The Issue Whether the School Board of Broward County's award of a contract for Excess General and Auto Liability insurance coverage to United National Insurance Company is barred because of illegality?
Findings Of Fact The Parties Ranger Insurance Company, Petitioner, is the holder of a Certificate of Authority dated September 9, 1996 and issued by the Department of Insurance and Bill Nelson, Insurance Commissioner and Treasurer. Good through June 1, 1997, the certificate authorizes Ranger to write in a number of lines of insurance business, including, Private Passenger Auto Liability, Commercial Automobile Liability, Private Passenger Automobile Auto Physical Damage, Commercial Auto Physical Damage and Other Liability. As such, Ranger is an "authorized" or "admitted" insurer in the State of Florida. L.B. Bryan & Company, Alexander & Alexander, Inc., and Benefactor Financial Group, Inc., is a joint venture and co- petitioner with Ranger in this proceeding through whom Ranger proposed to procure the Excess General and Auto Liability (“Excess GL/AL”) coverage. A timely proposal under Request for Proposal 97- 072S was submitted to the School Board of Broward County by the petitioners to provide the Excess GL/AL Insurance Coverage sought by the RFP. United National Insurance Company is an "eligible" surplus lines insurer, approved by the Florida Department of Insurance to transact all surplus lines coverages in the State of Florida and licensed as such. The Department has notified insurance agents of United Nation's eligibility as a surplus lines insurer since 1978. It is the insurer of the Excess General and Excess Auto Liability insurance coverage awarded by the School Board under RFP 97-072S. Arthur J. Gallagher & Company ("Gallagher,") is the eighth largest insurance broker in the world. It has four sales offices, nine service offices, and approximately 150 employees in the State of Florida alone. The office from which it conducted business related to this proceeding is in Boca Raton, Florida, an office for which Area President David L. Marcus is responsible. Gallagher submitted a timely proposal (the "Gallagher proposal,") in response to the RFP on behalf of United National. The School Board of Broward County is the authority that operates, controls, and supervises all free public schools in the Broward County School District, "[i]n accordance with the provisions of s. (4)(b) of Article IX of the State Constitution ...". Section 230.03(2), F.S. In accord with its powers, the School Board may contract directly to purchase insurance. It is not required by its purchasing rules to use a competitive bidding or procurement process to purchase insurance. Nonetheless, on Friday, April 26, 1996, it issued a request for proposals, the RFP at issue in this proceeding, for insurance coverages including for Excess GL/AL insurance coverages. Siver Insurance Management Consultants Siver Insurance Management Consultants ("Siver,") are the drafters of RFP 97-072S. The School Board relied on Siver to draft the RFP, particularly its technical sections. Technical review of the proposals made under the RFP was conducted by Siver. And Siver put together for the School Board's use a summary of the policies proposed by both United National and Ranger. The summary was considered by the School Board's Evaluation Committee when it evaluated the competing proposals. The determination of whether the competing proposers were properly licensed was made by Siver. The School Board's Evaluation Committee, indeed the School Board, itself, played no role in determining the licensing credentials of the proposers while the proposals were under consideration. Under the arrangement between Siver and the School Board, however, the School Board retained the primary responsibility for administering the RFP. The RFP Request for Proposal 97-072S was mailed to 324 vendors (prospective proposers) the same day as its issuance, April 26, 1996. None of the vendors knew the contents of the RFP until it was issued. The RFP sought proposals for seven coverages, each of which was severable from the remainder of the coverages and was allowed to be proposed separately. The scope of the request was described in the RFP as follows: The School Board of Broward County, Florida ... is seeking proposals for various insurance coverages and risk management services. To facilitate distribution of the underwriting data and the requirements for each of the coverages, this consolidated Request for Proposals ... has been prepared. However, each of the coverages is severable and may be proposed separately. The following are included: Boiler & Machinery Excess General and Automobile Liability Excess Workers' Compensation School Leaders Errors & Omissions Crime Including Employee Dishonesty - Faithful Performance, Depositor's Forgery Claim and Risk Management Services (Including Managed Care Services) Statutory Death Benefits Petitioner's Ex. 1, pg. I-1. Since the seven coverages are severable and no proposer had to submit a proposal on all seven coverages, one way of looking at RFP 97-072S is as a consolidated RFP composed of seven, separate proposals, each for a different type of insurance coverage. Of the 324 vendors to whom the RFP was sent, only two, Gallagher, on behalf of United National, and Ranger, through the action of the joint venture, submitted proposals with respect to the Excess GL/AL coverages. Reasons for Using an RFP The School Board, under the auspices of Siver, chose to seek insurance coverage through an RFP rather than an Invitation to Bid, or what is colloquially referred to as a "straight bid," for a number of reasons. As one familiar with RFPs and Invitations to Bid might expect, the School Board and Siver were attracted to the RFP by the increased flexibility it offered in the ultimate product procured in comparison to the potentially less flexible product that would be procured through an invitation to bid. More pertinent to this case, however, Siver chose to use an RFP for the School Board in this case because "as explained ... by the Department of Insurance over the ... years, while there may... [be a] prohibition against any surplus lines agents submitting a straight bid, there would not be a prohibition against a ... [surplus lines] agent responding to a request for proposal " (Tr. 149.) The RFP approach was not chosen, however, in order to avoid any legal requirement or to circumvent the Insurance Code. As explained by Mr. Marshall, the approach was born of hard reality: Id. [O]ne of the primary motivations [for using an RFP rather than an Invitation to Bid] was to allow us [The School Board and Siver] to consider surplus lines companies because of the fact that very often they were the only insurers that would respond on the number of coverages and clients that we were working for. The Insurance Code and the Surplus Lines Law The Insurance Code in Section 624.401, Florida Statutes, requires generally that an insurer be authorized by the Department of Insurance (the "Department,") to transact business in the State of Florida before it does so: (1) No person shall act as an insurer, and no insurer or its agents, attorneys, subscribers, or representatives shall directly or indirectly transact insurance, in this state except as authorized by a subsisting certificate of authority issued to the insurer by the department, except as to such transactions as are expressly otherwise provided for in this code. One place in the code where transactions are "expressly otherwise provided for ...," is in the Surplus Lines Law, Section 626.913 et seq., Florida Statues. The purposes of the law are described as follows: It is declared that the purposes of the Surplus Lines Law are to provide for orderly access for the insuring public of this state to insurers not authorized to transact insurance in this state, through only qualified, licensed, and supervised surplus lines agents resident in this state, for insurance coverages and to the extent thereof not procurable from authorized insurers, who under the laws of this state must meet certain standards as to policy forms and rates, from unwarranted competition by unauthorized insurers who, in the absence of this law, would not be subject to similar requirements; and for other purposes as set forth in this Surplus Lines Law. Section 626.913(2), F.S. Surplus lines insurance is authorized in the first instance only if coverages cannot be procured from authorized insurers: If certain insurance coverages of subjects resident, located, or to be performed in this state cannot be procured from authorized insurers, such coverages, hereinafter designated "surplus lines," may be procured from unauthorized insurers, subject to the following conditions: The insurance must be eligible for export under s. 626.916 or s. 626.917; The insurer must be an eligible surplus lines insurer under s. 626.917 or s. 626.918; The insurance must be so placed through a licensed Florida surplus lines agent; and The other applicable provisions of this Surplus Lines Law must be met. Section 626.915, Florida Statutes, and then only subject to certain other conditions: No insurance coverage shall be eligible for export unless it meets all of the following conditions: The full amount of insurance required must not be procurable, after a diligent effort has been made by the producing agent to do so, from among the insurers authorized to transact and actually writing that kind and class of insurance in this state ... . Surplus lines agents must verify that a diligent effort has been made by requiring a properly documented statement of diligent effort from the retail or producing agent. However, to be in compliance with the diligent effort requirement, the surplus lines agent's reliance must be reasonable under the particular circumstances surrounding the risk. Reasonableness shall be assessed by taking into account factors which include, but are not limited to, a regularly conducted program of verification of the information provided by the retail or producing agent. Declinations must be documented on a risk-by-risk basis. It is not possible to obtain the full amount of insurance required by layering the risk, it is permissible to export the full amount. Section 626.916, F.S. Authorized vs. Unauthorized Insurers Unlike authorized insurers, unauthorized insurers do not have their rates and forms approved by the Department of Insurance, (the "Department.") Similarly, unauthorized insurers are not member of the Florida Insurance Guaranty Association, which guarantees payment of claims if an insurer becomes insolvent. Unauthorized insurers may qualify to transact Florida insurance business under the Surplus Lines Law and so, for purposes of the Surplus Lines Law, be considered "eligible" to transact surplus lines business in Florida. When a Surplus Lines insurer is eligible, Department of Insurance employees refer to the insurer in Surplus Lines terms as "authorized," a term in everyday English that is synonymous with "eligible." But an eligible surplus lines insurer remains an "unauthorized" insurer when compared to an "authorized" insurer for purposes of the Insurance Code and that part of the code known as the Surplus Lines Law. Submission and Review of Proposals Both L.B. Bryan & Company, Alexander & Alexander, Inc., and Benefactor Financial Group, Inc., (the "Joint Venture") and Gallagher submitted timely proposals with regard to Excess GL/AL coverage in response to the RFP. The Joint Venture's proposal was submitted, of course, on behalf of Ranger, an authorized insurer, and Gallagher's was submitted on behalf of United National, an insurer eligible to transact insurance in the State of Florida as a surplus lines insurer but otherwise an unauthorized insurer. The School Board's Insurance Evaluation Committee met on May 30, 1996, to evaluate proposals received pursuant to the RFP. Although briefly discussed by the Evaluation Committee, the issue of proper licensing was not determined independently by the committee. Instead of making that determination, the committee turned to its insurance consultant, Siver. Siver had determined that both proposers, Ranger and United National, were properly licensed for purposes of responding to the RFP and being considered by the committee. Siver communicated that determination to the committee. The committee relied on Siver's determination. Aside from receiving Siver's determination of proper licensing when "briefly discussed" (Tr. 108,) the Evaluation Committee did not address whether either Ranger or United National were properly licensed. Certainly, no issue of whether Ranger should take precedence over United National by virtue that it was an authorized insurer when United National was an unauthorized insurer and a mere eligible Surplus Lines insurer was ever discussed by the committee. In evaluating the proposals, the Committee awarded 73 points to the Gallagher proposal and 69 points to the Ranger proposal. Points were awarded on the basis of three criteria or in three categories: Qualifications (20 points maximum); Scope of Coverages/Services Offered (30 points maximum); and, Points for Projected Costs (50 points maximum.) The Ranger proposal outscored the Gallagher proposal in the "projected cost" category, 50 to 23, but it scored lower in the "qualifications" category, 14 versus 20 for Gallagher, and significantly lower in the "scope of coverages" category, five points versus 30 for Gallagher. The United National coverage was more than twice as costly as Ranger's, a $491,000 annual premium as opposed to Ranger's $226,799, which explains the points awarded in the "projected cost" category. The Gallagher proposal received more points than the Ranger proposal in the "qualifications" category because United National has provided the School Board with Excess GL/AL coverage for a number of years and Ranger has never provided the School Board with such coverage. The Ranger proposal fell so drastically short of the Gallagher proposal in the "scope of coverages/services offered" category primarily because of an athletic participation exclusion appearing in a rider to the specimen policy appearing in its proposal. Ranger had intended to cover athletic participation and the rider was included with the Ranger proposal in error. Ranger notified the School Board of its intent immediately after the tabulations were released. Nonetheless, the Evaluation Committee was never informed of the error and no attempt was made by the School Board to negotiate with Ranger to improve the coverages offered, despite authority in the RFP for the School Board to negotiate with any of the proposers. (The language used in the RFP is "with one or more" of the proposers.) The Ranger proposal also fell short of the Gallagher proposal in the "scope of coverages/service offered" category because the Gallagher proposal was made in several ways. One way was as to only Excess GL/AL coverage. Another way included School Leaders' Errors and Omissions ("E & O") coverage. The E & O coverage was offered by United National in the Gallagher proposal together with the Excess GL/AL coverage in a "combined lines" package, similar to United National coverages already existing for the School Board. Furthermore, the Ranger proposal expressly excluded coverage for Abuse and Molestation, a needed coverage due to the School Board's prior claims history. On June 5, 1996, the Evaluation Committee submitted its recommendations to the School Board's Purchasing Department. With regard to GL/AL coverage, the Evaluation Committee recommended the purchase of the GL/AL/E & O "combined lines" coverage offered by Gallagher through United National. The School Board posted its Proposal Recommendation/Tabulations adopting the recommendation, two days later, on June 7, 1996. Ranger Seeks Redress from the Department Following the School Board's award, Ranger, thinking that it should have received the award under the RFP as the only authorized insurer to submit a proposal for Excess GL/AL coverage, sought redress from the Department. On June 14, 1996, Ranger personnel met with the head of the Department's Surplus Lines Section, Carolyn Daniels, alleging a violation of the Insurance Code's Surplus Lines Law. On June 18, 1996, Ranger reiterated its complaint in writing and asked Ms. Daniels to find a violation that day. On June 24, 1996, Ranger, now through its attorneys, met with Ms. Daniels and her supervisor. Again, on July 4, 1996, Ranger's attorneys wrote to Ms. Daniels, further pleading for her to find a violation and asking for an administrative hearing if Ms. Daniels did not find in favor of the Ranger position. On a fifth attempt, Ranger wrote Ms. Daniels on July 11, 1996, requesting that she adopt Ranger's position. Ms. Daniels reviewed Ranger's five complaints with her supervisor, the Chief of the Bureau of Property and Casualty Solvency and Market Conduct. In a letter dated August 14, 1996, to the School Board's Purchasing Agent, Ms. Daniels announced her determination: I did not find any evidence to indicate that Mr. David L. Marcus of Arthur J. Gallagher & Company or United National Insurance Company violated the Surplus Lines Law in providing a quote for the School Board. Intervenor's Ex. No. 2. Ms. Daniel's determination was based on a number of factors, including the School Board's position in the transaction as an "informed consumer," (Tr. 422-423,) and that the School Board had possessed a United National policy for 13 years. But, the determination was primarily based on the fact that Gallagher had received three declinations from authorized insurers to provide Excess GL/AL coverage and so had performed that which was required prior to deciding that the coverage was eligible for export and provision by a surplus lines insurer: due diligence. Due Diligence Section 626.916(1)(a), Florida Statutes, provides, [n]o insurance coverage shall be eligible for export unless it meets ... the following condition[]: ... [t]he full amount of insurance required must not be procurable, after a diligent effort has been made by the producing agent to do so, from among the insurers authorized to transact and actually writing that kind and class of insurance in this state, and the amount of insurance exported shall be only the excess over the amount so procurable from authorized insurers. (e.s.) The statute goes on to require that the diligent effort, "be reasonable under the particular circumstances surrounding the export of that particular risk." Reasonableness is assessed by taking into account factors which include, but are not limited to, a regularly conducted program of verification of the information provided by the retail or producing agent. Declinations must be documented on a risk-by- risk basis. Section 626.916(1)(a), F.S. "'Diligent effort' means seeking coverage from and having been rejected by at least three authorized insurers currently writing this type of coverage and documenting these rejections." Section 626.914(4), F.S. Under this definition, the "producing agent should contact at least three companies that are actually writing the types of clients and the business in the area [that they are] wanting to write." (Tr. 268.) A specific form to help insurance agents document their three rejections is adopted by Department rule. The rule provides: When placing coverage with an eligible surplus lines insurer, the surplus lines agent must verify that a diligent effort has been made by requiring from the retail or producing agent a properly documented statement of diligent effort on form DI4-1153 (7/94), "Statement of Diligent Effort", which is hereby adopted and incorporated by reference. Rule 4J-5.003(1), F.A.C. Fully aware of the requirement for documentation of diligent effort to find authorized insurers, and cognizant that it would be unlikely that an authorized insurer could be found based on experience, Gallagher began soliciting proposals for coverage in the middle of April, 1996, several weeks before the School Board had issued the RFP. In fact, at the time that Gallagher started soliciting bids, the School Board had not yet assembled or distributed the underwriting data needed by bidders. Nonetheless, with good reason based on experience, Gallagher expected that the School Board would seek a "combined lines" package of GL/AL/E & O coverages like the School Board then received through United National, and that it would be unlikely that an authorized insurer would step forward to propose coverage. Gallagher, therefore, used the policy form current in April of 1996, that is the form providing Excess GL/AL/E & O coverage in a "combined lines" package, "as an example of what the School Board had been looking for this type of program and seeking a program similar to that and similar in coverage." (Tr. 242.) But it also sought Excess GL/AL without combination with E & O coverage. As Mr. Marcus testified, when seeking coverage from authorized insurers beginning in April of 1996, Gallagher "would be looking at a variety of different ways, whether they were package or not." (Tr. 243.) One authorized insurer, Zurich-American, declined to quote because it could not offer a combined line SIR program (a package of excess general liability and excess auto liability coverages) as requested by the RFP. Furthermore, the School Board risk was too large for Zurich-American to handle. A second authorized insurer, American International Group, declined to quote due to the School Board's adverse loss experience. A third authorized insurer, APEX/Great American, declined to provide a quote to Gallagher due to the large size of the School Board account. The responses of these three authorized insurers were listed in a Statement of Diligent Effort provided to Ms. Daniels, which she considered in determining that Gallagher and Mr. Marcus had committed no violation of the Surplus Lines Law. Gallagher also provided Ms. Daniels with a second Statement of Diligent Effort. The statement documented the attempt to attract quotes by adding a school leaders errors and omission component to the Excess GL/AL coverage. It, too, was used by Ms. Daniels in making her determination of no violation of the Surplus Lines Law by Gallagher. The same three insurers refused to quote for the "combined lines" program. Attempts by other Authorized Insurers Gallagher requested that any responses to its requests for quotes be submitted by May 10, 1996, so that it could prepare and submit its proposal by the RFP's deadline for submission of original proposals by all vendors, 2:00 p.m. May 16, 1996. One insurer, Discover Re/USF&G attempted to submit a quote on May 15, 1996, one day before the RFP deadline but five days after May 10. By then, Gallagher had already started printing its 625 page proposal. Furthermore, the company failed to provide the required policy forms until the day after the School Board's deadline for filing proposals. Coregis Insurance Company offered coverage of up to $700,000 for each claim and for each occurrence, but like Discover Re/USF&G, failed to provide the required policy forms until after the RFP deadline. Furthermore, definitive coverage under the Coregis policy would only be provided on the condition that the Florida Legislature pass a Legislative Claims bill, a limiting condition not authorized in the RFP or requested by Gallagher. American Home Assurance Company never responded to Gallagher with the School Board's required quote or policy forms. Rather, the company merely provided an "indication" that the company declined to provide a quote. An "indication" consists of an approximate premium rate, without any terms or conditions. A "quote," on the other hand, includes the terms and conditions of a policy. The Department places with the producing agent the responsibility of determining whether an insurer's communication constitutes and "indication" or a "quote." An agent, according to Ms. Daniels, can only violate the Surplus Lines Law if the agent receives a reliable quote. Gallagher even requested a quote from Ranger, despite never having been appointed to transact insurance on its behalf. But Ranger declined. In response to a request by Gallagher's minority business partner, McKinley Financial Services, Ranger, through E. Michael Hoke on American E & S letterhead, wrote in a letter dated May 6, 1996, "[w]e have received a prior submission on this account so we are returning the attached." Intervenor's Ex. No. 7. The Petition Ranger's petition for formal administrative hearing is the letter dated June 19, 1996, to the Director of Purchasing for the School Board under the signature of E. Michael Hoke, CPCU, Assistant Vice President of AES/Ranger Insurance Company. The letter asks its readers to "bear[] in mind we are not attorneys," p. 1 of the letter, before it outlines three protest issues. The third protest issue is the one about which Ms. Daniels made her determination that no violation of the statute had been committed by Gallagher or its employees: "3) Florida Statute 626.901 (Representing or aiding unauthorized insurer prohibited)." The other two issues deal not with the propriety of Gallagher's actions but the legality of the School Board's award to an unauthorized insurer, United National, when coverage was available from an authorized insurer, Ranger: Florida Statute 626.913 (Surplus Lines Law). . . Our Position * * * Ranger Insurance Company is an admitted authorized insurer ... Its proposal for excess general and auto liability is proof that the Board requested coverage was procurable. United National Insurance Company is an unauthorized insurer under the laws of the State of Florida ... . The United National Insurance Company proposal and/or its offer to extend it's current policies appear to us as "unwarranted competition." Ranger Insurance Company is protected from unwarranted competition from United National Insurance Company in accordance with the Florida Statute 626.913. Florida Statute 626.913 (Eligibility for Export) ... Our Position * * * Ranger Insurance Company is an admitted authorized insurer under the laws of the State of Florida. ... It's proposal for excess general and auto liability is proof that the Board requested amounts were available. The proposal and/or contract extensions offered by United National are for the full amount of coverage sought and not excess over the amount procurable from Ranger, an authorized insurer. The petition, therefore, set in issue not just whether Gallagher acted illegally but whether the School Board acted illegally when it made the award to United National, an unauthorized insurer when Ranger, an authorized insurer, had also submitted a proposal. Extension As soon as the School Board was made aware of the Ranger protest, it extended the existing insurance contracts procured under RFP 92-080S, awarded approximately five years earlier. The extension was on a month-to-month basis until resolution of the protest. The extension was necessary to avoid a lapse in the School Board's coverage during this proceeding.
Recommendation Based on the foregoing, it is, hereby, RECOMMENDED: That the award to United National under the Gallagher proposal in response to RFP 97-072S be rescinded. DONE AND ENTERED this 28th day of January, 1997, in Tallahassee, Florida. DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 28th day of January, 1997. COPIES FURNISHED: Paul R. Ezatoff, Esquire Christopher B. Lunny, Esquire Katz, Kutter, Haigler, Alderman, Marks, Bryant & Yon, P.A. Post Office Box 1877 Tallahassee, Florida 32302-1877 Edward J. Marko, Esquire Robert Paul Vignola, Esquire Office of the School Board Attorney K.C. Wright Administrative Building 600 Southeast Third Avenue - 11th Floor Fort Lauderdale, Florida 33301 A. Kenneth Levine, Esquire Blank, Risby and Meenan, P.A. Post Office Box 11068 Tallahassee, Florida 32302-3068 Dr. Frank Petruzielo, Superintendent Broward County School Board 600 Southeast Third Avenue Fort Lauderdale, Florida 33301-3125
The Issue Whether Respondent's insurance agent's license and eligibility of licensure should be disciplined for alleged violations, set forth hereinafter in detail, as contained in the Administrative Complaint.
Findings Of Fact Based on my observation of the witnesses and their demeanor while testifying, documentary evidence received and the entire record compiled herein, I hereby make the following relevant factual findings: Respondent, Robert Phillip Wolf, is currently licensed and has been eligible for licensure in Florida as a life and health insurance agent and as a general lines insurance agent during times relevant to these proceedings. On or about January 17, 1989, Church Insurance Program (CIP), an incorporated general lines insurance agency, was organized under the laws of Florida. Respondent was vice president of CIP at all times relevant. During times material, an agency agreement was in effect between CIP (herein Respondent or CIP) and North Atlantic Speciality Insurance Company (NAS) whereby CIP agreed to solicit insurance products on behalf of NAS. Respondent executed the agency agreement on behalf of CIP. That agreement provides, in relevant part: SECTION I. AGENT'S AUTHORITY. 3. Agent shall have authority to collect and receive premiums on insurance contracts placed with the company by or through the agent and to retain out of the premiums so collected commissions as provided in Section III of this Agreement on all contracts of insurance, except those subject to procedures specified in Section IV of this Agreement. SECTION II. PREMIUM COLLECTION AND REMITTANCE. 2. Agency billed policies. a. Agent assumes full responsibility for prompt payment to the company of all premiums, less commissions, on all contracts of insurance placed with the company, by or through the agent, whether or not such premiums are collected from the insured. However, the agent shall be relieved of responsibility to pay premiums with respect to an insurance contract which is legally terminated and agent furnishes the company proper evidence of such termination along with a written statement that the agency cannot collect the premium. The evidence and statement must be received within 30 days following the original inception date of the contract. Policies so termin- ated shall not be subject to commission. Failure of the agent to give the company such written notice of his inability to collect such premium shall constitute acceptance by the agent of responsibility to pay such premiums. c. The agent agrees to remit any premium balance to the company so as to reach the company's office no later than 45 days after the end of the month for which the account or statement is rendered. All premiums collected or received by the agent shall be held by him as a fiduciary in trust for the company until paid to the company, and the privilege of retaining commissions as authorized else- where in this agreement shall not be construed as changing such fiduciary relationship. III. COMMISSION 1. The agent is authorized to retain commissions out of premiums collected on agency billed policies as full compen- sation on business placed with the company. Pursuant to the agency agreement, CIP and Respondent were due twenty percent (20 percent)of net written premiums (NWP) as commission. Respondent was agent of record for NAS at CIP during times material. During 1993, NAS became increasingly aware of and concerned about (1) Respondent's failure to notify the company of coverages it had solicited and bound and to timely remit premiums due NAS on policies issued, and (2) the subsequently increasing debt balances on the agency's account current. Demands by NAS for payment of premiums were unheeded by Respondent. On or about March 31, 1993, NAS terminated its agency agreement with CIP for, inter alia, CIP's failure to remit premiums. After several communications and two termination letters, CIP accepted NAS's termination as of April 30, 1993. Thereafter, NAS demanded that CIP provide an accounting which was done. As of April 30, 1993, Respondent owed NAS total premiums of $130,966.03. This sum represented premiums received by CIP and due NAS after retention of the 20 percent commission on approximately 140 policies previously issued but which premiums remained unremitted (by CIP). NAS demanded that CIP remit the premiums that were due. Respondent failed to remit the premium funds as demanded by NAS. In an attempt to recover the premium funds, NAS filed a civil suit in Pinellas County against Respondent. CIP admitted to NAS at the time that it was withholding at least $109,661.91 in premium funds but would not make any payment to NAS in light of a counter-claim that it filed. During the pendency of the civil suit and following settlement negotiations, a settlement was reached between Respondent and NAS. Pursuant to the settlement, Respondent agreed to pay to NAS $130,931.25. This amount constituted the total amount of premiums billed and collected by Respondent for NAS policies or binders of coverage less commissions which represented 20 percent of the premiums billed ($273,579.50) as per an accounting attached to the stipulation less any amount previously paid. In return, NAS agreed to pay Respondent $42,000 in consideration for Respondent withdrawing any counter-claim it may have had against NAS. The upshot of the settlement was that Respondent would pay, and in fact paid, an approximate amount of $88,431, to NAS. During times material, an agency agreement was in effect between Respondent and Atlantic Mutual Insurance Company (herein AMI) whereby Respondent agreed to solicit insurance products on behalf of AMI. That agency agreement provided in relevant part: The agency agrees: To render monthly accounts of money due to the company on business placed by the agent with the company, other than customer-billed business so as to reach the company's office no later than the 15th day of the following month and to pay to the company the balance therein shown to be due to the company not later than the 15th day of the second month following the month for which the account is rendered. To be responsible for any additional premiums developed by audit or by report of values, or any renewal premiums on non- cancelable bonds unless the agent notifies the company within sixty (60) days of company billing date of such additional premiums that such item has not been collected and cannot be collected by the agent. The company agrees: b. On commissions: The agent shall receive or retain commissions on net paid premiums at the rate set forth in the company's commission schedule. It is mutually agreed that: a. This agreement supersedes all previous agreements, whether oral or written, between the company and the agent, and shall continue until terminated by ninety (90) days written notice of cancellation by either party to the other. Pursuant to the agency agreement with AMI, Respondent was due, as commission, seventeen and one-half percent (17-1/2 percent) of net paid premiums. During times material, Respondent was agent of record for AMI. On August 1, 1992, the agency agreement between AMI and CIP was terminated by mutual agreement. After the termination of the agency agreement, AMI became aware of and became increasingly concerned about Respondent's failure to notify it of coverages Respondent had previously solicited and bound and to timely remit premiums due on policies issued by Respondent and the subsequently increasing debit balance on the company's account current. Demands by AMI for payment of premiums due were unheeded by Respondent. As of October, 1992, the amount owed to AMI totalled $92,781.61. This sum represented insurance premiums, after retention of commission, due on insurance policies previously issued by Respondent and for which it had received $120,486 in premiums, and not remitted to AMI. As noted, despite AMI's demand that Respondent remit the premiums, they were not remitted either in whole or in part. However, Respondent admitted to AMI that it had received, as of September 4, 1992, $103,421.33 in premium funds. After termination of the agreement with AMI, Respondent claimed that it was entitled to retain $86,111.86 from premium funds received from the AMI policies, as annualized commissions or as commissions received in advance on premiums that had not been paid by the insured. Prior to the termination, CIP had attempted to gain authorization from AMI to withhold commissions, on an annualized basis. AMI refused to authorize these deductions and was steadfast in keeping consistent with its policy of allowing deduction of commissions when premiums were actually received. AMI does not allow agents to retain annualized commissions or to take advance commissions on policies. Despite Respondent's contention to the contrary, this has always been AMI's policy and that policy was communicated to Respondent in writing when Respondent attempted to initiate the policy of annualizing or deducting commissions in advance. Additionally, the agency agreement clearly provides that commissions were to be retained from paid premiums. Countersignature fees, if required, were paid by the insurance company and were thereafter deducted from the agent's commission. Respondent expended a great deal of money and time in start-up costs on items such as office equipment, supplies, preparation of forms, institution of office policies and procedures, to commence writing insurance business on behalf of AMI. Respondent knew, or should have known, that certain start-up costs were expected in order to commence writing insurance on behalf of AMI. Respondent was not authorized to deduct up-front expenditures or related start-up costs from premiums which were not collected. As of the date of hearing, the funds which represented premiums due AMI remain unaccounted for and were not paid (to AMI) by Respondent. When Respondent collected premiums for companies, those funds were fiduciary funds. Respondent's policy of spending "operating expenses" as a set off or charge against uncollected premiums was not permissible pursuant to the agency agreement in effect between the parties. The Am South Bank account which Respondent utilized to maintain his banking account for AMI had a balance, as of August 30, 1992, of $74,894.58; as of March 31, 1993, of $12,702.05; and as of April 30, 1993, of $8,561.13. The account was closed on December 2, 1993.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law it is RECOMMENDED that: Petitioner enter a final order finding that the Respondent, ROBERT PHILIP WOLF, be found guilty of violations set forth in the Conclusions of Law portion of this Order, and that his licenses and eligibility for licensure be SUSPENDED for a period of eighteen (18) months pursuant to Rule 4-231.080, Florida Administrative Code, and that, pursuant to Section 626.641(1), Florida Statutes, the Respondent be required to pay satisfactory restitution to Atlantic Mutual Insurance Company prior to the reinstatement of any insurance license. DONE and ORDERED this 2nd day of June, 1994, in Tallahassee, Leon County, Florida. JAMES E. BRADWELL Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 2nd day of June, 1994. APPENDIX Rulings on Petitioner's Proposed Findings of Fact: Paragraph 27 - rejected - argument and conclusions. Rulings on Respondent's Proposed Findings of Fact: Paragraph 1 - adopted as relevant, paragraph 5, recommended order. The remainder is rejected as contrary to the greater weight of evidence, paragraph 4, section III entitled commission is dispositive. Paragraphs 2 and 3 - rejected as argument. Paragraph 4 - rejected, irrelevant and subordinate. Paragraph 5 - rejected, contrary to the greater weight of evidence. Paragraph 6 - adopted as modified, paragraph 30 recommended order. Paragraph 7 - rejected, irrelevant. Paragraphs 8-10 - rejected, argument. Paragraph 11 - rejected, irrelevant. COPIES FURNISHED: Commissioner Tom Gallagher Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Bill O'Neil General Counsel Department of Insurance and Treasurer The Capitol, PL-11 Tallahassee, Florida 32399-0300 James A. Bossart, Esquire Department of Insurance and Treasurer 612 Larson Building Tallahassee, Florida 32399-0333 Elihu H. Berman, Esquire Post Office Box 6801 Clearwater, Florida 32618-6801
The Issue The issue in this proceeding is whether the Agency for Health Care Administration's denial of Petitioners', Brookwood- Walton County Convalescent Center and Brookwood-Washington County Convalescent Center (Brookwood), interim rate request for general and professional liability insurance was proper and in keeping with state and federal laws and the rules and regulations governing Florida's Medicaid program.
Findings Of Fact Petitioners, Brookwood-Washington County Convalescent Center and Walton County Convalescent Center (Brookwood) are licensed nursing homes in the State of Florida. The Brookwood facilities have historically been high Medicaid providers. Both participate in the Florida Medicaid program. Washington County Convalescent Center is currently 90 percent Medicaid and Walton County Convalescent Center is 85 percent Medicaid. The statewide average for all nursing homes in Florida is 50-55 percent Medicaid. Such high Medicaid participation makes Brookwood extremely sensitive to changes in its allowable costs and its ability to recover those costs. Florida's Medicaid program is needs-based, providing nursing home care to persons eligible for such care who fall below a certain level of income and assets. Medicaid is a "prospective" reimbursement program in that reimbursement to a nursing home is based on the facility's cost history adjusted or inflated to approximate future costs. Adjustments are made and reimbursement rates are set based on a nursing home's cost report for allowable costs it has incurred in the past year. In determining allowable reimbursable costs, AHCA utilizes the Florida Title XIX Long-Term Care Reimbursement Plan, Version XIX, dated November 27, 1995 (Reimbursement Plan), the reimbursement principles of the Federal Medicare Program's Health Insurance Manual (also known as the Provider Reimbursement Manual, PRM, or HIM-15), and Generally Accepted Accounting Principles (GAAP) or accepted industry practice. In making determinations as to allowable reimbursable costs, one first looks to the Plan, then HIM-15 and finally, GAAP. With certain exceptions not relevant here, The Florida Medicaid program reimburses all allowable costs, as those costs are defined in the Reimbursement Plan and HIM-15. Premiums paid by a nursing home for liability insurance are an allowable cost under the Reimbursement Plan. Allowable costs are broken out in the categories of property, patient care, and operating expenses. As indicated, in determining the prospective rate, AHCA inflates the reported allowable costs in each category forward subject to various class ceiling limitations and target limitations. A class ceiling is an upper limit on the cost that will be reimbursed. A target limitation is a limit on the rate of increase of costs from year to year. In short, a nursing home provider may be under its class ceilings; however, any increase in its costs that exceeds a certain percentage amount will not be recognized for reimbursement purposes. After applying the inflation factor, the class ceilings and the target limitations to allowable costs, AHCA arrives at a per-patient, per-day rate that the nursing home will be paid during the next year. Because nursing home reimbursement is prospective and subject to target limits, a nursing facility might be unable to recover its allowable costs of providing services if it experiences unanticipated expenses that cause its allowable costs to unexpectedly rise. In such cases, the Plan has provisions that allow, under very limited circumstances, an interim rate adjustment for an unexpected increase in costs. Such interim rate increases are covered in Section IV.J. of the Plan. In 1999, Brookwood's liability insurance premium cost was $400,000 for its six Florida facilities and one North Carolina facility. In the year 2000, Brookwood's liability insurance premium cost increased to $4,000,000. Of that amount, the premium cost for Walton County Convalescent Center increased from $56,000 to $546,000 and the premium cost for Washington County Convalescent Center increased from $84,000 to $819,000. The premium increase occurred after Brookwood's rates had been set based on its 1999 insurance costs. Additionally, in September of 2000, Brookwood's liability insurer left the state. Brookwood has since been unable to obtain liability insurance for its Florida facilities. It was possible for Brookwood to self-insure, but it did not. Self-insurance is generally only feasible for facilities larger than Brookwood. However, the evidence did not demonstrate that Brookwood could not self-insure. On May 30, 2000, faced with this unforeseen increase in liability insurance premiums, Brookwood applied to AHCA for an interim rate effective retroactively to January 1, 2000. This was necessary because the large increase in costs would not be covered by the normal rate of inflation allowed by the department and the cost of the increase would not be recoverable through the normal prospective reimbursement methodology due to the lag time between the cost increase and the filing of the cost report. In addition, without an interim rate Brookwood would not receive an adjustment to its target rate, thereby, limiting reimbursement for any increased costs it did report on its cost reports. Brookwood only requested interim rates for these two facilities because its other four facilities were at or above the cost ceilings and could get no relief from an interim rate. In other words, for those four facilities, Medicaid will not participate in payment for the extra costs incurred by the increased liability insurance premiums. Even for the two facilities at issue here, if an interim rate is granted, AHCA will not reimburse for any costs that exceed the cost ceilings. The increase of premiums and subsequent pull out by several insurance companies were part of a reaction to increased loss in the area of nursing home liability. The crisis was, in part, due to an increase in civil litigation against nursing homes being brought under Sections 400.022 and 400.023, Florida Statutes. Indeed, Florida's rate of nursing home liability litigation is significantly above the national average. However, Florida's nursing home population is also significantly larger than the national average. However, the crisis was also due to many other factors which impact liability and rates in Florida. While there may be some debate about the causes of the increased litigation, there is no debate that the cost of liability insurance increased significantly over a short period of time with some insurance companies ceasing to write liability insurance for nursing homes in Florida. The Agency denied Brookwood's request because no new interpretation of law by the state or federal government pertaining to liability insurance had occurred which caused Brookwood's costs to increase. As indicated earlier, the Plan contains provisions that allow a nursing home participating in the Medicaid program to request an interim change in its reimbursement rate when it incurs costs resulting from patient care or operating changes made to comply with existing state regulations and such costs are at least $5,000 or one percent of its per diem. The language of Section IV.J.2 of the Estate's Long- Term Care Reimbursement Plan states that: J. The following provisions apply to interim changes in component reimbursement rates, other than through the routine semi- annual rate setting process. * * * 2. Interim rate changes reflecting increased costs occurring as a result of patient care or operating changes shall be considered only if such changes were made to comply with existing State or Federal rules, laws, or standards, and if the change in cost to the provider is at least $5000 and would cause a change of 1 percent or more in the provider's current total per diem rate. Other subsections of Section J of the Reimbursement Plan deal with new requirements or new interpretation of old requirements. Those subsections do not apply in this case. The term standards as used in Section J refers to standards in the Reimbursement Plan, Section IV titled "Standards," the standards of care and operation detailed by the Medicaid program in its provider handbooks and such standards as are detailed in the Code of Federal Regulations, and HCFA/HHS guidelines, as well as state statutes and rules. These standards are the usual or customary method or practice used by the nursing home industry to gain reimbursement from Medicaid. The term standards include reimbursement standards, methods or principles for medicaid providers. In essence, a nursing home would have to incur additional or new costs to receive an interim rate adjustment. Brookwood's increase in insurance premiums was such an increase in costs, which would be allowable subject to ceiling and target limitations. At the time of Brookwood's request, there was no specific requirement in the state Reimbursement Plan, state or federal law requiring that liability insurance be carried by a nursing home. Additionally, there was no change to the Reimbursement Plan, state, or federal law or regulation requiring that liability insurance be carried by a nursing home. On the other hand, the reimbursement standards or requirements set forth in HIM-15 make it clear that a prudent Medicaid provider is expected to carry liability insurance or self-insurance in order to be reimbursed for any uninsured losses. Specifically, Section 2160.2 of the Provider Reimbursement Manual states: Liability damages paid by the provider, either imposed by law or assumed by contract, which should reasonably have been covered by liability insurance, are not allowable. Section 2161 of HIM-15 states that the reasonable costs of such insurance are allowable. Section 2162.1 of HIM-15 states that losses in excess of the deductible or co-insurance are allowable costs so long as the amount of insurance was consistent with sound management practices. Section 2162.5 of HIM-15 recognizes the allowability of deductibles, so long as they do not exceed 10 percent of the entity's net worth or $100,000 per provider. It also states that if you set a deductible higher than those amounts (or assume all the risk), any losses exceeding the 10 percent or $100,000 will not be allowable as recognized costs. The general implication of these and other related sections of HIM-15 is that a prudent provider is expected to carry liability insurance or be self-insured. Thus, a provider will be reimbursed for the reasonable costs of liability insurance, any reasonable deductible, and any losses in excess of reasonable insurance coverage. These limitations on loss recovery or reimbursement are standards for purposes of determining whether a interim rate increase is allowable. These standards were in effect at the time Brookwood's premiums increased. Thus, in order to comply with Medicaid's reimbursement standards, Brookwood had to remain insured or self-insured. The choice of which type of insurance to utilize to meet the reimbursement standard is left to the provider. Brookwood reasonably chose to insure through an insurance company. Since Brookwood was required to make such a choice in order to comply or conform to Medicaid's reimbursement standards, Brookwood is entitled to an interim rate increase. However, the interim rate provisions of the Plan only recognize such rates submitted within 60 days prior to the date of the interim rate request. Based on this limitation, Petitioners' rate increase is limited to the increase in premium incurred 60 days prior to its interim rate request around May 30, 2000.
Recommendation Based upon the foregoing findings of fact and Conclusions of Law, it is RECOMMENDED that A final order be entered granting Brookwood's interim rate request limited to the 60 days prior to the initial rate request. DONE AND ENTERED this 31st day of September, 2001, in Tallahassee, Leon County, Florida. DIANE CLEAVINGER 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 September, 2001. COPIES FURNISHED: Steven A. Grigas, Esquire Agency for Health Care Administration 2727 Mahan Drive Fort Knox Building 3, Suite 3431 Tallahassee, Florida 32308-5403 Theodore E. Mack, Esquire Powell & Mack 803 North Calhoun Street Tallahassee, Florida 32303 Diane Grubbs, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive Fort Knox Building 3, Suite 3431 Tallahassee, Florida 32308-5403 Julie Gallagher, General Counsel Agency for Health Care Administration 2727 Mahan Drive Fort Knox Building 3, Suite 3431 Tallahassee, Florida 32308-5403
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: At all times pertinent to the allegations of the First Amended Administrative Complaint, respondent Dennis Victor Daniels was licensed as an Ordinary Life including Disability Agent in Florida and was employed by Gulf Health/Life, Inc. in St. Petersburg, Florida. On or about January 14, 1980, Julie Stratton (then Julie Marzec) contacted respondent at the offices of Gulf Health/Life, Inc. for the purpose of purchasing health insurance. She and respondent discussed different insurance policies, and respondent informed her that if she joined the American Benevolent Society (ABS) she could obtain a lower rate for her policy and obtain the best policy for her money. Mrs. Stratton could not remember if respondent informed her of the exact amount of money she would save on her insurance if she joined the ABS. She was informed that other benefits and discounts from area businesses would be available to her as a member of the ABS. Mrs. Stratton joined the ABS in order to obtain less expensive insurance. She wrote two checks -- one in the amount of $15.00 payable to the ABS and the other in the amount of $54.26 payable to CNA Insurance Company. She obtained two insurance policies. The form numbers on these policies were 51831 and 52176. Based upon a referral from an agent with Allstate Insurance Company, John Valentine and his wife went to the offices of Gulf Health/Life in order to obtain hospitalization and surgical insurance coverage. Before moving to Florida, Mr. Valentine was covered by a group policy through his place of employment. Respondent informed Mr. Valentine that members of the ABS could obtain a policy at group rates which entailed a lesser premium than individual rates. Mr. Valentine wrote two checks -- one in the amount of $178.73 payable to CNA Insurance Company and the other in the amount of $25.00 payable to the ASS. Mr. Valentine received two policies from CNA -- one bearing form number 51831 and the other bearing form number 52176. He also received a brochure listing the places of business from which he could receive discounts as a member of the ABS. Gulf Health/Life, Inc. was a general agent for CNA. During the relevant time periods involved in this proceeding, CNA had different policies for health insurance. Policies with a form number of 51831 required the policyholder to be a member of an organization endorsing CNA in order to purchase that policy. Form 51831 policyholders paid a lesser premium for their policies. The difference in premiums between the group or organization policy and an individual policy with the same coverage is approximately $10.00. To obtain the policy bearing form number 52176, there is no requirement that the policyholder be a member of a group or an organization. Ms. Watkins, a secretary employed with Gulf Health/Life, Inc. between December of 1978 and June of 1979 observed a device known as a "light box" on the premises of Gulf Health/Life. This was a square-shaped plywood box with a slanted glass top and a high-intensity lightbulb within the box. On from a half-dozen to a dozen occasions on Fridays between January and April, 1979, Ms. Watkins observed respondent bent over the light box with a pen in his hand tracing a signature onto an insurance application. She could not produce any documents or recall any names of any insurance applicant whose signature was traced or copied by the respondent.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that the First Amended Administrative Complaint filed against the respondent on April 29, 1982, be DISMISSED. Respectfully submitted and entered this 10th day of September, 1982, in Tallahassee, Florida. DIANE D. TREMOR Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 10th day of September, 1982. COPIES FURNISHED: Curtis A. Billingsley, Esquire Franz Dorn, Esquire 413-B Larson Building Tallahassee, Florida 32301 William A. Patterson, Esquire Masterson, Rogers, Patterson and Masterson, P. A. 447 Third Avenue North St. Petersburg, Florida 33701 Honorable Bill Gunter Insurance Commissioner The Capitol Tallahassee, Florida 32301
The Issue The issues are whether Respondent is guilty of various violations of the Insurance Code and, if so, what penalty should be imposed.
Findings Of Fact At all relevant times, Respondent has been licensed as a Life & Variable Annuity Agent (2-14), Life, Health and Variable Annuity Agent (2-15), Life Agent (2-16), Life and Health Agent (2-18), General Lines, Property and Casualty Agent (2-20), and Health Agent (2-40). Respondent holds license number A164221. Petitioner has disciplined Respondent on two prior occasions. By Consent Order filed November 28, 2000, Petitioner imposed an administrative fine of $7500 against Respondent and placed her licenses on probation for two years. The Consent Order arose out of allegations that Respondent failed to place insurance coverage and failed to supervise adequately her employees. By Consent Order filed April 30, 2002, Petitioner imposed an administrative fine of $2000 against Respondent. The Consent Order does not describe the underlying allegations. At all relevant times, Respondent has been a director, officer, and sole owner of AIA. She has owned the corporation since 1993. At all relevant times, Respondent was the only signatory on the AIA bank accounts. Customarily, Respondent markets the insurance and then sends customers to one of the AIA customer service representatives. A high-volume agency with over 15,000 active clients, AIA, which employs 10 persons, has issued about 50,000 policies since November 2001. For most, if not all, of the relevant period, AIA employed Tony Decambre as the primary agent, and customer service representatives performed much of the work in processing insurance applications. Petitioner attempted to prove that Respondent was the primary agent. Rather than produce copies of forms by which Respondent may have designated herself as the primary agent, Petitioner offered only copies of prints of screens of data maintained by Petitioner. The Administrative Law Judge excluded from evidence these data compilations. Respondent testified that Mr. Decambre was the primary agent. Petitioner's investigator testified that Respondent was the primary agent, at least the last time that he had checked. The investigator's testimony failed to establish by clear and convincing evidence that Respondent was the primary agent. On December 28, 2001, Fernando Gomez visited AIA to pay for a workers' compensation insurance policy to be issued by Florida United Businesses Association/Workers Compensation (FUBA). Respondent met with Mr. Gomez, who required the presence of another employee to translate into and from Spanish. As the producer, Respondent signed the application. FUBA bound the coverage on December 31, 2001. Among the three persons present on December 28, only Respondent testified. The application bears the date "December 28, 2001," although this handwriting is lighter than the remainder of the handwriting on the application and could have been written at a date subsequent to the date on which the application was taken. Petitioner contends that Respondent took the application on November 6, 2001, or somehow tried to bind FUBA as of November 6, 2001. The sole evidentiary basis for this contention is Petitioner Exhibit 9, which purports to be a certificate of liability insurance, bearing a date of December 28, 2001, but showing effective dates for general liability and workers' compensation coverage for Mr. Gomez of November 6, 2001. The certificate holder is stated to be Universal Drywall & Plastering, and the producer is stated to be AIA. The workers' compensation insurer is stated to be FUBA. Petitioner Exhibit 9 was admitted solely to prove what Universal Drywall & Plastering sent to FUBA to confirm the existence of Mr. Gomez's workers' compensation coverage. The certificate is false because it confirms workers' compensation insurance as of a date that neither FUBA nor AIA contends is correct. However, the failure to obtain testimony from Mr. Gomez, the AIA employee who translated, or an employee of Universal Drywall & Plastering who could explain how he or she obtained a copy of the certificate precludes a determination that Respondent is in any way responsible for the production or transmission of this false certificate. The certificate suggests that the person responsible for its preparation may not have had Respondent's presumed level of familiarity with FUBA. The person preparing the false certificate used a policy number that is not of a type used by FUBA to identify the workers' compensation policies that it issues. The false certificate bears an expiration date of November 6, 2002. In fact, the actual coverage issued by FUBA ended on April 1, 2002, because all of its workers' compensation policies expire each year on April 1. It appears that Universal Drywall & Plastering presented the false certificate to FUBA on January 2, 2002, so, as of that date, Mr. Gomez had workers' compensation coverage from FUBA. The record also fails to disclose why Mr. Gomez might have desired an earlier effective date. The information might have facilitated a determination of who was responsible for the fraudulent preparation of the certificate. Petitioner has failed to prove the material allegations of Count I. On October 25, 2002, AIA issued an Evidence of Property Insurance to Meryl Levin, showing an effective date of October 25, 2002 for homeowners and flood insurance in the amount of $114,000. The document states that "United" would provide the homeowners insurance at $910 per year and flood insurance at $247 per year. On October 30, 2002, AIA received a check in the amount of $910 from Stephen J. Allocco, P.A., and AIA deposited that check into its noninterest-bearing bank account at Wachovia Bank. On November 8, 2002, United Property & Casualty Insurance Company (United) sent Mr. Levin a notice that he owed $810 for his insurance policy, which bore an effective date of November 8, 2002. The due date is "upon receipt." On January 14, 2003, United canceled the insurance because it never had received the $810. United received a check for $810 on February 26, 2003, but the accompanying package failed to contain a "no loss" statement, which would have assured United that the insured had not suffered a loss between the purported coverage date and the date of receipt of the premium check. Absent such an assurance, United routinely declines to provide coverage because it will not cover losses retroactively. United thus returned the check. Mr. Levin did not testify as to this transaction, nor did anyone from AIA except Respondent, who disclaimed any direct involvement with the matter. There is no evidence of any loss suffered by Mr. Levin, nor is there any evidence of any intentional wrongdoing by Respondent. The determination as to whether Respondent negligently failed to satisfy all applicable duties imposed on her is frustrated by Petitioner's failure to call an expert witness who could have explained office practices in insurance agencies and proved what is reasonable and unreasonable to expect of Respondent. The record does not establish that United sent a copy of its November 8 statement to AIA. Count II portrays a single case in which AIA failed to pay a premium to an insurer for over three months--nothing more. The determination of whether Respondent has demonstrated unfitness for this omission is impossible absent a basis for determining an appropriate minimum standard of agency office practice. Petitioner has failed to prove the material allegations of Count II. On October 9, 2002, Respondent sent a letter to Gerald Kirby bearing the letterhead of AIA stating that "we" have reviewed your homeowner needs and "determined the best possible rate for you." Showing homeowners coverage of $518,000, as well as associated coverages, the letter quotes a total policy premium of $3278. The letter warns that "this quotation is an estimate and is not legally binding." At the bottom of the letter is: "Thanks!!!Joanne." The record reveals no other persons employed at AIA named "Joanne" besides Respondent. On the same date, AIA produced an evidence of property insurance, which shows homeowners and flood insurance with the same effective date of October 11, 2002, in the respective amounts of $518,000 and $250,000, and bearing respective premiums of $3278 and $411 annually. On October 11, 2002, AIA received a check in the amount of $3278 from Capital Abstract & Title and deposited that check into its noninterest-bearing bank account at Wachovia. AIA was to use these funds to purchase homeowners insurance from United, with coverage of $518,000 and an effective date of November 11, 2002 (according to the parties' stipulation, which misstates the year as "2001"). However, the premium for $518,000 of coverage from United was $1890 at the time. The proper amount of premium due for $518,000 of coverage was mooted by the fact that AIA, like all of United's agents at the time, lacked authority to bind United to more than $300,000 coverage without specific approval from a United representative. Such approval required, among other things, documentation of the value of the insured property. AIA sent United a check for $1777, which United received on November 12, 2002. This check was the proper premium for $300,000 of coverage. At the same time, AIA sent paperwork for the issuance of coverage to $587,000, but failed to send the documentation that United required. Thus, United issued only $300,000 of coverage, and Mr. Kirby was due a refund of $1501, which is the difference between the premium that he paid and the cost of the insurance that he received. AIA paid Mr. Kirby $1501 on February 24, 2003. After AIA or a United marketing representative submitted the required documentation, United approved on February 19, 2003, the increase of coverage to $518,000. It is unclear who paid the additional premium--AIA or Mr. Kirby. For the same reasons discussed in Count II, Petitioner has failed to prove the material allegations of Count III. Although AIA's handling of the Kirby transaction was flawed, again, the acts and omissions are not so stark as to eliminate the necessity of expert testimony to establish the minimum standard, against which to measure Respondent's performance of her duties. Mr. Kirby appears to have suffered no loss, and there is no evidence of intentional wrongdoing. Even though, as to this transaction, Respondent clearly had some personal involvement, it is impossible to determine her degree of responsibility for the uneven handling of the insurance transaction and short delay in sending the refund to Mr. Kirby or even whether these two aspects of the transaction demonstrate unfitness to transact insurance business. The remaining counts involve refunds from Pro Premium Finance Company (Pro Premium) to AIA and refunds from AIA to its customers. Pro Premium provides financing to persons purchasing insurance. Several customers of AIA borrowed money from Pro Premium to pay for insurance they were buying through AIA. For various reasons--typically, the cancelation of coverage--Pro Premium refunded portions of the premium to AIA, which subsequently refunded the unearned portion of the commission to the customer. Every two weeks, Pro Premium sends AIA refunds and statements, which clearly identify the insured, date of cancelation, amount of refund, and amount due the insured. The time that elapsed from when AIA received the refunds from Pro Premium to when AIA sent the customers their share of the refunds ranged from two to twelve months. AIA received the refunds from Pro Premium between April 15, 2003, and February 15, 2004, and AIA sent its customers their shares of the refunds between April 5, 2004, and May 12, 2004. The customer refunds are concentrated in a relatively short period of time because AIA discovered all of the unrefunded monies during a self-audit that it conducted during this six-week period. AIA performed the self-audit due to an audit underway at Pro Premium. Except as noted below, Respondent was not personally involved in any of these refund transactions. At the time of all of the Pro Premium transactions described in this recommended order, the policy of AIA was for the customer service representative to write the client within one week of receiving the refund from Pro Premium and ask for directions whether to apply the refund to new or existing insurance or to pay it to the customer. The customer service representatives were supervised by the agency manager, not Respondent. It is unclear what AIA's policy was if the customer did not respond. When AIA paid refunds, its policy at the time was for the agency manager to prepare the refund check, which Respondent would sign. In May 2004, AIA changed its handling of refunds by directing all Pro Premium refunds directly to the bookkeeper, who expedites the preparation of the refund checks, which can now be signed by Respondent or one of two other employees. As to Count IV, on April 15, 2003, Pro Premium sent AIA a check in the amount of $1361.03, which AIA deposited on May 7, 2003, into its noninterest-bearing account at Wachovia. Part of these funds--$117.21--represented unearned commission, which was due the insured, Erikna Guzman. By letter sent within one week of obtaining the Pro Premium refund, AIA informed Ms. Guzman of the refund and asked her to instruct AIA as to whether to apply it to new insurance or send her a refund. Ms. Guzman did not respond. On May 10, 2004, AIA sent Ms. Guzman a check for $117.21. Twelve months elapsed from when AIA received the refund and when it sent Ms. Guzman the money due her. As to Count V, on May 31, 2003, Pro Premium sent AIA a check in the amount of $1538.36, which AIA deposited on June 10, 2003, into its noninterest-bearing account at Wachovia. Part of these funds--$43.83--represented unearned commission, which was due the insured, Shannon Campbell. By letter sent after obtaining the Pro Premium refund, AIA informed Ms. Campbell of the refund and asked her to instruct AIA as to whether to apply it to new insurance or send her a refund. Ms. Campbell did not respond. On April 17, 2004, AIA sent Ms. Campbell a check for $43.83. Ten and one-half months elapsed from when AIA received the refund and when it sent Ms. Campbell the money due her. As to Count VII, on an unspecified date, Pro Premium sent AIA a check in the amount of $720.38, which AIA deposited on July 8, 2003, into its noninterest-bearing account at Wachovia. Part of these funds--$347.35--represented unearned commission, which was due the insured, Marie Philippe. By letter sent within one week of obtaining the Pro Premium refund, AIA informed Ms. Philippe of the refund and asked her to instruct AIA as to whether to apply it to new insurance or send her a refund. Ms. Philippe did not respond. On April 5, 2004, AIA sent Ms. Philippe a check for $347.35. At least nine months elapsed from when AIA received the refund and when it sent Ms. Philippe the money due her. As to Count VIII, on June 30, 2003, Pro Premium sent AIA a check in the amount of $1729.80, which AIA deposited on July 8, 2003, into its noninterest-bearing account at Wachovia. Part of these funds--$380.40--represented unearned commission, which was due the insured, Fernando Garcia. By letter sent within one week of obtaining the Pro Premium refund, AIA informed Mr. Garcia of the refund and asked him to instruct AIA as to whether to apply it to new insurance or send her a refund. The first letter was returned by the postal service as undeliverable. Mr. Garcia had sold his house and moved. However, on April 7, 2004, AIA sent Mr. Garcia a check for $380.40. Nine months elapsed from when AIA received the refund and when it sent Mr. Garcia the money due him. As to Count IX, on August 31, 2003, Pro Premium sent AIA a check in the amount of $1552.84, which AIA deposited on September 9, 2003, into its noninterest-bearing account at Wachovia. Part of these funds--$102.07--represented unearned commission, which was due the insured, Girline Reid. By letter sent within one week of obtaining the Pro Premium refund, AIA informed Ms. Reid of the refund and asked her to instruct AIA as to whether to apply it to new insurance or send her a refund. Respondent testified that Ms. Reid instructed AIA to apply the refund to insurance issued to her husband, which AIA did. However, Respondent did not testify when AIA applied the refund to the account of Ms. Reid's husband. On May 7, 2004, AIA sent Ms. Reid a check for $102.07. Eight months elapsed from when AIA received the refund and when it sent Ms. Reid the money due her. As to Count X, on August 31, 2003, Pro Premium sent AIA a check in the amount of $1552.84, which AIA deposited on September 9, 2003, into its noninterest-bearing account at Wachovia. Part of these funds--$169.06--represented unearned commission, which was due the insured, Guillermo Diaz, who is a significant customer of AIA. Respondent spoke with him shortly after AIA received the refund, and he instructed her to apply the refund to other insurance issued to him. Again, Respondent did not testify when Mr. Diaz instructed her to apply the refund to other insurance, but, given his importance as a repeat customer, he probably spoke with her shortly after AIA received the refund. However, on April 17, 2004, AIA sent Mr. Diaz a check for $169.06, to which he may not have been entitled. Eight and one-half months elapsed from when AIA received the refund and when it sent Mr. Diaz the refund check. As to Count XI, on November 30, 2003, Pro Premium sent AIA a check in the amount of $4994.25, which AIA deposited on December 9, 2003, into its noninterest-bearing account at Wachovia. Part of these funds--$143.18--represented unearned commission, which was due the insured, Bernardo Archibald. By letter sent within one week of obtaining the Pro Premium refund, AIA informed Mr. Archibald of the refund and asked him to instruct AIA as to whether to apply it to new insurance or send her a refund. Respondent testified that Mr. Archibald directed AIA to keep the money to apply to insurance for which he owed additional premium because he had not yet obtained a four-point inspection (heating, wiring, roofing, and plumbing) of an older home, so as to be entitled to a reduced premium. However, Respondent did not testify when AIA received this direction from Mr. Archibald, although only five months elapsed from AIA's receipt of the refund from Pro Premium to its issuance, on May 7, 2004, of a check to Mr. Archibald for $143.18. As to Count XII, on an unspecified date, Pro Premium sent AIA a check in the amount of $3881.67, which AIA deposited on January 13, 2004, into its noninterest-bearing account at Wachovia. Part of these funds--$488.83--represented unearned commission, which was due the insured, Danette Piscopo. By letter sent within one week of obtaining the Pro Premium refund, AIA informed Ms. Piscopo of the refund and asked her to instruct AIA as to whether to apply it to new insurance or send her a refund. Respondent testified that AIA sent a refund check, but Ms. Piscopo never cashed it. However, Respondent did not testify when it sent the earlier check, although only about three months elapsed from AIA's receipt of the refund from Pro Premium to its issuance on April 15, 2004, of a check to Ms. Piscopo for $488.83. As to Count XIII, on December 31, 2003, Pro Premium sent AIA a check in the amount of $1988.58, which AIA deposited on January 13, 2004, into its noninterest-bearing account at Wachovia. Part of these funds--$294.60--represented unearned commission, which was due the insured, Allam Masief. Respondent testified that AIA mistakenly issued two policies to Mr. Masief for the same coverage from two insurers and mistakenly paid Pro Premium twice, even though Mr. Masief paid only one premium. Both policies were canceled. Mr. Masief asked AIA to reinstate one policy, but it was unable to do so. Respondent did not testify when these discussions with Mr. Masief took place, but only four and one-half months elapsed from AIA's receipt of the refund from Pro Premium and to its issuance, on May 12, 2004, of a check to Mr. Masief for $294.60. As to Count XIV, on January 31, 2004, Pro Premium sent AIA a check in the amount of $3260.03, which AIA deposited on February 10, 2004, into its noninterest-bearing account at Wachovia. Part of these funds--$886.74--represented unearned commission, which was due the insured, Geraldine DeStefanis. By letter sent within one week of obtaining the Pro Premium refund, AIA informed Ms. DeStefanis of the refund and asked her to instruct AIA as to whether to apply it to new insurance or send her a refund. Respondent testified that Ms. DeStefanis "probably" asked AIA to try to reinstate the canceled policy, but AIA was unable to do so. On May 7, 2004, AIA sent Ms. DeStefanis a check for $886.74. Three months elapsed from when AIA received the refund and when it sent Ms. DeStefanis the money due her. As to Count XV, on an unspecified date, Pro Premium sent AIA a check in the amount of $4750.53, which AIA deposited on March 9, 2004, into its noninterest-bearing account at Wachovia. Part of these funds--$343.38--represented unearned commission, which was due the insured, Leslie Ramrattan. By letter sent within one week of obtaining the Pro Premium refund, AIA informed Ms. Ramrattan of the refund and asked her to instruct AIA as to whether to apply it to new insurance or send her a refund. Respondent testified that Ms. Ramrattan asked AIA to try to reinstate the policy, but AIA was unable to do so. On May 7, 2004, AIA sent Ms. Ramrattan a check for $343.38. About two months elapsed from when AIA received the refund and when it sent Ms. Ramrattan the money due her. Petitioner has failed to prove the material allegations of Counts IV-V and VII-XV, with one exception each as to Counts VI, V, and VII. In general, there is no evidence of any intentional wrongdoing by anyone at AIA, nor is there evidence that Respondent should have known of the failure of her staff to promptly refund the monies due their insureds. In several of these transactions in which AIA held the customers' refunds for relatively long periods of time, the record demonstrates that this was in accordance with the customers' directions or otherwise justified. For the shorter periods-- five months or less--the record provides no basis for determining that Respondent should have known of this failure within this relatively short period of time. In several counts, AIA failed to meet its obligation, under Florida Administrative Code Rule 69O-196.010(2)(b), which is cited below, to refund or apply the unearned commissions within 15 days of receipt of the refund and statement from Pro Premium. These are Counts IV, V, VII, XIV, and XV. It is impossible to determine if AIA violated this rule in Count VIII, where the insured had moved; Counts IX-XI, where the insureds told AIA to apply the refunds to new or other insurance and presumably AIA did so, perhaps within the required 15 days; and Count XIII, where AIA appears to have paid for one policy out of its own funds and the insured may have received a windfall. As to Counts IV, V, VII, XIV, and XV, the question is whether Respondent is professionally responsible for the violations by AIA. These counts fall into two groups. In Counts IV, V, and VII, AIA wrongfully retained the refunds for long periods--12 months, 10 and one-half months, and at least nine months, respectively. In Counts XIV and XV, AIA wrongfully retained the refunds much shorter periods--less than three months and less than two months, respectively. Perhaps expert testimony could have established that Respondent should have detected, within a period of less than 90 days, the wrongfully retained funds, but, absent such testimony, an inference to this effect is impossible, especially when the standard is clear and convincing evidence. However, expert testimony is unnecessary to establish Respondent's professional responsibility for failing to detect this situation for 9-12 months. Given the long durations of time, the clarity of the Pro Premium's refund statements, the relatively small number of employees, Respondent's integral involvement in the daily operations of AIA as the only person authorized to sign checks, and the importance of restoring funds of customers to customers promptly, it is a reasonable inference that Respondent should have known that AIA staff had wrongfully failed to send these refunds to its customers for 9-12 months. Any suggestion by Respondent that the absence of a response from these customers justified retaining these moneys fails to account for the fact that AIA later sent the refund checks to the customers, even though they had still not contacted AIA, according to the record. Thus, for Counts IV, V, and VII, Petitioner has proved by clear and convincing evidence that Respondent has demonstrated her unfitness to transact insurance business.
Recommendation It is RECOMMENDED that the Department of Financial Services enter a final order dismissing Counts I-III and VIII-XV of the Administrative Complaint; finding Respondent guilty of three violations (Counts IV, V, and VII) of demonstrating unfitness to engage in the insurance business, in violation of Section 626.611(7), Florida Statutes; and suspending her insurance licenses for 30 days. DONE AND ENTERED this 15th day of November, 2006, in Tallahassee, Leon County, Florida. S ROBERT E. MEALE 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 15th day of November, 2006. COPIES FURNISHED: Honorable Tom Gallagher Chief Financial Officer Department of Financial Sevices The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Carlos G. Muñiz, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0307 Robert Alan Fox Department of Financial Services Division of Legal Services 612 Larson Building 200 East Gaines Street Tallahassee, Florida 32399-0333 Thompkins W. White White & Chang, P.A. 1650 Summit Lake Drive, Suite 1013 Tallahassee, Florida 32317
The Issue The issues to be resolved in this consolidated proceeding concern whether the Petitioner, Abraham Maida's applications to represent certain life insurance companies should be denied based upon his alleged unlawful failure to forward premium funds from insureds to the insurers during the applicable regular course of business. Also at issue are the charges in the Administrative Complaint in the related penal proceeding which concerns the same factual conduct involving the Respondent's alleged failure to forward premiums to the insurers involved in the policy contracts at issue.
Findings Of Fact The Petitioner, Abraham George Maida, is licensed in Florida as a life insurance agent, a life and health insurance agent and a dental health care contract salesman. The Department is an agency of the State of Florida charged with licensing life, health and other types of insurance agents, with regulating their licensure and practice and with enforcing the licensure and practice standards embodied in the statutes cited hereinbelow. Abraham Maida engaged in the business of selling insurance coverage to various employees of the City of Jacksonville. The premium payments for this coverage were collected by payroll deduction from the employees, and lump sum premium checks were remitted over to the Petitioner/Respondent, Mr. Maida, by the appropriate personnel of the City of Jacksonville. Mr. Maida, in turn, was required by his contractual arrangements with the underwriting insurance companies involved and by the Florida Insurance Code, Chapter 626, Florida Statutes, with timely remitting those premium funds over to the insurers who underwrote the risk for the employees in question. Mr. Maida failed to timely remit the premium funds which he collected from the City of Jacksonville to the relevant insurers for the months of February, March and April of 1990, in the case of policy contracts written on behalf of Loyal American Life Insurance Company. Additionally, Mr. Maida failed to timely remit the premium funds received from the City of Jacksonville, after it received them by payroll deduction from its employees, for the months of March, April and May of 1990, with regard to the premium funds due in contracts involving the ITT Life Insurance Company, in accordance with his contract with that company. Mr. Maida failed to timely remit the insurance premiums of James E. Daniels to the ITT Life Insurance Company, as well. The Petitioner/Respondent's contracts with these insurance companies required him to remit premium funds which he received from insureds, within thirty (30) days of receipt, to the insurance company underwriting the risk involved. This the Petitioner/Respondent failed to do for the companies involved in the above Findings of Fact and for those months of 1990 delineated above. In the case of most of the delinquent premium funds due these companies, Mr. Maida authorized them to debit his commission and/or renewal accounts with those companies, which were monies due and owing to him from the companies, in order to make up the premiums which he had not remitted over to the companies involved at that point. That procedure did not defray all of the delinquent premium amounts, however. in the case of ITT Life Insurance Company and the monies owed that company by Mr. Maida, it was established that $10,554.21 of delinquent premium amounts were owing to that company and not timely paid by Mr. Maida. Although he paid the portion of that figure representing the March premium funds due the company for March of 1990, he did not directly pay the premium funds due for April and May of 1990 but, rather, suffered the company to charge those delinquencies, for those months, to his agent's commission account. This procedure still left $4,877.54 unpaid, as of the time of hearing. It was established by witness, Steven Heinicke of that company, that Mr. Maida is their most consistently delinquent agent, in terms of timely remission of premium funds due the company for insurance business which Mr. Maida has written. It has also been established however, that Mr. Maida made a practice of always paying premium funds due the companies for which he wrote insurance in the precise amounts owing, regardless of whether the billing statements to him from those companies had inadvertently understated the amounts which they were due. It was also established that his failure to timely remit the insurance premium funds in question was not due to any intent to defraud those companies of the funds involved or to permanently convert the funds to his own use. Rather, it was established that Mr. Maida's difficulty in timely payment of the premium funds was due to misappropriation of the funds because of financial problems which he was suffering at tee times in question, due at least in part to federal income tax difficulties he was experiencing. There has been no shoring in this record that Mr. Maida is not a competent insurance agent in terms of his abilities and qualifications to fairly and effectively obtain and contract for insurance business with insureds on behalf of the insurance companies he represents. There was no showing that he lacks reasonably adequate knowledge and technical competence to engage in the transactions authorized by the licenses or permits which he presently holds or which he seeks in the licensure application involved in this proceeding.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, and the candor and demeanor of the witnesses, it is, therefore RECOMMENDED: That the Petitioner be found guilty of the violations found to have been proven in the above Conclusions of Law portion of this Recommended Order and that his licenses and eligibility for licensure with the insurers for which license application was made be suspended for a period of three (3) months. DONE and ENTERED this 5th day of June, 1991, in Tallahassee, Florida. P. MICHAEL RUFF Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk the Division of Administrative Hearings this 6th day of June, 1991. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 90-6670 Respondent/Department's Proposed Findings of Fact: 1-7. Accepted. COPIES FURNISHED: Tom Gallagher, State Treasurer and Insurance Commissioner Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, FL 32399-0300 Bill O'Neil, Esq. General Counsel Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, FL 32399-0300 Norman J. Abood, Esq. Willis F. Melvin, Jr., Esq. 1015 Blackstone Building Alan J. Leifer, Esq. Jacksonville, FL 32202 Department of Insurance and Treasurer 412 Larson Building Tallahassee, FL 32399-0300
The Issue The issues to be decided are: 1) whether Petitioner, Amerisure Mutual Insurance Company (Amerisure), is entitled to a credit or refund due to the elimination of credits by Respondent, Department of Financial Services (Respondent or the Department), that Amerisure claims accrued in the calendar year 2009 and should apply to future assessments owed to the Special Disability Trust Fund (SDTF) and the Workers? Compensation Administration Trust Fund (WCATF)(collectively the Trust Funds); 2) whether the elimination of these credits was accomplished by the Department?s application of a policy meeting the definition of a rule that has not been adopted through the chapter 120 rulemaking process; and 3) whether any refund or credit is barred by the statute of limitations in section 215.26, Florida Statutes.
Findings Of Fact Amerisure is a carrier as defined in section 440.02(4), Florida Statutes, authorized to transact the workers? compensation line of business in the State of Florida. At all times relevant to the Department?s Notice of Intent, Amerisure was authorized to transact the workers? compensation line of business in Florida, and required to pay assessments to both the SDTF and WCATF. Pursuant to section 440.49(9)(b), Florida Statutes, the SDTF is maintained by annual assessments, paid quarterly, upon the insurance companies writing compensation insurance in Florida; the commercial self-insurers under sections 624.462 and 624.4621, Florida Statutes; the assessable mutuals as defined in section 628.6011, Florida Statutes; and the self-insurers under chapter 440, Florida Statutes. Section 440.49(9)(b) requires the Department to determine the rate each year for the next calendar year, based on the Department?s estimate of the amount of money necessary to administer section 440.49, and to maintain the SDTF for that next calendar year. In addition, the total amount to be assessed against all entities subject to assessment is prorated among those entities. Similarly, pursuant to section 440.51(1), the WCATF is maintained by annual assessments, paid quarterly, upon the carriers writing compensation insurance in Florida and self- insurers. Section 440.51(1) provides that the rate is determined each year for the next calendar year based on the anticipated expenses of the administration of chapter 440 for the next calendar year. In addition, the total amount to be assessed against all entities subject to assessment is prorated among those entities. Workers? compensation policies are unique insurance policies in that they provide statutorily mandated coverage that must be purchased by most employers; they provide “no fault” coverage and have no maximum dollar amount limit in the primary coverage of medical benefits. To make such coverage affordable, the market has developed various types of policies which allow an employer, based upon its size and financial wherewithal, to limit its exposure for a possible reduction in premium. For example, there are standard policies that provide coverage from the first dollar of loss, there are large deductible policies where the employer shares in a greater amount of risk, there are retrospective policies where final premium amount is determined on the basis of loss development during the policy, and there are dividend plans which also take into account loss experience. Most workers? compensation policies are annual policies which can incept at any given day within a calendar year. It is not unusual for a workers? compensation policy to run between two calendar years. Regardless of the kind of workers? compensation policy issued to an employer, the initial premium at the time of policy inception is referred to as an “estimated premium.” This is because the “estimated premium” is based on the actual number of employees in a company?s payroll and the payroll classifications as to each employee?s particular job -- e.g., executive supervisor, window cleaner, etc. Because the final exposure is unknown until the last day of coverage, the “estimated premium” is always subject to change. Most workers? compensation policies have standard language copyrighted by the National Council on Compensation Insurance (NCCI), a statistical and rating organization which files rates and forms in Florida for use by carriers, which address this very point. Under the “Part Five Premium” section of a standard NCCI policy, “Section E” states that the premium shown on the information page, schedules, and endorsement is an “estimate.” Section E further states that the final premium will be determined by an audit after the policy ends by using the actual and not the estimated premium base, and the proper calculations and rates that lawfully apply to the business and work covered by the policy. Finally, Section E provides that if the actual premium is more than what the policyholder paid as an estimated premium, the insured must pay the balance. Conversely, if it is less than what was paid, the insurance company will refund premium. When audits are performed either at the end of the policy year or later, premiums may be refunded to a policyholder. Dividend plans are a kind of workers? compensation policy which allows for a dividend payment back to the policyholder if the actual loss experience observed is more favorable than anticipated. The payment of a dividend is not guaranteed, but is subject to the approval of an insurer?s Board of Directors. Significantly, the earliest that a dividend can be paid out under a dividend plan is six months after the policy has ended. As such, dividends are never paid in the same calendar year as a policy incepts. All workers? compensation carriers writing business in Florida pay an assessment on every premium dollar to fund the SDTF and WCATF. When the NCCI files for rates in Florida, it takes into account the assessments paid by carriers to the Trust Funds, and the charge for the assessments is included in the rates developed by the NCCI. The rate is the amount applied to the payroll, and the product of the payroll and rate equals the premium for a particular payroll classification. Reporting and Collection of Assessments The Department provides pre-printed forms entitled “Carrier and Self-Insurance Fund Quarterly Report” to workers? compensation carriers, such as Amerisure, to self-report “net premium” amounts on a quarterly basis. The Department also provides a “spreadsheet” form that the carriers may utilize to indicate how they are calculating the net premium amount for each of the trust funds. After calculating the net premium amount for each trust fund on the spreadsheet, the carrier writes in that net premium amount on the quarterly report and multiplies that amount by the assessment rate set by the Department (which is reflected on the quarterly report form). If a carrier returns more premium and/or pays more in dividends than it has written in one quarter, it has a “negative net premium” and owes no assessment for that quarter. The quarterly report form provides empty circles, referred to on the form as “buttons,” for the carrier to fill in indicating whether the net premium amount is negative or positive. When a carrier has negative net premium for a quarter, a credit amount is reflected on the next quarterly report form to be applied toward future assessments. This credit amount is pre-printed by the Department on the next quarter?s form. This amount appears in the “debit/credit box” on the quarterly report form or in the “balance carried forward” on the spreadsheet. The direct written premium in the insurance industry is the summation of all premiums for a given period less any returns made during that period. Amerisure subtracts any premium returned during the calendar year from its gross number to determine direct written premium, regardless of what year the policy, for which premium is returned, incepted. In order to calculate the net premium amount for assessment purposes, Amerisure deducts the amount of dividends paid or credited to policyholders from their direct written premium amount, regardless of the fact that the policy year for the dividend being paid is a different calendar year than the year that the dividend is paid or credited. By statute, workers? compensation insurance companies, such as Amerisure, are assessed by the Department for contributions to the SDTF based on the amount of “net premiums written,” and companies are assessed for contributions to the WCATF based on the amount of “net premiums earned” or “net premiums collected.” Since at least 2004, Amerisure has been utilizing “direct written premium” to calculate the “net premium” or “net premium collected” amount listed in its quarterly reports for both the SDTF and WCATF Funds. The Department utilizes annual reports filed with the NAIC by carriers to perform their audits and determine if an insurer has accurately reported the amount of net premium subject to assessments for the Trust Funds. Assessments to the Trust Funds are paid by Amerisure during the quarter that premium is written. Premium is considered written when a policy first incepts or when additional premium is charged on a policy. Because Amerisure utilizes net written premium as a “proxy” for net collected premium, it pays more in trust fund assessments up front than it would if it were able to report the company?s actual collected premium. Amerisure?s 2009 Credits In the last two quarters of 2008, Amerisure began to experience negative net premium. This continued through all of calendar year 2009 until Amerisure once again experienced positive premium in calendar year 2010. Amerisure?s negative premium was a result of the economic downturn, which gravely impacted a large portion of Amerisure?s Florida customer base in the construction industry. Due to so many employers downsizing their workforce, Amerisure returned 12 million dollars in premium in calendar year 2009. The majority of the 12 million dollars of premium returned to policyholders was for approximately 1200 policies which had incepted prior to 2009 and for which assessments had been paid into the trust funds prior to 2009. Amerisure?s payment to the trust funds of the original assessment amounts on the policies that incepted prior to 2009 was based on “estimated premium,” on what Amerisure believed the premium to be at that point in time, prior to the calculation of the final premium. According to Raymond Neff, who was accepted as an expert in the field of workers? compensation insurance, Amerisure?s experience of negative net premium in late 2008 and 2009 was not unique in the workers? compensation construction sector as verified by NCCI data showing similar impacts to other carriers due to the recession and reductions in payroll during this time frame. The Department did not rebut his testimony in any meaningful way. Reporting and Payments for the SDTF For the time periods in 2008, Amerisure paid quarterly assessments to the SDTF based upon reported net premiums written, or did not pay assessments due to reported negative net premiums written, as follows: for the quarter ending March 31, 2008, Amerisure reported $27,651,422 in net premiums, and paid an assessment of $1,249,844; for the quarter ending June 30, 2008, Amerisure reported $5,282,751 in net premiums, and paid an assessment of $238,780; for the quarter ending September 30, 2008, Amerisure reported negative net premiums of $923,570, and no assessment was due or paid; and for the quarter ending December 31, 2008, Amerisure reported negative net premiums of $1,269,343, and no assessment was due or paid. Because of premium refunds made to policyholders in the quarters ending September 30, 2008, and December 31, 2008, resulting in an overpayment, Amerisure received a credit against future SDTF assessment payments in the amount of $99,119.66. For the time periods in 2009, Amerisure did not owe or pay assessments to the SDTF due to reported negative net premiums written, resulting from reported payment of premium refunds to policyholders, as detailed below. For the quarter ending March 31, 2009, Amerisure reported negative net premiums of $1,422,158, and no assessment was due or paid. When the Department provided Amerisure with its Carrier and Self-Insurance Quarterly Premium Report to complete for the quarter ending March 31, 2009, it included a $99,119.66 "Debit/Credit" carried over from 2008 for the SDTF on the report form. For the quarter ending June 30, 2009, Amerisure reported negative net premiums of $2,382,484, and no assessment was due or paid. When the Department provided Amerisure with its Carrier and Self-Insurance Quarterly Premium Report to complete for the quarter ending June 30, 2009, it included a $163,401.20 "Debit/Credit" for the SDTF on the report form. This amount was the sum of $99,119.66 carried over from 2008, plus a $64,281.54 credit from the quarter ending March 31, 2009, calculated by application of the 2009 assessment rate to the $1,422,158 reported negative net premium for the quarter ending March 31, 2009. For the quarter ending September 30, 2009, Amerisure reported negative net premiums of $2,392,606, and no assessment was due or paid. When the Department provided Amerisure with its Carrier and Self-Insurance Quarterly Premium Report to complete for the quarter ending September 30, 2009, it included a $271,089.48 "Debit/Credit" for the SDTF on the report form. This amount was the sum of $99,119.66 carried over from 2008; plus a $64,281.54 credit from the quarter ending March 31, 2009, calculated by application of the 2009 assessment rate to the $1,422,158 reported negative net premium for the quarter ending March 31, 2009; plus a $107,688.28 credit from the quarter ending June 30, 2009, calculated by application of the 2009 assessment rate to the $2,382,484 reported negative net premium for the quarter ending June 30, 2009. For the quarter ending December 31, 2009, Amerisure reported negative net premiums of $3,237,419, and no assessment was due or paid. When the Department provided Amerisure with its Carrier and Self-Insurance Quarterly Premium Report to complete for the quarter ending December 31, 2009, it included a $379,235.27 "Debit/Credit" for the SDTF on the report form. This amount was the sum of $99,119.66 carried over from 2008; plus a $64,281.54 credit from the quarter ending March 31, 2009, calculated by application of the 2009 assessment rate to the $1,422,158 reported negative net premium for the quarter ending March 31, 2009; plus a $107,688.28 credit from the quarter ending June 30, 2009, calculated by application of the 2009 assessment rate to the $2,382,484 reported negative net premium for the quarter ending June 30, 2009; plus a $108,145.79 credit from the quarter ending September 30, 2009, calculated by application of the 2009 assessment rate to the $2,392,606 reported negative net premium for the quarter ending September 30, 2009. For the time periods in 2010, Amerisure paid quarterly assessments to the SDTF based upon reported net premiums, as detailed below. For the quarter ending March 31, 2010, Amerisure reported net premiums of $828,566, and paid an assessment of $37,451.18. The assessment was paid by application of $37,451.18 of the $99,119.66 credit carried over from 2008. When the Department provided Amerisure with its Carrier and Self-Insurance Quarterly Premium Report to complete for the quarter ending March 31, 2010, it included a $99,119.66 "Debit/Credit" carried over from 2008 for the SDTF on the report form. The credits of $64,281.54, $107,688.28, and $108,145.79 recognized in the reports for the quarters ending June 30, September 30, and December 31, 2009, were deleted. However, the Department did not otherwise notify Amerisure that it was deleting the credits or why it was deleting the credits. It also did not provide a point of entry for Amerisure to challenge the deletion of the credits. For the quarter ending June 30, 2010, Amerisure reported net premiums of $1,282,179. It paid an assessment of $57,954.49 by application of $57,954.49 of the $99,119.66 credit carried over from 2008. For the quarter ending September 30, 2010, Amerisure reported net premiums of $937,504. It paid an assessment of $13,687.56 in part by application of the remainder of the $99,119.66 credit carried over from 2008, along with a payment of $9,974.01. For the quarter ending December 31, 2010, Amerisure reported net premiums of $657,457, and paid an assessment of $9,597.41. For the time periods in 2011, Amerisure paid quarterly assessments to the SDTF based upon reported net premiums, as follows: for the quarter ending March 31, 2011, Amerisure reported $2,455,230 in net premiums, and paid an assessment of $35,846.36; for the quarter ending June 30, 2011, Amerisure reported $1,741,790 in net premiums, and paid an assessment of $25,430.13; for the quarter ending September 30, 2011, Amerisure reported $2,054,805 in net premiums, and paid an assessment of $30,000.15; and for the quarter ending December 31, 2011, Amerisure reported $1,823,063 in net premiums, and paid an assessment of $26,616.72. For the time periods in 2012, Amerisure paid quarterly assessments to the SDTF based upon reported net premiums, as follows: for the quarter ending March 31, 2012, Amerisure reported $4,816,098 in net premiums, and paid an assessment of $69,351.81; and for the quarter ending June 30, 2012, Amerisure reported $2,072,685 in net premiums, and paid an assessment of $29,846.66. Reporting and Payments for the WCATF For the time periods in 2008, Amerisure paid quarterly assessments to the WCATF based upon reported net premiums, or did not pay assessments due to reported negative net premiums, as follows: for the quarter ending March 31, 2008, Amerisure reported $30,353,820 in net premiums, and paid an assessment of $75,885; for the quarter ending June 30, 2008, Amerisure reported $6,696,958 in net premiums, and paid an assessment of $16,742; for the quarter ending September 30, 2008, Amerisure reported $874,225 in net premiums, and paid an assessment of $2,186; and for the quarter ending December 31, 2008, Amerisure reported $1,271,387 in negative net premiums, and no assessment was due or paid. Because of premium refunds made to policyholders in the quarters ending September 30, 2008, and December 31, 2008, resulting in an overpayment, Amerisure received a credit against future WCATF assessment payments in the amount of $3,178.47. For the time periods in 2009, Amerisure did not owe or pay assessments to the WCATF due to reported negative net premiums resulting from reported payment of premium refunds to policyholders, as detailed below. For the quarter ending March 31, 2009, Amerisure reported $1,321,194 in negative net premiums. When the Department provided Amerisure with its Carrier and Self- Insurance Quarterly Premium Report to complete for the quarter ending March 31, 2009, it included a $3,178.47 "Debit/Credit" carried over from 2008 for the WCATF on the report. For the quarter ending June 30, 2009, Amerisure reported $2,990,876 of negative net premiums. When the Department provided Amerisure with its Carrier and Self- Insurance Quarterly Premium Report to complete for the quarter ending June 30, 2009, it included a $6,481.46 "Debit/Credit" for the WCATF on the report, which is the sum of $3,178.47 carried over from 2008, plus a $3,302.99 credit from the quarter ending March 31, 2009, calculated by application of the 2009 assessment rate to the $1,321,194 reported negative net premium for the quarter ending March 31, 2009. For the quarter ending September 30, 2009, Amerisure reported $2,176,521 in negative net premiums.2/ When the Department provided Amerisure with its Carrier and Self- Insurance Quarterly Premium Report to complete for the quarter ending September 30, 2009, it included a $13,958.65 "Debit/Credit" for the WCATF on the report. This amount was the sum of $3,178.47 carried over from 2008; plus a $3,302.99 credit from the quarter ending March 31, 2009, calculated by application of the 2009 assessment rate to the $1,321,194 reported negative net premium for the quarter ending March 31, 2009; plus a $7,477.19 credit from the quarter ending June 30, 2009, calculated by application of the 2009 assessment rate to the $2,990,876 reported negative net premium for the quarter ending June 30, 2009. For the quarter ending December 31, 2009, Amerisure reported $3,549,615 in negative net premiums. When the Department provided Amerisure with its Carrier and Self- Insurance Quarterly Premium Report to complete for the quarter ending December 31, 2009, it included a $19,399.95 "Debit/Credit" for the WCATF on the report. This amount was the sum of $3,178.47 carried over from 2008; plus a $3,302.99 credit from the quarter ending March 31, 2009, calculated by application of the 2009 assessment rate to the $1,321,194 reported negative net premium for the quarter ending March 31, 2009; plus a $7,477.19 credit from the quarter ending June 30, 2009, calculated by application of the 2009 assessment rate to the $2,990,876 reported negative net premium for the quarter ending June 30, 2009; plus a $5,441.30 credit from the quarter ending September 30, 2009, calculated by application of the 2009 assessment rate to the $2,176,521 reported negative net premium for the quarter ending September 30, 2009. For the quarters in 2010, Amerisure paid quarterly assessments to the WCATF based upon reported net premiums, as detailed below. For the quarter ending March 31, 2010, Amerisure reported $225,027 in net premiums, and paid an assessment of $1,800.22 by applying $1,800.22 of the $3,178.47 credit carried over from 2008. When the Department provided Amerisure with its Carrier and Self-Insurance Quarterly Premium Report for the quarter ending March 31, 2010, it included a $3,178.47 "Debit/Credit" carried over from 2008 for the WCATF on the report. The credits of $3,302.99, $7,477.19, and $5,441.30 recognized in the reports for the quarters ending June 30, September 30, and December 31, 2009, were deleted. The Department did not otherwise notify Amerisure that it was deleting the credits or why it was deleting the credits. The Department also did not provide an opportunity for Amerisure to challenge the deletion of the credits. For the quarter ending June 30, 2010, Amerisure reported $2,011,533 in net premiums, and paid an assessment of $16,092.26, which was paid in part by application of the remainder of the $3,178.47 credit carried over from 2008. For the quarter ending September 30, 2010, Amerisure reported $1,094,027 in net premiums, and paid an assessment of $23,466.23. This payment included $14,714.01 due for an assessment owed for the quarter ending June 30, 2010. For the quarter ending December 31, 2010, Amerisure reported $656,608 in net premiums, and paid an assessment of $5,252.86. For the time periods in 2011, Amerisure paid quarterly assessments to the WCATF based upon reported net premiums, as follows: for the quarter ending March 31, 2011, Amerisure reported $2,456,006 in net premiums, and paid an assessment of $24,068.86; for the quarter ending June 30, 2011, Amerisure reported $1,864,571 in net premiums, and paid an assessment of $18,272.80; for the quarter ending September 30, 2011, Amerisure reported $2,539,405 in net premiums, and paid an assessment of $24,866.17; and for the quarter ending December 31, 2011, Amerisure reported $1,782,608 in net premiums, and paid an assessment of $17,469.56. For the time periods in 2012, Amerisure paid quarterly assessments to the WCATF based upon reported net premiums, as follows: for the quarter ending March 31, 2012, Amerisure reported $4,837,632 in net premiums, and paid an assessment of $84,658.56; and for the quarter ending June 30, 2012, Amerisure reported $2,348,810 in net premiums, and paid an assessment of $41,104.18. For its Carrier and Self-Insurance Fund Quarterly Premium Reports submitted to Respondent for the quarters ending March 31, 2008; June 30, 2008; September 30, 2008; and December 31, 2008, premium refunds made to policyholders included in the calculation of "net premiums" and "net premiums written" reflect premium refunds made to policyholders by Amerisure in the calendar year 2008. For its Carrier and Self-Insurance Fund Quarterly Premium Reports submitted to the Department for the quarters ending March 31, 2009; June 30, 2009; September 30, 2009; and December 31, 2009, premium refunds made to policyholders included in the calculation of "net premiums" and "net premiums written" reflect premium refunds made to policyholders by Amerisure in the calendar year 2009. For its Carrier and Self-Insurance Fund Quarterly Premium Reports submitted to the Department for the quarters ending March 31, 2010; June 30, 2010; September 30, 2010; and December 31, 2010, premium refunds made to policyholders included in the calculation of "net premiums" and "net premiums written" reflect premium refunds made to policyholders by Amerisure in the calendar year 2010. For its Carrier and Self-Insurance Fund Quarterly Premium Reports submitted to the Department for the quarters ending March 31, 2011; June 30, 2011; September 30, 2011; and December 31, 2011, premium refunds made to policyholders included in the calculation of "net premiums" and "net premiums written" reflect premium refunds made to policyholders by Amerisure in the calendar year 2011. For its Carrier and Self-Insurance Fund Quarterly Premium Reports submitted to the Department for the quarters ending March 31, 2012, and June 30, 2012, premium refunds made to policyholders included in the calculation of "net premiums" and "net premiums written" reflect premium refunds made to policyholders by Amerisure in the calendar year 2012. For its Carrier and Self-Insurance Fund Quarterly Premium Reports submitted to the Department for the quarters ending March 31, 2008; June 30, 2008; September 30, 2008; and December 31, 2008, premium refunds made to policyholders included in the calculation of "net premiums" and "net premiums written" reflect refunds made to policyholders by Amerisure for policies where assessments for premium for those policies were paid in calendar years prior to 2008. Likewise, for its Carrier and Self-Insurance Fund Quarterly Premium Reports submitted to the Department for the quarters ending March 31, 2009; June 30, 2009; September 30, 2009; and December 31, 2009, premium refunds made to policyholders included in the calculation of "net premiums" and "net premiums written" reflect refunds made to policyholders by Amerisure for policies where assessments for premium for those policies were paid in calendar years prior to 2009. Events Following the Deletion of 2009 Credits Gene Smith, Assessments Coordinator for the Division of Workers? Compensation of the Department, has the responsibility to calculate the assessment rate for the Trust Funds. Evelyn Vlasak was Mr. Smith?s predecessor as Assessments Coordinator. On September 13, 2010, Gene Smith sent an e-mail requesting that Amerisure provide for each quarter in 2008 and 2009 “[a]n original computer generated run showing the written premium for all Line of Business 160 (workers? compensation) in Florida by policy number with totals at the end.” Amerisure provided the requested information via Excel spreadsheet on October 1, 2010. By letter dated December 9, 2010 (received on December 14, 2010), Mr. Smith stated, in pertinent part: We received the excel spreadsheet of Amerisure Mutual Insurance Company?s 2008- 2009 Policy Level Details. To complete our audit we also need the detailed documentation for dividends and large deductibles. Please review the list below, and provide the requested documentation by December 20, 2010. The same Policy Level Detail spreadsheets for each quarter from January 1, 1999, through the current quarter 2010. There is no need to provide 2008 and 2009 as you have already provided these. Detail of annual dividends declared and paid from January 1, 1999, through the current quarter 2010. Detail of quarterly large deductible “add backs” from January 1, 1999, through the current quarter 2010. In response, Amerisure?s counsel contacted Mr. Smith via e-mail on December 14, 2010, to ask why the Department needed this information. Mr. Smith responded by e-mail on January 2, 2011, stating that the Department would respond very soon. On January 4, 2011, David Hershel, an attorney for the Department, contacted Amerisure?s counsel and advised that the additional data requested in the December 9, 2010, letter was needed to review the credit amounts claimed by Amerisure. Mr. Hershel stated that the Department would send a revised letter, paring down its information request. On January 10, 2011, Mr. Smith sent a letter, which stated: We received the excel spreadsheet of Amerisure Mutual Insurance Company?s 2008- 2009 Policy Level Details. To complete our audit we also need the detailed documentation for dividends and large deductibles, as well as the payments for the second and third quarters of 2010. Please review the list below. Detail of annual dividends declared and paid from January 1, 2008, through the 4th quarter 2010. Detail of quarterly large deductible “add backs” from January 1, 2008, through the 4th quarter 2010. Payments for the second and third quarters of 2010 for the WCATF as required by Florida law. Please provide the requested documentation by January 21st, 2011. Thank you in advance for your time and assistance. If you have any questions, please feel free to contact me. On January 17, 2011, Amerisure agreed to send in the requested payments as a sign of good faith. In this transmittal, Amerisure reserved its rights to withhold against further assessments. On January 27, 2011, Amerisure provided Gene Smith with Excel spreadsheets containing the information sought in items 1 and 2 of the January 10, 2011, letter. On July 1, 2012, some 17 months later, Gene Smith responded by letter, directing that the appropriate procedure and remedy to request a refund of monies paid into the State Treasury is set forth in section 215.26, Florida Statutes, and providing the forms developed for this request. On September 26, 2012, Amerisure submitted its applications for credit or refund pursuant to section 215.26. Amerisure requested a credit or refund of $25,095.70 paid into WCATF and $236,663.25 paid into SDTF from October 26, 2010, through July 26, 2012, which Amerisure alleges it should not have been required to pay in light of the amount of credit it had accrued in 2008 and 2009. For example, the request for refund with respect to the SDTF states: Through the reporting period of June 30, 2012, Amerisure has paid $236,663.25 in assessments to the SDTF that the company should not have been required to pay since it had credits that should have been applied against its assessment liability. As such, Amerisure requests a refund of the total amount of $236,663.25 paid into the SDTF between September 30, 2010, and June 30, 2012. Furthermore, Amerisure asserts its right to apply, and requests the SDTF to facilitate, the application of the remaining credit balance of $189,783.75 against future assessment liability. The Department denied Amerisure?s request for refund of the overpayment of assessments paid into the SDTF and WCATF from January 2011 onward in its NOI dated January 28, 2013. The Department states in its NOI that Amerisure is “seeking to be paid in cash for supposed credits which it never accrued.” The denial letter also informed Amerisure of its right to an administrative hearing. Amerisure timely filed a Request for Administrative Hearing, which gave rise to this proceeding. The statement that the credits never accrued is inconsistent with the Department?s prior calculation of the credits on the reporting forms that the Department sent to Amerisure each quarter to complete. The forms for 2009 clearly indicated accrued credits and Department staff acknowledged eliminating those credits. The Department?s Treatment of “Excess Credits” Maya Brown is a government analyst with the Department?s Division of Workers? Compensation. Her duties include creating manuals, performing audits on insurance carriers, and processing refunds for carriers. According to Ms. Brown, she was instructed in 2009 by Ms. Vlasak that at the end of a year, if a company has negative premiums and does not owe any assessments or has not paid any assessments, that balance, which she described as “excess credits,” is then removed. Based upon this understanding, Ms. Brown removed $451,532 (which Amerisure refers to as the 2009 credits) from Amerisure?s rolling calculations when the 2010 quarterly report forms were sent to Amerisure. She did not call Amerisure and notify them that she was deleting the credits or of the reason for doing so, and does not know of anyone else providing that information to Amerisure. The quarterly report form for the first quarter of 2010, however, carried forward the 2008 credits that Amerisure had accumulated in 2008. Ms. Brown first learned about the concept of “excess credits” in 2004 when she was trained to perform audits by Ms. Vlasak. Since 2004, the only other Assessment Unit employee performing audits besides Ms. Brown was Ms. Vicki Griffin. Ms. Griffin was also trained by Ms. Vlasak and utilized the same procedures with regard to “excess credits.” Sometime before May 2009, Ms. Vlasak drafted proposed rules for the Assessment Unit that addressed “excess credits” based on negative “net premium”. An early version of the draft rules was prepared as early as March 29, 2006. The July 26, 2008, draft of proposed rule 69L-4.003, entitled “Completion of Quarterly Reports and Payment of Assessment by Carriers,” included the following in subsection (e)(5): If as a result of premium offsets for dividends paid or credited and premium refunds, a Carrier will owe no assessments for any of the four calendar year quarters, the Carrier will be able to apply the unused premium offset to reduce assessments owed in any of the other three quarters of the same calendar year. However, after the Quarterly Report is filed for the period ending December 31, the Division will adjust the Carrier?s records to remove any credits due to these premium offsets that were not used in that year. Therefore the (credit) debit pre-printed on the upcoming March 31st Quarterly Premium and Assessment Report will reflect only overpayment of assessment(s) owed for the previous calendar year. If this adjustment is necessary, the Carrier will be [sic] receive written notification. Section (h) of the draft proposed rule addressed the Department?s procedure for “overpayments”: When a Carrier has computed its net assessable premiums and assessments according to this rule and later determines that either the WCATF or SDTF assessment has been overpaid, the company may elect to apply the overpayment against future assessments owed to the same fund or may submit an [sic] refund request under Section 215.26, Florida Statutes. Written notification of an overpayment must be accompanied by detailed documentation of the computation of the alleged overpayment, a copy of the State Page of the Annual Report for the referenced year, and as needed, revised Quarterly Reports. Written notification that a refund has been requested must meet the requirements of Section 215.26, Florida Statutes, including the submission of the approved form. The refund request must be received within three years of the date the alleged overpaid amount was initially deposited into the state treasury. Written notification of the election to apply the overpayment against future assessment payments must be received within three years of the date the overpaid amount was initially deposited into the state treasury. Upon verification of an overpayment, future assessments may be offset until the verified overpayment is fully utilized, with no time limitations. Each Carrier shall bear the responsibility to notify the Division in written format, that an overpayment may have occurred and to provide documentation that will allow the Department to verify the amount of the alleged overpayment. If an overpayment has occurred, and revised Quarterly Reports are submitted, the Carrier does not submit an Application for Refund on an approved form, the Carrier will be allowed to offset future assessments to the extent of the overpayment. However, after the end of the three-year window, in the absence of a written refund application, the unused portion of the overpayment, if any, will no longer be available as an offset against future assessments, or for the issuance of a refund pursuant to Section 215.26(2). The Division shall bear the responsibility to acknowledge receipt of this notification and to verify the amount of overpayment, if any, as well as respond to the request for credit or refund. The Department acknowledges that these draft proposed rules were never promulgated or published in a notice of proposed rule development. In 2011, Mr. Jenkins, the new Bureau Chief, revived attempts to promulgate rules for the Assessment Unit. That is, he circulated Ms. Vlasak?s draft proposed rules to members of his staff for their consideration. However, other office priorities took precedence, and as of 2013, no further attempts at rule development have been undertaken by the Department in this regard. Ms. Brown understood that the language in Ms. Vlasak?s draft rules is consistent with what occurred in 2009 regarding Amerisure?s reporting of negative premium. Despite the failure of the Department to adopt the draft rules, or some other version of them, the policy reflected in these proposed rules has been applied by the Department to eliminate Amerisure?s 2009 credits. Ms. Vlasak based her procedures on section 624.5094, Florida Statutes. However, the Department has since acknowledged that the statute does not speak to or define “excess credits.” The elimination of “excess credits” at the end of the year is currently the policy of the Division of Workers? Compensation and is how its employees process quarterly reports and assessment payments. This procedure is also reflected in a draft policy and procedures manual put together by Gene Smith at the direction of Greg Jenkins to capture the policies and procedures of the Assessment Unit. Under the caption “Prior Balance Carried Forward,” the manual provides: . . . a company may report (in very rare circumstances) negative net premium on Line 1 of the Quarterly Premium Report for either the WCATF or SDTF which would otherwise result in a negative assessment amount. This will carry over the following quarter. Should the company continue to reflect a negative amount by calendar year end, these negative amounts are removed per Section 624.5094, F.S. Mr. Jenkins wrote and compiled these policies and procedures when he was the Assessment Unit coordinator, a position he held until about a year and a half ago. If, on the other hand, a carrier only experiences negative net premium during some quarters but not all, these credits may be deemed an “official overpayment” and be allowed to carry forward. The process to determine if an overpayment is “official” has not been written into any policy or procedure, proposed rule, rule, or statute. Determining whether credits for a given calendar year are “excess” or “official overpayments” is a process that occurs only after a company has filed its annual report with the NAIC. This never occurs before March of the year following the year in question. Pursuant to current Department policy, a company cannot request a refund for an overpayment until after it is deemed an “official overpayment.” Mr. Smith testified that he agreed with the Department?s position that section 624.5094 required credits accumulated to be eliminated if the company continued to reflect a negative amount of net premium by the end of the calendar year, despite the fact that the statute does not include or define the term “excess credits.” Mr. Smith acknowledged that his interpretation of section 624.5094 stems from his belief that a carrier can experience negative net written premium for all four quarters of a year, which he believes is a violation of section 624.5094. This, in turn, is based on Mr. Smith?s definition of net written premium. To determine the net premium amount for assessment purposes, Mr. Smith took the position that carriers can only deduct return premium for a policy that incepts in the same calendar year that the premium is returned. Mr. Smith believed that additional premiums collected in a calendar year subsequent to the policy year for which the premium is collected would likewise not be included in the direct written premium or net premium number. Mr. Smith could point to no statute, rule, or bulletin which defines net premium in this fashion. Mr. Jenkins, the Bureau Chief, agreed with Mr. Smith?s interpretation, deferring to his judgment. Mr. Jenkins acknowledged that the determination made with regard to Amerisure?s 2009 credits was based on Mr. Smith?s definition of net premium, because Amerisure could not offset refunds or dividends from prior policy years in determining the amount of net premium. Mr. Jenkins also agreed with Mr. Smith that section 624.5094 “tied the Department?s hands” with regard to Amerisure. The Department?s determination that its “excess credits” policy prevents Amerisure from utilizing the 2009 credits against future assessments is further outlined in a June 9, 2011, email from Victoria Griffin to Gene Smith which states: Gene, You had asked me about my recall of the unit?s procedure for dealing with negative premium and section 624.5094 FS in the past. Since I have been here it has been common practice to accept all reporting at face value to include negative premiums till such time that we received the report from NAIC which reflected the written, earned and dividends the carriers reported, which may include negative amounts. In regards to your question regarding 624.5094, we have not ever reviewed individual policy holder information for any insurance company. My understanding of what happened with the Amerisure Mutual file is that they reported negative premiums for all four (4) quarters of 2009, (stating verbally that they took a loss for that year and wanted to recoup) and they believed that they were entitled to the credit amount reflected for 2009. Regardless of the fact that no assessment amounts had been paid in to the funds for that time frame. When we completed the audit for 2009, those negative amounts were removed; leaving a credit balance reflected from actual overpayments of 2008 to both funds. These overpayments were used towards future assessments and as of 4th quarter 2010 were exhausted. Let me know if you need any more information. Thanks, Vicki If Amerisure and other carriers were to use the Department?s definition of “net premium” and not include additional premium written for policies that incepted in prior calendar years, the Department would most likely experience a substantial drop in the amount of assessments collected for either Trust Fund. This represents the most probable scenario because it is more likely for an insurer to charge additional premium after a year-end or subsequent audit than to return premium. In fact, for the last 12 years that Andrea Koehler has worked at Amerisure, other than the period at issue in 2008-2009, the company consistently wrote more premium than it returned. Most importantly, this interpretation of the definition of net premium is inconsistent with using the amounts listed in a company?s NAIC reports as an audit method to insure proper reporting by the insurance companies. In order for the numbers to be comparable, the amount reported must be consistent with industry practice in reporting to the NAIC.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department enter a final order incorporating the findings of this Recommended Order and reinstating Amerisure?s 2009 credits as credits toward future assessments due to the Trust Funds. DONE AND ENTERED this 15th day of November, 2013, in Tallahassee, Leon County, Florida. S BARBARA J. STAROS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 15th day of November, 2013.
