motion and showing by the State that the State has pursued the investigation or prosecution of the criminal or civil matter with reasonable diligence and the proposed discovery would interfere with the ongoing investigation or prosecution of the criminal or civil matter.

(e) Notwithstanding section 431:10C-A, the State may elect to pursue its claim through any alternate remedy available to the State, including any administrative proceedings to determine civil monetary penalties. If any alternate remedy is pursued in another proceeding, the private attorney initiating the action shall have the same rights in the proceedings as the private attorney would have had if the action had continued under this section. Any finding of fact or conclusion of law made in the other proceeding that becomes final shall be conclusive on all parties to an action under this section.

(f) Regardless of whether the State elects to proceed with the action, the parties to the action shall receive court approval of any settlements reached.

§431:10C-C Awards to insurance fraud plaintiffs. (a) Except as otherwise provided in this subsection, if the State proceeds with an action brought by a private attorney under section 431:10C-307.8, the private attorney shall receive at least fifteen per cent but not more than twenty-five per cent of the proceeds of the action or settlement of the claim, depending upon the extent to which the private attorney substantially contributed to the prosecution of the action. If the court finds the action to be based primarily on disclosures of specific information, other than that provided by the private attorney bringing the action, relating to allegations or transactions in a criminal, civil, or administrative hearing, in a legislative or administrative report, hearing, audit, or investigation, or from the news media, the court may award sums as it considers appropriate, but in no case more than ten per cent of the proceeds, taking into account the significance of the information and the role of the private attorney bringing the action in advancing the case to litigation. Any payment to a private attorney under this subsection shall be made from the proceeds. The private attorney shall also receive an amount for reasonable expenses that the court finds to have been necessarily incurred. All expenses, fees, and costs shall be awarded against the defendant.

(b) If the State does not proceed with an action under this section, the private attorney bringing the action or settling the claim shall receive an amount that the court decides is reasonable for collecting the civil penalty and damages. The amount shall be not less than twenty-five per cent and not more than thirty per cent of the proceeds of the action or settlement and shall be paid out of the proceeds. The private attorney shall also receive an amount for reasonable expenses that the court finds to have been necessarily incurred. All expenses, fees, and costs shall be awarded against the defendant.

(c) Regardless of whether the State proceeds with the action, if the court finds that the action was brought by a private attorney who planned and initiated a violation subject to section 431:10C-307.8(c) upon which the action was brought, then the court, to the extent the court considers appropriate, may reduce the share of the proceeds of the action that the private attorney would otherwise receive under subsection (a), taking into account the role of the private attorney in advancing the case to litigation and any relevant circumstances pertaining to the violation. If the private attorney bringing the action is convicted of criminal conduct arising from the private attorney's role in a violation subject to section 431:10C-307.8(c), the private attorney shall be dismissed from the civil action and shall not receive any share of the proceeds of the action. The dismissal shall not prejudice the right of the State to continue the action.

(d) If the State does not proceed with the action and the private attorney bringing the action conducts the action, the court may award to the defendant its reasonable attorneys' fees and expenses if the defendant prevails in the action and the court finds that the claim of the private attorney bringing the action was frivolous, vexatious, or brought primarily for purposes of harassment.

§431:10C-D Jurisdiction. No court shall have jurisdiction over an action under section 431:10C-307.8 based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a legislative or administrative report, hearing, audit, or investigation, or from the news media, unless the action is brought by the attorney general or the private attorney bringing the action is an original source of the information. For purposes of this section:

"Original source" means an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the State before filing an action under section 431:10C-307.8 that is based on the information, and whose information provided the basis or catalyst for the investigation, hearing, audit, or report that led to the public disclosure.

§431:10C-E Fees and costs of litigation. The State shall not be liable for expenses or fees, including attorney fees, that a private attorney incurs in bringing an action under section 431:10C-307.8 and shall not elect to pay those expenses or fees."

SECTION 2. Section 431:10C-307.8, Hawaii Revised Statutes, is amended to read as follows:

"§431:10C-307.8 Insurance fraud investigations unit. (a) There is established in the insurance division an insurance fraud investigations unit.

(b) The unit shall employ attorneys, investigators, investigator assistants, and other support staff as necessary to promote the effective and efficient conduct of the unit's activities. Notwithstanding any other law to the contrary, the attorneys may represent the State in any judicial or administrative proceeding to enforce all applicable state laws relating to insurance fraud, including but not limited to criminal prosecutions and actions for declaratory and injunctive relief. Investigators may serve process and apply for and execute search warrants pursuant to chapter 803 and the rules of court but shall not otherwise have the powers of a police officer or deputy sheriff. The commissioner may hire such employees not subject to chapter 76.

[(c)] (d) The purpose of the insurance fraud investigations unit shall be to conduct a statewide program for the prevention, investigation, and prosecution of insurance fraud cases and violations of all applicable state laws relating to insurance fraud. The insurance fraud investigations unit may also review and take appropriate action on complaints relating to insurance fraud.

SECTION 3. In codifying the new sections added by section 1 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 5. This Act shall take effect upon its approval.