The title of this post was a question posed to me yesterday by one of the crew while racing the Transpac to Hawaii. Thanks to Elon Musk and Starlink, I was able to get fairly cheap internet access and show him the case I’m sharing with you.1
The facts in the case provide the answer to the question:
The excess policies sold to the plaintiffs and the class contained an exclusion excluding coverage for “the risk of lava and/or lava flow causing direct or indirect physical damage or loss of use of the insured property” (the “Lava Exclusion”
;)… This despite the fact that the plaintiffs allegedly sought a homeowner’s insurance policy that would include lava coverage, given the type of location their home has. Plaintiffs allege that they relied on Defendants’ “knowledge, experience and expertise regarding the suitability and availability of insurance in Hawaii’s insurance market” and that Defendants “knew and understood” that Plaintiffs’ homes were located in high-risk lava zones—necessitating coverage for damages caused of lava flows – but still sold them policies that included the Lava Exclusion. Although the plaintiffs do not allege that they interacted directly with the Underwriters or Monarch, the Amended Complaint alleges that Monarch (the Underwriters’ agent) used its retail brokers (Moa and Aloha) to coordinate the procurement of the policies and that Monarch and the Underwriters would or should have been aware the particular need for lava coverage based on the location of plaintiffs’ properties. Now that the plaintiffs’ homes have allegedly suffered damage as a result of the recent eruption, the plaintiffs allege that the defendants should be held liable for placing the plaintiffs with inadequate coverage without meeting certain statutory requirements and without informing them of other available insurance policies that would have included lava coverage.The plaintiffs allege that the defendants failed to comply with the statutory requirements of Section 301 to place excess line coverage, which requires a “diligent search” to determine whether “[t]The full amount or type of insurance” cannot be obtained from “authorized” insurers. Defendants, according to the amended complaint, knew or should have known that the plaintiff lived in high-risk areas, yet they failed to inform the plaintiff that they would have qualified for more comprehensive coverage (including volcanic eruptions) through other channels. The Amended Complaint specifically focuses on coverage through the Hawai’i Property Insurance Association (‘HPIA’ or ‘Association’). The HPIA is a statutory association of licensed insurers that issues coverage for 16 perils, including fire and volcanic eruptions. The HPIA was established to make property insurance available to “persons who are unable to obtain basic property insurance in the private market from a licensed insurer.” When the Legislature created the HPIA, it described the purpose of the program:
The Legislature finds that the recent Kilauea volcanic eruption and lava flows have caused a serious problem for residents in some areas of the Big Island. The actual and potential losses caused by the volcanic activity have also resulted in the absence of basic property insurance for people with insurable interests in nearby properties, causing great personal suffering and financial hardship and contributing to community uncertainty. The Legislature believes that it is in the State’s interest to promote stability for people adversely affected by major natural disasters, and this purpose will be served by making basic property insurance available to such people.
The purpose of this Act is to create an entity to provide reasonably priced basic property insurance for owners and occupants of properties in high risk areas for major natural disasters. This extraordinary action is being taken to provide limited relief to meet the unique and pressing needs of these individuals who are currently unable to obtain property insurance.
… The legislative history reflects the intent to establish a program that would ensure property coverage for individuals whose homes are at high risk of damage due to their proximity to active volcanoes on the Big Island and its continuous eruptions.
According to the amended complaint, plaintiffs’ and class properties would have qualified for HPIA insurance, but defendants argued to plaintiffs that the insurer’s policies were the only property insurance coverage available. The amended complaint also suggests that the plaintiff may have qualified for other Lloyd’s policies on the voluntary market that would not have contained a Lava exclusion. The plaintiffs argue that such policies would have been available only through another broker — in other words, not Monarch.
Plaintiffs allege that each defendant breached various obligations owed to them when they placed plaintiff and the class in excess insurance without informing them of the availability of HPIA policies or other policies that would have included lava coverage. They argue that Underwriters and Monarch regularly conduct business selling insurance in the Hawaiian Islands, and therefore should have been aware of the unique geographic issues—including the history of outbreaks—as well as the existence of the state-established HPIA program. Plaintiffs argue that insurers are liable for their own conduct and that they are vicariously liable for the conduct of their agents,
Just as insurance companies try to exclude hurricane and wind damage from hurricane-prone areas, California earthquakes and limit roof damage in hail-prone states, insurance companies in Hawaii have tried to exclude lava damage. But there is lava coverage in Hawaii.
The wind is weak and the race is slow. The crew of the Merlin seem concerned that rum rationing is about to begin. If you want to see where I am, just click this link.
Today’s thought
Unlike most major American cities, Honolulu is geographically isolated from the rest of the country. When a disaster strikes, we cannot call on neighboring states for help.
—Daniel Akaka
1 Aquilina v. Certain Underwriters a Lloyd’s, 465 F.Supp. 3d 1088 (D.Haw. 2020).
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