STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

GEORGE WASHINGTON LIFE )

INSURANCE COMPANY, )

)

Petitioner, )

)

vs. ) CASE NO. 87-5351

) STATE OF FLORIDA, DEPARTMENT ) OF INSURANCE, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a final hearing was held in this case in Tallahassee, Florida, on May 17, 1988, before Jose A. Diez-Arguelles, a hearing officer with the Division of Administrative Hearings.

APPEARANCES

FOR PETITIONER: William N. Furlow, Esquire

800 Barnett Bank Building

315 South Calhoun Street Tallahassee, Florida 32301

FOR RESPONDENT: Gabriel Mazzeo, Esquire

Michael C. Goodwin, Esquire Department of Insurance

413-B Larson Building Tallahassee, Florida 32301

BACKGROUND

This case deals with the request by Respondent, Department of Insurance, that Petitioner, George Washington Life Insurance Company, increase the amount of deposit currently being held by the State pursuant to Section 624.411(3), Florida Statutes, from approximately $540,000 to $1,500,000. In response to Respondent's request, Petitioner requested a formal hearing.

At the hearing, Petitioner presented the testimony of John H. Wilbur, President of George Washington Life Insurance Company, and offered one exhibit which was admitted into evidence. Respondent presented the testimony of Hugo John Kummer, Assistant Director of Insurance Company Regulation for the Department of Insurance. Both parties filed Proposed Recommended Orders containing proposed findings of fact. The proposed finding of facts are addressed in the Appendix attached to this Order. Additionally, Respondent filed a post hearing Motion to Dismiss to which Petitioner responded. The Motion to Dismiss is addressed in the Conclusions of Law section of this Order.

FINDINGS OF FACT

1. Petitioner is an insurance company domiciled in West Virginia which does business in several states, including Florida. Petitioner has been in existence for over 80 years and has conducted business in Florida for the past

   30 or 40 years.

   
   

2. Petitioner currently has approximately $540,000 on deposit in Florida, pursuant to Section 624.411(3), Florida Statutes.

   
   

3. Florida has adopted the Uniform Insurer's Liquidation Act.

   
   

4. Amounts held on deposit pursuant to Section 624.411, Florida Statutes, are held for the protection of all policyholders and creditors of the company who are located in a state which has adopted the Uniform Insurer's Liquidation Act.

   
   

5. Petitioner has approximately $2,6000,000 on deposit in all states, of which approximately $1,300,000 is held for the protection of all policyholders.

   
   

6. Amounts held on deposit in Florida can earn interest which is paid over to the Petitioner, and the deposits are held without cost to the Petitioner. Petitioner may at any time exchange the type of security or investment vehicle held on deposit as long as the market value of the replacement securities is equal to or exceeds the amount required to be on deposit.

   
   

7. Amounts held on deposit, however, are not available to Petitioner for its operations and cannot be used to pay claims. Also, if the Petitioner wants to reduce the amount on deposit, it must receive approval from Respondent.

   
   

8. For the calendar years ending 1983 through 1987, Petitioner's financial situation, as reflected in the financial reports filed with Respondent was as follows:

   
   

   YEAR	CAPITAL & SURPLUS AND NET WORTH	GAINS (LOSSES) FROM OPERATIONS
   1983	$7.08 Million	$1.51 Million
   1984	7.43	2.30
   1985	9.22	(0.63)
   1986	8.13	(1.36)
   1987	5.37	(3.22)

   
   

9. Additionally, under the method of accounting used by the Respondent to evaluate the financial standing of insurance companies, Petitioner's Capital and Surplus and Net Worth would be lower than that reflected in the financial reports.

   
   

   Respondent's Review Procedures

   
   

10. In determining the maximum amount of deposit which may be required under Section 624.411(3), Florida Statutes, Respondent uses a formula which allocates a portion of an insurance company's total obligations to Florida by multiplying the total obligations by a fraction the numerator of which is direct writings in Florida for the latest reporting period and the denominator of which is the total direct writings of the company for the same reporting period.

11. Applying this formula to the financial data provided by Petitioner in its 1987 Annual statement or to the data in the March 31, 1988 Quarterly statement filed with the Respondent results in a determination that Respondent may require Petitioner to maintain the maximum deposit allowed by Section 624.411(3), Florida Statutes, if Respondent determines that good cause exists and that such an amount is warranted.

    
    

12. In determining the amount of the deposit which should be required, Respondent looks at the following guidelines: (1) Solvency of the company, (2) Liquidity of the company, (3) Number of consumer complaints against the company,

    (4) Volume and concentration of Florida business conducted by the company, (5) history of regulatory compliance of the company, and (6) overall attitude of the company.

    
    

13. Petitioner is solvent and liquid, under a strict interpretation of what these words mean, but both its solvency and liquidity have declined over the past year.

    
    

14. Petitioner has taken steps which it believes will reverse the recent financial decline it has suffered. On the other hand, if Petitioner sustains the same loses it sustained last year, it may be insolvent by the end of this year.

    
    

    ISSUE

    
    

    Whether Respondent should increase its deposit pursuant to Section 624.411(3), Florida Statutes?

    
    

    CONCLUSIONS OF LAW

    
    

    The Division of Administrative Hearings has jurisdiction over the parties to, and the subject matter of, this proceeding. Section 120.57, Florida Statutes.

    
    

    Motion To Dismiss

    
    

15. Together with its Proposed Recommended Order, Respondent filed a Motion to Dismiss. Petitioner responded to the Motion to Dismiss and requested that attorney's fees be awarded Petitioner based on the time needed to respond to the Motion to Dismiss.

    
    

16. In the Alternative Proposed Recommended Order attached to the Motion to Dismiss, Respondent argues that the Division of Administrative Hearings lacks jurisdiction to hear this case, since, under Respondent's view of the case, Petitioner's substantial interests are not being determined in this proceeding.

    
    

17. This case deals with a request by Respondent that Petitioner increase its statutory deposit from approximately $540,000 to $1,500,000. Respondent argues that, since Petitioner "(a) does not lose any money as a result of the deposit; (b) may substitute (buy and sell) securities on deposit at any time; and (c) is not charged any fee for the holding of the deposit," it does not suffer an injury which is of sufficient immediacy to entitle it to a Section

    120.57 hearing. Respondent's argument ignores the fact that securities placed on deposit cannot be used by Petitioner for any other purpose and, therefore, Petitioner is without the use of the monetary value of the deposit. It seems

    clear that being deprived of the ability to freely use funds which one owns is a substantial interest which a party is entitled to protect by using the procedures of Chapter 120.

    
    

18. Respondent's argument, if accepted, would lead to a situation where Respondent could require deposits from an insurance company without providing the company an opportunity for a hearing, formal or informal. While Respondent frames its argument in terms of the right to a formal proceeding under subsection 120.57(1), the statutory language it quotes for support, the introductory paragraph of Section 120.37, Florida Statutes, is equally applicable to formal proceedings under subsection 120.57(1) and informal proceedings under subsection 120.57(2).

    
    

19. Finally, as pointed out in Petitioner's response to the motion, Respondent recognized Petitioner's right to a hearing in its letter requesting the additional deposit and in its Order issued November 24, 1987, wherein Respondent decided to forward the case to the Division of Administrative Hearings.

    
    

20. Based on the foregoing, Respondent's Motion to Dismiss is denied. Petitioner's request for attorney's fees is also denied; the motion was not frivolous.

    
    

    Request for Additional Deposit

    
    

21. Section 624.411, Florida Statutes, sets forth the amounts of deposits which are required to be maintained with Respondent by insurers having a certificate of authority to transact business in the state. Subsection (3) of Section 624.411, Florida Statutes, provides that:

    
    

    (3) In addition to the deposits otherwise required pursuant to this section, the department may, after notice and hearing, require any insurer, for good cause shown, to deposit and maintain deposited in trust for the protection of the insurer's policyholders or its policyholders and creditors, for such time as the department deems necessary, securities eligible for such deposit under s.623.52, having a market value of not less than the amount which the department determines is necessary, which amount shall be not less than

    $75,000, or more than $2 million or 25 percent of the insurer's obligations in this state, whichever amount is smaller.

    
    

    In order to require the additional deposit, Respondent must show that good cause exists for the additional deposit and must show that $1,500,000 is the amount necessary under the statute.

    
    

22. Respondent's only written guidelines for requiring a deposit consist of a form used to determine the maximum deposit which may be required (See Respondent's Exhibit 4) and a memorandum setting forth the guidelines contained

    in Finding of Fact 13, supra. As set forth in Finding of Fact 11, Respondent could require the maximum deposit of $2,000,000 in this case, if it determines that the maximum deposit is necessary.

    
    

23. The evidence presented in this case shows that Petitioner's financial situation has deteriorated substantially over the past two years. Respondent argues, and its witness so testified, that the decline constitutes good cause to require an additional deposit under Section 624.411(3), Florida Statutes. This interpretation of the statute appears to be reasonable.

    
    

24. However, Respondent has failed to show why its request to increase the deposit from approximately $540,000 to $1,500,000 is proper under the circumstances. In this regard, Respondent's witness testified that it was "his feeling" that the deposit should be increased to $1,500,00. With all due respect for the witnesses' expertise, a feeling, without more, is not sufficient to show why the additional deposit is needed in this case.

    
    

25. Obviously, Respondent feels that the current deposit is not sufficient under the provisions of Section 624.411(3). And it may well be that, as Respondent's witness testified, $1,500,000 is the proper amount to be held in deposit in this situation. However, no testimony was presented as to why

    $1,500,000 is a more proper figure than say, $1,000,000, or than 540,000, the amount of the current deposit. Additionally, while there was some testimony, elicited under cross-examination of Respondent's witness, as to how the guidelines set forth in Finding of Fact 12 should be applied in this case, the testimony does not tend to show why $1,5000,000 is the proper amount.

    
    

26. At the hearing, Respondent's witness testified that the hearing officer should apply a "prudent man" standard to determine the amount of the deposit. Based on the evidence presented in this case, a prudent man would be unable to determine what the proper amount of the deposit should be.

    
    

27. Therefore, while Respondent has established good cause to require an additional deposit, Respondent has failed to show what the amount of the deposit should be.

    
    

28. This conclusion does not mean that Petitioner may not be required to increase its deposit in the future. When Respondent is ready to establish by competent evidence the proper amount of the deposit, it will be able to again request an additional deposit.

RECOMMENDATION

Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that Respondent issue a Final Order finding that Petitioner

does not need to increase its deposit pursuant to Section 624.411(3), Florida Statutes, at this time.

DONE and ORDERED this 29th day of September, 1988, in Tallahassee, Florida.

JOSE A. DIEZ-ARGUELLES

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 29th day of September, 1988.

APPENDIX

The parties submitted proposed findings of fact which are addressed below.

Paragraph numbers in the Recommended Order are referred to as "RO ." Petitioner's Proposed Findings of Fact

Proposed Finding

of Fact Number Ruling and RO

1. Accepted. RO1 and 8.

2. Accepted as part of the record in this proceeding, but not as a Finding of Fact.

3. First two sentences accepted. RO3 and 4. Third sentence rejected as not a finding of fact.

4. Accepted. RO2.

5.-6. Rejected as irrelevant.

1. First two sentences accepted generally. RO14. Last sentence rejected as not a finding of fact.

2. Accepted. See Conclusions of Law section of the RO.

3. First sentence accepted generally. RO10-11, and Conclusions of Law section of RO. Rest of paragraph rejected as argument; but see Conclusions of Law Section of RO.

4. Accepted generally. See Conclusions of Law section of RO.

5. ,12.,13. Rejected as argument.

1. Rejected as irrelevant and argument. Whether the company will increase its profits is as speculative as the department's assertion that the company will

   be insolvent. The fact that the company made a profit for the first quarter of 1988 is not supportive of the prior sentence. See financial data for the first quarter of 1987 and compare with data for all of 1987.

2. ,16.,17. Rejected as irrelevant, argument, and not findings of fact.

Respondent's Proposed Findings of Fact

Proposed Finding Ruling and RO of Fact Number

1. Accepted generally. RO1.

2. Rejected as not a finding of fact. Mr. Kummer, however, was accepted as an expert.

3. Accepted. RO2.

4. ,5.,6.,7. Accepted. RO4 and 6.

8.,9.,10.,11., Accepted. RO8.

1. Accepted as set forth in RO9.

   The true net worth of the company cannot be conclusively established.

2. Rejected as argument.

3. Rejected as not a finding of fact.

4. Accepted for proposition that net worth has declined. RO8. Cannot determine where 44 percent figure comes from.

5. Accepted generally. RO14.

6. Not a finding of fact.

7. ,19. Accepted generally. RO10,11.

1. Rejected as irrelevant. See ruling on Petitioner's proposed finding of fact 14.

2. Rejected as argument.

COPIES FURNISHED:

William M. Furlow, Esquire 800 Barnett Bank Building

315 South Calhoun Street Tallahassee, Florida 32301

Gabriel Mazzeo, Esquire Michael C. Goodwin, Esquire Department of Insurance 413-B Larson Building Tallahassee, Florida 32301

Honorable William Gunter State Treasurer and

Insurance Commissioner The Capitol, Plaza Level

Tallahassee, Florida 32300-0300

Don Dowdell General Counsel

The Capitol, Plaza Level Tallahassee, Florida 32300-0300

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

AGENCY FINAL ORDER

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

OFFICE OF THE TREASURER DEPARTMENT OF INSURANCE

GEORGE WASHINGTON LIFE INSURANCE COMPANY,

Petitioner,

vs. DOAH CASE NO. 87-5351

STATE OF FLORIDA, DEPARTMENT OF INSURANCE,

Respondent.

/

FINAL ORDER

THIS CAUSE came before the Insurance Commissioner of the State of Florida for consideration and final agency action.

On August 25, 1988, the Department of Insurance (Department), by letter, informed GEORGE WASHINGTON LIFE INSURANCE COMPANY (GEORGE WASHINGTON) that due

to its decline in capital and surplus, the Department required an additional deposit sufficient to meet a $1,500,000 market value requirement pursuant to 641.411(3), Florida Statutes, by September 25, 1987. By a second letter dated October 21, 1987, the Department again advised GEORGE WASHINGTON that pursuant to 624.411(3), Florida Statutes, its deposit must be increased to $1,500,000. GEORGE WASHINGTON refused to raise its deposit to $1,500,000 and timely requested a formal hearing pursuant to 120.57(1), Florida Statutes.

Pursuant to a Notice, a formal hearing was held May 17, 1988, before Jose

1. Diez-Arguelles, Hearing Officer, Division of Administrative Hearings.

   
   

   At the hearing, the Department presented the testimony of H. John Kummer, Jr., representative of the Department, who was qualified as an expert witness in the regulation of insurance companies without objection. The Department placed

   into evidence four exhibits: Respondent's Exhibits 1, 2, 3, and 4. GEORGE WASHINGTON presented the testimony of John N. Wilbur, President of GEORGE WASHINGTON, and placed one exhibit into evidence: Petitioner's Exhibit 1.

   
   

   The transcript of the proceeding was filed May 31, 1988, and both parties timely filed Proposed Recommended Orders.

   
   

   The Hearing Officer, on September 30, 1988, entered a Recommended Order, attached hereto as Exhibit A. The Department filed exceptions to the Recommended Order attached hereto as Exhibit B.

   
   

   RULINGS ON DEPARTMENT'S EXCEPTIONS TO THE RECOMMENDED ORDER

   
   

   1. The Department's exception to the Hearing Officer's failure to find that an increase in GEORGE WASHINGTON's deposit to $2,000,000 is justified is well taken and accepted. The record demonstrates by a preponderance of the evidence that GEORGE WASHINGTON's capital, surplus, and net worth has steadily declined and that a deposit increase was needed. (Res. Ex. 1-3, Tr. 36-38) Respondent's Exhibit 4, No. 5A-F, specifically demonstrates a $2,000,000 deposit is justified under s. 624.411(3), Florida Statutes.

      
      

   2. The Department's exception that it was error for the Hearing Officer to disregard the Department's proof that a $2,000,000 deposit was justified in determining whether the lesser amount of $1,500,000 deposit was also justified is well taken and accepted. Section 624.411(3), Florida Statutes, provides the Department discretion in that the Department may, for good cause shown, require a deposit in an amount that the Department determines is necessary which is not less than $75,000 or more than $2,000,000, or 25 percent of the insurer's obligations in the state, whichever is the lesser for the protection of the insureds, policyholders and creditors. The Department exercised proper discretion in arriving at the $1,500,000 required deposit pursuant to s. 624.411(3), Florida Statutes, by first determining the maximum permissible amount by reasonable methods which the Department has incorporated in its operations (Dept. Ex. 4, Pet. Ex. 1). In the instant case, that amount is

      $2,000,000 and in its discretion in taking into account considerations favorable to GEORGE WASHINGTON (Tr. 22-45, 60, 64), the Department determined the deposit amount required could be reduced to $1,500,000. There should be no objection to the Department's utilization of discretion to reduce the deposit from the justified maximum amount, based on factors favorable to GEORGE WASHINGTON.

      
      

   3. The Department takes exception to the Hearing Officer's finding that deposits held pursuant to s. 624.411(3), Florida Statutes, may not be used to pay claims nor used in its operations. (Recommended Order Findings of Fact #7,

1. 3). Section 641.411(3), Florida Statues, is an additional safety net for policyholders of an insurer to assure, as well as possible, the payment of claims in the event the insurer becomes bankrupt, is placed into Receivership/Liquidation pursuant to 631, Florida Statutes, or for other reasons, ceases to do business. The deposit is not to be used in the insurer's normal course of business operations or to pay claims of its policyholders or creditors in its normal course of business. Since there is no explicit language in Finding #7 of the Hearing Officer's Findings of Fact to distinguish his intention of the Finding (although it appears the latter is intended), to clear any doubt, the Department's exception is well taken and accepted.

   FINDINGS OF FACT

   
   

   Upon consideration of the record in this case, the Hearing Officer's Recommended Order, exceptions filed by Department, and being otherwise fully advised in the premises, the Hearing Officer's Findings of Fact with a clarification of Finding #7 as explained in #3 of the Rulings on Department's Exceptions to the Recommended Order above, are hereby approved, adopted, and incorporated herein by reference.

   
   

   The Hearing Officer erred in failing to find that the Department's determination that GEORGE WASHINGTON's overall financial condition justified a

   $2,000,000 deposit for the protection of its policyholders and creditors pursuant to s. 624.411(3), Florida Statutes.

   
   

   CONCLUSIONS OF LAW

   
   

   1. The Hearing Officer's Conclusion of Law that the Department has failed to show why its request to increase GEORGE WASHINGTON's deposit from $540,000 to

      $1,500,000 is proper is rejected as explained in #2 of the Rulings on Department's Exceptions to the Recommended Order, above.

      
      

   2. The Hearing Officer's Conclusion of Law that a prudent man would be unable to determine the proper amount of a deposit pursuant to s. 624.411(3), Florida Statutes, is rejected. By employing the Department's Exhibit #4 and Petitioner's Exhibit #1, the maximum deposit requirement of $2,000,000 is clearly justified. However, as earlier stated, in its discretion, the Department may reduce that amount to reduce the burden on the insurer based upon factors favorable to the company. (Tr. 59-65)

      
      

   3. The Hearing Officer's Conclusion of Law that the Department may request an additional deposit in the future when it is ready to establish by competent evidence the proper amount is rejected as explained in the foregoing.

      
      

      The remainder of the Hearing Officer's Conclusions of Law are accepted.

      
      

   4. The Insurance Commissioner specifically concludes that GEORGE WASHINGTON's steadily declining capital, surplus and net worth every year since 1985, with a loss of $3,200,000 for 1987, are good causes for requiring an increase in deposit pursuant to 624.411(3), Florida Statutes.

Upon consideration of the foregoing Findings of Fact and Conclusions of Law, the record, and being otherwise fully advised in the premises, it is,

ORDERED:

1. That GEORGE WASHINGTON shall deposit, within 30 days of this Final Order, an additional deposit pursuant to s. 624.411(3), Florida Statutes, in the amount of $1,500,000, as determined by the Department for such time as the Department determines necessary pursuant to 624.411(3), Florida Statutes.

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 petition or notice of appeal with the General Counsel acting as agency clerk, at 413-B Larson Building, 200 East Gaines Street, Tallahassee, Florida 32399-0300, and a copy of the same with the appropriate District Court of Appeal within thirty (30) days of rendition of this Order.

DONE and ORDERED this 9th day of December 1988.

BILL GUNTER

Insurance Commissioner and Treasurer

GERALD C. WESTER

Deputy Insurance Commissioner

Docket for Case No: 87-005351

Orders for Case No: 87-005351