STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

THERMEX INDUSTRIES, INC., )

)

Petitioner, )

)

vs. ) CASE NO 87-4456

) DEPARTMENT OF INSURANCE, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, William J. Kendrick, held a formal hearing in the above-styled case on July 13, 1988, in Miami, Florida.

APPEARANCES

For Petitioner: Edward David, qualified representative

Blodnick, Pomeranz, Reiss, Schultz & Abramowitz

769 Northfield Avenue, Suite 144 West Orange, New Jersey 07052

For Respondent: Sharon N. Goldstein, Esquire

Office of Legal Services Department of Insurance 413-B Larson Building

Tallahassee, Florida 32399-0300 PRELIMINARY STATEMENT

These proceedings arose as a result of respondent's notice to petitioner that it would not renew petitioner's license as a service warranty association because of petitioner's failure to maintain a funded, unearned premium reserve account in compliance with Section 634.406(1), Florida Statutes. Petitioner filed a timely request for formal hearing, and the matter was referred to the Division of Administrative Hearings for further proceedings.

At hearing, petitioner presented the testimony of Melvyn David, 100% owner of Thermex Industries, Inc., and its exhibits 1-6 were received into evidence. Respondent presented the testimony of Donna Spikes, and its exhibits 1-7 were received into evidence.

The transcript of hearing was filed August 1, 1988, and the parties were granted leave until August 26, 1988, to file proposed findings of fact.

Respondent elected to file proposed findings of fact and they have been addressed in the appendix to this recommended order. Petitioner filed a written closing argument which, although considered, has not been addressed because it does not constitute proposed findings of fact.

FINDINGS OF FACT

Background

1. Petitioner, Thermex Industries, Inc. (Thermex) , has been licensed by respondent, Department of Insurance and Treasurer (Department), as a service warranty association under the provisions of Chapter 634, Part II, Florida Statutes, since 1978. Its most current licensure occurred on June 1, 1986, when it was issued license number 0080017000 with an expiration date of June 1, 1987.

   
   

2. On June 29, 1987, Thermex filed an application for renewal of its license with the Department. The Department, by notice dated September 25, 1987, advised Thermex of its intention not to renew the license predicated on Thermex' failure to maintain a funded, unearned premium reserve account, as required by Section 634.406(1), Florida Statutes. Thermex filed a timely protest of the Department's decision, and the matter was referred to the Division of Administrative Hearings to conduct a formal hearing.

   
   

   The unearned premium reserve

   
   

3. Pertinent to this case, Section 634.406(1), Florida Statutes, requires that a service warranty association, with a net worth of less than $500,000, maintain a funded, unearned premium reserve account, consisting of unencumbered assets, equal to a minimum of 25 percent of gross written premiums and in the case of multiyear contracts 100 percent of the premiums for such subsequent years.

   
   

4. The quarterly report submitted to the Department by Thermex for the period ending March 31, 1987, demonstrated that Thermex had a net worth of

   $122,185. The report further reflected that Thermex had collected gross premiums of 583,290 on contracts running one year or less, and gross premiums of

   $21,004 on contracts running more than one year. Accordingly, applying the methodology prescribed by Section 634.406(1), Florida Statutes, Thermex was required to maintain an unearned premium reserve of $166,826 at the time its application for renewal was considered.

   
   

5. While required to have an unearned premium reserve of $166,826, the proof demonstrates that the account was only funded by a $100,000 certificate of deposit. Consequently, the unearned premium reserve account of Thermex was underfunded by $66,826. 1/

   
   

   CONCLUSIONS OF LAW

   
   

6. The Division of Administrative Hearings has jurisdiction over the parties to, and the subject matter of, these proceedings.

   
   

7. Section 634.408, Florida Statutes, provides:

   
   

   License expiration; renewal. --Each license issued to a service warranty association under this part shall expire on June 1 next following the date of issuance. If the association is then qualified therefor under the provisions of this part, its license may be renewed annually, upon its request, and upon

   payment to the department of the license fee in the amount of $200 in advance for each such license year.

   
   

8. Pertinent to this case, Section 634.406(1), Florida Statutes, provides:

   
   

   An association licensed under this part shall maintain a funded, unearned premium reserve account, consisting of unencumbered assets, equal to a minimum of 25 percent of the gross written premiums received on all warranty contracts in force, wherever written.

   *Such assets shall be held as prescribed under ss.625.301 - 625.340.* In the case of multiyear contacts which are offered by associations having net assets of

   less than $500,000 and for which premiums are collected in advance for coverage in a subsequent year, 100 percent of the premiums for such subsequent years shall be placed in the funded, unearned premium reserve account. (Emphasis added between *)

   
   

9. Thermex contended at hearing that, in addition to the $100,000 certificate of deposit, it should be permitted to "fund" or have credited against its unearned premium reserve account, the value of its inventory. Inventory is not, however, an asset prescribed by Sections 625.301--625.340, Florida Statutes.

   
   

10. While essentially conceding that inventory is not an asset prescribed by Sections 625.301--625.340, Florida Statutes, Thermex contends that the Department should be estopped from compelling compliance because it raised no objection to the practice until August 1986. Estoppel does not, however, lie under such circumstances. See, Long v. Department of Administration Division of Retirement, 428 So.2d 688 (Fla. 1st DCA 1983), Lawrence Nali Construction Co. v. Department of Revenue, 366 So.2d 27 (Fla. 1st DCA 1978), and Austin v. Austin, 330 So.2d 102 (Fla. 1st DCA 1977).

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that a final order be entered denying the application of

Thermex for licensure as a service warranty association.

DONE AND ENTERED in Tallahassee, Leon County, Florida, this 11th day of October, 1988.

WILLIAM J. KENDRICK

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32399-1050

Filed with the Clerk of the Division of Administrative Hearings this 11th day of October, 1988.

ENDNOTE

1/ At hearing, the most recent quarterly report submitted to the Department by Thermex, which was for the period ending March 31, 1988, was introduced. That report demonstrated that Thermex had a net worth of $125,532, and that it had collected gross premiums of $569,038 on contracts running one year or less and gross premiums of $40,106 on contracts running more than one year. Accordingly, at the time of hearing Thermex should have had an unearned premium reserve of

$182,366 to qualify for licensure. Its reserves, however, consisted of a certificate of deposit in the sum of $100,000, and cash in the sum of $91.00. Therefore, even at hearing, the reserve account of Thermex was substantially underfunded.

APPENDIX

The Department's proposed findings of fact are addressed as follows:

1 & 2. Addressed in paragraph 1.

3 & 4. Addressed in paragraph 2.

5 - 8. Addressed in paragraph 4.

9 & 10. Addressed in paragraph 5.

11 & 12. Addressed in footnote 1.

13 & 14. Addressed in paragraph 5 and footnote 1.

COPIES FURNISHED:

Edward David, qualified representative Blodnick, Pomeranz, Reiss,

Schultz & Abramowitz 769 Northfield Avenue

Suite 144

West Orange, New Jersey 07052

Sharon N. Goldstein, Esquire Office of Legal Services Department of Insurance

413-B Larson Building Tallahassee, Florida 32399-0300

The Honorable William Gunter State Treasurer and

Insurance Commissioner The Capitol, Plaza Level

Tallahassee, Florida 32399-0300

Don Dowdell, Esquire General Counsel Department of Treasurer

and Treasurer

The Capitol, Plaza Level Tallahassee, Florida 32333-0300

Docket for Case No: 87-004456

Orders for Case No: 87-004456