vs. ) CASE NO. 90-4478
Respondent. )
Pursuant to notice, the above-styled matter was heard before the Division of Administrative Hearings by its duly designated Hearing Officer, Daniel M. Kilbride, on November 9, 1990, in Tallahassee, Florida. The following appearances were entered:
For Petitioner: Michael C. Godwin, Esquire
For Respondent: William E. Powers, Jr., Esq
Whether the Respondent, by covering private pleasure craft under policies of marine insurance, violated its certificate of authority as a licensed domestic limited commercial reciprocal insurer, pursuant to Section 629.50, Florida Statutes (1989).
By Order to Show Cause filed on June 15, 1990, the Petitioner, Department of Insurance, charged Respondent, Nautical Management Reciprocal Insurers, licensed by Petitioner, with violations of various provisions of Chapters 624 and 629, Florida Statutes, and sought to revoke the Respondent's certificate of authority as a licensed limited commercial reciprocal insurer and its eligibility for licensure in the State of Florida.
Respondent thereafter requested a formal administrative hearing on July 6, 1990, pursuant to Section 120.57(1), Florida Statutes, to contest the Petitioner's Order to Show Cause. This administrative proceeding ensued.
At the final hearing, the Petitioner presented the testimony of one witness, John N. Rigdon, Examiner II, Florida Department of Insurance, who was accepted as an expert with regard to the Department of Insurance's regulation of insurers and specifically Section 629.50, Florida Statutes, limited commercial reciprocal insurers. The Respondent presented the testimony of one witness, Walter L. Shurtleff, Chairman of the Advisory Committee, Nautical Management Reciprocal Insurers, Tampa, Florida. The Petitioner and Respondent offered twelve (12) Joint Exhibits which were received into evidence. Respondent also offered two exhibits, which were received in evidence.
The transcript was filed on November 29, 1990. Petitioner filed its proposed findings of fact and conclusions of law on December 20, 1990.
Respondent filed its proposals on December 21, 1990. These proposals have been given careful consideration and uncorporated where supported by competent evidence. My specific rulings on each proposed finding of fact, as provided in Section 120.59, Florida Statutes, in included in the Appendix attached hereto.
The Petitioner, Florida Department of Insurance (hereinafter referred to as Department) is the state agency authorized to regulate and enforce the provisions of Chapter 629, Florida Statutes.
Nautical Management Reciprocal Insurers, Respondent, is a licensed domestic commercial reciprocal insurer, subject to the jurisdiction and regulation of the Department, pursuant to Chapter 629, Florida Statutes.
The Department conducted a detailed review of Respondent's 1989 Annual Statement, and certain other information prior to issuing the Order to Show Cause.
On October 17, 1985, Respondent submitted its Plan of Operations to the Department for its first three years of business in connection with its application for a certificate of authority as a domestic reciprocal insurer under Section 629.081, Florida Statutes, with the purpose of seeking its initial business in the area of ship/boat coverage and other related marine coverage, such as seafood cargo.
On August 19, 1986, Respondent converted its Section 629.081 reciprocal application into a limited commercial reciprocal insurer application pursuant to Section 629.50 and reaffirmed its October 17, 1985 Plan of Operations to the Department.
In Respondent's Plan of Operations, the insurer stated the objective of Respondent is "to provide a stable, reasonable (insurance) marketplace for the commercial marine members . . . . In summary, Florida should have the first insurance program in the nation whereby the commercial fishing industry can look forward to direct (member) advisory committee involvement (in Nautical Management)."
Respondent is an unincorporated aggregation of subscribers operating individually and collectively through an attorney-in-fact that is organized for, and the primary activities of which consist of assuming and spreading all or any portion of the commercial property or commercial casualty exposure of its subscribers.
On January 6, 1987, Respondent was granted a certificate of authority as a licensed domestic limited commercial reciprocal insurer "ocean marine" pursuant to Section 629.50(1), Florida Statutes. Respondent was authorized to transact the business of ocean marine insurance on a restricted basis for the purpose stated in its application. The application's stated purpose was to pool and spread the commercial property or casualty marine liabilities of Respondent's commercial fishing industry subscribers.
Respondent's certificate of authority requires that the ocean marine insurance business written by Respondent as a domestic limited commercial reciprocal insurer shall only be for those owners/operators of commercial fishing vessels domiciled in the State of Florida that engage in commercial marine businesses.
The terms "ocean marine" and "pleasure craft" are not defined by the Insurance Code or Department rules.
The term "private pleasure vessel" is not synonymous with the term "commercial marine vessel."
Respondent, during 1989, covered private pleasure craft in addition to commercial vessels under policies of insurance. The Respondent clearly disclosed on its annual and quarterly reports filed with the Department that it was engaged in underwriting pleasure craft.
At no time did Respondent conceal or mislead the Department regarding its writing policies of insurance covering pleasure craft in addition to commercial vessels.
Since on or about October 15, 1987, Respondent has made periodic inquiries of the Department regarding the capital surplus and other requirements necessary to convert its certificate of authority to that of a "full" reciprocal insurer. Additionally, Respondent has engaged in other direct correspondence with members of Petitioner's staff regarding, among other things, reinsurance, the identity of its subscribers, and has submitted certain collateral pledge agreements and debentures to determine their sufficiency as capital surplus. On May 22, 1990, the Department received the cover sheet which showed the distinction between pleasure and commercial vessels.
In May, 1990, the Department determined that as of December 31, 1989, Respondent had insured a total of 1,693 vessels of various types.
Of those 1,693 vessels, 1,615 or 95.4% were private pleasure vessels, and only 78 or 4.6% were commercial vessels.
Based upon its 1989 gross premiums recorded in its Annual Statement, Respondent's estimated total gross written premium volume for year 1990 will be
$1,381,171.32 on its 1,615 covered private pleasure vessels and only $355,717.85 on its 78 commercial vessels.
Respondent has a ratio of premiums written or projected to surplus as to policyholders that exceeds 4 to 1.
Respondent is in an impaired or insolvent financial condition.
Although Respondent's officers and directors were not certain they would be allowed to write marine private pleasure boats under Section 629.50, Florida Statutes, they proceeded to write pleasure boat insurance prior to receiving Department approval.
Respondent contends that the classification for "ocean marine insurance" means "marine insurance on anything that operates on navigable waterways".
There are several lines of insurance under the ocean marine classification which differentiates between the lines of insurance for commercial vessels and pleasure craft.
Respondent did not amend its Plan of Operations to indicate that it intended to insure any risks other than the commercial vessels indicated in the Plan of Operations as filed with the Department.
A limited commercial reciprocal insurer must maintain a minimum surplus of at least $100,000 pursuant to Section 629.50, Florida Statutes.
A general reciprocal insurer must maintain a minimum surplus of
$250,000, and in addition to this, when first authorized, needs a minimum expendable surplus of $750,000 pursuant to Sections 629.071(1) and (2), Florida Statutes.
At the time of its initial application, Respondent was unable to meet the financial requirements for authorization as a general reciprocal insurer and had to convert its application to that of a limited commercial reciprocal insurer.
The commercial marine industry is a highly volatile industry with few insurers over whom these risk are spread.
Respondent may not now meet or may not be able to meet in the future all its financial obligations toward members of the general insurance buying public it has insured and/or it has entered into business relationships with in the State of Florida. If so, these persons would suffer irreparable financial injury.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the subject matter of this proceeding, and the parties thereto, pursuant to subsection 120.57(1), Florida Statutes.
The Respondent, as a licensed domestic limited commercial reciprocal insurer-ocean marine, is subject to regulation pursuant to the Florida Insurance Code, especially Chapters 624 and 629, Florida Statutes and the rules adopted by the Department of Insurance implementing these statutes and the terms of its certificate of authority.
The Petitioner has the burden to prove, by clear and convincing evidence, the violations of Chapter 624 and 629, Florida Statutes, alleged in the Order to Show Cause issued against Respondent. Ferris v. Turlington, 510 So.2d 292 (Fla. 1987).
The descriptive terms for the type of insurance coverage which Respondent is authorized to write under its certificate of insurance (ocean marine) is neither defined nor mentioned in any rule or statutory provision. Likewise, the term "commercial" as used in Section 629.50, Florida Statutes, is also undefined.
Section 629.50, Florida Statutes, in part provides: Limited commercial reciprocal insurer.--
Any group of persons may form a limited reciprocal insurer for the purpose of pooling and spreading liabilities of its group members in any commercial property or casualty risk, except workers' compensation or employer's liability insurance.
As used in ss. 629.50-629.519, "limited commercial reciprocal insurer" or "limited reciprocal insurer" means an unincorporated aggregation of subscribers operating individually and collectively through an attorney in fact, each of which does not hold any other license as an insurer in this or any other state:
Which aggregation is organized for, and the primary activities of which consist of, assuming and spreading all or any portion of the commercial property or commercial casualty exposure, except workers' compensation, and employer's liability of its members.
Which aggregation has and maintains a minimum surplus amount of at least $100,000.
The courts have long held that the task of interpreting the many interrelated statutory provisions found in the licensing and the regulatory portions of the Insurance Code is initially one for the Department. Hartnett v. Department of Insurance, 406 So.2d 1180 (Fla. 2nd DCA 1981). The Insurance Commissioner also is vested with a wide range of discretion in discharging his duties and responsibilities. Liberty Mutual Insurance Company v. Larson, 169 So.2d 866 (Fla. 1st DCA 1964). Insurers, which would include Respondent pursuant to Section 629.50, Florida Statutes, are strictly regulated and accountable to regulatory agencies of the State and are put on notice of such a state of affairs when they elect to engage in that business. Hughes v. Professional Insurance Corp., 140 So.2d 340 (Fla. 1st DCA 1962).
The Department is charged with the duty of protecting the public from insurer entities who engage in the unlimited transaction of insurance which it is not authorized to write and of preventing these entities from operating in an unsafe and unsound underwriting manner.
Section 624.6011(6), Florida Statutes, classifies "marine" insurance as a statutory "kind of insurance". It is clear the undefined term "ocean marine" is a line of insurance encompassed within the "marine" classification. Section 624.607(1), Florida Statutes, which defines "marine insurance," makes no distinction between pleasure craft or commercial vessels and broadly defines marine insurance as "insurance against any kinds of loss or damage to:
"vessels, craft, aircraft . . . and vehicles of every kind . . . ." Similarly, there is no distinction between private and pleasure craft in either of the subsequent definitions of "wet marine" and "inland marine insurance." See Section 624.607(2) and (3), Florida Statutes, respectively. Equally broad is the definition of "marine protection and indemnity insurance" at Section 624.607(1)(b), which means insurance against . . . the ownership, operation, chartering, maintenance, use, repair or construction of any vessel, craft, or instrumentality in use in ocean or inland waterways "
Inland marine insurance is defined at Rule 4-48, Florida Administrative Code, by describing the kinds of risks and coverages which may be classified under the insurance laws as "marine, inland marine or transportation insurance." Pleasure craft is not defined or alluded to as encompassed within the definition of inland marine insurance. Consequently, there is no rule of the Department which classifies pleasure craft solely as a type of inland marine insurance or exclude them from ocean marine or marine insurance, and this classification has not been "established by general custom of the insurance business." Section 624.607(3), Florida Statutes. See Couch on Insurance Law 2d, Chapter 43 and Section 42.161.
Since the terms "ocean marine," "pleasure craft" and "commercial" are not defined under either the Insurance Code or the Department's rules, the parameters of the Respondent's ocean marine certificate of authority should be measured by the definitions which are customary to the maritime - seafaring industry, whose vessels are covered by the policies of insurance issued by Respondent.
There is, however, "wet marine" insurance which is defined by the Insurance Code and "inland marine," which although undefined by the Insurance Code, is the subject of a Department rule which adopts the recognized industry practice. Although Mr. John N. Ridgon was recognized as an expert regarding Department procedure and regulations, he was not qualified as an expert regarding maritime law or practice. His testimony that pleasure craft are not insurable as ocean marine risk under Department policy must be given close scrutiny. First, such a policy is contrary to the practices which prevail in the maritime industry and among marine insurers. Secondly, that policy was not promulgated by agency rule.
It is essential to Respondent's operation that the parameters of their certificate of authority be framed. Under the ancient doctrines of maritime law, the insurable purpose not the type of vessel governs the kind of maritime insurance. The three general kinds of marine insurance are (1) whole and machinery insurance which insures the vessel and its equipment; (2) cargo insurance, and (3) P and I indemnity, liability coverage. See Couch on Insurance Law, 2d, Section 1:82. Although "ocean marine" is not defined by rule, the normal federal maritime law is controlling in marine insurance litigation because the federal courts have exclusive jurisdiction to "all waters, salt or fresh, with or without tides, natural or artificial, which are in fact navigable in interstate or foreign commerce." Under this navigable water doctrine, federal maritime insurance law is applicable to vessels whether pleasure or commercial, on the Great Lakes, canals, rivers and their tributaries and other
waters "when they form a continuous highway over which commerce is, or may be carried on with other states or foreign countries in the customary modes in which commerce is conducted by water." See, The Law of American Admiralty, Matthew Bender & Co., 6th Edition, Chapter VII, at Sections 43-46; See generally The Law of Admiralty, Gilmore & Black, Foundation Press, Inc. (1957).
This navigable water doctrine of maritime insurance jurisdiction, while contrary to Mr. Rigdon's theory restricting the writing of pleasure craft to inland marine insurers, or at least, not to an ocean marine carrier such as the Respondent, tracks Mr. Shurtleff's testimony that marine insurance covers any type of "vessel" regardless of the body of water upon which it operates. The Department's position simply does not comport to the long and well established practices in the marine insurance industry. The statutory term "vessel" or "craft" is recognized under maritime law and practice as any
"floating structures that are capable of transporting something over the water." Pleason v. Gulfport Ship Building, 221 F.2d 621 (5th Cir. 1955). Traditional maritime law does not distinguish between pleasure craft and commercial vessels.
Under these circumstances, Respondent is correct in its position that ocean marine covers any vessel on a navigable waterway. It still must be examined whether it is appropriate for business under its certificate of authority as a domestic limited commercial reciprocal insurer.
Respondent's certificate of authority authorized Respondent to transact the business of ocean marine insurance on a restricted basis for the purposes stated in its application. The Plan of Operations stated purpose was to pool and spread the Respondent's subscribers liabilities for their commercial property. Since the term "commercial" is not defined in the statutes or rules, it is appropriate to use its common or plain meaning.
The word "commercial" is defined in Black's Law Dictionary (4th Edition 1957) to mean relating to or connected with trade and traffic or commerce in general. The American Heritage Dictionary (Second College Edition 1982) is similar. Therefore, under its certificate of authority, Respondent was limited to writing policies of insurance covering vessels engaged in commerce or their cargo.
Pursuant to Section 629. 502, Florida Statutes, in the issuing of a certificate of authority to a reciprocal insurer, Sections 624.404(3)(a) and 624.404(3)(b), Florida Statutes, provide in essence that the Department cannot grant or continue a certificate of authority to an insurer, including limited commercial reciprocal insurers, which is composed of management, officers, or directors who are incompetent, untrustworthy, or lacking in insurance experience, ability, and standing so as to jeopardize the reasonable promise of successful insurance operations.
Findings of fact 4 through 20 and 23 show that Respondent's management exceeded the statutory underwriting requirements of Section 629.50(1), Florida Statutes, by attempting to underwrite noncommercial marine business for the general public. However, there is no evidence to support the conclusion that Nautical is composed of management or officers who are incompetent or untrustworthy or lacking in insurance experience and standing so as to jeopardize the prospect of successful operations.
The Department offered no evidence to support any of its conclusionary allegations that Respondent's operations would result in financial harm or inability to meet its financial obligations toward its insured or others because
it writes pleasure craft business. Obviously, since private pleasure craft represent over ninety percent of Nautical's total business written and in excess of two-thirds of its annual gross premium for 1989, any financial detriment would come from not writing insurance for pleasure craft.
However, by its solicitation of business in the open marine insurance market for private pleasure vessels and by the actual issuance of marine policies on these private pleasure marine risks, Nautical Management now stands in violation of Section 629.50, Florida Statutes, and its Plan of Operations of October 15, 1985, by engaging in the unlimited transaction of the business of marine insurance as if it were an unrestricted authorized domestic insurer as defined by Sections 624.03 and 624.06, Florida Statutes.
This unlimited transaction of marine property and casualty insurance with the general insurance buying public of Florida by Nautical Management, in violation of the statutes set out above, constitutes a serious danger to the financial safety of the citizens of this State including its policyholders, claimants and creditors who are now or who may become dependent on Respondent. In order to overcome this serious danger, it is essential that Respondent obtain a subsisting certificate of authority that would allow it to write any marine risk available on the open insurance market, including both private pleasure and commercial marine vessels.
The evidence shows clearly and convincingly, that Respondent exceeded and, therefore, no longer meets the statutory definition of a limited commercial reciprocal insurer as set out in Section 629.50, Florida Statutes. Respondent has violated the provisions of Sections 629.50(1) and 629.50(2), Florida Statutes, by its unauthorized underwriting of private pleasure vessel insurance to the general public while it is licensed only as a specialized commercial insurer entity.
After examining the record, Respondent's attempt to raise some kind of estoppel defense by the introduction of certain Exhibits in evidence in this proceeding is clearly inappropriate. Essentially, Respondent is attempting to say that the Department was aware of the limited commercial reciprocal insurer's writing private pleasure vessel coverage long before it was questioned by the Department's examiner and that the Department acquiesced to this violation of the insurer's underwriting requirements.
Estoppel is a doctrine for the prevention of injustice. It is interposed to prevent injustice and guard against fraud. It is for the protection of those who have been misled by that which upon its face was fair, and its character as represented to parties to the deception will not, in the interest of justice, be heard to deny. 22 Fla.Jur.2d, Estoppel and Waiver, Section 5. Before Estoppel is permitted as a basis for relief, it and all its elements must be specifically alleged. Department of Revenue v. Hobbs, 368 So.2d 367, 368 (Fla. 1st DCA 1979).
Estoppel can be raised against the state only in rare instances and under exceptional circumstances. In order to demonstrate estoppel, the following elements must be shown: (1) a representative of a material fact has been made to it by the Department that is contrary to a later asserted position;
(2) Respondent relied on that representation; and (3) changed its position in reliance on the representation which was detrimental to it. State Department of Revenue v. Anderson, 403 So.2d 397 (Fla. 1981).
The facts here contain no representation of material fact made by the Department which a as relied upon by Respondent and resulted in its changing its position to its detriment. The Department had at no time approved an Amended Plan of Operations or in writing advised the insurer that it was empowered to sell private pleasure vessel marine coverage to the general insurance buying public in addition to or in the place of its authorized commercial marine underwriting authority.
Therefore, Nautical Management's estoppel defense must fail.
Pursuant to Section 629.518, Florida Statutes, the relevant Sections 624.418(1) and 624.418(2), Florida Statutes, provides:
Suspension, revocation of certificate of authority for violations and special grounds.--
The department shall suspend or revoke an insurer's certificate of authority if it finds that the insurer:
(b) Is using such methods and prac-tices in the conduct of its business as to render its further transaction of insurance in this state hazardous or injurious to its policy holders or to the public.
(d) No longer meets the requirements for the authority originally granted.
The department may, in its discretion, suspend or revoke the certificate of authority of an insurer if it finds that the insurer:
Has violated any lawful order or rule of the department or any provision of this code.
Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED as follows:
DONE AND ENTERED this 1st day of March, 1991, in Tallahassee, Leon County, Florida.
DANIEL M. KILBRIDE
Filed with the Clerk of the Division of Administrative Hearings this 1st day of March, 1991.
The following constitutes my specific rulings, in accordance with section 120.59, Florida Statutes, on findings of fact submitted by the parties.
Accepted in substance: Paragraphs 1,2,3,4,5,6,7,8,9,10,11,12,14,16,17,18,19,20,21,22.
Rejected as not proven by clear and convincing evidence: Paragraphs 13,15. Respondent's proposed findings of fact:
Accepted in substance: Paragraphs 1,2,3 (in part), 4,5,6,7 (in part), 8. Rejected as against the greater weight of the evidence: Paragraph 3 (in part). Rejected as irrelevant: Paragraphs 7 (in part), 9.
Michael C. Godwin, Esquire Elizabeth Gregovits, Esquire Department of Insurance Division of Legal Services
William E. Powers, Jr., Esquire Powers and Ferris
