A Leilani Estates homeowner whose debts had been discharged in bankruptcy prior to his home being destroyed during last year’s lower East Rift Zone eruption is suing Lloyd’s of London, its underwriters, agents and the note holder for his mortgage.
Attorneys Stan Roehrig, Margaret Ward and Nathan Roehrig, filed the civil lawsuit on behalf of Michael W. Hale May 16 in Hilo Circuit Court. In addition to Lloyd’s and certain underwriters, defendants include Specialized Loan Servicing LLC, Pyramid Insurance Center Ltd., Jerry Manin and Christine Gumbs — both of whom were employed by Pyramid — and numerous “Doe” entities.
The complaint seeks unspecified monetary damages. Allegations include Pyramid sold Hale a policy that didn’t have a legally required disclaimer stamped on the front page, Gumbs didn’t have a broker’s license required to sell or service a surplus lines insurance policy and Specialized Loan Servicing tried to collect mortgage payments after debt on the home had been discharged by the bankruptcy court.
“The principal difference between this case and these other lava cases is that, in this case, Mike Hale had gone through bankruptcy in early 2018, just months before he lost his property,” Stan Roehrig told the Tribune-Herald Wednesday. “When he went through bankruptcy, he scrubbed off the loan that he had through Ditech (Mortgage), the predecessor in interest to Specialized Loan Servicing, who took over as the servicer for the house loan on the property.”
The suit claims the house, on an acre agricultural lot at 13-3385 Hookupu St., was destroyed on or about May 9, 2018, when Hale still living there and his insurance policy was still in effect.
“When the lava came and destroyed the house, the practical result of that is Specialized Loan Servicing, which was formerly Ditech, lost its opportunity to collect on the note that’s on the house,” Roehrig said. He added that, for a time, Hale was homeless and living in his van.
Bankruptcy court records indicate Hale’s debts were discharged on Jan. 18, 2018.
According to the suit, Specialized Loan sent a mortgage payment reminder notice to Hale dated May 17, 2018, stating he owed $1,194.85. The filing also claims Specialized sent a letter to Hale on July 18, 2018, acknowledging the home loan on the Leilani Estates property had been discharged in bankruptcy, but stating the loan was still enforceable and instructing Hale to have his “insurance carrier contact us so we may start the proper process regarding the loss of your home.”
“Once you get discharged in bankruptcy, if you’re the lender, like Ditech, or the servicer, like Specialized Loan Servicing, you can’t go around and send mailers that say you want to collect on the loan. It’s a federal offense in the bankruptcy court to do that. … It’s a very serious matter,” Roehrig said.
Specialized also filed a foreclosure claim on the property, but not until Nov. 16, 2018, more than six months after the property was rendered worthless by inundation.
As a surplus lines insurer, not registered with the state Department or Commerce and Consumer Affairs and not licensed by the state, Lloyd’s policies must, under Hawaii Revised Statutes “Have stamped or written conspicuously upon the first page of the contract the following: ‘This insurance contract is issued by an insurer which is not licensed by the State of Hawaii and is not subject to its regulation or examination. If the insurer is found insolvent, claims under this contract are not covered by any guaranty fund of the State of Hawaii.’”
The suit claims the policy sold to Hale didn’t have the required disclaimer on the front page.
“I am only doing cases, so far, where they did not put the stamp on the front page,” Roehrig said. “… I believe it’s a question of law as opposed to a question of fact. And if it’s a question of law, then, at the appropriate time, it’s right for a partial summary judgment, meaning the facts are not in dispute. You either had the stamp on the front page or you didn’t.”
The market value of the property was assessed at $203,700 in 2017 and was adjusted to $0 after inundation. Roehrig said Lloyd’s cut a check with both Hale and Specialized Loan Services as payees, but it was for an “unreasonable” amount that didn’t cover losses and Hale didn’t cash it.
“These people who have been through this are all traumatized. I didn’t realize how serious it was but then I thought about it,” he said. “What happens when your house burns down, you know? Where do you go? What do you do? He had to live in a van for awhile. He was homeless and it was very, very stressful for him. All the people we are representing, they all had the same experience. It was very, very stressful for them losing their house. And then, to get roughed up by the insurance industry just made it worse.”
In addition, an unrelated lava lawsuit was filed May 17 in Hilo Circuit Court by Kona attorney Jeff Foster on behalf of Stephen and Lucina Aquilina against Lloyd’s underwriters and others. The Aquilinas are also the plaintiffs of record in a class action lawsuit in U.S. District Court in Honolulu. Online federal court records indicate the class action suit is still active.
Email John Burnett at jburnett@hawaiitribune-herald.com.
