The Issue At issue in this proceeding is whether Payroll Management, Inc. (“PMI”), a former self-insurer, should be required to increase its qualifying security deposit with the Florida Self- Insurers Guaranty Association, Inc. (“FSIGA”), from $5,144,108 to $7,434,705, as directed by the Department of Financial Services, Division of Workers’ Compensation (the “Department”).
Findings Of Fact Based on the oral and documentary evidence adduced at the final hearing, and the entire record in this proceeding, the following Findings of Fact are made: The Department is the state agency responsible for administering the Workers’ Compensation Law, chapter 440, Florida Statutes. The Department’s responsibilities include administration of the self-insurance program in conjunction with FSIGA, pursuant to sections 440.38, 440.385, and 440.386, Florida Statutes. FSIGA is a private, not-for-profit corporation created by section 440.385. The chief purpose of FSIGA is to guarantee payment of covered workers’ compensation claims to employees of its insolvent member self-insurers. All self-insurers, other than public utilities and government entities, are required to be members of FSIGA as a condition of their authority to self- insure. § 440.385(1)(a), Fla. Stat. Sections 440.10(1) and 440.38(1) establish the general requirement that employers must obtain and maintain workers’ compensation insurance in Florida. The exception to this general requirement is set forth in section 440.38(1)(b), which allows an employer to self-insure after furnishing satisfactory proof to FSIGA that such employer “has the financial strength necessary to ensure timely payment of all current and future claims individually and on behalf of its subsidiary and affiliated companies with employees in this state and receiving an authorization from the department to pay such compensation directly.” § 440.38(1)(b), Fla. Stat. FSIGA pays the covered claims of current and former insolvent self-insurer members to the extent an insolvent self- insurer's security deposit is insufficient to cover the claims. An insolvency fund is established and managed by FSIGA for the purpose of meeting the obligations of insolvent members after the exhaustion of any security deposit. Pursuant to section 440.385(3)(a), FSIGA assesses its members to maintain the insolvency fund. In the event FSIGA determines that a current or former member lacks financial strength necessary to ensure timely payment of current and estimated future workers’ compensation claims, FSIGA may recommend that the Department require an increase to such member’s “security deposit in an amount determined by the association to be necessary to ensure payment of compensation claims.” § 440.385(3)(b)7.c., Fla. Stat. The Department is required to accept FSIGA’s recommendation unless it finds by clear and convincing evidence that the recommendation is erroneous. §§ 440.38(1)(b) and 440.385(6)(a), Fla. Stat. PMI is a privately owned professional employer organization headquartered in Fort Walton Beach. It has conducted business throughout Florida and the southeastern United States for over 30 years. PMI was authorized as a self- insurer for workers’ compensation in Florida on September 1, 2001. It was required to post an initial security deposit of $1,000,000 with FSIGA. Between 2001 and 2015, FSIGA made annual recommendations to the Department, pursuant to sections 440.38(1)(b) and 440.385(3)(b)7., as to whether PMI should be required to increase its qualifying security deposit based on a review of the company’s financial strength as reflected in its financial statements. By 2015, PMI’s security deposit had grown to $5,144,108. Through 2015, PMI had posted and maintained its qualifying security deposit every year it participated in the self-insurance program. In late March 2016, PMI submitted an actuarial report dated March 25, 2016, to FSIGA. The actuarial report was prepared by Steven Glicksman and determined that PMI’s estimated outstanding losses, i.e., the cost of unpaid claims, were $7,960,339 as of December 31, 2015, and that the actuarial present value of PMI’s estimated outstanding losses as of December 31, 2015, using a four-percent (4%) discount rate as prescribed by Florida Administrative Code Rule 69L-5.218(2), was $7,434,705. The March 25, 2016, report included the following notes: Comparison to Previous Study The estimated outstanding losses (actuarial central estimate) are $7,960,339 as of December 31, 2015. This compares to $5,514,248 as of December 31, 2015 in the previous study (dated April 30, 2015). The variance is a material adverse deviation. The increases in 2015 are due primarily to actuarial payroll in 2015 being $173,681,101 compared to the projected payroll of $110,000,000. Greater payroll corresponds to an increased exposure to loss. We also observed that 2014 is emerging higher than previous projections. Potential for Material Adverse Deviation The estimated outstanding losses are the actuarial central estimate. It is based on the probable outcomes, but not all possible outcomes. The risk of material adverse deviation is a judgment as to actual losses materially exceeding the actuarial central estimate. The Actuarial Standard of Practice (ASOP 36) requires commentary when the actuary “reasonably believes that there are significant risks and uncertainties that could result in material adverse deviation.” ASOP 36 does not specify a materiality standard. As with all insurance programs, there is the possibility that losses will emerge worse than expected. PMI is a relatively small sized program. The historical loss experience had had an occasional large claim. PMI purchases reinsurance to mitigate the impact of catastrophic claims. It currently has a $500,000 self-insured retention. However, there is the potential for multiple large claims within the retention. There have [been several] operational changes that may have impacted loss development. There is convincing evidence that PMI has accelerated its paying losses and is reserving more adequately [than] it has in the recent past. There has been material change in the mix of class codes. There is a roll-forward extrapolation to December 31, 2016. We have supplemented internal data with insurance industry statistics and actuarial judgment. We have not set a materiality standard. However, based on the above factors, we believe that the estimated outstanding loss amount is subject to a significant level of risk of adverse deviation as of December 31, 2015 and December 31, 2016. This disclosure is based on ASOP 36 and is not intended to be exclusive to this situation. Differences in the disclosure from previous studies are not intended to be a material change in our opinion, unless specifically stated otherwise. It is not a qualification of the study. Effective May 1, 2016, PMI voluntarily terminated its authorization to self-insure its workers’ compensation claims in Florida. On May 11, 2016, FSIGA recommended that the Department require PMI to increase its qualifying security deposit by the amount of $2,290,597.1/ That recommendation was made pursuant to sections 440.38(l)(b) and 440.385(3)(b)7. and rules 69L- 5.209(l)(b) and 69L-5.218(2). The recommendation was based on FSIGA's review of PMI's financial statements and FSIGA’s determination of an equivalent credit rating of Caa3 for PMI, a rating that is less than investment grade.2/ FSIGA determined that PMI did not have the financial strength necessary to ensure timely payment of claims incurred as a self-insurer. The Department accepted FSIGA's recommendation, and by letter dated May 25, 2016, required PMI to increase its qualifying security deposit by the amount of $2,290,597, from $5,144,108 to $7,434,705. As of the date of the hearing, PMI had not posted the additional security with FSIGA. Brian Gee, FSIGA’s Executive Director, testified that he conducted an analysis of PMI's financial strength by examining its audited financial statements for the year ending December 31, 2013, and its draft financial statements for the year ending December 31, 2014.3/ He derived an equivalent credit rating by applying a public domain Moody’s Investors Service methodology. He checked his result against a proprietary Moody’s product called RISCCALC PLUS, a model based on a large database of financial statements. The RISCCALC PLUS model uses default frequencies to derive a credit rating. Mr. Gee’s analysis led him to conclude that PMI does not have the financial strength necessary to ensure the timely payment of its self-insured claims. Mr. Gee testified that his review of PMI’s financial information led him to conclude it lacks the financial strength to ensure timely payment of claims. He cited several factors supporting his conclusion: PMI has shown net losses over the past three years; the company is highly leveraged, with low owners’ equity relative to total liabilities; uncertainty regarding the collectability of a $4 million receivable from British Petroleum (“BP”)4/; and a large amount of back taxes owed to the Internal Revenue Service.5/ Mr. Gee also took note of the facts that PMI’s 2014 financial statement was labeled “draft” and was not a signed auditor’s opinion, and that PMI had supplied no financial statement at all for 2015. He stated that FSIGA had been requesting current financial information from PMI but was not receiving it. Mr. Gee concluded there was enough uncertainty in PMI’s financial situation that he could conclude the company lacked the financial strength to ensure the payment of current and future claims without regard to the calculation of an equivalent credit rating required by rule 69L-5.218(4). Mr. Gee’s conclusion is reasonable in light of the evidence and is hereby accepted. Rule 69L-5.209 requires current and former self- insurers, including PMI, to submit financial statements, audited in accordance with Generally Accepted Auditing Standards, to FSIGA no later than 120 days after the end of their fiscal year. PMI’s fiscal year ends on December 31. As of the hearing date, PMI had submitted only draft unsigned financial statements for fiscal year 2014,6/ and no financial statements at all for fiscal year 2015. On May 11, 2016, the Department received FSIGA's letter recommending the Department require PMI to increase its qualifying security deposit to $7,434,705. The recommendation was reviewed by staff of the Bureau of Financial Accountability (the “Bureau”) in the Department's Division of Workers' Compensation. Bureau Chief Greg Jenkins testified that the review did not involve recreating FSIGA’s work in developing an equivalent credit rating for PMI. FSIGA collects and reviews financial statements and loss reserve information from self- insurers pursuant to contract with the Department and is considered the Department’s financial expert as to these tasks. Mr. Jenkins stated that Bureau staff did review other information for accuracy, including the numerical values set forth in FSIGA’s recommendation letter. Based on his staff’s review, Mr. Jenkins approved the FSIGA recommendation. The Division of Workers’ Compensation, concluding that the FSIGA recommendation was not erroneous, recommended to Chief Financial Officer (“CFO”) Jeff Atwater that the Department accept FSIGA’s recommendation and require PMI to increase its qualifying security deposit by $2,290,597, from $5,144,108 to $7,434,705. By letter dated May 25, 2016, signed by CFO Atwater, the Department required PMI to increase its security deposit by the stated amount. On or about October 19, 2016, PMI submitted an updated actuarial report dated October 18, 2016, to FSIGA. The updated actuarial report was prepared by Mr. Glicksman and determined that PMI’s estimated outstanding losses were $7,265,767 as of August 31, 2016, and that the actuarial present value of PMI’s estimated outstanding losses as of August 31, 2016, using a four percent (4%) discount rate as prescribed by rule 69L-5.218(2), was $6,775,263. Mr. Glicksman also included a projection of losses through December 31, 2016, which he explained as follows: The estimated outstanding losses (actuarial central estimate) are $5,758,346 as of December 31, 2016. The present value of the estimated outstanding losses (actuarial central estimate) is $5,369,488 based on a 4.0% interest rate as of December 31, 2016. These amounts assume old payment patterns. However, the amounts for December 31, 2016 are dependent on PMI’s actual payments from September 1, 2016 to December 31, 2016. Since greater payments results in lower estimated outstanding losses, it is possible that PMI will have estimated outstanding losses of less than $5,758,346 (present value $5,369,488) on December 31, 2016. In fact, we have observed that PMI has accelerated payments. From January 1, 2016 to August 31, 2016, paid losses equaled $4,963,579 ($620,488 per month). We have modeled a continuation of accelerated payments. Assuming projected losses paid of $1,959,647 ($477,395 per month) from September 1, 2016 to December 31, 2016, estimated outstanding losses are $5,356,187 and the present value of the estimated outstanding losses are $4,995,098 on December 31, 2016. We believe these amounts are reasonable. [Citations to internal exhibits omitted.] Mr. Glicksman testified that material differences emerged during the period between his completion of the March 25, 2016, report and the October 18, 2016, report. Mr. Glicksman explained that more recent information, including a date certain for PMI’s termination of its self-insurer authorization, improved loss information, increased reserves, and accelerated claims payments, led him to believe that the estimated losses were less than he had originally projected. Mr. Glicksman testified that, upon noticing that PMI’s claims payments had accelerated much faster than he expected, he contacted Ms. Mickle-Bee regarding the claims data. Ms. Mickle- Bee confirmed to Mr. Glicksman that PMI was closing claims as rapidly as possible. At the hearing, Ms. Mickle-Bee testified that PMI has always paid claims at an “aggressive” rate as an overall costs savings measure. She stated that the company’s experience has been that providing quick medical treatment and paying the bills greatly reduces the chances of litigation. Mr. Glicksman supported this view, testifying that “there’s nothing better than a closed claim to reduce costs.” Mr. Glicksman concluded by stating that “there could be no good outcome” to requiring PMI to increase its security deposit to $7,434,705. He testified, “They’re already holding more than enough money to pay off their claims . . . with almost certainty. And by pushing PMI into . . . a financial stress, it can’t improve their situation, it can only hurt it. I don’t know why they would do it.” Mr. Gee testified that he had as yet reached no conclusions about the October 18, 2016, actuarial report. He testified that a claims reviewer had been assigned to look at the case files, which are the main input into the actuarial process. Mr. Gee also stated that he had made “some preliminary findings about some self-insured retention numbers that appear to be incorrect,” but that he was awaiting results from the claims reviewer in order to draw a conclusion about the report. Mr. Jenkins testified that he has received a copy of PMI’s October 18, 2016, actuarial report. Mr. Jenkins stated that he had glanced at the report but was awaiting a recommendation from FSIGA before undertaking a thorough review of the document.
Recommendation Based on the foregoing, it is, therefore, RECOMMENDED that the Department of Financial Services enter a final order requiring Payroll Management, Inc., to increase its qualifying security deposit with the Florida Self-Insurers Guaranty Association, Inc., by $2,290,597, from $5,144,108 to $7,434,705; or, in the alternative, that the Department of Financial Services withdraw its May 25, 2016, letter requiring Payroll Management, Inc., to increase its qualifying security deposit by the amount of $2,290,597, from $5,144,108 to $7,434,705 and issue a letter requiring PMI to increase its qualifying security deposit to the amount recommended by the Florida Self-Insurers Guaranty Association, Inc., after its review of the October 18, 2016, actuarial report submitted by Payroll Management, Inc. DONE AND ENTERED this 5th day of April, 2017, in Tallahassee, Leon County, Florida. S LAWRENCE P. STEVENSON 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 5th day of April, 2017.
The Issue The issue in this case is whether Petitioner is entitled to receive supplemental compensation under the Firefighters Supplemental Compensation Program.
Findings Of Fact At all material times, Petitioner has been employed as a firefighter with the City of Deland Fire Department. By submitting course transcripts on September 18 and 20, 1989, Petitioner applied to the Bureau of Fire Standards and Training, Division of the State Fire Marshall, Department of Insurance for additional compensation under the Firefighter Supplemental Compensation Program. The course transcripts were from Brevard Community College and Valencia Community College. The Brevard transcript showed that, over a four-year period ending September 13, 1989, Petitioner had earned 69 semester credit hours, for which he was awarded an associate in arts degree in August, 1988. (All credit hours reported below are semester credit hours.) The courses for which Petitioner earned credits at Brevard are as follows (three credit hours for each course unless indicated otherwise in parentheses): general psychology, general chemistry I and II, general chemistry lab I and II (each 1), engineering graphics (4), college algebra, weight training (1), communications I and II, stage band (1), archery (1), fundamentals of speech communication, swimming (1), college trigonometry, first aid and safety (2), organic chemistry I and II, organic chemistry lab I and II (each 1), academic/career planning, U.S. history I and II, oceanography, introduction to physical geology, cardiopulmonary resuscitation (1), tennis (1), survey of American literature, contemporary humanities of the 20th century, and--following the receipt of the degree-- developmental psychology. After earning his associate in arts degree, petitioner took ten credit hours at Valencia Community College during the second session of the 1988-89 school year. The courses and their credit hours are: fundamentals of emergency medical technology (4), fundamentals of emergency medical technology practice (3), and emergency medical technician clinical practicum (3) By notice dated October 18, 1989, the Bureau of Fire Standards and Training, Division of the State Fire Marshall, Department of Insurance informed Petitioner that the information that he had submitted for entry into the Supplemental Compensation Program was not acceptable. The notice explains that Petitioner "does not have 18 hours fire science within degree transcript." The notice advises at the bottom: "When you have all of the appropriate paperwork properly filled out, please resubmit." By letter dated November 8, 1989, Frederick C. Stark, Chief of the Bureau of Fire Standards and Training, informed Petitioner that his transcripts failed to disclose a "major study concentration area" to qualify for supplemental compensation. The letter quotes Rule 4A-37.071(2), Florida Administrative Code: The major study concentration area, at least 18 semester hours or 27 quarter hours, must be readily identifiable and applicable as fire-related. Those major study concentration areas specifically identified in Rule 4A-37.073 are considered by the Division to be readily identifiable and applicable as fire-related. The letter advises Petitioner of his right to a hearing. Following some communications from Petitioner, Mr. Stark wrote another letter to Petitioner dated November 27, 1989. The letter states in its entirety: After further review of your transcript from Valencia Junior College, may I suggest that you take the necessary courses needed to get an Emergency Medical Technology degree. I feel that this would be the best way to go since you already have courses in this area. If I can be of any further assistance please call me at [number omitted]. Petitioner re-enrolled in Brevard Community College for the second semester starting January 8, 1990. He completed a three-credit hour course in statistics and a two-credit hour course in medical terminology. He also received credit, through a CLEP examination, for four credit hours in general biology. On June 18, 1990, Petitioner resubmitted the transcript materials showing the additional coursework at Brevard Community College. By letter dated July 10, 1990, Mr. Stark informed Petitioner that his application for entry into the Firefighters Supplemental Compensation Program had been denied for noncompliance with Section 633.382, Florida Statutes, and Chapter 4A-37, Florida Administrative Code. The letter quotes Rule 4A-37.085(2) as follows: "To be eligible to receive the Supplemental Compensation provided for by Section 633.382(3), Florida Statutes, the following requirements must be met: Possess an eligible Associate or Bachelors Degree." Prior to advising of a right to a hearing, the letter concludes: "it has been determined that your Degree is not readily identifiable and applicable as fire-related, per Rule 4A- 37.084. By letter dated July 17, 1990, to the Bureau of Fire Standards and Training, Petitioner requested a formal administrative hearing. The letter states that Petitioner had at least 18 semester hours readily identifiable and applicable as fire-related. In the July 17 letter, Petitioner asserts that he had called Mr. Stark prior to taking the additional courses and had been told that he needed only six additional semester hours, because he had 12 semester hours in approved courses. The letter claims that Mr. Stark had approved specific courses prior to Petitioner's taking them and had said it was unnecessary to confirm anything in writing. Petitioner complains in the letter that he was only lately told that he could meet the 18 semester-hour requirement only by earning a new associate degree. To earn an associate in arts or associate in science degree from Brevard Community College, a student must satisfy various requirements, such as completing a "prescribed course of study which includes at least 64 semester hours of credit," according to the college catalog. The associate in arts degree offers no opportunity to declare a major. 1/ The associate in science degree offers various majors. The associate in science technical program offers a major in fire technology that is designed to "qualify fire personnel for career advancement." The coursework described in this program represents strong evidence of the kind of courses that are fire- related. The coursework for the associate in science degree with a major in fire technology requires, among other things, the following courses and credit hours: two English courses (3 each), one physical science course (3), one chemistry course (3), one algebra course (3), two government courses (3 each), one human relations course (3), and two physical education courses (1 each). Although Petitioner did not take the identical courses required for the associate in science degree with a major in fire technology, he took comparable courses that, in each case, were more difficult than those required for the associate in science degree. The courses that Petitioner took that correspond in subject matter and credit hours to the Brevard requirements for a major in fire technology are: general psychology (3), general chemistry I (3), college algebra (3), communications I (3), fundamentals of speech communication (3), weight training and swimming (2), and U.S. history I and II (6). Other fire-related courses are first aid and safety (2) and cardiopulmonary resuscitation (1). Petitioner thus earned, prior to receiving his associate in arts degree, 26 hours in courses that are readily identifiable and applicable as fire-related. Valencia Community College is similar to Brevard Community College in offering no majors within the associate in arts degree. Valencia's associate in science degree with a major in fire science requires the following courses and credit hours: composition (3), U.S. government (3), psychology in business and industry (3), business math (3), fundamentals of speech (3), technical communication (3), introduction to general chemistry (4), introduction to sociology (3), and humanities (3). when measured against the requirements of Valencia Community College for a major in fire science, in terms of subject matter and credit hours, Petitioner earned a total of 25 or 28 credit hours in fire-related courses. Adding the first aid and cardiopulmonary resuscitation courses, Petitioner earned, in this comparison to the Valencia requirements, between 28 and 31 credit hours in courses that are clearly fire-related and within a major study concentration area that is fire-related. Neither an associate nor bachelor degree is required for Petitioner's present job as a firefighter. His job responsibilities include preventing and extinguishing fires, maintaining firefighting equipment, and conducting life support activities. His specific responsibilities include raising and climbing ladders, using chemical extinguishers, performing rescue activities, conducting fire education, performing life-support activities, and attending training courses to learn more about fire prevention and protection.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that the Department of Insurance, Division of State Fire Marshall, issue an amended final order determining that Petitioner is eligible to receive supplemental compensation of $50 monthly commencing no later than the first full calendar month following the date of the initial final order entered in this case. RECOMMENDED this 11th day of April, 1991, in Tallahassee, Florida. ROBERT E. MEALE Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 11th day of April, 1991. COPIES FURNISHED: Hon. Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, FL 32399-0300 Bill O'Neil, General Counsel Department of Insurance The Capitol, Plaza Level Tallahassee, FL 32399-0300 Attorney Lisa S. Santucci Division of Legal Services 412 Larson Building Tallahassee, FL 32399-0300 Peter T. Campbell, III 445 Clarewood Boulevard Titusville, FL 32796
The Issue Here Petitioner has alleged that Respondent has violated Section 120.535, Florida Statutes, by failing to adopt its policies as rules. Those alleged policies are more completely described in the fact finding.
Findings Of Fact Mitchell has been subjected to the proposed agency action set forth in the order to show cause described in the preliminary statement. James Mitchell and Company, JMC Insurance Services, Inc., and JMC Financial Corporation are California corporations authorized to do business in Florida. JMC Insurance Services, Inc., and JMC Financial Corporation are wholly owned subsidiaries of James Mitchell and Company. James K. Mitchell is a resident of California. He is the president, chief executive officer and founder of James Mitchell and Company. He is also licensed by the Department as a nonresident life insurance agent. The Department is a regulatory agency in Florida who has the responsibility for implementing and enforcing the Florida Insurance Code. The Florida Insurance Code includes Chapters 624 and 626, Florida Statutes. The Department is headed by the Insurance Commissioner and Treasurer. The order to show cause forms the sole basis for action taken against Mitchell. The order to show cause has allegations by the Department concerning alleged violations of Section 626.988, Florida Statutes, attributed to Mitchell. It is the alleged interpretation which the Department has placed on Section 626.988, Florida Statutes, which Mitchell asserts is in violation of Section 120.535, Florida Statutes. The present petition sets forth that Mitchell's substantial interest are affected in accordance with Section 120.535(2)(a)1, Florida Statutes, in that: JMC is substantially affected by the Department's interpretation of s. 626.988 in that the Department would use the interpretation to require JMC to cease and desist from all current business activities in Florida, i.e., JMC's sale of annuities to Barnett as trustee to hold in trust for the benefit of trust participants/beneficiaries. The present petition then describes those agency statements by the Department which Mitchell claims constitute a rule as defined by Section 120.52(16), Florida Statutes, and thus subject to the requirements of Section 120.535(2)(a)2, Florida Statutes. The first statement by the Department which Mitchell claims violates Section 120.535(1), Florida Statutes, is to this effect: Abandoned Former Section .003 of Rule Chapter 4-223. Pursuant to Section 120.535(2)(a)(2) and 120.535(2)(b), the text of one of the statements which substantially affects JMC is the text of former Section .0003(2) (now abandoned) of Rule Chapter 4-223, promulgated by the Department on October 16, 1992 (copy attached as Exhibit F). The text of former Section .003(2) is as follows: For purposes of this entire rule chapter and enforcement of Section 626.988, Florida Statutes, the Department interprets the terms "associated" and "associate" as those terms are used in Section 626.988, as meaning: united in a relationship, or connected or joined together, or connected in mind or imagination. Therefore instances of prohibited association included, but are not limited to, situations wherein an agent or solicitor, themselves or through their employer: is in law or fact related or connected to the Financial Institution, as by formal or informal arrangement, contract, etc.; or is or may reasonably be expected to be connected with the Financial Institution in the mind or imagination of the general pubic using the Financial Institution's facilities, as a result of the agent or solicitor's presence or activities on Financial Institution premises, or other conduct or activities by the agent or solicitor or done with their consent. Section .003(2) of Rule Chapter 4-223 was promulgated ostensibly under F.S., s. 626.988(2), which provides: (2) No insurance agent or solicitor licensed by the Department of Insurance under the provisions of this chapter who is associated with, under contract with, retained by, owned or controlled by, to any degree, directly or indirectly, or employed by, a financial institution shall engage in insurance agency activities as an employee, officer, director, agent, or associate of a financial institution agency. By its terms Section .003(2) of Rule Chapter 4.223 defines the "associated" and associate" language in F.S. s.626.988(2). On July 30, 1993, the Department's Section .003(2) "mind or imagination of the consumer" definition of the "associated" and "associate" language in s. 626.988(2) was struck down by DOAH Hearing Officer Mary Clark in the Rule Challenge as irredeemably vague and exceeding proper agency discretion. In her Final Order in this proceeding, Officer Clark concluded as follows: Aside from idiosyncratic grammar and the ambiguous use of an open-ended "etc.," this definition offends any rational interpretation of s. 626.988, F.S. and is thoroughly useless as a standard for the agency's enforcement of that and other relevant statutes. It is vague and incomprehensible, like beauty, an "association" lies in the eyes (or mind) of the beholder. The definition relegates to the mind or imagination of the general public the determination of what relationships are prohibited. This is a fragile basis for enforcement, as should be apparent to the agency by the fact that so few complaints have come from the general public. That such definition is unenforceable is obvious from the agency's pained attempts to craft its earlier guidelines and from its inability to articulate how it should be applied. (see generally, testimony of Dowdell and Shropshire). Proposed Rule 4 Final Order, Great Northern Annuities Corp. v. Department of Insurance, et al., No. 92-4332RP, etc., paragraph 56, at 29 - 30 (July 30, 1993)(Copy attached as Exhibit C). As noted above, Officer Clark's Final Order in the Rule Challenge was appealed in part by the Department. However, the Department did not appeal that portion of the Final Order striking down Section .003(2), the definition of "associated" and "associate" when the Department noticed its appeal on August 15, 1993, and filed its amended notice of appeal on August 27, 1993 (copies attached Exhibits D and E). On October 10, 1993, the Department filed Rule Chapter 4 State. The Rule Chapter as filed on October 10, 1993, did not include Section .003(2), and included no other rule interpreting "associated" or "associate" from F.S. s. 626.988(2). The Department has abandoned Section .003(2) (Rule Chapter 4 rule defining the "associated" and "associate" language in F.S. s. 626.988(2), and has abandoned any and all other efforts to promulgate a rule defining "associated" or "associate." Despite the Department's voluntary abandonment of Section .003(2), the Department is now relying on the substance of its Section .003(2) "mind or imagination of the consumer" definition of "associated" and "associate," and is attempting to enforce this definition in its Order to Show Cause filed against JMC on March 11, 1993, and now pending in DOAH before Hearing Officer Chad Adams. Department of Insurance v. James Mitchell & Co. et al. DOAH Cased No. 93-2422 (hereinafter the "Order to Show Cause Proceeding") (copy attached as Exhibit A). The Department has admitted its reliance on the abandoned Section .003(2) "mind or imagination of the consumer" definition. In a deposition on December 22, 1993, in the Order to Show Cause Proceeding of Douglas A. Shropshire, the Department's Director of Division of Legal Services and its Rule 1.310(b)(6) designated Department representative, the Department stated the following: [p. 136] Q: There is no current rule defining [F.S. Section 626].988, subparagraph (2) with respect to what is or is not an association at this time, correct? A: No, I wouldn't say that at all. [p. 212] . . . Q: What is the definition of "associate" for the purposes of the enforcement proceeding against my client [JMC]? Mr. Silverman [Department attorney]: Objection. The order to show cause doesn't use the term "associate," it uses the term "association." The term "associate" is only used in Webster's dictionary definition. [p. 218] . . . Q: All right. So that in defending JMC next month, am I able to rely on the association definition that uses "in the mind of the customer" as a standard? [p. 219] . . . Q: Answer yes or no first, please. A: No, I can't. What you should rely on is the guidelines, I believe, and I refer there to the '85, '86 [guidelines], and the Department's concern with appearances. Shropshire depo 136, 212, 218, 219 (emphasis added) (copies of these pages attached as Exhibit F). "[T]he Department's concern with appearances" that the Department's representative testified to, a concern that focuses on the possible perceptions of the consumer, merely recapitulates the Department's "mind or imagination of the consumer" definition in abandoned Rule Chapter Section .003(2). (The 1985 and 1986 Department guidelines, to which the Department representative also refers to in this testimony, do not contain a definition of, or refer directly to, the "associated" or "associate" language in s. 626.988(2)). The foregoing statements have not been adopted by the rulemaking procedure provided for in F.S. ss. 120.535(1) and 120.535(1)(a)3. The statements have been struck down by Officer Clark, are not currently contained in any promulgated rule, and have been abandoned as the basis for any rule as a result of the Department's decision not to appeal Officer Clark's Final Order striking the statements.
Findings Of Fact Petitioner is a state governmental licensing and regulatory agency charged with the responsibility and duty to prosecute administrative complaints pursuant to the laws of the State of Florida, in particular Section 20.30, F.S., Chapters 120.455 and 475, F.S., and the rules promulgated pursuant thereto. Respondent is now and at all times material hereto was a licensed real estate salesman in the State of Florida having been issued License No. 0418629, in accordance with Chapter 475, F.S. The last license issued was as a salesman with a home address of 594 Andrews Street, Ormond Beach, Florida, 32075. From April 8, 1987, until September 11, 1987 he was on inactive status. From September 11, 1987 until at least November, 1987, he was on active status. His license expired March 31, 1988 and has not been renewed. Respondent and the owners (Goldsmiths) of certain property at 49 Sea Island Drive, North Ormond Beach, Florida, entered into an equity sharing agreement on October 1, 1986. Thereafter, Respondent was half owner of the property, and acted as agent for himself and the Goldsmiths for management and rental of the property. Sometime in early 1987, Respondent's former wife contacted Richard M. Dow of Watson Realty Corporation concerning Watson Realty Corporation's assuming management and rental authority over the property. Mr. Dow gave Respondent's wife a packet of information which included several types of material, including but not limited to, a blank standard lease form which had been stamped at the top with the name WATSON REALTY CORPORATION 425 S. YONGE STREET [U.S. 1] ORMOND BEACH, Florida 32074 The name "Watson Realty" was also printed in the body of the lease as agent for the premises, which, like all other crucial information was left blank. No agreement was ever reached by which Watson Realty Corp. or Mr. Dow were to take over management of the premises. On or about April 1, 1987, while still on active license status, the Respondent negotiated a six month lease of the premises at 49 Sea Island Drive, North Ormond Beach, Florida, with Sidney and Edythe Hirsch. By filling out the blank lease form obtained from Watson Realty Corp., Respondent entered into the six-month lease on behalf of himself and the Goldsmiths. He filled out the blank spaces with his name as lessor and the Hirsches as lessees, and crossed out the "Watson Realty Corp." in the body of the lease, substituting his own name therefor. He failed to cross out the stamped Watson Realty Corp. name and address at the top of the page. At the time of the signing of the lease, Respondent advised Mr. Hirsch that he was a licensed real estate agent because he had been taught he must make such disclosures in personal dealings so as not to take advantage of laymen. At formal hearing, he denied ever representing himself as an agent of Watson Realty Corp. or of Mr. Dow. Mr. Hirsch likewise testified that no such representation was made, only that Respondent said something like, "I work with them." Both Respondent and Mr. Hirsch concur that Respondent represented himself as the owner of the property in question without mentioning the Goldsmiths' interest. Hirsch knew and agreed to the scratching through of the Watson corporate name in the body of the contract, and to the substitution of Respondent's name therefor, but no one thought to cross through the stamped Watson name and address at the top of the page. In connection with the lease, Mr. Hirsch gave to the Respondent a $600 security deposit. Respondent shared the rent proceeds with the Goldsmiths even though he did not include their names on the lease or specifically advise the Hirsches of the Goldsmiths' interest in the property. Although the better course of action would have been for Respondent to make a fuller disclosure and to accurately make out the lease agreement with regard to the Goldsmiths' interest, no fraud or intent to defraud either the Goldsmiths or the Hirsches was demonstrated in Respondent's omissions in this regard. At no time alleged herein was Respondent registered as a real estate salesman in the employ of Watson Realty Corp. and at no time was the Respondent employed by Watson Realty Corp. in any capacity. Upon the termination of the lease period, the Hirsches vacated the house and made demands upon the Respondent for the return of their $600 security deposit. The Respondent refused to return the deposit because of substantial damage to the property in three rooms of the house. Hirsches' attorney and Respondent met to attempt to resolve the issue and then had a trial date set. Respondent appeared on the originally scheduled trial date but the case was continued. Respondent separated from his wife and moved to a different address without maintaining contact with the Hirsches' attorney, the court, the Department of Professional Regulation, or the Florida Real Estate Commission (FREC). Over a period of time, he lived at several addresses and eventually moved out of state. Although he was still living in the State of Florida at the time, he did not appear for trial on the security deposit demand, and on January 14, 1988, the Hirsches obtained a civil judgment against Respondent for payment of the $600 security deposit. Respondent had not satisfied the judgment as of the date of the filing of the Administrative Complaint herein and did not do so up through the date of formal hearing. Although Respondent expended a great deal of effort at formal hearing attempting to establish that he never received actual notice of the trial date for the $600 civil damages suit due to his frequent change of addresses during the course of his divorce, that is immaterial because the law presumes notice once suit is filed and properly served as apparently occurred in that case. Unless set aside, the judgment against Respondent was final and Respondent owed Hirsch the money due under it. However, under the circumstances, it is found that Respondent did not fail to pay Hirsch on the judgment through any intent to defraud, but merely through a misunderstanding as to the effect of the judgment. Mr. Hirsch eventually sought and obtained reimbursement of the $600 judgment amount from the FREC client security fund. The fund paid after significant unsuccessful attempts had been made to find Respondent. Respondent also maintained that he did not know about the reimbursement proceedings instituted by FREC until four days before formal hearing and he made offers at formal hearing to pay off this amount. He was not charged in the pending Administrative Complaint in this proceeding with any fraud with regard to his failure to respond to service in the FREC client security fund reimbursement proceeding.
Recommendation Upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Florida Real Estate Commission enter a Final Order dismissing the Administrative Complaint. DONE and ENTERED this 30th day of May, 1989, in Tallahassee, Florida. ELLA JANE P. DAVIS 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 30th day of May, 1989. APPENDIX TO THE RECOMMENDED ORDER IN CASE NO. 88-6331 The following constitute specific rulings pursuant to Section 120.59(2), F.S., upon the parties' respective Proposed Findings of Fact (PFOF): Petitioner' s PFOF: Petitioner filed no PFOF. Respondent' s PFOF: 1,13,14 Accepted in part; the remainder is rejected as subordinate to the facts as found. 2-5 Rejected as subordinate to the facts as found. 6-12 Rejected as immaterial and as referencing and relying upon matters outside the record as created at formal hearing. 15,16 Rejected in part as subordinate to the facts as found and in part as cumulative and otherwise as mere argument. COPIES FURNISHED: Arthur R. Shell, Jr. Senior Attorney Division of Real Estate Department of Professional Regulation 400 W. Robinson Street Orlando, Florida 32801 Mr. Frederick A. Bentley 402 Daytona Avenue Holly Hill, Florida 32017 Darlene F. Keller, Director Division of Real Estate 400 W. Robinson Street Tallahassee, Florida 32802 Kenneth Easley, General Counsel Department of Professional Regulation 1940 North Monroe Street, Suite 60 Tallahassee, Florida 32399-0750
The Issue Whether petitioner has standing to challenge Rule 4-154.106(8)(c), Florida Administrative Code, pursuant to Section 120.56, Florida Statutes? If so, whether the rule is an invalid exercise of delegated legislative authority? Whether either party is entitled to attorney's fees?
Findings Of Fact The Challenged Rule Rule 4-154.106(8)(c), Florida Administrative Code, ("the challenged Rule") reads as follows: A policy which provides coverage for any one or more of the following services shall be considered a limited benefit policy if it either provides coverage for a benefit period of one year or less for each covered service, or provides coverage for only one of the following services; otherwise, such a policy shall be considered a long-term care policy as defined in s. 627.9404: Nursing home; Nursing service; Adult congregate living facility; Home health agency; Adult day care center; Adult foster home; Community care for the elderly; Personal care and social services. Petitioner's Ex. No. 2. New on January 1, 1975, and initially numbered Rule 4-37.06, the rule was amended on May 17, 1989. At the time of the amendment, the rule listed as specific authority "627.643, 624.308, 627.9407(1), Florida Statutes," id, and as law implemented "627.642, 627.643, 627.9404(1), Florida Statutes. The Parties Guarantee Trust Life Insurance Company is an insurance company which does business in Florida and is regulated by Respondent, the Department of Insurance. Guarantee Trust had and does issue insurance policies in those lines and kinds of insurance governed by the challenged rule. The Department of Insurance is the state agency invested with the responsibility of enforcing the provisions of the state Insurance Code and executing the duties imposed upon it by the code. Section 624.307(1), Florida Statutes. It is conferred with discretion to "adopt reasonable rules necessary to effect any of [its] statutory duties." Section 624.308, Florida Statutes. Standing A recent insurance policy filing by Petitioner was denied by the Department. Among the grounds for denial contained in a "letter of deficiencies" was one based on the policy's violation of the challenged rule. At the time of hearing, the Department had attempted to amend the letter of deficiencies by motion to eliminate application of the challenged rule to the policy filing as a ground for its denial. But the motion had not been ruled on by the time of hearing, having been filed only six or seven days earlier. Although the Department has not yet made an effort to provide general notice to the companies it regulates that it has or will cease relying on the challenged rule, the Department's current practice with regard to the rule is that it is not enforcing the rule. Consistent with this practice, the Department has received filings that it would not have approved had it been applying the challenged rule. Yet, these filings, four or five in number, have been approved. Instructions have been issued within the Department not to apply the challenged rule to filings. Consistent with the instructions with regard to application of the challenged rule, the Department is uniformly applying the change in policy. There is no insurance company subsequent to the policy change and decision to no longer apply the rule whose policy has been denied on the basis of application of the challenged rule. In the case of Petitioner's disapproved filing now the subject of a Section 120.57 proceeding, non-compliance with the challenged rule "no longer exists as a deficiency" (Tr. 43) in the view of the Department.
