STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

HIGHLANDS INSURANCE COMPANY, )

)

Petitioner, )

)

vs. ) CASE NO. 93-3623RE

)

DEPARTMENT OF INSURANCE )

)

Respondent. )

)

FINAL ORDER

This emergency rule challenge came on for hearing in Tallahassee, Florida, before David M. Maloney, Hearing Officer of the Division of Administrative Hearings, on July 23, 1993. Final hearing had initially been scheduled for July 16, 1993, the last day within the time required by Section 120.56 (4), Florida Statutes, for commencing final hearing. The hearing was continued for seven days, over the objection of the Department, to allow Petitioner ("Highlands") to receive discovery material and prepare adequately for final hearing. Whether Highlands, by seeking and obtaining a continuance beyond the time directed by statute for commencing final hearing, waived any interest or right to statutorily-directed timely rendition of this order is immaterial. The order is rendered within the time requirement of Section 120.56(4), Florida Statutes, that is, within 14 days of final hearing.

APPEARANCES

For Petitioner: Frank G. Burt

Perry Ian Cone

Jorden Burt Berenson Klingensmith & Suarez

701 Brickell Avenue

Miami, Florida 33131-2861

For Respondent: Bill O'Neill

David J. Busch Dennis Silverman John Herzog

Thomas D. Valentine Department of Insurance Office of Legal Affairs

200 East Gaines Street 645A Larson Building

Tallahassee, Florida 32399-0300

STATEMENT OF THE ISSUES

Whether Highlands has standing to challenge the Department's Emergency Rule 4ER93-20, Florida Administrative Code, and if so, whether Sections 2(d) and 6(a) should be invalidated because they constitute invalid exercise of delegated legislative authority?

PRELIMINARY STATEMENT

On June 25, 1993, one week after there appeared in the Florida Administrative Weekly notice of the adoption of Emergency Rule 4ER93-20, Florida Administrative Code, ("Emergency Rule 20"), Highlands filed with the Division of Administrative Hearings its petition to determine the validity of the rule. The petition "requests an administrative determination of invalidity of Emergency Rule 4ER93-20, to the extent that it purports to be applicable to insurers which have already discontinued their homeowners lines in Florida." The petition concludes with the allegation that Emergency Rule 20, "is an invalid exercise of delegated legislative authority."

The issues presented by the petition were subsequently modified and refined by the parties. In a statement contained in the Prehearing Stipulation filed with the Hearing Officer the day of the hearing the parties stipulated the nature of the controversy to be:

1. Whether Petitioner is substantially affected by Section 2(d) and 6(a) of [Emergency Rule 20].

2. Whether the Department followed and complied with the procedures of the Florida Administrative Procedures Act, Chapter 120, Florida Statutes, in promulgating Emergency Rule 20.

3. Whether sections 2(d) and 6(a) of Emergency Rule [20] ... which purports to implement the statutory moratorium contained in Sections 1 of HB 89-B (Section 1, Ch. 93- 401, Laws of Florida) and other cited statutory provisions [are] a valid exercise of delegated legislative authority.

The Department has maintained throughout the proceeding that, although Emergency Rule 20 clearly applies to Highlands, Highlands does not have standing in this proceeding. In contrast, through the close of hearing, Highlands maintained that it is substantially affected by the rule and therefore has standing requisite to challenge the rule despite its claim that the rule does not apply to the company. The position was modified when Highlands submitted its Proposed Final Order with an alternative: the statute which the rule implements does not apply to Highlands, therefore the rule cannot apply to Highlands. If the rule does not apply, Highlands is not substantially affected by it and lacks standing.

A transcript of the hearing was filed on Tuesday, July 27, 1993. Proposed Final Orders were filed on Friday, July 30, 1993. The parties' proposed findings of fact are addressed in the appendix to this order.

FINDINGS OF FACT

The Moratorium Statute

1. During Special Session B of 1993 the Florida Legislature passed HB 89-

   B. The Governor signed the bill into law on June 8, 1993. Now codified as Section 1 of Chapter 93-401, Laws of Florida, the law, in pertinent part, provides as follows:

   
   

   Section 1. Moratorium on cancellation and nonrenewal of residential property coverages.--

   * * *

   (3) MORATORIUM IMPOSED.--Effective May 19, 1993, no insurer authorized to transact insurance in this state shall, until the expiration of this section pursuant to subsection (6), cancel or nonrenew any personal lines property insurance policy in

   this state, or issue any notice of cancellation or nonrenewal, on the basis of risk of hurricane claims. All cancellations or nonrenewals

   must be substantiated by underwriting rules filed with and accepted for use by the Depart- ment of Insurance, unless inconsistent with the provisions of this section. The Department

   of Insurance is hereby granted all necessary power to carry out the provisions of this section.

   
   

   Pursuant to the Moratorium Statute, on an emergency basis, the Department promulgated Emergency Rule 20.

   
   

   The Challenged Sections

   
   

2. The sections of Emergency Rule 20 Highlands seeks to have invalidated are 2(d) and 6(a):

   
   

   4ER93-20 Procedures For Applying for Moratorium Exemption and Required Insurer Corrective Action on Previous Notices of Cancellation or Nonrenewal.

   * * *

   (2) General Provisions.

   * * *

   (d) House Bill 89-B, as enacted at the May 1993 Special Legaislative (sic) Session, revoked all prior approvals issued by the Department, of insurer plans for programs of onrenewals and cancellations, where the non- renewal or cancellation was not effective as of May 19, 1993, notwithstanding that the notice of nonrenewl or cancellation was issued before May 19, 1993.

   * * *

   (6) Required Action On Prior Notices of Cancellation.

   (a) Any insurer which, prior to May 19, 1993, shall have issued any notice of cancellation or nonrenewal, whether approved by the Department or not, upon the basis of risk of hurricane claims, which cancellation or non- renewal was not yet effective as of May 19, 1993, shall revoke said notice and shall not cancel or nonrenew such policy, or if same has been cancelled or non-renewed subsequent to May 19, 1993, shall immediately reinstate

   coverage without lapse as if there had been no cancellation or nonrenewal. The insurer shall also, by no later than June 10, 1993, mail by first class mail to every policy holder and agent who was sent such notice or whose policy was so cancelled or non-renewed, written advice that the previous notice is withdrawn, and that the coverage will not be cancelled

   or nonrenewed, or that the coverage is rein- stated, as the case may be. In the event that the renewal premium has not been received because the insured was operating under the impression that the coverage was not renewable, or a premium is due because the insurer has already refunded the unearned

   premium, the insurer shall allow the insured a reasonable period after receipt of an invoice from the insurer, in which to forward the required premium, and the insurer shall

   provide coverage during that reasonable period.

   
   

   Insurance and the parties

   
   

3. Insurance is defined in Florida as "a contract whereby one undertakes to indemnify another or pay or allow a specified amount or a determinable benefit upon determinable contingencies." Section 624.02, Florida Statutes. A highly regulated business activity, insurance is regulated primarily at the state level.

   
   

4. The Department of Insurance, among other powers and duties, enforces the provisions of the Florida Insurance Code against insurers, including Highlands, defined by the Code as, "those persons engaged as indemnitor, surety or contractor in the business of providing insurance." Section 624.02, Florida Statutes.

   
   

5. Highlands Insurance Company, domiciled in Texas, is a stock insurance company admitted to transact insurance in Florida as a foreign insurer. After many years of transacting insurance in Florida, Highlands was issued a "new permanent Certificate of Authority" from the Department by letter dated November 22, 1991. The certificate authorized Highlands to write "Homeowner Multi Peril" and "Commercial Multi Peril" lines of business as well as numerous other lines.

   
   

6. Pursuant to its Certificate of Authority the standard

   homeowner's policy issued in Florida by Highlands allowed for cancellation by the homeowner at any time through notice to the company. It allowed for

   cancellation by Highlands under limited circumstances. And it allowed for non- renewal by written notice within a certain number of days before the policy's expiration date.

   
   

   Reinsurance

   
   

7. From the early 1960s through June 30, 1993, Highlands wrote its Florida property and casualty insurance, through a reinsurance facility ("SU Reinsurance Facility") made available by Southern Underwriters, Inc. ("Southern").

   
   

8. Under the terms of the SU Reinsurance Facility, 93.5 percent of homeowners and commercial risks insured by Highlands are reinsured to a large group of reinsurers. Highlands retains only 6.5 percent of its homeowners and commercial lines risks.

   
   

9. The SU Reinsurance Facility consists of two principal reinsurance agreements, which, in the aggregate, reinsure 93.5 percent of the liabilities of the homeowners and commercial lines insurance written in Florida by Highlands and its wholly owned subsidiary, Highlands Underwriters Insurance Company ("HUIC"). One agreement is the Quota Share agreement, the other is the Obligatory Surplus agreement.

   
   

10. For each homeowners or commercial policy, the risks are ceded pro-rata under the two agreements, 25 percent to the Quota Share and 75 percent to the Obligatory Surplus.

    
    

11. Highlands and HUIC retain 16 percent and 5.5 percent, respectively of the 25 percent of total risk attributable to the Quota Share agreement for a total of 5.375 percent of total risk. Highlands retains 1.5 percent of the 75 percent of total risk attributable to the Obligatory Surplus agreement or 1.125 percent of total risk.

    
    

12. Highlands exposure to total risk, therefore, is 6.5 percent. The total risk for each policy attributable to Quota Share is 19.625 percent and to Obligatory Surplus 73.875 percent which equals, together, 93.5 percent of total risk.

    Hurricane Andrew and Claims against Highlands

    
    

13. Hurricane Andrew struck Florida on August 24, 1992. The most costly civil disaster in the history of the United States, it caused over 16 billion dollars ($16,000,000,000) in insured losses, alone.

    
    

14. As a result of the hurricane, Highlands incurred claims totalling approximately 337.3 million dollars ($337,300,000) under its homeowner and commercial lines policies. Highlands' 6.5 percent share of the losses on these claims was 21.9 million dollars ($21,900,000). The reinsurers' 93.5 percent share of the losses on the claims was 315.4 million dollars ($315,400,000).

    
    

15. Highland's 1992 year-end policyholder surplus was 255.4 million dollars ($255,400,000). Thus, the claims incurred by Highlands as the result of Andrew exceeded its 1992 surplus by more than 80 million dollars ($80,000,000).

    
    

    Quota Share Reinsurance Cancellation

    
    

16. By letter dated January 15, 1993, Highlands was formally notified that its reinsurers had terminated the Quota Share Facility for policies to be written or renewed on and after July 1, 1993.

17. Highlands was unable to secure reinsurance to replace the terminated reinsurance.

    Highlands Response to Reinsurance Loss

    
    

18. Based on the loss of the Quota Share reinsurance, Highlands notified the Department by letter dated January 22, 1993 (one week after the date of the letter by which Highlands received formal notice of the termination of the Quota Share reinsurance) that it would cease to write "Dwelling and Homeowner's insurance effective May 1, 1993 and after," Pet.'s Ex. 4., that is, that it would "discontinue" the writing of the "Multi Peril Homeowner's" line of insurance, one of the many lines authorized by the Certificate of Authority as shown on the certificate face.

    
    

19. The January 22 "Discontinuance" letter was sent, in the words of Highlands' Vice-President for Reinsurance Jose Ferrer, because, "the magnitude of our involvement in Florida especially with Hurricane Andrew was such that we were losing our reinsurance protection, we had to take immediate action to protect our company." (Tr. 36)

    
    

20. On January 22, 1993, discontinuance by an insurer from transacting any line of insurance in Florida was governed by Section 624.430, Florida Statutes and Emergency Rule 4ER92-11.

    
    

21. Section 624.430, F.S., bears the catchline "Withdrawal of insurer or discontinuance of writing certain classes of insurance." With regard to the action taken by the January 22 letter, (notice of discontinuance of a line), the statute provides, in pertinent part:

    
    

    1. Any insurer desiring to ... discontinue the writing of any one or multiple kinds or lines of insurance in this state shall give

       90 days' notice in writing to the department setting forth its reasons for such action.

       
       

22. Rule 4ER92-11, (the "Withdrawal" Rule) entitled "Withdrawal of Insurers From the State," includes discontinuances of any line of property insurance as well as the complete cessation of writing any insurance business in an expansive definition of withdrawal:

    
    

    ... to cease substantially all writing of new or renewal business in this state, or to cease writing substantially all new or renewal business in any line of property insurance in this state; or in either of the two preceding instances, to cut back

    on new or renewal writings so substantially as to have the effects of a withdrawal.

    
    

    Section (2)(b), 18 Fla. Admin. Weekly 7318 (Nov. 25, 1992).

23. The Withdrawal Rule goes on to interpret Section 624.430 as "authorizing the Department to evaluate the sufficiency of the reasons" for withdrawal (or as in the case of Highlands for discontinuance of one or more lines) and to "impose reasonable terms and conditions regarding withdrawal [including discontinuance] as are necessary to prevent or reasonably ameliorate such adverse consequences." Id. Section 3(c).

    
    

24. At no time after Highlands' Notice was received by the Department and before May 1, 1993 did the Department provide a written response, request a meeting, impose conditions upon

    discontinuance, or otherwise object to or deny Highlands' Notice.

    
    

25. In addition to mailing a notice that it would cease to write Homeowner's and Dwelling lines effective May 1, 1993, Highlands began sending out non-renewal notices. Some were sent after May 19, 1993, the effective date of the Moratorium Statute.

    
    

26. Highlands began sending non-renewal notices because of the loss of reinsurance and because of its position that the moratorium did not apply to Highlands. It did not matter to Highlands whether Andrew had occurred or not. If the reinsurance had been cancelled without a hurricane, Highlands would have taken exactly the same steps. On the other hand, if the reinsurance had remained in place in the wake of Andrew, Highlands would be writing the same lines and policies it did before Andrew.

    
    

27. Mr. Ferrer believed the reinsurance was cancelled, not because of the risk of future hurricane loss, but "as the result of the massive loss from Hurricane Andrew." (Tr. 51) While the obvious inference to be drawn from his belief is that the reinsurer fears the risk of future hurricane loss, that is not the only inference that could be drawn. Massive losses could render a reinsurer incapable of providing any reinsurance to any party under any circumstances, regardless of the risk of future hurricane claims.

    
    

28. Nonetheless, Mr. Ferrer testified that if there were no risk of future hurricane loss to homeowners, Highland would continue to write policies it is now refusing to renew:

    Q ... If there were no risk of hurricane loss, would you write the business?

    A Yes, if we can include wind on all policies.

    
    

    HEARING OFFICER MALONEY: Could you repeat that answer

    ... ?

    A The answer is, if there is no windstorm ability, hurricane ability, we will have no problem writing the policies.

    
    

    (Tr. 54)

    
    

29. Thus, Highlands began sending 45-day notices of nonrenewals to its homeowners policy holders, on the basis of its position that it had withdrawn the line in Florida and because it had lost its reinsurance. But Highlands is also not renewing policies which expire during the moratorium because of risk of future hurricane loss.

    Insurance Crisis in the Aftermath of Andrew

    
    

30. The immensity of Andrew's impact to insurers doing business in Florida created an extremely serious situation for the Florida property insurance market. The Legislature described the situation this way:

    
    

    Hurricane Andrew ... has reinforced the need of consumers to have reliable homeowner's insurance coverage; however, the enormous monetary impact to insurers of Hurricane Andrew claims has prompted insurers to propose substantial cancellation or non- renewal of their homeowner's policyholders.

    ... [T]he massive cancellations and non- renewals announced, proposed, or contemplated by certain insurers constitute a significant danger to the public health, safety and welfare, especially in the context of a new hurricane season, and destabilize the insurance market.

    (Ch. 93-401, Laws of Florida, Section 1., Pet.'s Ex. 15).

    
    

31. Between Hurricane Andrew and May 1993, the Department received notices from 38 insurers seeking to withdraw from homeowners insurance or reduce their exposure for homeowners insurance in the state. Twenty of these insurers filed notices of total withdrawal from the homeowners line. Eighteen sought to impose restrictions on new or renewal homeowners' business. Together the 38 insurers comprise approximately 40 percent of the Florida homeowners market.

    
    

32. Of the 18 insurers seeking to impose restrictions, the greatest single source of impact on the Florida market came from the changes proposed by Allstate Insurance Company. Allstate proposed to nonrenew 300,000 homeowners policies in certain coastal counties.

    
    

33. The Department scheduled two days of public hearing on Allstate's notice of intent to restrict writings. The first was scheduled to take place in Clearwater on May 17. The second, held in Plantation on May 18, was attended by "[p]robably close to a thousand [people] -- in excess of 500 hundred anyway. There was a lot of people." (Testimony of Witness Kummer, Tr. 148). Complaints from citizens were received expressing that "it was inappropriate for Allstate to be able to cancel their policies and that something should be done to assist in that." Id. at 150.

    
    

    The Department's Response

    
    

34. On May 19, 1993, the Department promulgated Emergency Rule 4ER93-18, imposing a moratorium on the cancellation and

    nonrenewal of personal lines policies including homeowners, as follows:

    
    

    (3)90 Day Moratorium Imposed. As of the effective date of this rule, no insurer authorized to transact insurance in this state shall, for a period of 90 days, cancel or non- renew any personal lines property insurance policy in this state, or issue any notice of cancellation or nonrenewal, on the

    basis of risk of hurricane claims. All cancellations or nonrewals (sic) must be substantiated by underwriting rules established and in effect on August 23, 1992.

    
    

    The State's Response to the Insurance Crisis

    a. The Governor's Proclamation and Call for a Special Session.

    
    

35. On May 25, 1993, Governor Chiles issued a Proclamation. Addressed "To the Honorable Members of the Florida Senate and Florida House of Representatives," it contains the following pertinent "Whereas" clauses:

    
    

    WHEREAS, the damage resulting from Hurricane Andrew has prompted the insurance industry in Florida to propose substantial cancellation

    or nonrenewals of homeowner insurance policies, and

    WHEREAS, it is appropriate to provide a moratorium period to protect Florida's home- owners while a study is conducted to assess the effect of these extraordinary events on the insurance industry which occurred as a result of Hurricane Andrew, and

    WHEREAS, a study of the commercial viability and competitiveness of the property insurance and re-insurance industry in Florida would provide the Governor and the Legislature with the information needed to assess whether current regulatory statutes should be amended, and

    WHEREAS, certain additional statutory amend- ments are required to make necessary insurance coverage available to provide fundamental protection to the citizens of this state, and

    WHEREAS, it is appropriate to amend the pro- clamation of May 13, 1993, to add to the matters considered by the Florida Legislature convened in special session, the implementa- tion of a moratorium on personal lines property insurance cancellations or non- renewals, ...

    (Pet.'s Ex. 24).

    
    

36. The Proclamation convenes the Legislature for the purpose of considering:

    
    

    (a) Legislation to implement and, if necessary extend for [a] period not to exceed 90 additional days, the emergency rule promulgated by the Insurance Commissioner, 4ER93-18.

    
    

    1993 Special Session B

    
    

37. Pursuant to the Governor's May 25, 1993 Proclamation and a May 13, 1993 Proclamation, the 1993 Florida Legislature was called into special session, Special Session B.

38. Finding the public necessity for an orderly property insurance market to be overwhelming, the 1993 Legislature imposed, "for a limited time," a moratorium on cancellation or nonrenewal of personal lines residential property insurance policies, beginning May 19, 1993. Id.

    
    

39. The moratorium applies to personal lines residential property insurance. It does not apply to commercial coverages or passenger auto coverages, whether commercial or private.

    
    

40. The Legislature allowed an exception from the moratorium for those insurers which "affirmatively demonstrate to the department that the proposed cancellation or nonrenewal is necessary for the insurer to avoid an unreasonable risk of insolvency." Section 1(4), Ch. 93-401, Laws of Florida. If the department determines that the exception affects more than 1 percent of any class of business within the personal lines residential property market, then the department may set a schedule for nonrenewals, cancellation or withdrawal that avoids market disruption.

    
    

41. Presumably, the moratorium will cover the 1993 hurricane season. The section of Ch. 93-401, Laws of Florida, that imposes the moratorium is repealed on November 14, 1993.

    Promulgation of Emergency Rule 20

    
    

42. On June 4, 1993, the Department promulgated Emergency Rule 20, effective the same date.

    
    

43. According to the testimony of Hugo John Kummer, Deputy Insurance Commissioner, Emergency Rule 20 embodies three aims:

    
    

    first, to set a procedure for applying for a moratorium exemption allowed by the Moratorium Statute, [set forth in the rule outside Sections 2(d) and 6(a)];

    second, to require a notice to update consumers who had received notices of cancellation or nonrenewal with the information that the earlier notices had been rendered temporarily ineffective under the moratorium, [Section 6(a)], and;

    third, to inform insurers who had entered consent orders with the Department governing the method with which the insurers were with- drawing from the State or restricting coverage, that the approvals by the Department found in the consent orders were overridden by the Moratorium Statute, [Section 2(d)].

    (Tr. 136)

    
    

44. On this last point, Mr. Kummer's testimony is consistent with the testimony of Douglas Shropshire, Director of the Department's Division of Insurer Regulation, one of two drafters of Emergency Rule 20 and the drafter of Section 2(d). Mr. Shropshire testified that the rule "simply reiterates the statute and provides the procedures for implementing [the Moratorium Statute]." Resp.'s Ex. 11, p. 25. With regard to Section 2(d), Mr. Shropshire testified as follows:

    Q Now, could you please direct your attention specifically to just the words, "Revoked all prior approvals issued by the Department," and explain how this implements the statute.

    
    

    A It simply repeats what the statute provides. It, basically, reiterates the statute. That moratorium statute, 89-B, essentially freezes all cancellation or nonrenewal action during the pendency of the 89-B moratorium.

    
    

    Q What would be the status of the moratorium, subsequent to November 14th, 1993, as you understand it?

    
    

    A Assuming that no other legislation is enacted that affects the subject at the special session, then prior approvals would be, again, effective, and companies could

    again being (sic) acting -- they could, basically, pick up where they had left off when the moratorium began.

    
    

    Q All right. What, if any, additional restrictions does the language place upon insurers above the requirements of the statute?

    
    

    A Absolutely, none.

    
    

    It is apparent, therefore, that if the Department's silence in response to Highlands' January 22, 1993 "Discontinuance" Letter constituted an "Approval," it was not the intent of the Department through the promulgation of Section 2(d) of Emergency Rule 20 to revoke that approval. The goal of the Department in promulgating the section was simply to inform parties to Consent Orders that any Department approval contained in the Consent Order had been revoked. Moreover, the Department's intent in using the term "revoke" was not "revoke" in the legal sense of rendered null and void and forever ineffective but more akin to "suspend" in a temporal sense. It was the Department's intent that any prior approval by the Department of a withdrawal or imposition of restrictions by an insurer was simply suspended by the Moratorium Statute temporarily, that is, for the life of moratorium - until November 14, 1993. Likewise, if the Department's silence following the January 22 Discontinuance Letter constituted an "approval," it would be the Department's intent that Section 2(d) would have no effect other than suspending the approval until the repeal of the Moratorium Statute on November 14, 1993. The import of the Department's intent in promulgating Emergency Rule 20 is dependent on whether the rule is ambiguous or plain on its face as concluded below in this order's Conclusions of Law.

    
    

    CONCLUSIONS OF LAW

    
    

    Jurisdiction

    
    

45. The Division of Administrative Hearings has jurisdiction of this proceeding pursuant to Section 120.56, Florida Statutes.

    
    

    Standing

    
    

46. In order for a petitioner to have standing to attack the validity of an existing rule, Section 120.56 requires the petitioner to be "substantially affected." The parties have not stipulated to Highlands' standing. Indeed, the parties, in the Prehearing Stipulation filed in the case, have defined the standing issue as whether Highlands is substantially affected by Sections 2(d) and 6(a) of Emergency Rule 20.

    a. Section 2(d)

47. With regard to Section 2(d), the Department makes the persuasive argument that Highlands is not substantially affected by the section because it applies only to approvals of insurer plans for programs of nonrenewals "issued by the Department." (e.s.)

    
    

48. As the Department points out the plain meaning of "issue" in the context of the rule is "to appear or become available through being officially put forth or distributed." Webster's Ninth New Collegiate Dictionary (1985). The Department did nothing in response to the Highlands Discontinuance Notice. As Highlands, itself, has so conscientiously striven to show, the Department did not issue anything in the way of approval of the discontinuance.

    
    

49. It is not necessary, therefore, for purposes of a standing conclusion, to determine whether Highlands' discontinuance of Dwellings and Homeowner's Lines was deemed approved or was approved by operation of law. It is, quite simply, undisputed that the Department did not "issue" an approval. It follows, without argument, that the rule provision which revokes "prior approvals issued by the Department" does not and cannot substantially affect Highlands in the light of the proof in this case.

    
    

    Section 6(a)

    
    

50. Section 6(a) is quite another matter. The Deputy Insurance Commissioner, no less, testified that Section 6(a), as well as the remainder of the rule [save Section 2(d)], apply to Highlands. Notices of nonrenewals issued by Highland prior to May 19, 1993 but not effective before that day fall under Section 6(a). With regard to such a notice, the section requires Highlands to do a number of things, among them: revoke the notice, write by June 10 the policyholder advising that the previous notice is withdrawn and coverage reinstated or renewed, extend the time for payment for a reasonable time after receipt of an invoice and provide coverage during that reasonable period. For this reason alone, Highlands is substantially affected by Section 6(a) and, therefore, the rule. Greynolds Park Manor v. Department of Health & Rehabilitative Services, 491 So.2d 1157, 1158-59 (Fla. 1st DCA 1986).

    
    

51. Highlands clearly has standing to challenge the validity of Section 6(a). The question remains: if Highlands is not substantially affected by Section 2(d) but is substantially affected by the remainder of the rule, does Highlands have standing to challenge Section 2(d)? In other words, does the status of being substantially affected by one part of a rule confer standing on a party to challenge a part of a rule by which the party is not substantially affected. There is no case law of which the Hearing Officer is aware that answers the question.

    
    

    The standard of Section 120.56

    
    

52. The standard for standing to seek an administrative determination of the validity of a rule is found in subsection (1) of Section 120.56, Florida Statutes: "Any person substantially affected by a rule may seek an administrative determination of the invalidity of the rule on the ground that the rule is an invalid exercise of delegated legislative authority." (emphasis added)

53. Subsection (1) does not speak in terms of parts of a rule. Contrast subsection (1) with subsection (3) of the statute:

    
    

    ... The hearing officer may declare all or part of a rule invalid. The rule or part thereof shall become void when the time for filing an appeal expires or at a later date specified in the decision. The agency whose rule has been declared invalid in whole or part shall give notice of the decision in the Florida Administrative weekly in the first

    available issue after the rule has become void. (emphasis added)

    
    

    It is quite plain that the legislature recognized in subsection (3) that rules may be severable. It did not make the distinction between severability and wholeness in subsection (1), however, when it spoke with reference to standing. Once a petitioner crosses the threshold and is in the room of Section

    120.56 where a challenge to a rule takes place, his opponent may not seek to build walls within the room or carve up the rule. Highlands has standing to challenge both Section 2(d) and Section 6(a) of Emergency Rule 20.

    
    

    The Merits

    
    

54. As the "one who attacks the ... rule," Agrico Chemical Co. v. State Department of Environmental Regulation, 365 So.2d 759, 763, (Fla. 1st DCA 1978) cert. den. 376 So.2d 74 (Fla. 1979) petitioner has the burden to:

    
    

    show that (1) the agency adopting the rule has exceeded its authority; (2) that the requirements of the rule are not appropriate to the ends specified in the legislative act;

    and (3) the requirements contained in the rule are not reasonably related to the purpose of the enabling legislation but are arbitrary or capricious.

    
    

    Department of Administration, Division of Retirement v. Albanese, 455 So.2d 639, 641 (Fla. 1st DCA 1984). The challenger's burden is a stringent one indeed.

    
    

55. Section 120.52(8), Florida Statutes, defines "invalid exercise of delegated legislative authority" as "action which goes beyond the powers, functions and duties delegated by the Legislature." It further declares that a rule is invalid if any

    one of five grounds apply, two upon which Highlands bases its challenge:

    
    

    (a) The agency has materially failed to follow the applicable rulemaking procedures set forth in s. 120.54;

    * * *

    (c) The rule enlarges, modifies, or contravenes the specific provisions of law implemented, citation to which is required by s. 120.54(7);

    Emergency Rulemaking Procedures

    
    

56. Subsection 9(a) of Section 120.54, Florida Statutes, sets forth the rulemaking procedures applicable to the adoption of an emergency rule.

    
    

    If an agency finds that an immediate danger to the public health, safety or welfare requires emergency action, the agency may adopt any rule necessitated by the immediate danger by any procedure which is fair under the circumstances and necessary to protect the public interest, providing that:

    1. The procedure provides at least the procedural protection given by other statutes, the Florida Constitution, or the United State Constitution.

    2. The agency takes only that action necessary to protect the public interest under the emergency procedure.

    3. The agency publishes in writing at the time of, or prior to, its action the specific facts and reasons for finding an immediate danger to the public health, safety, or welfare and its reasons for concluding

    that the procedure used is fair under the circumstances. ...

    
    

57. Highlands argues that the Department did not strictly comply with emergency rulemaking procedures in three ways.

    
    

    1. Necessity

    
    

58. Highlands maintains that the real reason for the promulgation of the challenged sections is that the Department "was attempting retroactively to correct it own prior failures and inactions regarding the imposition of nonrenewal conditions on insurers completing administrative withdrawal proceedings under the Department's own Withdrawal Rule." In its own case Highlands points to the Department's silence after its January 22 Discontinuance Notice. The conclusion is inevitable, goes the argument, that retroactive imposition of the nonrenewal condition in Emergency Rule 20 was rooted in avoidable administrative failure or inaction. Cf., Golden Rule Insurance Co. v. Department of Insurance, 586 So.2d 429, 431 (Fla. 1st DCA 1991).

    
    

59. Highlands argument is founded on a faulty premise. The Department was not acting to correct any alleged failure to impose conditions on Highlands' discontinuance of certain lines of insurance.

    
    

60. Section 2(d) was not directed at Highlands at all. It was inserted into the rule to clarify the status of consent orders, to none of which is Highlands a party. The clarification is for the benefit of those who are parties to the consent orders and to inform those parties that HB 89-B had superseded the "approvals" by the Department of the parties' action allowed under the orders. See Joint Composite Ex. No. 1.

61. Section 6(a) is directed at Highlands, among others. But it does nothing more than direct a procedure for insurers to follow if they issued notices of nonrenewal or cancellations which did not take effect until the Moratorium. The section is clearly necessitated to ensure proper implementation of the Moratorium.

    
    

    2. Specific "Facts and Reasons" Statement

    
    

62. Highlands maintains that the Department's statement was not "factually explicit and persuasive concerning the existence of a genuine emergency," and cites, among others, to Anderson v. DHRS, 482 So.2d 491, 199 (Fla. 1st DCA 1986), clarified in other respects on rehearing, 485 So.2d 849 (Fla. 1st DCA 1986). Whatever the applicability of Anderson, Emergency Rule 20's Statement of Specific Reasons for Finding an Immediate Danger makes reference to HB 89-B, the statute in which the Legislature announced that cancellations and nonrenewals of insurance policies in the aftermath of Andrew constituted an immediate danger to public health, safety and welfare. Sections 2(d) and 6(a) take only action necessary to implement the Moratorium declared by the Legislature to fend off that danger to the public.

    
    

    3. Fairness of the Procedures

    
    

63. Highlands argues that the procedures used by the rule to revoke its Discontinuance notice January 22 are not fair under the circumstances and do not provide statutory and constitutional procedural protection. The argument, again, is flawed in its premise. Highlands' discontinuance is not revoked. Whether the discontinuance took effect on May 1 or not, it did not take effect pursuant to an approval "issued" by the Department. Any revocation imposed by Section 2(d) is inapplicable to Highlands, as explained above in the "Standing" section of these conclusions. The remainder of the rule does nothing more than implement the statute and provide a procedure for authorized exemptions to the Moratorium. And the statute does not revoke Highlands' discontinuance. It simply suspends the effect of the discontinuance for the life of the Moratorium. If Highlands has a procedural "due process" argument, whether it be statutory or constitutional, it is with the Moratorium Statute and not Emergency Rule 20.

    
    

    Enlargement, Modification or Contravention

    
    

64. Highlands argues that the challenged sections unlawfully enlarge House Bill 89-B in three ways which demand discussion in this order.

1. Not Based on Hurricane Risk

1. On its face, Section 2(d) makes no reference to cancellations or nonrenewals based on the risk of hurricane claims. It is equally clear that the Moratorium applies only to cancellations and nonrenewals and notices of cancellations and nonrenewals "on the basis of risk of hurricane claims." Section 1(3), Ch. 93-401, Laws of Florida.

   
   

2. But Section 6(a) clearly makes such a reference. In order to save it from invalid enlargement of the Moratorium Statute, Section 2(d) is hereby construed in pari materia with Section 6(a) to apply only to programs of nonrenewals and cancellations based "on the risk of hurricane claims." So construed, Section 2(d) is not invalid for failure to express confinement of its application to nonrenewals and cancellations based on risk of hurricane claims.

2. Not Authorized to Transact Insurance

1. The Moratorium Statute quite plainly applies only to "insurers authorized to transact insurance in this state." Emergency Rule 20 does not expressly confine its application to authorized insurers. To the extent the rule applies to insurers not authorized to transact insurance in the state, it is invalid.

   
   

2. Such a determination is presumably of little help to Highlands. Highlands, whether its discontinuance of homeowners' lines is effective or not, remains an insurer authorized to transact many other lines of insurance in this state.

3. Revocation of All Approved Withdrawals

1. Highlands points out that Section 2(d) revokes "all prior approvals issued by the Department." Highlands mistakenly includes its discontinuance, whether effective or not, within such approvals. But as concluded earlier, Highlands has standing to challenge Section 2(d) even though it does not apply to Highlands.

   
   

2. The Department's answer is its proof that the Department intended to limit the scope of Section 2(d) to parties to consent orders and intended that Section 2(d), just as the Moratorium Statute, did no more than "suspend" prior approvals for the life of the Moratorium. While the Department convincingly demonstrated its intent, the Department's intent cannot overcome the plain language of the rule. The plain language is that all prior approvals are revoked. An agency rule will be invalid when it "substantively amends, or adds to, the statute and materially departs from the stated legislative purpose." Board of Optometry v. Florida Medical Association, Inc. 463 So.2d 1213, 1215 (Fla. 1st DCA 1985).

   
   

3. To the extent the rule enlarges the statute beyond suspending during the moratorium previous approvals of programs of cancellations and nonrenewals, the rule is determined to be invalid.

CONCLUSION

Based on the foregoing findings of fact and conclusions of law, it is ORDERED that:

1. Section 2(d) is invalid to the extent it purports to apply to any insurer never authorized during the Moratorium to transact insurance in Florida.

   
   

2. Section 2(d) is invalid to the extent it purports to revoke any approval or suspend any approval of plans beyond November 14, 1993.

   
   

3. Section 2(d)'s suspension of prior approvals of affected insurers' plans through November 14, 1993 is valid.

   
   

4. The petition is denied as to Section 6(a).

DONE and ORDERED this 6th day of August 1993, in Tallahassee, Florida.

DAVID M. MALONEY

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 6th day of August, 1993.

APPENDIX TO THE RECOMMENDED ORDER IN CASE NO. 93-3623RE

Petitioner's proposed findings of fact Nos. 1, 2, 3, 5, 6, 7, 8, 9, 11, 13,

15, 17, 18, 19, 20, 23, 24, 27, 28, 32, 33, 34, 35, 36, 37, 38, 40, 41, 42, 43,

48, 49, 50, and 52 have been adopted, in substance, insofar as material.

Petitioner's proposed findings of fact Nos. 4, 10, 25, 26, 29, 30, 31, 44,

53, 54, 55, and 57 pertain to matters immaterial to the rule challenge.

Petitioner's proposed finding of fact No. 12 is rejected because the loss of reinsurance is not the only reason Highlands initiated a withdrawal from homeowner's lines.

Petitioner's proposed findings of fact Nos. 14, 16, 21, 39, 45, 46, 47, 51, 56, and 58 relate to subordinate matters.

Respondent's proposed findings of fact that are unnumbered are not ruled

on.

Respondent's proposed findings of fact Nos. 2, 3, 4, 8, 9, 10, 11, 14, 16,

18, 19, 20, 24, and 27 are adopted, in substance, insofar as material.

Respondent's proposed findings of fact Nos. 12, 21, 22, 26, 28, and 29 pertain to matters immaterial to the rule challenge.

Respondent's proposed findings of fact Nos. 1, 5, 6, 7, 13, 15, 17, 23, and

25 relate to subordinate matters.

COPIES FURNISHED:

Tom Gallagher, State Treasurer and Insurance Commissioner Department of Insurance

The Capitol, Plaza Level Tallahassee, Florida 32399-0300

Frank G. Burt Perry Ian Cone

Jorden Burt Berenson Klingensmith & Suarez

701 Brickell Avenue

Miami, Florida 33131-2861

Bill O'Neill David J. Busch Dennis Silverman John Herzog

Thomas D. Valentine Department of Insurance Office of Legal Affairs

200 E. Gaines Street 645A Larson Building

Tallahassee, Florida 32399-0300

Carroll Webb, Executive Director Administrative Procedures Committee Holland Building, Room 120 Tallahassee, Florida 32399-1300

Ms. Liz Cloud, Chief

Bureau of Administrative Code The Capitol, Room 1802 Tallahassee, Florida 32399-0250

NOTICE OF RIGHT TO JUDICIAL REVIEW

A party who is adversely affected by this final order is entitled to judicial review pursuant to Section 120.68, Florida Statutes. Review proceedings are governed by the Florida Rules of Appellate Procedure. Such proceedings are commenced by filing one copy of a notice of appeal with the Agency Clerk of the Division of Administrative Hearings and a second copy, accompanied by filing fees prescribed by law, with the District Court of Appeal, First District, or with the District Court of Appeal in the appellate district where the party resides. The notice of appeal must be filed within 30 days of rendition of the order to be reviewed.

================================================================= DISTRICT COURT ORDER DISMISSING APPEAL

=================================================================

DISTRICT COURT OF APPEAL, FIRST DISTRICT

Tallahassee, Florida 32399

Telephone No. (904)488-6151

March 25, 1994

CASE NO: 93-02497

L.T. CASE NO. 93-3623 RE

Highlands Insurance v. The State of Florida Company Department of Insurance

Appellant(s), Appellee(s).

BY ORDER OF THE COURT:

Appeal dismissed pursuant to Rule 9.350(a), Fla.R.App.P.

I HEREBY CERTIFY that the foregoing is (a true copy of) the original court order.

JON S. WHEELER, CLERK

By: Deputy Clerk

Copies:

Frank Burt Penny Ian Cone David Ashton David J. Busch

Dennis Silverman Louis F. Hubener, III Thomas D. Valentine Deanna Hartford

Docket for Case No: 93-003623RE

Orders for Case No: 93-003623RE