It has been around a year and a half since the August 2023 wildfires that devastated the Hawaiian island of Maui, particularly the town of Lahaina, that left more than 100 dead, thousands more displaced, and caused several billion dollars worth of damage, but the fiscal fallout from that disaster is still being litigated.

On Thursday, the Hawaii Supreme Court heard arguments on whether insurance companies should be forced to accept a $4 billion proposed settlement backed by the governor that they want no part of or be allowed to pursue lawsuits against third parties deemed responsible for the wildfires, Honolulu Civil Beat reported.

If the high court rules in favor of the insurance companies, the subsequent lawsuits could bankrupt Hawaii's main electricity provider and delay any settlement payouts, while a ruling against the insurance companies will almost certainly result in higher premiums paid by insured customers.

Proposed settlement for fire victims up in the air

At issue here is a legal doctrine known as subrogation, in which insurance companies file lawsuits against responsible third parties to try to recoup the money paid out in claims to insured customers, which in the case of the Maui wildfires has already exceeded $2.3 billion and could increase to more than $3 billion once all claims have been settled.

The companies' claimed subrogation rights are disputed by the parties of a class-action proposed settlement totaling just over $4 billion that includes victims of the fire along with the Hawaiian Electric Co. whose equipment sparked the blaze, the local school district that owns much of the land that burned, plus the city, county, and state.

Democratic Gov. Josh Green has strongly supported the proposed settlement and has been highly critical of the insurance companies for rejecting the plan as part of their intent to file subrogation lawsuits against the electric company, responsible land owners, and government officials.

Subrogation rights at center of dispute

According to Courthouse News, the dispute over subrogation and the insurance companies' refusal to join the proposed settlement left Maui Circuit Court Judge Peter Cahill unsure about how to proceed, which prompted him to ask the Hawaii Supreme Court to address the debate.

During Thursday's oral arguments before the state's high court, much of the discussion revolved around whether state laws that limit subrogation for health insurance companies also applied to casualty and property insurance companies, with attorneys for the settlement parties asserting that prior court precedent had already confirmed that insurance companies lacked "broad, unrestricted subrogation rights" against third parties.

As for the insurance companies, their attorney argued that they didn't necessarily oppose the settlement but simply didn't want to be a party to it and didn't agree with the way in which other involved parties had seemingly negotiated away their claimed subrogation rights.

Electric company possibly headed for bankruptcy regardless of outcome

The Associated Press reported that regardless of how this case before the Hawaii Supreme Court is ultimately decided, there are a couple of near certainties, including that the proposed $4 billion settlement won't be enough to cover the entirety of the estimated $5.5 billion in losses caused by the wildfires.

Another is that the Hawaiian Electric Co. may not survive financially, even if the high court blocks the insurance companies from pursuing additional subrogation lawsuits.

That is because HECO will be on the hook for around $1.99 billion in payouts to victims if the settlement is approved, and potentially much more if subjected to lawsuits from the insurance companies, and either outcome threatens to send the utility company with limited resources spiraling into bankruptcy, per Civil Beat.

Case could be settled in a few months but could be further appealed

Hawaii's Island News reported that the state's Supreme Court is expected to rule relatively quickly on the matter, with a decision expected in about two months.

That likely won't be the end of the story, though, as there is a real possibility that whichever side loses could request a further review by the U.S. Supreme Court, which could potentially add several more months or even years to the legal dispute's timeline if it's not swiftly addressed or rejected by the justices on an emergency basis.