Suing a Title Insurance Company for Denied Claims in Hawaii

Purchasing real estate in Hawaii is a massive financial milestone. Whether you are buying an oceanfront condo in Waikiki or a sprawling agricultural lot in Maui, the standard closing process involves purchasing title insurance. This policy is supposed to be your ultimate safety net, protecting you against hidden defects, forged documents, and undisclosed claims that threaten your ownership.

However, when a devastating title defect surfaces months or years after closing, many homeowners are shocked to find their title insurance company denying the claim. Insurers frequently rely on dense policy exclusions and technicalities to avoid paying out. If you are facing a denied claim, this guide explores your legal rights in Hawaii, common scenarios where insurers unfairly deny coverage, and how to successfully litigate against a bad faith title company.

Exclusions vs. Covered Risks in Hawaii

To fight a denied claim, you must understand the four corners of your title insurance contract. Every policy issued in the state explicitly lists 'Covered Risks' and 'Exceptions/Exclusions'. Covered risks generally include forgery, fraud, defective recording of documents, and lack of a legal right of access to the land.

Exceptions are the loopholes insurers use to deny claims. Standard exclusions often include defects created by the buyer, zoning law changes, or boundary disputes that a standard physical survey would have revealed. When an insurer denies your claim, your attorney will aggressively analyze whether the defect truly falls under a valid exclusion or if the insurer is misinterpreting the policy to save money.

Owner Policy vs. Lender Policy Limitations

The most common reason a homeowner's claim is denied is a fundamental misunderstanding of who the policy protects. At closing, you almost certainly paid for a 'Lender's Title Policy'. This policy protects only your mortgage bank; it provides zero protection to you. To be covered for title defects, you must have explicitly purchased an 'Owner's Title Policy' at closing. If you only have a lender's policy, the insurance company will rightfully deny any personal claim you file to protect your equity.

Common Title Defects and Denied Claims

In Hawaii's complex real estate landscape, which blends ancient land grants with modern subdivisions, title defects are surprisingly common. Here are the micro-niches where title claims are frequently fought.

Unrecorded Easements Discovered After Closing

Imagine buying a property in Kauai, only to discover a neighboring farmer claims a legal right to drive heavy tractors across your driveway. If this easement was never recorded at the Bureau of Conveyances, Honolulu, the title search likely missed it. Insurers often try to deny unrecorded easement claims by pointing to an 'unrecorded matters' exclusion. A skilled attorney will argue that a comprehensive owner's policy (often an ALTA extended policy) specifically covers unrecorded easements, forcing the insurer to pay for the devaluation of your land.

Undisclosed Heirs Surfacing in Regular System Title

Because Hawaii uses the Regular System for many older properties, the chain of title can be messy. It is common for long-lost heirs to emerge claiming a fractional interest in a property that was sold generations ago without proper probate. If an undisclosed heir sues you to claim a percentage of your property, your Owner's Title Policy is absolutely required to provide a legal defense. If the insurer denies the claim, stating the title search was 'reasonable' at the time, they are breaching their duty to defend you against rightful historical claims.

Escrow Errors and Missed Signatures

Sometimes the defect happens right at the closing table. If the escrow company (often a subsidiary of the title insurer) fails to secure a mandatory signature from a spouse, or improperly notarizes the deed, the transaction can be declared legally void. If the title company subsequently denies your claim regarding their own procedural negligence, you have a strong foundation for a bad faith lawsuit.

Bad Faith Insurance Litigation in Hawaii Courts

In Hawaii, insurance companies owe a strict duty of good faith and fair dealing to their policyholders. Under Haw. Rev. Stat. § 431:13-103, engaging in unfair claims settlement practices is illegal. Furthermore, the Hawaii Supreme Court established a powerful precedent in Best Place, Inc. v. Penn America Insurance Co., 82 Haw. 120 (HI Supreme Court 1996), ruling that an insured party can sue their insurance company in tort for a bad faith refusal to pay a valid claim.

If a title insurer maliciously or unreasonably denies your valid property claim, your lawyer can file a civil complaint for breach of contract and bad faith pursuant to Haw. R. Civ. P. 8. In a bad faith lawsuit filed at the First Circuit Court, Honolulu, you can seek not only the original value of the property defect but also punitive damages and full reimbursement of your attorney fees.

Costs and Timeframes for Litigation

Suing a massive corporate title insurer is not a cheap endeavor, but the payoff is often necessary to save your property investment.

• Attorney Fees: Complex bad faith insurance litigation is typically billed hourly, between $350 and $600 per hour. Some attorneys in our directory may take incredibly strong cases on a contingency basis.
• Filing and Expert Costs: Expect to pay $3,000 to $7,000 for court filings and hiring independent title examiners as expert witnesses.
• Timeline: A bad faith lawsuit against a title insurer is a major civil action. Reaching a settlement can take 12 to 18 months, while a full jury trial can take 2 to 3 years.

Frequently Asked Questions (FAQ)