Judges: K. N. AYERS
Agency: Department of Environmental Protection
Latest Update: Feb. 27, 1980
Summary: Petitioner's relief denied. There was no statute governing choice of Respondent's employee life insurance company.
79-1809.PDFSTATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
PROTECTIVE LIFE INSURANCE )
COMPANY, )
)
Petitioner, )
)
vs. ) CASE NO. 79-1809
) STATE OF FLORIDA, DEPARTMENT OF ) NATURAL RESOURCES, )
)
Respondent, )
)
and )
)
GABOR AND COMPANY, INC., )
)
Intervenor. )
)
RECOMMENDED ORDER
Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, K. N. Ayers, held a public hearing in the above styled case on October 22, 1979 at Tallahassee, Florida.
APPEARANCES
For Petitioner: Kenneth G. Oertel, Esquire
646 Lewis State Bank Building Tallahassee, Florida 32301
and
Drayton Nabers, Jr., Esquire Post Office Box 2606 Birmingham, Alabama 35202
For Respondent: Henry Dean, Esquire
Department of Natural Resources Crown Building
202 Blount Street Tallahassee, Florida 32301
For Intervenor: Joseph C. Jacobs, Esquire
Post Office Box 1170 Tallahassee, Florida 32302
By Petition filed 14 August 1978, Protective Life Insurance Company, Petitioner, seeks an administrative hearing to demonstrate that it should be accepted by the Department of Natural Resources (DNR or Respondent), as the selected carrier to offer whole life group insurance to employees of Respondent through a payroll deduction plan.
The company recommended by Respondent's Insurance Committee, Gabor and Company, Inc., requested permission to intervene in these proceedings, as a party whose substantial interests would be affected. Permission to intervene was granted.
During discovery procedures the Intervenor moved for a protective order respecting information requested by Petitioner which Intervenor contended constituted trade secrets confidential to itself. After this motion for a protective order was denied, Intervenor withdrew as a party to these proceedings rather than respond to the contested discovery.
At the hearing, five witnesses were called by Petitioner, one witness was called by Respondent and 10 exhibits were admitted into evidence. Both parties presented proposed recommended orders. Those proposed findings of fact not included herein were deemed not necessary and material to the result reached or were not supported by competent and substantial evidence.
FINDINGS OF FACT
Prior to July 1979 the Department of Natural Resources (DNR) determined to make available to its employees a group life insurance program the premiums for which would be paid through payroll deductions to the company selected to provide the coverage. DNR appointed an insurance committee to consider the programs offered and make recommendations. The committee solicited proposals from eight companies and narrowed the field down to five companies who were requested to further explain their proposals in an oral presentation before the full committee.
Following the oral presentations on July 11, 1979, the committee narrowed the choice to Gabor and Company, Inc. offering a policy underwritten by Philadelphia Life Insurance Company and Protective Life Insurance Company.
In assessing the proposals of Gabor and Protective Life the committee considered:
The premiums and net cost of each company's proposal;
The guaranteed issue amounts available to the employees of DNR;
The rating by industry analysts of the particular companies; and
The services offered by the agency representing the underwriting insurance company. Included therein, consideration was given to the fact that Gabor's salesmen are on straight salary, while Hilsmier's agents are paid on commissions.
The committee recognized that for the lower policy amounts, i.e. for policies up to $20,000, Protective Life had the lowest premium and lowest net cost of the two finalists. On policies of $25,000 and higher Philadelphia Life offered the lowest premium. The committee found Protective Life offered the lowest premiums overall of the two proposals.
Philadelphia Life, up to age 50, offered guaranteed issue insurance to a maximum of $25,000 structured solely on earnings while Protective Life offered a maximum of $20,000 guaranteed issue which was available only to employees up
to age 30. Thereafter, the guaranteed issue insurance decreased to $5,000 for employees between 50 and 65 years old. Under the Philadelphia Life proposal employees between 50 and 65 could receive $10,000 coverage.
With approximately 1300 employees at DNR, under the plans proposed by Protective and Philadelphia, 972 of these employees could obtain higher guaranteed issue coverage from Philadelphia than protective. This better guaranteed issue life insurance offered by Philadelphia was the major factor which induced the committee to recommend Philadelphia's proposal submitted by Gabor.
In comparing the servicing facilities of the two finalists the committee gave weight to the fact that Gabor had six field locations throughout Florida while Philadelphia was serviced by Hilsmier, a designated agent for Protective Life, whose office is located in Tallahassee. The fact that Hilsmier services a similar group policy with the Department of Agriculture and gave presentations to all of Agriculture's employees throughout the state was known to the committee.
The committee also considered the rating of A+ for Philadelphia and A for Protective Life it received informally from the Office of the Commissioner of Insurance of Florida. Respondent's testimony was that the committee gave little significance to the difference between the A and A+ ratings. However, it was stipulated to at the hearing that both of these companies are rated A by the insurance analysts.
The fact that Gabor's agents are paid on a salary basis while Hilsmier's agents are paid commissions on insurance sold also tended the committee towards favoring the services of Gabor. This was acknowledged to be a purely subjective determination without concrete evidence to support this conclusion. This could be described as a "gut" reaction by the committee.
With respect to the premiums and net cost of the insurance offered by the two finalists, the evidence presented at the hearing establishes that:
for policies under $25,000 Protective's program offers the lowest premiums, the highest cash values, the lowest net cost, the lowest interest adjusted net cost, and the highest paid-up values. (T. p. 46, 99-105).
Protective's proposal offers lower cost insurance to children of DNR employees than does Philadelphia's. On an optional basis Philadelphia offers $1,000 of coverage for $.75 per month convertable at age 25 to $5,000 without evidence of insurability, while Protective offers $2100 for $1 per month to age 25, convertable into $10,500. (T. p. 104).
Optional accidental death benefits are offered by both companies. The rate is $.08 per $1,000 for Protective's policy while for Philadelphia the rate is $.08 per $1,000 at the lower ages, rising to $.13 per $1,000 at the higher ages of the employees. (T. p. 104).
Protective Life offers the following guaranteed issue amounts:
Ages 18-30 | $20,000 |
31-40 | 15,000 |
41-50 | 10,000 |
50-65 | 5,000 |
Philadelphia Life offers the following guaranteed issue amounts:
MONTHLY EARNINGS | UP TO AGE 50 | AGES 50 TO 65 |
Under $600 | $2,500 to $10,000 | $2,500 to $5,000 |
$601 to $800 | $5,000 to $15,000 | $5,000 to $10,000 |
$801 or more | $5,000 to $25,000 | $5,000 to $10,000 |
Protective Life offers a simplified underwriting procedure (Omni) on group policies whereby they, in effect, eliminate the first four tables of disability and allow applicants fitting into one of these health tables up to three times the guaranteed issue amount of insurance at standard rates. However, the Omni policies for all applicants are subject to rejection by the home office who retains the exclusive right to reject or accept the simplified underwriting proposal (T. p. 93) thereby leaving available to the insured only the guaranteed issue amount of insurance.
Protective Life's Florida agent, Hilsmier, employs seven agents who traveled throughout Florida to make presentations when the Department of Agriculture employees were enrolled in the program and will do the same for DNR employees if selected. The Tallahassee office presently accepts toll telephone calls from Agriculture employees insured under that program, and has plans to install statewide WATS lines over which enrollees can call Hilsmier toll-free to obtain information on their policies.
Protective Life submitted statistics showing that the average group policy sold to Department of Agriculture employees was $10-11,000 and many of these employees did not take the maximum guaranteed issue amount of insurance.
Respondent's committee, on the other hand, was impressed with the concept of providing the greatest amount of insurance to the poorest risks, whom they felt had more pressing need for insurance. (T. p. 11). The committee was also impressed by the fact that the young and healthy employee was getting no bargain by enrolling in either plan offered, as he could probably obtain the same coverage at less cost in the open market. (T. p. 12).
It is an obvious economic fact that, on many occasions, the individual most needing insurance cannot afford the amount needed. Accordingly, Philadelphia's proposal which based the amount of guaranteed issue insurance upon salary rather than age, as Protective's proposal did, is obviously entitled to weight in the evaluation of the two proposals.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties and the subject matter of these proceedings.
This case differs from other bidding and contract-letting disputes which were appealed to the courts in one very important aspect, namely that public funds are not involved and there is no statute directing the award go to the "lowest responsible bidder". cf Woods Hopkins Contract v. Roger J. Au & Sons, 345 So.2d 446 (Fla. 1st DCA 1978). If the sole criteria was lowest responsible bidder Petitioner would prevail as Petitioner clearly met both tests of lowest and responsible bidder.
It differs from cases involving applicants vying for certificates issued by state agencies as there is no statute directing the underwriter be selected on the basis of public convenience and necessity, or to the applicant
best qualified to provide specified service in the public interest as the statute requires in cases involving certificates of public convenience and necessity and certificates of need.
Absent statutory criteria for selecting an underwriter to provide group insurance coverage to its employees leaves only the broad concept that Respondent is acting in a fiduciary capacity with its employees and must consider their best interests in selecting the underwriter. One of the most obvious factors to be considered is the cost of the coverage to the employees. While this is perhaps the most important factor, it is not the sole factor and may not be the controlling factor.
Gabor is not an essential party to these proceedings and its absence does not void the facts presented by Gabor and considered by the committee.
The hearing officer is here sitting as the alter ego of the agency head and in making his recommendations should consider all the factors the agency head can consider in entering the final order. This includes a consideration of the recommendation of the insurance committee. While this recommendation (to select Gabor) has no special weight, its validity should be tested on the crucible of reasonableness and whether or not the selection was arbitrary, capricious and beyond the scope of the agency's discretion in selecting a company to offer the program best suited to Respondent's employees. Considerable discretion rests with the agency in making this determination.
Here no agency policy is involved unless the finding that higher guaranteed issue is the primary factor in selecting a company is a policy. If so, no competent and substantial evidence was presented to discredit this policy. cf McDonald v. Department of Banking and Finance, 346 So.2d 569 (Fla. 1st DCA 1977); State ex rel. Department of General Services v. Willis, 344 So.2d
580 (Fla. 1st DCA 1977).
Everyone does not buy life insurance for the same purpose. Need for life insurance varies at different times of an individual's life and with the purpose for which the coverage is desired. The breadwinner with a young family perforce has need for more life insurance protection for his family than does the man whose children are grown; however, the latter often is able to afford the premiums for the larger policy, while the former is not. Another individual may take out an insurance policy to provide cash to pay inheritance taxes or to provide funds to a small corporation to buy the shares of an insured officer of the corporation. One individual looks upon his life insurance policy as a method of saving and building an estate, while the low return on such a method of saving is abhorrent to another individual.
Costs of policies offering different guaranteed issues are not readily comparable. This is so because group policies, like other policies, must be actuarily sound. If the high-risks who take the guaranteed issue policies could be eliminated, there would be less payout and therefore lower premiums.
If cost was the primary consideration it would benefit the younger employees if a group comprising only those under 30 were formed to purchase group insurance. Likewise, if the uninsurables were eliminated from the group to be covered, the costs would also be lower. For this reason the lower the guaranteed issue amount, the lower the premium should be. The guaranteed issue provision includes these uninsurable employees and the committee made a policy decision that it was in the best interest of the Respondent's employees as a group to pay higher premiums to obtain higher guaranteed issue coverage.
From the foregoing it is concluded that absent absent statutory criteria Respondent has broader discretion in selecting a company to provide group whole life coverage to its employees than it does, for example, in approving leases for state owned lands. In such a situation the recommendation of the insurance committee is entitled to weight and consideration unless evidence is presented to show that recommendation was arbitrary, capricious or not based upon competent and substantial evidence.
It is further concluded that the policy of according greater weight to the amount of guaranteed issue offered than to the cost of the premiums was supported by competent and substantial evidence and was neither arbitrary nor capricious. It is therefore
RECOMMENDED that the relief requested by Protective Life Insurance Company be denied.
Entered this 5th day of December, 1979.
K. N. AYERS, Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301
(904) 488-9675
COPIES FURNISHED:
Kenneth G. Oertel, Esquire 646 Lewis State Bank Building Tallahassee, Florida 32301
Drayton Nabers,; Jr., Esquire Post Office Box 2606 Birmingham, Alabama 35202
Henry Dean, Esquire
Department of Natural Resources Crown Building
202 Blount Street Tallahassee, Florida 32301
Joseph C. Jacobs, Esquire Post Office Box 1170 Tallahassee, Florida 32302
Docket for Case No: 79-001809
Orders for Case No: 79-001809
| Issue Date |
Document |
Summary |
|
Feb. 27, 1980 |
Agency Final Order
|
|
|
Dec. 05, 1979 |
Recommended Order
|
Petitioner's relief denied. There was no statute governing choice of Respondent's employee life insurance company.
|
