Hawaiian Electric’s insurance is far less than the claims made against it after wildfire

Hawaiian Electric is severely underinsured to pay victims of August’s deadly Maui wildfire, as well as repair its own damaged infrastructure, raising questions over how the beleaguered utility could cover billions of dollars in mounting damage claims if it is found liable for starting the blaze.

In a filing to state regulators on Monday, the utility said that it had $165 million in annual general liability insurance, which is what it would potentially use to help repay residents for their losses if it is determined that its equipment started the deadly Lahaina fire. As of now, that would cover a small fraction of the potential $5 billion in damage claims, according to the research firm Capstone, which continue to grow as more residents and even Hawaiian Electric shareholders join the slew of lawsuits against the company.

Hawaiian Electric has said that its equipment was responsible for starting a fire on the morning of Aug. 8 before its lines were de-energized. It said that Maui County had declared that blaze “100% contained” and the fire chief later called it “extinguished.” The utility has said there were two fires and that it is not at fault for the one that sparked that afternoon in the same area, which ultimately devastated Lahaina. While the blaze is still under investigation, a spokesperson for the fire department and witnesses told The Post that the fire reignited amid high winds. Hawaiian Electric declined to comment Wednesday.

The 264-page filing provides the latest insights into how Hawaiian Electric approached wildfire risk before wind-fueled fires swept Maui, killing at least 97 people. Hawaiian Electric, which serves nearly all of Hawaii’s 1.4 million residents, has looked to be careening toward insolvency. As part of their probe into Hawaiian Electric, regulators had asked for the utility’s insurance information, which was not in past state or Securities and Exchange Commission filings, by Sept. 18. Earlier this month, shareholders also accused the company in a lawsuit of misleading them and failing to disclose that its wildfire prevention protocols were “inadequate.”

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Mike Kelly, a California wildfire attorney who leads an oversight committee related to Pacific Gas & Electric’s payouts to that state’s wildfire victims, said that Hawaiian Electric should have better analyzed its risks when obtaining insurance, including the islands’ propensity for high winds and highly flammable grasses.

“I read that $165 million and the only thought I had was how irresponsible this was,” he said. “Someone was not doing their job when thinking, ‘Have we done everything we have done to protect our business, stockholders, and customers’ and what it costs to cover that?’”

Experts said it is common for utilities to have low amounts of liability insurance. It’s unclear whether Hawaiian Electric’s general liability policy is what’s known as a “burning limits policy,” which means that attorneys’ fees from representing the utility would also come out of that $165 million if the company were found liable, making the pool even smaller for victims. Many of these policies often are, experts said. Hawaiian Electric declined to answer a question about its policy.

The filing shows that Hawaiian Electric also has property damage insurance that is limited in scope, with two policies totaling $500 million. However, within those policies, there is a sublimit of just $5 million for fire damage to equipment such as power poles, lines, conductors and substations, many of which burned or were severely impacted by the August blaze. In comparison, the utility has a sublimit for at least $200 million in damage to its own equipment from named wind storms.

This stands out, experts who reviewed the filing said, because it seriously underestimated the fire risk the utility faced despite highlighting it in its own 2023 Wildfire Mitigation Plan, which was also included in this week’s filing. It identified wildfire as a danger to West Maui, where Lahaina is located, and a top priority for the utility to address, but downplayed its need to enact proactive mitigation measures, such as a power shut-off safety plan, and the flammability of the grasses around its infrastructure.

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Hawaiian Electric created its plan after studying California’s horrific 2018 Camp Fire, which killed at least 85 people, as well as its own experiences with wildfire a year later. The primary objective of the plan was to “minimize the probability of Hawaiian Electric’s facilities becoming the origin or contributing source of ignition for a wildfire,” it said.

In 2019 and 2020, the utility used drones to inspect its facilities and the vegetation around its equipment. Based on those assessments, the company identified West Maui, where Lahaina is located, as priority area No. 1 for the region. However, the utility made what experts said was a bizarre assessment, comparing its risk to that of California’s as the reason for not having more frequent and robust inspections, vegetation management, and for not creating a public safety power shut-off program.

“This is due to Hawaiian Electric having fewer facilities in high-risk wildfire areas and Hawaii’s dry areas having very few tall trees, which is a major fuel source for wildfires, as compared to California,” the 2023 plan said.

Hawaiian Electric spent four years developing the mitigation plan. During that time, experts repeatedly flagged how dry vegetation was a risk. A 2021 report by Maui County noted that nonnative grasses were making the islands more fire-prone and were a source of “combustible, rapidly burning fuels.”

Michael Wara, a senior research scholar at the Woods Institute for the Environment and director of the Climate and Energy Policy Program at Stanford University, said there was ample evidence and reports conducted by entities including Maui County that pointed out that nonnative grasses were making the islands more fire-prone and were a source of “combustible, rapidly burning fuels.”

According to Hawaiian Electric, because its wildfire risk was “significantly less than [in] California,” it needed to inspect its transmission and substations only every three to five years, vs. annually.

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“Vegetation,” though, “that is overgrown and dry should be addressed as soon as practical,” the plan said. Yet, “the type of vegetation in the Hawaii wildfire areas are primarily grasses, shrubs, and few trees, which rarely grow into conductors,” the utility concluded. “It is not recommended that vegetation management plans be adjusted in the wildfire areas. Further trimming of the already low-lying vegetation will not likely produce any appreciable results in the potential wildfire areas.”

However, that contradicted messaging and assessments that the utility’s own subsidiaries made and submitted to regulators in earlier filings. In 2019, Hawaiian Electric’s subsidiaries put together a resilience working group to figure out how to better integrate their grids. In the Wildfire Scenario section of a report they published, they stated that “the frequency and impacts of wildfires have increased recently” and a big part of that is because of the abandonment of sugar cane fields. These areas, the report said, “present vast amounts of vegetation that can burn longer and with less ability and resources to control them.”

And Maui presents “unique” risks, “in part to the existence of an invasive grass species prone to drying out.”

As for its decision not to adopt a policy to preemptively shut off power in the face of red flag and high wind warnings, Hawaiian Electric said in its 2023 wildfire mitigation plan that, “Based on news reports, Pacific Gas & Electric’s practice to preemptively turn off circuits in certain areas if conditions were ripe for a wildfire was not well-received by certain customers affected.” Therefore, Hawaiian Electric felt that it did not need to adopt the practice.

“As noted previously, the type of vegetation in the potential wildfire areas in Hawaii would not likely cause the same catastrophic level of wildfires that California has experienced.”

“It’s clear and saddening, reading this plan, that Hawaiian Electric did not take the risk of consequence of ignition more clearly,” Wara said.

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