Insurance & Risk · Quorum Case Files Season 9 Companion · Total-Loss Sizing and the Market That Left

The Twenty Percent Building: A Policy Sized to Partial Damage in a Building That Burned Whole

Every policy in this series was in force on the day of the loss, and every one of them paid. The season ends in the one state where the gap between the limit and the loss was large enough to empty a town block for three years, and where a hurricane that has not happened is already costing condominium owners their mortgages. It also ends in the one state where a legislature wrote a policy when the market would not.

Educational notice. This information is educational in nature and should not be construed as legal or insurance advice. The Lahaina rebuild, the settlement payouts, and the Honolulu market are ongoing matters described as of this writing (October 2026); the Aina Nalu policy figures are the association's own characterization as reported by Hawaii News Now, not a document in hand; the maintenance-fee dispute is an allegation with no ruling located. Consult qualified association counsel and a licensed insurance professional regarding your association's coverage and jurisdiction.

Two Buildings, One Pool, and a Check for Twenty Cents on the Dollar

On August 8, 2023, in Lahaina on the west side of Maui, a condominium called Aina Nalu burned. Hawaii News Now, in a report published on the third anniversary of the fire, described the property: 189 units in two buildings off Wainee Street, zoned as a hotel, which meant most of the people inside on any afternoon were visitors. There was a pool in the middle. As the town burned, the people who could not get out got into the pool and stood in the water while the buildings around them went. Both buildings were lost. The pool remained.

So did the association’s master policy. It was in force. It paid. The problem was the number at the top of the page. According to the association’s own account, as reported by Hawaii News Now on August 5, 2026, the coverage had been “structured around partial damage scenarios, not a complete destruction of the project,” and amounted to “approximately 20 percent of the coverage needed for rebuilding costs estimated at more than $200 million.” CIC-SC has not seen the declarations page. What exists in the public record is the association’s description of it, and every figure in this section carries that qualification.

The board president, Jim Blaha, told the station that the association had been “in discussions with our insurance agent to improve our insurance coverages. Unfortunately, our timing was really bad.” The record does not say how long those discussions had run, what the improvement would have cost, or what limit was under consideration. It says the board knew enough to be talking about it.

The same report described what filled the gap: nothing, so far. There was, in the station’s words, “no government assistance available to the condo owners.” A share of the global wildfire settlement was expected, and even with it, owners “would need to contribute significantly.” Three years after the fire, no foundation had been poured. Weeds were growing through the pool slab. A block away, a condominium called Spinnaker, which the station described as “somewhat better insured,” was voting to rebuild on the same footprint, with its own funding gap unknown until pricing firmed up. Same fire, same block, different number on the page.

One more fact from Lahaina belongs here, because it is the part of a total loss that boards rarely think about in advance. In August 2024, Hawaii News Now reported that a retired state senator who owned a ground-floor unit at Aina Nalu was receiving demand letters from the association for roughly $1,000 in maintenance fees, with attorney charges added, on a unit that no longer existed. The association’s president declined to comment, citing pending litigation. As of this writing, no ruling on that dispute has been located, and no court has found that anyone on either side acted improperly. It is a dispute, reported. KITV reported a similar situation at Ho‘onanea at Lahaina in September 2024, where one building was leveled and two survived. An association does not stop existing, or stop incurring cost, because its buildings are gone.

The Mechanism: A Limit Sized to a Scenario

What follows is general insurance vocabulary, offered as general explanation. None of it is drawn from the Aina Nalu policy, which is not in the public record.

A property policy has two numbers that govern what it will pay after a loss. The first is the valuation basis: whether the policy pays the cost to replace the damaged property with new materials of like kind and quality, or some lesser measure. The second is the limit: the most the policy will pay for a covered loss, regardless of what the loss actually costs. A policy can be written on a replacement-cost basis and still be limited to a figure far below what replacing everything would cost. Nothing on the page is inconsistent. Fire is a covered peril. The buildings are scheduled. The claim is adjusted and paid. The limit simply stops the payment at the number the board chose.

How does a board arrive at a limit below the full replacement value? In general practice, by sizing the limit to a loss scenario rather than to the whole building. The reasoning is familiar from any renewal: the realistic loss is a fire in one wing, a failed water line through one stack, a storm that takes the roofs. Two buildings to the ground in one afternoon is not the loss anyone pictures. A limit built around the loss the board can picture is cheaper at every renewal, and it is defensible right up until the afternoon the picture is wrong. That is the problem with it.

The distance between a scenario limit and a total loss is uninsured by design. It appears on no financial statement the board receives and in no reserve study, which schedules components for replacement at the end of their useful lives, not all at once in a single night. It shows up once, in the arithmetic a treasurer does the week after the loss: the limit, divided by the cost to rebuild. At Aina Nalu, on the association’s own figures as reported, that arithmetic came to about twenty cents on the dollar, and the uninsured distance was on the order of $160 million. That figure is arithmetic on the reported ratio and estimate, not a paid or adjudicated amount.

There is a second consequence of a scenario-sized limit that does not wait for a loss at all, and the second half of this article is about it. The master policy limit is not only a promise about what the carrier pays. It is also a number that lenders read. The mortgage market has its own replacement-cost standard for condominium projects, and a building whose master policy falls below it can lose access to conforming mortgages for every unit inside it, with no storm, no fire, and no claim.

Subrogation, in General Terms

One more concept from the Lahaina record needs a plain definition, because it decided who got paid first from the largest pot of money in the case. When an insurer pays its policyholder for a loss that a third party caused, the insurer generally steps into the policyholder’s shoes for the amount it paid and acquires the right to pursue the responsible party for it. That is subrogation. It is in most property policies and it is usually invisible. It became visible in Lahaina because the carriers that had paid the associations and homeowners wanted to recover from the parties blamed for the fire, and a $4 billion settlement could not close while they did.

The Declarations Page

Every episode in this season stops once, after the loss and before the reckoning, and reads the declarations page in three parts. For Aina Nalu, the page itself is not available; the ledger is built from the association’s own characterization as reported. For Honolulu, the ledger is built from a legislature’s findings and a lender’s published rule.

In Lahaina the gap showed up on the day of the loss. In Honolulu it showed up without a loss at all. The mechanism is the same number read by two different readers: a carrier adjusting a claim, and a lender deciding whether to write a mortgage.

The Record, Part One: Lahaina and the Settlement

The global settlement of the Maui fire cases was struck in August 2024. The Hawaii Tribune-Herald reported the figure at $4.037 billion, with Hawaiian Electric, Kamehameha Schools, and the State of Hawaii among the settling parties; the Hawaii Supreme Court’s opinion names the same parties. The settlement carried a condition precedent that reached every insured association in Lahaina. As the court described it, the property insurers had either to release their subrogation claims against the settling defendants, or a court had to enter a final order holding that the insurers’ only remedy was the lien provided by Hawaii Revised Statutes § 663-10 on the settlement itself.

The insurers did not release. The coordinating Second Circuit Court (case 2CSP-23-0000057) reserved three questions to the Hawaii Supreme Court, which answered them by order on February 10, 2025, and issued its published opinion on March 17, 2025, Chief Justice Recktenwald writing (In the Matter of the Petition for the Coordination of Maui Fire Cases, SCRQ-24-0000602). The holdings, from the opinion’s text:

• Question one. The rule of Yukumoto v. Tawarahara, 140 Hawai‘i 285 (2017), extends to property and casualty insurers. Under HRS § 431:13-103(a)(10)(A), the lien under HRS § 663-10(a) is “the exclusive remedy for a property and casualty insurer to recover claims paid for damages caused by a third-party tortfeasor in the context of a tort settlement.”
• Question two. The release does not prejudice the insurers’ rights, because the lien is already the exclusive remedy.
• Question three. The court “decline[d] to apply the made whole doctrine to the statutory lien-claim process” in this mass tort. In plain terms, the policyholder is not guaranteed full compensation before the insurer’s lien attaches. The court drew the line at the statute and stopped.

The carriers litigated on, then stopped. Hawaiian Electric Industries filed a Form 8-K with the Securities and Exchange Commission on April 10, 2026, stating that the judgment obtained on December 30, 2025, on the subrogation claims “brought by over 200 insurers became final and unappealable after all insurers stipulated to dismiss with prejudice their appeals.” The releases became effective and the first of four equal annual installments of $479 million was authorized. The Hawaii Tribune-Herald and Honolulu Star-Advertiser reported on June 8, 2026, that the insurers had agreed to accept 10 percent of what they paid on residential and auto claims and 15 percent on commercial property, roughly $249 million back on roughly $2.2 billion paid, and that 94,816 claims had been filed by 21,750 claimants as of mid-April 2026, with first payments to fire victims targeted for July and August 2026. Those recovery figures are reported, not drawn from a court document.

As of this writing, the money is moving in installments through 2029 and the Aina Nalu pool is empty. The association’s share of the settlement, and what owners will be asked to contribute beyond it, are not in the public record.

The Board That Was Blamed, and the Carrier That Walked

One Lahaina record shows what happens when an owner turns an underinsurance claim on the board itself. At the Association of Apartment Owners of Lahaina Residential Condominium, an owner served a mediation demand alleging that the association had failed to carry adequate insurance. The association tendered the matter to its errors-and-omissions carrier, Great American Insurance Company, which filed a declaratory judgment action against its own insured in the District of Hawaii in February 2024 (No. 1:24-cv-00075), asserting that a property-damage exclusion eliminated any duty to defend. Insurance attorney Tred Eyerly reported on the Insurance Law Hawaii blog that the court dismissed the carrier’s action in August 2024 because the questions were unsettled under Hawaii law. Whether the owner’s underlying claim has been decided could not be confirmed, and no court has found against the association, its directors, or the carrier. The governance point survives the uncertainty: the policy a board relies on to defend an underinsurance claim may itself exclude it, which is a question for the board’s own D&O review, not an assumption.

The Record, Part Two: Honolulu and the Loss That Has Not Happened

After Lahaina, the cost of hurricane coverage for Honolulu’s condominium towers moved sharply, and the Hawaii Legislature wrote what it found into statute. Act 296, Session Laws of Hawaii 2025 (S.B. 1044), effective July 1, 2025, opens with findings. Master policy deductibles had risen from $10,000 to $25,000 per unit, per occurrence, “to as much as $250,000.” “Three hundred seventy-five to three hundred ninety buildings” had renewed with less than 100 percent hurricane coverage. One Waikiki high-rise that had been paying $235,000 a year was nonrenewed over its aging plumbing and ended up at about $1,200,000. Only three insurers were still writing condominium hurricane cover, and one of them capped at $10 million to $25 million per building. And buildings insured below full value, the legislature found, make their unit mortgages ineligible for sale to Fannie Mae and Freddie Mac.

The lender rule the legislature was pointing at is published. Fannie Mae Selling Guide B7-3-03 provides that a project’s master property coverage “must equal at least 100% of the estimated replacement cost value of the project improvements,” with a maximum deductible of 5 percent of the coverage amount per occurrence, applied separately to windstorm and wildfire deductibles. A master policy renewed at 80 percent of replacement cost sits below the figure that guide sets for project eligibility, and the units inside the project carry that consequence whether or not a loss ever occurs.

The market consequences were reported in real time. Hawaii Business reported in mid-2024 that master policy premiums had risen 300 to 600 percent in a year, with a few buildings at 900 to 1,300 percent. In September 2024 the same publication reported Oahu condominium sales down 24.5 percent year over year in June, Waikiki down 48 percent, and Makiki down 38 percent, and quoted American Savings Bank: “We do not extend loans on condo buildings that fail to meet the standard of 100% replacement cost coverage.” In 2025 it reported that local banks were keeping a list of more than 400 Oahu properties that did not meet the standard. A first legislative fix, House Bill 2686 in the 2024 session, died in conference, as Hawaii Business reported.

The second fix passed. From the text of Act 296, the statute does three things. It allows the Hawaii Property Insurance Association to insure high-rise condominium associations for not more than sixty months. It reactivates the Hawaii Hurricane Relief Fund to write hurricane coverage for condominiums. And it creates a condominium loan program at the Hawaii Green Infrastructure Authority. The funding, from the same text: $20 million in general obligation bonds for the condominium loan revolving fund, $30 million in bonds plus a $30 million appropriation for the hurricane reserve trust fund, and the relief fund’s assessment authority capped at $500 million. The sixty-month cap is a clock. The legislature was explicit that the state’s role is a bridge, not a permanent market.

Hawaii Public Radio reported on December 22, 2025, that the relief fund had begun issuing condominium policies around July 2025 and that its administrator told lawmakers building rates were down 40 to 50 percent, with private capacity returning. That is a reported figure in a market that had, by other reported figures, risen 300 to 600 percent; it is not a return to where the market stood before Lahaina. What it means, as of this writing, is that a Honolulu board can go to renewal and buy 100 percent of hurricane replacement cost from someone. A year earlier, by the legislature’s own findings, many could not. The building comes off the lender’s list. The owner on the eleventh floor can sell. The declarations page can be rewritten.

What a Board Does With This

CICSC Standard FIN-006, Master Policy Insurance Adequacy Review, treats insurance adequacy as a recurring governance obligation performed on a calendar with a documented record. It does not recommend a limit, a deductible, a carrier, or a coverage, and neither does this article. It governs whether the board asks, when it asks, and what it writes down. The two Hawaii records sharpen four of its practices.

Ask what the limit was sized to, in writing, at every renewal. FIN-006 § 3.1 has the board ask its insurance professional on what replacement-cost figure the property coverage rests, when that figure was established, by whom, and on what method. The Lahaina record adds a sub-question that belongs on the same page: is that figure the estimated cost to replace the entire insured property, or a scenario figure that reflects a loss someone considered realistic? Both are legitimate answers for a professional to give. Only one tells the board that a total loss is uninsured by design. A figure carried forward from a prior year is identified as such (§ 2.4); Honolulu shows how fast such a figure goes stale.

Ask what the lenders require, and record the answer. Fannie Mae B7-3-03 is a published standard, and whether a given master policy meets it is a question a board can put to its licensed professional and its counsel. The Honolulu finding that 375 to 390 buildings had renewed below 100 percent of replacement cost is, in governance terms, 375 to 390 renewal meetings at which the lender consequence went unasked or unrecorded. FIN-006 § 4.2 asks that declined coverage be recorded as declined, with the price and the vote. A limit below full replacement cost that was offered, priced, and voted down is a decision. The same limit reached because nobody asked is an accident the minutes cannot defend. Under the business judgment rule, the record of deliberation is the protection.

Tell the members where the coverage stops. FIN-006 § 5.1 asks for an annual plain-language statement to owners of what the association’s policy covers, what it does not, and where owner responsibility begins. In Honolulu, owners learned the master policy limit from a loan officer. In Lahaina, owners learned it from the arithmetic after the fire. Neither is the right room. The statement does not advise owners on their own coverage (§ 5.2); it states facts about the association’s policy and their source.

Plan for the association that outlives the building. The fee disputes in Lahaina, whatever their eventual resolution, show that an association continues to incur cost after a total loss: insurance on what remains, legal and engineering work, debris, administration. How assessments run against destroyed units is a question of the declaration and state law for counsel, far better asked before a loss than argued after one. The same is true of the special assessment that follows a shortfall, the procedure that governs it, and whether the association’s own D&O or E&O program responds to an owner’s underinsurance claim. The board that holds the institutional memory of why the limit is what it is writes that reason down, because the board that answers for it after the loss will be a different board.

For Hawaii boards, Act 296 adds a calendar fact rather than a recommendation: the Hawaii Property Insurance Association’s authority to insure high-rise condominium associations runs for not more than sixty months. That is roughly five renewals. What a board does with them is its own decision, informed by its professional and its counsel. That there are five, and not an unlimited number, is in the statute.

The Season’s Verdict

Eight communities, eight declarations pages, eight policies in force on the day of the loss. The season’s finding is not that boards are careless. Nobody in these records set out to underinsure anyone. They made budget. They trusted the broker. They assumed the mailbox was somebody else’s. They pictured the loss they had seen before. The finding is narrower and harder: insurance is the one line in an association’s budget that somebody else prices, and the one line a board can get catastrophically wrong without a single bad month showing on the financials.

What the eight records share is that the gap was never the storm, the flood, or the fire. It was a number on a declarations page that a handful of neighbors approved at a renewal meeting nobody remembers. Nobody remembers the renewal meeting. This season was about what happens when it turns out to be the only meeting that mattered. The storm is the act of God. The limit was an act of the board.

When to Consult Counsel and the Insurance Professional

Boards typically bring the following to counsel and to their licensed insurance professional rather than resolving them at the table:

• What replacement-cost figure the current property limit rests on, who established it, when, and by what method, and whether it reflects the entire insured property or a loss scenario;
• Whether the master policy meets the standards published by Fannie Mae, Freddie Mac, and the lenders active in the community, and what the consequence to unit owners is if it does not;
• What the declaration and applicable statute provide about assessments, insurance proceeds, and the association’s continued obligations after a casualty that destroys some or all of the buildings;
• Whether the association’s D&O or E&O coverage would respond to an owner’s claim alleging inadequate insurance, and what exclusions bear on that question;
• How subrogation and lien provisions in the association’s policies and under state law would operate if a third party were responsible for a loss;
• For Hawaii associations, what coverage is available through the Hawaii Hurricane Relief Fund and the Hawaii Property Insurance Association under Act 296, and on what timeline those programs run.

The Season 9 Companion Series

1. The Liability Limit Is Sized to the Loss the Board Can Imagine — the liability limit vs. the loss
2. Eighty Percent of What? The Flood Coinsurance Clause and the Warning in the Board’s Own File — the warning the board shelved
3. Who Gets the Mail: Coverage That Lapses During a Management Change — the notice nobody forwarded
4. Per Occurrence or Aggregate: Reading the Declarations Page Instead of Asking the Broker — the limit the board misread
5. A Paid Claim Is Not a Funded Rebuild — the proceeds and the vote
6. The Appraisal Clause, Both Ways — the appraisal clause, both ways
7. Same Street, Two Policies: The Renewal Decision Is the Only One That Survives the Fire — two boards, one street, two renewals
8. The Twenty Percent Building — the building the market would not insure (this article)

Tags: master policy limit · replacement cost · total loss · partial-damage scenario · Lahaina · Aina Nalu · Maui fire settlement · subrogation · HRS § 663-10 · Act 296 · Hawaii Hurricane Relief Fund · Fannie Mae B7-3-03 · hurricane coverage · FIN-006 · Quorum Case Files

Disclaimer. This article is published by the Common Interest Community Standards Council for educational and informational purposes only. It is not legal, insurance, or financial advice and does not establish an attorney-client relationship. The description of Aina Nalu’s coverage, the board president’s statements, the rebuild status, and the Spinnaker comparison are drawn from Hawaii News Now reporting of August 5, 2026; the maintenance-fee dispute is drawn from Hawaii News Now reporting of August 29, 2024, is an allegation on which no ruling has been located, and involves no finding of wrongdoing by any party; the Ho‘onanea fee figure is from KITV Island News, September 2024. The settlement figure and parties are as reported by the Hawaii Tribune-Herald on August 19, 2024, and as named in In the Matter of the Petition for the Coordination of Maui Fire Cases, SCRQ-24-0000602 (Haw. Mar. 17, 2025), whose holdings are quoted from the published opinion answering reserved questions. The finality of the subrogation judgment and the installment schedule are from Hawaiian Electric Industries’ Form 8-K filed April 10, 2026; the insurers’ recovery percentages and claim counts are as reported by the Hawaii Tribune-Herald and Honolulu Star-Advertiser on June 8, 2026. Great American Insurance Co. v. AOAO of Lahaina Residential Condominium, D. Haw. No. 1:24-cv-00075, is described from the docket and from Tred Eyerly’s Insurance Law Hawaii report of November 5, 2024; the underlying owner claim’s status is unconfirmed. Act 296, Session Laws of Hawaii 2025, is quoted from the enrolled text; Fannie Mae Selling Guide B7-3-03 is quoted from the published guide. Premium, sales, lending, and rate figures are as reported by Hawaii Business (2024 and 2025) and Hawaii Public Radio (December 22, 2025). All matters described as ongoing are stated as of October 2026. Questions about a specific association’s coverage, claim, or exposure are questions for association counsel and a licensed insurance professional. CIC-SC, its authors, and its members assume no liability for actions taken in reliance on this content.

Published by the Common Interest Community Standards Council (CICSC). Companion to Quorum Case Files Season 9, Episode 8, and to CICSC Standard FIN-006, Master Policy Insurance Adequacy Review. Part of the CICSC Member Education Library. © 2026 CICSC. Educational use permitted with attribution.