STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

JOHN DEERE INSURANCE COMPANY,

Petitioner,

vs.

DEPARTMENT OF INSURANCE,

Respondent.

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) Case No. 01-3015

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RECOMMENDED ORDER

Notice was provided, and a formal hearing was held on October 2, 2001, in Tallahassee, Florida, and conducted by Harry L. Hooper, Administrative Law Judge with the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Frank J. Santry, Esquire

Granger, Santry & Heath, P.A. 2833 Remington Green Circle Post Office Box 14129 Tallahassee, Florida 32317

For Respondent: Elenita Gomez, Esquire

Richard M. Ellis, Esquire Department of Insurance

Division of Legal Services

200 East Gaines Street 612 Larson Building

Tallahassee, Florida 32399-0333 STATEMENT OF THE ISSUE

Whether Petitioner realized unlawful excess profits, and if so, in what amount.

PRELIMINARY STATEMENT

Petitioner John Deere Insurance Company is now known as Sentry Select Insurance Company (Sentry). During all times pertinent Sentry was licensed by the Department of Insurance and held a Certificate of Authority to do business in the State of Florida as a foreign property and casualty insurer. Petitioner received a Notice of Excessive Profits from the Department on or about January 12, 1999, finding on a preliminary basis, that excess profits had been realized in the amount of $191,094.00 for workers' compensation business covering calendar/accident years 1994, 1995, and 1996.

In a letter dated January 29, 1999, Sentry requested an informal hearing and reserved the right to request a formal hearing. On July 24, 2001, Sentry filed its Petition for Formal Administrative Proceeding. A hearing was set for October 2, 2001. On August 17, 2001, Sentry filed a Motion to Stay, asserting that Sentry wished to have the facial constitutionality of the operative statute, Section 627.215, Florida Statutes, determined through a declaratory judgment action in circuit court. In an order dated August 31, 2001, that motion was denied.

The question of whether or not a statute is unconstitutional facially, or in its operation, is not something

which can be determined in an administrative hearing. Therefore, the statute which is the genesis of this dispute, Section 627.215, Florida Statutes, is considered for purposes of this action to be constitutional.

At the hearing Sentry offered four exhibits which were received into evidence. One of the exhibits was the deposition testimony of Patricia Ferguson, the statistical manager for Sentry Insurance Group. The Department presented the testimony of James Watford and offered four exhibits which were admitted into evidence.

A transcript was filed on October 15, 2001. Both parties timely submitted Proposed Recommended Orders which were considered in the preparation of this Recommended Order.

FINDINGS OF FACT

1. Sentry is currently licensed and holds a Certificate of Authority to do business in the State of Florida as a foreign property and casualty insurer, and was so licensed at all times material. Sentry Select Insurance Company was known as John Deere Insurance Company until it was purchased by Sentry Insurance Group in October of 1999.

2. On or about June 24, 1998, Sentry submitted Form D14-15 to the Department as required by Section 627.215, Florida Statutes. Form D14-15 is also known as Reporting Form F. The

   form provides insurance company data which is used by the Department to calculate workers' compensation excess profits.

3. The Department did calculate the excess profits in the case of Sentry and on January 6, 1999, filed a Notice of Excessive Profits finding that Sentry had realized excess profits in the amount of $191,094.00 for calendar/accident years 1994-1996.

4. In response to the Notice of Excessive Profits, Sentry provided to the Department, on or about May 26, 1999, commercial property and casualty experience data on a Form DI4-358. This was not a certified submission, nor was any evidence submitted which indicated that it should have been certified. Sentry asserted that this data could be used to offset the excess profits determined by the Department.

5. Patricia Ferguson authenticated and made competent the commercial property and casualty experience data submitted by Sentry in May of 1999. The raw data presented is a business record of the company and therefore is admitted as an exception to the hearsay rule.

6. Ms. Ferguson asserted that if the commercial property and casualty experience data was combined with the workers' compensation experience, Sentry would not have realized excess profits in the years 1994, 1995, and 1996. However, the material provided, including a completed Form DI4-358, is

   insufficient to permit the Department to make that determination.

7. The excess profits statute, Section 627.215, Florida Statutes, was originally enacted into law in 1979. This statute only addressed excess profits in the case of workers' compensation insurance and employer's liability insurance for business written in Florida. In 1988, the Florida Legislature added commercial property and commercial casualty insurance written in Florida to the excess profits law and provided for a combination of these types of insurance in the case of insurers who wrote these types of coverage.

8. Because the calculation of excess profits requires information from three years' experience, the statute was drafted so that only workers' compensation and employer's liability insurance was considered until 1991. Thereafter the different lines were to be combined. During the three-year period leading to 1991, data was reported, but no excess profits were required to be calculated.

9. Between 1991 and 1997, companies reported their profit or loss underwriting experience for the latest three calendar/accident years valued at the end of the following year. Reports to the Department were due prior to the first day of July. For example, if the calendar accident years were 1994, 1995, and 1996, the profit or loss underwriting experience would

   be valued on December 31, 1997, and reported to the Department on Form F prior to July 1, 1998. Form F must be certified by a corporate officer.

10. Excess profit has been realized if an insurer's underwriting gain exceeds the anticipated underwriting profit from the insurer's rate filings plus a five percent earned premium which the insurer may retain. Stated another way, if an insurer's profit is greater than that anticipated in its rate filing plus five percent then that amount is deemed excess profit.

11. The Form F submitted by Sentry on June 24, 1998, was certified by the Assistant Secretary of Sentry as being a full and true statement.

12. The Department correctly determined the amount of excess profit to be $191,094.00. This is the amount which must be returned to Sentry's premium payers as a cash payment or credit toward future premiums.

13. The Department correctly declined to consider the commercial property and casualty experience submitted by Sentry, on May 26, 1999, on Form DI4-358, because the Department believed it could not consider that data in light of a change in the law made in 1995 which was effective January 1, 1997.

    
    

    
    

    CONCLUSIONS OF LAW

    
    

14. The Division of Administrative Hearings has jurisdiction over the parties and the subject matter of this proceeding pursuant to Section 120.57(1), Florida Statutes.

15. The burden of proof is on the party asserting the affirmative of an issue before an administrative tribunal, Florida Department of Transportation v. J.W.C. Company, Inc.,

    396 So. 2d 778 (Fla. 1st DCA 1981). Therefore, the Department had the burden of proving by a preponderance of the evidence that Sentry experienced excess profits.

16. Prior to January 1, 1997, Section 627.215, Florida Statutes, permitted the combination of workers' compensation insurance, employer's liability insurance, commercial property insurance, and commercial casualty insurance, when reporting data to the Department, and when the Department calculated excess profits.

17. Section 15 of Chapter 95-276, Laws of Florida, became law on June 14, 1995. It amended Section 627.215, Florida Statutes, by adding Section 14, which stated as follows:

    The application of this law to commercial property and commercial casualty insurance ceases on January 1, 1997. The Department of Insurance shall, no later than October 1, 1995, provide a report on this law to the President of the Senate and the Speaker of the House of Representatives, which report

    includes a history of the excess profits law and a year-by-year listing of excess profits returned to policyholders as refunds or credits.

    
    

18. Subsequently, the rule which addressed excess profits in connection with commercial property and commercial casualty insurance, Rule 4-171.007, Florida Administrative Code, was repealed. The effective date of the repeal was November 8,

    2000.

    
    

19. Rule 4-189.007, Florida Administrative Code, is

    
    

    entitled, "Insurer Experience Reporting--Excessive Profits, Workers' Compensation Insurance." This rule addresses workers' compensation and employer's liability insurance. It does not mention commercial property and commercial casualty insurance.

20. Rule 4-189.007, Florida Administrative Code, is the rule which governs the assessment of excess profits in the case of Sentry.

21. Section 627.215(14), Florida Statutes, takes commercial property and commercial casualty insurance out of the excess profits equation because it states that the application of the law to commercial property and commercial casualty insurance ceased on January 1, 1997. The reports by Sentry encompassed the years 1994, 1995, and 1996, and underwriting profits or losses were valued on December 31, 1997. The application of the law, meaning the determination as to the

    existence of excess profits, occurred subsequent to Sentry's reporting date, which by law was prior to July 1, 1998.

22. Because July 1, 1998, the date the law was applied, is after January 1, 1997, the date taking commercial property and commercial casualty insurance out of the statute, it would be unlawful for the Department to consider commercial property and commercial casualty insurance underwriting profits or losses in the calculation of workers' compensation excess profits.

RECOMMENDATION

Based upon the Findings of Fact and Conclusions of Law, it

is

RECOMMENDED:

That a final order be entered which finds that Sentry

realized $191,094.00 in excess profits for workers' compensation business covering calendar/accident years 1994, 1995, and 1996.

DONE AND ENTERED this 30th day of October, 2001, in Tallahassee, Leon County, Florida.

HARRY L. HOOPER

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 30th day of October, 2001.

COPIES FURNISHED:

Elenita Gomez, Esquire Richard M. Ellis, Esquire Department of Insurance

Division of Legal Services

200 East Gaines Street 612 Larson Building

Tallahassee, Florida 32399-0333

Frank J. Santry, Esquire Granger, Santry & Heath, P.A. 2833 Remington Green Circle Post Office Box 14129 Tallahassee, Florida 32317

Honorable Tom Gallagher

State Treasurer/Insurance Commissioner Department of Insurance

The Capitol, Plaza Level 02 Tallahassee, Florida 32399-0300

Mark Casteel, General Counsel Department of Insurance

The Capitol, Lower Level 26 Tallahassee, Florida 32399-0307

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case.

Docket for Case No: 01-003015

Orders for Case No: 01-003015