Remove skin from chicken. In a 10-inch skillet brown chicken thighs on all sides in hot oil. Drain off fat.
Add water, vinegar, soy sauce, bay leaves, garlic, and pepper to skillet; stir gently. Bring to boiling; reduce heat. Cover and simmer for 30 to 35 minutes or until chicken is tender and no longer pink. Transfer chicken to a platter; keep warm.
Bring liquid in skillet to boiling; boil, uncovered, for 3 to 5 minutes or until reduced to about 1/2 cup. Skim off fat. Remove and discard bay leaves. Drizzle juices over chicken. Sprinkle with chili pepper or coconut, if desired. Makes 4 servings.