vs. ) CASE NO. 91-0101
Respondents. )
Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, Claude B. Arrington, held a formal hearing in the above-styled case on August 14-15, 1991, in West Palm Beach, Florida.
For Petitioner: Robert S. Senton, Esquire
Alan J. Leifer, Esquire Division of Legal Services
P.C.
Whether Respondents have engaged in the unauthorized practice of insurance in the State of Florida, and if so, the penalties that should be imposed. Respondents raise as an affirmative defense the assertion that the provisions of the Employee Retirement Income Security Act (ERISA) 29 U.S.C.
Section 1001, et seq., preempt the regulation of Respondents' activities in the State of Florida by the Florida Insurance Code.
On September 10, 1990, Petitioner filed an "Immediate Final Order and a Notice and Order to Show Cause" against the Respondents. The said order contains certain factual allegations and charges Respondents with having violated statutes pertaining to the practice of insurance in the State of Florida without a certificate of authority. The said order requires that Respondents immediately cease and desist from engaging in the business of insurance in the State of Florida.
Respondents denied the allegations of the said order and demanded a formal administrative hearing. Respondents contend that the State of Florida is precluded from regulating its activities because Florida law is preempted by the Employee Retirement Income Security Act (ERISA) 29 U.S.C. Section 1001, et seq.
At the formal hearing, Petitioner presented the testimony of Charles A. Malloy, Carol A. Ostapchuk, Irvin Mishkin III, Donald Haug, and Janis Soffin. At the times pertinent hereto Mr. Malloy was employed by Petitioner and was responsible for conducting the civil investigation into Respondents' activities in the State of Florida. (After the subject investigation, but prior to the formal hearing, Mr. Malloy was transferred from Petitioner's civil investigations division to Petitioner's criminal investigations division.) Ms. Ostapchuk is Petitioner's Deputy DIrector of Petitioner's Insurer Services division. Mr. Mishkin, Mr. Haug, and Ms. Soffin are insurance consumers.
Respondents presented the testimony of Anthony Gerrato, Sr., who is the Executive Vice-President of Respondent Consolidated Local Union 867 and the Business Manager and a Trustee of Respondent Consolidated Welfare Fund.
The parties offered two joint exhibits, which were accepted into evidence. Petitioner offered nine documentary exhibits, each of which was accepted into evidence. Respondents offered
30 exhibits, 22 of which were accepted into evidence.
A transcript of the proceedings has been filed. At the request of the parties, the time for filing post-hearing submissions was set for more than ten days following the filing of the transcript. Consequently, the parties waived the requirement that a recommended order be rendered within thirty
days after the transcript is filed. Rule 221-6.031, Florida Administrative Code. Rulings on the parties' proposed findings of fact may be found in the Appendix to this Recommended Order.
Petitioner, the Florida Department of Insurance, is charged with the duty of enforcing the Florida Insurance Code. These duties include the regulation of entities engaged in the business of insurance within the State of Florida.1
Respondent Consolidated Local Union 867 (Local 867) is an unincorporated "labor organization" under the Labor Management Relations Ac-t, also known as the Taft-Hartley Act,
29 U.S.C. Section 152(4) and (5) and is an "employee organization" as defined by Section 1002(4) of the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. Sections 1001, et seq. The principal office of Local 867 is at
333 North Broadway, Jericho, New York.
Respondent Consolidate Welfare Fund (CWF) was established effective October 1, 1988, by a Trust Agreement entered into by persons purporting to be trustees of Local 867 and by persons purporting to be trustees of employers.2 The stated purpose of CWF was to provide medical, surgical, and hospital care benefits to its participants in the event of sickness, accident, disability, or death.
During the years 1989 through 1991, Local 867 and CWF contracted to provide participating Florida residents specified health and hospitalization benefits so that those participants would be indemnified against the enumerated health care costs necessitated by injury or illness. In exchange, Respondents received the payment from those participants of an established fee or premium. CWF was initially fully insured by Empire Blue Cross & Blue Shield (Empire), an insurance company based in the State of New York. Since July 1, 1990, CWF has been fully self- insured. CWF is operating at a substantial deficit ($4,196,480 at the time of the formal hearing), and substantial claims from Florida consumers remain unpaid. The loss ratio at which CWF operated was, at the time of the formal hearing, approximately 122% with health claims exceeding premiums received.
Neither Local 867 or CWF ever held a Certificate of Authority to engage in any aspect of the insurance business as required by Section 624.401, Florida Statutes. At no time pertinent to these proceedings was Empire the holder of a
certificate of authority to transact business in the State of Florida.
Local 867 is governed by a constitution which has been filed with the Secretary of the United States Department of Labor (Secretary of Labor). Its constitution creates Consolidated Local Union 867 and provides, in pertinent part, as follows:
ARTICLE III JURISDICTION
This organization has jurisdiction to organize, admit to membership and represent all workers, including without limitation, automobile sales, service and maintenance employees, delivery and oil truck drivers, and miscellaneous employees and all such other persons as may from time to time be determined by the Executive Board.
ARTICLE IV OBJECT AND PURPOSE
To unite in one organization, regardless of religion, race, color, and sex, nationality or national origin, workers eligible to become, members,
To organize unorganized workers and improve their working conditions.
To advance, maintain, and protect, at all times, the welfare and interest of the members of this Union.
ARTICLE V MEMBERSHIP
A. Any person who is employed in a capacity which makes him eligible for Union membership and who is not a member of an organization whose philosophy runs counter to democratic American principles may apply for membership in this Union.
The CWF Trust Agreement provides, in pertinent part, as follows:
The sole purpose of the Fund is to provide welfare benefits permitted by law to employees and their beneficiaries to the extent that the Trustees determine feasible and to defray the expenses of doing the same.
It is intended that the Fund promulgated hereto shall be a "multi- employer plan" . . . within the meaning of ERISA.
There were at one time between 1989 and the date of the formal hearing approximately 98 employer groups in Florida affiliated with Local 867 or CWF with approximately 1,000 covered employees.
Local 867 is a party to collective bargaining agreements with various employers in different states. There
was evidence that Local 867 has relations with employee groups in approximately 15 states, including Florida. These collective bargaining agreements typically pertained to wages, hours of employment, seniority, holidays, vacations, adjustment of disputes, contributions to the CWF for plan benefits, and contributions to the Consolidated Welfare Fund Security Division for pension coverage. By the agreement executed by Local 867 and these various employer groups, more than one employer was required to make contributions to the CWF for plan benefits.
Respondents introduced as their Exhibit 3 an agreement dated July l, 1989, between Consolidated Local Union 867, ". . . acting on behalf of itself and the employees covered by this Agreement, now employed or hereafter employed by the Employer and HIG Assoc. Inc. . . ." of Plainview, N.Y. (HIG was referred to in the agreement as the "Employer")." HIG recognized Local 867 as its "duly authorized representative and exclusive bargaining agent" for all full-time employees.
Respondents introduced as their Exhibit 19 an agreement dated February 1, 1991, between Consolidated Local Union 867, "acting on behalf of itself and the employees covered by this Agreement, now employed or hereafter employed by Employer and Business Marketing Consultants, 333 N. Broadway, Suite 2000A, Jericho, NY 11753 (hereinafter called the "Employer"). Business Marketing Consultants (BMC) recognized Local 867 as its "duly authorized representative and exclusive bargaining agent" for full time employees.
The relationship between Respondents and Florida residents was typically initiated by a Florida employer seeking to obtain group insurance benefits for its employees. CWF provides life, health, accident, and death benefit insurance coverage to Florida employees similar to that offered by traditional insurance companies, frequently at costs lower than those insurance companies for equivalent coverage. The actual solicitation and marketing of the insurance benefits offered by CWF was carried out by licensed insurance sales persons and insurance brokers. For the transactions testified to at hearing, the purpose of the contact between the employer and the insurance agent was to discuss insurance, not the unionization of the employer's employees. In each instance about which there was testimony, the agent would describe the plan offered by Respondents, which offered rates below those quoted by other programs. The employers secured the benefits by applying for membership in an association such as HIG or BMC whereby the employer group became members of the association for the purpose
of "all labor relation matters" as they affected "all full time employees" and agreed to the "terms and conditions" of an agreement between the association and Local 867. For the employer groups in Florida, forms styled "Application for Membership and Ratification" were submitted pertaining to Mishkin, Horowitz and Boas, P.A., Gross and Telisman, P.A., and Key Colony Homeowners Association, Inc.
A separate "Application for Membership and Ratification" was executed by HIG and by Key Colony Homeowners Association, Inc. (on November 17, 1989), Gross and Telisman,
P.A. (on November 28, 1989), and by Mishkin, Horowitz and Boas,
P.A. (on December 7, 1989). These agreements were identical with the exception of the dates and the parties. By each application, the employer group applied for membership in HIG, appointed HIG as its exclusive bargaining agent for all labor relation matters as they affect all full-time employees, and agreed "to the terms and conditions of a certain Collective Bargaining Agreement by and between HIG and Consolidated Local Union 867 . . . dated March 1, 1989, covering all full-time employees." No agreement between Consolidated Local Union 867 and HIG Associates dated March 1, 1989, was introduced as an exhibit in this proceeding. Consequently, while it may be reasonably inferred that the agreement dated March 1, 1989, was similar to Respondents' Exhibit 3 dated July 1, 1989, Respondents failed to establish the terms and conditions to which these employer groups agreed.
A separate "Application for Membership and Ratification" was executed by BMC and by Key Colony Homeowners Association, Inc., on October 1, 1990, and by Mishkin, Horowitz and Boas, P.A. on September 27, 1990, and on April 21, 1991. These agreements were entered after the entry of the immediate final order on September 10, 1990, and were identical with the exception of the dates and the parties. By each application, the employer group applied for membership in BMC, appointed BMC as its exclusive bargaining agent for all labor relation matters as they affect all full-time employees, and agreed "to the terms and conditions of a certain Collective Bargaining Agreement by and between BMC and Consolidated Local Union 867 . . . dated September 1990, covering all full-time employees."
Although it appears from the evidence presented that a similar form was submitted on behalf of Wickstorm Publishers, that form was not introduced into evidence.
The employees who wished to be covered by the Respondents' plan were required to become a member of Local 867. A portion of the monthly payments paid by these employees for this coverage was for union dues.
Irving W. Mishkin of Mishkin, Horowitz & Boas, P.A. signed a card applying for membership in Local 867 in order to qualify for the plan benefits. Mr. Mishkin never requested a copy of Local 867's constitution, never asked how he could exercise his right to vote for union officers, never requested Local 867 to name a shop steward, and never asked for a copy of the agreement between Local 867 and BMC. Mr. Mishkin was aware that the invoice he received each month included an amount for union dues.
Donald Haug, the general manager of Key Club Number Two, a constituent of Key Colony Homeowners Association, was aware that all covered employees would have to become members of Local 867 to qualify for the health plan benefits and that invoices covering contributions for health coverage also included an amount for union dues.
There was no commonality of interest among the Florida participants in the CWF plan. Respondents were unable to establish that the relationship between the consumers in Florida and Respondents was anything other than the relationship between an insurer and an insured. The relationship between Florida consumers and Respondents consisted only of the payment of premiums and the filing of claims. There was no evidence that either Respondent engaged in any traditional union activity on behalf of any member in the State of Florida. During the course of the investigation into Respondents' activities, Petitioner received no complaint that there was not a shop steward at the pertinent places of business or that there were no union elections. There was no evidence that any Florida employee requested and was refused a copy of any collective bargaining agreement or a copy of Local 867's constitution. All complaints from Florida employers or employees pertained to unpaid claims.
On or about September 10, 1990, the Petitioner filed the Notice and Order to Show Cause against the Respondents which triggered this administrative proceeding and which included an immediate final order for the Respondents to cease and desist subscribing new health plan participants in Florida pending the resolution of this administrative proceeding.
On October 22, 1990, Respondents filed an action in the United District Court, Northern District of Florida, Tallahassee Division (CIV. No. 90-40228-WS) seeking an order which declares that certain portions of the Florida Insurance Code have been preempted by ERISA and which enjoins Petitioner from proceeding against the Respondents in this administrative proceeding. That action was pending as of the date of the formal hearing.
In a proceeding brought in the United States District Court of the Southern District of New York by the Secretary of Labor against Consolidated Welfare Fund and others, a consent order was entered June 13, 1991, which imposed a moratorium on the payment of claims by CWF. Because of that moratorium, the CWF claims are not being processed or paid. Even without this moratorium, the evidence establishes that CWF is not financially capable of satisfying its claimants and its viability is questionable.
There was no evidence that any advisory opinion has been issued by the United States Department of Labor or that any order has been entered by a court of competent jurisdiction which determines that Petitioner is precluded from regulating the activities of Respondents in the State of Florida because the provisions of ERISA preempt the Florida Insurance Code.
The Secretary of Labor has not found any of the agreements pertinent to this proceeding to be collective bargaining agreements.
There was no evidence that the Secretary of Labor has promulgated any other requirements relating to the definition of the term "multiemployer plan" under ERISA, 29 U.S.C. Section 1002(37)(A).
Those responsible for the maintenance and operation of the benefit plan offered by Respondents had substantial experience within the insurance industry. Entities with substantial experience in the business of insurance aided in the marketing and operation of CWF. Those responsible for the maintenance, operation, administration, and marketing of the benefit plan offered by Respondents were compensated in the form of commissions or administrative fees and salaries that were paid from membership dues, pension contributions, and welfare fund contributions.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over this matter. Section 120.57(1), Florida Statutes.
Section 624.02, Florida Statutes, defines the term "insurance" as follows:
"Insurance" is a contract whereby one undertakes to indemnify another or pay or allow a specified amount or a determinable benefit upon determinable contingencies.
Section 624.09, Florida Statutes, provides as follows:
An "authorized" insurer is one duly authorized by a subsisting certificate of authority issued by the department to transact business in this state.
An "unauthorized" insurer is one not so authorized.
Section 624.401(1), Florida Statutes, provides, in pertinent part, as follows:
(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
It is concluded that Respondents' activities in the State of Florida, as described by the foregoing findings of fact, constitute the business of insurance as the term "insurance" is defined by Section 624.02, Florida Statutes.
The insurance industry is regulated in the State of Florida, in part, to protect consumers from financially insecure insurers. See, generally, Part III of Chapter 624, Florida Statutes.
Respondents contend that their activities in Florida are governed exclusively by federal law because the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C.
Sections 1001, et seq., preempts Florida regulation. 29 U.S.C. Section 1002 provides definitions, in pertinent part, as follows:
(1) The terms "employee welfare benefit plan" and "welfare plan" mean any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death . . . benefits . . . .
* * *
(13) The term "Secretary" means the Secretary of Labor. ~
* * *
(37)(A) The term "multiemployer plan" means a plan
to which more than one employer is required to contribute,
which is maintained pursuant to one or more collective bargaining agreements between one or more employee organizations and more than one employer, and .
which satisfies such other requirements as the Secretary may prescribe by regulation.
* * *
(40)(A) The term "multiple employer welfare arrangement" means an employee welfare benefit plan, or any other arrangement (other than an employee welfare benefit
plan), which is established or maintained for the purpose of offering or providing any benefit described in paragraph (1) to the employees of two or more employers (including one or more self-employed individuals), or to their beneficiaries, except that such term does not include any such plan or other arrangement which is established or maintained-
(i) under or pursuant to one or more agreements which the Secretary finds to be collective bargaining agreements . . .
It is concluded that the benefit plan offered by Respondents is a "welfare benefit plan" within the meaning of 29
U.S.C. Section 1002(1). It is further concluded that the "welfare benefit plan" is also a "multiple employer welfare arrangement" (MEWA) within the meaning of 29 U.S.C. Section 1002(40)(A). It is further concluded that the subject plan is not entitled to the exemption afforded under 29 U.S.C. Section 1002(40)(A)(i) because the Secretary has made no determination that any of the subject agreements are collective bargaining agreements. Respondents contend that the subject plan should be construed as a "multiemployer plan" as defined by 29 U.S.C. 37(A). Whether the plan may also meet the definition of "multiemployer plan" is immaterial because the key determination is whether the plan is a MEWA.
29 U.S.C. Section 1144 provides, in pertinent part, as follows:
Except as provided in subsection (b) of this section, the provisions of this title and title IV shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan 3
* * *
(2) (A) Except as provided in subparagraph (B), nothing in this title shall be construed to exempt or relieve any person from any law of any State which regulates insurance, banking, or securities.4
Neither an employee benefit plan described in section 4(a) [29 USCS Section 1003(a)] . . . nor any trust established under such a plan, shall be deemed to be an insurance company or other insurer, bank, trust company, or investment company or to be engaged in the business of insurance or banking for purposes of any law of any State purporting to regulate insurance companies, insurance contracts, banks, trust companies, or investment companies.5
* * *
(6)(A) Notwithstanding any other provision of this section
in the case of an employee welfare benefit plan which is a multiple employer welfare arrangement and is fully insured . .
. any law of any State which regulates insurance may apply to such arrangement to the extent that such law provides
standards, requiring the maintenance of specified levels of reserves and specified levels of contributions, which any such plan, or any trust established under such a plan, must meet in order to be considered under such law able to pay benefits in full when due, and
provisions to enforce such standards, and
in the case of any other employee welfare benefit plan which is a multiple employer welfare arrangement, in addition to this title, any law of any State which regulates insurance may apply to the extent not inconsistent with the preceding sections of this title.
The provisions of 29 U.S.C. 1003(a) provide, in pertinent part, a definition which the Respondents meet:
. . . [T]his title shall apply to any employee benefit plan if it is established or maintained
by any employer engaged in commerce or in any industry or activity affecting commerce; or
by any employee organization or organizations representing employees engaged in commerce or in any industry or activity affecting commerce; or (3) by both.
Respondents argue that the regulation of their activities by the State of Florida is preempted by 29 U.S.C. 1144 under either the "preemption clause" t end not within the scope of the "savings clause)" or, in the alternative, under the "deemer clause". Respondents' contentions are rejected because the regulation of their activities by the State of Florida is consistent with the provisions of 29 U.S.C. 1144(6).
It is concluded that Petitioner's regulation of Respondents' activities is not preempted by ERISA and that Respondents have transacted insurance in the State of Florida without first obtaining a certificate of authority.
State courts clearly have the authority and the jurisdiction to adjudicate issues pertaining to the preemption of state regulation by federal law. See, Blue Cross & Blue Shield v. Weiner, 868 F.2d 1550, 1552 (llth Cir. 1989); Browninq Corp. Int'l. v. Lee, 624 F. Supp. 555, 557 (N.D. Tex. 1986). Consequently, it was appropriate to present evidence as to the preemption issues raised by Respondents so that those issues can be preserved for appellate purposes and so that a factual record will be made if disposition of those issues is deemed appropriate
by the appellate court. An administrative agency has no authority to declare a statute void or unenforceable on the grounds that the statute is preempted by federal law, that it is contrary to federal law, or that it offends the Constitution of the United States or the Constitution of the State of Florida.
See, Palm Harbor Special Fire Control District v. Kelly, 516 So. 2d 249, at 250 (Fla. 1987), where the Florida Supreme Court in a case where an agency had determined that a law the agency was charged with enforcing was in conflict with a subsequently enacted law and that the earlier law had been repealed by implication held that the agency erred and stated: ". . . [I]t
is axiomatic that an administrative agency has no power to declare a statute void or otherwise unenforceable."
Therefore, it is concluded that until a court of competent jurisdiction determines that the provisions of ERISA preempt the regulation of Respondents' activities in the State of Florida, Petitioner is required to presume that the laws are enforceable and it should discharge its regulatory responsibilities.
Section 626.910, Florida Statutes, provides, in pertinent part, as follows:
Any unauthorized insurer transacting insurance in this state . . . shall forfeit and pay to the state a civil penalty of not more than $1,000 for each nonwillful violation, or not more than $10,000 for each willful violation of any lawful order of the department or any provision of this code.
Section 626.9581, Florida Statutes, provides, in pertinent part, as follows:
. . . If it is determined that the person charged has engaged in ... the unlawful transaction of insurance, the department shall also issue an order requiring the violator to cease and desist from engaging in . . . the unlawful transaction of insurance. . . .
RECOMMENDED that a Final Order be entered which finds that Respondents engaged in the unlawful transaction of the business of insurance in the State of Florida without the requisite certificate of authority, which orders Respondents to cease and desist from the unauthorized transaction of insurance in the State of Florida, and which imposes an administrative fine against said Respondents in the total amount of $10,000.
DONE AND ENTERED in Tallahassee, Leon County, Florida, this 17th day of January, 1992.
CLAUDE B. ARRINGTON
Filed with the Clerk of the Division of Administrative Hearings this 17th day of January, 1992.
2/ The introductory paragraph of the Trust Agreement refers to Employee Trustees as opposed to Employer Trustees. This appears to be a scrivener's error since the reference should be to Employer Trustees.
3/ 29 U.S.C. Section 1144(a) is generally referred to as the "preemption" clause because it broadly preempts regulation by the various states.
4/ 29 U.S.C. Section 1144(b)(2)(A) is generally referred to as the "savings clause" because it greatly narrows the preemption found in 29 U.S.C. Section 1144(a).
5/ 29 U.S.C. Section 1144(b)(2)(B) is generally referred to as the "deemer" provision because it deems certain activity, insurance in this case, not to be that activity (insurance) within the meaning of state law.
The following rulings are made on the proposed findings of fact submitted on behalf of the Petitioner.
The following rulings are made on the proposed findings of fact submitted on behalf of the Respondents.
Robert S. Senton, Esquire Alan J. Leifer, Esquire Division of Legal Services
All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended order should be filed with the agency that will issue the final order in this case.
