STATE OF FLORIDA

DIVSION OF ADMINISTRATIVE HEARINGS

GUARANTEE TRUST LIFE INSURANCE ) COMPANY, )

)

Petitioner, )

)

vs. ) Case No. 97-3479RX

)

DEPARTMENT OF INSURANCE )

AND TREASURER, )

)

Respondent. )

)

FINAL ORDER

Pursuant to notice, a final hearing was conducted in this matter by David M. Maloney, Administrative Law Judge of the Division of Administrative Hearings, on August 20, 1997, in Tallahassee, Florida.

APPEARANCES

For Petitioner: Frank J. Santry, Esquire

Granger Santry Mitchell & Heath P.A.

Post Office Box 14129 Tallahassee, Florida 32317-4129

For Respondent: Thomas C. Valentine, Esquire

Department of Insurance 645-A Larson Building

200 East Gaines Street Tallahassee, Florida 32399-0333

STATEMENT OF THE ISSUES

Whether petitioner has standing to challenge Rule

4-154.106(8)(c), Florida Administrative Code, pursuant to Section 120.56, Florida Statutes? If so, whether the rule is an invalid

exercise of delegated legislative authority? Whether either party is entitled to attorney's fees?

PRELIMINARY STATEMENT

On July 25, 1997, Petitioner, Guarantee Trust Life Insurance Company, filed a petition with the Division of Administrative Hearings to have declared invalid Rule 4-156.106(8)(c), Florida Administrative Code [formerly numbered as Rule 4-37.006(8)(c)].

By letter dated July 29, 1997, Liz Cloud, Chief of the Bureau of Administrative Code, was notified by the Division of Administrative Hearings of the filing of the petition and provided a copy of the same.

On July 30, 1997, Chief Judge Sharyn Smith issued an order which assigned the case to the undersigned. The following day a notice of hearing was issued. By setting final hearing on August 20, 1997, the notice complied with law and with the order of assignment both of which require that the case be set for final hearing within thirty days of the order.

On the same day the notice of hearing was issued, July 31, 1997, an order for accelerated discovery and for prehearing statement was entered. To facilitate the presentation of evidence at the hearing and to narrow the issues to the extent possible, the parties were ordered to confer and draw up a pre- hearing stipulation which contained, among others, "[a] list of all exhibits . . . to be offered at the hearing noting any objections thereto, and the grounds for each objection" [p. 6 of

the order, paragraph (c)], and "[a] list of the names and addresses of all witnesses . . . intended to be called at the hearing by each party" [p. 6 of the order, paragraph (d)].

On August 13, 1997, the Department filed a motion requesting a continuance on basically two grounds. First, the motion alleged that "a repeal of the challenged rule provision is currently being routed for Department approval." P. 1 of the motion. Second, the motion sounded the alert that the Department was concurrently filing a motion in another case to amend the Department's "letter of deficiencies to delete the rule as one of its reasons for finding Petitioner's [policy filing] to be noncompliant." Id. Once the motion was granted and the amendment to the letter of deficiencies granted in this other proceeding, the Department argued in the motion, that the Petitioner would be relieved "of any impact of the rule pending its repeal." Id.

The motion for continuance was opposed by Petitioner on the ground, among others, that routing repeal of the rule for approval did not indicate that the Department, in fact, had made the decision to repeal the rule.

The motion for continuance was denied. As to "routing" repeal of the rule for approval, it was determined that a finding of good cause to justify a continuance required more than consideration of whether to repeal the rule or not. See, e.g., in the case of continuance of a challenge to a proposed rule,

good cause includes "written notice of an agency decision to modify or withdraw the proposed rule . . . ," Section 120.56, Florida Statutes. With regard to mootness because of lack of impact on the Petitioner, the order ruled that "standing" absent an agreement of the parties was a matter which demanded evidence, the presentation of which petitioner had a right to make.

At final hearing, Petitioner called as a witness Michael C. Milnes, an analyst with the Department of Insurance, and the Department's designated representative at the final hearing. The Petitioner offered two exhibits, numbered one and two, both of which were admitted into evidence. The Department designated

Mr. Milnes as the agency representative for the hearing and called as a witness Gary C. Edenfield, another analyst with the Department of Insurance. The Department also announced its intention to call as a witness the attorney handling the Section

1. proceeding involving Petitioner, Mr. Marc Herskowitz. Following objection from Petitioner on the basis that

   Mr. Herskowitz had not been listed on the witness list required by the pre-hearing order, the Department withdrew its attempt to call Mr. Herskowitz.

   At the opening of the hearing, the Department raised again the issues of standing in an ore tenus motion to dismiss.

   Following an off-the-record conference between the parties in the absence of the administrative law judge, the parties entered two stipulations of fact on the record. First, Petitioner was

   stipulated to be the holder of a certificate of authority from the Department of Insurance authorizing it to write long-term care and limited-benefit insurance. Second, the Department was stipulated to have issued a letter of deficiency with regard to a filing of the Petitioner's with the Department. Among the grounds for the letter was one based on application of the rule challenged in this proceeding. At the time of hearing, there had been filed in the Section 120.57 proceeding challenging the letter of deficiency, a motion to amend the letter to delete the challenged rule as a basis for a deficiency. The motion, however, filed only six or seven days prior to the hearing, had not yet been ruled upon by the administrative law judge in that proceeding. (Tr. 8-10).

   The ore tenus motion to dismiss was denied. The parties were instructed that they should present any facts on standing in their cases-in-chief that they viewed as relevant and helpful in deciding the issue of standing.

   FINDINGS OF FACT

   The Challenged Rule

   
   

   1. Rule 4-154.106(8)(c), Florida Administrative Code, ("the challenged Rule") reads as follows:

      A policy which provides coverage for any one or more of the following services shall be considered a limited benefit policy if it either provides coverage for a benefit period of one year or less for each covered service, or provides coverage for only one of the following services; otherwise, such a policy shall be considered a long-term care policy as defined in s. 627.9404:

      1. Nursing home;

         
         

      2. Nursing service;

         
         

      3. Adult congregate living facility;

         
         

      4. Home health agency;

         
         

      5. Adult day care center;

         
         

      6. Adult foster home;

         
         

      7. Community care for the elderly;

         
         

      8. Personal care and social services.

         
         

         Petitioner's Ex. No. 2.

         
         

   2. New on January 1, 1975, and initially numbered Rule

      
      

      4-37.06, the rule was amended on May 17, 1989. At the time of the amendment, the rule listed as specific authority "627.643, 624.308, 627.9407(1), Florida Statutes," id, and as law implemented "627.642, 627.643, 627.9404(1), Florida Statutes.

      The Parties

      
      

   3. Guarantee Trust Life Insurance Company is an insurance company which does business in Florida and is regulated by Respondent, the Department of Insurance. Guarantee Trust had and does issue insurance policies in those lines and kinds of insurance governed by the challenged rule.

   4. The Department of Insurance is the state agency invested with the responsibility of enforcing the provisions of the state Insurance Code and executing the duties imposed upon it by the code. Section 624.307(1), Florida Statutes. It is conferred

      with discretion to "adopt reasonable rules necessary to effect any of [its] statutory duties." Section 624.308, Florida Statutes.

      Standing

      
      

   5. A recent insurance policy filing by Petitioner was denied by the Department. Among the grounds for denial contained in a "letter of deficiencies" was one based on the policy's violation of the challenged rule.

   6. At the time of hearing, the Department had attempted to amend the letter of deficiencies by motion to eliminate application of the challenged rule to the policy filing as a ground for its denial. But the motion had not been ruled on by the time of hearing, having been filed only six or seven days earlier.

   7. Although the Department has not yet made an effort to provide general notice to the companies it regulates that it has or will cease relying on the challenged rule, the Department's current practice with regard to the rule is that it is not enforcing the rule.

   8. Consistent with this practice, the Department has received filings that it would not have approved had it been applying the challenged rule. Yet, these filings, four or five in number, have been approved.

   9. Instructions have been issued within the Department not to apply the challenged rule to filings.

   10. Consistent with the instructions with regard to application of the challenged rule, the Department is uniformly applying the change in policy. There is no insurance company subsequent to the policy change and decision to no longer apply the rule whose policy has been denied on the basis of application of the challenged rule.

   11. In the case of Petitioner's disapproved filing now the subject of a Section 120.57 proceeding, non-compliance with the challenged rule "no longer exists as a deficiency" (Tr. 43) in the view of the Department.

       
       

       CONCLUSIONS OF LAW

       
       

   12. The Division of Administrative Hearings has jurisdiction over the parties and the subject matter of this proceeding. Section 120.56, Florida Statutes.

       Standing

       
       

   13. Petitioner argues that, among other reasons, it has standing to maintain this challenge because of the stipulated fact that, at the time of hearing, there was an outstanding letter of deficiencies against it, listing failure to comply with the challenged rule as a deficiency.

   14. The Department argued at hearing that the letter would have been amended by the time of hearing to delete the deficiency on the basis of the challenged rule except that the Department no

       longer has jurisdiction to amend the letter, now the subject of a Section 120.57 proceeding. Having filed a motion to amend the letter only six or seven days earlier, the Department had not yet received leave to do so from the Administrative Law Judge assigned to the collateral proceeding.

   15. Petitioner responds that the "change in policy," that is, its decision not to apply the rule against Petitioner in its existing Section 120.57 proceeding and its current cessation in applying the rule as to others, does not affect agency discretion to change its policy again in the future. In other words, in Petitioner's view, there is nothing to prevent the Department from once more beginning to apply the rule. Moreover, Petitioner argues that standing to challenge an existing rule is established merely, "by being subject to and regulated by the, . . . [challenged] rules." Coalition of Mental Health Professions v. Department of Professional Regulation, 546 So. 2d 27 (Fla. 1st DCA 1989).

   16. Coalition of Mental Health Professions involved denial of a petition to intervene in an administrative proceeding challenging proposed rules. Challenged by the Florida Psychiatric Society, Inc., and the Florida Psychological Association, the proposed rules defined the practices of clinical social workers, marriage and family therapists, and mental health counselors. The coalition, whose members included the mental health therapists to be regulated, sought to intervene in the

       proceeding. Since the rules regulated the professions seeking to intervene, the court found standing. In doing so, the court distinguished State, Board of Optometry v. Florida Society of Ophthalmology, 538 So. 2d 878 (Fla. 1st DCA 1988), rev. denied,

       542 So. 2d 1333 (Fla. 1989), where the rules involved did not regulate the ophthalmology association seeking party status.

   17. The standing criteria to challenge proposed rules and existing rules (whether the challenger is substantially affected by the proposed or existing rule) are the same. Ward v. Board of Trustees, 651 So. 2d 1236, 1239 (Fla. 4th DCA 1995). It has long been understood that to be substantially affected, the challenger must meet a two-pronged test: first, the rule must have a real and immediate effect upon the challenger's interests, as well as injury in fact, Professional Firefighters of Florida v. Department of Health and Rehabilitative Services, 396 So. 2d 1194 (Fla. 1st DCA 1981); and, second, the alleged interest must be within the zone of interest to be protected or regulated.

       Florida Department of Offender Rehabilitation v. Jerry, 353 So. 2d 1230 (Fla. 1st DCA 1978), cert. den., 359 So. 2d 1215 (Fla.

       1978).

       
       

   18. With regard to the first test, the Fourth District Court of Appeal in Ward, above, recently wrote the following about application of the first prong to those denied intervention in Coalition of Mental Health Professionals:

       A real and sufficiently immediate injury in fact has been recognized where the challenged

       rule or its promulgating statute has a direct and immediate effect upon one's right to earn a living. The clearest example of this is where the challenged rule directly regulates the challenger's occupational field per se by, for example, setting criteria to engage in that profession. See, e.g., Coalition of Mental Health Professionals v. Department of Professional Regulation. [citation omitted].

       Ward, above, at 1237.

       
       

   19. While Coalition of Mental Health Professionals may stand for the proposition advanced by Petitioner, that is, once there is a rule which regulates a party, the party may challenge that rule whether it has been actually applied to the party or not by the agency with authority to do so, it does not go to the length Petitioner would have it. It does not stand for the proposition that a party remains substantially affected by a rule when the agency in sworn testimony states that the rule will not be enforced against the party and will no longer be enforced against any party. The Department has unequivocally made such a representation in this proceeding and has done so through its authorized representative in sworn testimony. In other words, the challenged rule, promulgated and adopted by the Department of Insurance, by virtue of sworn testimony of the Department, no longer regulates Petitioner and the insurance industry. Put in the context of hornbook law on standing to challenge rules, while the rule regulates Petitioner on its face, it does not do so in fact. There is, therefore, no injury in fact to Petitioner.

   20. Furthermore, in view of the Department's testimony, this case resembles State, Board of Optometry, above, more closely than it resembles Coalition of Mental Health Professionals. Petitioner is not regulated presently by the challenged rule just as the ophthalmology association was not regulated by the rule it sought to challenge. Petitioner is not, therefore, "substantially affected" by the rule within the meaning of Section 120.56, Florida Statutes, and does not have standing to maintain this proceeding.

   21. As for any discretionary ability (if it does not effectuate a repeal of the challenged rule) to change its present policy by deciding to enforce the rule at some time in the future, the Department will be hard-pressed to explain application of the policy embodied in the challenged rule against Petitioner if all that supports that application is a change of mind. The position announced at hearing by the Department's authorized representative with regard to application of the challenged rule to petitioner is the functional equivalent of a declaratory statement issued pursuant to Section 120.565, Florida Statutes, the purpose of which "is to afford relief from insecurity and uncertainty with respect to rights, status, and other equitable or legal relations." Sutton v. Department of Environmental Protection, 654 So. 2d 1047, at 1048, (Fla. 5th DCA 1995), quoting from State Farm Mut. Auto Ins. Co. v. Marshall, 618 So. 2d 1377, 1380 (Fla. 5th DCA 1993), disapproved on other

       grounds, Cunningham v. Standard Guar. Ins. Co. 630 So. 2d 179 (Fla. 1994). Given the Department's unequivocal stance that the rule will no longer be applied in the industry and is not applicable to petitioner, in particular, the Department should not be able to apply the policy embodied in the challenged rule against Petitioner in the future unless it adopts a new rule which becomes effective following rule-making proceedings required by Chapter 120, Florida Statutes.

   22. In the final analysis, in light of the sworn testimony at the final hearing in this matter of the Department's authorized representative, Mr. Milnes, the challenged rule's regulation of the petitioner and the insurance agency by the Department of Insurance exists no longer. The challenged rule is, in essence, a dead horse. No matter how much Petitioner beats it, the horse will carry Petitioner no further.

   23. Petitioner is not "substantially affected" by the rule it challenges in this proceeding within the meaning of the term, "substantially affected" in Section 120.56(1)(a), Florida Statutes. Petitioner, therefore, does not have standing to maintain this proceeding.

       Attorney's Fees

       
       

   24. In both its petition and amended petition, Petitioner requests that "a final order be entered . . . awarding attorney's fees to Petitioner." In its Proposed Final Order, Petitioner claims entitlement to attorney's fees pursuant to "Section

       120.595(3), Florida Statutes, (1997)." Petitioner's Proposed Final Order, p. 15. The Department claims the same authority for its request for fees in its Proposed Final Order and memorandum of law in support thereof.

   25. Aside from defenses the Department might raise to an award of fees, Petitioner is not entitled to fees in the first instance pursuant to Section 120.595(3), Florida Statutes, unless "the administrative law judge declares a rule or portion of a rule invalid pursuant to s. 120.56(3). . . ." Petitioner, therefore, is not entitled in this proceeding to attorney's fees under Section 120.595(3), Florida Statutes.

   26. For the Department to be entitled to attorney's fees pursuant to the Section 120.595(3), it must demonstrate that Petitioner "participated in the proceedings for an improper purpose as defined by paragraph (1)(e) [of Section 120.595]." Section 120.595(3), Florida Statutes. Improper purpose "means participation in a proceeding pursuant to Section 120.57(1) primarily to harass or to cause unnecessary delay or for frivolous purpose or to needlessly increase the cost of licensing or securing the approval of an activity." Section 120.595(1)(e), Florida Statutes. There is no evidence that Petitioner participated in this proceeding for any improper purpose, let alone an "improper purpose" as defined by the statute. Until the Department announced through its designated representative, a witness under oath on the stand in final hearing, that the

challenged rule was no longer being applied to Petitioner and was not being applied against any members of the insurance community it regulated, Petitioner was justified in alleging that it was substantially affected by the challenged rule.

ORDER

Based on the foregoing findings of fact and conclusions of law, this case is dismissed because Petitioner does not have standing to maintain it. Neither party is entitled to an award of attorney's fees.

DONE AND ENTERED this 17th day of September, 1997, in Tallahassee, Leon County, Florida.

DAVID M. MALONEY

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(904) 488-9675 SUNCOM 278-9675

Fax Filing (904) 921-6847

Filed with the Clerk of the Division of Administrative Hearings this 17th day of September, 1997.

COPIES FURNISHED:

Frank J. Santry, Esquire Granger Santry Mitchell

and Heath, P.A. Post Office Box 14129

Tallahassee, Florida 32317-4129

Thomas D. Valentine, Esquire Department of Insurance

and Treasurer

645-A Larson Building

200 East Gaines Street Tallahassee, Florida 32399-0333

Daniel Y. Sumner, General Counsel Department of Insurance and Treasurer The Capitol, Lower Level 26 Tallahassee, Florida 32399-0300

David Greenbaum

Legislative Research Director Committee on Governmental Rules

and Regulations

218 House Office Building Tallahassee, Florida 32399-1100

Docket for Case No: 97-003479RX

Orders for Case No: 97-003479RX