STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

LIBERTY MUTUAL INSURANCE COMPANY, ) LIBERTY MUTUAL FIRE INSURANCE ) COMPANY, LIBERTY INSURANCE )

CORPORATION, LM INSURANCE ) CORPORATION, THE FIRST LIBERTY ) INSURANCE CORPORATION, )

)

Petitioner, )

)

vs. ) CASE NO. 94-0892

) STATE OF FLORIDA, DEPARTMENT ) OF INSURANCE, )

)

Respondent. )

)

RECOMMENDED ORDER

Upon due notice, this cause came on for formal hearing on August 29, 1994, in Tallahassee, Florida, before Ella Jane P. Davis, a duly assigned hearing officer of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Steven M. Malono, Esquire

Mang, Rett & Minnick, P.A. 660 East Jefferson Street Tallahassee, Florida 32301

For Respondent: S. Marc Herskovitz, Esquire

Division of Legal Services Department of Insurance 612 Larson Building

200 East Gaines Street Tallahassee, Florida 32301

STATEMENT OF THE ISSUE

Whether Petitioners' Retrospective Large Risk Alternative Rating Option is in accordance with Florida law for approval as either a "deviation" or an independent rating plan.

PRELIMINARY STATEMENT

By letter dated January 13, 1994 the Respondent agency denied Petitioners' filing of a Retrospective Rating Large Risk Alternative Rating Option.

Respondent disputed the disapproval and requested a formal hearing pursuant to Section 120.57(1) F.S. The case was referred to the Division of Administrative Hearings on February 17, 1994.

At formal hearing on August 29, 1994 (Transcript says August 30, 1994) Petitioner presented the oral testimony of David Kenepp and Ronald J. Swanstrom and had three exhibits admitted in evidence. James D. Watford testified on behalf of Respondent. Respondent had seven exhibits admitted in evidence. The Joint Prehearing Stipulation was admitted as Joint Exhibit A.

Petitioners' Motion for Official Recognition filed August 29, 1994 was granted as to Sections 627.171 and 627.211 F.S. but denied as to Title 20, Art. IV Sections 02-341 et.seq. of the Arizona Statutes.

FINDINGS OF FACT

1. Liberty Mutual Insurance Company and Liberty Mutual Fire Insurance Company are Massachusetts-domiciled property and casualty insurers authorized to transact insurance business in the State of Florida with offices located at 175 Berkeley Street, Boston, Massachusetts.

   
   

2. Liberty Mutual Insurance Corporation and The First Liberty Mutual Insurance Corporation are Iowa-domiciled property and casualty insurers authorized to transact insurance business in the State of Florida with offices located at 2829 Westown Parkway, Suite 300, Des Moines, Iowa 50265.

   
   

3. Liberty Insurance Corporation is a Vermont-domiciled property and casualty insurer authorized to transact insurance business in the State of Florida with offices located at 200 Twin Oaks Terrace, South Burlington, Vermont.

   
   

4. On or about April 23, 1991 the National Council on Compensation Insurance (NCCI) submitted a filing on behalf of its members and subscribers (which includes all the Petitioners) various items including, for purposes of this case, a request for approval of a Large Risk Retrospective Rating Option. For purposes of this case, NCCI is a workers' compensation rate making and data collection organization based in Florida. It promulgates rates and collects workers' compensation data in approximately thirty states.

   
   

5. In response to an apparent telephone call between Mr. Watford, the Respondent Department of Insurance's actuary, and Mr. Edward Dew, Associate Actuary with NCCI, it was explained that the 1991 NCCI Large Risk Retrospective Rating Option "...proposes greater freedom of negotiation between insurer and insured for risks with over $1,000,000 in standard premium."

   
   

6. On June 20, 1991, the Department of Insurance, in a letter from Mr. Watford to Mark Casteel, while approving portions of the NCCI filing, denied the use of the Large Risk Alternative Rating Option for the NCCI members and subscribers on the basis that it did not comport with Section 627.091(1) F.S. and that: "The Large Risk Alternative Rating Option is not a rating plan but merely an agreement to use any factors acceptable to both parties and is hereby disapproved."

   
   

7. Subsequently, the NCCI updated the pages of its Retrospective Rating Plan Manual for Workers' Compensation and Employers Liability Insurance on file with the Department of Insurance to reflect, as of January 1, 1993, that the Large Risk Alternative Rating Option was not applicable in the State of Florida.

   
   

8. On or about June 30, 1993, Petitioners filed their Retrospective Rating Large Risk Alternative Rating Option (hereafter, Petitioners' LRARO) with the Department. This filing was made independent of NCCI.

9. Petitioners' LRARO is a large risk alternative rating option which was intended to be a "deviation" from the previously filed and approved Option V Plan filed by NCCI. It was designed for marketing to sophisticated employers/insureds in the workers' compensation coverage market. At present, the NCCI Option V Plan is the only retrospective rating plan filed and approved in Florida.

   
   

10. A "deviation" is permitted under Section 627.211(2) F.S. but that section is relatively new, and historically the term has applied to "across the board" percentage of rate reductions.

    
    

11. The letter accompanying Petitioners' LRARO filing, and outlining Petitioners' goals, states that their LRARO: "...would afford large insureds the ability to negotiate all parameters of their retrospective rating agreement without being tied to standard premium as is the case with the currently approved retrospective rating plan." As pointed out in the letter: "Standard premium is an insurance term that is contingent upon numerous variables such as experience modification, manual rates, payrolls, expense constants, etc. all of which are foreign to non-insurance businesses." By the same token, these terms are terms used and understood by the Department.

    
    

12. The NCCI Option V Plan is a typical retrospective premium rating plan. In a typical retrospective rating plan, the insured and insurer agree that the final premium paid for the insurance will be based upon losses actually incurred in the policy period. Certain expenses, charges, taxes and assessments are prenegotiated, based upon maximum and minimum premiums.

    
    

13. Petitioners LRARO targets Florida employers who pay in excess of

    $500,000 per year in workers' compensation premiums and who may only wish to purchase certain services. In this respect, the current filing is, if not "essentially the same", as testified by Mr. Watford, the Department's actuary and plan reviewer, at least is substantially similar to the prior NCCI Large Risk Retrospective Rating Option filed by NCCI in 1991 and disapproved by the Department as constituting only "factors" not a "rating plan." The prior unapproved NCCI filing catered to insureds in the $1,000,000 premium category, had no minimum and maximum deviation percentages, and had no component limitations. Petitioners' LRARO, here at issue, has set minimum and maximum parameters, .10 plus or minus, and allows underwriters to deviate only on the expense charge, excess loss premium charge, and insurance charge components. In this respect, Mr. Watford's purely descriptive phraseology that the current filing constituted a "variation" on that prior unapproved NCCI option is accepted.

    
    

14. Mr. Watford treated the review of Petitioners' filing as if it were such a variation. He applied to it all of the information and experience gleaned during the previous plan negotiations with NCCI and with Petitioners' representatives who were involved at that time. However, he also spent seven months trying to calculate how Petitioners' 1993 LRARO would impact rates and potential insureds. In that sense, he considered Petitioner's LRARO to be a completely independent rate plan. Had he considered Petitioners' LRARO a deviation, he would have asked for more information, but since it was, in his opinion, a new rate plan or at least a modification of the approved NCCI Option V, he rejected it upon its failure to meet the requirements of the statute and applicable rules.

15. On January 13, 1994, without requesting any further information in the interim since Petitioners' June 30, 1993 filing, the Department disapproved Petitioners' LRARO filing, claiming that it was an independent rating plan, not a deviation. The rejection was primarily on the basis that the LRARO would not allow the agency regulatory oversight as to determination of workers' compensation premiums since it proposed to allow Petitioners and prospective insureds to agree unilaterally on the various components to be used in the rating process.

    
    

16. In support of Petitioners' claim that their filing is only a deviation, they point to the last paragraph of Page 1 of the filing memorandum which states that allowable departure from the filed retrospective rating values is warranted for certain sophisticated insurance buyers; (2) paragraph 4 of Page

    3 of the filing memorandum which states that insureds would be permitted to deviate from the filed expense ratio tables, insurance charge and excess loss of premium with the agreement of the insured; and (3) the top of Page 4 of the filing memorandum which is "The expense deviation for this filing is plus or minus .10 from the currently approved table of expenses."

    
    

17. Within each of the three variables proposed by Petitioners' LRARO (expense charge, excess loss premium charge, and insurance charge components) there are numerous listed factors to which underwriter experience and negotiation would be applied. Some of these variable factors only appear within forms and not in the LRARO's separate breakout of these items, making agency analysis even more tricky.

    
    

18. The NCCI 1991 filing and the Petitioners' 1993 filing contain a difference in some pluses and minuses shown in some factors that Petitioners intend to use to determine a premium. However, given the 0 to -.10 Credit or 0 to +.10 Debit range and, the factors to be utilized (locations, claims, safety engineering and other service requirements) it would be difficult, if not impossible, to see what the total impact of what the combined factors of Petitioners' plan would be, and the insurer would not have on file every manual of classifications, rules, and rates, every rating plan, and every modification of any of the foregoing which are proposed to be used. All that would be on file would be the factors. At formal hearing, insufficient information was provided to justify the different factors contemplated in the filing. Also, using the minus and plus .10, the factors would likely have the effect of eliminating themselves. Furthermore, it was demonstrated that the filing plan was so dependent on agreements between Petitioners and prospective insureds that the Department could not evaluate whether the filing would be excessive, inadequate or unfairly discriminatory in its impact on rates. Even Petitioners' experts had to admit that uniformity is only guaranteed by documentation within individual insurers' files and by the sophistication of large risk buyers and competition in the marketplace. Mr. Watford's testimony is accepted that an after-the-fact market conduct exam would not be an effective way to regulate this type of practice.

    
    

19. The NCCI Option V Plan expense component is based on industry average expenses as opposed to the specific expenses of an insurer in connection with a specific insured's policy. Petitioners' proposal, claimed to be a deviation, seeks to reflect and to be able to be tailored more closely to an individual large risk employer's individual loss experience. As an example of the confusion of the LRARO proposal, the LRARO expense component would be geared to individual risk rather than a statewide average and includes claims handling experience, safety engineering and statistical services, all subject to interpretation. The only supportive material of that expense factor was an

    expense exhibit which did not allow Mr. Watford to see if it were retrospective or prospective expenses involved. Similar problems existed as to the other components' factors, some of which appear only on proposed forms and which were subject to wide interpretation by individual underwriters. Once one variable is selected, it impacts every other variable and affects premiums, thus rates.

    
    

20. Contrary to some of Mr. Watford's testimony, it appears that deviations from rating plans alone as opposed to historical base rate deviations are contemplated by Section 627.211(2) F.S. which specifically allows deviations from filed and approved rating plans that vary according to factors present in each insured's individual risk. However, the variable factors in this LRARO are so broad as to leave almost every contract for up to 5 percent of Petitioners' customer market up to independent negotiation between Petitioners' underwriters and potential customers, with almost unbridled discretion for negotiating premiums, and without effective Departmental preliminary agency oversight, opportunity for detection as to which insured's premiums to spotcheck, or how to review for enforcement of rates. Accordingly, Petitioners' plan is not a "deviation" of NCCI Option V, but an independent plan.

    
    

21. Regardless of how the agency characterized prior filings, the agency correctly reviewed Petitioners' LRARO as an independent plan. It denied approval in part for the aforestated reasons and in part for noncompliance with Section 627.091(1) F.S., which Mr. Watford considered to be applicable to this filing because it was an independent rating plan filing and not a "deviation". That statute requires that an insurer file "...every manual of classifications, rules, and rates, every rating plan, and every modification of the foregoing which it proposes to use," Petitioners did not provide such manuals, etc. with their initial filing. It is also noted that if Petitioners thought this was a deviation, they did not file all materials under Rule 4-189.004 F.A.C., as commented upon by Mr. Watford.

    
    

    CONCLUSIONS OF LAW

    
    

22. The Division of Administrative Hearings has jurisdiction over the parties and subject matter of this cause, pursuant to Section 120.57(1), F.S.

    
    

23. Petitioners are substantially affected parties for purposes of Chapter 120, F.S., by the Department's denial of the Rating Plan.

    
    

24. Petitioners have the burden in this proceeding to prove, by a preponderance of the evidence, their entitlement to have the rating plan approved, and that the rating plan, if implemented, would not result in rates which are excessive, inadequate or unfairly discriminatory. Nationwide Mutual Insurance Company v. Williams, 188 So.2d 368 (Fla. 1st DCA 1966) Liberty Mutual Insurance Company v. Larson, 169 So.2d 866 (Fla. 1st DCA 1964); see generally, Section 627.031, F.S.

    
    

25. Petitioners assert that the Department is constrained only to assess the filing as a "deviation," as contemplated by Section 627.211(2) F.S. Since the LRARO is not merely a "deviation," that argument falls.

    
    

26. Petitioners also assert that whether their filing is a deviation or independent plan, the Department is constrained only to review the filing in terms of Sections 627.151, 627.062 and 627.072 F.S.; that the statutory provisions in Section 627.151 F.S. allow the Department to disapprove any workers' compensation filing only if the filing would result in rates which are "excessive, inadequate or unfairly discriminatory;" and that the agency's

    failure to request additional information, i.e. manuals, now precludes disapproval of the filing upon the grounds that what was submitted does not enable the agency to even assess those factors of excess, inadequacy, or discrimination. This is fallacious reasoning and seeks to alter the burden of proof. See, Young v. Department of Community Affairs, 625 So.2d 831 (Fla. 1993) Florida Department of Transportation v. J.W.C. Co. Inc., 396 So.2d 778 (Fla. 1st DCA 1978), Nationwide Mutual Insurance Co. v. Williams, 188 So.2d 368 (Fla. 1st DCA 1966), Liberty Mutual Insurance Co. v. Larson, 169 So.2d 866 (Fla. 1st DCA 1964).

    
    

27. At the de novo formal hearing herein, Petitioners did not establish their LRARO was "only a deviation" and not an independent plan. They did not present sufficient data by which expert witnesses could offer a justification of the different factors offered by Petitioners. Accordingly, their witnesses' bald opinions to the effect that the plan would not result in excessive, inadequate or unfairly discriminatory rates are not credible.

    
    

28. Since this was an independent plan, the application of Section 627.091(1) F.S. was appropriate as testified to by Mr. Watford. An agency's interpretation of its own statutes and rules are entitled to great weight and deference. See, Griffith v. Department of Business Regulation 18 F.L.W. D445 (3rd DCA January 26, 1993); Maclen Rehabilitative Services v. Department of Health and Rehabilitative Services, 588 So.2d 12 (Fla. 1st DCA 1991); and Shell Harbor Group Inc. v. Department of Business Regulation, 487 So.2d 1141 (Fla. 1st DCA 1986).

    
    

29. Petitioners' could have presented their manuals etc. in compliance with the foregoing authorities in the course of formal hearing, but what was presented did not meet this statutory criteria or the criteria under Rule 4-

189.004 F.A.C.

RECOMMENDATION

Upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Insurance enter a final order denying

the Petitioner' June 30, 1993 Retrospective Rating Large Risk Alternative Rating Option.

RECOMMENDED this 1st day of December, 1994, at Tallahassee, Florida.

ELLA JANE P. DAVIS

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 1st day of December, 1994.

APPENDIX TO RECOMMENDED ORDER 94-0892

The following constitute specific rulings, pursuant to S120.59(2), F.S., upon the parties' respective proposed findings of fact (PFOF).

Petitioners' PFOF:

1-5 Accepted.

6-10 Rejected as subordinate to the facts as found. 11-12 Accepted.

13 Rejected as contrary to the record evidence.

14-22 Accepted, except that immaterial, unnecessary, subordinate, and/or cumulative material has not been utilized.

23 Rejected as not proven and not dispositive. 24-27 Accepted.

28-31 Rejected as immaterial.

32-37 Accepted, except that unnecessary, subordinate, and/or cumulative material was not utilized.

38-39 Rejected as not proven.

40 Rejected as subordinate to the facts as found and as not dispositive.

41-46 Accepted, except that unnecessary, subordinate, and/or cumulative material was not utilized.

1. Rejected as not proven, or if proven at least not capable of verification except on a file by file basis by the reviewer and so, subordinate to the facts as found.

2. Rejected as subordinate.

49-50 Rejected as not proven, or if proven, at least not capable of verification except on a file by file basis by the reviewer and so, subordinate to the facts as found.

51-55 Accepted, except that unnecessary, subordinate, and/or cumulative material was not utilized.

56 Rejected as out of context and speculative.

57-63 Accepted but not utilized because subordinate. Illustrates the number of subjective variables which defeat the plan.

64-65 Rejected as not proven, or if proven at least not capable of verification except on a file by file basis by the reviewer and so, subordinate to the facts as found.

1. Rejected. Not proven since almost all workers' compensation in Florida is billed this way.

2. Accepted but not dispositive and so not adopted.

68-70 Rejected as unproven and as not dispositive for a pre-approval regulating system.

71-75 Accepted, except that unnecessary, subordinate, and/or cumulative material was not utilized.

76 Accepted in part as reflected in the recommended order. Rejected otherwise as not proven. Option V appears to provide sufficient flexibility within a regulated industry.

77-79 Accepted, except that unnecessary, subordinate, and/or cumulative material was not utilized and not dispositive.

1. Rejected a mere argumentation.

2. Accepted.

3. Accepted except for word considerably.

83-84 Rejected as not proven, or if proven, at least not capable of verification except on a file by file basis by the reviewer and so, subordinate to the facts as found.

85 Rejected as contrary to the record facts and the law.

86-92 Rejected as unnecessary, subordinate, and/or cumulative to the facts as found.

1. Rejected as stated within the recommended order because unproven.

2. Rejected as not proven, or if proven, at least not capable of verification except on a file by file basis by the reviewer and so, subordinate to the facts as found.

3. Accepted

4. Rejected as not proven, or if proven, at least not capable of verification except on a file by file basis by the reviewer and so, subordinate to the facts as found.

5. Accepted, except that unnecessary, subordinate, and/or cumulative material was not utilized.

98-100 Rejected as unnecessary, subordinate, and/or cumulative and not dispositive to the facts as found.

1. Rejected as mere recitation of testimony or as legal argument.

2. Accepted, except that unnecessary, subordinate, and/or cumulative material was not utilized.

3. Rejected as mere recitation of testimony or as legal argument. 104-108 Rejected as not proven, or if proven, at least not capable of

verification except on a file by file basis by the reviewer and so, subordinate to the facts as found.

109-110 Rejected as mere recitation of testimony or as legal argument. 111-112 Rejected as unnecessary, subordinate, and/or cumulative and not

dispositive to the facts as found.

113-116 Immaterial except to the extent it establishes the wide latitude of the underwriter as reflected in the facts as found.

117-119 Rejected as mere recitation of testimony or as legal argument.

120 Rejected as not proven.

121-123 Rejected in part as unnecessary, subordinate, and/or cumulative and nondispositive to the facts as found and in part as mere recitation of testimony and/or legal argument.

124-128 Immaterial.

129-133 Rejected in part as unnecessary, subordinate, and/or cumulative and nondispositive to the facts as found and in part as mere recitation of testimony and/or legal argument.

1. Accepted, except that unnecessary, subordinate, and/or cumulative material was not utilized.

2. Accepted.

3. Rejected as subordinate to the facts as found.

137-147 Largely immaterial and wholly unnecessary, subordinate, and/or cumulative to the facts as found.

148-149 Covered only as necessary in the recommended order.

150 Rejected as subordinate, and/or cumulative to the facts as found. 151-154 Immaterial.

155-158 Largely immaterial; covered only as necessary in the recommended order.

159-160 Accepted, except that unnecessary, subordinate, and/or cumulative material was not utilized.

161 Accepted.

Respondent's PFOF:

1-9 Accepted, except that unnecessary, subordinate, and/or cumulative material was not utilized.

1. Accepted except for the word "only". Also unnecessary, subordinate and/or cumulative material has not been utilized.

2. Accepted except for mere recitation of testimony and legal argument.

COPIES FURNISHED:

Wendy Russell Wiener, Esquire Mang, Rett & Minnick, P.A. Post Office Box 11127 Tallahassee, FL 32302-3127

S. Marc Herskovitz, Esquire Department of Insurance Division of Legal Services

200 East Gaines Street Tallahassee, FL 32399-0300

Tom Gallagher, Commissioner Department of Insurance and Treasurer The Capitol, Plaza Level

Tallahassee, FL 32399-0300

Bill O'Neil, Esquire

Department of Insurance and Treasurer The Capitol, PL-11

Tallahassee, FL 32399-0300

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.

================================================================= AGENCY FINAL ORDER

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

THE TREASURER OF THE STATE OF FLORIDA DEPARTMENT OF INSURANCE

IN THE MATTER OF:

Liberty Mutual Insurance Company, CASE NO. 94-L-154SMH Liberty Mutual Fire Insurance Company, DOAH CASE NO. 94-892 Liberty Insurance Corporation, LM

Insurance Corporation, and The First Liberty Insurance Corporation.

/

FINAL ORDER

THIS CAUSE came on before the undersigned Treasurer and Insurance Commissioner of the State of Florida, acting in his capacity as Insurance Commissioner, for consideration and final agency action. On or about June 30, 1993, Petitioners, Liberty Mutual Insurance Company, Liberty Mutual Fire Insurance Company, Liberty Insurance Corporation, LM Insurance Corporation, and The First Liberty Insurance Corporation (hereinafter referred to as "Petitioners"), filed for approval with the Respondent, the Florida Department of Insurance (hereinafter referred to as "Respondent" or "Department"), a Retrospective Rating Large Risk Alternative Rating Option. On or about January 13, 1994, Respondent denied that filing. Petitioners timely requested a formal administrative hearing pursuant to section 120.57(1), Florida Statutes, to contest the denial of the filing. Pursuant to notice, the matter was heard before Ella Jane P. Davis, Hearing Officer for the Division of Administrative Hearings, on August 29, 1994.

After consideration of the evidence, argument and testimony presented at the hearing, as well as the subsequent written submissions of the parties, the Hearing Officer issued her Recommended Order on December 1, 1994 (attached hereto as Exhibit "A"). The Hearing Officer recommended that the Department of Insurance enter a final order denying the Petitioners' June 30, 1993 Retrospective Rating Large Risk Alternative Rating Option.

Pursuant to Rule 4-121.072, Florida Administrative Code, the Department shall allow ten days for any party to submit written exceptions to recommended orders. On December 7, 1994, counsel for Petitioners executed and forwarded to Respondent a Motion for Extension of Time To File Exceptions To Recommended Order. On December 21, 1994, the counsel for Petitioners filed Petitioners' Exceptions to Recommended Order. Petitioners' motion is granted and Petitioners' exceptions filed beyond the ten day time limit will be considered herein.

Rulings On Petitioners' Exceptions To Findings Of Fact

Exception #1. "Petitioners take exception to the findings of fact contained in paragraphs 4-6 as not being supported by competent substantial evidence. Facts concerning the April 23, 1991 National Council on Compensation Insurance filing are irrelevant to this proceeding, and therefore do not constitute competent evidence. Petitioners objected to the introduction of this evidence at the final hearing."

The April 23, 1991 NCCI filing amended the January 21, 1991 filing. The filing was the subject of testimony by witnesses at hearing prior to any objection made regarding its relevancy. David Kenepp testified about the April 23, 1991 NCCI filing and whether the Large Risk Alternative Rating Option contained therein differed from Petitioners' filing. That Large Risk Alternative Rating Option is referenced in Petitioners' Exhibit #3. Ronald Swanstrom, responding to questioning from Petitioners' counsel, also discussed that disapproved filing. Further, the disapproved filing itself and amendment thereto (Respondent's Exhibits #1 and #4) were introduced into evidence at hearing without objection. That filing is relevant and evidence regarding it is admissible under section 120.58(1)(a), Florida Statutes. The Hearing Officer's findings of fact in paragraphs 4-6 of the Recommended Order are based upon competent substantial evidence. The Hearing Officer, when admitting documents relating to the January 21, 1991 filing and April 23, 1991 amendment thereto,

noted that matters occurring prior to Petitioners' filing "probably have little weight." Petitioners' first exception is rejected.

Exception #2. "Petitioners take exception to the findings of fact contained in paragraph 8 as not being supported by competent substantial evidence. The evidence adduced at the final hearing overwhelmingly supported the fact that Petitioners' Large Risk Alternative Rating Option (LRARO), was a deviation from the NCCI Option V rating plan."

The Hearing Officer's finding of fact #8 states, "[o]n or about June 30, 1993, Petitioners filed their Retrospective Rating Large Risk Alternative Rating Option (hereafter, Petitioners' LRARO) with the Respondent. This filing was made independent of NCCI."

It is undisputed that Petitioners made their filing with the Department on June 30, 1993. That filing was in fact independent from any NCCI filing, in that it was not included in or a part of any filing made by NCCI. It was made by Petitioners. NCCI did not make this filing nor did it participate in it.

There was no evidence presented that NCCI sanctioned it. In her finding of fact #9, the Hearing Officer stated "[p]etitioners' LRARO is a large risk alternative rating option which was intended to be a "deviation" from the previously filed and approved Option V Plan filed by NCCI." The Hearing Officer has recognized the intention of the filing to be a deviation from the NCCI Option V plan. The Hearing Officer's finding of fact #8 is based upon competent substantial evidence and Petitioners' second exception is rejected.

Exception #3. "Petitioners take exception to the findings of fact contained in paragraphs 13 and 14 as not being supported by competent substantial evidence. James Watford's testimony was that he treated Petitioners' LRARO filing as if it were a "variation" from the NCCI Option V Plan, not a variation from the previously disapproved NCCI large risk plan. The Hearing Officer's finding is internally inconsistent when she determines that Mr. Watford believed the Petitioners' LRARO filing was both an "independent rate plan" and a "modification of the approved NCCI Option V."

Mr. Watford testified that he perceived Petitioners' filing to, ". . .be a rating plan, alternative rating plan, that had been an exception as to what had been filed on the behalf of National Council." He further testified that the 1991 NCCI filing was NCCI's retrospective rating plan, a "modification" or "variation" of NCCI's plan (Option V). He further testified that Petitioners' filing has the appearance of being a more refined version of the disapproved 1991 NCCI filing. Mr. Watford testified that Petitioners' filing was a variation or modification of the NCCI Option V plan, and appeared to be similar to the disapproved 1991 NCCI filing. He did not specifically testify that Petitioners' filing constituted a "variation" of the unapproved NCCI filing, although he did consider them similar. Petitioners' third exception is accepted regarding the characterization of Petitioners' filing as a "variation" of the disapproved NCCI filing. For reasons stated above, the exception is rejected as it pertains to the Hearing Officer being inconsistent in characterizing Petitioners' plan as independent and a modification.

Exception #4. "Petitioners take exception to the findings of fact contained in paragraph 15 as not being supported by competent substantial evidence. Petitioners' LRARO filing did not allow Petitioners and prospective insureds to agree unilaterally on all components to be used in the rating process, but only the three components specified in the filing itself,

specifically, the expense charge, the excess loss premium charge and the insurance charge components."

The Hearing Officer found in finding of fact paragraph 15 that ". . .the rejection was primarily on the basis that the LRARO would not allow the agency regulatory oversight as to determination of workers' compensation premiums since it proposed to allow Petitioners and prospective insureds to agree unilaterally on the various components to be used in the rating process."

The Hearing Officer recognized in paragraph 15 that the Department's rejection was primarily based upon lack of agency regulatory oversight of premiums as Petitioners and prospective insureds could negotiate the various components to be used in the rating process. The Hearing Officer in finding of fact paragraph 17 recognized the three variables proposed in Petitioners' LRARO: the expense charge component, the excess loss premium charge component, and the insurance charge component. The "various components" referenced by the Hearing Officer in paragraph 15 is understood to mean the expense charge, the excess loss premium charge, and the insurance charge components. Petitioners' fourth exception is rejected. The Hearing Officer's findings of fact are based on competent substantial evidence.

Exception #5. "Petitioners take exception to the findings of fact contained in paragraph 17 as not being supported by competent substantial evidence. There is no evidence in the record indicating that the Department's analysis of the variable factors concerning the expense charge, the excess loss premium charge or the insurance charge components are made "even more tricky" by the fact that these factors are contained within the forms to be completed by the individual underwriters when negotiating with a particular insured."

Mr. Watford testified it would be "difficult if not impossible to see what the total impact of the three factors would be", and that he would "have no way of knowing what the average impact is." He further stated that in regard to agency oversight of Petitioners' plan, the Department "would have had very little, almost none, because we don't know in advance what the -- we can't evaluate it in advance." The Hearing Officer in finding of fact paragraph 15 found that the Department's rejection was primarily on the basis that Petitioners' LRARO would not allow the agency regulatory oversight as to determination of workers' compensation premiums since it proposed to allow Petitioners and prospective insureds to agree unilaterally on the various components to be used in the rating process. Further, the Hearing Officer found in finding of fact paragraph 18 that, ". . .it would be difficult, if not impossible, to see what the total impact of what the combined factors of Petitioners' plan would be. . ." There is clearly evidence in the record that the Department's analysis of the variable factors concerning the expense charge, the excess loss premium charge and the insurance charge components would be difficult if not impossible and frustrate the Department in its attempt to fulfill its statutory obligation to regulate. Whether that analysis becomes "even more tricky" because some of the variable factors only appear within forms and not in the LRARO's separate breakout of those items is a logical finding based upon competent substantial evidence. Petitioners' fifth exception is rejected.

Exception #6. "Petitioners take exception to the findings of fact contained in paragraph 18 as not being supported by competent substantial evidence. The evidence at the formal hearing was clearly sufficient to justify the different factors contemplated in the filing. The fact that ". . .the factors would likely have the effect of eliminating themselves," is of no

moment. If that were in fact the case with regard to the analysis applied to a particular insured risk, this would be no deviation at all from the Option V plan, and no cause for concern by the Department."

Petitioners state that the evidence was clearly sufficient to justify the different factors contemplated in the filing, but do not point to what that evidence is. The Hearing Officer found in finding of fact paragraph 18, that at hearing, insufficient information was provided to justify the different factors contemplated in the filing. There was little or no evidence presented by Petitioners at hearing of an actuarial nature to support a finding that Petitioners' filing would result in premiums which were not excessive, inadequate or unfairly discriminatory. Witnesses for Petitioners did testify that the filing would not result in premiums which were excessive, inadequate or unfairly discriminatory, but that testimony was contradicted by that of Mr.

Watford, who testified that the filing did not provide sufficient information for the Department to determine whether the filing would result in premiums which were excessive, inadequate or unfairly discriminatory. The Hearing Officer's finding that the evidence was insufficient to justify the factors is based on competent substantial evidence, or lack of competent substantial evidence to the contrary.

Mr. Watford testified that if "you look at some of the factors, you realize that, while there's the appearance of limitations, the limitations don't mean much since they pretty much totally eliminate the factors." The Hearing Officer's finding that, ". . .the factors would likely have the effect of eliminating themselves" is based on competent substantial evidence.

Petitioners' sixth exception is rejected.

Exception 7. "Petitioners take exception to the findings of fact contained in paragraph 20 as not being supported by competent substantial evidence. There is no evidence to support the finding that the Petitioners' underwriters and potential customers would have "almost unbridled" discretion in negotiating premiums. The record evidence is clear that only three components of the LRARO plan are subject to negotiation, and even then only within specifically defined parameters. There is no competent substantial evidence to support the finding that the Petitioners' LRARO filing is an independent plan on filing."

Petitioners are correct to assert that only three components of their filing are subject to negotiation, the 1) expense charge component, 2) excess loss premium charge component, and 3) insurance charge component. Petitioners are further correct to assert that the negotiations regarding those components are defined by the parameters outlined within the component forms. Petitioners' underwriters and customers would have almost unbridled discretion to negotiate premiums as those premiums are impacted by the application of the various factors contained within the three components. Mr. Watford testified that in a regulatory context, it is difficult if not impossible to see what the total impact of the three combined factors would be. To the extent that this exception addressed the ability of the underwriters and customers to negotiate the entire premium with "unbridled discretion", the exception is accepted.

Mr. Watford testified that he perceived Petitioners' filing to be a rating plan or an alternative to or modification of the retrospective rating plan that had been filed by NCCI. He further testified that he did not perceive Petitioners' filing to be a deviation filing, and that whether this filing was a deviation or an independent filing, he would have disapproved it. The Hearing Officer's finding that Petitioners' plan is not a deviation of NCCI Option VI

but an independent plan, is based upon competent substantial evidence and the portion of Petitioners' exception objecting to that finding is rejected.

Exception #8. "Petitioners take exception to the findings of fact contained in paragraph 21 as not being supported by competent substantial evidence. The evidence is clear that Petitioners did not comply with rule 4- 189.004, Florida Administrative Code, because it was the reasoned opinion of Petitioners, as well as Petitioners' expert witness, that the rule applied only to base rate percentage deviations, and not rating plan deviations as contemplated by section 627.211(2), Florida Statutes."

The Hearing Officer found that, ". . .if Petitioners thought this was a deviation, they did not file all materials under Rule 4-189.004, F.A.C., as commented upon by Mr. Watford."

The record indicates that Petitioners did not believe that Rule 4-189.004 applied to this filing. David Kenepp testified that the rule seemed to be pointed at or aimed at rate deviations rather than rating plan deviations.

Petitioners' expert, Ronald Swanstrom, did testify that, "[t]he deviation that we are talking about here is not a rate deviation, this is a rating plan deviation." Mr. Swanstrom never specifically testified whether or not the rule itself applied only to base rate deviations, not rating plan deviations.

The Hearing Officer found that Petitioners' filing was intended to be a deviation from the previously filed and approved Option V plan filed by NCCI.

It is also clear from the testimony of Mr. Watford that all information required by the rule was not provided to the Department. It is also clear from the record that Mr. Watford would have applied this rule to Petitioners' filing had he considered it a deviation. Without commenting on the correctness of their interpretation, it is accepted that Petitioners' position was that the rule applied to base rate deviations. Petitioners' eighth exception is accepted.

Rulings On Petitioners' Exceptions To Conclusions Of Law

Exception #1: "The Hearing Officer erred in paragraph 25 in finding that the Department was not constrained only to assess the LRARO filing as a deviation as contemplated by Section 627.211(2), Florida Statutes."

The Hearing Officer's paragraph 25 reads as follows: "Petitioners assert that the Department is constrained only to assess the filing as a "deviation", as contemplated by Section 627.211(2), Florida Statutes. Since the LRARO is not merely a "deviation", that argument falls."

The Hearing Officer found that Petitioners' filing was an independent plan, not a "deviation" from the NCCI Option V plan. Mr. Watford testified that he did not consider Petitioners' filing a deviation, and did not treat it as such. Petitioners never identified this filing as a "deviation" pursuant to section 627.211(2), Florida Statutes, and the Department is not constrained to treat it as such. Petitioners first exception to conclusions of law is rejected.

Exception #2: "The Hearing Officer erred in paragraph 26 in finding that the Department could disapprove a workers' compensation rate filing for reasons other than if the filing would result in a rate which was excessive, inadequate or unfairly discriminatory. The failure by the Department to request any further information for a period of seven months during the pendency of the filing, and then denying the filing based in part upon a claim of inadequate information enabling it to assess the filing, is not a "fallacious" argument.

Petitioners do not seek to alter the burden of proof as to their entitlement to have the filing deemed not excessive, inadequate or unfairly discriminatory, but merely raises the argument of agency estoppel. The Hearing Officer erred in finding to the contrary."

The Hearing Officer did not find in paragraph 26 that the Department could disapprove a workers' compensation rate filing for reasons other than if the filing would result in a rate which was excessive, inadequate or unfairly discriminatory. In paragraph 24, the Hearing Officer concluded that Petitioners had the burden to prove that their filing would not result in rates which are excessive, inadequate or unfairly discriminatory. Mr. Watford testified that there were conversations and correspondences and meetings between the Department and Petitioners before and after the filing wherein he expressed concerns about how the Department could be assured whether or not the filing would result in premiums which were excessive, inadequate or unfairly discriminatory.

Petitioners' second exception to conclusions of law is rejected.

Exception #3: "The Hearing Officer erred in paragraph 27 in determining that the Petitioners' LRARO filing was an independent rating plan as opposed to a "deviation." Sufficient evidence was adduced at the final hearing to enable Petitioners' witnesses, including an expert witness, to render opinions that the Petitioners' LRARO plan would not result in excessive, inadequate or unfairly discriminatory rates."

The Hearing Officer in paragraph 27 stated that Petitioners did not establish their LRARO was "only a deviation" and not an independent plan; that Petitioners did not present sufficient data by which expert witnesses could offer a justification of the different factors offered by Petitioners; and that Petitioners' witnesses' bald opinions to the effect that the plan would not result in excessive, inadequate or unfairly discriminatory rates are not credible.

The Hearing Officer found that Respondent correctly reviewed Petitioners' LRARO as an independent plan, not a deviation, and that Petitioners did not submit the required documentation with their filing. The Hearing Officer concluded that based upon the evidence received at hearing, the testimony of Petitioners' witnesses that the filing would not result in rates or premiums which were excessive, inadequate or unfairly discriminatory was not supported by sufficient underlying data and documentation. Petitioners' third exception to conclusions of law is rejected.

Exception #4: "The Hearing Officer erred in paragraph 28 by inappropriately deferring to the Department's interpretation of its own statutes and rules. While it is true that an agency's interpretation of its own statutes and rules are entitled to great weight, Maclen Rehabilitative Services v.

Department of Health and Rehabilitative Services, 588 So.2d 12 (Fla. 1st DCA 1991), that doctrine does not require the Hearing Officer uphold any conceivable construction an agency puts on its statutes, but only those permissible constructions of a statute made by an agency which comports with discernable legislative intent. State Board of Optometry v. Florida Society of Ophthalmology, 538 So.2d 828, 885 (Fla. 1st DCA 1988). The great weight of the evidence indicated that Petitioners' LRARO filing was in fact a deviation and not an independent rating plan, and therefore, Section 627.091(1), Florida Statutes, was inapplicable, as was Rule 4-189.004, Florida Administrative Code."

The Hearing Officer did not inappropriately defer to the Department's interpretation of its statutes and rules. The Department's interpretation of

its rules and statutes in this case, specifically section 627.091(1), Florida Statutes, was permissible and comported with discerned legislative intent.

Petitioners did not meet their burden of proof to establish that their plan was a deviation or that their plan would not result in premiums which were excessive, inadequate or unfairly discriminatory. Petitioners' fourth exception to the Hearing Officer's conclusions of law is rejected.

After careful consideration of the record in this matter, the submissions of the parties, and being otherwise fully advised in the premises, it is:

ORDERED:

1. The findings of fact of the Hearing Officer are adopted in full as the Department's findings of fact except as where rejected or modified above.

   
   

2. The conclusions of law of the Hearing Officer are adopted in full as the Department's conclusions of law.

   
   

3. The Hearing Officer's recommendation that the Department of Insurance enter a final order denying the Petitioners' June 30, 1993 Retrospective Rating Large Risk Alternative Rating Option is approved and accepted as being the appropriate disposition of this case.

ACCORDINGLY, Petitioners' June 30, 1993 Retrospective Rating Large Risk Alternative Rating Option filing is denied.

Any party to these proceedings adversely affected by this Order is entitled to seek review of this Order pursuant to section 120.68, Florida Statutes, and rule 9.110, Florida Rules of Appellate Procedure. Review proceedings must be instituted by filing a Notice of Appeal with the General Counsel, acting as the agency clerk, at 612 Larson Building, Tallahassee, Florida 32399-0333, and a copy of the same and the filing fee with the appropriate District Court of Appeal within thirty (30) days of rendition of this Order.

DONE and ORDERED this 20th day of April, 1995.

BILL NELSON

Treasurer and Insurance Commissioner

COPIES FURNISHED:

Ella Jane P. Davis Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

Marc Herskovitz, Esquire Division of Legal Services 612 Larson Building

Tallahassee, Florida 32399-0333

Steven M. Malono, Esquire Cobb, Cole & Bell

131 North Gadsden street Tallahassee, Florida 32301

Docket for Case No: 94-000892

Orders for Case No: 94-000892