United States District Court, D. Hawaii
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,
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 1-100, Defendants.
ORDER GRANTING DEFENDANTS BORISOFF INSURANCE
SERVICES, INC. D/B/A MONARCH E&S INSURANCE SERVICES AND
SPG INSURANCE SOLUTIONS, LLC’S MOTION TO
C. Kay, Sr. United States District Judge.
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
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”) 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.
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”),  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
Defendants”). 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.
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. The Complaint also alleges that Monarch
acted with the assistance of “its authorized agents,
including Moa and Pyramid.” Compl. ¶ 29.
The Surplus Lines Insurance Market
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.
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. §
The Steering Scheme
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.
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”). 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,
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.
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,
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.
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. ¶
Complaint frames the scheme this way:
In furtherance of their undisclosed scheme to drive profits
and commissions and lower payouts for claims, Defendants
improperly steered Plaintiffs and the Class into
Lloyd’s surplus lines homeowner’s insurance
policies by: (a) failing to perform various duties and due
diligence, including the duties and due diligence required
under HRS §431:8-301(a); (b) omitting that non-surplus
lines insurance was available; and/or (c) artificially
inflating the amount of coverage beyond the coverage limits
provided under non-surplus lines insurance, specifically
through the government-established Hawaii Property Insurance
Compl. ¶ 4; see also Compl. ¶¶ 93,
104, 119, 127, 138, 143.
assert that, in the absence of the scheme, they would have
insured their homes with more comprehensive insurance and
would have had such coverage in the aftermath of the Kilauea
eruption. Compl. ¶¶ 70-74. Now, because of the Lava
and other exclusions associated with the Policies, Plaintiffs
and the Class have received essentially worthless insurance
coverage, enabling Underwriters to deny coverage under the
Policies for resulting damages. Compl. ¶¶ 75-76.
named Plaintiffs, proceeding individually and on behalf of
the Putative Class, filed their Complaint on December 21,
2018. See Compl. ECF No. 1. Therein, Plaintiffs
assert seven causes of action:
1. Count I. Violation of the Unfair and Deceptive
Acts or Trade Practices Act (“UDAP”),
Hawai’i Revised Statutes (“HRS”)
§§ 480-1 et seq., against all Defendants. Compl.
2. Count II. Violation of the Uniform Deceptive
Trade Practices Act (“UDTPA”) (together with
Count I, the “UDAP Claims”), HRS §§
481A-1 et seq., against all Defendants. Compl. ¶¶
3. Count III. Breach of the implied covenant of good
faith and fair dealing (“bad faith”) against
Defendants Underwriters, Monarch, and SPG. Compl.
4. Count IV. Unjust enrichment against all
Defendants. Compl. ¶¶ 121-28.
5. Count V. Breach of fiduciary duties against
Broker Defendants. Compl. ¶¶ 129-139.
6. Count VI. Negligence against Broker Defendants.
Compl. ¶¶ 140-49.
7. Count VII. Declaratory judgment against all
Defendants. Compl. ¶¶ 150-54.
March 6, 2019, Monarch filed a Motion to Dismiss. ECF No. 30.
The Parties completed briefing on the Motion on August 13.
ECF Nos. 77 (Opposition Brief) & 85 (Reply Brief). The
Court heard oral arguments on the Motion on August 27, 2019.
12(b)(6) authorizes the Court to dismiss a complaint that
fails “to state a claim upon which relief can be
granted.” Rule 12(b)(6) is read in conjunction with
Rule 8(a), which requires “a short and plain statement
of the claim showing that the pleader is entitled to
relief.” Fed.R.Civ.P. 8(a)(2). The Court may dismiss a
complaint either because it lacks a cognizable legal theory
or because it lacks sufficient factual allegations to support
a cognizable legal theory. Balistreri v. Pacifica Police
Dep’t, 901 F.2d 696, 699 (9th Cir. 1988).
resolving a Rule 12(b)(6) motion, the Court must accept all
well-pleaded factual allegations as true and construe them in
the light most favorable to the plaintiff. Sateriale v.
R.J. Reynolds Tobacco Co., 697 F.3d 777, 783 (9th Cir.
2012). The complaint “must contain sufficient factual
matter, accepted as true, to ‘state a claim to relief
that is plausible on its face.’” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Mere
conclusory statements in a complaint or “formulaic
recitation[s] of the elements of a cause of action” are
not sufficient. Twombly, 550 U.S. at 555. Thus, the
Court discounts conclusory statements, which are not entitled
to a presumption of truth, before determining whether a claim
is plausible. Iqbal, 556 U.S. at 678. However,
“[d]ismissal with prejudice and without leave to amend
is not appropriate unless it is clear . . . that the
complaint could not be saved by amendment.” Harris
v. Cty. of Orange, 682 F.3d 1126, 1131 (9th Cir. 2012)
party alleges fraud or mistake, the Rules require a
heightened pleading standard. In particular, Rule 9(b)
requires that, “In alleging fraud or mistake, a party
must state with particularity the circumstances constituting
fraud or mistake.” Fed.R.Civ.P. 9(b). The Ninth Circuit
has held that “[t]o satisfy Rule 9(b), a pleading must
identify ‘the who, what, when, where, and how of the
misconduct charged, ’ as well as ‘what is false
or misleading about [the purportedly fraudulent] statement,
and why it is false.’” Cafasso, U.S. ex rel.
v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1055 (9th
Cir. 2011) (alteration in original) (quoting Ebeid ex
rel. United States v. Lungwitz, 616 F.3d 993, 998 (9th
Cir. 2010)); see also Swartz v. KPMG LLP, 476 F.3d
756, 764 (9th Cir. 2007) (“To comply with Rule 9(b),
allegations of fraud must be specific enough to give
defendants notice of the particular misconduct which is
alleged to constitute the fraud charged so that they can
defend against the charge and not just deny that they have
done anything wrong.” (quoting Bly–Magee v.
California, 236 F.3d 1014, 1019 (9th Cir. 2001))).
motion to dismiss a claim grounded in fraud for failure to
plead with particularly under Rule 9(b) is the functional
equivalent of a motion to dismiss under Rule 12(b)(6).
See Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097,
1107 (9th Cir. 2003). “As with Rule 12(b)(6)
dismissals, dismissals for failure to comply with Rule 9(b)
should ordinarily be without prejudice. Leave to amend should
be granted if it appears at all possible that the plaintiff
can correct the defect.” Id.
argues for dismissal on several grounds. The Court will
address each of these arguments in turn. First, however, the
Court holds that the Complaint as a whole is subject to Rule
9(b). Because the allegations in the Complaint fall short of
meeting the heightened “particularity” standard,
and because several causes of action are independently
deficient, the Complaint is dismissed against Monarch, with
leave to amend.
Rule 9(b) Heightened Pleading Standard
Monarch does not argue for dismissal under Rule 9(b), the
Court concludes that the heightened standard applies because
the same fraudulent conduct underlies all the claims. And
because the pleading does not satisfy Rule 9(b)’s
particularity requirement, the Complaint must be dismissed.
Rule 9(b) Applies to the Complaint as a Whole Because the
Allegations are Grounded in a Unified Course of Fraudulent
9(b) requires that, “[i]n alleging fraud or mistake, a
party must state with particularity the circumstances
constituting fraud or mistake.” Fed.R.Civ.P. 9(b). When
an “entire claim within a complaint is grounded in
fraud and its allegations fail to satisfy the heightened
pleading requirements of Rule 9(b), a district court may
dismiss the complaint or claim.” Vess, 317
F.3d at 1107. Under established Ninth Circuit law, fraud need
not be an essential element of a claim to subject it to the
heightened pleading standard of Rule 9(b):
In cases where fraud is not a necessary element of a claim, a
plaintiff may choose nonetheless to allege in the complaint
that the defendant has engaged in fraudulent conduct. In some
cases, the plaintiff may allege a unified course of
fraudulent conduct and rely entirely on that course
of conduct as the basis of a claim. In that event, the
claim is said to be “grounded in fraud” or to
“sound in fraud, ” and the pleading of that claim
as a whole must satisfy the particularity requirement of Rule
Id. at 1103-04 (emphasis added).
Plaintiffs’ claims are based on a single deceptive and
fraudulent “scheme” to “steer”
Plaintiffs into purchasing illusory surplus lines insurance
that they otherwise would not have purchased. The primary
allegations are as follows:
• Underwriters had a relationship with Broker
• Broker Defendants engaged in a kickback scheme whereby
they “wrongly steered” Plaintiffs into purchasing
the Policies subscribed to by Underwriters;
• Broker Defendants received “unwarranted
commissions” from Underwriters;
• Broker Defendants failed to perform duties and due
diligence required under Section 301 of the Surplus Lines
Act, HRS § 431:8-301 (“Section 301”),
including by omitting that non-surplus lines insurance was
• Broker Defendants artificially inflated the amount of
coverage beyond the limits provided under non-surplus lines
• Broker Defendants and Underwriters engaged in conduct
of “misrepresenting, concealing, steering, or otherwise
omitting” information to mislead Plaintiffs and the
Compl. ¶¶ 82, 93, 104. Plaintiffs describe
Defendants’ conduct as an “integrated, misleading
practice to homeowners in Hawaii that includes uniform
misrepresentations that misled Plaintiffs and the other
members of the Class.” Compl. ¶ 82.
allegations, which underly all seven claims against Monarch,
are based on “a unified course of fraudulent
conduct.” See Vess, 317 F.3d at 1103-04.
Plaintiffs repeat the same allegations of the
“scheme” throughout the Complaint and emphasize
that they were “steered” into purchasing illusory
Policies. The allegations are grounded in the same fraudulent
conduct, and the Court must then review all the allegations
under Rule 9(b)’s more stringent standard.
each individual cause of action against Monarch does not
require fraud as an element cannot save those claims from the
strict pleading requirements of Rule 9(b). See Vess,
317 F.3d at 1103-04. First, for example, bad faith and unjust
enrichment do not typically require a showing of fraud. Yet
the Complaint frames the allegations as asserting one
underlying, fraudulent and “deceptive scheme.”
See Compl. ¶ 119 (bad faith claim alleging
“deceptive” scheme where Defendants
“artificially inflated coverage amounts” and
“manipulate[ed] the surplus lines market” to
increase profits and commissions); ¶ 124 (unjust
enrichment claim alleging that “Defendants deceptively
marketed and sold surplus lines insurance to Plaintiffs and
the Class”). Doing so triggers Rule 9(b) with respect
to both these claims. See Puri v. Khalsa, 674 F.
App’x 679, 690 (9th Cir. 2017) (holding that where an
“unjust enrichment claim is based on fraud, it too is
subject to Rule 9(b)” (citing Vess, 317 F.3d
at 1103-04)); In re Arris Cable Modem Consumer
Litig., No. 17-CV-01834-LHK, 2018 WL 288085, at *10
(N.D. Cal. Jan. 4, 2018) (applying Rule 9(b) to unjust
enrichment claim); Mostowfi v. I2 Telecom International,
Inc., No. 03-5784 VRW, 2005 WL 8162717, at *11 (N.D.
Cal. May 23, 2005) (same for breach of good faith and fair
the UDAP Claims, allegations made under the
“unfair” prong do not ordinarily require
compliance with the heightened pleading
standard. See Bald v. Wells Fargo Bank,
N.A., 688 F. App’x 472, 476 (9th Cir. 2017);
Soule v. Hilton Worldwide, Inc., 1 F.Supp. 3d 1084');">1 F.Supp. 3d 1084,
1090 (D. Haw. 2014). But that is only true when the claims
are not grounded in fraudulent conduct. See Ryan v.
Salisbury, 380 F.Supp. 3d 1031, 1049 (D. Haw. 2019);
Soule, 1 F.Supp. 3d at 1090. Both the Ninth Circuit
and this Court have held that state-law UDAP claims must be
pleaded with particularity when the claims are based on
fraudulent conduct. See Kearns v. Ford Motor Co.,
567 F.3d 1120, 1122 (9th Cir. 2009) (holding that claims
under California’s UDAP laws had to be pleaded with
particularity); Smallwood v. NCsoft Corp., 730
F.Supp.2d 1213, 1232-33 (D. Haw. 2010) (holding that claims
under Hawai’i’s UDAP laws were based on
“fraudulent concealment” and thus required
pleading with particularity); see also Long v. Deutsche
Bank Nat’l Tr. Co., No. 10-cv-00359 JMS/KSC, 2011
WL 2650219, at *7 (D. Haw. July 5, 2011) (“[W]here a
chapter 480 claim is based on fraudulent acts, a plaintiff
must plead with particularity.”).
the only possible basis for liability under UDAP that
Plaintiffs have alleged sounds in fraud. Plaintiffs have
pointed to no factual allegations in the Complaint-and none
are evident to the Court-showing that they are alleging
anything other than an overarching deceptive scheme. Nor have
Plaintiffs shown that the allegations of deceit can be
separated from allegations of resulting unfairness. Thus, the
allegations in Counts I and II that Plaintiffs were
“steered” or “deceived” are the only
possible basis for liability under the Hawai’i UDAP
Claims, as the Complaint is currently framed. Cf.
Long, 2011 WL 2650219 at *7 (“[A]t least part of
Plaintiff’s [UDAP] claim must sound in fraud, but the
actual allegations as to Defendants’ conduct are so
vague that the court cannot determine what acts Plaintiff
alleges are fraudulent.” (footnote omitted)).
Count V, breach of fiduciary duties, the underlying
allegations also sound in fraud. See, e.g., Compl.
¶¶ 133-35 (describing the “deceptive”
and “fraudulent scheme” carried out by Defendants
“to collect secret commissions, steer lucrative
business to Lloyd’s, charge Plaintiffs and the Class
improper and inflated premiums, and misrepresent
Plaintiffs’ and the Class’s insurance
coverage”). Thus, to the extent that they “sound
in fraud, ” the allegations of Count V are also subject
to the heightened Rule 9(b) standard. See Gibson v.
Credit Suisse AG, No. 1:10 CV 001-EJL-REB, 2012 WL
1253007, at *6 (D. Idaho Mar. 30, 2012) (holding that breach
of fiduciary duty claim “sounds in fraud thereby
necessitating that it satisfy Rule 9(b)’s heightened
pleading standard” (citing Kearns, 567 F.3d at
Count VI asserts a claim for negligence, alleging that Broker
Defendants owed a duty to Plaintiffs and the Class stemming
from Section 301 to perform “due diligence” to
determine whether comparable non-surplus lines insurance was
available. Compl. ¶ 142. Count VI asserts that Broker
Defendants “failed to use ordinary care to understand
the terms, conditions, and costs of the Lloyd’s policy
and were grossly negligent.” ...