Homeowners in Hawaii’s Puna District have filed a proposed class action lawsuit against Lloyd’s of London insurers claiming they were tricked into purchasing surplus lines insurance policies for their homes.
In a complaint filed in Hawaii federal court, homeowners allege that underwriters and brokers worked together to “steer” them into policies that contained exclusions for perils including lava, rendering the policies “essentially worthless – amounting to no coverage at all.”
The Kilauea Volcano on Hawaii’s Big Island has erupted continuously since 1983, and in May 2018 experienced a significant eruption, destroying more than 700 homes. Plaintiffs said they lost not only their homes, but virtually all their personal belongings, important documentation and even pets.
In addition to the “extreme and debilitating emotional distress, anxiety and panic” that comes with the loss of property, the exclusions included in Lloyd’s surplus lines policies and coverage denials in the aftermath exacerbated trauma, the complaint said.
Homeowners claim that in the absence of an “unlawful scheme,” they would have received more comprehensive coverage, including fire and volcanic eruption peril, from the Hawaii Property Insurance Association (HPIA).
The suit, filed 21 Dec., alleges Lloyd’s underwriters and brokers artificially inflated the value of the plaintiffs’ properties, rendering them ineligible for HPIA coverage by making the structures exceed the association’s $350,000 dwelling limit.
Lloyd’s underwriters and brokers were “unjustly enriched” as a result of their misleading coverage, the suit alleges.
In an emailed statement Friday, a Lloyd's spokesperson said it would be "inappropriate for Lloyd's to comment on specific legal proceedings."
"However, policyholders can be sure that the Lloyd’s market is always committed to meeting its obligations and that Lloyd’s underwriters review all claims as swiftly as possible," the representative said. "So far, the Lloyd’s market has paid $84m in respect of homeowners’ claims in Hawaii and hard work is going into resolving all other outstanding claims."
“The Lloyd’s market has approached all these claims in good faith," the Lloyd's representative continued. "This approach has included paying claims where there is no or limited cover, as well as providing indemnity for damaged contents and additional living expenses. Only a small number have been declined and only for legitimate reasons."
“The Lloyd’s market has built its strong reputation over the centuries by consistently honouring its promise to pay," the representative said. "We will always remain committed to helping protect policyholders.”
The homeowners seek damages and a refund of benefits, in addition to a court order impelling the defendants to notify every individual that purchased surplus lines policies from Lloyd’s so that they might obtain “restitution.”
In November 2018, Lloyd’s carriers agreed in a separate case to settle homeowners’ claims from the Kilauea eruption that it initially denied based on lava-related exclusions.
Lloyd's insurers abruptly “reversed all denials of claims” from the 3 May eruption and “agreed to pay policy limits plus 10% interest” to affected policyholders, according to lawyers for the plaintiffs.