STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
GREAT AMERICAN RESERVE )
INSURANCE COMPANY )
)
Petitioner, )
)
vs. ) CASE NO. 94-3223RU
) DEPARTMENT OF INSURANCE AND ) STATE TREASURER )
)
Respondent. )
)
FINAL ORDER
Upon due notice, this cause came on for formal hearing on July 14, 1994 in Tallahassee, Florida, before Ella Jane P. Davis, the hearing officer designated pursuant to Section 120.535 F.S.
APPEARANCES
For Petitioner: Sharon A. DiMuro, Esquire
Frank J. Santry, Esquire
Granger, Santry, Mitchell & Heath, P.A. 2833 Remington Green Circle Tallahassee, Florida 32308
For Respondent: James B. Redner, Esquire
Department of Insurance Division of Legal Services 612 Larson Building
200 East Gaines Street Tallahassee, Florida 32399-0333
STATEMENT OF THE ISSUE
Whether or not all or part of the 40 statements challenged in the petition of Great American Reserve Insurance Company violate Section 120.535 F.S. requiring the agency to immediately discontinue all reliance upon the statements or any substantially similar statement as a basis for agency action.
PRELIMINARY STATEMENT
On June 13, 1994, Petitioner filed a petition seeking an administrative determination that forty statements of the Department of Insurance and State Treasurer were statements defined as rules that had not been adopted by the rulemaking procedure provided in Section 120.54, F.S. and therefore these statements were being used by the Department in violation of Section 120.535,
F.S. Petitioner was seeking an order directing the Department to immediately discontinue reliance on the statements as a basis for agency action. If such an order were granted, the Department's disapproval of three separate annuity
filings by Petitioner, now pending in DOAH Case Nos. 94-2646, 94-2671, and 94- 3245, would be directly affected.
On June 22, 1994, the Department filed a Motion for Summary Final Order seeking a dismissal of the petition on the basis that the Department had, as of that same date, initiated the first step in the rulemaking procedure by filing a Notice of Rule Development Workshop to address the forty challenged statements, as well as other pertinent matters. A response was filed and after oral argument, the motion was denied by an order entered July 8, 1994.
The parties entered into prehearing stipulations which limited the necessity to establish certain facts and altered the order of proof at formal hearing. At formal hearing, conducted pursuant to Sections 120.535 and 120.57(1) F.S., Respondent Department presented the testimony of Linda P. Ziegler and Ruth L. (Cindy) Gokel and had four exhibits admitted in evidence. Petitioner presented no oral testimony and had twelve out of thirteen exhibits admitted in evidence. The deposition transcript excerpts of Respondent's designated party witnesses were admitted, pursuant to Rule 1.330(a)(2) Fla. R. Civ. P.
Upon stipulation of the parties, official recognition was taken of the "Bill Analysis and Economic Impact Statement of the Governmental Operations Committee of the House of Representatives relating to 91-30 Laws of Florida," which item was also designated as "Joint Exhibit 1".
A transcript was filed on July 18, 1994, and all proposed findings of fact filed July 29, 1994 have been ruled upon in the appendix to this final order, pursuant to Section 120.59(2) F.S.
FINDINGS OF FACT
On June 13, 1994, Petitioner filed a petition for administrative determination of agency statement. The petition listed the following agency statements and alleged that each constituted a rule pursuant to Chapter 120.52(16), F.S. which had not been adopted by the rulemaking procedures provided by Section 120.54 F.S. [1993].
The challenged statements are as follows:
Respondent issues a form which solicits information as follows: Please provide the following information for each approved and pending annuity contract:
Form number.
Name of form, if any.
Date approved or if pending.
What are the surrender charges and for how long?
What is the initial interest rate and for how long?
What is the guaranteed interest rate?
Are there any bonuses? If so, for how long and under what circumstances are they paid?
Is this annuity two-tier? If so, how is interest applied?
What field compensation is paid for each variation?
Are any of these forms field issue that allow the agent to write in the current rate of interest? If so, what controls are in place to guarantee accuracy?
Respondent issues a form which solicits information as follows: Please list any other annuities offered by the company and
their corresponding contract maintenance fees, administration charges, surrender charges, etc.
Respondent issues a form which solicits information as follows: Please provide the agent compensation levels associated with each form and/or set of surrender charges.
Respondent issues a form which solicits information as follows: Please describe the specific calculation basis of the various annuity purchase rates/settlement options. Please include sample calculations of all options at a selected age(s).
Respondent issues a form which solicits information as follows: What percentage sales are expected to be replacements of an existing contract? Please identify the replacement percentages by source (internal, external, 1035 exchanges, etc.).
Respondent issues a form which solicits information as follows: [Provide] a brief description of the market and marketing method.
Respondent issues a form which solicits information as follows: Please provide the following:
Agency training procedures as they relate to this form,
Any brochures provided to agents which refer to this form,
Any guidelines to assure that policy comparisons are accurate and fair,
Standards to ensure that no marketing methods are used which would have the effect of inducing replacement sales through misleading representations, and
All forms, other than those required by Rule 4-151.006 and 4-151.007(3)(b), used to a execute replacement sales.
Respondent issues a form which solicits information as follows: Please describe the company's practice concerning credited interest rates for annuity products in renewal years. Does the credited interest rate on a given date vary by the duration of the policy within a policy form block of business? If so, please describe the relationship between the various rates. How is this practice disclosed in sales literature for its products?
On an annuity policy, varying the death benefit by issue age and duration is unfair
discrimination under Ch. 626.9541(1)(g).
It is not appropriate to vary the death benefit by age at death for an annuity policy.
Variation of surrender charges in an annuity policy by age results in unfair discrimination under Ch. 626.9541(1)(g).
Basing the surrender charge in an annuity policy on the age of the annuitant
is unfair discrimination under Ch. 626.9541(1)(a).
Where surrender charges, which are guaranteed in an annuity contract, vary between forms and the policy parameters, which vary in support of these different surrender charges (interest, bonuses, etc.), are not guaranteed in the contract, if a company were to have products with different surrender charges this would constitute unfair discrimination under Ch. 626.9541.
Unfair discrimination is prohibited under annuity contracts by Florida Statute 626.9541(1)(g). The Department continues to receive filings with many variations of interest rates and surrender charges for which the surrender charges are guaranteed and the interest rates are not. These many combinations, applied to the same type contracts, violate this statute.
If a single insurance company offers more than one annuity policy in the same market in Florida, the values to the purchaser pursuant to guaranteed parameters under each policy must be actuarially equivalent to those of each other policy.
A withdrawal provision in an annuity contract which waives surrender charges on all or part of a partial surrender but imposes surrender charges on all of a total surrender will produce unfair discrimination.
Proposed interest rate differentials must result in compensatory guarantees across whatever number of free withdrawal options are made available in an annuity contract for a block of business.
It is the position of the Florida Department of Insurance that where multiple annuity products are presented for approval in the State of Florida that the examination of the guaranteed parameters of the policies must all result in the same actuarially equivalent benefit to the beneficiary of the
policy for a block of business. If you looked at a block of business sold under each policy, taking into account the distribution of that business and the persistency patterns of that business over the life of that block of business, there must be a comparable return
to the policyholder. Less than half a point
would be considered approaching reasonable.
In an annuity policy, where the present value at death of the amount of death benefit paid is based on the manner in which it will
be paid, this is discriminatory pursuant to Ch. 626.9541. It should be revised so that the
death benefit options are actuarially equivalent.
Each settlement option which may be exercised under an annuity policy must be the actuarial equivalent of each other settlement option offered under that policy.
Settlement options offered in an annuity policy may not vary based on the age of the policyholder.
An annuity policy may not contain a one direction market value adjustment.
One direction MVA does not provide equitable treatment. such an adjustment should be allowed to move equally in both directions to prevent inequitable and discriminatory treatment under Ch. 626.9541.
The Department of Insurance mandates compliance with the provision in the current draft of the standard non-forfeiture law for annuities that guaranteed minimum annuitization rates must be at least that guaranteed during the accumulation phase, for a policy not to violate Ch. 626.9541(1)(a) and Ch. 627.411(2).
In an annuity contract, the guaranteed minimum annuitization rate may not be less than the guaranteed minimum accumulation rate, per the current draft of the standard non- forfeiture law for deferred annuities.
The Department considers a minimal measure of benefits being reasonable in relation to premiums under Ch. 627.411(2), to be compliance with the standard
non-forfeiture law.
The guaranteed minimum annuitization rate in an annuity policy may not be less
than the guaranteed minimum accumulation rate, per the current draft of the standard
non-forfeiture law for deferred annuities.
The Department continues to feel that attribution of mortality expense charge to variations in the annuitization phase is inappropriate. The current draft of the standard non-forfeiture law for deferred annuitities allows use of projection scale G to be applied to the 1993 table a to account for possible future mortality improvement.
It would also appear inappropriate to deduct a mortality charge in the annuitization phase for a mortality risk from the accumulation phase, as the risk no longer exists.
Annuity policy forms may not be approved unless all sales brochures and
literature are submitted with the forms.
All annuity contracts must contain a table of guaranteed values.
A table of guaranteed values in an annuity policy must demonstrate any available partial withdrawals not subject to surrender charges, even if the free partial withdrawal provisions are set out in the policy.
An annuity contract must include a table of guaranteed minimum annuitization rates.
Current company practice may not be presented in the illustration or brochure as a product characteristic of an annuity policy. Only contractually guaranteed items may be presented as policy parameters.
If a contract contains proposed provisions which would allow the company to reserve the right to make future changes in charges, guarantees or contractual provisions in the policy, this would violate Ch. 627.474.
A sales illustration in an annuity policy must display surrender values, even if the surrender charges are disclosed in the illustration.
An illustration in advertising of an annuity policy must demonstrate any available partial withdrawals not subject to surrender charges, even if the terms of a free partial withdrawal provisions are set out in the advertising.
Computer generated sales illustrations for annuity policies must include the following:
Name of the person that the illustration is prepared for.
Name of the agent preparing the illustration.
A current date.
A proposed date of maturity.
Disclosure of all expense charges including a clear statement of the surrender charges.
An illustration in advertising of a one tier annuity policy must specify the
maturity date.
The agent is not permitted to write in the current interest rate in the sales brochure.
Death benefits or settlement options in an annuity policy to be sold to males and females must be based on male mortality tables for men, female mortality tables for women or gender blended mortality tables.
Statements 1-8 challenge forms used by the Department of Insurance soliciting the enumerated information.
Statements 9-40 challenge statements of policy used by the Department in review of annuity insurance policy and advertising forms.
Between the filing of the Petition herein and the date of formal hearing, the Respondent agency filed a notice of rule development workshop. (See Finding of Fact 36)
The parties stipulated:
That Petitioner has standing herein as a person substantially affected by the
agency statements challenged in the petition herein.
That each challenged agency statement
is an agency statement defined as a rule under Section 120.52(16) F.S.; and
That none of the challenged agency statements have been adopted by the rulemaking procedure provided by Section 120.54 F.S. [1993].
By reason of the parties' stipulations, the only matter to be determined is whether or not the agency is currently using the rulemaking procedure expeditiously and in good faith to adopt rules which address the statements challenged by the petition herein.
In an effort to establish minimal standards on a wide variety of issues, the Department of Insurance and State Treasurer has recently tried to approach rulemaking in a holistic or coordinated manner among its various bureaus and areas of technical expertise instead of piecemeal, as historically. In 1989-1990, the agency adopted 225 forms as rules, reducing the number of forms in use from 800. Its last wholesale rules review and revision occurred in the fall of 1991, partly in response to the legislative creation of Section
120.535 F.S., was internally code-named "the rules reorganization project," and met the statutory March 1, 1992 deadline to formalize existing non-rule policies. Both projects were conducted under the oversite of agency attorney Ruth L. Gokel, of the agency's legislative and rules section.
Since then, the agency has largely deferred to its technical experts to initiate rulemaking, and not to its lawyers. However, anytime a regulatory employee approaches the legislative and rules section, that section immediately initiates rulemaking procedures. While Ms. Gokel does not provide routine oversite to the agency's bureaus or divisions to determine whether they are routinely using non-rule policy, she has the authority to recommend to agency bureaus and divisions that they are in need of rules. Because she is familiar with the complex processes for promulgating rules, she coordinates much of the agency's rule drafting.
Ms. Gokel created a departmental manual on rulemaking in June 1991. The manual was published after enactment of Section 120.535 F.S.
Portions of that manual, upon which Petitioner strongly relies, provides:
any interpretation of a statute or any requirement generally imposed on agents, companies or other regulated entities as a group which has not been adopted as a rule, is a non-rule policy.
* * *
The first time we interpret a statute and apply it to a particular fact situation, the interpretation is not as yet a statement of general applicability and thus is not a rule. The second time an issue arises . . . we need to begin to formulate a rule. The third or fourth time a statute is interpreted and applied in a given manner, a rule should be published.
Petitioner views this manual as binding upon the agency to begin rulemaking in some form immediately upon any agency employee imposing any statutory interpretation for the first time and even if the statutory interpretation is still only part of an individual's mental process. Petitioner also views the manual as requiring the agency to publish a rule upon the third or forth similar interpretation. However, the competent substantial evidence as a whole shows that the manual's pronouncements were, at best, aspirational. The manual was designed as the agency's first best attempt to educate its non-lawyer experts concerning their responsibilities under a new law, to ensure agency compliance with the new law by "picking up any non-rule policy floating around", to head off potential violations of the new law, and to minimize the number of potential petitions challenging agency statements under the new law. The manual also was in line with the agency's new evolving coordinated approach to rulemaking. The manual is designed to alert laymen to rulemaking problems, and was revised in December 1993. It will continue to be revised periodically.
Prior to the filing of the Petition herein, the Department adopted checklists to aid insurers in their submission of policy forms and to aid the Department staff in their reviews of such form filings. The checklists are adopted as forms in Part II of Rule Chapter 4-149.
Prior to the filing of the Petition herein, the Department adopted rules governing the review of advertising material for annuities. Those rules may be found in Part II of Rule Chapter 4-150.
The Department has conducted actuarial reviews of annuity filings only since May of 1992.
Although there were no statutory changes on or about that date, the Department was motivated to institute much closer scrutiny of annuities and the sale of annuities in this state as a result of the rule challenges to the Department's "bank rules", Chapter 4-223 F.A.C.
Actuarial review by the agency has evolved in order to ensure that the products are clearly presented, that they are not unfairly discriminatory, that the sales presentations and contracts are not misleading, and that the product has not been designed for use with inappropriate marketing practices. These are statutorily permissible goals. See, Chapter 627 F.S. Of necessity, the Department review must combine its regulatory concerns into one cohesive set of policy statements.
The actuarial review of annuities was first conducted by actuary Mike Morgan from May 1992 to about February 1993, when that responsibility was assumed by another Department actuary, Tom Foley. In December, 1993, the responsibility shifted to yet another Department actuary, Linda Ziegler.
During the course of the reviews performed by each of these agency employees, judgments were made as to particular aspects of the actuarial review. Those judgments regarding the particular forms being reviewed were expressed in letters to the companies involved. Some of these letters were requests for additional information. If the additional information were supplied and, in the opinion of the reviewing actuary, it did not result in a violation of Florida statutes or rules, then the filing was approved. If the reviewing actuary found a violation based on the additional information, the filing was disapproved. Other letters were disapproval letters after a complete review of all the requested information.
Actuarial review is an arcane business involving informed consideration of many different aspects of a filing. The decision to approve or disapprove is made on the basis of the totality of the filing. It may be that one aspect of a particular filing might not be entirely within the required parameters in the judgment of the actuary, but that aspect, in that particular filing, might be offset by another aspect, which in turn would render the filing approvable. All pieces of the whole are interrelated and the whole is complex.
When Ms. Ziegler became responsible for the filings, she consulted with Mr. Morgan and Mr. Foley. Over the course of the two years of review, the actuaries involved wrote several hundred letters addressing actuarial issues on a situation by situation basis as each situation arose.
Between December 1993 and the filing of the Petition herein, Ms. Ziegler was the responsible reviewing actuary. During those approximately six months, Ms. Ziegler consistently and uniformly applied the statements challenged to every application for annuity policy form and advertising form approval filed. Thus, even those statements used relatively few times have been used every time the policy embodied in the statement could have been applied.
Additionally, departmental letters to insurance company applicants for approval of annuity policy and advertising forms, some 630 separate applications of challenged statement numbers 2, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23 and 40, related to unfair discrimination pursuant to Section 627.9541(1)(g) F.S.
Challenged statement number 29 has been the articulated agency policy for at least 21 months, since the issuance of Department of Insurance Informational Bulletin 92-032 issued October 21, 1992.
In January of 1994, Mike Morgan drafted language intended for the agency's legislative package for the 1994 session to address parts of the problem of actuarial review statutorily. Although agency personnel believed the agency had, and has, authority to perform these reviews, Ms. Ziegler testified that it is always better if matters are addressed by specific statutes because they are then much less subject to challenge.
The Legislature did not address the issue of annuities in 1994. However, Mr. Morgan's work remained available to Ms. Ziegler when she began drafting what eventually became the Department's proposed rules on the subject.
In March 1994, Ms. Ziegler began work on a draft bulletin to send to the companies to inform them in a more comprehensive way of the Department's current interpretations of several parts of the actuarial review problem. At about that time, she met with Department attorney Dennis Silverman who advised that eventually she would need to pursue rulemaking.
Ms. Zeigler was unavoidably absent from the workplace at some time during this period due to an accident. When she returned to her office, she prioritized what she considered "more immediate" work.
In May 1994, Ms. Ziegler returned to the draft bulletin, made a few minor changes, and then abandoned the project in favor of proposed rules.
The Petition in this cause was filed June 13, 1994.
Ms. Ziegler was aware that the forty statements had been challenged by the Petition shortly after the Petition herein was filed.
In the third week of June 1994, Ms. Ziegler sought out Ms. Gokel. At that time, Ms. Ziegler had draft rules she felt cohesively addressed the actuarial review necessities, including addressing certain misleading sales practices. She also had several of the checklists adopted in Part II of Chapter 4-149 F.A.C. on which she had drafted proposed changes. Her comprehensive package addressed the totality of the necessary review and, as a result, also addressed each of the forty statements challenged in the pending Petition.
Ms. Ziegler represented to Ms. Gokel that she was comfortable with the whole package and was ready to go public with it. Ms. Gokel informed Ms. Ziegler that since February, 1994 Ms. Gokel had had an assignment to make changes to the same checklists and had already had two meetings, in February and in March, with two other members of the Department regarding the same matter.
Yet another member of the Department, Kim Forrester, had been working on proposed changes to the advertising rules in Part II of Chapter 4-150 F.A.C. Ms. Forrester was working with another departmental attorney, so in line with the agency's comprehensive approach to rules, Ms. Gokel had the foregoing assignment transferred to her.
Based upon Ms. Gokel's considerable education, training, and experience in rulemaking, her understanding of agency policy concerning the need for and use of rule development workshops, the great amount of insurance industry interest which can reasonably be anticipated for the draft rules, and her personal knowledge regarding the complexity and breadth of the actuarial matters addressed in the draft rules, Ms. Gokel determined that a rule development workshop was essential. Rule workshops have been more the norm than the exception with this agency since at least 1992.
The agency published its Notice of Rule Development Workshop in the Florida Administrative Weekly on July 1, 1994. The notice stated that a preliminary draft of the rules would be available for distribution on July 22, 1994, and that the workshop would be held on August 23, 1994, from 2 to 4 p.m.
Respondent's witnesses affirmatively demonstrated significant planning and tangible steps that have been taken in furtherance of the rulemaking process since the filing of the foregoing notice.
Ms. Gokel has devised a feasible preparatory checklist or schedule for meeting the deadlines announced in the published notice. Between publication of the Notice of Rule Development Workshop and formal hearing, something has been accomplished almost every day. In accord with this schedule, Ms. Gokel has once again met with Ms. Ziegler to discuss the proposed changes; has worked on the needed changes to the checklists with the secretary in the Bureau of Life and
Health Forms and Rates because those checklists are documents in the "Lotus Notes" software program not available to Ms. Gokel in the agency's legislative and rules section; has reviewed the statutory authority supplied by Ms. Ziegler and has added the history notes where they were missing in the draft prepared by Ms. Ziegler; has incorporated Ms. Ziegler's and Ms. Forrester's proposed changes into the draft of the advertising rules; has reworked Ms. Ziegler's and Ms.
Forrester's drafts for compliance with the Secretary of State's filing requirements; and has produced preliminary rule drafts. These steps have been expeditious and are themselves tangible evidence of the agency's current good faith efforts in the rulemaking procedure.
Other steps listed by Ms. Gokel as necessary remained to be accomplished after formal hearing. Those included a meeting between Ms. Gokel and Ms. Forrester about the advertising rules; preparation of the existing rules which adopt the checklists showing the new revision dates; a meeting with Ms. Ziegler to discuss another proposed new rule in the actuarial review rules; a comprehensive review of the history notes; consolidation of the existing drafts into a single document for distribution as noticed for July 22, 1994; and preparation of the sign-in sheets and agenda for the workshop noticed for August 23, 1994. Provisions for timely accomplishing these tasks has been made on Ms. Gokel's schedule.
As of the date of formal hearing, Ms. Gokel had already discovered several other statutory sections which should have been included in the Notice of Rule Development Workshop. She expressed the intent to file an amended notice reciting the additional statutory authority, but not otherwise changing the date or time of the workshop. This discovery represents at least one advantage of a comprehensive approach to agency rule drafting as practiced by this agency.
Once the workshop draft has been distributed on July 22, 1994, the agency anticipates holding the workshop on August 23, 1994 and leaving the record open for written comments if appropriate. The agency's current intent is to leave the record open for only two weeks, which the agency's past workshopping experience has proven sufficient. Although this period could be extended further, there is no evidence in this record to suppose it will be. After the record closes, the plan is for agency personnel to conduct an internal review of the comments that were received, if any; Ms. Gokel will prepare a revised draft of the rules, as warranted, and will circulate an internal route slip for approval of the agency "senior management" involved. Only the lattermost effort of the route slip is an internal procedure peculiar to this agency and is not a requirement of Chapter 120 F.S. Historically, this route slip procedure has been ministerial and has only taken a few days. There is no clear evidence to show it will be different or take longer this time. Finally, the agency will have to file for notice, pursuant to Section 120.54 F.S.
Petitioner presented only speculation to the effect that the foregoing schedule would not be met.
The agency's assessment that in the area of actuarial review, moving from "first-time-ever" review of annuities to a comprehensive rule package in two years is the rulemaking equivalent of the "speed of light," may be more colorful than informative and is not binding upon the finder of fact, but the foregoing agency schedule and the agency's actions thereon are found to be currently expeditious in the circumstances of the number and type of rules necessary for such complex subject matter.
If any challenged statement were not being addressed by the rulemaking process, the agency would have been unable to demonstrate that the agency rulemaking process is currently proceeding expeditiously and in good faith. However, here, the agency affirmatively demonstrated through unrefuted testimony that its draft rules have addressed, with at least some degree of particularity, each of the forty statements challenged by the Petition.
Statements (1) and (2) of the Petition for Administrative Determination of Agency Statement involve requests for information of a company as to the other annuity products which the company is offering, have approved or are pending approval. This subject is addressed in the proposed draft rules in Respondent's Exhibit 1, Forms DI4-555, DI4-556, and DI4-557.
Statement (3) of the Petition involves a request for information concerning the agent compensation levels paid on the proposed product. This subject is addressed in the proposed draft rules in Respondent's Exhibit 1, Forms DI4-548, DI4-555, DI4-556, and DI4-557.
Statement (4) of the Petition involves a request for information regarding a specific description of the basis of the guaranteed minimum annuitization rates in the contract. This subject is addressed in the proposed draft rules in Respondent's Exhibit 1, Forms DI4-555, DI4-556, and DI4-557.
Statement (5) of the Petition involves a request for information regarding sales of the product which are expected to be replacements of existing coverage. This subject is addressed in the proposed draft rules in Respondent's Exhibit 1, Forms DI4-555, and DI4-556.
Statement (6) of the Petition involves a request for information regarding the market to be targeted and the marketing method to be used with respect to the proposed form. This subject is addressed in the proposed draft rules in Respondent's Exhibit 1, Forms DI4-548, DI4-549, DI4-551, DI4-555, DI4- 556, and DI4-557.
Statement (7) of the Petition involves a request for information regarding the agency training methods to be used with respect to the proposed form. This subject is addressed in the proposed draft rules in Respondent's Exhibit 1 Forms DI4-555, DI4-556, and DI4-557.
Statement (8) of the Petition involves a request for information regarding the credited interest rates in renewal years and their disclosure to consumers as practiced by the company. This subject is addressed in the proposed draft rules in Respondent's Exhibit 1, Forms DI4-555, DI4-556, and DI4- 557.
Statements (9) and (10) of the Petition address the Department's concern about unfair discrimination under Section 626.9541(1)(g), F.S., in the death benefit offered in an annuity product. This subject is addressed in the proposed draft rules in Petitioner's Exhibit I, proposed draft Rule 4- 149.064(2)(a)3.
Statements (11) and (12) of the Petition address the Department's concern about unfair discrimination under Section 626.9541(1)(g), F.S., in the variation of surrender charges by age in an annuity product. This subject is addressed in the proposed draft rules in Petitioner's Exhibit I, proposed draft Rule 4-149.065(4).
Statements (13), (14), (15), and (18) of the Petition address the Department's concern about unfair discrimination under Section 626.9541(1)(g), F.S., between essentially identical products which have variations in guaranteed surrender charges, and other guaranteed parameters, and do not provide comparable benefits for premiums paid for the annuity products. This subject is addressed in the proposed draft Rule 4-149.071, Petitioner's Exhibit I.
Statement (16) of the Petition addresses the Department's concern about unfair discrimination under Section 626.9541(1)(g), F.S., between policyholders of the same annuity form in treatment under the withdrawal provisions. This subject is addressed in the proposed draft rules in Petitioner's Exhibit I, proposed draft Rule 4-149.065(4)(c).
Statement (17) of the Petition addresses a special case scenario of the Department's concern as expressed in statements (13), (14), (15), (18).
This subject is addressed in the proposed draft rules in Petitioner's Exhibit I, proposed draft Rule 4-149.071.
Statement (19) of the Petition addresses the Department's concern about unfair discrimination under Section 626.9541(1)(g), F.S. regarding the payment of a death benefit. This subject is addressed in the proposed draft rules in Petitioner's Exhibit I, proposed draft Rule 4-149.066, and 4- 149.064(2)(a)3.
Statement (20) of the Petition address the Department's concern about unfair discrimination under Section 626.9541(1)(g), F.S., in the value of the annuitization value available in an annuity product. This subject is addressed in the proposed draft rules in Petitioner's Exhibit I, proposed draft Rule 4- 149.066.
Statement (21) of the Petition address the Department's concern about unfair discrimination under Section 626.9541(1)(g), F.S. in the choice of annuitization options available in an annuity product. This subject is addressed in the proposed draft rules in Petitioner's Exhibit I, proposed draft Rule 4-149.066.
Statements (22) and (23) of the Petition address the Department's concern about misrepresentation and unfair discrimination under Section 626.9541(1)(a) and (g), F.S., in the inclusion of a Market Value Adjustment which affects the policy in only one direction. This subject is addressed in the proposed draft rules in Petitioner's Exhibit I, proposed draft Rule 4- 149.067(2).
Statements (24), (25), and (27) of the Petition address the Department's concerns about misrepresentation under Section 626.9541(1)(a), F.S., and ambiguity and reasonableness of benefits to premiums under Section 627.411(1)(b), and (2), F.S. in the interest rate component of the guaranteed minimum annuitization rates in the annuity contract. This subject is addressed in the proposed draft rules in Petitioner's Exhibit I, proposed draft Rule 4- 149.064(2)(a)4.
Statement (26) of the Petition addresses the Department's concern about reasonableness of benefits to premiums under Section 627.411(2), F.S. for an annuity contract. This subject is addressed in the proposed draft rules in Petitioner's Exhibit I, proposed draft Rule 4-149.064(2)(a).
Statement (28) of the Petition addresses the Department's concern about reasonableness of benefits to premiums under Section 627.411(2), F.S., in the treatment of charges under an annuity contract. This subject is addressed in the proposed draft rules in Petitioner's Exhibit I, proposed draft Rule 4- 149.064(2)(c).
Statement (29) of the Petition addresses the Department's concern about timely review and approval of sales literature as noticed by Bulletin 93- 032's expression of existing Rule 4-150.120 F.A.C.. This subject is addressed in the proposed draft rules in Respondent's Exhibit 1, Forms DI4-548, DI4-549, DI4-550, DI4-551, and DI4-555.
Statements (30) and (31) of the Petition involve a requirement for the contract to contain an accurate table of guaranteed values, to prevent ambiguity under Section 627.411 (1)(b), F.S. This subject is addressed in the proposed draft rules in Respondent's Exhibit 1, Forms DI4-555, DI4-556, DI4-557.
Statement (32) of the Petition involves a requirement for the contract to contain an accurate table of guaranteed minimum annuitization values, to prevent ambiguity under Section 627.411(1)(b), F.S. This subject is addressed in the proposed draft rules in Respondent's Exhibit 1, Forms DI4-555, DI4-556, DI4-557.
Statement (33) of the Petition addresses the Department's concern about accurate, complete and non-misleading presentation of policy characteristics in sales literature, under existing Rule 4-150.105. This subject is addressed in the proposed draft rules in Petitioner's Exhibit J, proposed draft Rule 4-150.105(1)(a).
Statement (34) of the Petition addresses the Department's concern that a contract explicitly describe policy provisions over the life of the contract, under Section 627.474, F.S. This subject is addressed in the proposed draft rules in Respondent's Exhibit 1, Forms DI4-548, DI4-555, DI4-556, and DI4-557.
Statement (35) of the Petition addresses the Department's concern about accurate, complete and non-misleading presentation of policy characteristics in sales literature, under existing Rule 4-150.105. This subject is addressed in the proposed draft rules in Petitioner's Exhibit J, proposed draft Rule 40150.105(1)(b).
Statement (36) of the Petition addresses the Department's concern about accurate, complete and non-misleading presentation of policy characteristics in sales literature, under existing Rule 4-150.105(1)(f) F.A.C..
Statement (37) of the Petition addresses the Department's concern about accurate, complete and non-misleading presentation of policy characteristics in sales literature, under existing Rule 4-150.105. This subject is addressed in the proposed draft rules in Petitioner's Exhibit J, proposed draft Rule 4-150.105. The requirement expressed by statement (37)(e), is presently found in currently promulgated Rule 4-150.106(1).
Statement (38) of the Petition addresses the Department's concern about accurate, complete and non-misleading presentation of policy characteristics in sales literature, under existing Rule 4-150.105. This subject is addressed in the proposed draft Rule 4-150.105(1)(e).
Statement (39) of the Petition addresses the Department's concern about accurate, complete and non-misleading presentation of policy characteristics in sales literature, under existing Rule 4-150.105. This subject is addressed in the proposed draft rules in Petitioner's Exhibit J, proposed draft Rule 4-150.105(1)(d).
Statement (40) of the Petition addresses the Department's concern about reasonableness of benefits to premiums under Section 627.411(2), F.S., and unfair discrimination under Section 626.9541(1)(g), F.S. in the value of the death benefits and guaranteed annuitization rates for an annuity contract. This subject is addressed in the proposed draft rules in Petitioner's Exhibit I, proposed draft Rule 4-149.064(2)(a)4.
The testimony that the forty challenged statements are addressed in the Department's draft rules [Pet.I, J; Resp. 1], as set forth above, is uncontroverted. The Petitioner did not present any evidence nor elicit any testimony refuting or otherwise discrediting this testimony on that issue.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the subject matter and the parties to this proceeding. Sections 120.535, 120.54, and 120.57(1), F.S.
The parties stipulated that Petitioner's substantial interests are affected by the statements set forth in its Petition, and accordingly, Petitioner has "standing" to bring this Petition.
The parties further stipulated that the forty statements contained in the Petition are rules and are unadopted.
Due to the stipulations, as indicated above, the parties agreed that the burden of proof then shifted to the Department to show that one of the defenses permissible under Section 120.535 F.S. was applicable. The only defense asserted by the Department is contained in Section 120.535 (1)(a)3. F.S.
Section 120.535, F.S., provides:
(1) Rulemaking is not a matter of agency discretion. Each agency statement defined as a rule under s. 120.52(16) shall be adopted by the rulemaking procedure provided by s. 120.54 as soon as feasible and practicable. Rulemaking shall be presumed feasible and practicable to the extent provided by this subsection unless one of the factors provided by this subsection is applicable.
(a) Rulemaking shall be presumed feasible unless the agency proves that:
* * *
3. The agency is currently using the rulemaking procedure expeditiously and in good faith to adopt rules which address the statement.
* * *
Petitioner contended that, as a matter of law, the foregoing defense is unavailable unless rulemaking is already in progress before the Section
120.535 Petition challenging the statement is filed. Alternatively, Petitioner asserted that a factual issue existed as to whether or not the rulemaking procedure is currently proceeding expeditiously and in good faith, and that whether rulemaking is currently proceeding expeditiously and in good faith can be divined, in part, from agency activity preceding the filing of the Notice of Rule Development Workshop. Neither of Petitioner's theories is persuasive.
The Legislature's use of the adverb "currently" in Section 120.535(a)(1)3 is unambiguous and has been consistently interpreted as applicable as of the date of formal hearing and not just as of the date of the filing of the Section 120.535 Petition. See, Cypress Insurance Co. v. Department of Insurance and Treasurer, DOAH Case No. 94-0005RU (Summary Final Order entered June 7, 1994); Bay Bank and Trust Co., John Christo, Jr. and John Christo III v. Department of Banking and Finance, DOAH Case No. 93-0633RU (Final Order entered October 18, 1993; Fla 1st DCA Case No. 93-03710 dismissed May 12, 1994); and Arbor Health Care Co. v. Agency for Health Care Administration, DOAH Case No. 94-0889RU (Final Order entered May 3, 1994).
Cypress Insurance Co. v. Department of Insurance and Treasurer, supra., presented a case almost on all fours with the instant situation, except that the issue of what actions constitute "expeditiously and in good faith" rulemaking was not raised. Therein, a Notice of Rule Development Workshop was filed subsequent to the filing of the Section 120.535 Petition and prior to formal hearing. DOAH Hearing Officer Cleavinger entered a Summary Final Order of Dismissal, ruling without formal hearing, that the mere filing of the Notice of Rule Development Workshop constituted current rulemaking and that the adequacy of the rough draft of the Department's to-be-proposed rule is not encompassed within a Section 120.535 action since such an action does not create a rule which an agency must adopt but only establishes what policy, if any, is in need of rulemaking.
In Bay Bank and Trust Co. et. al. v. Department of Banking and Finance, supra., the agency filed for notice of filing to adopt three manuals as rules through incorporation after the Section 120.535 Petition had been filed and a mere 10 days before formal hearing on the Section 120.535 Petition. After formal hearing, DOAH Hearing Officer Adams determined that the filing for notice constituted current, expeditious, and good faith use of the rulemaking procedure. Therein, despite the agency's use of one of the manuals since 1977 without adopting it as a rule, the agency's filing for notice after the filing of the Section 120.535 Petition still constituted "current" use. Therefore, Bay Bank also contradicts Petitioner's argument herein that if an agency is shown to have "dragged its feet" in its move toward beginning rulemaking, then it should never be found to be currently using the rulemaking procedure expeditiously and in good faith. Likewise, Bay Bank contradicts Petitioner's theory that all cognitive processes of agency experts constitute knowing applications of non- rule policies.
Arbor Health Care Co. v. Agency for Health Care Administration, supra., involved the filing on February 19, 1994 of a Section 120.535 Petition, followed on March 11, 1994 with a notice of proposed rule. Although the Petition was ultimately dismissed because the challenged statement was not a rule as defined in Section 120.52(16) F.S., the final order of DOAH Hearing Officer Arrington contained dicta to the effect that even if the challenged statements were an unpromulgated rule, expeditious and good faith rulemaking was currently in progress.
The term "rulemaking procedure" as used in Section 120.535 F.S. clearly, and of necessity, includes workshops, rule development workshops, and filing for notice. The statute itself is unambiguous. See, cases cited supra.
Chapter 91-30 Laws of Florida created Section 120.535 F.S. Normally, before the legislative history of a statute may be judicially noticed, it must first be found that the statute in question is ambiguous. See, Department of Legal Affairs v. Sanford-Orlando Kennel Club, Inc. 434 So. 2d. 879 (Fla 1983); Battles v. State 595 So. 2d. 183 (Fla. 1st DCA 1992). The same holds true for official recognition in the administrative forum. However, since the parties herein stipulated to official recognition of the "Bill Analysis and Economic Impact Statement of the Governmental Operations Committee of the House of Representatives relating to 91-30 Laws of Florida," it may be noted that same analysis specifically states, in pertinent part:
An agency should not be penalized if it is currently using the rulemaking procedure expeditiously and in good faith to adopt rules which address a statement.* Evidence that an agency is using the workshop process to develop proposed rules may indicate that
this factor is applicable. (Emphasis supplied.) /1
*Footnote appearing in the original Bill Analysis reads: "The presumption created under section 120.535(5) that an agency is not proceeding expeditiously and in good faith to adopt rules does not apply to s. 120.535(1)(a)3."
Contrary to Petitioner's arguments, it is apparently not offensive to the legislative intent of Section 120.535 F.S. if a Section 120.535 Petition acts as the impetus to get an agency into a rulemaking mode, provided the agency pursues the rulemaking process expeditiously and in good faith.
Petitioner has fixated on the "hundreds of times" each statement was used by the agency prior to the filing of the Section 120.535 Petition, and/or the Notice of Rule Development Workshop. Respondent has shown that the total timeframe of use has been only approximately two years and that for nearly six months thereof, drafts of some rules have been going forward. This is a considerably shorter pre-Petition timeframe than was upheld by implication in the Bay Bank case.
As recognized by the disjunctive and alternative defenses enumerated in Subsections 120.535(1)(a)1. and 2. F.S., not every agency statement is capable of proceeding directly and immaculately to a rule draft even after the agency has utilized it for awhile. This is particularly so where, as here, an agency is applying its expertise to a problem with many interlocking components (statements). Respondent here makes a good point that a determination regarding the appropriate frequency of use must always be made on a case-by-case basis and that it is impossible to establish a blanket frequency of use standard before rulemaking becomes "feasible and practicable," because such a determination is always dependent upon the circumstances of the particular statement, the number of statements, and the complexity and interaction of the statements.
In the instant case, however, the stipulations have been to the effect that rulemaking is feasible and practicable and only the issues of good faith and expeditiousness are to be determined. See, Section 120.535(1)(a)3 F.S.
Rulemaking proceedings by "workshopping" are relatively informal information gathering proceedings, designed to allow the industry and the public to inform the agency to the fullest. In complex situations such as the instant one, workshopping after so short a developmental process is not an unreasonable approach.
Respondent went forward at formal hearing to establish that workshopping is currently proceeding expeditiously and in good faith with regard to every statement challenged. Petitioner was permitted to show all agency delays prior to the date the agency published its Notice of Rule Development Workshop upon the theory that some nexus to current delays and lack of good faith could be shown. However, none of the evidence developed shows that the agency is not currently proceeding expeditiously and in good faith. Mere speculation and conjecture that delays of the past (before the Notice of Rule Development Workshop was published) may be prologue to delays in the current workshopping process do not establish lack of current agency good faith. If outrageous delays subsequently occur in the rulemaking procedure, including workshopping, a Petition and evidence at that point in time might have a different result, but upon the facts proven here, Petitioner cannot prevail.
ORDER
Upon the foregoing findings of fact and conclusions of law, it is hereby ORDERED:
The Petition is dismissed because the agency is currently using the rulemaking procedure expeditiously and in good faith to address all forty challenged statements.
The Respondent agency is entitled to continue to rely upon the forty challenged statements or any substantially similar statements as the basis for agency action.
DONE AND ORDERED this 22nd day of August, 1994, at Tallahassee, Florida.
ELLA JANE P. DAVIS, Hearing Officer Division of Administrative Hearings The De Soto Building
1230 Apalachee Parkway
Tallahassee, Florida 32399-1550
(904) 488-9675
Filed with the Clerk of the Division of Administrative Hearings this 22nd day of August, 1994.
ENDNOTE
1/ To the extent that there is any perceived difference between "workshop process" as used here and "rule development workshops," it makes no difference. Section 120.535 F.S. was enacted during the 1991 legislative session. (See, Ch. 91-30 Laws of Florida) Although "rule development workshops," as a distinct phrase, first appears in the statute in 1992, there was no simultaneous amendment to Section 120.535 F.S. to preclude or forestall use of rule
development workshops. See, 92-166 Laws of Florida. There also has been no intervening amendment to preclude rule development workshops. It also is specifically noted that in this case the plan is for a comprehensive integrated draft of all rules to be prepared and distributed 30 days before the rule development workshop begins. This is a more finite situation than often occurs in workshopping, generally.
APPENDIX TO FINAL ORDER 94-3223RU
The following constitute specific rulings, pursuant to S120.59(2), F.S., upon the parties' respective proposed findings of fact (PFOF).
Petitioner's PFOF:
1-2 Accepted.
3 Accepted in part and rejected in part upon the record evidence. What is rejected is rejected as subordinate, unnecessary, and cumulative to the facts as found and because it recites material directly from Petitioner's Exhibit E, a summary not admitted into evidence.
4-5 Accepted except that unnecessary, subordinate and/or cumulative material has not been adopted.
6, 36-37, 41 Rejected as without record citation and as legal argument.
7 Accepted in part and rejected in part in FOF 13-14. 8-10, 12,
15-16, 19,
24-27, 29-30,
35, 38-40 Accepted except that unnecessary, subordinate, cumulative and/or irrelevant material has not been adopted. Also, the record shows the significant steps toward rule drafting prior to the filing of the Petition as set out throughout the FOF, including but not limited to FOF 13-14 and 25-29.
11, 13 Irrelevant
14, 17-18, 28 Immaterial
20-23 Accepted as necessary to the degree covered in FOF 10-12.
Otherwise rejected as subordinate or unnecessary.
31-32 Rejected as set out in FOF 25-33, because not proven as stated in the proposal.
Rejected as misleading. Ms. Ziegler was not "finished" before the Petition was filed but she had "done" some drafting. See FOF 25-33.
Rejected as not proven and as non-dispositive, but covered as necessary in FOF 30-31.
Respondent's PFOF:
1-2 Accepted but not utilized due to the "standing" stipulations.
3-13, 15-22, 24-56 Accepted, except that unnecessary, subordinate, and cumulative material and mere legal argument have not been adopted. See the Conclusions of Law.
14 Covered as necessary in FOF 33, without adoption of the agency's imprecise "comfort level" concept.
23 Covered appropriately in FOF 43, otherwise rejected as legal argument or a conclusion of law. See Conclusions of Law.
COPIES FURNISHED:
Frank J. Santry, Esquire Sharon A. DiMuro, Esquire
Granger, Santry, Mitchell & Heath, P.A.
Post Office Box 14129
2833 Remington Green Circle Tallahassee, Florida 32317
James B. Redner, Esquire Department of Insurance 612 Larson Building
Tallahassee, Florida 32399-0300
Tom Gallagher
State Treasurer and Insurance Commissioner
The Capitol, Plaza Level Tallahassee, Florida 32399-0300
Bill O'Neil General Counsel
Department of Insurance and State Treasurer
The Capitol, PL-11
Tallahassee, Florida 32399-0300
Carroll Webb, Executive Director Administrative Procedures Committee Holland Building, Room 120 Tallahassee, FL 32399-1300
NOTICE OF RIGHT TO JUDICIAL REVIEW
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.
| Issue Date | Proceedings |
|---|---|
| Aug. 22, 1994 | CASE CLOSED. Final Order sent out. Hearing held 07/14/94. |
| Jul. 29, 1994 | Notice of Filing of Petitioner`s Proposed Final Order; Petitioner`s Proposed Final Order Requiring Agency to Immediately Discontinue Reliance on Challenged Statements filed. |
| Jul. 29, 1994 | Respondent`s Proposed Final Order w/(2) Final Orders filed. |
| Jul. 19, 1994 | Post-Hearing Order sent out. |
| Jul. 18, 1994 | Transcript (Vols 1&2) filed. |
| Jul. 14, 1994 | CASE STATUS: Hearing Held. |
| Jul. 13, 1994 | Amended Notice of Taking Deposition filed. (From Frank J. Santry) |
| Jul. 11, 1994 | (Petitioner) Notice of Taking Deposition; Notice of Filing Deposition w/Deposition of Ruth L. Gokel filed. |
| Jul. 11, 1994 | (Petitioner) Motion to Limit Evidence or to Compel Discovery and Motion for Sanctions filed. |
| Jul. 08, 1994 | (joint) Prehearing Stipulation filed. |
| Jul. 08, 1994 | Order sent out. (Motion for summary final Order denied) |
| Jul. 08, 1994 | Order sent out. (Motion for Protective Order granted) |
| Jul. 08, 1994 | Order and Notice sent out. (hearing set for 7/14/94; 9:30am; Tallahassee) |
| Jul. 06, 1994 | (Petitioner) Motion for Official Recognition of Final Analysis & Economic Impact Statement By Governments Operations Committee filed. |
| Jul. 06, 1994 | (Petitioner) Motion for Official Recognition of Final Bill Analysis &Economic Impact Statement by Governmental Operations Committee filed. |
| Jun. 30, 1994 | Petitioner`s Memorandum in Opposition to Respondent`s Motion for Summary Final Order filed. |
| Jun. 29, 1994 | Notice of Taking Deposition of Respondent filed. |
| Jun. 29, 1994 | Respondent`s Supplemental Answers to Interrogatories filed. |
| Jun. 29, 1994 | (Respondent) Notice of Taking Deposition of Respondent filed. |
| Jun. 27, 1994 | Order sent out. (Motion for expedited Discovery has been rendered moot by the parties Discovery stipulation which will be reduced to writing and filed within 5 days) |
| Jun. 27, 1994 | (Respondent) Notice of Serving Answers to Interrogatories filed. |
| Jun. 27, 1994 | Notice of Hearing sent out. (hearing set for 07/13/94, 9:30 a.m., Tallahassee, 07/14/94 also reserved if needed) |
| Jun. 27, 1994 | Prehearing Order sent out. |
| Jun. 22, 1994 | (Respondent) Motion for Summary Final Order and Motion to Expedite filed. |
| Jun. 21, 1994 | (joint) Stipulation Regarding Discovery filed. |
| Jun. 15, 1994 | (Petitioner) Motion for Expedited Discovery filed. |
| Jun. 14, 1994 | Letter to Liz Cloud & Carroll Webb from J. York w/cc: Agency General Counsel sent out. |
| Jun. 14, 1994 | Order of Assignment sent out. |
| Jun. 13, 1994 | Petition for Administrative Determination of Agency Statement filed. |
| Jun. 13, 1994 | Certificate of Service of Petitioner`s First Interrogatories to Respondent; Petitioner`s First Interrogatories to Respondent filed. |
| Issue Date | Document | Summary |
|---|---|---|
| Aug. 22, 1994 | DOAH Final Order | 40 statements associated with acturial review of annuities met 120.535(1)(a)3 defense of current, expeditious, good faith rulemaking by rule development workshop |
