STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

PRUDENTIAL PROPERTY AND ) CASUALTY COMPANY OF INDIANA, )

)

Petitioner, )

)

vs. ) CASE NO. 93-5807RE

)

STATE OF FLORIDA, )

DEPARTMENT OF INSURANCE, )

)

Respondent. )

)

FINAL ORDER

On October 26, 1993, a formal administrative hearing was held in this case in Tallahassee, Florida, before J. Lawrence Johnston, Hearing Officer, Division of Administrative Hearings.

APPEARANCES

For Petitioner: Daniel C. Brown, Esquire

Mitchell B. Haigler, Esquire Brian M. Nugent, Esquire

Katz, Kutter, Haigler, Alderman, Davis, Marks & Bryant, P.A.

Post Office Box 1877 Tallahassee, Florida 32302-1877

For Respondent: David J. Busch, Esquire

Department of Insurance and Treasurer Division of Legal Services

612 Larson Building

Tallahassee, Florida 32399-0300 STATEMENT OF THE ISSUES

The issues in these cases are whether all or any part of PRUPAC's petition challenging the validity of emergency rules 4ER93-20 and 4ER93-28 should be granted.

PRELIMINARY STATEMENT

On October 11, 1993, PRUPAC filed a petition challenging the validity of emergency rules 4ER93-20 and 4ER93-28 under Section 120.56(4), Fla. Stat. (1991). It was given DOAH Case No. 93-5807RE and, on October 12, 1993, was assigned to the undersigned hearing officer. On the same day, a Notice of Hearing was issued scheduling final hearing on October 26, 1993, the only day that would comply with both the requirement under Section 120.56(4) that the final hearing be held within 14 days of assignment, and the requirement under Section 120.57(1), Fla. Stat. (Supp. 1992), that 14 days notice be given.

On October 19, 1993, the Department filed a motion to continue the final hearing on two grounds: (1) the unavailability, due to sudden illness and hospitalization, of a Department employee who allegedly was indispensable both as a witness and as the non-attorney party representative for the Department; and (2) the prior commitments of counsel assigned to the case for the Department. PRUPAC opposed the motion. Due to the statutory time constraints governing the emergency rule challenge proceeding, the motion for continuance was denied, and the parties were so notified. (No written order denying the motion was entered; instead, the ruling was placed on the record of the final hearing.)

The Department also filed a motion for summary final order on the ground that PRUPAC had no standing to challenge ER 28. Consideration of this motion was deferred until the final hearing. At the outset of the final hearing, this motion was considered and denied on the record.

At the final hearing, PRUPAC called no witnesses but offered three exhibits in evidence. Ruling on objections to Petitioner's Exhibits 1 and 3 were reserved and are now sustained. Petitioner's Exhibit 2 was admitted in evidence without objection; it is a copy of PRUPAC's application for exemption from the moratorium. The Department presented no testimony or evidence.

PRUPAC arranged for preparation of the transcript of the final hearing for filing on October 27, 1993. PRUPAC also suggested dispensing with proposed final orders so as to expedite entry of the final order. The Department, however, insisted on its right to file a proposed final order, and the parties were given until Monday, November 1, 1993, in which to file them. Explicit rulings on the proposed findings of fact contained in the parties' proposed final orders may be found in the attached Appendix to Final Order, Case No. 93- 5807RE.

On November 3, 1993, PRUPAC filed the Petitioner's Objection to and Motion to Strike Portions of Respondent's Proposed Final Order. The objection and motion are overruled and denied.

By law, the final order must be entered by November 9, 1993. Section 120.56(4), Fla. Stat. (1991).

FINDINGS OF FACT

1. On May 20, 1993, PRUPAC filed an application, under the Department's emergency rule 4ER93-18(4), to be excluded from rule's moratorium on cancellations and non-renewals of personal lines residential property insurance on the basis of risk of hurricane claims.

2. On June 4, 1993, the Department promulgated emergency rule 4ER93-20 (ER 20). This action was taken with the knowledge that the Legislature had enacted a 180-day statutory moratorium, and it established detailed procedures for applying for what it calls an "exemption" from the rule and statutory moratoria. In addition, ER 20(2) also sets out the following substantive rule criteria for granting exemptions:

   
   

   (b) A risk of insolvency is not sufficient grounds to obtain an exemption from the moratorium. There must be an "unreasonable" risk of insolvency, which is interpreted by the Department to mean that insolvency is not just a possible outcome, but is in fact the probable outcome, of a denial of exemption. Loss scenarios that depend for their fulfillment upon the occurrence of statistically unlikely events, will not constitute an unreasonable risk of insolvency. Insurers seeking exemptions must present expert opinion as to all assumptions made in the insurers' predictions.

   
   

3. On August 10, 1993, the Department sent PRUPAC a letter denying PRUPAC's application. The denial letter invited PRUPAC to

   
   

   resubmit a proposal in which the planned cancellations and nonrenewals are designed to reduce your exposure to that amount which, after calculating the effects of reinsurance, would reduce Prupac's probable maximum loss to an amount not in excess of its total surplus.

   
   

   The denial letter also notified PRUPAC of its right to request either informal or formal administrative proceedings under Chapter 120 of the Florida Statutes. It gave PRUPAC 21 days to make such a request.

   
   

4. On September 2, 1993, ER 20 expired. On the same day, the Department promulgated 4ER93-28 (ER 28). ER 28 is an essentially verbatim repromulgation of ER 20. If valid, ER 28 would be effective for another 90 days, until December 2, 1993. See Section 120.54(9)(c), Fla. Stat. (Supp. 1992).

   
   

5. On or about September 3, 1993, PRUPAC filed a Petition for Formal Administrative Hearing on the August 10, 1993, denial letter. The Department referred PRUPAC's petition to the Division of Administrative Hearings, and final hearing on the petition was held on October 25 through 27, 1993.

   
   

6. On October 25, 1993, the court entered an opinion in Prudential Property & Casualty Ins. Co. of Indiana v. Dept. of Insurance, 18 Fla. L. W. D2312 (Fla. 1st DCA Oct. 25, 1993). On petition for review of the August 10, 1993, denial letter, the court "reverse[d] the department's decision and remand[ed] . . . with directions that the department reconsider PRUPAC's application and consider granting it an exemption from the moratorium 'in part'

   on terms that are consistent with this opinion." 18 Fla. L.W. at D2315. At the same time, the court stated:

   
   

   Whether PRUPAC is entitled to the exemption sought in its application 'in whole' can be determined after receipt of the hearing officer's recommended order, which we anticipate will be entered as soon as possible.

   
   

   18 Fla. L.W. at D2315.

   
   

7. The Department responded to the court's opinion by entering a "Final Order Granting Partial Exemption," Dept. of Ins. Case No. 93-L-713NJA, on October 26, 1993, which authorized PRUPAC to cancel at least $500 million of policies in Dade and Broward counties on the condition that PRUPAC ask for cancellation volunteers and offer to pay the first year's premium on a replacement policy. On November 1, 1993, PRUPAC filed a copy of this agency action in this case and advised "that PRUPAC regards the partial exemption issue as now controlled by the First District's opinion, and will seek any relief needed as to the DOI order in DOI case no. 93-L-713NJA by way of appeal to the First District Court of Appeal."

   
   

8. In the pending Section 120.57(1) proceeding, both parties have contended that the Section 120.57(1) proceeding is not moot, and the parties have submitted proposed recommended orders. In accordance with the court's instruction, a recommended order will be entered in that proceeding "as soon as possible." 18 Fla. L.W. at D2315.

   
   

   CONCLUSIONS OF LAW

   
   

9. On May 19, 1993, the Department of Insurance promulgated emergency rule 4ER93-18 (ER 18). ER 18(3) imposed a 90-day moratorium on cancellations and

   non-renewals of personal lines residential property insurance on the basis of risk of hurricane claims. ER 18(4) provided: "This rule shall not apply if the insurer can affirmatively demonstrate to the Department that the proposed cancellation or nonrenewal is necessary for the insurer to avoid an unreasonable risk of insolvency."

   
   

10. Later in May, 1993, the Legislature enacted Chapter 93-401, Laws of Florida (1993). Chapter 93-401 imposed a 180-day moratorium on cancellations and non-renewals of personal lines residential property insurance in Florida on the basis of risk of hurricane claims, beginning on May 19, 1993, the date of ER

1. (The 180-day moratorium expires on November 14, 1993.) Like ER 18, the statutory moratorium also provided for what Section 1(4) of Chapter 93-401 calls an "exception": "This section shall not apply if the insurer can affirmatively demonstrate to the department that the proposed cancellation or nonrenewal is necessary for the insurer to avoid an unreasonable risk of insolvency." But Section 1(4) of Chapter 93-401 elaborated:

   
   

   In reaching this determination the department shall consider the insurer's size, its market concentration, its general financial condition, the degree to which personal lines residential property insurance comprises its insurance business in this state, and the way in which these factors impact on the risk to

   the insurer's solvency in relation to its probable maximum loss in the event of a hurricane. In no event shall any insurer be required to risk more than its total surplus to any objectively defined probable maximum loss resulting from one Florida hurricane loss event.

   
   

   Chapter 93-401 was effective on becoming law, and it was signed into law by the Governor on June 8, 1993.

   
   

   1. Section (2) of emergency rule 4ER93-20 (ER 20) states:

      
      

      (b) A risk of insolvency is not sufficient grounds to obtain an exemption from the moratorium. There must be an "unreasonable" risk of insolvency, which is interpreted by the Department to mean that insolvency is not just a possible outcome, but is in fact the probable outcome, of a denial of exemption. Loss scenarios that depend for their fulfillment upon the occurrence of statistically unlikely events, will not constitute an unreasonable risk of insolvency. Insurers seeking exemptions must present expert opinion as to all assumptions made in the insurers' predictions.

      
      

   2. The Department contends that ER 20 was applicable to PRUPAC's application for an exemption to the moratorium statute and that the August 10, 1993, denial letter was based on ER 20(2)(b). The Department also contends that ER 20 still governs the PRUPAC application. (The Department's asserts in its proposed final order that PRUPAC's challenge to ER 20 is moot because of the Department's "Final Order Granting Partial Exemption," Dept. of Ins. Case No.

      93-L-713NJA. This assertion does not comport with the facts. First, at least the rest of PRUPAC's exemption application still is pending. Second, the Department has taken the position in the Section 120.57(1) proceeding that none of PRUPAC's exemption application is moot.) PRUPAC refutes the contentions that the August 10, 1993, denial letter was based on ER 20(2)(b) and that ER 20 is applicable to PRUPAC's exemption application. But PRUPAC argues that, if ER 20 is applicable to its application, PRUPAC has standing and the right to challenge ER 20's validity.

      
      

   3. Formal administrative proceedings under Section 120.57(1), Fla. Stat. (Supp. 1992), are de novo. Moore v. Dept. of Health, etc., 596 So. 2d 759 (Fla. 1st DCA 1992); McDonald v. Dept. of Banking and Finance, 346 So. 569 (Fla. 1st DCA 1977). They are designed to give affected parties the opportunity to change the agency's mind. Capeletti Bros., Inc., v. Dept. of General Services, 432 So. 2d 1359 (Fla. 1st DCA 1983). Except when to do so presents notice problems, they are governed by the rules in effect at the time of the final hearing.

      
      

   4. Regardless whether the August 10, 1993, denial letter was based on ER 20(2)(b), ER 20 expired on September 2, 1993. See Section 120.54(9)(c), Fla. Stat. (Supp. 1992). Since ER 20 has expired, it can no longer operate as a rule governing the PRUPAC application, and it is too late for PRUPAC to challenge the validity of ER 20. PRUPAC's challenge to ER 20 is moot and must be dismissed.

   5. The Department contends that ER 28 is not applicable to PRUPAC's application because it was not in effect at the time of the application or at the time of the August 10, 1993, denial letter. For that reason, the Department contends that PRUPAC has no standing to challenge ER 28. But, if valid, ER 28 would be effective for another 90 days, until December 2, 1993. Section 120.54(9)(c), Fla. Stat. (Supp. 1992). Except to the extent that its procedural requirements would present notice problems, ER 28--and, in particular, the substantive criteria for obtaining exemptions set out in ER 28(2)(b)--would indeed be applicable to the de novo consideration of PRUPAC's application in the pending formal administrative proceedings under Section 120.57, Fla. Stat. (Supp. 1992). See Moore v. Dept. of Health, etc., supra; Capeletti Bros., Inc.,

      v. Dept. of General Services, supra; McDonald v. Dept. of Banking and Finance, supra. Therefore, PRUPAC has standing and the right to challenge ER 28's validity.

      
      

   6. Even if ER 28 did not apply to PRUPAC's pending application, the Department concedes that it would apply to a resubmittal of the application, as suggested in the August 10, 1993, denial letter. The Department contends that PRUPAC would not have standing to challenge the validity of ER 28 until it submits another application. To the contrary, if ER 28 applies to a resubmittal by PRUPAC, and PRUPAC is eligible to resubmit, ER 28 substantially affects PRUPAC even though PRUPAC has not yet resubmitted.

      
      

   7. It is clear that ER 28 is an essentially verbatim repromulgation of ER

20. The law is clear that emergency rules cannot be repromulgated. Section 120.54(c), Fla. Stat. (Supp. 1992), states:

An emergency rule adopted under this subsection may not be effective for a period longer than 90 days and shall not be renewable, except during the pendency of a challenge to proposed rules addressing the subject of the emergency rule. However, the agency may take identical action by normal rulemaking procedures.

See also Times Pub. Co. v. Fla. Dept. of Corrections, 375 So. 2d 307, 308, 311 (Fla. 1st DCA 1979); Calder Race Course, Inc., v. Humane Society, 13 F.A.L.R. 2223, 2235 (DOAH 1991).

18. The other grounds for challenging ER 20 and ER 28 asserted by PRUPAC at the final hearing and in its proposed final order were not contained in the petition it filed on October 11, 1993. In any event, rulings on them are not necessary to the disposition of these challenges.

DISPOSITION

Based on the foregoing Findings of Fact and Conclusions of Law: PRUPAC's challenge to 4ER93-20 is dismissed; and PRUPAC's challenge to 4ER93-28 is granted to the extent that 4ER93-28 is declared invalid.

DONE AND ORDERED this 9th day of November, 1993, in Tallahassee, Florida.

J. LAWRENCE JOHNSTON Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 9th day of November, 1993.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 93-5807RE

To comply with the requirements of Section 120.59(2), Fla. Stat. (1991), the following rulings are made on the parties' proposed findings of fact:

Petitioner's Proposed Findings of Fact.

1.-2. To the extent that they relate facts peculiarly within PRUPAC's knowledge, accepted and incorporated to the extent not subordinate or unnecessary. Otherwise, accepted as accurate recitations of representations in PRUPAC's application, but the factual truth of those representations were not proven.

1. Accepted and incorporated.

2. Rejected as not proven that the Department's General Counsel "instructed" PRUPAC as to what its application should be or contain. Accepted that the Department's General Counsel offered procedural guidance on how to apply and accepted as to the contents of the application; those items are incorporated to the extent not subordinate or unnecessary.

3. Accepted and incorporated.

4. Rejected as not proven.

5. Accepted and incorporated.

6. Accepted and incorporated to the extent not subordinate or unnecessary.

7. Accepted based on official recognition but argument, subordinate and unnecessary.

8. Accepted and incorporated.

9. Rejected as being conclusion of law.

Respondent's Proposed Findings of Fact.

1. Accepted but subordinate and unnecessary.

2.-3. Accepted and incorporated to the extent not subordinate or unnecessary.

4. First sentence, accepted but unnecessary. Rest, accurate references to representations in the application and to parts of the opinion, but the factual truth of the representations were not proven, and the opinion remanded for a hearing on most of the factual issues. Also, unnecessary.

5.-8. Accepted and incorporated to the extent not subordinate or unnecessary.

9. Rejected as not proven or supported by the evidence. Also, unnecessary.

COPIES FURNISHED:

Daniel C. Brown, Esquire Mitchell B. Haigler, Esquire Brian M. Nugent, Esquire

Katz, Kutter, Haigler, Alderman, Davis, Marks & Bryant, P.A.

Post Office Box 1877 Tallahassee, Florida 32302-1877

David J. Busch, Esquire Dennis Silverman, Esquire

Department of Insurance and Treasurer Division of Legal Services

612 Larson Building

Tallahassee, Florida 32399-0300

Honorable Tom Gallagher- Insurance Commissioner The Capitol, Plaza Level

Tallahassee, Florida 32399-0300

Bill O'Neil, Esquire General Counsel Department of Insurance

and Treasurer The Capitol, PL-11

Tallahassee, Florida 32399-0300

Carroll Webb, Executive Director Administrative Procedures Committee

120 Holland Building Tallahassee, Florida 32399-1300

Liz Cloud, Chief

Bureau of Administrative Code Department of State

The Elliot Building

Talllahassee, Florida 32399-0250

NOTICE OF RIGHT TO JUDICIAL REVIEW

A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO JUDICIAL REVIEW PURSUANT TO SECTION 120.68, FLORIDA STATUTES. REVIEW PROCEEDINGS ARE GOVERNED BY THE FLORIDA RULES OF APPELLATE PROCEDURE. SUCH PROCEEDINGS ARE COMMENCED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF THE DIVISION OF ADMINISTRATIVE HEARINGS AND A SECOND COPY, ACCOMPANIED BY FILING FEES PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL, FIRST DISTRICT, OR WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE PARTY RESIDES. THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE ORDER TO BE REVIEWED.

Docket for Case No: 93-005807RE

Orders for Case No: 93-005807RE