In a significant ruling, the Hawaii Intermediate Court of Appeals has affirmed an arbitration award in favor of Gwendolyn Castro against State Farm Mutual Automobile Insurance Company. This decision, issued on May 28, 2026, comes after Castro sought underinsured motorist benefits following a serious car accident in 2019. The court's ruling is crucial as it clarifies the authority of arbitrators in awarding attorney's fees and prejudgment interest in insurance disputes.
The case, documented under docket number CAAP-24-0000365, stems from an automobile accident that occurred on August 12, 2019, where Castro was injured. The other driver involved, James Besser, was also insured by State Farm. Castro settled her claim with Besser for $245,000. However, she later sought additional compensation under her own policy's underinsured motorist (UIM) coverage, claiming entitlement to further benefits from State Farm.
On September 16, 2022, Castro filed an application in the Circuit Court for the Third Circuit, requesting the appointment of an arbitrator to resolve her claim for UIM benefits. The court appointed Jerry Hiatt as the arbitrator, and hearings were held on June 20 and August 16, 2023. The arbitrator issued a Partial Final Award on September 4, 2023, granting Castro $882,103.56 in damages, costs, and prejudgment interest, while reserving the issue of attorney's fees for later determination.
Following the hearings, Castro requested attorney's fees amounting to $234,711.30, based on a contingent fee agreement with her attorney. State Farm objected, arguing that the arbitrator lacked authority to award these fees as they were not raised during the hearing. The arbitrator ultimately issued a Final Award on October 7, 2023, which included attorney's fees and prejudgment interest, stating that State Farm delayed payment for over four years despite being aware of the potential UIM claim.
The matter then escalated to the Circuit Court, where Castro filed a Motion to Confirm the Arbitration Award, and State Farm sought to vacate the award. On April 16, 2024, the Circuit Court ruled in favor of Castro, confirming the arbitration award and denying State Farm's motion to vacate.
The court ruled that the arbitrator had acted within his authority when awarding attorney's fees and prejudgment interest. The judges, led by Chief Judge Karen T. Nakasone, noted that the statutory provisions under Hawaii Revised Statutes (HRS) § 431:10-242, which allows for attorney's fees when an insurer contests liability and is ordered to pay benefits, applied to Castro's case. The court emphasized that the arbitrator's findings were consistent with this statute, concluding, "This is clearly a contract dispute between the Parties over the insurance policy benefits at issue between the Parties."
Moreover, the court addressed State Farm's concerns regarding the limits of the arbitrator's authority. It clarified that under HRS § 658A-21, arbitrators are permitted to award reasonable attorney's fees and expenses if authorized by law. The court highlighted that the arbitrator's decision to award prejudgment interest was also justified, as it was within the scope of the arbitration agreement and did not exceed the policy limits.
This ruling has broader implications for insurance claims and arbitration processes in Hawaii. It underscores the importance of arbitration in resolving disputes and reinforces the authority of arbitrators to award attorney's fees and prejudgment interest when justified. This decision may set a precedent for future cases involving underinsured motorist claims and the responsibilities of insurers in such situations.
In terms of potential appeals, State Farm has the option to seek further review from the Hawaii Supreme Court. However, it remains to be seen whether the company will pursue this route, given the court's strong affirmation of the arbitrator's authority and the legal principles established in this case. As it stands, the ruling solidifies Castro's financial recovery and reinforces the rights of insured individuals in similar situations.