A Maui judge’s ruling on Tuesday resolves a critical roadblock to finalising a 4 billion dollar (£3.1 billion) wildfire settlement.

Insurance companies who have paid out more than 2 billion dollars (£1.5 billion) in claims can seek reimbursement only from the settlement amount defendants fire victims blame for causing the deadly tragedy have agreed to pay.

Lawyers representing the victims in hundreds of lawsuits over the deaths and destruction caused by the fires asked the judge to bar insurers from bringing independent legal action to recoup the money paid to policyholders.

Preventing insurers from going after the defendants is a key settlement term.

Hawaii Wildfire Anniversary
Waiola Church and nearby Lahaina Hongwanji Mission are engulfed in flames. (Matthew Thayer/AP)

The settlement was reached earlier this month, days before the first anniversary of the fires, amid fears that Hawaiian Electric, the power company that some blame for sparking the blaze, could be on the brink of bankruptcy.

Other defendants include Maui County and large landowners.

The federal Bureau of Alcohol, Tobacco, Firearms and Explosives is investigating the August 2023, fires that killed 102 people, destroyed the historic downtown area of Lahaina, burned thousands of homes and displaced 12,000 people.

Lawyers were worried allowing insurers to pursue reimbursement separately would be a deal-breaker, drain what is available to pay fire victims, and lead to prolonged litigation.

A group of more than 160 property and casualty insurers that have paid more than 2.34 billion dollars (£1.8 billion) to people and businesses devastated by the fires remained as holdouts to the settlement.

Insurer lawyers argued in court filings that what they called the rush to push through a settlement deprives the insurers of their due process.

The insurance industry has been unfairly demonised while those responsible for the fires won’t be held accountable, insurer lawyer Vincent Raboteau told the judge.

Hawaii Wildfire Anniversary Banyan Tree
A man reacts as he sits on the Lahaina historic banyan tree damaged by the wildfire. (Rick Bowmer/PA)

“And we’re not arguing to be first in line for anything,” he said.

“It’s always been our position that individual plaintiffs should get the lion’s share.”

After the hearing, Mr Raboteau declined to comment on Judge Peter Cahill’s ruling and would not say whether they plan to ask the Hawaii Supreme Court to review it.

Jake Lowenthal, a lawyer selected as one of four liaisons for the coordination of the plaintiffs’ lawsuits, said they are heartened by Judge Cahill’s ruling.

“This is going to be a critical part in reaching a final resolution of everyone’s claims as well as resolving the insurance companies’ potential rights of reimbursement,” he said.