Aquilina v. Certain Underwriters at Lloyd's Syndicate #2003, Civ. No. 18-00496-ACK-KJM
| Citation | 465 F.Supp.3d 1088 |
| Decision Date | 10 June 2020 |
| Docket Number | Civ. No. 18-00496-ACK-KJM |
| Parties | Stephen G. AQUILINA and Lucina, J. Aquilina, Individually and on Behalf of all Others Similarly Situated; and Donna J. Corrigan and Todd L. Corrigan, Individually 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; Aloha Insurance Services Inc.; Ilikea LLC d/b/a Moa Insurance Services Hawaii; and Does 1-100, Defendants. |
| Court | U.S. District Court — District of Hawaii |
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, Joseph P. Guglielmo, Michelle E. Conston, Pro Hac Vice, Scott Scott, Attorneys at Law, LLP, New York, NY, for Plaintiffs Stephen G. Aquilina, Lucina J. Aquilina.
Joseph P. Guglielmo, Scott Scott, Attorneys at Law, LLP, New York, NY, for Plaintiffs Donna J. Corrigan, Todd L. Corrigan.
Paul Alston, James Blaine Rogers, III, Erika L. T. Amatore, Dentons US LLP, Honolulu, HI, for Defendant Certain Underwriters at Lloyd's London.
David E. Walker, Pro Hac Vice, Douglas W. Walker, Pro Hac Vice, Kaitlin M. Calov, Pro Hac Vice, Walker Wilcox Matousek LLP, Chicago, IL, Erika L. T. Amatore, James Blaine Rogers, III, Paul Alston, Dentons US LLP, Honolulu, HI, for Defendants 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.
David A. Gruebner, Edmund K. Saffery, Lennes N. Omuro, Wayne R. Wagner, Goodsill Anderson Quinn & Stifel LLP, Honolulu, HI, for Defendants Borisoff Insurance Services, Inc., Specialty Program Group, LLC.
David Alan Morris, Harvey J. Lung, Matthew C. Shannon, Georgia Anton, Bays Lung Rose & Holma Topa Financial Ctr., Honolulu, HI, for Defendant Ilikea LLC.
Steven L. Goto, Chong Nishimoto Sia Nakamura & Goya LLP, Honolulu, HI, for Defendant Aloha Insurance Services, Inc.
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS CERTAIN UNDERWRITERS AT LLOYD'S AND MONARCH'S MOTIONS TO DISMISS
Plaintiffs are residents of the Puna District of Hawai'i Island (the "Big 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 allegedly sustained significant damage 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 brought lawsuits in state court, as well as this putative class action in federal court, seeking relief for losses allegedly caused by the wrongdoing of the various Defendants. The operative class-action complaint asserts that Defendants committed unfair business practices and breached other statutory and common-law obligations owed toward Plaintiffs in connection with the procurement of the policies.
Certain Underwriters at Lloyd's London, including Syndicates #2003, #318, #4020, #2121, #2007, #1183, #1729 ("Underwriters"), and Borisoff Insurance Services, Inc. d/b/a Monarch E&S Insurance Solutions, LLC, whose assets are owned by Specialty Program Group, LLC d/b/a SPG Insurance Solutions, LLC (together, "Monarch") have now moved to dismiss Plaintiffs’ claims under Federal Rule of Civil Procedure ("Rule") 12(b)(6) for failure to state a claim.1 For the reasons set forth below, the Court GRANTS IN PART and DENIES IN PART Underwriters’ Motion to Dismiss, ECF No. 126, and GRANTS IN PART and DENIES IN PART Monarch's Motion to Dismiss, ECF No. 128.
As mentioned, this case began in 2018 as a putative class action. Compl. ECF No. 1. The initial Complaint was brought by lead Plaintiffs Stephen and Lucina Aquilina and Audra and Scott Lane, and named as Defendants Underwriters; Monarch; Ilikea LLC d/b/a Moa Insurance Services Hawaii ("Moa"); and Pyramid Insurance Centre, Ltd. ("Pyramid"). Id. It alleged that the various Defendants had engaged in a deceptive "scheme" to defraud Plaintiffs and deprive them of meaningful insurance coverage. Id. All four Defendants previously moved to dismiss—primarily for failure to meet the heightened pleading standard under Rule 9(b)—which the Court granted without prejudice on September 26, 2019. ECF Nos. 106-09.
The now-operative First Amended Complaint, ECF No. 114, was filed on December 12, 2019. It replaces the Lane Plaintiffs with Donna and Todd Corrigan, and Pyramid (the Lanes’ retail broker) with Aloha Insurances Services, Inc. ("Aloha") (the Corrigans’ retail broker). See Am. Compl. The Aquilinas and the Corrigans (together, "Plaintiffs") again purport to assert claims on behalf of themselves and a putative class of similarly-situated consumers (the "Class").2 This time, however, they abandon their previous allegations of a deceptive or fraudulent scheme and reframe them to allege "unfair" practices under Hawai'i’s Unfair and Deceptive Acts or Trade Practices ("UDAP") law and breaches of other statutory and common-law duties.
The Amended Complaint asserts three causes of action against Underwriters and two causes of action against Monarch:
Now before the Court are Underwriters’ Motion to Dismiss, ECF No. 126, and Monarch's Motion to Dismiss, ECF No. 128, which were filed on February 27, 2020. Plaintiffs filed their oppositions on April 28, ECF Nos. 140 & 141, and Defendants filed their reply briefs on May 5, ECF Nos. 151 & 152. Moa filed a statement of no opposition to Underwriters’ Motion, and Monarch and Aloha filed statements of no position as to Underwriters’ Motion. ECF Nos. 143 (Moa), 147 (Monarch), & 148 (Aloha). Underwriters and Moa filed statements of no opposition to Monarch's Motion, and Aloha filed a statement of no position as to Monarch's Motion. ECF Nos. 137 (Underwriters), 142 (Moa), & 149 (Aloha). The Court held a telephonic hearing on both motions on Tuesday, May 19.
Plaintiffs and the Class purchased surplus lines homeowners insurance policies to insure their residential properties located on the Big Island. Am. Compl. ¶ 1. The policies were underwritten by several syndicates of Underwriters. Id. ¶ 1. Plaintiffs purchased their policies with the help of two retail brokers, Moa and Aloha (together, the "Retail Brokers"). Id. ¶¶ 31-32. Moa assisted the Aquilinas while Aloha assisted the Corrigans. See id. The Retail Brokers purchased the policies through Monarch, a licensed surplus lines broker and the coverholder to and authorized agent of Underwriters. Id. ¶¶ 27-28, 71-72.
Surplus lines insurance is available as a last resort when the traditional insurance market "cannot or will not insure" due to risky characteristics." Am. Compl. ¶¶ 2, 98-99. 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. Id. ¶¶ 98-99. 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. Id. ¶ 99. "[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." Id. ¶ 99.
Specifically, Section 301 of the Hawai'i insurance code establishes various requirements to allow for the placement of surplus lines insurance. See HRS § 431:8-301 ; Am. Compl. ¶¶ 101-02. First, surplus lines insurance may only be placed through a "licensed surplus lines broker." Am. Compl. ¶ 101 (citing HRS § 431:8-301(a) ). And a surplus lines broker must perform a "diligent search" of the insurance market before placing a surplus lines policy 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.3 Id. ¶ 102 (citing HRS § 431:8-301(a)(2)-(4) ).
The Amended Complaint alleges that Defendants unlawfully brokered or sold surplus lines policies with "inadequate" or "inappropriate" coverage to Plaintiffs and the Class when more comprehensive coverage was available. Am. Compl. ¶ 4. As a result, in the devastating aftermath of the recent Kilauea eruption, Plaintiffs were denied coverage under their policies for significant losses to their homes and properties. Id. ¶¶ 7-9, 114-117.
Plaintiffs live in high-risk lava "zones." Id. ¶ 1. Because of the location of their homes, the traditional, voluntary insurance market does not offer any form of property insurance. Id. ¶ 2. For that reason, Plaintiffs were placed with insurance through the surplus lines market, which—as noted above—allows unlicensed insurers to provide coverage. Id. In other words, the surplus lines market essentially...
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