OIR's Draft Legislation - January 16, 2009, at 4:00 p.m.
OIR is an agency of the State of Florida, created within the Commission in accordance with Section 20.121(3)(a)1., Florida Statutes (2008). OIR is responsible for the administration of laws concerning insurers and other risk-bearing entities, including, but not limited to, viatical settlements.
The Insurance Commissioner is head of OIR except for rulemaking purposes. Pursuant to Sections 20.121(1)(c) and 624.308(1), Florida Statutes (2008), the agency head for rulemaking is the Commission.
Petitioner is a trade association that represents 12 of the 13 Florida-licensed viatical settlement providers. As an established trade association in the life settlement industry, Petitioner participates in legislative and regulatory matters in all 50 states. Petitioner is comprised of over 160 member companies nationwide.
Florida's Viatical Settlement Act, Part X, Chapter 626,
Florida Statutes (2008) (the Act), involves the regulation of
viatical settlement providers. The Act regulates both viatical settlements and life settlements. Both types of transactions involve the sale of ownership interest in life insurance policies.
A viatical settlement relates to the sale of the ownership interest in a life insurance policy by a person who is expected to live for less than two years. A life settlement involves the sale of the ownership interest in a life insurance policy by a person who is expected to live for longer than two years after the date of sale. Viatical and life settlements are regulated in essentially the same manner. Both are included in the definition of "viatical settlement contract." See
§ 626.9911(10), Fla. Stat. (2008).
In a viatical settlement transaction, the "viatical settlement provider" is the purchaser of the ownership interest in a life insurance policy, including the right to receive the policy proceeds upon the death of the insured. See
§ 626.9911(12), Fla. Stat. (2008). The "viator" is the owner of an insurance policy who sells the ownership interest in the policy. See § 626.9911(14), Fla. Stat. (2008). The "viatical settlement broker" is the agent of the viator. See
§ 626.9911(9), Fla. Stat. (2008). The broker owes a fiduciary duty to obtain the best price for the insurance policy and typically, solicits bids from multiple viatical settlement
providers on behalf of the viator. Id.
This controversy involves a challenge to proposed Florida Administrative Code Rule 690-204.030(1)(a), (the proposed rule) which states as follows:
69O-204.030, Forms Incorporated by Reference.
Form OIR-A3-1288, Viatical Settlement Provider Annual Report (REV 11/08).
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Specific Authority 626.9925 FS. Law Implemented 626.9912(2), 626.9912(3),
626.9913(2), 626.9921(3), 626.9921(4) and
626.9928, FS. History-New
Petitioner specifically objects to Schedules B and C attached to Form OIR-A3-1288. Schedule B requests the following information on policies purchased for the most recent five years, beginning with the current reporting year: (a) total number of policies purchased (quantity); (b) total gross amount paid for policies purchased (dollars); and (c) total face value of policies purchased (dollars). The information is not limited to policies purchased in Florida.
Schedule C requests information relating to a summary of a licensed provider's business in every state, territory or geographical area. The information sought in Schedule C includes the following: (a) whether the provider is licensed/registered in the state; (b) the total number of policies purchased;
(c) total gross amount paid for policies purchased; (d) total commissions/compensation paid for policies purchased; and
total face value of policies purchased.
Respondent also challenges the portion of Form OIR-A3- 1288 (Rev 11/08) that requires providers to annually file supporting documentation demonstrating any change to the provider's "method of operation as described in [the provider's] most recent plan of operations filed with OIR." The form requests this information in Interrogatory 1.(d) attached to the Annual Report.
The challenged portions of the Annual Report, incorporated by reference in the proposed rule, require viatical settlement providers to disclose detailed information regarding their nationwide and international business activities. The information, in a publicly available form, involves transactions not subject to Florida regulation.
On September 26, 2008, a Notice of Proposed Rulemaking relative to the Viatical Rule was published in Volume 34, Number 39, Florida Administrative Weekly. The notice indicated that a public hearing would be held on October 29, 2008.
On October 29, 2008, as indicated in the Notice of Proposed Rulemaking, a public hearing was held. Written comments from the industry were received both prior to and immediately after the public hearing.
Based upon comments from the Joint Administrative Procedures Committee (JAPC) dated October 22, 2008, a Notice of
Correction was filed in Volume 34, Number 46, Administrative Law
Weekly, on November 14, 2008. The notice reflected that the agency head for rulemaking was the Commission.
On December 24, 2008, a Notice of Change was published in Volume 34, Number 52, Florida Administrative Weekly. The notice was based upon comments from JAPC, as well as comments at the October 29, 2008, public hearing.
On January 13, 2009, the hearing for final adoption of proposed Florida Administrative Code Rules 69O-204.010, .020,
.030, .040 and .050, was held before the Commission. Following some discussion, the Commission approved the proposed rules for final adoption.
The Commission met all applicable rulemaking publication and notice requirements, as set forth in Chapter 120, Florida Statutes (2008). Petitioner does not challenge the proposed rule pursuant to Section 120.52(8)(a), Florida Statutes (2008).
Petitioner does not challenge the proposed rule as imposing excessive regulatory costs, pursuant to Section 120.52(8)(f), Florida Statutes (2008).
The proposed rule imposes requirements on Florida licensed viatical settlement providers. Those requirements do not appear significantly different than those required in a number of other states.
Florida licensed viatical settlement providers would be
subject to administrative penalties if they did not comply with
the proposed rule. See § 626.9913(2), Fla. Stat. (2008).
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdic- tion of the subject matter and the parties to this proceeding pursuant to Sections 120.56(1)(a), 120.569, and 120.57(1), Florida Statutes (2008).
In order to be “substantially affected” in accordance with Section 120.56(1), Florida Statutes, an entity must demonstrate that: (1) it will suffer an injury in fact of sufficient immediacy to entitle it to a formal administrative proceeding; and (2) the substantial injury is of a type or nature that the proceeding is designed to protect. Ameristeel v. Clark, 691 So. 2d 473 (Fla. 1997). The first prong of the test deals with the degree of injury, and the second prong with the nature of the injury. Accardi v. Department of Environmental Protection, 824 So.2d 992 (Fla. 4th DCA 2002); Agrico Chemical Company v. Department of Environmental Protection, 406 So. 2d 478 (Fla. 2d DCA 1981).
Petitioner has standing to challenge the proposed rule because the proposed rule impacts its members by requiring them to turn over sensitive business information in a public format. Additionally, all of Petitioner's licensed Florida members will be subject to administrative penalties if they do not comply with the proposed rule.
Petitioner has the burden of going forward with the
evidence and establishing a basis for the objections raised. As the Court stated in Southwest Florida Water Management District v. Charlotte County, 774 So. 2d 903, 908 (Fla. 2d DCA 2001): “A party challenging a proposed rule has the burden of establishing a factual basis for the objections to the rule, and then the agency has the ultimate burden of persuasion to show that the proposed rule is a valid exercise of delegated legislative authority.” See § 120.56(1), Fla. Stat. (2008); Environmental Trust v. State, Department of Environmental Protection, 714 So. 2d 493 (Fla. 1st DCA 1998).
Petitioner argues that the proposed rule constitutes an invalid exercise of delegated legislative authority pursuant to Section 120.52(8), Florida Statutes (2008), which states as follows in relevant part:
(8) "Invalid exercise of delegated legislative authority" means action that goes beyond the powers, functions, and duties delegated by the Legislature. A proposed or existing rule is an invalid exercise of delegated legislative authority if any one of the following applies:
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The agency has exceeded its grant of rulemaking authority, citation to which is required by s. 120.54(3)(a)1.;
The rule enlarges, modifies, or contravenes the specific provisions of law implemented, citation to which is required by s. 120.54(3)(a)(1.;
The rule is vague, fails to establish adequate standards for agency decision, or vest unbridled discretion in the agency;
The rule is arbitrary or capricious. A rule is arbitrary if it is not supported by logic or the necessary facts; a rule is capricious if it is adopted without thought or reason or is irrational. . . .
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A grant of rulemaking authority is necessary but not sufficient to allow an agency to adopt a rule; a specific law to be implemented is also required. An agency may adopt only rules that implement or interpret the specific powers and duties granted by the enabling statute. No agency shall have authority to adopt a rule only because it is reasonably related to the purpose of the enabling legislation and is not arbitrary and capricious or is within the agency’s class of powers and duties, nor shall an agency have the authority to implement statutory provisions setting forth general legislative intent or policy. Statutory language granting rulemaking authority or generally describing the powers and functions of an agency shall be construed to extend no further than implementing or interpreting the specific powers and duties conferred by the enabling statute.
Respondents assert that specific authority for the rule is provided by Section 626.9925, Florida Statutes (2008), which states as follows:
The commission may adopt rules to administer this act, including rules establishing standards for evaluating advertising by licensees; rules providing for the collection of data, for disclosures to viators, for the reporting of life expectancies, and for the registration of life expectancy providers; and rules defining terms used in this act and prescribing recordkeeping requirements relating to executed viatical settlement contracts. (Emphasis supplied).
The laws identified as being implemented by the proposed rule are Sections 626.9912(3), 626.9913(2), 626.9921(3), 626.9921(4), and 626.9928, Florida Statutes (2008). Sections 626.9921(3) and 626.9921(4), Florida Statutes (2008) relate to proposed Florida Administrative Code Rule 69O-204.030(1)(b) and are not at issue here. Section 626.9928, Florida Statutes (2008) was erroneously cited and is not relevant here.
Respondents claim that Schedules B and C, as well as the interrogatory in question, implement Sections 626.9912(3) and 626.9913(2), Florida Statutes (2008). Section 626.9912(3), Florida Statutes (2008), states as follows:
In the application, the applicant must provide all of the following:
The applicant's full name, age, residence address, and business address, and all occupations engaged in by the applicant during the 5 years preceding the date of the application.
A copy of the applicant's basic organization documents, if any, including the articles of incorporation, articles of association, partnership agreement, trust agreement, or other similar documents, together with all amendments to such documents.
Copies of all bylaws, rules, regulations or similar documents regulating the conduct of the applicant's internal affairs.
A list showing the name, business and residence addresses, and official position of each individual who is responsible for conduct of the applicant's affairs, including, but not limited to, any member of the applicant's board of directors, board of trustees, executive committee, or other governing board or committee and any other person or entity owning or having the
right to acquire 10 percent or more of the voting securities of the applicant.
(d) With respect to each individual identified under paragraph (d):
A sworn biographical statement on forms adopted by the commission and supplied by the office.
A set of fingerprints on forms prescribed by the commission, certified by a law enforcement officer, and accompanied by the fingerprinting fee specified in s. 624.501.
Authority for release of information relating to the investigation of the individual's background.
All applications, viatical settlement contract forms, escrow forms, and other related forms proposed to be used by the applicant.
A general description of the method the viatical settlement provider will use in determining life expectancies, including a description of the applicant's intended receipt of life expectancies, the applicant's intended use of life expectancy providers, and the written plan or plans of policies and procedures used to determine life expectancies.
Such other information as the commission or office deems necessary to determine that the applicant and the individuals identified under paragraph (d) are competent and trustworthy and can lawfully and successfully act as a viatical settlement provider.
Section 626.9913(2), Florida Statutes (2008), provides:
(2) Annually, on or before March 1, the viatical settlement provider licensee shall file a statement containing information the commission requires and shall pay to the office a license fee in the amount of $500. After December 31, 2007, the annual statement shall include an annual audited financial statement of the viatical settlement provider prepared in accordance with generally accepted accounting principles by an independent certified public accountant
covering a 12-month period ending on a day falling during the last 6 months of the preceding calendar year. If the audited financial statement has not been completed, however, the licensee shall include in its annual statement an unaudited financial statement for the preceding calendar year and an affidavit from an officer of the licensee stating that the audit has not been completed. In this event, the licensee shall submit the audited statement on or before June 1. The annual statement, due on or before March 1 each year, shall also provide the office with a report of all life expectancy providers who have provided life expectancies directly or indirectly to the viatical settlement provider for use in connection with a viatical settlement contract or a viatical settlement investment. A viatical settlement provider shall include in all statements filed with the office all information requested by the office regarding a related provider trust established by the viatical settlement provider. The office may require more frequent reporting. Failure to timely file the annual statement or the audited financial statement or to timely pay the license fee is grounds for immediate suspension of the license. The commission may by rule require all or part of the statements or filings required under this section to be submitted by electronic means in a computer-readable form compatible with the electronic data format specified by the commission.
In this instance, Petitioner has established a basis for its objections to the proposed rule on two grounds. First, Petitioner has shown that Respondent Commission has exceeded its grant of rule making authority. See § 120.52(8)(b), Fla. Stat. (2008). Nothing in Section 626.9925, Florida Statutes (2008), provides Respondent with specific authority to require licensed viatical settlement providers to include the information sought
in Schedules B and C or in Interrogatory 1.(d) in their annual reports.
Section 626.9925, Florida Statutes (2008), gives Respondents specific authority to adopt "rules for the collection of data." It does not provide specific authority for Respondents to collect data regarding transactions not even subject to Florida regulation.
The second reason for upholding Petitioner's objections is that the proposed rule enlarges the specific provisions of law implemented. See § 120.52(8)(c), Fla. Stat. (2008).
Under Section 626.9912(3), Florida Statutes (2008), Respondents have the opportunity to request additional information from an applicant. That section is not applicable to licensees who are required to file an annual report containing the information set forth in Section 626.9913(2), Florida Statutes (2008).
Section 626.9913(2), Florida Statutes (2008), states that licensees must file annual statements "containing information the commission requires . . ." The statute then proceeds to specify the information that must be included in the annual statements.
Without question, Respondents have some discretion in determining the contents of the annual statement. However, Respondents' discretion is limited to such information as is
required to implement other requirements of the Act. See Life
Insurance Settlement Association v. Office of Insurance Regulation, Case No. 08-1645RP (DOAH, September 12, 2008). Respondents' discretion in this case does not extend to the information sought in Schedules B and C and Interrogatory 1.(d).
Respondents have a responsibility under Section 626.9914, Florida Statutes (2008), to take action against a viatical settlement provider who, among other things, engages in fraudulent or dishonest practices or is shown to be untrustworthy or incompetent. Examination and investigations are specifically authorized by Section 626.9922, Florida Statutes (2008). These statutes may serve as a vehicle for Respondent to gather the information sought under the proposed rule but they are not cited as laws implemented.
As to Section 120.52(8)(d), Florida Statutes (2008), Respondent correctly argues that the proposed rule is not vague. Schedules B and C and Interrogatory 1.(d) require very specific information that is set forth plainly.
Likewise, the language of the proposed rule does not fail to establish adequate standards for agency decisions or vest unbridled discretion in the agency. The problem with the proposed rule is that Respondents have erroneously assumed they have statutory authority to require the annual report to include any information/data that they determine should be collected.
Finally, Section 120.52(8)(e), Florida Statutes, states
that a proposed rule is an invalid exercise of delegated
legislative authority if it is “arbitrary or capricious.” An arbitrary decision is one unsupported by facts or logic. A capricious action is one taken irrationally, without thought or reason. See Board of Clinical Laboratory Personnel v. Florida Association of Blood Banks, 721 So. 2d 317 (Fla. 1st DCA 1998). In this instance, it cannot be said that the proposed rule is not supported by facts and logic or the result of irrational thought.
The authority for an administrative rule is not a matter of degree. Either the enabling statutes provide authorization for a proposed rule, or they do not. Southwest Florida Water Management District v. Save the Manatee Club, Inc., 773 So. 2d 594 (Fla. 1st DCA 2000): “The question is whether the statute contains a specific grant of legislative authority for the rule, not whether the grant of authority is specific enough.” Id. at 599 (emphasis in original). Here, Respondents have not met their ultimate burden of persuasion to show that the proposed rule is a valid exercise of delegated legislative authority.
Petitioner has requested an award pursuant to Section 120.595(2), Florida Statutes (2008), which provides as follows:
(2) If the appellate court or administrative law judge declares a rule or portion of a rule invalid pursuant to s.
120.56 (2), a judgment or order shall be rendered against the agency for reasonable costs and reasonable attorney's fees, unless the agency demonstrates that its actions were substantially justified or special circumstances exist which would make the award unjust. An agency's actions are "substantially justified" if there was a
reasonable basis in law and fact at the time the actions were taken by the agency. If the agency prevails in the proceedings, the appellate court or administrative law judge shall award reasonable costs and reasonable attorney's fees against a party if the appellate court or administrative law judge determines that a party participated in the proceedings for an improper purpose as defined by paragraph (1)(e). No award of attorney's fees as provided by this subsection shall exceed $50,000.
The "substantially justified" standard, a standard also found in Section 57.111, Florida Statutes (2008), falls somewhere between the "no justiciable issue" standard found in Section 57.105, Florida Statutes (2008), and an automatic award of costs and fees to the prevailing party such as found in Section 120.56(4), Florida Statutes (2008). Helmy v. Department of Business and Professional Regulation, 707 So. 2d 366 (Fla. 1st DCA 1998).
In determining whether Respondent had a reasonable basis in law and fact, Respondents must have a solid though not necessarily correct basis in fact and law for the position it took in proposing the rule. Fish v. Department of Health, Board of Dentistry, 825 So. 2d 421, 423 (Fla. 4th DCA 2002)(quoting McDonald v. Schweiker, 726 F.2d 311, 316 (7th Cir. 1983)).
In this case, the specific grant of rule authority found in Section 626.9925, Florida Statutes (2008), provided a reasonable basis in law and fact for the position Respondents took in proposing the rule and defending its validity. Thus,
