An effort by insurance companies to upend or alter a tentative $4 billion settlement over the August 2023 Maui wildfire disaster was rejected in state court Tuesday.

Judge Peter Cahill ruled that he has jurisdiction to determine how insurance companies may recover claim payments they made to customers for losses that get compensated for with settlement proceeds.

Cahill, chief judge for the state’s 2nd Circuit Court on Maui, issued his ruling after hearing arguments made by attorneys for fire victims and 163 insurance companies that have paid $2.3 billion in damage claims to policyholders with fire losses and expect to pay another $1 billion.

Insurance companies had objected to conditions of an Aug. 2 settlement deal agreed to by attorneys for fire victims and entities blamed for the fire that killed 102 people and destroyed most of Lahaina on Aug. 8, 2023.

For the settlement to be finalized, one of two conditions must be met by Oct. 31.

One option is for insurance companies to release claims against the parties funding the settlement, which are Hawaiian Electric, the state, Maui County, Kamehameha Schools, West Maui Land Co., Spectrum Oceanic LLC and Hawaiian Telcom.

The other option is for the court to order that the only way for insurance companies to recover fire-related claim payments to customers is to assert liens against their policyholders if a policyholder receives more than fair compensation for losses from insurance and settlement proceeds.

On Aug. 6, attorneys representing the insurance companies filed an objection over the settlement arrangement, saying they weren’t being treated fairly and that the deal was not a global one as proclaimed by parties to it.

The insurance companies, referred to as subrogating insurers, filed their own lawsuit in 1st Circuit Court on Oahu against the same defendants sued by fire victims, so they weren’t part of the mediated settlement between defendants and fire victims in the litigation before Cahill.

“The rush by the parties to the (litigation by fire victims) to push through a non-global settlement that spares the Defendants — who devastated Maui — at the expense of the Non-Party Subrogation Insurers — who have paid billions of dollars to heal Maui — deprives Subrogating Insurers of their due process and substantive rights under Hawaii law,” the Aug. 6 filing said.

“No party that is contributing to the decidedly non-global settlement — the parties that caused the damage to all persons and businesses devastated by the Maui Fires — have contributed anywhere near what the Non-Party Subrogating Insurers already paid and will continue to pay to heal Maui,” the objection stated.

Cynthia Wong, a Maui attorney representing many plaintiffs and helping coordinate procedures for all cases filed by victims, said she was pleased by Cahill’s decision.

“Judge Cahill understood that the people of Maui are the victims and not the insurance companies,” she said. “He did the right thing, and it’s allowing us to move one step closer to the settlement terms that we filed.”

Jesse Creed, another plaintiffs’ attorney helping shepherd the complex litigation that involves more than 650 lawsuits, said insurance companies should not get a penny until all victims of the fire, which could top 10,000, are fully compensated for their losses.

Gov. Josh Green said in a statement Tuesday that the insurance industry needs to accept that subrogation lawsuits, which seek claim payment reimbursements from the entities blamed for the fire, will devastate those who have lost everything.

“Their ($3 billion) in payments for loss are so critical to Hawaii, but remember people did pay premiums for decades in case it was ever needed like on 8/8/23.”

Green also warned that derailing the settlement could result in it taking years for the litigation to play out, and delay recovery for victims who lost family members, homes, businesses and personal property.

Three mediators proposed the settlement amount based on what they concluded was the maximum the defendants could “fairly and practicably contribute based on the facts and circumstances of the case, including potential exposure, availability of insurance, and limitations on ability to pay.”

Under the tentative settlement, Hawaiian Electric would pay $1.99 billion, Kamehameha Schools would pay $872.5 million and the state would pay around $750 million. Amounts by Maui County and other defendants have not been disclosed, but add up to about $400 million.

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Star-Advertiser staff writer Dan Nakaso contributed to this report.