Hawaii High Court Revives Convict’s Malpractice Claim Against Brokerage

Charles Alan Pflueger was convicted of tax fraud nearly a decade ago, paid a fine and finished his prison term, but the lawsuit he filed against his insurance broker because of its alleged mishandling of those criminal charges lives on.

The Hawaii Supreme Court on Wednesday revived a malpractice action that Pflueger filed 14 years ago against Noguchi & Associates for telling him that his directors and officers liability policy did not cover the cost of hiring lawyers to respond to criminal subpoenas.

In a unanimous opinion, the high court said that Pflueger raised a legitimate question as to whether National Union Fire Insurance Co. would have been required to reimburse those costs had the brokerage not steered him away from filing a timely claim.

The court said the trial court ruled incorrectly that Pflueger needed to show that his insurer would not have denied his claim. What matters is whether a court would ultimately rule that the carrier was liable.

“National Union’s disclaimer of coverage is not determinative of Pflueger’s legal rights or legally cognizable harm – only a court’s ruling on the matter is,” the opinion says.

Pflueger owned Pflueger Inc., an auto parts supplier founded by his father James Henry Pflueger. In 2010 a federal grand jury indicted both men, two employees and a certified public accountant on tax fraud charges.

Pflueger Inc. received subpoenas from federal prosecutors in 2008. The company’s chief financial officer, Randall Ken Kurata, asked Noguchi about coverage for the cost of hiring attorneys to respond.

The facts are in dispute, but Pflueger says agents for the brokerage told Kurata that the D&O policy would provide coverage for defense costs only if a criminal indictment had been issued.

Pflueger hired attorneys on its own. In 2009, the company’s lawyers sent a letter to National Union demanding coverage for the cost of defending the lawsuit. The insurer said the claims were untimely because they were not submitted during the period of coverage, and even if they had been submitted earlier, there was no coverage under the policies.

Pflueger filed lawsuits against National Union and Noguchi. The company reached a confidential settlement with the insurer, but its negligent misrepresentation claims against Noguchi went to trial. A jury found Noguchi was liable for negligence and responsible for 70% of Pflueger’s damages. That resulted in a net damage award of $586,000.

The Court of Intermediate Appeals, however, reversed the judgment because the circuit court had barred testimony from the two claims adjusters who had said there was no coverage for Pflueger’s claims.

The case went back to the trial court, which this time granted a motion for summary judgment in favor of Noguchi because of the claims adjuster’s testimony that no coverage was owed. The Court of Intermediate Appeals reversed, ruling that summary judgment in favor of Noguchi was unfounded.

The brokerage appealed and asked the Supreme Court to reinstate the circuit court’s summary judgment in its favor.

The high court rejected Noguchi’s argument that the testimony from the claims adjusters shows that its advice did not cause Pflueger’s injuries; the insurer would have denied the claims anyway.

The Supreme Court said Pflueger can prove causation by demonstrating that National Union was legally obligated to pay its claim, regardless of what its claims adjusters said.

“Because the circuit court and the ICA majority incorrectly analyzed Noguchi’s burden regarding the causation element, we vacate the ICA’s Oct. 5, 2022 Judgment on Appeal, and remand to the circuit court for proceedings consistent with this opinion,” the high court concluded.

During the course of the civil litigation, Charles Pflueger was convicted of tax evasion and sentenced to 15 months in prison and a $40,000 fine, federal court records show. His father, James Pflueger, was found not guilty.

Kurta, the former CFO, was convicted and sentenced to five years probation. The company’s accountant, Dennis Lawrence Duban, was sentenced to two years in prison. Julie Ann Kam, an employee of the company, was convicted of filing a false tax return and fined $500.