STATE OF FLORIDA DIVISION OF ADMINISTRATIVE HEARINGS

GOLDEN RULE INSURANCE COMPANY, )

)

Petitioner, )

)

v. ) CASE NO. 91-2098

)

STATE OF FLORIDA, DEPARTMENT OF )

INSURANCE AND TREASURER, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was held in this case on May 28 and 29, 1991, in Tallahassee, Florida, before the Division of Administrative Hearings, by its designated Hearing Officer, Diane K. Kiesling.

APPEARANCES

For Petitioner: Curtis J. Dickinson

Attorney at Law

268 Medical Drive Post Office Box 3152

Carmel, Indiana 46032

W. David Watkins Attorney at Law

2700 Blair Stone Rd., Suite C Post Office Box 6507 Tallahassee, Florida 32314-6507

For Respondent: Dennis Silverman

Michele Guy Attorneys at Law

Department of Insurance and Treasurer

Division of Legal Services

412 Larson Building Tallahassee, FL 32399-0300

STATEMENT OF ISSUES

The ultimate issue is whether the Department's disapproval of Golden Rule Insurance Company's (Golden Rule) rate revision filing on Policy Form GRI-H-1.5 (hereinafter 1.5 filing or the filing) is valid and within the Department of Insurance's (the Department) discretion and authority. If not, a secondary issue is whether the 1.5 filing is deemed approved pursuant to Section 627.410(2), Florida Statutes (Supp. 1990).

PRELIMINARY STATEMENT

Golden Rule presented the testimony of J. Patrick Rooney, Walter Prather, Jim Mark Gutierrez, Linda P. Ziegler, Mark E. Litow, and David V. Smith and the deposition testimony of Barbara J. Lautzenheiser and Richard J. Ruppel. Golden Rule's Exhibits 1-3, 5-7, 16, 22, 26, 31, 37, 41, 43, and 44 were admitted in evidence. Exhibit 42 was proffered.

The Department presented the testimony of Linda P. Ziegler, David V. Smith, and Robert Dobson. Respondent's Exhibit 1 was admitted in evidence.

The transcript of the proceedings was filed on June 3, 1991. The parties timely filed their proposed findings of fact and conclusions of law on June 13, 1991. All proposed findings of fact and conclusions of law have been considered. A specific ruling on each proposed finding of fact is made in the Appendix attached hereto and made a part of this Recommended Order.

FINDINGS OF FACT

1. The Parties

   
   

   1. Golden Rule is licensed to engage in the business of providing accident and health insurance in the state of Florida.

      
      

   2. The State of Florida, Department of Insurance, is the state agency vested with statutory authority to approve or disapprove insurance policy forms and premium rates. Section 627.410, Florida Statutes (Supp. 1990), and Section 627.411, Florida Statutes.

      
      

2. The Department's Policies and Procedures

   
   

   1. Rate revision filings for individual major medical policies are reviewed subject to the time constraints of Section 627.410, Florida Statutes (Supp. 1990). The Department must either affirmatively approve or disapprove that filing within thirty days. If further information is required by the Department, the statute authorizes the Department to extend the 30 days by no more than 15 additional days. Section 627.410, Florida Statutes (Supp. 1990).

      
      

   2. Affirmative approval or disapproval requires the Department to complete a substantive review.

      
      

   3. From the promulgation of Chapter 4-58, Florida Administrative Code, on July 1, 1985, to September 1990, the Department would request further information before disapproving the rate and would extend the review period if additional information was needed for the review. As a matter of Department policy, the very purpose of the 15-day extension was and is to permit the Department to request more information within these constraints.

      
      

   4. As a matter of agency policy, the Department must, in advance of filing, advise the company of the information required for Departmental review. The purpose of advising the company of these required items of information is to shorten the review period.

      
      

   5. Chapter 4-58 was promulgated July 1, 1985. The express purpose of the rule was to "provide appropriate guidelines for the submission and filing of health insurance rates and to establish standards for determining the reasonableness of the relationship of benefits to premiums."

   6. Pursuant to Section 120.54(2)(a), Florida Statutes, the Department prepared an "Economic Impact Statement" relating to proposed Chapter 4-58, entitled "Filing of Rates for Health Insurance." The Economic Impact Statement set forth in relevant part:

      
      

      (b) Long-Term Costs

      Long-Term Costs to the Department involve little change in the current workload.

      Streamlining of procedures may reduce the time required for the Department to perform its review functions.

      (2) An Estimate of the Cost or the Economic Benefit to All Persons Directly Affected by the Proposed Action.

      The effects of the proposed rule may be divided into two broad categories - the effect on insurance companies and the effect on insurance consumers.

      1. Insurance Companies

         The economic impact of the proposed rule is expected to be small for most insurance companies. The companies will be submitting information to the department, which in most cases will be close to what they have submitted in the past, and the cost of making the filing should be similar. Although the department will now require certification by a Member of the Society of Actuaries or the Academy of Actuaries, the companies have, in most cases, been submitting this in the past.

         The exact listing of loss ratio requirements provided in the Rule, and the circumstances under which they are to be modified is expected to cut insurer costs. Clear filing standards are expected to minimize delays and the corresponding paperwork involved when the company and department must write a series of letters before a filing can be completed. The approval process will be quicker, allowing insurers to implement new products sooner and make rate adjustments in a more timely manner.

         * * *

      2. Consumers

         A significant, though non-quantifiable, benefit to consumers is expected to result from these proposed rules.

         * * *

         Individuals are expected to benefit from more timely rate adjustments. Instead of large rate increases resulting from slow recognition of changes in costs, insurers will be expected to give smaller, more regular, rate increases.

         * * *

   7. The time constraints of the statute require the Department to perform a timely review of the filing. If a disapproval results from the review, the notice of disapproval must identify everything that is wrong with the filing. This time frame enables the company to make a timely response so as to expedite the review process and permit the implementation of timely rate revisions.

      
      

   8. The timeliness of the review has an important consequence to the company and the consumer. If a company is able to implement timely rate increases, the increase will be smaller. Smaller and more timely rate revisions is what the time constraint of Section 627.410, Florida Statutes (Supp. 1990), is designed to promote.

      
      

   9. From July 1, 1985, to the date of disapproval of the filing, neither the statute nor the rule have has been amended on matters relating to rate revision filings and their review.

      
      

   10. In September 1990, the Department instituted a new, unpromulgated and unannounced procedure for reviewing all health insurance rate revisions. This new procedure applied to all companies making health rate revisions in Florida.

       
       

   11. The cause of this change in procedure was the Department's failure or inability to perform the statutory substantive review within the time constraints of the statute. The Department was backlogged and rate revisions which were not timely reviewed by the Department were being deemed approved as provided by law in what is known as the deemer provision.

       
       

   12. In direct response to this situation, the Department, instead of hiring more actuaries to perform the substantive review, created a two-step review process which was intended to avoid the deemer provision.

       
       

   13. This unannounced and unpromulgated procedure creates a "preliminary review" conducted by Jim Mark Gutierrez which is followed by a "final substantive review" conducted by an actuary.

       
       

   14. As a result, the filing is not reviewed by an actuary, which had been the prior practice of the Department. Instead, the filing is routed to Gutierrez, a recently hired actuarial student. Gutierrez is not recognized by the Society of Actuaries as either an Associate (A.S.A.) or a Fellow (F.S.A.).

       
       

   15. Gutierrez was specifically hired to carry out this new procedure and is responsible for the "preliminary" review of all filings. His appointed task is to compare the contents of the filing to a checklist which had been provided to him by his superiors in the Department.

       
       

   16. Gutierrez does not perform a substantive review of the filing. He does not evaluate either the assumptions used by the company or the justification of the proposed rate revision. The evaluation of the assumptions used and the justification shown are left to Department actuaries. Gutierrez expressly lacks the authority to approve a filing.

       
       

   17. Both this preliminary review and the substantive review must occur within the 30-day statutory period.

       
       

   18. If any single item on the checklist is not provided by the Company, Gutierrez summarily disapproves the filing for "incompleteness." The company is notified of this action by a letter signed by Gutierrez. This disapproval is an order or final agency action pursuant to Section 120.52(11), Florida Statutes.

       With the letter is a Notice of Rights advising the recipient of its right to request a formal administrative hearing.

       
       

   19. The letter does not ask the company to submit the information as a condition for review or approval. Nor does the letter extend the 30-day review period, as allowed by statute, by 15 days. In fact, Gutierrez has never been instructed by his superiors to use the 15-day extension in order to receive additional information. Finally, Gutierrez has never used the 15-day extension to request additional information.

       
       

   20. The letter simply disapproves the rate filing with no expressed reason for the disapproval. The letter further advised the company that if it wishes to resubmit the filing, it should include the checklist items that Gutierrez did not find in the filing. Gutierrez is supposed to include each and every missing checklist item.

       
       

   21. David Smith, the Department's Life and Health Actuary, has directed his section not to use the 15-day extensions. Smith's instruction on use of the extension is just temporary because the Department is not fully staffed and trained. Smith concedes that if he had the staff and the resources to use the 15-day extension, he would use the time to ask for additional information, and he would not disapprove the filing for the mere failure to provide certain information initially. Smith prefers not to disapprove the filing for incompleteness, but rather to grant the company the full extent of the review period to supplement the data previously submitted.

       
       

   22. The checklist used by Gutierrez after September 1990 was not the same one used by the Department prior to August 1990. Of particular significance is the language of the checklist relating to "expected distribution of business." The "old checklist" included the language "expected distribution of business." Linda Ziegler, the Department's Associate Actuary in Life and Health, modified the old checklist by substituting "Anticipated issue/actual inforce distribution."

       
       

   23. The first time the Department began requiring every rate submission to include actual inforce distribution of business was when Gutierrez joined the Department in early fall of 1990. Shortly thereafter, the Department also changed its historical practice of asking for omitted information while holding the file open until the company responded. The new policy and procedure disapproved the filing before giving the company the opportunity to provide information. This change in policy was reflected in the change of the form letters used by the Department.

       
       

   24. In making the modification to the checklist, Ziegler referred to Rule 4-58.006(1)(c)4, which subsection states:

       
       

       4-58.006 Actuarial memorandum

       1. Individual Policies - New Filings.

          * * *

          1. Supporting Data - The insurer shall provide sufficient information to demonstrate that it reasonably expects to achieve the anticipated loss ratio stated in paragraph (a) or, otherwise, information sufficient to justify the filing. Such information shall include:

          * * *

          4. The expected distribution of business by factors used in the calculation of the anticipated loss ratio.

          
          

   25. When Gutierrez reviews a rate revision filing to see if "actual inforce distribution" is provided, he looks for it in any number of forms, depending on how the company may provide it.

       
       

   26. For his purposes, any single factor demonstrating "actual inforce distribution" is sufficient. Gutierrez does state one exception. Distribution by area would not satisfy the checklist item of actual inforce distribution of business.

       
       

   27. Gutierrez concludes that a rate revision filing is complete as to this checklist item if the company provides actual inforce distribution only by age, only by deductible, or only by coverage. At his level of review, the company does not have to provide more than one factor. If the actual inforce distribution is provided in any single factor, the completeness test for that item is met and the filing goes to the next level for a substantive review.

       
       

   28. For every other company making an individual major medical rate revision filing, Gutierrez does not specify the factors to be provided. He has no knowledge of his asking any other company to provide more than one factor to demonstrate actual inforce distribution.

       
       

   29. Gutierrez does not require every company to provide actual inforce distribution by age, coverage, and deductible. He leaves that up to the company actuary to decide which one is needed and which item the next actuary in the review process will need.

       
       

   30. Companies were not notified before the abrupt September 1990 change in procedure whereby the Department would be disapproving rates on the basis of "completeness" as determined by a checklist. Similarly, since Gutierrez began summarily disapproving rates, there has still been no industry-wide notification of the existence of the checklist.

       
       

   31. The checklist is provided only if requested by a company. The company must, however, make a specific request; it has not been provided in any mass mailing. In short, companies have no knowledge of the checklist unless somebody at the Department hands it to them.

       
       

3. The 1.5 Filing and Summary Disapproval

1. Before the rate revision filing was prepared, Golden Rule secured the services of Mark E. Litow, F.S.A., M.A.A.A., a consulting actuary with the firm of Milliman & Robertson. Litow is currently employed with Milliman and Robertson as a consulting actuary. Mr. Litow is a Fellow in the Society of Actuaries, a designation he received in 1981. This designation is given after the successful completion of ten actuarial exams. Litow has worked in the area of health insurance and, specifically, individual health since starting with Milliman & Robertson in 1975.

   
   

2. Since July 1, 1985, Litow has certified between 25 and 50 rate revision filings in Florida. Each of these filings contained his certification that the materials submitted complied with Florida statutes and regulations, including Chapter 4-58.

3. Based on Litow's review of Chapter 4-58 and his experience with previous filings from the time Chapter 4-58 was promulgated, the filing submitted was complete, including all the information required by Chapter 4-58. The filing included all the information necessary to determine whether the rate increase requested was in fact appropriate, reasonable, and justified.

   
   

4. By letter dated November 7, 1990, Golden Rule filed its requested rate increase for Policy Form GRI-H-1.5 with the supporting documentation prepared and certified by Litow.

   
   

5. The filing was received on November 14, 1990, and reviewed for "completeness" by Gutierrez. According to Gutierrez, Golden Rule's 1.5 filing was well organized.

   
   

6. Gutierrez noted that the filing included the expected distribution of business which was set forth in the original memorandum attached to the rate revision filing. In Gutierrez's opinion, actual inforce distribution of business was not provided. This was the only checklist item not included in the filing.

   
   

7. Gutierrez was concerned that the actual inforce distribution might not be necessary for the substantive review. He took the filing to Ms. Ziegler to determine whether actual inforce distribution was "really needed."

   
   

8. After a brief review of the filing, Ms. Ziegler instructed Gutierrez to ask for the actual inforce distribution based on age, coverage, and deductible. Ziegler did not identify any other information needed for the filing to be complete.

   
   

9. A rate revision filing may be justified under Chapter 4-58 without consideration of actual inforce distribution of business by age, by coverage, and by deductible.

   
   

10. In responding to Gutierrez's inquiry, Ziegler did not evaluate the filing to determine whether the rate was justified without consideration of this data and did not perform a substantive review.

    
    

11. On December 4, 1990, the Department issued its notice and order which purportedly disapproved the rate filing on Form GRI-H-1.5. The letter from Gutierrez, Actuarial Analyst, Life & Health Insurer Rate and Reserve Analysis, states:

    
    

    I have completed my review of the above referenced filing dated November 7, 1990. This letter serves as notification that the above referenced rate filing has been disapproved as filed. If you wish to resubmit, please include the following information in accordance with the Florida Department of Insurance Rule 4-58:

    1. Actual inforce distribution of business by age, by coverage, and by deductible.

    As such this letter represents an order, or final agency action, per Section 120.52(11), Florida Statutes. See also Sections 627.410(2) and 627.410(6)(c), Florida

    Statutes. If you disagree with any of the

    facts set forth herein you may request a hearing on this matter in accordance with the attached Notice of Rights.

    If you have any questions about this filing, please feel free to contact me.

    
    

12. Each and every item requested by Ms. Ziegler was included in the letter.

    
    

13. The letter did not request the submission of additional information. It did not state that the information was necessary to complete the review of the rate revision, or otherwise state a reason why this additional information was required.

    
    

14. The sole reason Gutierrez disapproved the filing was the absence of actual inforce distribution by age, by coverage, and by deductible.

    
    

15. The disapproval was final. Even if Golden Rule had subsequently submitted actual inforce distribution of business by age, by coverage, and by deductible, the filing would have gone through the same preliminary completeness review, with a new 30-day review period.

    
    

16. As a direct result of the Department's summary disapproval of Golden Rule's rate revision, Golden Rule is losing $300,000.00 per month of premium income.

    
    

17. Neither the text of the statute nor the rule states that an insurer must provide the actual inforce distribution of business by age, by coverage, and by deductible with its rate revision filing. The words "actual inforce" appear nowhere in the rule, nor do the terms, "by age, by coverage, and by deductible." Indeed, nothing in Chapter 4-58 requires companies to maintain records of actual inforce distribution of business.

    
    

18. Responding to the absence of the express language, the Department suggests that any actuary, disregarding the plain language of the rule and construing Rule 4-58.006(1)(c)4, would know that actual inforce distribution of business by age, coverage, and deductible is required with every filing. This contention is simply not supported by the record.

    
    

19. According to Smith and Ziegler, the current agency procedure requires every company filing for a rate revision to provide actual inforce distribution by age, by coverage, and by deductible. In fact, Ziegler testified that Gutierrez must require not only the three (age, coverage, and deductible), but distribution by area as well.

    
    

20. At the time of the hearing, Gutierrez had not been told to do this. In fact, over the last eight months, Gutierrez has never required distribution by more than one factor. Thus, even under the current procedure, Gutierrez does not require actual inforce distribution of business by age, by coverage, and by deductible for every rate revision filing.

    
    

21. When Smith was asked about Gutierrez's practice of requiring only one factor, Smith responded that he firt learned of Gutierrez's practice during this hearing.

    
    

22. Gutierrez has asked only one company to provide more than one distribution factor -- Golden Rule. He cited these specific factors only after

    he was instructed to do so by Ziegler. Since the fall of 1990, only Golden Rule has been required to provide actual inforce distribution by more than one factor.

    
    

23. Consequently, if a company provides any form of distribution, Gutierrez does not disapprove it for incompleteness on those grounds. This is especially significant because the second-tier, substantive review may not require actual inforce distribution of business at all, let alone by the factors of age, coverage, and deductible, in order to approve the rate.

    
    

24. The only record evidence as to the interpretation of the rule before August of 1990 is contained in the testimony of the current Department actuaries David V. Smith, F.S.A., M.A.A.A.; Linda P. Ziegler, A.S.A., M.A.A.A.; and practicing actuaries Mark E. Litow, F.S.A., M.A.A.A.; Richard J. Ruppel, A.S.A., M.A.A.A.; and the Petitioner's Exhibit 37.

    
    

25. Golden Rule offered the testimony of four actuaries (Litow, Smith, Ruppel, and Ziegler) on the question of whether Chapter 4-58 was ever interpreted by them to require the company to submit actual inforce distribution by age, by coverage, and by deductible as a condition for review or approval. All four of these actuaries have represented companies making rate revision filings in Florida, pursuant to Chapter 4-58.

    
    

26. Indeed, during late 1989 and 1990, Smith, Ziegler, and other Department representatives approved numerous rate revision filings by Golden Rule, which filings did not include actual inforce distribution of business by age, by coverage, and by deductible.

    
    

27. On December 11, 1989, a rate revision filing on Golden Rule's GRI-1.2 was made by Mark V. Hartman, F.S.A., M.A.A.A., which filing did not include actual inforce distribution by age, by coverage, and by deductible. In response to this filing, Ms. Ziegler wrote a letter dated January 9, 1990, requesting additional information from the company. The letter did not disapprove the filing but asked for five specific additional pieces of information. The letter gave Golden Rule twenty days to provide the additional information. The information requested did not include actual inforce distribution by age, by coverage, and by deductible. It did request issue distribution within Florida by zip code areas with differing rating factors. Golden Rule did not respond to this request for further information by January 29, 1990, and its filing was disapproved.

    
    

28. By letter dated March 12, 1990, Golden Rule filed its actuarial memorandum on GRI-H-1.2 and included the additional information requested in the January 9, 1990, letter of Ziegler. The filing, with the additional information, did not include the actual inforce distribution of business by age, by coverage, and by deductible. On March 28, 1990, Ziegler approved a 32% rate increase without requiring actual inforce distribution by age, by coverage, and by deductible.

    
    

29. During the last five years, in every case except the filing at issue, Litow has had rate revisions approved in Florida without providing the actual inforce distribution of business. Litow has never been asked to produce the actual inforce distribution as a prerequisite for review of a rate filing.

    
    

30. Ruppel has been the vice president and actuary with Golden Rule for over 20 years. From July 1, 1985, to September 1990, Ruppel has made numerous filings in Florida on Golden Rule's behalf. In the five years between the

    promulgation of Chapter 4-58 and September 1990, Ruppel never interpreted the chapter to require actual inforce distribution by age, by coverage, and by deductible.

    
    

31. During his 20 years of preparing rate revision filings for Golden Rule, Mr. Ruppel, in making rate filings in Florida, has never been asked to produce actual inforce distribution by age, by coverage, and by deductible as a condition for review or approval of a rate revision filing in Florida. This 20- year experience included the numerous rate filing made by Ruppel pursuant to Chapter 4-58, which filings were approved by the Department in Florida.

    
    

32. Smith was an actuary with American General Life & Accident before he started with the Department September 8, 1989. While an actuary at American General, Smith certified rate revision filings made in the state of Florida. Those filings were made pursuant to Chapter 4-58.

    
    

33. Smith understood at the time he was making filings on behalf of American General that they were to be in compliance with Chapter 4-58. Smith had in fact reviewed Chapter 4-58 to make that determination.

    
    

34. In making those rate revision filings, Smith did not provide actual inforce distribution of business to the Florida Department unless requested. He would not provide that information in his initial filing. Smith could not recall a single instance in which Florida required him to produce the actual inforce distribution of business as a condition for review or approval.

    
    

35. Smith's company received approval of these rate revision filings which did not include actual inforce distribution.

    
    

36. When Smith began reviewing rate revisions for the Florida Department, he understood that Chapter 4-58 controlled his review of those revisions. In September 1989, he did not have a checklist, but he was looking at the filings for completeness pursuant to Chapter 4-58.

    
    

37. Only after Smith reviewed a filing would he ask for additional information. He did not require actual inforce distribution of business from every company which made a filing for an individual major medical product. Further, he is certain that he approved filings without having that information if it was not required to justify the rate revision under review.

    
    

38. Ziegler's prior work with American General required her to make individual medicare supplement filings in Florida. These filings were made in compliance with Chapter 4-58.

    
    

39. Ziegler could not recall ever providing actual inforce distribution with those rate revision filings. To the best of her knowledge, those filings were made in compliance with Chapter 4-58.

    
    

40. Ziegler admits that as an A.S.A. working in the industry, it was not essential for her to provide actual inforce distribution in order to demonstrate compliance with loss ratio requirements of Chapter 4-58. Ziegler was able to reach the conclusion that the benefits were reasonable in relation to premium without having actual inforce distribution.

    
    

41. When Ziegler joined the Department in January 1990, there was no checklist in existence. Ziegler first became aware of a checklist in the fall of 1990.

42. In January 1990, as a matter of policy, the Department was not requiring actual inforce distribution to be provided with every rate filing for major medical products. Actual inforce distribution by any factor was not required to make the filing complete before fall 1990. Actual inforce distribution was not required by Ziegler before she gave approval to those filings. Ziegler could not name a single instance in which she required actual inforce distribution before she approved a revision.

    
    

43. Only after Gutierrez joined the Department in August 1990 did the Department require actual inforce distribution by age, coverage, and deductible by adding it to the checklist.

    
    

44. After reviewing Rule 4-58.006(1)(c)4, Litow provided precisely what the rule stated, to wit, the expected distribution of business by factors used in the calculated anticipated loss ratio for the original memorandum filed as a new filing.

    
    

45. Even if the term "expected" were construed to mean "actual inforce," Litow would not have provided that information because he did not use the actual inforce distributions as factors in calculating the anticipated loss ratio.

    
    

46. Based on his years of experience as an actuary, Litow does not read Rule 4-58.006(1)(c)4, related to calculation of the anticipated loss ratio, to require actual inforce distribution of business by factors used.

    
    

47. Litow used aggregate claims experience, which is the way he customarily demonstrates anticipated loss ratio.

    
    

48. In fact, since Litow did not use the actual distribution of business in calculating his anticipated loss ratio, there was nothing else to provide.

    
    

49. In Litow's years of experience in making rate revision filings in Florida, he has never been required to provide actual inforce distribution of business by any factor.

    
    

50. Actual inforce distribution is not a necessary piece of information in order to determine whether benefits are reasonable in relation to premiums, according to Litow.

    
    

51. During the last five years, with every filing except the 1.5 filing at issue, Litow has had rate revisions approved in Florida without providing the actual inforce distribution of business. Litow has never been asked to produce the actual inforce distribution as a prerequisite for review of a rate filing.

    
    

52. Although Smith claimed that it wouldn't make any sense to read the rule as requiring anything other than actual inforce distribution, he admitted that while he was at American General he never interpreted Rule 4-58.006(1)(c)4) to require actual inforce distribution.

    
    

53. Smith admitted that the Department wants actual inforce distribution of business even if it is not used in the calculation of the anticipated loss ratio. He further conceded that nowhere does the rule tell a company to provide actual inforce distribution by premium breaks.

54. The only "independent" actuary tendered by the Department was Robert Dobson. Dobson was tendered and accepted as an actuarial expert in health insurance.

    
    

55. Dobson was presented by the Department to establish that all practicing actuaries preparing filings under Chapter 4-58 would know, after reading Rule 4-58.006(1)(c)4, to provide actual inforce distribution of business by age, coverage, and deductible.

    
    

56. Dobson's testimony, however, is entitled to very little weight. First, on cross-examination, Dobson was impeached by his deposition testimony wherein he stated that actual inforce distribution of business is not specified in the rule as a required piece of date. Rather, it is additional data which the Department may request, if needed. Second, Dobson has no actual experience with Chapter 4-58. The first time Mr. Dobson reviewed Chapter 4-58 was two weeks before his deposition testimony. Third, Dobson has only testified on behalf of Departments of Insurance and never on behalf of a private company.

    
    

57. Dobson's testimony as to the proper interpretation of Chapter 4-58 is rejected as not credible.

    
    

    CONCLUSIONS OF LAW

    
    

58. The Division of Administrative Hearings has jurisdiction of the parties to and subject matter of these proceedings. Section 120.57(1), Florida Statutes.

    
    

59. Administrative agencies may not modify the plain meaning of statutory or regulatory language out of consideration of policy or regard for untoward circumstances. McDonald v. Rowland, 65 So.2d 12 (Fla. 1953); Vocelle v. Knight Brothers Paper Company, 118 So.2d 664 (Fla. 1st DCA 1960); Gar-Con Development, Inc. v. Department of Environmental Regulation, 468 So.2d 413 (Fla. 1st DCA 1985); and Boca Raton Artificial Kidney Center, Inc., v. Department of Health and Rehabilitative Services, 493 So.2d 1055 (Fla. 1st DCA 1986).

    
    

60. Section 627.410, Florida Statutes (Supp. 1990) requires insurance companies conducting business in Florida to file proposed insurance policies and premium rate revisions with the Department for its review and approval. Section 627.410(2), Florida Statutes (Supp. 1990), provides:

    
    

    (2) Every such filing must be made not less than 30 days in advance of any such use or delivery. At the expiration of such 30 days, the form so filed will be deemed approved unless prior thereto it has been affirmatively approved or disapproved by order of the department. The approval of any such form by the department constitutes a waiver

    of any unexpired portion of such waiting period. The department may extend by not more than an additional 15 days the period within which it may so affirmatively approve or disapprove any such form, by giving notice of such extension before expiration of the initial 30-day period. At the expiration of any such period as so extended, and in the absence of such prior affirmative approval

    or disapproval, any such form shall be deemed approved. [Emphasis added]

    
    

61. The statute creates an affirmative duty on the Department to perform a complete and substantive review within the statutory time period. Likewise, the statute creates a substantive right in the company that its filing will be reviewed by an actuary in a timely manner, as defined by the statute, and that such a review will result in an approval or in a disapproval containing adequate notice of all inadequacies to the filing. If the Department fails to perform its duty within the statutory time constraints, the statute divests the Department of jurisdiction and deems the rate revision approved by operation of law.

    
    

62. Section 627.410(6)(b), Florida Statutes (Supp. 1990) authorizes the Department to establish by rule, for each type of health insurance form, procedures to be used in ascertaining the reasonableness of benefits in relation to premium rates.

    
    

63. Section 624.308(1), Florida Statutes, provides:

    
    

    1. The department may adopt reasonable rules necessary to effect any of the statutory duties of the department. Such rules shall not extend, modify, or conflict with any laws of this state or the reasonable implications of such laws. [Emphasis added]

       
       

64. Pursuant to the statutory authority conveyed by Sections 624.308(1) and 627.410(6)(b), Florida Statutes, the Department promulgated and adopted its Chapter 4-58 entitled "Filing of Rates for Health Insurance." This rule was adopted in July 1985 and has not been subsequently amended.

    
    

65. Rule 4-58.006 sets forth the information which must be contained in the actuarial memorandum filed with the Department.

    
    

66. Since the Golden Rule filing at issue requests a rate increase for individual policies, Subsection (4) of the rule applies. It provides:

    
    

    1. Individual Policies - Rate Increases. The insurer shall provide:

       1. Information showing that the proposed rate structure will pass any applicable tests enumerated in Rule 4-58.005(3)(b.)

       2. Supporting data, which shall include:

          1. Information in subsection (3)(b) above.

    
    

67. It is the Department's contention that subpart (b)(1), which makes reference to subsection (3)(b) is applicable to the Golden Rule filing. Subsection (3)(b) provides:

    
    

    (3) Individual Policies - Rate Decreases.

    1. The same information in the same format as that in subsections (1)(a) and (b) above.

    2. Supporting data, which shall include:

       1. Information in subsection (1)(c) above.

       Subsection (1)(c) provides:

       
       

    3. Supporting Data - The insurer shall provide sufficient information to demonstrate that it reasonably expects to achieve the anticipated loss ratio stated in paragraph

    1. or, otherwise, information sufficient to justify the filing. Such information shall include:

       1. The average premium per policy. Any policy fee shall in included in this average.

       2. The interest rates or an explanation of why interest is immaterial.

       3. Lapse rates and their source.

       4. The expected distribution of business by factors used in the calculation of the anticipated loss ratio.

       5. Claim costs and their source. If claim costs come directly from a published table, give the name or names of the tables and reference the source (include volume and page numbers) where they can be found. If the published tables have been modified, explain in detail how and why. If the insurer's own experience has been used, submit a representative sample of the experience and explain how it was used.

       6. Morality may be included in lapse rates. If not, state the table used and explain any adjustments.

       7. The method of calculating policy reserves. Statutory reserves calculated by the method used in the calculation of the anticipated loss ratio shall be held by the insurer.

       8. Expense factors per policy, percent of premium (gross or net) per claim and in any other fashion they are used in the calculation of gross premiums.

       9. Contingency margins and profit margins.

    
    

68. The Department's attempted derivation of "actual inforce distribution of business" from "the expected distribution of business" is at odds with the Department's official rule promulgation filing for Chapter 4-58 made with the Secretary of State in June 1985. The documents which accompanied Chapter 4-58, as required pursuant to Section 120.54(11)(b), Florida Statutes, highlight the Department's intention to specifically identify all data and other information which insurers would be required to submit with their filings.

    
    

69. The Department's requirement of "actual inforce distribution" impermissibly expands the scope of documentation the Department requires pursuant to Chapter 4-58 and is therefore in violation of that rule.

    
    

70. If "completeness" is to be used by the Department as a test, the company must be made aware of every item of information necessary. Otherwise, a company is faced with a "revolving door" whereby the same filing is repeatedly disapproved for "incompleteness" with new items being requested with each

    disapproval letter. If items appear on the checklist which are not part of any published rule, the company is faced with a disapproval without prior knowledge of regulatory requirements.

    
    

71. Further, if "completeness" is the test, the list must include those items which are "essential" to the statutory standard of review. Actual inforce distribution of business by age, by coverage, and by deductible is not essential to determining whether a rate is justified and whether the benefits are reasonable in relation to the premium.

    
    

72. The Department uses this information to determine the reasonableness of some filings, but only after they have reached the conclusion that it must look beyond the filing to complete their review.

    
    

73. The checklist includes superfluous information which is not necessary for the actuaries' review. At hearing, the Department tacitly acknowledged that this new procedure results in disapproval of rate filings on invalid grounds. The example discussed with Smith was that of premium reserves. The checklist requires that the company report premium reserves in order to be considered complete. Smith acknowledged that for some types of insurance that information is not required from an actuarial and substantive review standpoint. Gutierrez does not know this, nor is he trained to make the judgment as to whether or not that piece of information is required of every rate revision filing received. The consequence of having this ministerial disapproval procedure is to have final agency action, disapproving a rate, based upon the absence of information which is not necessary.

    
    

74. All the credible evidence of record demonstrates that no practicing actuary interpreting this rule in conjunction with a rate filing has read it to require this data. If the Department wishes to require it, it may amend its rule through the proper procedure.

    
    

75. By imposing this preliminary review based upon "completeness" on the company, the Department has circumvented the statutory requirement to perform a substantive review within 30 days. "Incompleteness" is not a statutory basis for disapproval. In fact, the statute expressly provides for an extension of time if additional information is needed to perform a substantive review. The preliminary review process has been used by the Department as a substitute for the 15-day extension. This is a blatant circumvention of the statute.

    
    

76. It is likewise a circumvention of the rule. The rule was promulgated to set forth each and every piece of information required of an insurance company in making a rate revision filing. The express intent of the rule was to eliminate the time-consuming exchange of correspondence and paperwork which apparently existed before the rule was promulgated. The intent of this listing of information was to make the review process more timely.

    
    

77. Since the rule was promulgated based upon the authority of Section 627.410, Florida Statutes, it must be read so as to incorporate those time provisions. Thus, Chapter 4-58 cannot be used by the Department to circumvent the time constraints of the statute. To do so would be an unauthorized exercise of delegated legislative authority.

    
    

78. The "completeness review" does nothing more than disapprove rate revision filings before the deemer period runs and is the Department's mechanism to avoid the statutory result of untimely review. Further, it is not surprising that this procedure does not facilitate timely review of filings since

    information is being required which is not expressly described in statute or rule.

    
    

79. Moreover, the Department's practice of summarily disapproving rate filings for "incompleteness" (as determined by the illicit checklist) is in direct violation of Section 627.410(2), Florida Statutes (Supp. 1990) which clearly contemplates a process whereby the Department may request omitted information from an insurer prior to rendering a decision on the filing. Indeed, the statute permits the Department to unilaterally extend the review period by fifteen days to permit the submission of missing information and a determination on the merits of the filing. The purpose and intent of Section 627.410(2), Florida Statutes (Supp. 1990), is undisputed and is clearly understood by the Department. Indeed, until late 1990 the Department was properly requesting omitted information from insurers prior to rendering a decision on the filing, rather than perfunctorily disapproving rate filings based upon the unpublished and unpromulgated checklist.

    
    

80. Thus, the Department's use of the checklist and its summary disapproval process constitutes a deviation from both statute and agency rule and a departure from the essential requirements of law. The Department's "incipient policy" constitutes an impermissible deviation from the terms of both statute and rule and cannot justify the Department's actions herein. Boca Raton Artificial Kidney Center v. Department of Health and Rehabilitative Services, supra.

    
    

81. Even if the Department's use of its checklist and summary disapproval process did not constitute a deviation from statute and rule, its actions could not be justified on the basis of incipient agency policy. Rather, the checklist and summary disapproval process is an unpromulgated rule since it is an "agency statement of general applicability that prescribes laws or policy or describes the organization, procedure, or practice requirements of any agency." Section 120.52(16), Florida Statutes. See, Balsam v. Department of Health and Rehabilitative Services, 452 So.2d 976, 977, (Fla. 1st DCA 1984). As Florida's First District Court of Appeal stated in Gar-Con Development, Inc. v. Department of Environmental Regulation, supra, at page 414:

    
    

    One of the principle objectives of the Administrative Procedure Act is to prevent state agencies from adopting unpromulgated and often unwritten policies that are to be generally applied and that affect persons regulated by the agency or having a substantial interest in the policy. Another objective is to prevent agencies from changing such policies at will without notice or without following formal rulemaking procedures.

    
    

82. The uncontroverted evidence established that prior to September 1990 when the Department received what it considered to be an incomplete filing, the insurer was notified and given an opportunity to submit the omitted information. However, beginning in September 1990, what would have previously been a request for additional information was suddenly converted to a disapproval order and a suggestion to resubmit the filing with additional information. Compounding this sudden change in departmental policy was the addition of the checklist which expanded Chapter 4-58 to require the submittal of information not specified by rule and not previously required of insurers. Moreover, no notice of these very

    significant changes in departmental policy and practice was provided to the insurance industry. The Department can only change its policy or argue the development of incipient policy if it exposes or elucidates its reasons for the discretionary action. E. M. Watkins & Company v. Board of Regents, 414 So.2d

    583 (Fla. 1st DCA 1982); Anheuser/Busch, Inc., v. Department of Business Regulation, 393 So.2d 1177 (Fla. 1st DCA 1981); McDonald v. Department of Banking and Finance, 346 So.2d 569 (Fla. 1st DCA 1977). The Department has failed to carry this burden.

    
    

83. The Department's attempt to justify the use of its checklist and summary disapproval process on the basis of staff shortages, workload, and expedience must also fail. HCA Gulf Coast Hospital v. Department of Health and Rehabilitative Services, 10 FALR 2807 (Final Order May 18, 1988) (a change in personnel does not justify a change in an agency's interpretation of its rules); Boca Raton Artificial Kidney Center v. Dept. of Health and Rehabilitative Services, supra, (expedience does not justify a change in rule interpretation or contravention of a rule's express language). Further, the Department's plea that filings will be "deemed" without a thorough agency review in the absence of the new procedure ignores the intent of Section 627.410, which is to require the Department to timely conduct a substantive review of insurance filings. There is a significant cost to the public at large if needed rate increases are not implemented in a timely fashion. This fact was recognized by the Department when it promulgated Chapter 4-58 and was included as a basis for the adoption of the rule.

    
    

84. The Department's summary disapproval process based upon its unpromulgated checklist directly contravenes the intent of Section 627.410(2), Florida Statutes (Supp. 1990), since it requires insurers to refile rate revisions, thereby beginning the thirty-day review period anew.

    
    

85. The Department's disapproval of Golden Rule's filing based upon lack of information which was not required of other insurers clearly constitutes discriminatory treatment of Golden Rule. This result is not surprising, however, since it is the consequence of employing an unpromulgated rule that is subject to internal modifications at the whim of regulatory officials. Additionally, the discriminatory result reflects the inherent problems of assigning an unqualified person to enforce a checklist prepared by his superiors, the proper enforcement of which requires actuarial judgments which Gutierrez is simply not qualified to make. The arbitrary and capricious treatment of Golden Rule's 1.5 filing is also symptomatic of the problems created when an agency attempts to shortcut the substantive review process required by statute. In this instance, had the Department performed a substantive review of the Golden Rule filing at the outset, all missing information (whether or not listed on the checklist) necessary for a complete and substantive review would have been included in a request to Golden Rule for additional information.

    
    

86. Finally, the disapproval by Gutierrez was made without authorization. The agency head of the Department is the Treasurer and Insurance Commissioner. Sections 627.410 and 627.411 clearly identify the only grounds for disapproval of a rate filing. Nowhere does this section authorize disapproval for incompleteness based on an essentially clerical review of a checklist. Additionally, it is the Department, through the agency head or his delegatee, which is authorized to disapprove a rate filing. The burden is always on the agency to show that the person who acted for the agency has been expressly delegated with the authority to so act. In this case, Gutierrez cannot be assumed to have been lawfully delegated the authority to disapprove rate

    filings. The evidence clearly supports the conclusion that Gutierrez simply signed a form letter generated by a secretary and that authority to approve or disapprove rate filings has never been lawfully delegated to Gutierrez. As such, the disapproval letter is a nullity.

    
    

87. It is axiomatic that agency action taken illegally or without authority is invalid and cannot be enforced. State ex rel Burr v. Jacksonville Terminal Co., 90 Fla. 721, 106 So. 576 (1925); School Board v. Public Employees Relations Comm'n, 330 So.2d 770 (Fla. 1st DCA 1976), cert dism'd 336 So.2d 603. The Department's "disapproval" of Golden Rule's 1.5 filing was made in contravention of statute and its own rule and is therefore invalid and unauthorized. See, Gasson v. Gay, 49 So.2d 525 (Fla. 1950) (rule promulgated by state comptroller specifying minimum requirements to constitute a newspaper exempt from sales tax should not be construed as extending exemption made by statute); Forehand v. Board of Public Instruction, 166 So.2d 668 (Fla. 1st DCA 1964).

    
    

88. Since the attempted disapproval of Golden Rule's filing was invalid and is null and void, the filing has not been "affirmatively approved or disapproved by order of the Department." Accordingly, pursuant to Section 627.410, Florida Statues (Supp. 1990), the rate filing at issue herein was deemed approved by operation of law on December 14, 1990, thirty days following its receipt by the Department.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the State of Florida, Department of Insurance, enter a

Final Order acknowledging the approval of Golden Rule's rate revision filing on

policy form GRI-H-1.5 by virtue of the deemer provision of Section 627.410, Florida Statutes (Supp. 1990).

DONE and ENTERED this 3rd day of July, 1991, in Tallahassee, Florida.

DIANE K. KIESLING

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, FL 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 3rd

day of July, 1991.

APPENDIX TO THE RECOMMENDED ORDER

The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on the proposed findings of fact submitted by the parties in this case.

Specific Rulings on Proposed Findings of Fact Submitted by Petitioner, Golden Rule

1. Each of the following proposed findings of fact is adopted in substance as modified in the Recommended Order. The number in parentheses is the Finding of Fact which so adopts the proposed finding of fact: 6(1); 7(2); 10-29(3-22); 31(23); 33-44(24-35); and 46-101(36-90).

   
   

2. Proposed findings of fact 1, 2, 30, and 32 are subordinate to the facts actually found in this Recommended Order.

   
   

3. Proposed findings of fact 3-5, 8, 9, and 45 are unnecessary.

   
   

4. Proposed findings of fact 102-105 are irrelevant.

Specific Rulings on Proposed Findings of Fact Submitted by Respondent, Department of Insurance

1. Each of the following proposed findings of fact is adopted in substance as modified in the Recommended Order. The number in parentheses is the Finding of Fact which so adopts the proposed finding of fact: 1(37)and 2(38).

2. Proposed findings of fact 3-8, 11-13, 15-17, 19-21, 26-29, 34, 37, 38, 45,

48, 58-61, 63, 64, and 67-70 are subordinate to the facts actually found in this Recommended Order.

3. Proposed findings of fact 9, 14, 23, 25, 35, 39-44, 51, 54-57, 71, 72, 75, and 77-79 are irrelevant.

4. Proposed findings of fact 10, 18, 22, 24, 30-33, 36, 46, 47, 49, 50, 52,

53, 62, 65, 66, 73, 74, 76, 80, and 81 are unsupported by the credible, competent, and substantial evidence:

COPIES FURNISHED:

Curtis J. Dickinson Attorney at Law

268 Medical Drive Post Office Box 3152

Carmel, Indiana 46032

W. David Watkins Attorney at Law

2700 Blair Stone Road, Suite C Post Office Box 6507 Tallahassee, FL 32314-6507

Dennis Silverman Michele Guy Attorneys at Law

Department of Insurance and Treasurer

Division of Legal Services

412 Larson Building Tallahassee, FL 32399-0300

Tom Gallagher

State Treasurer and Insurance Commissioner

The Capitol, Plaza Level Tallahassee, FL 32399-0300

Bill O'Neil, General Counsel Department of Insurance

and Treasurer

The Capitol, Plaza Level Tallahassee, FL 32399-0300

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

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.

Docket for Case No: 91-002098

Orders for Case No: 91-002098