Maui Wildfire Settlement: Complex Compensation Process for Victims
Leslie Clark is among numerous Maui residents who suffered significant losses in the August 2023 wildfires, yet she remains skeptical about the financial relief expected from a $4.03 billion settlement. Despite having property insurance, Clark, like many others, finds that full compensation for her destroyed home near Lahaina’s Front Street is unlikely.
According to Jake Lowenthal, a leading attorney in the case, settlement disbursements might commence by June. However, the exact compensation for each victim remains uncertain. The funds will be allocated based on various criteria across ten victim categories, such as personal injury or property loss.
Lawyers for the victims have requested 25% of the settlement, but this is pending approval from Judge Peter Cahill of the Maui Circuit Court. Cahill has expressed doubts, suggesting a fund to cover legal expenses might be more appropriate, potentially reducing the lawyers’ share.
The settlement payments will be distributed in four installments, and insurers are set to claim 10% from those with insured losses. Overall, legal fees and insurance claims could absorb a third of the settlement for some victims. Additionally, without Congressional intervention to reinstate a federal income tax exemption, up to 37% of the settlement could be taxed.
Sherry Peterson, from United Policyholders, highlights the insufficiency of the settlement for the 21,750 plaintiffs and the 94,816 claims. Common claims involve displacement or evacuation due to the fires. Peterson believes the settlement falls short of making victims whole.
Judge Challenges Lawyer Fees
Judge Peter Cahill is scrutinizing the legal fees in the settlement. He questions the fairness of a 25% fee for lawyers, especially those who joined the case post-settlement. Cahill proposes a “common benefit fund” to equitably distribute fees among attorneys, rewarding those who contributed significantly to the case.
During a March hearing, Cahill humorously suggested a 2.5% fee for all lawyers, challenging the $1 billion fee request from the plaintiffs’ lawyers. He questioned whether clients were aware of these legal costs, emphasizing the need for victims’ voices in the discussion.
Insurance Companies’ Role in the Settlement
Both property and medical insurers are poised to receive portions of the settlement. Medical insurers can file liens to reclaim medical expenses, but property insurers face a unique situation. Unlike in past wildfires, where insurers sued for compensation, the Hawaii Supreme Court ruled they must file liens similar to medical claims.
Hawaiian Electric Co. (HECO) avoided bankruptcy through negotiations that excluded property insurers, resulting in a $4.03 billion fund from various sources, including HECO, Hawaii taxpayers, and Kamehameha Schools. Insurers agreed to a 10% claim from the settlements, potentially receiving $216 million from the $2.16 billion paid to fire victims.
Leslie Clark, who hired a private adjuster to secure $1.3 million for rebuilding, criticizes insurers’ claims on her settlement, calling it “a disgrace.”
Challenges of Underinsurance
The Maui fires destroyed 5,527 housing units, with 28% of owner-occupied homes uninsured. Among insured properties, 40% were underinsured, typically falling $400,000 short of rebuilding costs. Peterson notes many homeowners face significant financial gaps, with some experiencing $500,000 shortfalls.
For victims awaiting compensation, uncertainty remains. Peterson advises that rebuilding plans hinge on the settlement amounts, which are still unclear.
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This article was originally published by Honolulu Civil Beat and distributed through a partnership with The Associated Press.
