HILO — A federal class-action lawsuit alleges that Lloyd’s of London and its affiliated insurance brokers unlawfully steered Hawaii homeowners in lava-ravaged areas away from comprehensive home insurance coverage established by the state.
The lawsuit, filed Dec. 21 in U.S. District Court in Honolulu, claims Lloyd’s and its agents deceived consumers, offering surplus lines insurance without performing the due diligence required under Hawaii law to sell surplus lines insurance.
Surplus lines insurance, also called excess lines insurance, allow customers to seek coverage from out-of-state carriers — which aren’t covered by the state’s insurance guaranty fund — for a risk that standard or traditional insurers are unwilling or unable to assume.
The named plaintiffs in the suit are Stephen and Lucina Aquilina and Audra Lane and Scott Lane, two couples in their 60s who lost homes in Leilani Estates as a result of the lower East Rift Zone eruption that destroyed more than 700 homes between May and August last year. Because the suit is class action, it also covers others whose situations are similar enough to those allegedly faced by the Aquilinas and Lanes to make comparable claims.
According to the civil complaint, Lloyd’s and its agents knew that they weren’t allowed to place surplus lines insurance unless other insurance was unavailable, and the insurance coverage amounts exceeded the coverage available through traditional insurance carriers, including the government-established insurance coverage offered through Hawaii Property Insurance Association.
Consumers could have qualified for HPIA-sponsored insurance, but Lloyd’s and its agents deceived them by artificially inflating coverage limits beyond the $350,000 dwelling coverage limit offered through HPIA, the suit alleges.
The filing further states that Hawaii homeowners were steered “into purchasing Lloyd’s surplus lines homeowner’s insurance to insure their homes against peril. These Lloyd’s surplus lines insurance policies, which contained numerous exclusions, including a lava exclusion, are essentially worthless — amounting to no coverage at all.”
In addition, the 60-page lawsuit alleges that insurance brokers “received kickbacks from Lloyd’s for steering (homeowners) to the Lloyd’s surplus lines policies in the form of increased commissions.”
It further alleges the kickback scheme was set up so that “commissions were directly tied to the amount of premium steered to Lloyd’s, thereby incentivizing the broker defendants to maximize the amount of surplus lines insurance placed with Lloyd’s.”
The Lanes saw their dwelling coverage limit increased to $351,000, according to the complaint, exactly $1,000 over the government’s coverage limit of $350,000. The suit alleges the Lanes’ Kupono Street property was valued at $263,000 in 2017, and Lloyd’s and their brokers, Monarch E&S Insurance Services and Pyramid Insurance Centre Ltd., artificially inflated the Lanes’ coverage limits. The suit also claims the Lanes were never told about HPIA.
The Lanes’ yearly premium was $2,230.24, and after their home was destroyed, their claim was denied under a lava exclusion in their policy.
The suit claims the Aquilinas’ dwelling coverage limit was $252,000, less than the coverage limit under HPIA, but more than the Alapai Street property’s 2017 market value of $196,800. Despite that, according to the complaint, Lloyd’s — along with Monarch and Moa Insurance Services Hawaii — “improperly steered” the Aquilinas “to a Lloyd’s surplus lines insurance policy that contained a lava exclusion.”
The Aquilinas “were not aware that other homeowner’s insurance policies were available to them,” the suit states.
The Aquilinas’ yearly premium was $1,300.68, and their claim to cover losses suffered as a result of the eruption was also denied under a lava exclusion.
“In the absence of defendants’ unlawful scheme, plaintiffs and the class would have been offered more comprehensive insurance, including insurance through HPIA, which provides for coverage against 16 perils, including fire and volcanic eruption,” the suit states.
The suit claims Lloyd’s is the top writer of surplus lines insurance in the United States — writing 23 percent of the U.S. surplus lines policies nationwide in 2017, totaling $10.3 billion in premiums.
Lloyd’s syndicates wrote approximately $52 million in surplus lines premium in Hawaii in 2017, according to the National Association of Insurance Commissioners and the Center for Insurance Policy and Research.
A copy of lawsuit can be found at PunaClaims.com.
Hawaii homeowners seeking further information can reach Foster Law Offices by visiting PunaClaims.com or calling 808-348-7800, or Scott+Scott Attorneys at Law at https://scott-scott.com/hawaii-homeowners or calling 800-404-7770.
The Tribune-Herald was unable to contact Scott+Scott Wednesday because of time zone differences.
Email John Burnett at jburnett@hawaiitribune-herald.com.