STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
FLORIDA ASSOCIATION OF )
INSURANCE AGENTS AND ) PROFESSIONAL INSURANCE AGENTS ) OF FLORIDA, INC., )
)
Petitioners, )
)
vs. )
) DEPARTMENT OF INSURANCE AND ) FLORIDA WINDSTORM UNDERWRITING ) ASSOCIATION, )
)
Respondents. )
Case No. 01-1427RU
)
FINAL ORDER
The parties having been provided proper notice, Administrative Law Judge John G. Van Laningham of the Division of Administrative Hearings convened and completed a formal hearing of this matter on May 15, 2001, in Tallahassee, Florida, as scheduled.
APPEARANCES
For Petitioners: Cynthia S. Tunnicliff, Esquire
Stephen Spector, Esquire Pennington, Moore, Wilkinson,
Bell & Dunbar, P.A.
215 South Monroe Street, Suite 200 Post Office Box 10095
Tallahassee, Florida 32302-2095
For Respondent: David A. Yon, Esquire (Association) Paul R. Ezatoff
Katz, Kutter, Haigler, Alderman, Bryant & Yon P.A.
Highpoint Center, 12th Floor
106 East College Avenue Tallahassee, Florida 32301
For Respondent: Steven H. Parton, Esquire (Department) Florida Department of Insurance
Division of Legal Services 612 Larson Building
Tallahassee, Florida 32399-03333
STATEMENT OF THE ISSUES
In this proceeding pursuant to Section 120.56(4), Florida Statutes, Petitioners Florida Association of Insurance Agents (the "FAIA") and Professional Insurance Agents of Florida, Inc. (the "PIA") (collectively, the "Agents") allege that a process governing so-called "renewal keep-outs," which is set forth in a manual that was produced by Respondent Florida Windstorm Underwriting Association (the "Association") and approved by Respondent Department of Insurance (the "Department"), constitutes a rule-by-definition that was not adopted under, and therefore violates, Section 120.54, Florida Statutes.
This case presents several issues. As a threshold matter, it must be determined whether the Agents have standing. If they do, the ultimate issue will be whether the challenged process constitutes a rule-by-definition in violation of Section 120.54(1)(a), Florida Statutes. Embedded in the ultimate issue, however, is the first-impression question whether the
Association is an "agency" subject to the provisions of Chapter 120, Florida Statutes.
PRELIMINARY STATEMENT
The Agents filed their Petition for Administrative Determination of the Invalidity of Agency Statement Defined [As] a Rule on April 12, 2001. The matter was originally assigned to Judge Claude B. Arrington, who scheduled the final hearing for May 10, 2001.
The Association filed a motion to dismiss on May 7, 2001, in which it argued that the Association is not an "agency" subject to the Administrative Procedure Act and that the Agents lack standing to maintain this proceeding. As a result of the Association's motion, the Agents moved, on May 8, 2001, to continue the final hearing, and it was, to May 15, 2001. The Department then filed its own motion to dismiss, similar to the Association's, on May 11, 2001.
While Respondents' motions to dismiss were pending, the case was transferred to the undersigned, who conducted a motion hearing on May 14, 2001. Upon consideration, Respondents' motions to dismiss were denied, and so the case proceeded to final hearing as scheduled.
The Agents called three witnesses: Scott Johnson, the FAIA's Executive Vice President; Gene Waddell, the Vice President of FAIA and owner of Cassedy, Carroll Insurance;1 and
Steve Roddenberry, an employee of the Department. The Agents introduced five Petitioners' Exhibits, numbered 1 through 5, into evidence. In addition, the Agents filed the depositions of Beth Vecchiolli and Harold ("Hal") Marsolais (except Deposition Exhibit E), which were received as Petitioners' Exhibits 6 and 7, respectively.
Respondents' only witness at hearing was Rebecca Fussell, the Executive Director of the Association. They also introduced
12 "FWUA" Exhibits2 into evidence, numbered 1 through 5, 7 through 11, and 13 (late-filed, with leave). In addition, Respondents filed the deposition of Scott Johnson, which was admitted as FWUA Exhibit 12.
The transcript of the final hearing was filed on June 12, 2001. The Department filed an unopposed Motion for Extension of Time to file Recommended Orders, which was granted. All parties timely filed Proposed Final Orders on June 21, 2001. The Administrative Law Judge carefully considered these papers in preparing this Final Order.
FINDINGS OF FACT
The evidence presented at final hearing established the facts that follow.
The Parties
The FAIA. The FAIA is a nonprofit, voluntary trade association of independent insurance agencies. The FAIA has
approximately 1100 member agencies that employ somewhere in the neighborhood of 12,000 insurance agents. ("Captive" insurance agents that represent a single company, such as agents for State Farm and Nationwide, and most Allstate agents, are not eligible for membership in the FAIA.)
Generally speaking, the FAIA advocates on behalf of its members in all arenas, including the Department, in which it may protect and promote the business interests of independent insurance agents. The FAIA regularly represents its members' interests in regulatory matters involving the Department. Additionally, the FAIA lobbies, sponsors continuing education programs, publishes manuals, and sells products and services to its members, including errors and omissions coverage.
The PIA. Like the FAIA, the PIA is a nonprofit trade association. Its membership is comprised of independent insurance agents. It provides many of the same services as the FAIA and regularly works with the FAIA to advance their common interests, including in matters involving the Department. The PIA has approximately 450 members.
The Association. The Association is a nonprofit association that the Department organized in 1970 pursuant to authority delegated by the legislature. See Section 627.351(2), Florida Statutes. The statute that enabled the creation of the Association effectively mandates that each insurer holding a
certificate of authority to transact property insurance on a direct basis in this state must be a "member" of the Association.
As required by statute, the Association issues windstorm-only insurance policies to eligible beneficiaries. These policies provide coverage for losses from property damage due to windstorm, hail, and hurricane risks, but they do not cover other perils, such as fire and theft, that are commonly insured under a standard homeowners' policy.
To be eligible for an Association policy, an applicant must live in an area (i.e. near the coast) where windstorm coverage is not available in the admitted voluntary market. Thus, the Association creates and serves what is known as a "residual market," meaning a market that makes coverage available for risks that admitted insurers, competing in the voluntary market, refuse to accept. A residual market is in essence a market of last resort for otherwise uninsurable risks.
Because Association policies provide windstorm-only coverage, policyholders of the Association who desire multiperil homeowners' insurance must purchase a second policy from another insurer, either in the admitted voluntary market or, as a last resort, the Florida Residential Property and Casualty Joint Underwriting Association. The policy from the second insurer
will exclude windstorm coverage. This type of policy is
commonly called an "ex-wind" policy.
The Association does not employ insurance agents.
Every licensed agent in the state, however, is authorized to write policies for the Association. It was estimated by a representative of the FAIA who testified at hearing that approximately 60 to 70 percent of that association's member agencies place business in the Association——a figure that was not rebutted. Moreover, because nearly all of the coastal areas of Florida, including such major population centers as Miami- Dade, Broward, Palm Beach, and Pinellas Counties, are eligible for Association coverage, the trier has drawn the reasonable inference that a substantial number of licensed agents, and hence, correspondingly, a substantial number of the Agents' members, are involved in writing Association policies.
The Association is funded not only through premiums and surcharges paid by its policyholders but also with assessments collected from "member" insurance companies and property policyholders throughout the State of Florida. The Association assesses "member" insurers based upon the proportion that an individual carrier's total written premiums in a given year bears to the overall premiums written statewide by all admitted property insurers in that year. In the event the Association receives insufficient revenues to pay losses in a given year, it
has the power to levy emergency assessments against all "member" insurers to meet the deficit.
The Association is governed by a 15-member board of directors (the "Board"). Twelve of the directors are representatives of the Association's insurer "members," one of the directors is appointed by the Governor, one is appointed by the Insurance Commissioner, and one is the Department's consumer advocate.
The Association operates pursuant to a "plan of operation" that the legislature directed the Department to adopt. The Association's first Plan of Operation was adopted in 1970; it has since been amended and revised from time to time, most recently as of October 3, 2000. This latest version of the Amended and Restated Plan of Operation and Articles of Agreement (the "Plan"), which was in effect at all times material to this case, was adopted by the Department as a rule (Rule 4J-1.001, Florida Administrative Code), effective January 8, 2001. Any proposed amendment to the Plan must be approved by the Department through the adoption of such amendment as a rule.
The Association must administer the Plan, through its Board, in compliance with Section 627.351(2), Florida Statutes, and in accordance with the provisions of the Plan and such other rules as the Department may adopt. The Board's administration of the Plan is supervised by the Department. In the exercise of
its duty to oversee the Association, the Department, through its employees, attends and participates in meetings of the Board and various committees appointed thereby.
The Department's authority over the Association is plenary, or very nearly so, for ultimately the Association can do no more than what the Department, through a plan of operation, allows it to do. Indeed, the legislature has granted the Department broad authority to implement the windstorm insurance program required by Section 627.351(2), Florida Statutes, through any number of vehicles of the Department's choosing. Thus, if it wanted to, the Department could dissolve the Association and replace it with another plan for carrying out the legislature's mandate that otherwise uninsurable windstorm risks be equitably apportioned between and among all admitted property insurers.
In sum, the Association performs a private sector function (the transaction of insurance), but it does so exclusively in an artificial, non-competitive market of the state's creation. Although the Department subjects the Association to essentially the same regulatory scrutiny as any private insurer doing business in Florida, the fact remains that the Association is fundamentally an instrumentality of the Department. Therefore, the Association is a unique entity that
is materially different and readily distinguishable from its insurer "members."
The Department. The Department is the executive branch agency charged with administering the Florida Insurance Code. Among other things, as mentioned above, the Department has been given the responsibility of executing the legislature's will as it relates to the apportionment of uninsurable windstorm risks. In furtherance of this particular duty, the Department has created, and exercises considerable control over, the
Association.
The Renewal Keep-Out Program
Depopulation. In the wake of catastrophic losses caused by Hurricane Andrew, the Association and the Department, responding to legislative calls to action, have undertaken to "depopulate" the Association. "Depopulation" refers to the removal of risks from a residual market when market factors indicate that the residual market is not truly a market of last resort. Put simply, "depopulation" means reducing the number of policies underwritten by the Association, and transferring those risks to private insurers willing to underwrite the risks.
"Renewal keep-out" is a particular method of depopulating the Association; it is the form of depopulation that has spawned the instant dispute. (Other means of depopulation, which are not directly in issue, include
assumption of existing policies and "new application" keep-out.) Renewal keep-out, like other depopulation methods, follows from the statutorily-prescribed eligibility criterion that opens the door to Association coverage only for those who are unable to obtain an offer of coverage from an admitted insurer at approved rates. In this instance, if an admitted insurer tenders an offer of coverage to a policyholder of the Association under which the offeror would provide windstorm insurance to that policyholder upon the expiration of his or her Association policy, then that policyholder's eligibility is terminated, and the Association will not renew his or her policy——hence the term, renewal keep-out.
A renewal keep-out program, then, is one which allows an insurer to select certain policies in a residual market and extend an offer of coverage to the chosen policyholders in order to remove those risks from the residual market at the time of renewal. The "take-out" or "keep-out" carrier, as it is called, selects policies according to the particular risk factors presented by a given set of policies, understandably looking to cherry-pick the best risks in the pool.
The Alleged Rule-By-Definition. To implement the
statutory mandates and provide for depopulation in an organized fashion with minimum disruption to policyholders, the Association and the Department collaborated to develop a
detailed set of implementation procedures and rules governing the various depopulation methods, including renewal keep-out. These procedures, rules, and forms are compiled in a manual entitled FWUA Eligibility Procedures for Reviewing Offers of Coverage from Admitted Companies (the "Manual").
Though issued in the name of the Association, the Manual is a joint work product of the Association and the Department. The Department was intensely involved in the development of the depopulation and renewal keep-out procedures contained in the Manual. It provided extensive substantive and stylistic input, editing drafts of the document and proposing many revisions that were incorporated into the Manual. The Department's comments were not suggestions: Had the Association refused to incorporate the Department's proposed changes, the Department would not have approved the Manual for use.
The Association initially submitted the Manual to the Department on September 20, 2000, for approval as a "rule and form" filing. After further revisions were made, the Department stamped the Manual "APPROVED FOR USE," effective January 1, 2001. Neither the Department nor the Association has attempted to promulgate the Manual as a rule pursuant to Section 120.54, Florida Statutes.
The Department approved the Manual pursuant to a process that is normally used for the review and approval of
private insurers' underwriting rules. Ordinarily, the Department's approval of an insurer's underwriting rules signifies that the rules may be used by the filing insurer——and no one else. Respondents argue that because the Department approved the Manual in this fashion, the Manual must be regarded as the equivalent of a private insurer's underwriting rules.
The evidence shows, however, that the Manual does not, in fact, set forth underwriting rules like those of a private insurer. The general purpose of the Manual is described therein
as being
to assist an insurer seeking to make a qualified offer of coverage that would:
Render an applicant ineligible for coverage in the [Association] (Keep Out);
Render an expiring policy ineligible for coverage in the [Association] (Renewal Keep Out);
Transfer [Association] policies to an authorized insurer (Assumption).
Manual, at p. 2. The Manual further states that:
In order for the [Association] to determine that a policyholder currently being written by the [Association] is ineligible for further coverage, an insurer must demonstrate:
The company is an authorized insurer;
It has made a qualifying offer of coverage pursuant to section 627.351(2)(b)5e.;
It can comply with these procedures and provide for a smooth transition of policies.
Id. In other words, in short, the Manual provides the
procedures and criteria by which the Association will evaluate a keep-out carrier's coverage offer and determine whether such offer "qualifies" as an eligibility-terminating offer. All companies that want to remove business from the Association must comply with the procedures set forth in the Manual.
Thus, the Manual purports to regulate private insurers, not as "members" of the Association, but as competitors in the admitted voluntary market (into which recipients of eligibility-terminating offers are thrust). This sort of sweeping regulation is not the stuff of a routine "rules and forms" filing by a private insurer; private insurers do not have the power to promulgate regulations of the sort prescribed in the Manual.
A section of the Manual, under the heading, "PROCESS APPLICABLE TO RENEWAL KEEP OUTS," describes the procedures that govern the Association's Renewal Keep Out Program. These procedures——which, together with certain forms identified therein, comprise the "statement" that the Agents claim is a rule-by-definition——will hereinafter be referred to collectively as the "Program." The Program, minus the applicable forms, is reproduced in Appendix A attached to this Final Order.
Implementation of the Program: Atlantic Preferred
Pursuant to the Program, the Association has approved a plan, put forward by an insurer called Atlantic Preferred, to remove approximately 47,000 Association policies. The Atlantic Preferred coverage offer, which the Association has determined qualifies as an eligibility-terminating offer, proposes to insure existing Association policyholders under a multiperil homeowners' policy that includes windstorm coverage.
According to the terms of the Program, each policyholder who receives the Atlantic Preferred offer will be ineligible for coverage with the Association for at least one year following the date his or her Association policy would have renewed. On or about March 27, 2001, the Association sent out the first notices of nonrenewal to policyholders selected by Atlantic Preferred. Recipients of these notices became ineligible for Association coverage as of, or around, July 3, 2001.
Policyholders who receive a nonrenewal notice will be faced with the "choice" of either accepting Atlantic Preferred's offer or rejecting that offer and being without windstorm coverage for a minimum of one year unless a more attractive offer of windstorm insurance can be obtained in the admitted voluntary market, which is highly improbable. It is reasonable to infer, and so found, that few, if any, property owners living
in Florida's hurricane-prone coastal areas will choose to go "bare" rather than accept Atlantic Preferred's offer.
Most if not all of the recipients of Atlantic Preferred's offer carry ex-wind insurance policies that were written through an agent. A property owner who purchases Atlantic Preferred's multiperil policy in accordance with the eligibility-terminating offer will need to cancel his or her existing ex-wind policy to avoid overlapping insurance——which will sever not only a business relationship with the ex-wind insurer but also, possibly, ties to the agent that placed the
ex-wind policy. At a minimum, an agent whose client receives an offer from Atlantic Preferred stands to lose some of that client's business unless he or she can obtain an appointment from Atlantic Preferred.
It is estimated that approximately 32,000 of the polices that Atlantic Preferred has targeted for removal were written by independent agents. It is reasonable to infer, and so found, that a substantial number of these agents are members of the Agents and are likely to be affected by the Atlantic Preferred renewal keep-out plan.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has personal and subject matter jurisdiction in this proceeding pursuant to Sections 120.56, 120.569, and 120.57(1), Florida Statutes.
Do the Agents Have Standing?
Because the Administrative Procedure Act was designed in part to expand public access to the activities of agencies, it has long been recognized that a trade or professional association is entitled to bring a rule challenge in a purely representative capacity provided it demonstrates "that [1] a substantial number of its members, although not necessarily a majority, are substantially affected by the challenged rule, [2] that the subject matter of the rule is within the association's general scope of interest and activity, and [3] that the relief requested is of the type appropriate for a trade association to receive on behalf of its members." See Florida League of Cities, Inc. v. Department of Environmental Regulation, 603 So.
2d 1363, 1366 (Fla. 1st DCA 1992) (citing Florida Home Builders Ass'n v. Department of Labor & Employment Sec., 412 So. 2d 351, 352-53 (Fla. 1982))(bracketed numbers added).
Respondents contend that the Agents lack standing to maintain this proceeding. They do not, however, take issue with the Agents' satisfaction of the second and third prongs of the test for associational standing; in view of that, the conclusions are hereby reached, without further comment, that the alleged rule-by-definition is within the Agents' general scope of interest and activity, and that the relief requested——a determination that the challenged statement is unlawful——is the
type of relief appropriate for an association such as each of these Petitioners to receive on behalf of its members. See Florida League of Cities, 603 So. 2d at 1367.
Respondents argue that the Agents have failed to prove that a substantial number of their members are “substantially affected” by the Program. See Section 120.56(4)(a), Florida Statutes (“Any person substantially affected by an agency statement may seek an administrative determination that the statement violates s. 120.54(1)(a).”). Specifically, Respondents contend that the Agents have shown, at most, that future actions by third parties (insurers and policyholders) might possibly cause their members some vague economic harm in the form of lost business——which is just too speculative and remote an alleged injury upon which to base standing.
When standing is resisted, the burden is on the rule challengers to demonstrate their standing to proceed. See Department of Health and Rehabilitative Services v. Alice P.,
367 So. 2d 1045, 1052 (Fla. 1st DCA 1979). As Respondents correctly maintain, the Agents must show, one, that the alleged rule by-definition causes them a real and immediate injury-in- fact; and, two, that the interest invaded is arguably within the zone of interests to be protected or regulated. E.g. Lanoue v. Florida Department of Law Enforcement, 751 So. 2d 94, 96 (Fla. 1st DCA 2000).
To satisfy the injury-in-fact element, “the injury must not be based on pure speculation or conjecture.” Ward v. Board of Trustees of the Internal Improvement Trust Fund, 651 So. 2d 1236, 1237 (Fla. 4th DCA 1995)(emphasis added). On the zone of interests element, the test is met when a party shows that a statute or rule "encroaches upon an interest protected by a statute or the constitution." Id. at 1238. "In the context of a rule challenge, the protected zone of interest need not be found in the enabling statute of the challenged rule itself[,]" but may arise from the operation of other statutes. Id. The Agents have met their burden to demonstrate standing, for the reasons that follow.
It is initially tempting to start by immediately examining each individual procedure comprising the Program to determine, one-by-one, whether a particular requirement substantially affects the Agents, or whether this or that provision construes, or merely follows, an enabling statute. Such an exercise, however, is misguided, and may result in the forest being missed for the trees. Ultimately, as will be seen, it is the Program as a whole that affects the Agents, irrespective of its particular details. The details determine how, specifically, the agents are affected (including whether the effect is positive or negative), but not whether they are substantially affected.
To begin, observe that while Section 627.351(2), Florida Statutes, might allow the establishment of a program to assist insurers in the making of offers that will render Association policyholders ineligible for policy renewal, it does not require that this be done.3 Indeed, one will search the
statute in vain for language explicitly imposing on the Association a duty even to solicit eligibility-terminating offers of coverage on behalf of its insureds, much less facilitate their making. Rather, in pertinent part, the statute
says:
An applicant or policyholder is eligible for coverage only if an offer of coverage cannot be obtained by or for the applicant or policyholder from an admitted insurer at approved rates.
* * *
The policies issued by the association must provide that if the association obtains an offer from an authorized insurer to cover the risk at its approved rates under either a standard policy including wind coverage or, if consistent with the insurer's underwriting rules as filed with the department, a basic policy including wind coverage, the risk is no longer eligible for coverage through the association. Upon termination of eligibility, the association shall provide written notice to the policyholder and agent of record stating that the association policy must be canceled as of 60 days after the date of the notice because of the offer of coverage from an authorized insurer. Other provisions of the insurance code relating to cancellation and
notice of cancellation do not apply to actions under this sub-subparagraph.
Section 627.351(2)(b)1., Florida Statutes (first excerpt); Section 627.351(2)(b)5.e., Florida Statutes (second excerpt).4
The statute, in short, neither foreordained the existence of the Program nor prescribed its particulars. Viewed in that light, the process of designing the Program can be seen to entail policy decisions involving the exercise of discretionary authority, and not merely obedience to a plain legislative directive. Indeed, the decision simply to have a program (especially where none was mandated) was portentous for those who might have preferred that there not be one.
Seeking, nevertheless, to depict the Program as being merely a function of the statute which has little or no independent field of operation or effect, Respondents have argued that the statute affects the Agents, which is true as far as it goes, but that the Program does not, which begs the standing question by assuming the very matter in dispute.5 Keeping the focus on the statute for now, notice that the way it affects the Agents primarily is by enabling keep-out carriers to leverage their offers of coverage——the recipients of which are, many of them, existing clients of the Agents' members——with the adverse consequence of rendering each offeree ineligible to continue placing his or her windstorm insurance with the
Association. That is, a keep-out carrier’s offer is statutorily endowed with an undeniable “accept it——or else” quality, making it a proposal that few, if any, policyholders can realistically refuse.6 When the policyholder inevitably accepts the keep-out carrier's offer, he then stops doing business with the Association, and his former ex-wind insurer——and, quite possibly, his previous agent as well, at least with respect to these particular coverages.
But, significantly, the statute does not specify a process by which a keep-out carrier can receive a determination that its offer of coverage qualifies as one that will definitely terminate an offeree's eligibility for an Association-issued policy. For that matter, the statute fails expressly to authorize any person or agency to determine whether an offer renders a policyholder ineligible.7 The absence of a statutory mechanism for obtaining approval of keep-out offers——that is, a means of securing official recognition that an offer will render its recipient ineligible for an Association policy——necessarily affected carriers that wanted to make such offers.
Before the Program filled the statutory vacuum, prospective keep-out carriers faced some uncertainty regarding what sort of offer would qualify as an eligibility-terminating offer. An insurer would have needed to incur the expenses associated with identifying prospective insureds, developing a
proposal, and obtaining the Association’s approval——all without assurance of success. As a result, it is reasonable to assume that before the Program came into existence, at least some potential keep-out carriers were or may have been discouraged from making coverage offers to policyholders of the Association.8
The adoption of the Program changed the status quo by establishing a formal, standard process for obtaining the Association’s approval of an eligibility-terminating offer and for eliciting the Association's concomitant promise to cancel or non-renew the offeree’s windstorm coverage. Reducing the renewal keep-out process to a routine injects a strong dose of predictability, which in turn facilitates the making of eligibility-terminating offers.9 In this way, the very existence of the Program tends to encourage such offers——as indeed it was intended to do. See ¶ 23, supra.
The Agents would be substantially affected, one way or another, by any formal program that makes it easier for carriers to extend renewal keep-out offers——and hence more likely that such offers will be extended. The Agents' interest is an economic one, to be sure, but it is much more than a merely speculative concern about loss of profits. Their concern, properly understood, is the well-grounded fear of competing with (and inevitably losing their current clients to) a set of competitors——the keep-out carriers and their agents——upon whom
an overwhelming competitive advantage (the ability to extend eligibility-terminating offers) has been conferred.
At this point, it must be observed that the Agents are not trying to block the entry of someone or some class of persons into the relevant market——which is usually the petitioner's transparent desire in those cases where standing is disputed on grounds that the alleged effect of a challenged rule or agency determination is merely an anticipated economic impact——but rather they are attempting to prevent the implementation of a Program, allegedly in violation of Section 120.54(1)(a), Florida Statutes, that places them at a distinct competitive disadvantage in relation to a favored group. The Agents' interests therefore are concerned, at bottom, with securing as level a playing field as the statute will permit, first by forcing, and then by participating in, a rulemaking process under Section 120.54. In this regard, their claim to standing presents a unique legal question.
None of the parties has cited a case directly on point, and independent research has not found one either. Although not on all fours, Department of Professional Regulation, Board of Dentistry v. Florida Dental Hygienist
Association, Inc., 612 So. 2d 646 (Fla. 1st DCA 1993), upon which the Agents rely, is particularly instructive. There, an association of Florida-licensed dental hygienists (the
"hygienists") challenged a rule proposed by the Board of Dentistry (the "board") that would have made graduates of the Alabama Dental Hygiene Program (the "ADHP") eligible to take the licensure examination in Florida, even though the ADHP was not accredited by the American Dental Association. Id. at 647-48.
The issue of standing was contested. On appeal, the board urged that the hearing officer had erred in denying its motion to dismiss the hygienists' petition. The court disagreed, reasoning that, because the proposed rule would "diminish the value" of the hygienists' allegedly superior training by allowing "unqualified persons to enter the field," the hygienists had "a sufficient interest in maintaining the levels of education and competence required for licensing to afford them standing to challenge an unauthorized encroachment upon their practice." Id. at 651.
The court took pains to explain why the hygienists' interests were not "merely anti-competitive," and yet it is difficult to see any other real interests, unique to the hygienists, at stake. Despite an acknowledged lack of supporting evidence in the record, the court accepted uncritically the premise that, if the proposed rule were adopted, ADHP-trained hygienists would take and pass the Florida licensure examination in such numbers as to substantially affect the petitioning hygienists. It wrote:
It requires no flight of imagination to reason that if the rule would produce a flood of lesser-trained hygienists, presumably available for employment for less compensation, this would have an economic impact on the existing pool of more highly- trained individuals.
Id. at 649 (emphasis added). Clearly, there are several heroic
assumptions loaded into this remarkable sentence that work together to make the predicted outcome unimaginative. One cannot help but notice that the hypothesis that the proposed rule would have produced a flood (as opposed to, say, a trickle)
of new competitors from out of state, most or all of whom would have been willing to work for lower wages and who, on that basis alone, would have been able to displace large numbers of entrenched and presumably better-qualified hygienists, was highly, if not purely, speculative.
Given its self-evident conjectural quality, the fact that the court did not consider the hygienists' anticipated economic injury to be too speculative teaches that, in a rule challenge context, the concept of "injury-in-fact," at least as it relates to a plausible economic harm threatening licensees, is a relatively relaxed one. In addition, by ruling that the zone of interests which will support standing to challenge a proposed rule includes the right of dental hygienists to protect their professional and economic interests against competition from less-qualified hygienists who are presumably ready,
willing, and able to flood the market with offers of cheap and inferior services, the court opened wide the door to members of any licensed occupation to challenge rules that similarly affect their professional and economic interests.10
The court made several additional points of note.
First, the court emphasized the "significant" distinction between (a) challenges to existing and proposed rules and (b) attempts by one party to gain access to a Section 120.57 proceeding involving the issuance of a license or permit to another. Because "there can be a difference between the concept of 'substantially affected' under section 120.56(1), and 'substantial interests' under section 120.57(1)," the court observed, "decisions in licensing and permitting cases[, which] have made it clear that a claim of standing by third parties based solely upon economic interests is not sufficient unless the permitting or licensing statute itself contemplates consideration of such interests, or unless standing is conferred by rule, statute, or based on constitutional grounds[,]" are not controlling in actions brought under Section 120.56, Florida Statutes. Id. at 651; see also Cole Vision Corp. v. Department of Business and Professional Regulation, 688 So. 2d 404, 407
(Fla. 1st DCA 1997)("[T]his court has recognized that a less demanding standard applies in a rule challenge proceeding than
in an action at law, and that the standard differs from the 'substantial interest' standard of a licensure proceeding.").11
Second, the court "note[d] again the significance of a claim of illegality in a rule challenge proceeding, which should be distinguished from a claim of encroachment upon competitive economic interests." 612 So. 2d at 651. As the court cogently explained, in a rule challenge case the petitioner's interests include a desire to obtain independent review of, and perhaps put an end to, an agency's unlawful or unconstitutional exercise of delegated legislative authority. Id. This is an important interest in and of itself that, while not sufficient without more to confer standing (or else the statute would not have restricted standing to "substantially affected" persons), nevertheless must be considered in conjunction with the other interests asserted by the petitioner. See also Florida Medical Association, Inc. v. Department of Professional Regulation, 426 So. 2d 1112, 1114-15 (Fla. 1st DCA 1983)(claim of unlawful exercise of authority inherent in rule challenges distinguishes them from Section 120.57 “substantial interest” cases).12
Finally, the court added a practical element to the mix of cognizable considerations: "In all fairness, to deny the hygienists' standing to challenge unauthorized actions of the Board detrimental to their interests would produce the anomalous result that virtually no one would have such standing. In our
view, under the facts presented here, such a result would thwart the purposes of [the statute authorizing challenges to proposed rules.]" Id. at 652.
Reduced to a succinct legal principle of general applicability, the Dental Hygienist case holds that an
association of licensed professionals has standing to challenge a proposed rule that would have a reasonably foreseeable economic impact on existing licensees, if events were to unfold in a manner consistent with the petitioner's plausible concerns, especially where to deny standing would effectively shield the challenged rule from judicial scrutiny because then “virtually no one” would have standing.
Applied here, the Dental Hygienist principle is
determinative. Consider the Agents' injury. The Agents compete for customers in the admitted voluntary market, selling ex-wind policies to those who are unable to obtain windstorm coverage in the voluntary market, and they also compete for business in the residual market, selling Association policies to those who are eligible for such coverage. It is reasonably foreseeable that because of the Program, the Agents will suffer loss of demand for windstorm coverage in the residual market and simultaneously face increased competition in the admitted voluntary market (into which recipients of eligibility-terminating offers will be thrust), not from previously-unqualified players (as in the
Dental Hygienist case), but from competitors who will suddenly
be given an overwhelming advantage: the eligibility-terminating offer.
No imagination is required to foresee that, if an agent’s client receives an offer from one of these super- competitors, then the agent will lose his or her customer. The Agents are not insurers, after all, and thus whether they can counter a keep-out carrier's offer with a better deal depends not on their own willingness to bargain, but rather on the availability of windstorm coverage in the voluntary market. Because the offeree will be a policyholder of the Association, chances are presumably slim that another admitted carrier will be offering such coverage voluntarily. Therefore, it is evident that the Agents will be practically unable to compete with the keep-out carriers and their agents.13 At a minimum, the alleged rule-by-definition places them at a substantial competitive disadvantage.
There is no principled basis upon which to conclude that, as members of a licensed and regulated occupation, the Agents' professional and economic interests are entitled to less protection than were those of the dental hygienists. Indeed, the rule-by-definition's intrusion into the Agents' competitive markets is more immediate and direct than was that of the proposed rule in Dental Hygienist.
For one thing, it is not necessary to assume that the rule-by-definition will produce a flood of keep-out carriers, because a single carrier can make offers to tens of thousands of existing Association policyholders.
But more important, in contrast to the presumably better-educated graduates of accredited dental hygiene schools, who would have had at least a fair, fighting chance to win jobs in head-to-head competition with AHDP-trainees, the Agents cannot out-compete the advantaged group of keep-out carriers and their agents simply by offering clients higher-quality (or
lower-priced) professional services. In fact, whereas all licensed dental hygienists would have battled for employment on a level surface had the proposed rule been adopted, with the best persons (as determined by the job market) presumably emerging victorious, that is not true in this case: there is no real contest here; the keep-out carrier is the prohibitive favorite every time.
In sum, it is concluded, first, that the Agents have compelling professional and economic interests in seeking to maintain the freest and fairest competition between and among them that the statutes governing the transaction of insurance in this state will allow; and, second, that the Program directly, immediately, and reasonably foreseeably threatens the Agents' interests so as to satisfy the injury-in-fact element of the
standing test. See Ward v. Board of Trustees of the Internal
Improvement Trust Fund, 651 So. 2d 1236, 1237 (Fla. 4th DCA 1995)(“A real and sufficient 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.”).14
As for the zone of interests element, following the rationale of the Dental Hygienist case, it is concluded that Chapter 626, Florida Statutes, which delineates the rights and responsibilities of licensed insurance agents, provides the Agents with a protected interest or right to practice their regulated profession without competition from competitors who have received a competitive advantage under an unpromulgated and illegal rule-by-definition. See also Ward, 651 So. 2d at 1239; see, e.g., Section 626.730(1), Florida Statutes ("The purpose of a license issued under this code to a general lines agent, customer representative, or solicitor is to authorize and enable the licensee actively and in good faith to engage in the insurance business as such an agent, customer representative, or solicitor with respect to the public and to facilitate the public supervision of such activities in the public interest . .
. ."). A licensed insurance agent's right to compete for business on a level playing field without being hamstrung by an illegal rule-by-definition's grant of an unbeatable competitive
edge to certain competitors is at least as compelling, if not more so, than a dental hygienist's right to be free of competition from "unqualified" (but duly licensed) competitors who might enter the market in droves under an invalid proposed rule.15 In short, the Agents' interests are within the zone of interests for standing purposes.
Accordingly, the Agents have standing to maintain this action.
Where to Turn Next?
To resolve the merits of this dispute requires the untangling of several intertwined issues. Ordinarily in a Section 120.56(4) proceeding, there is no controversy concerning whose statement is in question and no debate about whether the
author of the statement is an “agency” subject to the requirements of the Administrative Procedure Act. Ordinarily, the issues are whether the statement is a “rule” as the statute defines the term and, if so, whether the agency responsible for the statement has complied with the rulemaking procedure set forth in Section 120.54.
By definition, a rule is an “agency statement of general applicability” that (to simplify a bit for now) has the force and effect of law. See Section 120.52(15), Florida Statutes. Section 120.54(1) requires that each agency responsible for such a statement must formally adopt it as a
rule “as soon as feasible and practicable.” Only an agency can violate Section 120.54(1) and hence be brought to task pursuant to Section 120.56(4), and then only if that agency has failed to adopt a rule of its own making. While not always easy to apply, these are relatively straightforward principles in theory.
The matter at hand, however, presents a few unique twists. The Program is ostensibly a statement of the Association——albeit one that the Department helped to write, could have vetoed, and finally approved with an official stamp. The Association strongly denies that it is a state agency, however, a view that the Department shares. If the Association were not an agency, then it could not have violated Section 120.54(1). If, further in that event, the Program were the Association’s statement and only the Association’s statement, then the Agents would not be entitled to any relief under Section 120.56(4), for the Program would not be an “agency” statement, regardless of its “general applicability.”
But, if the statement were attributable to the Department (which is an agency), then the Department could have violated Section 120.54(1) even if the Association were not an agency, provided the Program were a “statement of general applicability.” Moreover, if the Program were a statement attributable exclusively to the Department, then the question
whether the Association is an agency would be irrelevant, irrespective of the statement’s general applicability.
On the other hand, if the Association were found to be an agency, then at least one and maybe two additional questions would be presented: (1) Is the Program, which now must be an “agency” statement one way or another, a statement of general applicability? (2) Whose statement is it? A negative answer to the first question, of course, would be outcome determinative, obviating the need to answer the second. The answer to the second question, however, while not intrinsically dispositive, could obviate the need to decide, in the first instance, whether the Association is an agency.
Deciding which of these interrelated questions to answer first involves a kind of a “chicken and egg” dilemma. One thing is clear: the multi-faceted question whether the
Program is an “agency” statement is not the place to start. The narrower issue, "To whom should the statement be attributed?", is a more attractive starting point if for no other reason than that, if it were concluded that the Program is a statement of the Department and only the Department, then the Association would be off the hook——and the novel question whether the Association is an agency could be sidestepped. However, the answer to this question cannot, by itself, dispose of the case. Logically and practically, therefore, the question to tackle
first is whether the Program is statement of general applicability that has the force and effect of law, assuming for argument’s sake that it is an “agency” statement. Although, admittedly, this analytical approach may appear to put the cart before the horse, it offers this advantage: If the question is answered “no,” then there will be no need to go farther; the case will be over.
Assuming the Program Is An Agency Statement, Does It Meet the Other Definitional Requirements of a Rule
The burden of proof is on the party seeking to prove the affirmative of an issue unless a statute provides otherwise. Florida Department of Transportation v. J.W.C. Company, Inc.,
396 So. 2d 778, 786-87 (Fla. 1st DCA 1981). In a proceeding under Section 120.56(4) to determine a violation of Section 120.54(1)(a), Florida Statutes, therefore, the burden is on the petitioner to establish by a preponderance of evidence: (1) the substance of the agency statement; (2) facts sufficient to show that the statement constitutes a rule-by-definition; and (3) that the agency has not adopted the statement according to the rulemaking procedures. Section 120.56(4)(a), Florida Statutes. If the petitioner meets its burden, then the agency must carry the burden of proving that rulemaking is not feasible and practicable as provided in Section 120.54(1)(a). See Section 120.56(4)(b), Florida Statutes.
Section 120.52(15), Florida Statutes, defines the term “rule” to mean “each agency statement of general applicability that implements, interprets, or prescribes law or policy or describes the procedure or practice requirements of an agency and includes any form which imposes any requirement or solicits any information not specifically required by statute or by an existing rule.” In addition, the statutory definition excludes three classes of agency statements from its operation. Two of these excluded categories of statements are clearly inapplicable; the third, concerning "internal management memoranda," will be addressed below.
A statement is a rule if it has the effect of a rule regardless whether the agency calls it a rule. In determining whether a statement meets the statutory definition of a rule, the important question is: What consequences does this statement cause within its field of operation? As the Court of Appeal, First District, explained, the
breadth of the definition in Section 120.52(1[5]) indicates that the legislature intended the term to cover a great variety of agency statements regardless of how the agency designates them. Any agency statement is a rule if it "purports in and of itself to create certain rights and adversely affect others," [State Department of Administration v.] Stevens, 344 So. 2d [290,] 296 [(Fla. 1st DCA 1977)], or
serves "by [its] own effect to create rights, or to require compliance, or
otherwise to have the direct and consistent effect of law." McDonald v. Dep't of Banking & Fin., 346 So. 2d 569, 581 (Fla. 1st DCA 1977).
State Department of Administration v. Harvey, 356 So. 2d 323,
325 (Fla. 1st DCA 1978); see also Amos v. Department of Health and Rehabilitative Services, 444 So. 2d 43, 46 (Fla. 1st DCA
1983). Because the focus is on effect rather than form, a statement need not be in writing to be a rule-by-definition.
See Department of Highway Safety and Motor Vehicles v. Schluter, 705 So. 2d 81, 84 (Fla. 1st DCA 1998).
Given the circumstances of this case, it is instructive to take special note that the definition of “rule” expressly includes statements of general applicability that implement or interpret law. An agency’s interpretation of a
statute that gives the statute a meaning not readily apparent from its literal reading and purports to create rights, require compliance, or otherwise have the direct and consistent effect of law, is a rule. See Beverly Enterprises-Florida, Inc. v.
Department of Health and Rehabilitative Services, 573 So. 2d 19,
22 (Fla. 1st DCA 1990); St. Francis Hospital, Inc. v. Department of Health and Rehabilitative Services, 553 So. 2d 1351, 1354 (Fla. 1st DCA 1989).
Respondents neither dispute that the Program is a statement nor suggest that the Agents have failed to establish
the Program's terms. They argue instead that the Program is not a "generally applicable" statement because it merely governs the Association's own actions and those of its "private members,"
i.e. every admitted property insurer transacting business in Florida——and not the Agents or the general public. This
contention is neither correct nor persuasive.
A statement that purports to regulate the actions of every insurer holding a certificate of authority to transact property insurance in this state is a statement of "general applicability" under any reasonable understanding of that phrase. Keep in mind that to be generally applicable, a statement need not apply universally to every person within the agency's jurisdiction but rather uniformly to a class of persons
over whom the agency properly may exercise authority. See, e.g., Disability Support Services, Inc. v. Department of Children and Families, 1997 WL 1052781, *5, DOAH Case No. 97- 5104RU (Final Order June 4, 1997). The Program clearly meets this criterion.
Further, Respondents' argument overlooks the fact that when it comes to making eligibility-terminating offers of coverage, the insurers are competitors, nothing more and nothing
less. The Program regulates the insurers as private businesses competing with one another for customers in the voluntary admitted market, not in their respective capacities as forced
participants in the non-competitive distribution of windstorm insurance to an artificially created residual market. In other words, while the Program undeniably governs the Association's "members," the "members" are not being governed by the Program qua "members." Whatever conceivable merit Respondents' argument
might have under different circumstances disappears in the light of this one.
The Program also applies generally to all existing policyholders of the Association and all applicants for state-
mandated windstorm insurance, because it establishes the process by which an insurer can render any such person ineligible for Association coverage.
It is concluded, therefore, that the Program is a statement of general applicability.
A preponderance of evidence establishes further that the Program implements and interprets Section 627.351(2), Florida Statutes, and that it does so in a self-executing manner which creates rights, requires compliance, and has the direct and consistent effect of law.
In regard to implementation, the Program in and of itself establishes the procedures with which insurers must
comply in order to obtain the Association's official, documented decision that a particular offer of coverage will render recipients ineligible for windstorm insurance written by the
Association. Cf. Department of Revenue v. Novoa, 745 So. 2d
378, 382 (Fla. 1st DCA 1999), rev. denied, 762 So. 2d 917 (2000)(agency's policy prohibiting employees from moonlighting was not self-executing because it neither provided a remedy nor established a procedure for imposing a penalty). The Manual makes it clear that an insurer's failure to demonstrate its ability to comply with the Program's procedures will result in the Association's disapproval of the insurer's offer. See Manual, at p. 2 (quoted in ¶ 23, supra).
That the Program creates rights in favor of insurers that comply with it is beyond dispute. By following the Program's procedures and thereby obtaining the Association's approval of a coverage offer, an insurer becomes justly entitled to exercise the power and privilege of tendering eligibility- terminating offers to Association policyholders——a right that gives the insurer a huge competitive advantage in the admitted voluntary market.
Additionally, the Program, all by itself, provides means of enforcing the complying insurer's right to tender an eligibility-terminating offer, such as a requirement that the Association send a form letter to the policyholders who will be receiving the offer that not-too-subtly urges the offer be accepted:
[The Association] has been advised that the insurer indicated below, is providing you with an offer of coverage that includes coverage provided under your current [Association] policy. As a result, we must nonrenew your [Association] policy and will be sending you a Notice of Nonrenewal. This means that, upon its expiration, your [Association] policy will not be renewed.
. . . . In order to avoid lapses in coverage, you should accept the offer of coverage from the insurer listed below or contact your insurance agent, or other agents, to see if other companies will provide the coverage.
Manual, Exhibit 11 (bold in original; other emphasis added). (This letter, incidentally, carefully avoids informing its recipients that the Association itself made the crucial determination that the offer in question qualified as one that would render policyholders ineligible, which effectively conceals from recipients the fact that they have or may have a right to challenge the Association's determination in this regard.)
Along the same line, the Program enables the approved keep-out insurer to send to all offerees a form letter accompanying its proposal which notifies the offer's recipients that:
You do not have to accept coverage from us. However, you should be aware that the [Association] will not rewrite your coverage even if you are unable to obtain a policy with another insurance company that covers
damage caused by Hurricanes, Other Windstorms and Hail.
Manual, Exhibit 12 (emphasis in original). This communication reinforces the earlier correspondence from the Association, and further serves to put pressure on the policyholder to accept the offer.
It is also the case that the Program interprets Section 627.351(2), Florida Statutes, fleshing out the law with meaning that is not readily apparent on the face of the statute. To name but a few examples of such interpretation to make the point, the Program:
makes the Association responsible for determining which offers of coverage qualify as eligibility-terminating offers;
establishes numerous criteria for qualified offers that are not specified in the statute;
establishes an extra-statutory procedure that assists insurers in making eligibility-terminating offers and in securing the Association's official approval thereof; and
provides forms for implementing the Program.
Whether the Program correctly, reasonably, or validly interprets Section 627.351(2) is irrelevant for present purposes. It is enough for today to conclude that the Program does not merely
reiterate statutory mandates.
Respondents contend that the Program is akin to an executive management decision and for that reason should be treated like "internal management memoranda," which are excluded from the definition of the term "rule." This argument is a nonstarter.
The statute excludes from the "rule" definition "[i]nternal management memoranda which [1] do not affect either
[a] the private interests of any person or [b] any plan or procedure important to the public and [2] which have no
application outside the agency issuing the memorandum." Section 120.52(15)(a), Florida Statutes (emphasis and bracketed material added).
It has already been concluded that the Program applies outside the Association (assuming for now that the Association is an agency) because, among other things, the Program regulates insurers as private competing businesses, not as "members" of the Association, and it affects present and potential Association policyholders. This conclusion alone takes the Program out of the internal management memorandum exemption.
In addition, the Program affects a plan or procedure important to the public: namely, windstorm insurance risk apportionment. That the legislature has mandated the provision of windstorm insurance to property owners who are entitled to have but unable to buy such coverage in the voluntary admitted
market demonstrates persuasively the public importance of the plan. Thus, for this separate and independent reason, the Program cannot be considered an internal management memorandum within the exception that Section 120.52(15)(a) establishes.
For all the above reasons, it is concluded that the Program is a statement of general applicability that constitutes a rule-by-definition if it is an “agency” statement. Recall that the statement’s agency authorship, which is a necessary condition of being a rule, to this point has merely been assumed for the sake of argument.
In the interest of reaching only those questions that must be decided, the next inquiry asks to whom the statement should be attributed: the Department, the Association, or both?
The Program Is a Generally Applicable Statement, But Whose?
Because the Program has been packaged as the Association’s creation, it looks, at first blush, like a statement of the Association. On closer inspection, however, the facts paint a different picture. The Department exercised considerable influence over the substance of the Program by participating directly and extensively in its preparation. The Department attended meetings of the Association in which the Program was discussed and developed, and it edited the Association’s drafts with a heavy hand, thereby dictating
numerous material provisions. The Program, in its present form, reflects considerable dialogue between the Association and the Department; it is, truly, a collaborative work.
It must be remembered, also, that the Department has supervisory control over the Association. The Department could have withheld its approval of the Program. No doubt, the Department would have rejected the Program had the substance thereof not accurately reflected the Department’s vision for implementing Section 627.351(2), Florida Statutes. By approving the Program which it had actively helped to design, the Department clearly and unequivocally manifested its ratification of the policies expressed therein as surely as if the Department had issued the Program under its own name. The Program, in short, constitutes a statement delivered by the Association under the aegis of the Department; the words are as much the Department’s as the Association’s.
It is concluded that the Program constitutes a joint
statement of the Department and the Association, for which both are equally responsible.
Consequently, the Agents have carried their burden to establish, vis-à-vis the Department, that the Program
constitutes a rule-by-definition. The question remains whether the Association is an agency that also may be in violation of Section 120.54(1)(a), Florida Statutes.
Is the Association An “Agency” For Purposes of Chapter 120, Florida Statutes?
The parties sharply disagree about whether the Association is an agency, with the Agents asserting the pro of the issue, Respondents the con. This appears to be a question of first impression.
The Administrative Procedure Act defines the term "agency," as used therein, to mean:
The Governor in the exercise of all executive powers other than those derived from the constitution.
Each:
State officer and state department, and each departmental unit described in s. 20.04.
Authority, including a regional water supply authority.
Board.
Commission, including the Commission on Ethics and the Fish and Wildlife Conservation Commission when acting pursuant to statutory authority derived from the Legislature.
Regional planning agency.
Multicounty special district with a majority of its governing board comprised of nonelected persons.
Educational units.
Entity described in chapters 163, 373, 380, and 582 and s. 186.504.
Each other unit of government in the state, including counties and municipalities, to the extent they are expressly made subject to this act by general or special law or existing judicial decisions.
This definition does not include any legal entity or agency created in whole or in part pursuant to chapter 361, part II, an
expressway authority pursuant to chapter 348, any legal or administrative entity created by an interlocal agreement pursuant to s. 163.01(7), unless any party to such agreement is otherwise an agency as defined in this subsection, or any multicounty special district with a majority of its governing board comprised of elected persons; however, this definition shall include a regional water supply authority.
Section 120.52(1), Florida Statutes.
This definition delineates three categories of "agencies": (a) the governor, when exercising certain executive powers; (b) various entities having statewide or regional jurisdiction; and (c) other "units of government" that the legislature or the courts have expressly made subject to the Administrative Procedure Act. See Eckert v. Board of Commissioners of the North Broward Hospital District, 720 So. 2d
1151, 1153 (Fla. 4th DCA 1998); Rubinstein v. Sarasota County Public Hospital Board, 498 So. 2d 1012, 1013 (Fla. 2d DCA 1986).
Two of these agency types, categories (a) and (c), are not implicated here: the Association is (obviously) not the governor, and no legislation or judicial decision expressly subjects the Association to Chapter 120. Therefore, to be an agency, the Association must fall within the group that Section 120.52(1)(b) describes. "The list of applicable agencies provided in this subsection[, the second district has observed,] is not exclusive." Rubinstein, 498 So. 2d at 1013.
As it happens, subsection (b) uses several undefined terms, including "authority" and "board," that might be sufficiently inclusive to embrace the Association. As a threshold premise, it is accepted as axiomatic that the name of an entity, while a factor to consider, does not singly decide the question whether that entity is, for example, an "authority" or a "board" within the contemplation of Section 120.52(1)(b). (The Association might have been called the "Florida Windstorm Underwriting Authority" or its board of directors the "Windstorm Underwriting Board" without affecting the substance of Section 627.351(2), Florida Statutes.) What matters most is whether the entity has the characteristics of an "authority" or "board" (and thus, ultimately, an "agency") as the legislature understood those terms.
Existing judicial precedent offers some general insight into the legislative intent. Interestingly, both sides claim Booker Creek Preservation, Inc. v. Pinellas Planning
Council, 433 So. 2d 1306 (Fla. 2d DCA 1983), as supportive of their respective positions. There, the court held that the Pinellas Planning Council ("PPC"), a local land use planning agency, was not a state agency, even though it performed some of the functions of a state agency. Id. at 1308. The court based its decision primarily on the PPC's limited jurisdictional reach, reasoning that "[b]ecause the PPC operates entirely
within Pinellas County and has no authority outside that county, it is not comparable in jurisdiction to a statewide agency or even a regional, intercounty agency. Id. In addition, the court was unable, in its review of the pertinent statutes, to discern a legislative intent that the PPC be made to obey the Administrative Procedure Act. Id.
A few years later, the second district followed Booker Creek, holding in Rubinstein, supra, that a hospital board was not an agency because its "territorial jurisdiction
. . . [was] coextensive with the county in which it operate[d]."
498 So. 2d at 1014. The court explained that in Booker Creek it had "rejected [a] 'functional' argument in favor of an approach geared more toward the territorial jurisdiction of the body in question." Id.
More recently, the second district's "territorial jurisdiction" test has been adopted by both the fourth district, see Eckert, 720 So. 2d at 1154 (intra-county special taxing
district is not an agency), and the fifth district, see Orlando- Orange County Expressway Authority v. Hubbard Construction Co., 682 So. 2d 566, 568 (Fla. 5th DCA 1996)(expressway authority having jurisdiction in two counties was an agency). In determining whether an entity is an agency, therefore, the geographic scope of its authority is an important, if not dispositive, consideration.
Following this analytical approach, it is seen that the Association's jurisdiction is not limited to a single county but extends, potentially, to every place in the state where property owners are unable in good faith to obtain windstorm insurance in the voluntary admitted market. The Association currently writes policies in numerous coastal counties statewide. Unlike the PPC in Booker Creek, therefore, the Association's multi-county operation is comparable in jurisdiction to a statewide agency. Under the territorial jurisdiction test, then, the Association appears to be an agency.
But, say Respondents, the Association cannot be an agency because it is merely a private association, formed by and composed of private insurers, that, in writing windstorm insurance policies, operates like a private insurance company. This argument beguilingly evokes the image of an exclusive country club or a band of entrepreneurs, but of course, in reality, the Association is neither——and far from them. The Association's "members" (a term used here euphemistically) did not "join" voluntarily but were forced by law to participate in this enterprise as a condition of doing business in Florida.
The "member" insurers do not freely pay "dues" for the privilege of belonging to the Association, being instead subject to periodic "assessments" that are exacted from them to pay the
Association's expenses and cover its losses. And the Association is not an entrepreneurial alliance (like a joint venture) organized for private gain. That said, Respondents' argument that the Association is a private league composed of private enterprises, though not without its difficulties, is a serious one that cannot be so easily brushed aside.
At first glance, it appears that, in contending that the Association functions like a private insurance company, Respondents are advancing the same sort of "looks like a duck, quacks like a duck, must be duck" argument that the Second, Fourth, and Fifth District Courts of Appeal rejected in favor of an approach geared toward territorial jurisdiction. If a body that functions like an agency is not for that reason an agency, then, logic seemingly dictates, neither should a body that is functionally similar to a private entity be regarded a non- agency for that reason.
The jurisdictional test has its limits, however.
Plainly, geographic scope cannot be the sole criterion for agency status because if it were, then plenty of private business concerns would be agencies, an absurd and obviously unintended result. In rejecting a functional approach in favor of a jurisdictional analysis, therefore, the courts did not create a litmus test for identifying agencies from within the pool of all organizations. It just happened that in Booker
Creek, Rubinstein, Eckert, and Hubbard Construction, the courts
were dealing with "public" bodies (a land use planning agency, public hospital boards, an expressway authority) that served primarily public purposes or interests. Understood in context, the territorial jurisdiction approach serves to distinguish between public bodies that are Chapter 120 agencies, and public bodies that are not such agencies. The test is of little or no use, however, in discriminating between public and private bodies.
The proposition is self-evident, or nearly so, that if the Association served predominately private purposes, then it would not be an agency, regardless of its territorial jurisdiction. In deciding whether the Association represents public or private interests, a functional approach is required. The Booker Creek line of cases does not instruct otherwise.
When the focus is on functions, it becomes clear that the Association operates in the service of public interests. Review of Section 627.351(2), Florida Statutes, reveals that the legislature has created an entitlement to windstorm insurance that is conceptually no different than entitlements to benefits such as retirement income (Social Security), medical coverage (Medicaid), and food for children (the WIC Program)——government programs all.16 That the legislature co-opted insurers to help pay for and provide the windstorm insurance entitlement does not
make the program any less "governmental" in nature or public in purpose. As the entity that administers and distributes this state-mandated windstorm insurance benefit, the Association must be considered a public body, no less so than a public hospital board or local planning agency.
This reasoning is supported by the Eleventh Circuit Court of Appeals' decision in Bankers Ins. Co. v. Florida Residential Property and Cas. Joint Underwriting Association,
137 F.3d 1293, 1297 (11th Cir. 1998), which held that the RPCJUA (to which Respondents compare the Association) is a "political subdivision" entitled to state immunity from antitrust liability. Attaching little significance to the fact that the RPCJUA (like the Association) is a group of private insurers,17 the court gave greater weight to the RPCJUA's numerous "public- entity trappings" and determined without difficulty that the RPCJUA was "created by Florida's legislature to serve public interests[.]" Id.
Respondents, not impressed with Bankers Ins. Co., urge that the Florida Supreme Court's decision in In re Advisory Opinion to the Governor——State Revenue Cap, 658 So. 2d 77, 81 (Fla. 1995), which held that assessments, premiums, and policy surcharges collected by the RPCJUA are not "state revenues" subject to a constitutional limit on the growth of such income, is persuasive and apposite authority in support of their view
that the Association is not an agency. They take solace in the supreme court's finding that the RPCJUA is not a "state entity" for purposes of the revenue cap provisions of the state constitution. Id. at 80. The RPCJUA, wrote the court in a sentence quoted approvingly by Respondents, "[t]hough created by the Legislature, in practical effect . . . operates like a private insurance company." Id. at 81.
Respondents' reliance on Revenue Cap is misplaced.
That an entity "operates like" a private company is plainly not dispositive of whether it is serving public, rather than private, interests. Indeed, one often hears that the government should be run like a business. Upon careful reading of the Revenue Cap opinion, it is clear that the Florida Supreme Court,
having been asked a different question, did not decide whether the RPCJUA represented public interests. Noting this distinction, the Eleventh Circuit Court of Appeals accordingly did not consider Revenue Cap to be controlling on the issue
whether the PRCJUA is a "political subdivision" for antitrust purposes, relegating its passing mention of the advisory opinion to a brief footnote. See Bankers Ins. Co., 137 F.3d 1297 n.8.
Revenue Cap is distinguishable for another reason as
well. As the supreme court explained, the statute which creates the RPCJUA provides that
[t]he Residential Property and Casualty Joint Underwriting Association is not a state agency, board, or commission.
However, for the purposes of s. 199.183(1), the Residential Property and Casualty Joint Underwriting Association shall be considered a political subdivision of the state and shall be exempt from the corporate income tax.
Section 627.351(6)(j), Florida Statutes (emphasis added). The supreme court construed this paragraph to mean that the legislature intended the RPCJUA to be considered a state entity for one purpose and one purpose only: to secure a tax exemption. Revenue Cap, 658 So. 2d at 81.
In contrast to the statutory provisions governing the RPCJUA, Section 627.351(2), Florida Statutes, does not contain language declaring that the Association is not a state agency,
board, or commission. Absent such a provision, the Association's claim to be something besides a state agency is much weaker than a similar assertion by the RPCJUA would be. Going a step farther, the inference that arises from the legislature's decision not to include a provision like Section 627.351(6)(j) in the Association's enabling statute——namely, that the legislature intends the Association to be considered a state agency, board, or commission——arguably makes the Association's claim untenable.
Having found Bankers Ins. Co. to be persuasive and Revenue Cap distinguishable, it is concluded that the
Association, like the RPCJUA, was created by the Department, through an express delegation of legislative authority, to serve public interests. Accordingly, the Association is a "public" body within the purview of the territorial jurisdiction test discussed above.
To recap, the Association so far meets the general criteria of agency status: It is a public body that possesses multi-county jurisdiction. It cannot be assumed, however, that all such entities necessarily fall within one of the eight sub- categories of agency types described in subsection (b) of Section 120.52(1), Florida Statutes. This statutory list, with which the instant discussion opened, is the final filter.
The two terms on this list that plausibly embrace the Association are "board" and "authority." See Section 120.52(1)(b)2., 3., Florida Statutes. Neither term is defined. When, as here, the statute in question does not contain a specific definition of its terms, it is assumed that the words contained therein were used according to their ordinary dictionary definitions. See Southwest Florida Water Management District v. Save the Manatee Club, Inc., 773 So. 2d 594, 599 (Fla. 1st DCA 2000)(citing WFTV, Inc. v. Wilken, 675 So. 2d 674
(Fla. 4th DCA 1996)).
The term "board," as commonly used in connection with organizations, refers to "a group of persons having managerial,
supervisory, investigatory, or advisory powers <board of directors> <board of examiners>." See Merriam-Webster’s Online
Collegiate® Dictionary (hereafter Webster’s Online Dictionary)(http://www.m-w.com/).
The Association is managed by a board of directors that is constituted pursuant to a statutory directive which states:
The plan of operation shall provide for a board of directors consisting of the Insurance Consumer Advocate appointed under
s. 627.0613, 1 consumer representative appointed by the Insurance Commissioner, 1 consumer representative appointed by the Governor, and 12 additional members appointed as specified in the plan of operation. One of the 12 additional members shall be elected by the domestic companies of this state on the basis of cumulative weighted voting based on the net direct premiums of domestic companies in this state. Nothing in the 1997 amendments to this paragraph terminates the existing board or the terms of any members of the board.
Section 627.351(2)(b)2.a.(II), Florida Statutes. As the statutorily-required group of persons having managerial powers over a public body that possesses multi-county jurisdiction, the Association's Board may be considered a "board," and thus an "agency," for purposes of the Administrative Procedure Act.
The term "board" is also defined in the dictionary as denoting a "league" or "association." See Webster’s Online Dictionary. When the term is used in either of these senses, it
unambiguously includes the Association, which is indisputably a "league" or "association." On this basis, the Association, which is a public body endowed with multi-county jurisdiction, may be considered a "board" and hence an "agency."
Shifting gears, the relevant dictionary definition of the term "authority" supplies this meaning: "a governmental agency or corporation to administer a revenue-producing public enterprise <the transit authority>." See Webster's Online
Dictionary. The Association meets this definition as well, for
several reasons.
First, the Association is sufficiently of, or related to, government that the adjective "governmental" can be accurately applied to it. As has been concluded already, the Association is a public body that represents public interests. Further demonstrating that the Association is by nature "governmental" are the following facts: (1) The Department created the Association and retains the power to dissolve it in favor of another scheme for assuring that the windstorm insurance entitlement is delivered to eligible beneficiaries.
(2) The Department, by rule, promulgates the plan of operation pursuant to which the Association must operate. (3) The Department supervises the Association's board of directors and thus occupies a position from which it can direct and oversee the Association's operations. Though not intended to be
exhaustive, the foregoing list is sufficient to point out the Association's fundamental subservience to the Department——it is practically an instrumentality of that state agency——which in turn makes the Association a "governmental" entity.
Second, while it will not do simply to label the Association an "agency" (for that would beg, or come close to begging, the question), the fact that the Association is an unincorporated organization does not take it outside the dictionary definition of "authority." For one thing, the Department is authorized to incorporate the entity that administers the windstorm insurance program. See Section 627.351(2)(b)6.a., Florida Statutes. But more important, the Association is a legal body, a jural entity that may sue and be sued, borrow money, issue bonds, and exercise other corporation- like powers. See Section 627.351(2)(b)6.b., Florida Statutes.18 Consequently, while the Association is technically not a corporation, such differences as may exist between the Association and a corporation are not material to the determination whether the Association is an "authority."
Finally, the Association administers a revenue- producing public enterprise. The state-mandated windstorm insurance program, which is carried out through the Association, clearly generates revenues in the form of premiums, assessments, and policy surcharges. Cf. In re Advisory Opinion to the
Governor——State Revenue Cap, 658 So. 2d 77, 81 (Fla. 1995). And
the state's provision of a windstorm insurance entitlement (through the conscription of private insurers that desire to do business in this state) is plainly a public enterprise, for reasons already discussed.
Thus, because the Association is a governmental entity that administers a revenue-producing public enterprise, it falls within the dictionary definition of the term "authority."
As a final consideration, Respondents argue that nothing in the statute reflects a legislative intent to subject the Association to the provisions of the Administrative Procedure Act. This assertion is not correct. First of all, that the legislature provided the RPCJUA with an express exemption from state agency status but did not do the same for the Association hints, at least, that the legislature did not intend similarly to stipulate that the Association is not a state agency. See ¶ 110-11, supra.
Moreover, as the Agents assert, the statute exempts particular decisions of the Association from the provisions of the Administrative Procedure Act, which implies that other
actions of the Association, not so excluded, should be construed as being subject to Chapter 120. Specifically, the statute provides:
The plan of operation must provide objective criteria and procedures, approved by the department, to be uniformly applied for all applicants in determining whether an individual risk is so hazardous as to be uninsurable. In making this determination and in establishing the criteria and procedures, the following shall be considered:
Whether the likelihood of a loss for the individual risk is substantially higher than for other risks of the same class; and
Whether the uncertainty associated with the individual risk is such that an appropriate premium cannot be determined.
The acceptance or rejection of a risk by the association pursuant to such criteria and procedures must be construed as the private placement of insurance, and the provisions of chapter 120 do not apply.
Section 627.351(2)(b)5.d., Florida Statutes (emphasis added).19
From the maxim "expressio unius est exclusio alterius"——the mention of one thing implies the exclusion of another——is derived the interpretive rule which holds that "express exceptions made in a statute give rise to a strong inference that no other exceptions were intended." M.C. Biddle
v. State Beverage Department, 187 So. 2d 65, 67 (Fla. 4th DCA 1966), cert. dismissed, 194 So. 2d 623 (1966); Williams v.
American Sur. Co. of New York, 99 So. 2d 877, 880 (Fla. 2d DCA 1958)("Where a statute sets forth exceptions, no others may be implied to be intended.").
It thus may be inferred, as a matter of law, that the only decisions of the Association which are not subject to the
provisions of Chapter 120 are those dealing with the acceptance or rejection of an insurance risk based on objective criteria for determining whether the risk is so hazardous as to be uninsurable even in the residual market. Having drawn this inference, it next becomes evident that the legislature did intend the Association to make only decisions of the specific type excluded from Chapter 120, for it specified a broader range of permissible powers than that. See, e.g., Section 627.351(2)(b)6.b., Florida Statutes. Because the Association was authorized to make decisions other than those expressly excluded from Chapter 120, the legislature, at least inferentially, understood and intended that the Association would make decisions not excepted from, and hence subject to, Chapter 120. And because only agencies make decisions subject to the provisions of Chapter 120, logic leads inexorably to the conclusion, based upon reasonable inferences, that the legislature considered the Association to be an agency.
All things considered, it is concluded that the Association (or its governing board of directors) is an "agency" for purposes of Chapter 120, Florida Statutes, on one or more of the following grounds: (1) The Board is a "board." (2) The Association is a "board." (3) The Association is an "authority." The resolution of the present dispute does not require a decision as to whether the Association's Board and the
Association constitute separate agencies, and accordingly no opinion is expressed on that point.20
The Feasibility and Practicability of Rulemaking
According to Section 120.54(1)(a), “[r]ulemaking is not a matter of agency discretion. Each agency statement defined as a rule by s. 120.52 shall be adopted by the rulemaking procedure provided by this section as soon as feasible and practicable.”
Once the Agents carried their burden at hearing to prove that the challenged statements are rules by definition, the burden shifted to Respondents to prove that rulemaking was either unfeasible or impracticable. Section 120.56(4)(b), Florida Statutes. Respondents, however, offered no evidence to establish that the time has not come to adopt the Program pursuant to the statutory rulemaking procedure.
Accordingly, Respondents have violated Section 120.54(1)(a), Florida Statutes, in connection with the Program.
Attorneys’ Fees and Costs
Section 120.595(4)(a), Florida Statutes, provides that “[u]pon entry of a final order that all or part of an agency statement violates s. 120.54(1)(a), the administrative law judge shall award reasonable costs and reasonable attorney's fees to the petitioner, unless the agency demonstrates that the statement is required by the Federal Government to implement or
retain a delegated or approved program or to meet a condition to receipt of federal funds."
Respondents have not proved the applicability of an exception to the mandate that attorneys’ fees and costs be awarded to the successful petitioner in a Section 120.56(4) proceeding. Accordingly, it is hereby determined that the Agents are entitled to recover a reasonable sum for the attorneys’ fees and costs it has incurred in the prosecution of this action. The amount of the award shall be determined by separate order.
No opinion is expressed at this time as to whether Respondents' obligation with respect to attorneys' fees and costs is joint and several or, if not, the proper method of apportioning liability for the award between them.
CONCLUSION
Based on the foregoing Findings of Fact and Conclusions of Law, it is ORDERED that the Program is a rule-by-definition that was not adopted under, and therefore violates, Section 120.54, Florida Statutes. Jurisdiction is retained to conduct further proceedings as necessary to award attorneys' fees and costs to the Agents pursuant to Section 120.595(4)(a), Florida Statutes. The Association's Motion for Award of Attorney's Fees and Costs is denied.
DONE AND ORDERED this 21st day of August, 2001, in Tallahassee, Leon County, Florida.
JOHN G. VAN LANINGHAM
Administrative Law Judge
Division of Administrative Hearings The DeSoto Building
1230 Apalachee Parkway
Tallahassee, Florida 32399-3060
(850) 488-9675 SUNCOM 278-9675
Fax Filing (850) 921-6847 www.doah.state.fl.us
Filed with the Clerk of the Division of Administrative Hearings this 21st day of August, 2001.
ENDNOTES
1/ A Motion to Intervene filed by Mr. Waddell on May 10, 2001, had been denied before the final hearing.
2/ "FWUA" is an acronym for Florida Windstorm Underwriting Association. Although offered by the Association, the FWUA Exhibits were used also by the Department, whose interests were closely aligned with those of the Association in this case.
Because the respective positions of the Department and the Association in this matter were, practically speaking, indistinguishable, the two will be referred to collectively in this Final Order as "Respondents" except when a distinction between them is necessary.
3/ Contrast Section 627.351(2) with the statute that creates the Florida Residential Property and Casualty Joint Underwriting Association ("RPCJUA"), wherein there exists an express requirement that the RPCJUA's plan of operation "provide a procedure for determining the eligibility of a risk for coverage." Section 627.351(6)(c)5., Florida Statutes.
4/ Although the statute might plausibly be construed to obligate the Association, by implication, to actively seek out eligibility-terminating offers, that meaning is by no means readily apparent from the statute's literal terms. In any event, however, the statute cannot be read to provide directions
or guidance for carrying out such a duty, even assuming one exists.
5/ Respondents' argument on this point performs double duty, being urged also as a basis for refusing to recognize the Program as a rule-by-definition (on the ground that the Program simply repeats a statutory mandate, see St. Francis Hospital, Inc. v. Department of Health and Rehabilitative Services, 553 So. 2d 1351, 1354 (Fla. 1st DCA 1989)). In resolving the standing question, of course, it is neither necessary nor appropriate to consider whether the Agents are correct on the merits. It is worth noting, however, that Respondents' argument (that the statute, not the Program, affects the Agents) concedes a great deal on the standing issue. After all, if a challenged statement implements a statute that affects the challengers——and the Program plainly implements Section 627.351(2), Florida Statutes——then, logically, the statement, too, should affect the challengers. Whether the statement is not a rule-by-definition because it simply reiterates a statutory mandate is a separate question dealing with the merits that should have no bearing on standing.
Concededly, the decision in State Board of Optometry v.
Florida Society of Ophthalmology, 538 So. 2d 878 (Fla. 1st DCA 1989), seems to cut against the grain of the foregoing reasoning. In that case, which was part of a long-running feud between physicians and optometrists, the petitioning medical doctors (and others) challenged an optometry board rule that implemented a (then) recently-enacted statute which authorized board-certified optometrists to prescribe certain topical ocular drugs. The doctors complained that the rule made it too easy to become certified, with the result that unqualified optometrists were unlawfully being given the power to prescribe medicine.
Id. at 880-81.
The court found that the doctors lacked standing because the statutory changes had explicitly and unambiguously stripped them of their previously-exclusive right to administer topical ocular drugs, which in turn served to deny the doctors a position to assert that the challenged rule impaired a protected economic right. Id. at 881. In other words, the thin veils that formerly had covered the doctors' understandable desire to restrict competition, see Florida Medical Association, Inc. v.
Department of Professional Regulation, 426 So. 2d 1112 (Fla. 1st DCA 1983), had been legislatively pulled away, and the court was unwilling to recognize unvarnished anti-competitive interests as
being sufficient, without more, to confer standing. (The court's decision on the physicians' standing may have been facilitated by its additional holding that another party (the Department of Professional Regulation) did have standing to challenge the rule, which the court then proceeded to invalidate. Id. at 882-88. Consequently, the court was able to rule against the physicians on the narrow ground of standing and reach the merits, too.)
The peculiarity of the circumstances in State Board of Optometry casts doubt on the decision's value as precedent on the issue of standing. The first district itself effectively has limited the case to its unique facts. See Department of Professional Regulation, Board of Dentistry v. Florida Dental Hygienist Association, Inc., 612 So. 2d 646, 650-51 (Fla. 1st DCA 1993), discussed in the text, infra. Having carefully considered State Board of Optometry, it is concluded that the case is inapposite and does not control here.
6/ The "option" of giving up windstorm coverage and going "bare" to continue doing business with one's existing agent and insurance company is so patently unattractive that very few, if any, reasonable homeowners whose property is situated in an area that is at risk of being struck by a hurricane will seriously consider it.
7/ The statute specifies conditions that terminate eligibility but does not expressly appoint a decision-maker to determine whether those conditions have been met. It is true that Section 627.351(2)(b)5.e., Florida Statutes, directs the Association to provide notice of cancellation to the policyholder and agent of record “[u]pon termination of eligibility.” But that instruction is not tantamount to an unambiguous grant of power to the Association to determine whether a policyholder’s eligibility has terminated, for the messenger need not necessarily be the arbiter.
The Program is premised largely on the assumption that the Association is authorized to decide which offers are eligibility-terminating and which are not, as the Manual
expressly acknowledges. See ¶ 23, supra. While this assumption is not patently unreasonable, since the statute speaks of the Association obtaining offers and providing notices of cancellation, neither is it inevitable; the Department, for example, could as readily be deemed the ultimate arbiter of eligibility, with the Association being responsible for
delivering cancellation notices upon the Department’s determination of ineligibility. Indeed, considering that the Association’s function is to administer and deliver a state- mandated windstorm insurance benefit to eligible beneficiaries under the direct supervision and control of the Department, it seems logical that the Department should have the authority to decide who is eligible for the benefit. The Department, after all, is the agency charged with the ultimate responsibility of determining insurability criteria, see Section 627.351(2)(b)5.d., Florida Statutes, and insurable areas, see Sections 627.351(2)(b)8., and 627.351(2)(c), Florida Statutes.
The issue is not academic, for the power to determine which offers effectively terminate eligibility carries with it the power to dictate the conditions (within statutory limits, of course) that make an offer "valid" or "qualified" (to use the Program's terminology). And the Association has, in fact, done just that. Conceivably, such conditions could be designed to ameliorate the adverse effects of the Program on the Agents.
8/ For a discussion of how the absence of a procedure for obtaining official approval of statutorily-prescribed documents can directly impact upon private business decisions, see Federation of Mobile Home Owners of Florida, Inc. v. Florida Manufactured Housing Association, 683 So. 2d 586, 592 (Fla. 1st DCA 1996).
9/ It is possible to imagine a program that would have the opposite effect, for example by imposing onerous conditions that few prospective keep-out carriers would or could meet. In that implausible event (which is plainly not this case), the Agents probably would not be complaining——but some insurers might be.
10/ The insight that economic interests can furnish the basis for standing to challenge a proposed or adopted agency rule was not original to the Dental Hygienist decision. See Florida Medical Association, Inc. v. Department of Professional Regulation, 426 So. 2d 1112, 1115 (Fla. 1st DCA 1983)(palpable economic injuries have long been recognized as a sufficient foundation for standing); Department of Health and Rehabilitative Services v. Alice P., 367 So. 2d 1045, 1052 n.2 (Fla. 1st DCA 1979)(agency’s cut-off of funds for certain abortions caused fewer women to seek abortions, which substantially affected abortion provider whose income declined as a result of decreased demand).
11/ For this reason, Respondents’ reliance on a mountain of Section 120.57 cases is misplaced. To illustrate: They place special emphasis on Village Park Mobile Home Association, Inc. v. Department of Business Regulation, 506 So. 2d 426 (Fla. 1st DCA), rev. denied, 513 So. 2d 1063 (1987). In that case, residents of a mobile home park brought a Section 120.57 proceeding to challenge the agency’s approval of the park owner’s prospectus——which was a statutorily-required instrument outlining the terms and conditions of park residence——alleging that the prospectus would result, among other adverse consequences, in increased rents and a reduction in services.
The court held that the residents lacked standing, explaining that any negative effects would flow not from the agency’s approval of the prospectus, but from the park owner’s implementation of its provisions, for which the residents would be able to seek redress through “several remedial provisions” set forth in the statute. Id. at 430-31, 433. Respondents argue that the situation here is similar to that in Village Park, but the instant case is obviously distinguishable. The difference, of course, is that it was not alleged in Village Park that the prospectus was an invalid rule or, more to the point, an illegal rule-by-definition. If the petitioners in Village Park had been charging that the prospectus constituted an unpromulgated agency statement of general applicability that prescribed the terms and conditions of residence for all mobile home parks in the state, then their standing to proceed could not possibly have been denied.
12/ The interest in checking unlawful agency behavior is arguably even greater in a Section 120.56(4) proceeding such as this one, because the agency’s conduct may be doubly unlawful. That is, an agency’s failure to promulgate a rule-by-definition is itself a serious violation of law, regardless of the substantive validity of the challenged statement; but also the substance of the rule-by-definition may constitute an unlawful exercise of the agency’s delegated authority, which is a separate violation. While the substantive validity of a rule- by-definition is not at issue in a Section 120.56(4) proceeding, the possibility that an agency may be applying an invalid unadopted rule magnifies the challenger’s interest in seeking to terminate the agency’s alleged misconduct.
13/ Individual agents can, in theory at least, become appointed as agents of a keep-out carrier. However, to acknowledge that some members of the disadvantaged group might be able to join the favored group does not change the fact that a competitive
advantage has been conferred on some but not all competitors. Further, in any event, it is reasonable to infer that not all of the Agents will be appointed by the keep-out carriers.
14/ In addition, although not determinative (i.e. the same conclusion would have been reached without this consideration), it is likely, in all fairness, that to deny the Agents standing would effectively put the Program beyond the reach of judicial review, because as a practical matter virtually no one else is in a position to challenge it. There are likely few individual policyholders with the motivation, tenacity, and wherewithal to challenge the Program as a rule-by-definition, just as, in Dental Hygienist, few individual patients likely would have been in position to challenge the proposed rule. And while the Program plainly affects insurers, it is also undeniable that they benefit from depopulation of the Association and so are unlikely to pick up the Section 120.56 cudgel in order to beat the statement down. Under the facts presented here, to deny the Agents standing would thwart the purposes of Section 120.56(4), Florida Statutes.
15/ The significant fact that the Agents are licensed professionals should not casually be passed over. Statutes such as the Insurance Code that require persons to become licensed to engage in an occupation necessarily create barriers to entry into the regulated occupation. Those who earn a license thereby become entitled to work in market for their services that is protected against, e.g., competition from unlicensed providers of the same services. It is reasonable to recognize, as the court did in Dental Hygienist, that licensees have standing to protest rules that would encroach unlawfully upon their protected job market——even rules that do not directly regulate them. Cf. Televisual Communications, Inc. v. Department of Labor & Employment Security, 667 So. 2d 372,374 (Fla. 1st DCA 1995)(petitioner was substantially affected by proposed rule that had collateral effect of regulating its industry).
16/ Tellingly, the legislature described the intended recipients of this windstorm insurance benefit as persons "who are in good faith entitled to, but are unable to procure, [windstorm] insurance through ordinary methods." Section 627.351(2)(a), Florida Statutes (emphasis added).
17/ The court was not too impressed with this particular attribute because it found that the insurers' coerced participation in an involuntary association, which was created
to invent an insurance market where none had existed before the state mandated that certain otherwise uninsurable property owners were entitled to coverage, demonstrated that the RPCJUA represented public interests, not private ones. Id.
18/ Interestingly, the legislature does not appear to have conferred any rulemaking authority on the Association. Because it is firmly established that agencies do not have "inherent rulemaking authority," Section 120.54(4)(1)(e), Florida Statutes, and because a "grant of rulemaking authority is necessary but not sufficient to allow an agency to adopt a rule," e.g. Section 120.52(8), there are reasons to doubt that the Association has the authority to adopt any rules. This suggests that the legislature expects the Department, not the Association, to promulgate the rules governing the Association's operations. The plan of operation that the legislature has directed the Department to prepare——and which the Department, in compliance with this statutory obligation, has adopted as a rule——is a likely place for such rules to be recorded.
Although the issue of the Association's rulemaking authority (or lack thereof) need not be decided here, it might be useful to observe that if the Association is without rulemaking authority, that situation would not protect it against challenge under Section 120.56(4). While it might seem, on the surface, somewhat paradoxical to hold an agency that has no power to adopt any rules responsible for violating a statute that requires agencies to promulgate their rules, a few moments' reflection shows that there is no conundrum. Conceptually, the situation is identical to that which arises when an agency uses a rule-by-definition that patently exceeds its rulemaking authority (e.g. by purporting to implement a statutory provision setting forth general legislative intent). After the agency adopts such a statement through Section 120.54 (or attempts to do so), regardless whether it is prodded into rulemaking action by a Section 120.56(4) proceeding or not, the resulting rule (or proposed rule) should be invalidated if challenged. In the same fashion, if an agency has no rulemaking authority, then all of its rules-by-definition necessarily exceed its rulemaking authority and for that reason should be unable to survive rule challenges brought under Section 120.56(2) or Section 120.56(3) after Section 120.54 rulemaking has commenced or been completed.
The goal of Section 120.54 is to ensure that all rules-by- definition are revealed to the public as soon as possible——and thereby exposed to challenge, allowing questions concerning
validity to be resolved. It would be perverse to hold that an agency which has no rulemaking power is thereby excused from Sections 120.54 and 120.56, while at the same time requiring agencies that have some rulemaking power to put all of their rules-by-definition to the Section 120.56 test.
19/ The Association's Plan paraphrases the statute as follows: "The acceptance or rejection of coverage by the Association pursuant to such criteria and procedures [i.e. reasonable underwriting standards] shall be construed as the private placement of insurance to which the provisions of Ch. 120, Florida Statutes, do not apply." Plan, at p. 12 (emphasis added).
20/ Respondents have not asserted that the Agents should have sued the Board rather than the Association. Nor has either side contended that a distinction between the Board, on the one hand, and the Association, on the other, should be outcome determinative for any reason. Under the circumstances, therefore, it makes no difference, as far as the decision on the merits of this case is concerned, whether the Program is considered a statement of the Association or a statement of the Board. It should be made clear, however, that, following the convention of the parties, the term "Association" as used in this Final Order subsumes the Board.
COPIES FURNISHED:
Cynthia S. Tunnicliff, Esquire Stephen Spector, Esquire Pennington, Moore, Wilkinson,
Bell & Dunbar, P.A.
215 South Monroe Street, Suite 200 Post Office Box 10095 Tallahassee, Florida 32302-2095
David A. Yon, Esquire Paul R. Ezatoff
Katz, Kutter, Haigler, Alderman, Bryant & Yon P.A.
Highpoint Center, 12th Floor
106 East College Avenue Tallahassee, Florida 32301
Steven H. Parton, Esquire Florida Department of Insurance Division of Legal Services
612 Larson Building
Tallahassee, Florida 32399-03333
Honorable Tom Gallagher
State Treasurer and Insurance Commissioner Department of Insurance
The Capitol, Plaza Level 02 Tallahassee, Florida 32399-0300
Robert N. Sechen, General Counsel Department of Insurance
The Capitol, Lower Level 26 Tallahassee, Florida 32399-0300
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.
PROCESS APPLICABLE TO RENEWAL KEEP OUTS
The Renewal Keep Out Program makes available to participating insurers for review all expiring policies (renewals). This program allows an authorized insurer an opportunity to review and select expiring FWUA Policies for removal up to a year in advance of each policy expiration. Insurers desiring to participate in this program should follow the process below.
The FWUA will make available to insurers upon request, a list of all FWUA in-force policies. The FWUA policy data will be provided on a CD in an ASCII text non delimited format with fixed fields and in the specified file format (Exhibit-5) or in Access. The cost of the CD is $25.
An insurer should complete a Market Quotation Notification Form (Exhibit-1) describing the risk it is willing to write. This form, when properly completed by the company, constitutes an offer of coverage. This form must be typed and information may not overlay on the spacing lines or other printed material. The insurer must submit original documents (no copies). Faxed forms will not be accepted. The FWUA will not be responsible for the accuracy of the information provided to the FWUA applicant from the insurer. Send The completed form(s) to:
If selecting more than one policy, the company must use the MQN-Electronic Format described in Exhibit-2. An MQN-1 Form should be completed for each line of business that is submitted with the electronic submission (e.g. HO-3, HO-4, etc.).
An offer of coverage must comply with the replacement policy conditions found in the Eligibility section of
the FWUA Manual of Rates, Rules and Procedures. (A copy of the Eligibility section is attached as Exhibit-15.)
The forms and rates offered to the policyholder must be approved by the DOI for use by the insurer at the time the offer is made.
The insurer should list on the MQN-1 Form all other applicable forms, such as its company binder, that are submitted with the offer of coverage. These should be listed in the "Other" section of the MQN-1 Form.
Policy selections may be submitted once a month.
The FWUA will non-renew policies selected for renewal keep out for which it has received a valid offer of coverage.
Insurers must select and remove the entire FWUA policy. All items for a particular policy must be selected. Each item on the FWUA policy will have its own string of data.
The company removing the policy must offer a policy including wind coverage or a wind only policy to the policyholder for at least one full year following the date the FWUA policy would have renewed.
A policyholder receiving a qualified offer of coverage from an insurer approved under this process will not be eligible for coverage in the FWUA for a period of one year following the date the FWUA policy would have renewed.
The FWUA may contact the insurer for additional information, prior to approval or disapproval of the proposal.
The FWUA and insurer must execute a policy removal agreement in a form similar to Exhibit-14.
The FWUA will, in general, give preference to proposals to assume policies on a first come, first serve basis. However, if there are competing or overlapping proposals, the FWUA may, in its sole discretion, allocate policies in a manner that best reduces the
exposure of the FWUA and provides the greatest potential reduction of assessments against insurers and policyholders of the state of Florida.
Ultimately, it is the responsibility of the insurer to confirm that the risk(s) identified for assumption or take out are the appropriate policies the insurer is willing to accept.
The insurer is responsible for making contractual arrangements with a Florida licensed agent to Service the policies nonrenewed by the FWUA.
Once all necessary approvals have been given, the FWUA will notify the policyholder, producer of record, mortgagee (if any), and other perils carrier (if known), at least 90 days prior to the date the FWUA policy would have renewed, that the insured's policy will not be renewed. The notices referenced in a. and
below will be sent by the FWUA. The FWUA will also send the notice referenced in c. if requested to do so by the insurer.
FWUA Nonrenewal Letter To Our Insured
(Exhibit-11). This notice will advise the policyholder that an insurer will be sending an offer of coverage, and therefore, the policyholder is no longer eligible for coverage in the FWUA. The notice will include an FWUA phone number to call for additional information.
FWUA Notice Of Nonrenewal (Exhibit-9).
An introductory letter from the insurer making the offer of coverage to the policyholder identifying the insurer and advising that the insurer will be making an offer of coverage.
FWUA will notify the underlying perils carrier if known.
FWUA will provide a monthly report to DOI summarizing the number of policies and exposure by county for each renewal keep out company.
The insurer must send an offer of coverage to the insured not less that 45 days prior to the FWUA expiration date.
The insurer must continue the offer of coverage for at least 30 days past the date the FWUA policy would have renewed. An offer of coverage must include a deductible, which does not exceed the maximum available deductible appropriate to each line of insurance offered by the FWUA. The policyholder may voluntary choose a higher deductible provided the deductible chosen is not contrary to Florida Law.
| Issue Date | Document | Summary |
|---|---|---|
| Aug. 21, 2001 | DOAH Final Order | Procedures governing "renewal keep-outs," as set forth in a manual produced by the Florida Windstorm Underwriting Association and approved by the Department of Insurance, constitute a rule-by-definition in violation of Section 120.54, Florida Statutes. |
