The structural lesson: you are collecting from insurers

Ninety-five per cent of the Alii Cove settlement was insurance money. The developer entity itself contributed under $700,000.

That is the normal shape of these cases, and it drives everything about how a board approaches one:

Identify the policies early. Who insured the developer, the general contractor and the major subcontractors, on what forms, for which policy years, and with what limits? A defect claim against a well-insured chain is a different proposition from one against a dissolved entity with a lapsed policy.

Watch the clock, because it is not the discovery clock you might assume. Hawaii’s ten-year statute of repose for improvements to real property, and the applicable limitations period, are the first questions counsel will ask. A board that spends three years investigating a leak before consulting anyone may have spent the claim.

Expect the contractor chain to fight downstream. The nineteen-day arbitration here happened after the association was paid. That is the developer and the general contractor sorting out who bears it — and it is why a settling defendant will care intensely about the release language the association signs.

Who owns the claim

Defects in the common elements are the association’s claim. Defects inside a unit are the owner’s. Hawaii’s allocation follows HRS § 514B-137(a) — the association is responsible for the operation of the property, each owner for their own unit — as varied by the declaration.

In practice the line is contested, because water intrusion does not respect it. A leak originating in a common-element envelope and damaging unit finishes generates two claims with different owners, and a settlement that resolves only one of them leaves the association exposed to the other.

The insurance interaction that calls for advice

Two provisions of HRS § 514B-143 matter here.

Subsection (f): “Any loss covered by the property policy… shall be adjusted by and with the association,” with proceeds payable to the association or an insurance trustee and “held in trust for unit owners and secured parties as their interests may appear.” A federal court has held that owners have no private right of action under subsection (b).

Subsection (d): where a claim involves a deductible, the board may pay it as a common expense, assess it — after notice and an opportunity for a hearing — against the owners who caused the damage or from whose units it originated, or require the affected owners to pay it.

So the association controls the adjustment and holds the proceeds in trust. That is authority and exposure in the same sentence.

The vote question, and the ADR question

Two things in a board's own documents and in the statute frame any litigation.

First, whether the declaration or bylaws require an owner vote to sue — many Hawaii documents do, and a 2025 carryover bill would have required an owner vote and a forensic audit before an association takes on a loan, which is the same instinct applied to borrowing.

Second, the ADR carve-out. Under § 514B-162(b), mandatory arbitration does not reach claims against “the developer, general contractor, subcontractors, or design professionals for the project” unless they are acting as an owner, director or managing agent. Construction-defect claims are outside the association arbitration track by design.

What to watch

Whether Hawaii construction-defect settlements at this scale become more common as 1970s and 1980s buildings undergo envelope repairs, and whether any 2027 measure addresses the interaction between defect recovery and reserve funding — a building that recovers $15 million and does not reserve it has solved this decade’s problem and not the next one’s.