Aquilina v. Certain Underwriters at Lloyd's Syndicate #2003
| Decision Date | 26 September 2019 |
| Docket Number | Civ. No. 18-00496-ACK-KJM |
| Citation | 407 F.Supp.3d 1016 |
| Court | U.S. District Court — District of Hawaii |
| Parties | Stephen G. AQUILINA and Lucina, J. Aquilina, Individually and on Behalf of all Others Similarly Situated; Audra M. Lane and Scott L. Lane, Individually and as Trustees of the Lane Family Trust, dated March 28, 1998, and on Behalf of All Others Similarly Situated, Plaintiffs, v. CERTAIN UNDERWRITERS AT LLOYD'S SYNDICATE #2003 ; Lloyd's Syndicate #318; Lloyd's Syndicate #4020 ; Lloyd's Syndicate #2121 ; Lloyd's Syndicate #2007 ; Lloyd's Syndicate #1183 ; Lloyd's Syndicate #1729; Borisoff Insurance Services, Inc. d/b/a Monarch E&S Insurance Services; Specialty Program Group, LLC d/b/a SPG Insurance Solutions, LLC; Pyramid Insurance Centre, Ltd.; Ilikea LLC d/b/a Moa Insurance Services Hawaii; and Does 1-10, Defendants. |
E. Kirk Wood, Pro Hac Vice, Wood Law Firm LLC, Birmingham, AL, Erin Green Comite, Scott+Scott, Attorneys at Law, LLP, Colchester, CT, Jeffrey E. Foster, Foster Law Office, LLC, Kealakekua, HI, Michelle E. Conston, Pro Hac Vice, Joseph P. Guglielmo, Scott+Scott Attorneys at Law LLP, New York, NY, for Plaintiffs.
Paul Alston, James Blaine Rogers, III, Erika L. T. Amatore, Dentons US LLP, David A. Gruebner, Edmund K. Saffery, Wayne R. Wagner, Lennes N. Omuro, Goodsill Anderson Quinn & Stifel LLLP, Lissa H. Andrews, Frederick W. Rohlfing, III, Case Lombardi & Pettit, Georgia Anton, Harvey J. Lung, Matthew C. Shannon, Bays Lung Rose & Holma Topa Financial Ctr., Honolulu, HI, David E. Walker, Pro Hac Vice, Douglas W. Walker, Pro Hac Vice, Kaitlin M. Calov, Pro Hac Vice, Walker Wilcox Matousek LLP, Chicago, IL, for Defendants.
ORDER GRANTING DEFENDANTS BORISOFF INSURANCE SERVICES, INC. d/b/a MONARCH E&S INSURANCE SERVICES AND SPG INSURANCE SOLUTIONS, LLC'S MOTION TO DISMISS
Plaintiffs are residents of the Puna District of Hawai'i Island who purchased surplus lines homeowner's insurance policies brokered and underwritten by the various Defendants. In the aftermath of the May 2018 eruption of Kilauea Volcano, Plaintiffs sustained significant damages to their properties and sought coverage for the losses under their surplus lines policies. Such coverage was denied, primarily based on an exclusion precluding coverage for lava-related damage. Plaintiffs now allege that Defendants carried out a deceptive scheme by which they unlawfully "steered" Plaintiffs and other homeowners into purchasing, through the surplus lines market, what Plaintiffs call "essentially worthless" coverage, with the goal of increasing profits and commissions and lowering payouts for covered claims.
Defendants Borisoff Insurance Services d/b/a Monarch E&S Insurance Services ("Monarch") and Specialty Program Group, LLC d/b/a SPG Insurance Solutions, LLC ("SPG")1 have moved to dismiss the Complaint under Federal Rule of Civil Procedure ("Rule") 12(b)(6). For the reasons explained in this Order, the Court GRANTS Monarch's Motion to Dismiss, ECF No. 30, insofar as it seeks dismissal of all Plaintiffs' claims against Monarch and SPG.
Plaintiffs Stephen and Lucina Aquilina, and Audra and Scott Lane, individually and as Trustees of the Lane Family Trust (collectively, "Plaintiffs"), as well as a putative class of similarly-situated consumers (the "Class"),2 purchased surplus lines homeowners insurance policies (the "Policies") to insure their residential properties in Hawai'i. Compl. ¶ 1. The Policies were purchased with the assistance of two retail brokers, Defendants Pyramid Insurance Centre, Ltd. ("Pyramid") and Ilikea LLC d/b/a Moa Insurance Services Hawaii ("Moa"), and one coverholder, Defendant Monarch, whose assets are owned by SPG (collectively, "Broker Defendants").3 The Policies were underwritten by several syndicates of Defendants Certain Underwriters at Lloyd's London, including Syndicates #2003, #318, #4020, #2121, #2007, #1183, #1729 (collectively, "Underwriters"). Compl. ¶ 1.
Pyramid and Moa are both retail brokers who placed the Policies and worked on Plaintiffs' behalf to procure homeowner's insurance. See Compl. ¶¶ 35-36. Monarch is a licensed surplus lines broker, and coverholder to and authorized agent of Underwriters. See Compl. ¶¶ 29, 32-34. As the coverholder, Monarch is listed on the Policies as the point of contact for handling claim-related communications with Plaintiffs. Compl. ¶¶ 29-34; see also ECF Nos. 30-3 & 30-4.4 The Complaint also alleges that Monarch acted with the assistance of "its authorized agents, including Moa and Pyramid." Compl. ¶ 29.
Surplus lines insurance is available as a last resort when the traditional insurance market is "unable or unwilling to provide coverage due to risky characteristics." Compl. ¶ 39, 46-47. The surplus lines market exists to provide coverage for high-risk loss exposures when "admitted insurers in the standard market do not have the flexibility" to underwrite such risks. Compl. ¶ 40. Surplus lines insurance is provided by non-admitted insurers who are not licensed to operate in Hawai'i and who are not required to obtain approval for their rates, forms, and underwriting rules. Compl. ¶ 41. "[S]urplus lines insurers often fill the gap to provide insurance coverage for high-risk perils, but are only permitted to do so under specified circumstances." Compl. ¶ 41.
The Hawai'i Insurance Code provides that surplus lines insurance may only be placed through a "licensed surplus lines broker." Compl. ¶ 44 (citing Haw. Rev. Stat. § 431:8-301(a) ). The same provision requires that, "[b]efore placing a surplus lines policy, ... a surplus lines broker must perform a diligent search of the insurance market" to determine whether the insurance can be obtained from authorized insurers; whether the insurance is in addition to or in excess of the amount and coverage that can be procured from authorized insurers; and whether the insurance is procured at a rate "lower than the lowest rate that is generally acceptable to authorized insurers transacting that kind of business and providing insurance affording substantially the same protection." Compl. ¶ 45 (quoting Haw. Rev. Stat. § 431:8-301(a)(2)-(4) ).
The Complaint alleges a "steering scheme" through which Defendants allegedly sold surplus lines policies to Plaintiffs and the Class without complying with certain obligations under Hawai'i law. Compl. ¶ 47. As a result, in the devastating aftermath of the Kilauea Volcano eruption, Plaintiffs were denied coverage under their Policies for significant losses to their homes and properties. Compl. ¶¶ 7-8, 71-74.
The Complaint alleges that Defendants unlawfully placed surplus lines insurance instead of more comprehensive coverage, such as that available through the Hawai'i Property Insurance Association ("HPIA").5 Compl. ¶¶ 48-52. According to the Complaint, Plaintiffs' and the Class's properties qualified for HPIA insurance, but Defendants were incentivized not to place HPIA policies because Underwriters' policies were "more lucrative." Compl. ¶¶ 48-56, 62-66.
Defendants allegedly misrepresented to Plaintiffs that the Policies were the only available insurance without having performed the due diligence required under Hawai'i law to place surplus lines insurance. Compl. ¶ 3. According to Plaintiffs, Defendants "improperly steered" them into purchasing the Policies, which contain several exclusions that render coverage "essentially worthless." Compl. ¶¶ 1-4. Plaintiffs highlight one exclusion in particular, which precludes coverage for "the peril of lava and/or lava flow causing direct or indirect physical damage or loss of use of the insured property" (the "Lava Exclusion"). Compl. ¶ 1.
Plaintiffs allege that, since 2012, Broker Defendants and Underwriters "steered" Plaintiffs and the Class to purchase Lloyd's Policies. Among other things, Defendants artificially inflated the insurance coverage amounts—such as the home value or the personal liability coverage—beyond the HPIA coverage limits so that they could place Plaintiffs and the Class with Lloyd's surplus lines insurance policies." Compl. ¶¶ 4. Defendants allegedly knew that they were not allowed to place Plaintiffs and the Class with surplus lines insurance unless the coverage amounts exceeded the coverage available through traditional, non-surplus lines carriers. Compl. ¶ 5. According to Plaintiffs, the state's own HPIA insurance program could have provided them with more comprehensive coverage, yet Broker Defendants placed them with and Underwriters sold them surplus lines policies anyway. Compl. ¶¶ 5, 56-57.
This scheme is repeated in similar form throughout the Complaint to allege wrongdoing by Defendants in procuring the Policies for Plaintiffs and the Class. Compl. ¶¶ 58, 61, 66-69. The Complaint asserts that Defendants represented to Plaintiffs and the Class that they could only purchase insurance through the surplus lines market, thereby steering them into purchasing the Policies subscribed by Underwriters. Compl. ¶¶ 58, 67-69. The scheme in turn enabled Underwriters to increase their revenues and profits and Broker Defendants to collect "kickbacks" from Underwriters in the form of increased commissions. Compl. ¶¶ 6, 59, 69. Plaintiffs allege that the commissions were "directly tied to the amount of premium steered to [Underwriters]" to incentivize Broker Defendants to "maximize the amount of surplus lines insurance placed with [Underwriters]." Compl. ¶ 59; see also Compl. ¶ 6.
As a result of the scheme, Plaintiffs were provided less comprehensive coverage because of "numerous exclusions inevitably associated with [Underwriters'] surplus lines homeowner's insurance"—in particular, the Lava Exclusion. Compl. ¶ 60. The Complaint alleges that, for a home located in a particularly risky Lava Zone, a homeowner's policy excluding lava coverage "amount[s] to no coverage at all." Compl. ¶ 1.
The Complaint...
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