STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

RANGER INSURANCE COMPANY, )

)

Petitioner, )

)

vs. ) CASE NO. 96-3669BID

)

THE SCHOOL BOARD OF BROWARD )

COUNTY, FLORIDA, )

)

Respondent, )

and )

) ARTHUR J. GALLAGHER AND COMPANY and ) UNITED NATIONAL INSURANCE COMPANY, )

)

Intervenors, )

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its designated Administrative Law Judge, David M. Maloney, held a formal hearing in the above-styled case on September 11, and 12, 1996 in Fort Lauderdale, Florida, and on September 30, 1996, in Tallahassee, Florida.

APPEARANCES

For Petitioner: Paul R. Ezatoff, Esquire

Christopher B. Lunny, Esquire Katz, Kutter, Haigler, Alderman,

Marks, Bryant & Yon, P.A. Post Office Box 1877

Tallahassee, Florida 32302-1877

For Respondent: Edward J. Marko, Esquire

Robert Paul Vignola, Esquire

Office of the School Board Attorney

K.C. Wright Administrative Building

600 Southeast Third Avenue - 11th Floor Fort Lauderdale, Florida 33301

For Intervenors: A. Kenneth Levine, Esquire

Blank, Rigsby and Meenan, P.A. Post Office Box 11068 Tallahassee, Florida 32302-3068

STATEMENT OF THE ISSUE

Whether the School Board of Broward County's award of a contract for Excess General and Auto Liability insurance coverage to United National Insurance Company is barred because of illegality?

PRELIMINARY STATEMENT

On August 6, 1996, the Division of Administrative Hearings received a letter on behalf of the School Board of Broward County through the School Board's attorney. Dated August 2, 1996, the letter "advised that Ranger Insurance Company has requested a formal hearing under Chapter 120.57(1), Florida Statutes concerning the School Board's award of RFP 97-072S to United National Insurance Company."

Attached to the School Board's letter was a June 10, 1996, letter on the letterhead of Alexander & Alexander, under the signature of Luis R. Sastre, Jr., stating,

On behalf of L.B. Bryan & Company, Alexander & Alexander, Inc. and Benefactor Financial Group, Inc., for American E & S/Ranger Insurance Company we hereby notify The School Board of Broward County of our intent to file a formal written protest in accordance with Section 120.53, Florida Statutes.

Also attached was a June 19, 1996, letter on the letterhead of Ranger Insurance Company under the signature of E. Michael Hoke, Assistant Vice President, AES/Ranger Insurance Company in regard to "Request for Proposals #97-072S, Formal Written Protest." In essence, the letter from Mr. Hoke claimed the award of the RFP to United Insurance Company violated both Section 626.901, Florida

Statutes, and the Surplus Lines Law, Section 626.913 et seq., Florida Statutes.

Also attached to the School Board's August 2 letter was a letter dated July 11, 1996, from Siver Insurance Consultants to the School Board's Risk Management, Safety & Benefits Director which addressed, "the protest by Ranger Insurance Company ... with respect to the award of the Package Policy to United National Insurance Company." In sum, Siver recommended that the protest be rejected. If the Department of Insurance were ever to find that there had been a violation of law, Siver concluded, "the Board could then take whatever action it deemed appropriate in response to the action by the Department."

The request for hearing was assigned Case No. 96-3669BID by the Division of Administrative Hearings. First assigned to another hearing officer, the case was ultimately heard by the undersigned administrative law judge, with the formal hearing concluding on September 30, 1996.

In the meantime, Arthur J. Gallagher & Company and United National Insurance Company ("United National,") petitioned to intervene in the proceeding. The petition was granted in an order rendered August 22, 1996. The order limited the issues in the proceeding to those "raised by Petitioner and Respondent."

The School Board and the intervenors jointly moved in limine for an order clarifying the meaning of the limitation stated in the August 22, 1996 order. Considered at hearing, ruling was reserved.

The motion is now denied.

At hearing, Ranger presented the testimony of Sharon Swan, CPM, James Marshall, CPCU, ARM, JD, and David L. Marcus, ARM. Gallagher and United National presented the testimony of Carolyn Daniels, who was qualified as an expert in the Surplus Lines Law. Ranger's exhibits 1, 2, 4-10, 13-24, 26-31A, 34, 35 and 47, were admitted into evidence. Official recognition was taken of Ranger's exhibits 32 and 33, Department of Insurance Informational Bulletins, 89-100 and 92-009. The School Board's Exhibit 1 and Intervenors' Exhibits 1-13 were also admitted into evidence.

At the request of the School Board, Official recognition was taken of School Board Rules 3.4, "Resolution of Protest Arising from Contract Bidding Process," and 3320, "Purchasing Policies." At the request of Intervenors, Official Recognition was taken of Rule 4J-5.003, Florida Administrative Code, and the statutes which it implements, Sections 626.913(2), 626.916(1)(a), and 626.930(1), Florida Statutes.

The final hearing, having commenced in Fort Lauderdale on September 11, 1996, continued through September 12, 1996, without finishing. Hearing was continued until a date to be settled upon by the parties. It reconvened and adjourned in Tallahassee on September 30, 1996. Filing of the transcript of the hearing was completed on October 21, 1996. The parties all timely filed proposed recommended orders on November 18, 1996.

FINDINGS OF FACT

The Parties

1. Ranger Insurance Company, Petitioner, is the holder of a Certificate of Authority dated September 9, 1996 and issued by the

   Department of Insurance and Bill Nelson, Insurance Commissioner and Treasurer. Good through June 1, 1997, the certificate authorizes Ranger to write in a number of lines of insurance business, including, Private Passenger Auto Liability, Commercial Automobile Liability, Private Passenger Automobile Auto Physical Damage, Commercial Auto Physical Damage and Other Liability. As such, Ranger is an "authorized" or "admitted" insurer in the State of Florida.

2. L.B. Bryan & Company, Alexander & Alexander, Inc., and Benefactor Financial Group, Inc., is a joint venture and co- petitioner with Ranger in this proceeding through whom Ranger proposed to procure the Excess General and Auto Liability (“Excess GL/AL”) coverage. A timely proposal under Request for Proposal 97- 072S was submitted to the School Board of Broward County by the petitioners to provide the Excess GL/AL Insurance Coverage sought by the RFP.

3. United National Insurance Company is an "eligible" surplus lines insurer, approved by the Florida Department of Insurance to transact all surplus lines coverages in the State of Florida and licensed as such. The Department has notified insurance agents of United Nation's eligibility as a surplus lines insurer since 1978.

   It is the insurer of the Excess General and Excess Auto Liability insurance coverage awarded by the School Board under RFP 97-072S.

4. Arthur J. Gallagher & Company ("Gallagher,") is the eighth largest insurance broker in the world. It has four sales offices, nine service offices, and approximately 150 employees in the State of Florida alone. The office from which it conducted business

   related to this proceeding is in Boca Raton, Florida, an office for which Area President David L. Marcus is responsible. Gallagher submitted a timely proposal (the "Gallagher proposal,") in response to the RFP on behalf of United National.

5. The School Board of Broward County is the authority that operates, controls, and supervises all free public schools in the Broward County School District, "[i]n accordance with the provisions of s. (4)(b) of Article IX of the State Constitution

   ...". Section 230.03(2), F.S. In accord with its powers, the School Board may contract directly to purchase insurance. It is not required by its purchasing rules to use a competitive bidding or procurement process to purchase insurance. Nonetheless, on Friday, April 26, 1996, it issued a request for proposals, the RFP at issue in this proceeding, for insurance coverages including for Excess GL/AL insurance coverages.

   Siver Insurance Management Consultants

6. Siver Insurance Management Consultants ("Siver,") are the drafters of RFP 97-072S. The School Board relied on Siver to draft the RFP, particularly its technical sections. Technical review of the proposals made under the RFP was conducted by Siver. And Siver put together for the School Board's use a summary of the policies proposed by both United National and Ranger. The summary was considered by the School Board's Evaluation Committee when it evaluated the competing proposals.

7. The determination of whether the competing proposers were properly licensed was made by Siver. The School Board's Evaluation Committee, indeed the School Board, itself, played no role in

   determining the licensing credentials of the proposers while the proposals were under consideration. Under the arrangement between Siver and the School Board, however, the School Board retained the primary responsibility for administering the RFP.

   The RFP

8. Request for Proposal 97-072S was mailed to 324 vendors (prospective proposers) the same day as its issuance, April 26, 1996. None of the vendors knew the contents of the RFP until it was issued.

9. The RFP sought proposals for seven coverages, each of which was severable from the remainder of the coverages and was allowed to be proposed separately. The scope of the request was described in the RFP as follows:

   The School Board of Broward County, Florida

   ... is seeking proposals for various insurance coverages and risk management services. To facilitate distribution of the underwriting data and the requirements for each of the coverages, this consolidated Request for Proposals ... has been prepared. However, each of the coverages is severable and may be proposed separately. The following are included:

   1. Boiler & Machinery

   2. Excess General and Automobile Liability

   3. Excess Workers' Compensation

   4. School Leaders Errors & Omissions

   5. Crime Including Employee Dishonesty - Faithful Performance, Depositor's Forgery

   6. Claim and Risk Management Services (Including Managed Care Services)

   7. Statutory Death Benefits

      Petitioner's Ex. 1, pg. I-1. Since the seven coverages are severable and no proposer had to submit a proposal on all seven coverages, one way of looking at RFP 97-072S is as a consolidated

      RFP composed of seven, separate proposals, each for a different type of insurance coverage.

10. Of the 324 vendors to whom the RFP was sent, only two, Gallagher, on behalf of United National, and Ranger, through the action of the joint venture, submitted proposals with respect to the Excess GL/AL coverages.

    Reasons for Using an RFP

11. The School Board, under the auspices of Siver, chose to seek insurance coverage through an RFP rather than an Invitation to Bid, or what is colloquially referred to as a "straight bid," for a number of reasons. As one familiar with RFPs and Invitations to Bid might expect, the School Board and Siver were attracted to the RFP by the increased flexibility it offered in the ultimate product procured in comparison to the potentially less flexible product that would be procured through an invitation to bid. More pertinent to this case, however, Siver chose to use an RFP for the School Board in this case because "as explained ... by the Department of Insurance over the ... years, while there may... [be a] prohibition against any surplus lines agents submitting a straight bid, there would not be a prohibition against a ... [surplus lines] agent responding to a request for proposal "

    (Tr. 149.)

12. The RFP approach was not chosen, however, in order to avoid any legal requirement or to circumvent the Insurance Code. As explained by Mr. Marshall, the approach was born of hard reality:

    
    

    Id.

    [O]ne of the primary motivations [for using an RFP rather than an Invitation to Bid] was to allow us [The School Board and Siver] to consider surplus lines companies because of the fact that very often they were the only insurers that would respond on the number of coverages and clients that we were working for.

    
    

    The Insurance Code and the Surplus Lines Law

13. The Insurance Code in Section 624.401, Florida Statutes,

    
    

    requires generally that an insurer be authorized by the Department of Insurance (the "Department,") to transact business in the State of Florida before it does so:

    (1) No person shall act as an insurer, and no insurer or its agents, attorneys, subscribers, or representatives shall directly or indirectly transact insurance, in this state except as authorized by a subsisting certificate of authority issued to the insurer by the department, except as to such transactions as are expressly otherwise provided for in this code.

14. One place in the code where transactions are "expressly otherwise provided for ...," is in the Surplus Lines Law, Section 626.913 et seq., Florida Statues. The purposes of the law are described as follows:

    It is declared that the purposes of the Surplus Lines Law are to provide for orderly access for the insuring public of this state to insurers not authorized to transact insurance in this state, through only qualified, licensed, and supervised surplus lines agents resident in this state, for insurance coverages and to the extent thereof not procurable from authorized insurers, who under the laws of this state must meet certain standards as to policy forms and rates, from unwarranted competition by unauthorized insurers who, in the absence of this law,

    would not be subject to similar requirements; and for other purposes as set forth in this Surplus Lines Law.

    Section 626.913(2), F.S.

15. Surplus lines insurance is authorized in the first instance only if coverages cannot be procured from authorized insurers:

    If certain insurance coverages of subjects resident, located, or to be performed in this state cannot be procured from authorized insurers, such coverages, hereinafter designated "surplus lines," may be procured from unauthorized insurers, subject to the following conditions:

    1. The insurance must be eligible for export under s. 626.916 or s. 626.917;

    2. The insurer must be an eligible surplus lines insurer under s. 626.917 or s. 626.918;

    3. The insurance must be so placed through a licensed Florida surplus lines agent; and

    4. The other applicable provisions of this Surplus Lines Law must be met.

    Section 626.915, Florida Statutes, and then only subject to certain other conditions:

    1. No insurance coverage shall be eligible for export unless it meets all of the following conditions:

       1. The full amount of insurance required must not be procurable, after a diligent effort has been made by the producing agent to do so, from among the insurers authorized to transact and actually writing that kind and class of insurance in this state ... .

    Surplus lines agents must verify that a diligent effort has been made by requiring a properly documented statement of diligent effort from the retail or producing agent.

    However, to be in compliance with the diligent effort requirement, the surplus lines agent's reliance must be reasonable under the particular circumstances surrounding the risk.

    Reasonableness shall be assessed by taking into account factors which include, but are not limited to, a regularly conducted program of verification of the information provided by the retail or producing agent. Declinations

    must be documented on a risk-by-risk basis.

    It is not possible to obtain the full amount of insurance required by layering the risk, it is permissible to export the full amount.

    Section 626.916, F.S.

    Authorized vs. Unauthorized Insurers

16. Unlike authorized insurers, unauthorized insurers do not have their rates and forms approved by the Department of Insurance, (the "Department.") Similarly, unauthorized insurers are not member of the Florida Insurance Guaranty Association, which guarantees payment of claims if an insurer becomes insolvent. Unauthorized insurers may qualify to transact Florida insurance business under the Surplus Lines Law and so, for purposes of the Surplus Lines Law, be considered "eligible" to transact surplus lines business in Florida. When a Surplus Lines insurer is eligible, Department of Insurance employees refer to the insurer in Surplus Lines terms as "authorized," a term in everyday English that is synonymous with "eligible." But an eligible surplus lines insurer remains an "unauthorized" insurer when compared to an "authorized" insurer for purposes of the Insurance Code and that part of the code known as the Surplus Lines Law.

    Submission and Review of Proposals

17. Both L.B. Bryan & Company, Alexander & Alexander, Inc., and Benefactor Financial Group, Inc., (the "Joint Venture") and Gallagher submitted timely proposals with regard to Excess GL/AL coverage in response to the RFP. The Joint Venture's proposal was submitted, of course, on behalf of Ranger, an authorized insurer, and Gallagher's was submitted on behalf of United National, an

    insurer eligible to transact insurance in the State of Florida as a surplus lines insurer but otherwise an unauthorized insurer.

18. The School Board's Insurance Evaluation Committee met on May 30, 1996, to evaluate proposals received pursuant to the RFP. Although briefly discussed by the Evaluation Committee, the issue of proper licensing was not determined independently by the committee. Instead of making that determination, the committee turned to its insurance consultant, Siver. Siver had determined that both proposers, Ranger and United National, were properly licensed for purposes of responding to the RFP and being considered by the committee. Siver communicated that determination to the committee. The committee relied on Siver's determination. Aside from receiving Siver's determination of proper licensing when "briefly discussed" (Tr. 108,) the Evaluation Committee did not address whether either Ranger or United National were properly licensed. Certainly, no issue of whether Ranger should take precedence over United National by virtue that it was an authorized insurer when United National was an unauthorized insurer and a mere eligible Surplus Lines insurer was ever discussed by the committee.

19. In evaluating the proposals, the Committee awarded 73

    points to the Gallagher proposal and 69 points to the Ranger proposal. Points were awarded on the basis of three criteria or in three categories: Qualifications (20 points maximum); Scope of Coverages/Services Offered (30 points maximum); and, Points for Projected Costs (50 points maximum.) The Ranger proposal outscored the Gallagher proposal in the "projected cost" category, 50 to 23, but it scored lower in the "qualifications" category, 14 versus 20

    for Gallagher, and significantly lower in the "scope of coverages" category, five points versus 30 for Gallagher.

20. The United National coverage was more than twice as costly as Ranger's, a $491,000 annual premium as opposed to Ranger's $226,799, which explains the points awarded in the "projected cost" category.

21. The Gallagher proposal received more points than the Ranger proposal in the "qualifications" category because United National has provided the School Board with Excess GL/AL coverage for a number of years and Ranger has never provided the School Board with such coverage.

22. The Ranger proposal fell so drastically short of the Gallagher proposal in the "scope of coverages/services offered" category primarily because of an athletic participation exclusion appearing in a rider to the specimen policy appearing in its proposal. Ranger had intended to cover athletic participation and the rider was included with the Ranger proposal in error. Ranger notified the School Board of its intent immediately after the tabulations were released. Nonetheless, the Evaluation Committee was never informed of the error and no attempt was made by the School Board to negotiate with Ranger to improve the coverages offered, despite authority in the RFP for the School Board to negotiate with any of the proposers. (The language used in the RFP is "with one or more" of the proposers.)

23. The Ranger proposal also fell short of the Gallagher

    proposal in the "scope of coverages/service offered" category because the Gallagher proposal was made in several ways. One way

    was as to only Excess GL/AL coverage. Another way included School Leaders' Errors and Omissions ("E & O") coverage. The E & O coverage was offered by United National in the Gallagher proposal together with the Excess GL/AL coverage in a "combined lines" package, similar to United National coverages already existing for the School Board. Furthermore, the Ranger proposal expressly excluded coverage for Abuse and Molestation, a needed coverage due to the School Board's prior claims history.

24. On June 5, 1996, the Evaluation Committee submitted its recommendations to the School Board's Purchasing Department. With regard to GL/AL coverage, the Evaluation Committee recommended the purchase of the GL/AL/E & O "combined lines" coverage offered by Gallagher through United National. The School Board posted its Proposal Recommendation/Tabulations adopting the recommendation, two days later, on June 7, 1996.

    Ranger Seeks Redress from the Department

25. Following the School Board's award, Ranger, thinking that it should have received the award under the RFP as the only authorized insurer to submit a proposal for Excess GL/AL coverage, sought redress from the Department. On June 14, 1996, Ranger personnel met with the head of the Department's Surplus Lines Section, Carolyn Daniels, alleging a violation of the Insurance Code's Surplus Lines Law. On June 18, 1996, Ranger reiterated its complaint in writing and asked Ms. Daniels to find a violation that day. On June 24, 1996, Ranger, now through its attorneys, met with Ms. Daniels and her supervisor. Again, on July 4, 1996, Ranger's attorneys wrote to Ms. Daniels, further pleading for her to find a

    violation and asking for an administrative hearing if Ms. Daniels did not find in favor of the Ranger position. On a fifth attempt, Ranger wrote Ms. Daniels on July 11, 1996, requesting that she adopt Ranger's position.

26. Ms. Daniels reviewed Ranger's five complaints with her supervisor, the Chief of the Bureau of Property and Casualty Solvency and Market Conduct. In a letter dated August 14, 1996, to the School Board's Purchasing Agent, Ms. Daniels announced her determination:

    I did not find any evidence to indicate that Mr. David L. Marcus of Arthur J. Gallagher & Company or United National Insurance Company violated the Surplus Lines Law in providing a quote for the School Board.

    Intervenor's Ex. No. 2. Ms. Daniel's determination was based on a number of factors, including the School Board's position in the transaction as an "informed consumer," (Tr. 422-423,) and that the School Board had possessed a United National policy for 13 years. But, the determination was primarily based on the fact that Gallagher had received three declinations from authorized insurers to provide Excess GL/AL coverage and so had performed that which was required prior to deciding that the coverage was eligible for export and provision by a surplus lines insurer: due diligence.

    Due Diligence

27. Section 626.916(1)(a), Florida Statutes, provides,

    [n]o insurance coverage shall be eligible for export unless it meets ... the following condition[]: ... [t]he full amount of insurance required must not be procurable, after a diligent effort has been made by the producing agent to do so, from among the insurers authorized to transact and actually writing that kind and class of insurance in this state, and the amount of insurance exported shall be only the excess over the amount so procurable from authorized insurers.

    (e.s.) The statute goes on to require that the diligent effort, "be reasonable under the particular circumstances surrounding the export of that particular risk." Reasonableness is assessed by

    taking into account factors which include, but are not limited to, a regularly conducted program of verification of the information provided by the retail or producing agent.

    Declinations must be documented on a risk-by- risk basis.

    Section 626.916(1)(a), F.S.

28. "'Diligent effort' means seeking coverage from and having been rejected by at least three authorized insurers currently writing this type of coverage and documenting these rejections." Section 626.914(4), F.S. Under this definition, the "producing agent should contact at least three companies that are actually writing the types of clients and the business in the area [that they are] wanting to write." (Tr. 268.) A specific form to help insurance agents document their three rejections is adopted by Department rule. The rule provides:

    When placing coverage with an eligible surplus lines insurer, the surplus lines agent must verify that a diligent effort has been made by requiring from the retail or producing agent a properly documented statement of diligent

    effort on form DI4-1153 (7/94), "Statement of Diligent Effort", which is hereby adopted and incorporated by reference.

    Rule 4J-5.003(1), F.A.C.

29. Fully aware of the requirement for documentation of diligent effort to find authorized insurers, and cognizant that it would be unlikely that an authorized insurer could be found based on experience, Gallagher began soliciting proposals for coverage in the middle of April, 1996, several weeks before the School Board had issued the RFP.

30. In fact, at the time that Gallagher started soliciting bids, the School Board had not yet assembled or distributed the underwriting data needed by bidders.

31. Nonetheless, with good reason based on experience, Gallagher expected that the School Board would seek a "combined lines" package of GL/AL/E & O coverages like the School Board then received through United National, and that it would be unlikely that an authorized insurer would step forward to propose coverage. Gallagher, therefore, used the policy form current in April of 1996, that is the form providing Excess GL/AL/E & O coverage in a "combined lines" package, "as an example of what the School Board had been looking for this type of program and seeking a program similar to that and similar in coverage." (Tr. 242.) But it also sought Excess GL/AL without combination with E & O coverage. As Mr. Marcus testified, when seeking coverage from authorized insurers beginning in April of 1996, Gallagher "would be looking at a variety of different ways, whether they were package or not." (Tr. 243.)

32. One authorized insurer, Zurich-American, declined to quote because it could not offer a combined line SIR program (a package of excess general liability and excess auto liability coverages) as requested by the RFP. Furthermore, the School Board risk was too large for Zurich-American to handle. A second authorized insurer, American International Group, declined to quote due to the School Board's adverse loss experience. A third authorized insurer, APEX/Great American, declined to provide a quote to Gallagher due to the large size of the School Board account. The responses of these three authorized insurers were listed in a Statement of Diligent Effort provided to Ms. Daniels, which she considered in determining that Gallagher and Mr. Marcus had committed no violation of the Surplus Lines Law.

33. Gallagher also provided Ms. Daniels with a second

    Statement of Diligent Effort. The statement documented the attempt to attract quotes by adding a school leaders errors and omission component to the Excess GL/AL coverage. It, too, was used by Ms.

    Daniels in making her determination of no violation of the Surplus Lines Law by Gallagher.

34. The same three insurers refused to quote for the "combined lines" program.

    Attempts by other Authorized Insurers

35. Gallagher requested that any responses to its requests for quotes be submitted by May 10, 1996, so that it could prepare and submit its proposal by the RFP's deadline for submission of original proposals by all vendors, 2:00 p.m. May 16, 1996. One insurer, Discover Re/USF&G attempted to submit a quote on May 15,

    1996, one day before the RFP deadline but five days after May 10. By then, Gallagher had already started printing its 625 page proposal. Furthermore, the company failed to provide the required policy forms until the day after the School Board's deadline for filing proposals.

36. Coregis Insurance Company offered coverage of up to

    $700,000 for each claim and for each occurrence, but like Discover Re/USF&G, failed to provide the required policy forms until after the RFP deadline. Furthermore, definitive coverage under the Coregis policy would only be provided on the condition that the Florida Legislature pass a Legislative Claims bill, a limiting condition not authorized in the RFP or requested by Gallagher.

37. American Home Assurance Company never responded to Gallagher with the School Board's required quote or policy forms. Rather, the company merely provided an "indication" that the company declined to provide a quote. An "indication" consists of an approximate premium rate, without any terms or conditions. A "quote," on the other hand, includes the terms and conditions of a policy. The Department places with the producing agent the responsibility of determining whether an insurer's communication constitutes and "indication" or a "quote." An agent, according to Ms. Daniels, can only violate the Surplus Lines Law if the agent receives a reliable quote.

38. Gallagher even requested a quote from Ranger, despite never having been appointed to transact insurance on its behalf. But Ranger declined. In response to a request by Gallagher's minority business partner, McKinley Financial Services, Ranger,

    through E. Michael Hoke on American E & S letterhead, wrote in a letter dated May 6, 1996, "[w]e have received a prior submission on this account so we are returning the attached." Intervenor's Ex.

    No. 7.

    
    

    The Petition

39. Ranger's petition for formal administrative hearing is the letter dated June 19, 1996, to the Director of Purchasing for the School Board under the signature of E. Michael Hoke, CPCU, Assistant Vice President of AES/Ranger Insurance Company. The letter asks its readers to "bear[] in mind we are not attorneys,"

    p. 1 of the letter, before it outlines three protest issues.

40. The third protest issue is the one about which Ms. Daniels made her determination that no violation of the statute had been committed by Gallagher or its employees: "3) Florida Statute 626.901 (Representing or aiding unauthorized insurer prohibited)."

41. The other two issues deal not with the propriety of Gallagher's actions but the legality of the School Board's award to an unauthorized insurer, United National, when coverage was available from an authorized insurer, Ranger:

    1. Florida Statute 626.913 (Surplus Lines Law). . .

       Our Position

       * * *

       Ranger Insurance Company is an admitted authorized insurer ... Its proposal for excess general and auto liability is proof that the Board requested coverage was procurable.

       
       

       United National Insurance Company is an unauthorized insurer under the laws of the State of Florida ... .

       The United National Insurance Company proposal and/or its offer to extend it's current policies appear to us as "unwarranted competition."

       
       

       Ranger Insurance Company is protected from unwarranted competition from United National Insurance Company in accordance with the Florida Statute 626.913.

       
       

    2. Florida Statute 626.913 (Eligibility for Export) ...

    Our Position

    * * *

    
    

    Ranger Insurance Company is an admitted authorized insurer under the laws of the State of Florida. ... It's proposal for excess general and auto liability is proof that the Board requested amounts were available.

    
    

    The proposal and/or contract extensions offered by United National are for the full amount of coverage sought and not excess over the amount procurable from Ranger, an authorized insurer.

42. The petition, therefore, set in issue not just whether Gallagher acted illegally but whether the School Board acted illegally when it made the award to United National, an unauthorized insurer when Ranger, an authorized insurer, had also submitted a proposal.

    Extension

43. As soon as the School Board was made aware of the Ranger protest, it extended the existing insurance contracts procured under RFP 92-080S, awarded approximately five years earlier. The extension was on a month-to-month basis until resolution of the protest. The extension was necessary to avoid a lapse in the School Board's coverage during this proceeding.

    CONCLUSIONS OF LAW

44. The Division of Administrative Hearing has jurisdiction over the parties and the subject matter of this proceeding. Sections 120.53(5) and 120.57, F.S. (1995). The standard for determining bid protests was substantively amended effective October 1, 1996. See Section 120.57(3)(f), Florida Statutes, (1996 Supp.) This case was heard and is being determined under the law in effect prior to October 1, 1996.

45. The Florida Supreme Court has provided the following standard for reviewing bid protest proceedings:

    [A] public body has wide discretion in soliciting and accepting bids for public improvements and its decision, when based on an honest exercise of this discretion, will not be overturned by a court even if it may appear erroneous and even if reasonable persons may disagree.

    Department of Transportation v. Groves-Watkins Constructors, 530 So. 2d 912, 913 (Fla. 1988), (e.s.), citing Liberty County v.

    Baxter's Asphalt & Concrete, Inc., 421 So.2d 505, 507 (Fla. 1982). The same policy considerations which apply to procurement by an Invitation to Bid apply equally to procurement by RFP. Systems Development Corp. v. Department of Health and Rehabilitative Services, 423 So.2d 433 (Fla. 1st DCA 1982).

46. As a result of this wide discretion, "the [administrative law judge]'s sole responsibility is to ascertain whether the agency acted fraudulently, arbitrarily, illegally or dishonestly."

    Groves-Watkins Constructors, 530 So.2d at 914. The courts have consistently directed hearing officers to apply these four criteria in their review of agency action in procurement dispute

    proceedings, and have precluded a de novo evaluation of bids or second-guessing of an agency's determination. E.g., Procacci v. Department of Health and Rehabilitative Services, 603 So.2d 1299, 1300 (Fla. 1st DCA 1992); Scientific Games v. Dittler Bros., Inc., 586 So.2d 1128, 1131, (Fla. 1st DCA 1991).

47. The School Board, in its proposed recommended order argues that by virtue of the requirements of Section 120.53(5)(b), Florida Statutes, "Ranger is restricted in these proceedings to the introduction of evidence relevant to the issues of whether the action taken by the School Board [in accepting United National's proposal submitted by Gallagher] constituted a violation of Section 626.901, Florida Statutes, and was therefore illegal action." Respondent School Board's Proposed Recommended Order, p. 16. The intervenors approach the issues framed by Ranger's petition similarly. See Intervenor's Proposed Recommended Order, paragraph 53, p. 21. But, the charges in the petition are much broader than whether Section 626.901, Florida Statutes, was violated by Gallagher. The charges clearly frame the additional issue as to whether the School Board, not Gallagher, acted illegally under the Surplus Lines Law. The issues are not whether the School Board acted fraudulently, arbitrarily or dishonestly. There is, moreover, no evidence to suggest that the School Board was any of these, fraudulent, arbitrary or dishonest. The issue, instead, is whether the School Board's award is illegal under the Surplus Lines Law.

48. Indeed, the School Board's award is illegal under Section

    926.913 et seq., the Surplus Lines Law. Distilled to its essence,

    the School Board made an award of Excess General and Auto Liability coverage to an unauthorized insurer, United National, when an authorized insurer, Ranger, had proposed coverage. Whether diligent effort had been made by the producing agent or not, (a condition necessary to make insurance coverage eligible for export under Section 926.916, Florida Statutes,) surplus line insurance is authorized only if coverage cannot be procured from authorized insurers, section 926.915, Florida Statutes. In this case, it is quite plain that Ranger, an authorized insurer proposed coverage.

    If its proposal was responsive to the RFP, the coverage could not have been awarded to an eligible surplus lines insurer no matter how diligent the effort of the surplus lines insurer's producing agent to find an authorized insurer prior to submitting a proposal for an unauthorized insurer.

49. When this case is seen from the perspective of each of the participants it becomes comprehensible how to each it seemed that proper process was being followed. Gallagher, based on its experience, sought coverage from eligible surplus lines insurers and conducted a search for authorized insurers with the diligence required by statute and the Department of Insurance. Siver drafted a request for proposal because it had received direction from the Department of Insurance that surplus lines insurers could respond to requests for proposal. The Evaluation Committee relied on Siver to inform it of the proper credentials of the proposers. Siver believed that both proposals could be considered because both proposers were allowed to respond to the RFP and were duly licensed by the department. The Committee in evaluating the proposals, for

    appropriate reasons, gave more points to the Gallagher proposal than to the Ranger proposal. The School Board followed the advice of the Committee. When Siver analyzed the protest, it had been informed that the Department of Insurance had found no violation of the Surplus Lines Law. The department, in fact, had made the determination that Gallagher had not violated the Surplus Lines Law.

50. That Gallagher had performed diligently in attempting to obtain authorized insurers to offer coverage several months before the proposals were considered by the School Board, however, does not mean that Ranger's proposal should not have taken precedence over the Gallagher proposal. Once an authorized insurer had submitted a proposal, the School Board was duty-bound under the Surplus Lines Law to consider that proposal above any made by eligible surplus lines insurers. The proposal from Ranger should not have been rejected unless it was not responsive to the RFP and then only if negotiations could not make it responsive. If the Ranger proposal were found to be not responsive and negotiations failed to make it responsive, then and only then was the School Board free to reject the proposal and consider proposals from eligible surplus lines insurers.

RECOMMENDATION

Based on the foregoing, it is, hereby, RECOMMENDED:

That the award to United National under the Gallagher proposal in response to RFP 97-072S be rescinded.

DONE AND ENTERED this 28th day of January, 1997, in Tallahassee, Florida.

DAVID M. MALONEY

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(904) 488-9675 SUNCOM 278-9675

Fax Filing (904) 921-6847

Filed with the Clerk of the Division of Administrative Hearings this 28th day of January, 1997.

COPIES FURNISHED:

Paul R. Ezatoff, Esquire Christopher B. Lunny, Esquire Katz, Kutter, Haigler, Alderman,

Marks, Bryant & Yon, P.A. Post Office Box 1877

Tallahassee, Florida 32302-1877

Edward J. Marko, Esquire Robert Paul Vignola, Esquire

Office of the School Board Attorney

K.C. Wright Administrative Building

600 Southeast Third Avenue - 11th Floor Fort Lauderdale, Florida 33301

A. Kenneth Levine, Esquire Blank, Risby and Meenan, P.A. Post Office Box 11068 Tallahassee, Florida 32302-3068

Dr. Frank Petruzielo, Superintendent Broward County School Board

600 Southeast Third Avenue

Fort Lauderdale, Florida 33301-3125

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within 10 days from the date of this recommended order. Any exceptions to this recommended order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 96-003669BID

Orders for Case No: 96-003669BID