Findings Of Fact Respondent, Camino Real Village, is the joint venture and developer of a sixty-four unit condominium project known as Camino Real Village V (project) in Boca Raton, Florida. The project consists of two buildings (5751 and 5801) with thirty-two units each. Respondent, B&S Ventures, Inc. (B&S), a Florida corporation, is a partner in the joint venture. The other partner, Middlesex Development Corporation, a California corporation, was not named a respondent in this cause. Although the development consists of at least four separate condominium projects known as Camino Real Villages II, III, IV and V, only Camino Real Village V is in issue in this proceeding. Respondents, as the developer and partner of the joint venture, are subject to the regulatory requirements of petitioner, Department of Business Regulation, Division of Florida Land Sales, Condominiums and Mobile Homes (Division). They are charged with violating various provisions of Chapter 718, Florida Statutes (1985), as set forth in greater detail in the Division's notice to show cause issued on July 17, 1986. The Camino Real project is considered to be a multi-condominium project. This means the development includes more than one condominium project but that all are operated by a common association. The parties agree that the project is not a phase condominium project. Under Division rules and applicable statutes, the developer of a multi-condominium project is required to file with the Division a set of "creating" documents at the inception of the project. The creating documents include, among other things, a prospectus, declaration of condominium, plans and survey, legal description, percentages of common ownership, surplus and expenses, articles of incorporation, by- laws, site plan, restrictions (if any), and the estimated operating budget for the first year. Such documents must be submitted for each condominium within the project. However, where the documents are identical to those submitted for another condominium, the developer may file a "certificate of identical documents" wherein the developer certifies that all disclosure items are identical with items for another condominium within the project which has been previously filed with the Division. After the creating documents are filed, the developer must thereafter file additional documents as new condominiums are constructed and completed. This is generally accomplished by filing an amendment to the original declaration for condominium. The amendment includes a surveyor's certificate attesting that the construction on the project has been completed. The purpose of the later filing is to inform the Division that construction on the new condominium has been substantially completed. On an undisclosed date in 1979, respondents filed their creating documents for certain condominiums in Camino Real Village. On November 19, 1980, they submitted their filing for the creation of Camino Real Village V. These documents were accepted as to "form" on December 11, 1980. They included a certificate of identical document signed by B&S' president which certified certain documents were identical to those previously submitted for Camino Real Village IV, a legal description of the property on which the condominium sits, sketches of the types of units to be built, a typical floor plan for Buildings 5751 and 5801, an estimated operating budget based on sixty-four units and common ownership percentages for each unit in the two buildings. Under Division requirements and state law, the documents should have contained a statement reflecting that the condominium was not substantially completed. 3/ However, they did not, and this omission was not detected by the Division when it reviewed and approved the initial filing. On October 23, 1984 respondents filed the declaration of condominium for Camino Real Village V in the local public records. The documents have been received in evidence as petitioner's composite exhibit 1. They reflected that the percentage of ownership in the common elements for both buildings equaled one hundred percent. Section 3(b) of the declaration provided for the creation of a condominium consisting of two buildings (5751 and 5801) containing thirty- two units each. The documents included a surveyor's certification that Building 5751 was substantially completed. However, as to Building 5801, which was not completed at that time, no statement reflecting its state of completion was filed. It is also noted that the declaration was not filed with the Division as required by law, and the Division did not learn of its existence until sometime later. Since the filing of the declaration, respondents have operated Camino Real Village V as a condominium. On October 23, 1984, respondents executed the closing documents on the sale of the first unit (Unit No. 106 in Building 5751) in Camino Real Village V. The warranty deed was later recorded in the local public records on November 1, 1984, and it is found this is the appropriate date on which the sale of the first unit occurred. This is consistent with the standard practice of parties executing documents prior to closing but not considering a unit sold until the money is actually transferred from the buyer to the seller. This date is significant since it may bear directly upon the date when the developer must begin paying common expenses on developer-owned units. On or about October 24, 1985 a "First Amendment to the Declaration of Camino Real Village V" was recorded by respondents in the local public records. It amended the declaration previously executed on October 23, 1984 and included, among other things, a surveyor's certificate reflecting that Building 5801 had been substantially completed. It also attempted to submit Building 5801 to condominium ownership. Although the amendment and attached documents should have been filed with the Division, respondents neglected to do so. The Division first learned that the documents existed during the course of this proceeding. According to paragraph 15 of the declaration, common expenses can only be assessed by the Association against "each condominium parcel." A condominium parcel is defined in paragraph 4(c) as "the condominium unit, together with an undivided share in the common elements appurtenant thereto." A condominium unit in turn is defined in paragraph 4(a) as "the unit being a unit of space, designated 'condominium unit' on the sketch of survey and plans attached hereto and marked as Exhibit B." The latter exhibit, which is attached to the declaration, contains the plans and survey of the project, the surveyor's certification of substantial completion, and a graphic description of each finished unit within the project. Therefore, the above definitions evidenced an intent that common expenses could be assessed only against completed units. Pursuant to Subsections 718.116(1) and (8), Florida Statutes (1985), a developer is responsible for paying his pro- rata share of common expenses on all developer-owned units. The same law permits the declaration to provide that the developer is relieved of this per-unit obligation until the expiration of a ninety-day period after the first unit is sold. In this case, the declaration had such a provision in paragraph 14. It provided in part as follows: . . . for such time as the Developer continues to be a Unit Owner, but not exceeding ninety (90) days subsequent to the closing of the first condominium unit, the Developer shall only be required to contribute such sums to the common expenses of the Condominium, in addition to the total monthly common expense assessments paid by all other Unit Owners, as may be required for the Condominium Association to maintain the condominium as provided in said Declaration of Exhibits . . . Developer hereby reserves the option to guarantee the level of assessments to unit owners for a specified time interval and thereby limit its obligations to contribute to condominium maintenance in accordance with the provisions of Chapter 718.116(8), Florida Statutes. The parties agree that the monthly assessments for common expenses during the period relevant to this proceeding were as follows: Type A Units $135.20 Type B Units 138.64 Type C Units 163.96 The declaration also provides that ten percent interest must be added to any liability owed. The record reflects, and respondents concede, that such assessments were not paid on any units in Building 5801 until the following dates: Units 100-107 ----------- August 28, 1985 Units 200-207 ----------- September 5, 1985 Units 300-307 ----------- September 10, 1985 Units 400-407 ----------- September 18, 1985 The above dates are exactly ninety days after certificates of occupancy were issued for each of the four floors of Building 5801. Even though assessments were not paid by respondents until those dates, beginning on January 31, 1985 and continuing until such assessments were paid, other unit owners were charged and paid assessments based upon a budget for sixty-four units. As it turned out, the difference between the budget and annual common expenses actually incurred by the project was approximately $32,100, or the amount the Division contends respondents owe. In 1982-84, petitioner conducted an investigation of Camino Real Villages II, III and IV based upon complaints received from a certain unit owner. The complaint concerned allegations that access to association books was denied, that the declaration contained a developer guarantee, that maintenance expenses were not properly paid, and that improper assessments were levied on unit owners. The file was closed in November, 1984 after the Division's enforcement supervisor concluded that the allegations were either "unfounded" or could be resolved through voluntary compliance by the Association. As to the fourth issue, which was an allegation that the developer- controlled Association had improperly assessed unit owners from November, 1980 to January, 1982, the investigative report noted that the developer was "allocating them based on the completed units versus the total units filed for the entire community." The enforcement supervisor concluded that this was "the method chosen by the Association," and "absent specifics in the documents, we lack jurisdiction . . . to question this practice." There is no mention of the term "certificate of occupancy" in the report. However, uncontradicted testimony by respondents reflects that its use of the date of issuance of the certificate of occupancy to determine when assessments became due was the focus of the investigation, and that respondents relied upon those statements in continuing their practice of not paying assessments until ninety days after a certificate of occupancy was issued on a unit. They did so, at least in part, on the theory that the Association did not assume responsibility for expenses until that time. Respondents point out that the filing documents submitted to the Division in November, 1980 were defective in that the surveyor's certificate was incorrect. They go on to suggest that, because of this deficiency, the filing might be invalidated by a court and therefore the statutory assessment provision would not apply. However, no person has ever challenged the validity of the filing, and the general law contains a curative provision for any initial filing errors. They also assert that, if any liability is in fact owed, they are entitled to set-offs for expenses incurred by the developer while the project was being constructed. These include payments for real estate taxes, utility bills, Boca Del Mar Improvement Association, Inc. fees, trash removal, insurance, security service, assessments and maintenance and are itemized in attachments to respondents' exhibit 1. However, there is no rule or statutory provision which authorizes this type of set-off to be applied against common expenses. Therefore, the expenses itemized in respondents' exhibit 1 are deemed to be irrelevant.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the respondents be found guilty of violating Section 718.116, Florida Statutes (1985), as charged in the notice to show cause, and that they be required to pay the Association for past due common expenses on developer-owned units in Building 5801 as set forth in paragraph 8 of the conclusions of law plus ten percent interest to and including the date of payment. DONE AND ORDERED this 30th day of March, 1988, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of March, 1988.
Findings Of Fact The incorporation of the condominium association of the Orchards of Radcliffe, a Condominium, (hereinafter "Radcliffe Condominium") occurred on October 19, 1981, and the declaration of condominium occurred on or about December 12, 1981. Interrogatory answers 7 and 9, P. Ex. 3. The Developer of the Radcliffe Condominium, was the Respondent, Radcliffe Condominium, Inc., d/b/a Orchards of Radcliffe, a Condominium. The Developer of the Radcliffe Condominium elected pursuant to section 718.116(8)(a)1, Fla. Stat. (1985), to be excused from the payment of its share of the common expenses and obligated itself to pay that portion of the common expenses incurred during the election period which exceeded the amount assessed against other unit owners. Answer to interrogatory 2(a), P. Ex. 3. The Developer did not offer a guarantee of common expenses pursuant to section 718.116(8)(a)2, Fla. Stat. (1985). The first closing of a condominium unit at Radcliffe Condominium occurred on January 6, 1982. Interrogatory answer 1, P. Ex. 3. The turnover of control from the Developer to the condominium association occurred on January 22, 1986. P. Ex. 2. The Developer of the Radcliffe Condominium did not make monthly payments on the common expenses incurred from about May, 1982, through January, 1986, on some of the units owned by the Developer. The Developer contends that by using funds from related corporations, it paid expenses of maintenance directly to suppliers and creditors as needed, and that in so doing, it paid more than what it had obligated itself to pay monthly for assessments for common expenses on Developer owned units. The Department contends that the Developer did not pay the monthly obligations for units owned, that the failure to make such payments was the cause of the association not having enough funds to pay expenses when due, and that the Developer now owes a substantial amount for back payments. The Developer did in fact pay some bills directly from funds from related corporations. During the course of the final hearing, the Petitioner withdrew all issues that may have existed in this case concerning whether the Respondent owes any amount for past assessments, or the amount owed. As a result, the Respondent was not permitted to attempt to prove the amount of payments of expenses that were paid directly rather than as monthly unit assessments. Consequently, on this record, no finding of fact can be made as to the amount of direct payments, or whether the amount of such direct payments exceeded the amount of unit assessments owed by the Developer, but not paid. Within sixty days after turnover, a Developer is required to provide the condominium association with a turnover review. A turnover review is intended to provide the association with an accounting only for the period during which the Developer had control. A turnover review is intended to show whether the Developer fulfilled its stewardship responsibilities toward the condominium association. It is less formal than an audit, but more formal than a mere compilation. The Developer provided the condominium association with the turnover review on or about November 28, 1986, eight months late. A substantial reason for the delay was that the Developer did not completely pay the Certified Public Accountant who was hired to do the review. Another substantial reason for the delay was the fact that the Developer did not keep good records of payments of association expenses, and failed to follow good accounting practices in making payments directly rather than through association accounts. See finding of fact 13. The turnover review reviewed the balance sheet as of June 30, 1986, and the related statements of assessments, revenues, expenses and fund balance, and changes in cash position for the six months ended as of June 30, 1986. P. Ex. 1. The turnover review covered only the six months from January 1, 1986 to June 30, 1986. Thus, the turnover review failed to cover only the period of time that the Developer had control and had stewardship responsibilities toward the condominium association. The turnover review incorrectly assumed that the Developer had made a guarantee of common expenses pursuant to section 718.116(8)(a)2, Fla. Stat. (1985). The turnover review did not address the question whether the Developer paid its unit assessments of common expenses pursuant to section 718.116(8)(a)1, Fla. Stat. (1985) because of the erroneous assumption in the review that the Developer had made a guarantee of common expenses pursuant to section 718.116(8)(a)2, Fla. Stat. (1985). Payment by the Developer of association expenses directly, rather than through association accounts, is contrary to good accounting practices. Failure to pay assessments when due results in retention by the Developer of funds owed the association. Thus, the failure of the Developer to pay assessments when due resulted in a form of commingling of Developer and association accounts and funds. Payment of expenses owed by the association by the Developer's related corporations was another form of commingling of accounts and funds.
Recommendation It is therefore recommended that the Department of Business Regulation, Division of Florida Land Sales, Condominiums, and Mobile Homes enter its final order assessing a civil penalty of $4,000 against Radcliffe Condominium, Inc., d/b/a Orchards of Radcliffe, a Condominium, and requiring Radcliffe Condominium, Inc., d/b/a Orchards of Radcliffe, a Condominium, within sixty (60) days of the date of the final order to provide the condominium association with a turnover review that complies with the requirements of section 718.301(4)(c), Fla. Stat. (1985) and all other requirements of law governing turnover reviews. DONE and ENTERED this 17th day of July, 1987 WILLIAM C. SHERRILL, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 17th day of July, 1987. APPENDIX TO RECOMMENDED ORDER, CASE NO. 87-1227 The following are rulings upon findings of fact proposed by the parties, using the numbers or designations used by each party, which have been rejected in this Recommended Order: Findings of fact proposed by the Petitioner: 1. The second sentence has been adopted as a conclusion of law. Rejected for the reasons stated in finding of fact 7. A conclusion as to whether "enough" money would have been available in association accounts cannot be made since a full accounting of all payments and expenses has not been made or placed in evidence. The second sentence has been adopted as a conclusion of law. 9. Most of this proposed finding of fact has been adopted as a conclusion of law. Findings of fact proposed by the Respondent: The testimony as to discussions with the Petitioner was not sufficiently precise in time for a conclusion to be drawn that either the Respondent was acting diligently toward obtaining the turnover review, or that the Petitioner had consented to the delay. As a matter of law, the responsibility for the turnover review is upon the Developer, and is not the responsibility of the association's agent. Section 718.301(4)(c), Fla. Stat. (1985). The second paragraph does not establish a defense since the Developer had the responsibility to maintain good records. The commingling occurred by the retention of funds due the association and the payment of association expenses from accounts not associated with the expenses. COPIES FURNISHED: Richard Coats, Director Department of Business Regulation Florida Land Sales, Condominiums and Mobile Homes The Johns Building 725 South Bronough Street Tallahassee, Florida 32399-1000 James Kearney, Secretary Department of Business Regulation The Johns Building 725 South Bronough Street Tallahassee, Florida 32399-1000 Thomas A. Bell, Esquire Department of Business Regulation The Johns Building 725 South Bronough Street Tallahassee, Florida 32399-1000 Karl M. Scheuerman, Esquire Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32399-1000 Paul Haggar, President Radcliffe Condominium, Inc. 7939 Radcliffe Circle Port Richey, Florida 33568
Findings Of Fact At all times relevant to this case, the Respondent, Pebble Springs Condominium Association of Bradenton, Inc., was the condominium association for Pebble Springs Condominium VI in Bradenton, Florida. Matthew Ford is and, at all times relevant to this complaint, was a unit owner at Pebble Springs Condominium VI and a member of the condominium association. Matthew Ford requested to inspect the Respondent's records, hereafter described in paragraph 4 and referred to as Exhibits A and B, which were prepared and provided by the law firm of Becker, Poliakoff and Streitfeld, P.A., to the Respondent as a bill for legal services rendered in the Respondent's suit against Ford. At the time that Ford made his request for Inspection of the Respondent's records pursuant to Section 718.111(7), Florida Statutes, he was the defendant in a circuit court lawsuit in which the Respondent was plaintiff. Said court case is currently on appeal. Joint Exhibits A and B constitute the entirety of said law firm's bill to the Respondent. Joint Exhibit B describes each instance of attorney's service to the Respondent and the amount of time attributed to said service. The parties stipulate that the information contained in the document sought by Ford is the same as that reported in Exhibit B. The data in Exhibit B is reported in four columns, as follows: date, attorney, time, and actions. The information listed under "actions" includes the following listings: (03/14/83) Telephone conversation with bank officers and association officers re unfreezing of association funds. (03/14/83) Preparation for meeting with board members and witnesses; preparation of counterclaim. (03/14/83) Research concerning mandamus and other injunctive relief; preparation of counterclaim. (03/15/83) . . . preparation of counterclaim and motions to strike. (03/16/83) Preparation of counter-claim; . . . filing of counterclaim and coordination of service. (04/06/83) Preparation of motion to dismiss or for more definite statement and motion to strike on behalf of firm and Daniel J. Lobeck. (04/07/83) Memorandum to Alan E. Tannenbaum re Murley contempt of court order. (04/08/83) Receipt and review of motion to dismiss filed on behalf of board by insurance counsel; . . . (04/12/83) Preparation of motion to hold [deleted in exhibit] in contempt. (04/13/53) Correspondence to auto owners; correspondence to [deleted]; amendment of motion for contempt; setting of contempt hearing. (04/15/83) Review of motion to appoint special master and notice of bearing; telephone conference with Alan Tannenbaum re same. (04/18/83) Conference with Daniel J. Lobeck re: motion to appoint receiver. (04/19/83) Preparation of proposed order dismissing motion to appoint special master; research and preparation for hearing on motion; hearing on motion; telephone conferences with clients re hearing and order. Ford's request as to Joint Exhibit B was refused by the Respondent, which did provide him with Joint Exhibit A which states the sum due for legal services together with stated costs and total balance due. The Respondent also provided for Ford's inspection the Respondent's ledgers and checkbooks, which displayed the sums paid each month by the Respondent to the law firm. In the course of the litigation between the Respondent and Ford, Ford sought the production of documents from the Respondent as evidenced by Exhibit C. In the context of the hearing for attorney fees in the litigation between the Respondent and Ford, the Respondent has offered to provide Ford with the information which he had previously sought. During March or April 1983, Ford filed a complaint with the Petitioner alleging that he was being denied access to the Respondent's books and records contrary to Section 718.111(7), Florida Statutes. The Petitioner conducted an investigation of Ford's complaint, which resulted in the issuance by the Petitioner of a Notice to Show Cause to the Respondent issued May 9, 1983. The Respondent requested a formal hearing by petition dated June 1, 1983, which request was granted.
Recommendation Having found the Respondent not guilty of the allegations contained in the Administrative Complaint, it is recommended that the Administrative Complaint filed against Respondent be dismissed. DONE and RECOMMENDED this 5th day of March, 1984, in Tallahassee, Leon County, Florida. STEPHEN F. DEAN, 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 5th day of March, 1984. COPIES FURNISHED: Karl M. Scheuerman, Esquire Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32301 Daniel J. Lobeck, Esquire 1343 Main Street, Suite 204 Sarasota, Florida 33577 Gary Rutledge, Secretary Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32301
Findings Of Fact Petitioner herein is the State of Florida, Department of Business Regulation, Division of Florida Land Sales Condominiums and Mobile Homes. One Respondent in this matter is Tanwin Corporation (hereinafter "Tanwin") the developer of two residential condominiums known as Vista Del Lago Condominium I and Vista Del Lago Condominium II, located in West Palm Beach, Florida. The other Respondent is Vista Del Lago Condominium Association, Inc. (hereinafter "Association"), the condominium association for Vista Del Lago Condominiums I and II. Transition from developer control of the Association has not occurred, and at all times pertinent hereto, Respondent Tanwin has in fact controlled the operation of the Respondent Association. The Declaration of Condominium for Vista Del Lago Condominium I (hereinafter "Condo I") was recorded in the public records on December 12, 1980. The Declaration of Condominium for Vista Del Lago Condominium II (hereinafter "Condo II") was recorded in the public records on March 11, 1982. Condo I contains 16 units; and Condo II contains 18 units. Herbert and Judith Tannenbaum are the President and Secretary, respectively, of both Tanwin and the Association and are members of the Association's Board of Directors. The developer-controlled Association failed to provide a proposed budget of common expenses for Condo I for the fiscal year 1982. The developer-controlled Association failed to provide a proposed budget of common expenses for Condo I and Condo II for 1983 until the unit owner meeting in March or April of 1983. The budget provided at that time contained no provision for reserves. Although the document alleged to be the 1983 proposed budget admitted in evidence as Petitioner's Exhibit numbered 17 does contain an allocation for reserves, Petitioner's Exhibits numbered 17 is not the 1983 budget disseminated to unit owners at the annual meeting in 1983. In addition, the 1983 budget was received by the unit owners at the meeting at which the proposed budget was to be considered and not prior to the budget meeting. Statutory reserves were not waived during the period December, 1980 through December, 1983. The "start-up" budgets contained as exhibits to the Declarations of Condominium indicate that reserves were to be collected from unit owners at the rate of $15 per month per unit at least during the first year commencing December of 1980 with the first closing. Hence, reserves were not waived December, 1980 through December, 1981. From November, 1981 through December, 1983, no vote to waive reserves was taken by the unit owners. Although reserves were discussed at the 1983 meeting, no vote was taken during the period in question including 1983, to waive reserves. The developer as owner of unsold units; has failed to pay to the Association monthly maintenance for common expenses during the period December, 1980 through December, 1983. The developer Tanwin has, in the nature of an affirmative defense, alleged the existence of a guarantee of common expenses pursuant to Section 718.116(8), Florida Statutes, which purportedly ran from the inception of the condominiums to date. Accordingly, the initial issue for resolution is whether the developer pursuant to statute guaranteed common expenses. Section 718.116(8)(b) provides that a developer may be excused from payment of common expenses pertaining to developer-owned units for that period of time during which he has guaranteed to each purchaser in the declaration of condominium, purchase contract or prospectus, or by an agreement between the developer and a majority of unit owners other than the developer, that their assessments for common expenses would not increase over a stated dollar amount during the guarantee period and the developer agrees to pay any amount necessary for common expenses not produced by the assessments at the guaranteed level receivable from other unit owners, or "shortfall". Actual purchase agreements were admitted in evidence. Respondents seek to label certain unambiguous language in the purchase contracts as a guarantee. This language, uniform throughout all those contracts as well as the form purchase contract filed with Petitioner except that of Phillip May, provides as follows: 9. UNIT ASSESSMENTS. The Budget included in the Offering Circular sets forth Seller's best estimation of the contemplated expenses for operating and maintaining the Condominium during its initial year. Purchaser's monthly assessment under the aforementioned Budget is in the amount of $109.00. Until Closing of Title, Seller has the right (without affecting Purchaser's obligation to purchase in accordance with the provisions hereof, to modify the estimated Budget and assessments periodically if then current cost figures indicate that an updating of estimates is appropriate). [Emphasis added]. That portion of the purchase agreement set forth above does not constitute a guarantee. Instead, the purchase agreement simply includes a best estimation of expenses for the initial year. It does not govern assessments after the expiration of one year, and even as to the initial year, the language in the contract sets forth only a "best estimation" and not a guarantee that the assessments would not increase during the "guarantee period." Phillip May's purchase agreement reflects that he purchased his unit in August of 1983; after condominium complaints had been filed by the unit owners with the Florida Division of Land Sales Condominiums and Mobile Homes. His purchase agreement has been altered from the purchase agreement of earlier purchasers in that his purchase agreement expressly, by footnote contains a one- year guarantee running from closing. The guarantee contained in his purchase agreement was presented by the developer without any request from Mr. May for the inclusion of a guarantee in his purchase agreement. The guarantee language in this purchase agreement is useful for the purpose of comparing the language with those portions of the pre-complaint contracts which Respondents assert contain or constitute a guarantee. Similarly it is determined that no guarantee of common expenses exists in the Declarations of Condominium for Condo I and II or in the prospectus for Condo II. While Respondents seek to assert the existence of a guarantee in those documents, the portions of those unambiguous documents which according to Respondents contain a guarantee, have no relation to a guarantee or do not guarantee that the assessments for common expenses would not increase. Respondent Tanwin also seeks to prove the existence of an oral guarantee which was allegedly communicated to purchasers at the closing of their particular condominium units. However, purchasers were told by Herbert or Judith Tannenbaum only that assessments should remain in the amount of $109 per month per unit unless there existed insufficient funds in the Association to pay bills. This is the antithesis of a guarantee. During a guarantee period the developer in exchange for an exemption from payment of assessments on developer- owned units agrees to pay any deficits incurred by the condominium association. Accordingly, no guarantee was conveyed at the closing of condominium units. Further Respondent Tanwin's additional contention that an oral guarantee arose when the condominiums came into existence is plainly contradicted by the express language throughout the condominium documents and purchase agreements that there exist no oral representations and that no reliance can be placed on any oral representations outside the written agreements. Further, prior to December, 1983, no reference was ever made by the developer either inside or outside of unit owner meetings as to the existence of the alleged guarantee. Moreover, a comparison between on the one hand, the 1981 and 1982 financial statements prepared in March of 1983, and on the other hand, the 1983 financial statements, clearly reveals that even the accountant for Tanwin was unaware of the existence of a guarantee during the period in question. While the 1983 statements, prepared in 1984 after unit owners filed complaints with Petitioner contain references to a developer guarantee, the 1981 and 1982 statements fail to mention a guarantee. Instead, included in the 1981 and 1982 statements of the Association are references under the current liabilities portion of the balance sheets for those years, to a "Due to Tanwin Corporation" liability in the amounts of $2,138 for 1981 and $2,006 for 1982. Petitioner through Ronald DiCrescenzo, the C.P.A. for Tanwin, established that at a minimum, the $2,006 figure reflected in the 1982 balance sheet was in fact reimbursed to Tanwin. Section 7D-18.05(1),(c), Florida Administrative Code, entitled "Budgets" and effective on July 22, 1980, was officially recognized prior to the final hearing in this cause. That section requires each condominium filing to include an estimated operating budget which contains "[a] statement of any guarantee of assessments or other election and obligation of the developer pursuant to Section 718.116(8); Florida Statutes." The estimated operating budgets for Condo I and Condo II do not include a statement of any guarantee of assessments or other election or obligation of the developer. The testimony of Herbert Tannenbaum with regard to an oral (or written) guarantee is not credible. He first testified that an oral guarantee was communicated to purchasers at the closing of each unit. In contrast, Tannenbaum also testified that the first discussion he had regarding a guarantee occurred with his attorney after the filing of the Notice to Show Cause in this action. Tannenbaum further testified that he did not understand what a guarantee was until after this case had begun and was unaware of the existence of any guarantee prior to consulting with his attorney in regard to this case. Moreover, Ronald DiCrescenzo, the C.P.A. for Tanwin testified that it was Tannenbaum who informed DiCrescenzo of the existence of a guarantee but DiCrescenzo was unable or unwilling to specify the date on which this communication occurred. Respondent Tanwin also seeks to establish the existence of a guarantee through Petitioner's Exhibit numbered 5 which is a document signed by less than the majority of unit owners even including Tannenbaum and his son, and signed on an unknown date during 1984. The document provides: The undersigned Unit Owners at the Vista Del Lago Condominium do not wish to give up the benefits of the developer's continuing guarantee which has been in effect since the inception of the condominium and agreed to by a majority of unit owners and whereby the developer has continuously guaranteed a maintenance level of no more than $109.00 per month per unit, until control of the condominium affairs is turned over to the unit owners in accordance with Florida's Condominium law. According to Respondent Tanwin, Petitioner's Exhibit numbered 5 constitutes a memorandum signed by unit owners evidencing their belief that a continuous guarantee of the developer has been in effect. First, however, this document was never admitted into evidence for that purpose; rather the document was admitted only to establish the fact that a unit owner had signed the document. Second, this document, unlike the purchase agreements or other condominium documents is ambiguous and is not probative of the existence of a guarantee. Instead, the evidence is overwhelming that the document was prepared by the developer in the course of this litigation for use in this litigation. Moreover, unit owner testimony is clear regarding what Mr. and Mrs. Tannenbaum disclosed to unit owners as the purpose for the document when soliciting their signatures, to- wit: that the document was a petition evidencing the unit owners' desire that their monthly maintenance payments not be increased and that prior confusion as to whether reserves had been waived needed resolution. Respondent Tanwin did pay assessments on some developer-owned units during the period December, 1980 through December, 1983, a fact which is inconsistent with its position that a guarantee existed. Noteworthy is the statement by Ronald DiCrescenzo, the C.P.A. for Tanwin, in his August 16, 1983, letter to Herbert Tannenbaum wherein it is stated: "It is my understanding that you are doing the following: . . .[Playing maintenance assessments on units completed but not sold." It is inconceivable that a developer during a "guarantee period" would pay assessments on some developer units as the purpose of the statutory guarantee is to exempt the developer from such assessments. The assessments for common expenses of unit owners other than the developer have increased during the purported guarantee period. At least some, if not all, unit owners paid monthly assessments of $128 - $130 for at least half of 1984. This fact is probative of the issue of whether a guarantee existed because unit owner assessments must remain constant during a guarantee period. At the Spring 1984 meeting chaired by Mr. Tannenbaum a vote was taken for the first time as to whether reserves should be waived. Although only 21 owners were present in person or by proxy; the vote was tabulated as 12 in favor and 12 opposed. Mr. Tannenbaum, therefore, announced an increase in monthly maintenance payments to fund reserves. Thereafter owners began paying an increased assessment. The fact that the developer-controlled Association collected increased assessments from unit owners during 1984, and had up to the time of the final hearing in this cause made no effort to redistribute those funds suggests that the developer-controlled Association and the developer considered themselves to be under no obligation to keep maintenance assessments at a constant level. There was no guarantee of assessments for common expenses by Tanwin from December, 1980, through at least December, 1983. Since there was no guarantee during the time period in question, Respondent Tanwin is liable to the Respondent Association for the amount of monthly assessments for common expenses on all developer-owned units for which monthly assessments have not been paid. In conjunction with the determination that Tanwin owes money to the Association (and not vice versa), Respondent Tanwin attempted to obtain an offset by claiming the benefit of a management contract between either Tannenbaum or Tanwin and the Association. No such management contract exists, either written or oral. Although a management contract is mentioned in one of the condominium documents there is no indication that one ever came into being, and no written contract was even offered in evidence. Likewise, no evidence was offered to show the terms of any oral contract; rather, Tannenbaum admitted that he may never have told any of the unit owners that there was a management contract. Tannenbaum's testimony is consistent with the fact that no budget or financial statement reflects any expense to the Association for a management contract with anyone. Likewise, the "budget" contained within Condo II's documents recorded on March 11, 1982, specifically states that any management fee expense was not applicable. Lastly, Tannenbaum's testimony regarding the existence of a management contract is contrary to the statement signed by him on February 10, 1981, which specifically advised Petitioner that the Association did not employ professional management. To the extent that Respondent Tanwin attempted to establish some quantum meruit basis for its claim of an offset, it is specifically found that no basis for any payment has been proven for the following reasons: Tannenbaum had no prior experience in managing a condominium, which is buttressed by the number of violations of the condominium laws determined herein; Tannenbaum does not know what condominium managers earn; no delineation was made as to specific duties performed by Tannenbaum on behalf of the Association as opposed to those duties performed by Tannenbaum on behalf of Respondent Tanwin; since there was no testimony as to duties performed for the Association, there was necessarily no testimony as to what duties were performed on behalf of the Association in Tannenbaum's capacity as President of the Association and member of the Association's Board of Directors as opposed to duties allegedly performed as a "manager." Tannenbaum's testimony as to the value of his "services" ranged from $10,000 to $15,000 a year to a lump sum of $60,000; it is interesting to note that the value of his services alone some years exceeded the Association's annual budget. Respondent Tanwin has failed to prove entitlement to an offset amount, either pursuant to contract or based upon quantum meruit. The financial statements of the Association--including balance sheets, statements of position, and statements of receipts and expenditures--for 1980-81 and for 1982 reveal consolidation of the records for Condo I and Condo II in these statements. Additionally, DiCrescenzo admitted that separate accounting records were not maintained for each condominium and Herbert Tannenbaum also admitted to maintaining consolidated records. Accordingly, the developer- controlled Association failed to maintain separate accounting records for each condominium it manages. The By-Laws of the Association provide: SECTION. 7. Annual Audit. An audit of the accounts of the Corporation shall be made annually by a Certified Public Accountant - and a copy of the Report shall be furnished to each member not later than April 1st of the year following the year in which the Report was made. The financial statement for 1981 bears the completion date of February 9, 1983. The 1982 financial statement contains a completion date of March 1, 1983. Both the 1981 and the 1982 statements were delivered to the unit owners in March or April, 1983. Accordingly, Respondents failed to provide the 1981 financial report of actual receipts and expenditures in compliance with the Association's By-Laws. As set forth hereinabove, statutory reserves were not waived during the period of December, 1980 through December, 1983. Being a common expense, reserves must be fully funded unless waived annually. In the instant case, Respondents, rather than arguing that reserves had in fact been fully funded, sought to prove that reserves had been waived during the years in question. The fact that reserves were not fully funded is established by reviewing the financial statements. In accordance with the start-up budgets, reserves were initially established at the level of $15.00 per unit per month. Therefore, during 1981, for Condo I containing sixteen units, the Association's reserve account should contain 16 multiplied by $15.00 per month multiplied by 12 months, or $2,880. Since the Declaration of Condominium for Condo II was not recorded until March 11, 1982, assessments for common expenses including allocations to reserves, were not collected from Condo II during 1981. Therefore, the balance in the reserve account as reflected in the balance sheet for the year 1981 should be no less than $2,880. The actual balance reflected in this account is $2,445. Both Tannenbaum and DiCrescenzo testified that most of the balance in that account was composed of purchaser contributions from the closing of each condominium unit "equivalent to 2 months maintenance to be placed in a special reserve fund" as called for in the purchase contracts. Tannenbaum further admitted that instead of collecting $15.00 per month per unit for reserves, the money that would have gone into the reserve account was used "to run the condominium." Similarly, for the year ending 1982, the balance in the reserve account also reflects that reserves were not being funded. First, the amount of reserves which should have been set aside in 1981 of $2,880 is added to the total amount of reserves which should have been collected for 1982 for Condo I ($2880), giving a total figure of $5,760. To this figure should be added the reserves which should have been collected from units in Condo II during 1982. This figure is derived by multiplying the total number of units in Condo II, 18 units, by $15.00 per unit multiplied by 8 months (since Condo II was recorded in March of 1982) to yield a figure for Condo II of $2,160. Adding total reserve assessments for Condo I and II, $2,160 plus $5,760 equals $7,920 the correct reserve balance at the close of 1982. The actual balance for the period ended December 31, 1982, is reflected to be $4,138. Similarly, the amount of reserves required for Condos I and II as of December 31, 1983, can be calculated using the same formula. Although the 1983 financial statement prepared in 1984 reflects the existence of a funded reserve account, both DiCrescenzo and Tannenbaum admitted there was no separate reserves account set up during the time period involved herein. Statutory reserves were not waived and were not fully funded for the period of December, 1980 through December, 1983. All parties hereto presented much evidence, unsupported by the books and records of the corporations, for the determination herein of the amounts of money owed by Respondent Tanwin to the Association to bring current the total amount which Tanwin should have been paying to the Association from the inception of each condominium for monthly maintenance on condominium units not yet sold by the developer, together with the amount owed by Tanwin to the Association so that a separate reserve account can be established and fully funded for all years in which the majority of unit owners including the developer have not waived reserves. No findings of fact determining the exact amount Tanwin owes to the Association will be made for several reasons: first, the determination of that amount requires an accounting between the two Respondents herein which is a matter that can only be litigated, if litigation is necessary, in the circuit courts of this state; second, the determination of the amount due between the private parties hereto is not necessary for the determination by Petitioner of the statutory violations charged in the Amended Notice to Show Cause; and third, where books and records exist; one witness on each side testifying as to conclusions reached from review of those records, even though the witnesses be expert, does not present either the quantity or the quality of evidence necessary to trace the income and outgo of specific moneys through different corporate accounts over a period of time, especially where each expert opinion is based upon questionable assumptions. It is, however, clear from the record in this cause that Respondent Tanwin owes money to the Respondent Association and further owes to the Respondent Association an accounting of all moneys on a specific item by item basis.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law it is, therefore, RECOMMENDED that a Final Order be entered: Finding Respondent Tanwin Corporation guilty of the allegations contained in Counts 1-7 of the Amended Notice to Show Cause; Dismissing with prejudice Count 8 of the Amended Notice to Show Cause; Assessing against Respondent Tanwin Corporation a civil penalty in the amount of $17,000 to be paid by certified check made payable to the Division of Florida Land Sales, Condominiums and Mobile Homes within 45 days from entry of the Final Order herein; Ordering Respondents to forthwith comply with all provisions of the Condominium Act and the rules promulgated thereunder; And requiring Tanwin Corporation to provide and pay for an accounting by an independent certified public accountant of all funds owed by the developer as its share of common expenses on unsold units and the amount for which Tanwin is liable in order that the reserve account be fully funded, with a copy of that accounting to be filed with Petitioner within 90 days of the date of the Final Order. DONE and RECOMMENDED this 9th day of August, 1985, at Tallahassee, Florida. LINDA M. RIGOT, 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 9th day of August, 1985. COPIES FURNISHED: Karl M. Scheuerman, Esquire Thomas A. Bell, Esquire Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32301 Joseph S. Paglino, Esquire 88 Northeast 79th Street Miami, Florida 33138 E. James Kearney, Director Department of Business Regulation Division of Florida Land Sales Condominiums and Mobile Homes 725 South Bronough Street Tallahassee, Florida 32301 Richard B. Burroughs, Jr., Secretary Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32301 ================================================================= AGENCY FINAL CONSENT ORDER ================================================================= STATE OF FLORIDA DEPARTMENT OF BUSINESS REGULATION DIVISION OF FLORIDA LAND SALES, CONDOMINIUMS AND MOBILE HOMES DEPARTMENT OF BUSINESS REGULATION, DIVISION OF FLORIDA LAND SALES, CONDOMINIUMS AND MOBILE HOMES, Petitioner, CASE NO. 84-0437 DOCKET NO. 84001MVC TANWIN CORPORATION and VISTA DEL LAGO CONDOMINIUM ASSOCIATION, INC. Respondents. / FINAL CONSENT ORDER The Division of Florida Land Sales, Condominiums and Mobile Homes, (hereinafter the Division), Vista Del Lago Condominium Inc., (hereinafter the Association), and Tanwin Corporation, (hereinafter Tanwin), hereby stipulate and agree to the terms and issuance of this Final Consent Order as follows: WHEREAS, the Division issued a Notice to Show Cause directed to Respondents and, WHEREAS, after issuance of the Recommended Order in this cause, the parties amicably conferred for the purpose of achieving a settlement of the case, and WHEREAS, Tanwin is desirous of resolving the matters alleged in the Notice to Show Cause without engaging in further administrative proceedings or judicial review thereof, NOW, THEREFORE, it is stipulated and agreed as follows:
The Issue Whether Petitioners' proposed rates are justified pursuant to the requirements of Section 627.062, Florida Statutes, or whether the Department of Financial Services, Office of Insurance Regulation (OIR) was correct in denying the requested rate increases.
Findings Of Fact The Hartford companies are property and casualty insurers transacting insurance in the State of Florida pursuant to valid certificates of authority and the Florida Insurance Code. Two types of personal lines insurance filings submitted by Hartford to the OIR are at issue in this proceeding: two filings for homeowners insurance (Case Nos. 07-5185 and 07-5186) and two filings for dwelling fire insurance (Case Nos. 07-5187 and 07- 5188). Hartford's substantial interests are affected by the notices disapproving the filings in this case. Homeowners insurance includes coverage for a variety of perils in and around a home, is usually purchased by a homeowner, and covers both the structure and the contents of a home. Dwelling/fire insurance is usually purchased by the owners of properties that are leased or rented to others, and provides coverage for the structure only. Both types of insurance cover damage caused by hurricanes. The New Legislation and its Requirements In a special session held in January 2007, the Florida Legislature enacted changes to the Florida Hurricane Catastrophe Fund (CAT Fund), as reflected in Chapter 2007-1, Laws of Florida. The special session was precipitated by a perceived crisis regarding the cost and availability of homeowners insurance after the 2004 and 2005 hurricane seasons. As a result of the substantial number of claims incurred after multiple severe hurricanes each of these years, changes in the insurance marketplace resulted in some insurance companies withdrawing from the Florida market, others non-renewing policies, one company becoming insolvent, and the cost for reinsurance available to all insurers rising dramatically. One of the primary features of the legislation was an expansion of the CAT Fund. The CAT Fund was established in 1993 after Hurricane Andrew to provide reinsurance to insurers for property insurance written in Florida at a price significantly less than the private market. The CAT Fund is a non-profit entity and is tax exempt. Prior to the enactment of Chapter 2007-1, the CAT Fund had an industry-wide capacity of approximately $16 million. The purpose of the changes enacted by the Legislature was to reduce the cost of reinsurance and thereby reduce the cost of property insurance in the state. As a result of Chapter 2007-1, the industry-wide capacity of the CAT Fund was increased to $28 billion, and insurers were given an opportunity to purchase an additional layer of reinsurance, referred to as the TICL layer (temporary increase in coverage limit), from the CAT Fund. Section 3 of Chapter 2007-1 required insurers to submit a filing to the OIR for policies written after June 1, 2007, that took into account a "presumed factor" calculated by OIR and that purported to reflect savings created by the law. The new law delegated to the OIR the duty to specify by Order the date such filings, referred to as "presumed factor filings" had to be made. On February 19, 2007, the OIR issued Order No. 89321-07. The Order required insurers to make a filing by March 15, 2007, which either adopted presumed factors published by the OIR or used the presumed factors and reflected a rate decrease taking the presumed factors into account. The presumed factors were the amounts the OIR calculated as the average savings created by Chapter 2007-1, and insurers were required to reduce their rates by an amount equal to the impact of the presumed factors. The OIR published the presumed factors on March 1, 2007. In its March 15, 2007, filings, Hartford adopted the presumed factors published by OIR. As a result, Hartford reduced its rates, effective June 1, 2007, on the products at issue in these filings by the following percentages: Case No. 07-5185 homeowners product: 17.7% Case No. 07-5186 homeowners product: 21.9% Case No. 07-5187 dwelling/fire product: 8.7% Case No. 07-5188 dwelling/fire product: 6.2% The Order also required that insurers submit a "True-Up Filing" pursuant to Section 627.026(2)(a)1., Florida Statutes. The filing was to be a complete rate filing that included the company's actual reinsurance costs and programs. Hartford's filings at issue in these proceedings are its True-Up Filings. The True-Up Filings Hartford submitted its True-Up filings June 15, 2007. The rate filings were certified as required by Section 627.062(9), Florida Statutes. The filings were amended August 8, 2007. Hartford's True Up Filings, as amended, request the following increases in rates over those reflected in the March 15, 2007, presumed factor filings: Case No. 07-5185 homeowners product: 22.0% Case No. 07-5186 homeowners product: 31.6% Case No. 07-5187 dwelling and fire product: 69.0% Case No. 07-5188 dwelling and fire product: 35.9% The net effects of Hartford's proposed rate filings result in the following increases over the rates in place before the Presumed Factor Filings: Case No. 07-5185 homeowners product: .4% Case No. 07-5186 homeowners product: 2.8% Case No. 07-5187 dwelling/fire product: 54.3% Case No. 07-5188 dwelling/fire product: 27.5% Case Nos. 07-5185 and 07-5186 (homeowners) affect approximately 92,000 insurance policies. Case Nos. 07-5187 and 07-5188 (dwelling/fire) affect approximately 2,550 policies. A public hearing was conducted on the filings August 16, 2007. Representatives from Hartford were not notified prior to the public hearing what concerns the OIR might have with the filings. Following the hearing, on August 20, 2007, Petitioners provided by letter and supporting documentation additional information related to the filings in an effort to address questions raised at the public hearing. The OIR did not issue clarification letters to Hartford concerning any of the information provided or any deficiencies in the filings before issuing its Notices of Intent to Disapprove the True-Up Filings. All four filings were reviewed on behalf of the OIR by Allan Schwartz. Mr. Schwartz reviewed only the True-Up Filings and did not review any previous filings submitted by Hartford with respect to the four product lines. On September 10, 2007, the OIR issued Notices of Intent to Disapprove each of the filings at issue in this case. The reasons give for disapproving the two homeowners filings are identical and are as follows: Having reviewed the information submitted, the Office finds that this filing does not provide sufficient documentation or justification to demonstrate that the proposed rate(s) comply with the standards of the appropriate statute(s) and rules(s) including demonstrating that the proposed rates are not excessive, inadequate, or unfairly discriminatory. The deficiencies include but are not limited to: The premium trends are too low and are not reflective of the historical pattern of premium trends. The loss trends are too high and are not reflective of the historical pattern of loss trends. The loss trends are based on an unexplained and undocumented method using "modeled" frequency and severity as opposed to actual frequency and severity. The loss trends are excessive and inconsistent compared to other sources of loss trends such as Fast Track data. The catastrophe hurricane losses, ALAE and ULAE amounts are excessive and not supported. The catastrophe non-hurricane losses, ALAE and ULAE amounts are excessive and not supported. The particular time period from 1992 to 2006 used to calculate these values has not been justified. There has been no explanation of why the extraordinarily high reported losses for 1992 and 1993 should be expected to occur in the future. The underwriting profit and contingency factors are excessive and not supported. Various components underlying the calculation of the underwriting profit and contingency factors, including but not limited to the return on surplus, premium to surplus ratio, investment income and tax rate are not supported or justified. The underwriting expenses and other expenses are excessive and not supported. The non-FHCF reinsurance costs are excessive and not supported. The FHCF reinsurance costs are excessive and not supported. The fact that no new business is being written has not been taken into account. No explanation has been provided as too [sic] Hartford believes it is reasonable to return such a low percentage of premium in the form of loss payments to policyholders. For example, for the building policy forms, only about 40% of the premium requested by Hartford is expected to be returned to policyholders in the form of loss payments. As a result of the deficiencies set forth above, the Office finds that the proposed rate(s) are not justified, and must be deemed excessive and therefore, the Office intends to disapprove the above-referenced filing. The Notices of Intent to Disapprove the two dwelling/fire filings each list nine deficiencies. Seven of the nine (numbers 1-6 and 8) are the same as deficiencies listed for the homeowners filings. The remaining deficiencies named for Case No. 07-5187 are as follows: 7. The credibility standard and credibility value are not supported. 9. No explanation has been provided as too (sic) why Hartford believes it needs such a large rate increase currently, when the cumulative rate change implemented by Hartford for this program from 2001 to 2006 was an increase of only about 10%. The deficiencies listed for Case No. 07-5188 are the same as those listed for Case No. 07-5187, with the exception that with respect to deficiency number 9, the rate change implemented for the program in Case No. 07-5188 from 2001 to 2006 was a decrease of about -3%. Documentation Required for the Filings Florida's regulatory framework, consistent with most states, requires that insurance rates not be inadequate, excessive, or unfairly discriminatory. In making a determination concerning whether a proposed rate complies with this standard, the OIR is charged with considering certain enumerated factors in accordance with generally accepted and reasonable actuarial techniques. Chapter 2007-1 also amended Section 627.062, Florida Statutes, to add a certification requirement. The amendment requires the chief executive officer or chief financial officer and chief actuary of a property insurer to certify under oath that they have reviewed the rate filing; that to their knowledge, the rate filing does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which the statements were made, not misleading; that based on their knowledge, the information in the filing fairly presents the basis of the rate filing for the period presented; and that the rate filing reflects all premium savings reasonably expected to result from legislative enactments and are in accordance with generally accepted and reasonable actuarial techniques. § 627.062(9)(a), Fla. Stat. (2007). Actuarial Standards of Practice 9 and 41 govern documentation by an actuary. Relevant sections of Standard of Practice 9 provide: Extent of documentation - . . . Appropriate records, worksheets, and other documentation of the actuary's work should be maintained by the actuary and retained for a reasonable length of time. Documentation should be sufficient for another actuary practicing in the same field to evaluate the work. The documentation should describe clearly the sources of data, material assumptions, and methods. Any material changes in sources of data, assumptions, or methods from the last analysis should be documented. The actuary should explain the reason(s) for and describe the impact of the changes. Prevention of misuse - . . . The actuary should take reasonable steps to ensure that an actuarial work product is presented fairly, that the presentation as a whole is clear in its actuarial aspects, and that the actuary is identified as the source of the actuarial aspects, and that the actuary is available to answer questions.. . . . * * * 5.5 Availability of documentation- Documentation should be available to the actuary's client or employer, and it should be made available to other persons when the client or employer so requests, assuming appropriate compensation, and provided such availability is not otherwise improper. . . . In determining the appropriate level of documentation for the proposed rate filings, Petitioner relied on its communications with OIR, as well as its understanding of what has been required in the past. This reliance is reasonable and is consistent with both the statutory and rule provisions governing the filings. Use of the RMS Catastrophic Loss Projection Model In order to estimate future losses in a rate filing, an insurer must estimate catastrophic and non-catastrophic losses. Hartford's projected catastrophic losses in the filings are based upon information provided from the Risk Management Solutions (RMS) catastrophic loss projection model, version 5.1a. Hartford's actuaries rely on this model, consistent with the standards governing actuarial practice, and their reliance is reasonable. Catastrophe loss projection models may be used in the preparation of insurance filings, if they have been considered by and accepted by the Florida Commission on Hurricane Loss Projection Methodology (the Hurricane Commission). The Hurricane Commission determined that the RMS model, version 5.1a was acceptable for projecting hurricane loss costs for personal residential rate filings on May 17, 2006. In addition to approval by the Hurricane Commission, use of the model is appropriate "only if the office and the consumer advocate appointed pursuant to s. 627.0613 have access to all of the assumptions and factors that were used in developing the actuarial methods, principles, standards, models, or output ranges, and are not precluded from disclosing such information in a rate proceeding." §627.0628(3)(c), Fla. Stat. Both the Consumer Advocate and a staff person from the OIR are members of the Hurricane Commission. In that context, both have the ability to make on-site visits to the modeling companies, and to ask any questions they choose regarding the models. Both OIR's representative and the Consumer Advocate participated in the meetings and had the same opportunity as other commissioners to ask any question they wished about RMS 5.1a. The Hurricane Commission members, including the Consumer Advocate, clearly have access to the information identified in Section 627.0628(3)(c). However, there are restrictions on the Hurricane Commission members' ability to share the information received regarding trade secrets disclosed by the modeling companies. For that reason, the Commission's deliberations are not, standing alone, sufficient to determine that the Office of Insurance Regulation has access. In this case, credible evidence was submitted to show that RMS officials met with staff from the Office in July and October 2006 to discuss the model. RMS offered to provide any of its trade secret information to the OIR, subject to a non- disclosure agreement to protect its dissemination to competitors. RMS also opened an office in Tallahassee and invited OIR staff to examine any parts of the model they wished. In addition, both RMS and Hartford have answered extensive questionnaires prepared by OIR regarding the RMS model, and Hartford has offered to assist OIR in gathering any additional information it requires. Most of the questions posed by OIR involve the same areas reviewed by the Commission. RMS' representative also testified at hearing that RMS would not object to disclosure of the assumptions during the hearing itself if necessary. Finally, OIR Exhibit 1 is the Florida Hurricane Catastrophe Fund 2007 Ratemaking Formula Report. The Executive Summary from the report explains how rates were recommended for the Florida Hurricane Catastrophic Fund (CAT Fund) for the 2007- 2008 contract year. The report stated that the RMS model, as well as three other models accepted by the Hurricane Commission, were used for determining expected aggregate losses to the CAT Fund reinsurance layer. Three models, including the RMS model, were also used for analysis of detailed allocation to type of business, territory, construction and deductible, as well as special coverage questions. The models were compared in detail and given equal weight. The report notes that these three models were also used in 1999-2006 ratemaking. The report is prepared by Paragon Strategic Solutions, Inc., an independent consultant selected by the State Board of Administration, in accordance with Section 215.555(5), Florida Statutes. While OIR did not prepare the report, they show no hesitation in accepting and relying on the report and the modeled information it contains in these proceedings. Indeed, one of OIR's criticisms is Hartford's failure to use the report with respect to CAT Fund loss recovery estimates. Based upon the evidence presented at hearing, it is found that the OIR and Consumer Advocate were provided access to the factors and assumptions used in the RMS model, as contemplated by Section 627.0628. The Alleged Deficiencies in the Homeowners Filings1/ A rate is an estimate of the expected value of future costs. It provides for all costs associated with the transfer of risk. A rate is reasonable and not excessive, inadequate or unfairly discriminatory if it is an actuarially sound estimate of the expected value of all future costs associated with an individual risk transfer. In preparing a filing, an actuary identifies the time period that its proposed rates are expected to be in effect. Because ratemaking is prospective, it involves determining the financial value of future contingent events. For the rate filings in question, actuaries for Hartford developed their rate indications by first considering trended premium, which reflects changes in premium revenue based on a variety of factors, including construction costs and the value of the buildings insured. Trended premium is the best estimate of the premium revenue that will be collected if the current rates remain in effect for the time period the filing is expected to be in place. Expenses associated with writing and servicing the business, the reinsurance costs to support the business and an allowance for profit are subtracted from the trended premium. The remainder is what would be available to pay losses. This approach to ratemaking, which is used by Hartford, is a standard actuarial approach to present the information for a rate indication. As part of the process, expected claims and the cost to service and settle those claims is also projected. These calculations show the amount of money that would be available to pay claims if no changes are made in the rates and how much increased premium is necessary to cover claims. The additional amount of premium reflects not only claims payments but also taxes, licenses and fees that are tied to the amount of premium. The first deficiency identified by OIR is that "the premium trends are too low and are not reflective of the historical pattern of premium trends." In determining the premium trend in each filing, Hartford used data from the previous five years and fit an exponential trend to the historical pattern, which is a standard actuarial technique. Hartford also looked at the factors affecting the more recent years, which were higher. For example, the peak in premium trend in 2006 was a result of the cost increases driven by the 2004 and 2005 hurricanes, and the peak in demand for labor and construction supplies not matched by supply. Costs were coming down going into 2007, and Hartford believed that 2006 was out of pattern from what they could anticipate seeing in the future. The premium trends reflected in Hartford's filings are reasonable, reflective of historical patterns, and based on standard actuarial techniques. The second identified deficiency with respect to the homeowner filings was that the loss trends are too high and are not reflective of the historical pattern of loss trends. A loss trend reflects the amount an insurance company expects the cost of claims to change. It consists of a frequency trend, which is the number of claims the insurance company expects to receive, and a severity trend, which is the average cost per claim. The loss trend compares historical data used in the filing with the future time period when the new rates are expected to be in effect. Hartford's loss trends were estimated using a generalized linear model, projecting frequency and severity separately. The model was based on 20 quarters of historical information. The more credible testimony presented indicates that the loss trends were actuarially appropriate. The third identified deficiency is that the loss trends are based on an unexplained and undocumented method using "modeled" frequency and severity as opposed to actual frequency and severity. As noted above, the generalized linear model uses actual, historical data. Sufficient documentation was provided in the filing, coupled with Hartford's August 20, 2007, letter. The method used to determine loss trends is reasonable and is consistent with standard actuarial practice. The fourth identified deficiency is that loss trends are excessive and inconsistent compared to other sources of loss trends, such as Fast Track data. Saying that the loss trends are excessive is a reiteration of the claim that they are too high, already addressed with respect to deficiency number two. Fast Track data is data provided by the Insurance Services Office. It uses unaudited information and is prepared on a "quick turnaround" basis. Fast Track data is based on paid claims rather than incurred claims data, and upon a broad number of companies with different claims settlement practices. Because it relies on paid claims, there is a time lag in the information provided. Hartford did not rely on Fast Track data, but instead relied upon its own data for calculating loss trends. Given the volume of business involved, Hartford had enough data to rely on for projecting future losses. Moreover, Respondents point to no statutory or rule requirement to use Fast Track data. The filings are not deficient on this basis. The fifth identified deficiency in the Notice of Intent to Disapprove is that catastrophe hurricane losses, ALAE and ULAE amounts are excessive and not supported. ALAE stands for "allocated loss adjustment expenses," and represents the costs the company incurs to settle a claim and that can be attributed to that particular claim, such as legal bills, court costs, experts and engineering reports. By contrast, ULAE stands for "unallocated loss adjustment expense" and represents the remainder of claims settlement costs that cannot be linked to a specific claim, such as office space, salaries and general overhead. Part of the OIR's objection with respect to this deficiency relates to the use of the RMS model. As stated above at paragraphs 25-33, the use of the RMS model is reasonable. With respect to ALAE, Hartford analyzed both nationwide data (4.4%) and Florida data (4.8%) and selected an ALAE load between the two (4.6%). This choice benefits Florida policyholders. It is reasonable to select between the national and Florida historical figures, given the amount of actual hurricane data available during the period used. With respect to ULAE, the factors used were based upon directions received from Ken Ritzenthaler, an actuary with OIR, in a previous filing. The prior discussions with Mr. Ritzenthaler are referenced in the exhibits to the filing. The more credible evidence demonstrates that the ALAE and ULAE expenses with respect to catastrophic hurricane losses are sufficiently documented in Hartford's filings and are based on reasonable actuarial judgment. The sixth identified deficiency is that the catastrophe non-hurricane losses, ALAE and ULAE amounts are excessive and not supported. According to OIR, the particular time period from 1992 to 2006 used to calculate these values has not been justified, and there has been no explanation of why the extraordinarily high reported losses for 1992 and 1993 should be expected to occur in the future. OIR's complaint with respect to non-hurricane losses is based upon the number of years of data included. While the RMS model was used for hurricane losses, there is no model for non- hurricane losses, so Hartford used its historical data. This becomes important because in both 1992 and 1993, there were unusual storms that caused significant losses. Hartford's data begins with 1992 and goes through 2006, which means approximately fifteen years worth of data is used. Hartford's explanation for choosing that time period is that hurricane models were first used in 1992, and it was at that time that non-hurricane losses had to be separated from hurricane losses. Thus, it was the first year that Hartford had the data in the right form and sufficient detail to use in a rate filing. Petitioners have submitted rate filings in the past that begin non-hurricane, ALAE and ULAE losses with 1992, increasing the number of years included in the data with each filing. Prior filings using this data have been approved by OIR. It is preferable to use thirty years of experience for this calculation. However, there was no testimony that such a time-frame is actuarially or statutorily required, and OIR's suggestion that these two high-loss years should be ignored is not based upon any identified actuarial standard. Hartford attempted to mitigate the effect of the severe losses in 1992 and 1993 by capping the losses for those years, as opposed to relying on the actual losses.2/ The methodology used by Hartford was reasonable and appropriate. No other basis was identified by the OIR to support this stated deficiency. The seventh identified deficiency is that the underwriting profit and contingency factors are excessive and not supported. The underwriting profit factor is the amount of income, expressed as a percentage of premium, that an insurance company needs from premium in excess of losses, settlement costs and other expenses in order to generate a fair rate of return on its capital necessary to support its Florida exposures for the applicable line of business. Hartford's proposed underwriting profit factor for its largest homeowners filing is 15.3%. Section 627.062(2)(b), Florida Statutes, contemplates the allowance of a reasonable rate of return, commensurate with the risk to which the insurance company exposes its capital and surplus. Section 627.062(2)(b)4., Florida Statutes, authorizes the adoption of rules to specify the manner in which insurers shall calculate investment income attributable to classes of insurance written in Florida, and the manner in which investment income shall be used in the calculation of insurance rates. The subsection specifically indicates that the manner in which investment income shall be used in the calculation of insurance rates shall contemplate allowances for an underwriting profit factor. Florida Administrative Code Rule 69O-170.003 is entitled "Calculation of Investment Income," and the stated purpose of this rule is as follows: (1) The purpose of this rule is to specify the manner in which insurers shall calculate investment income attributable to insurance policies in Florida and the manner in which such investment income is used in the calculation of insurance rates by the development of an underwriting profit and contingency factor compatible with a reasonable rate of return. (Emphasis supplied). Mr. Schwartz relied on the contents of this rule in determining that the underwriting profit factor in Hartford's filings was too high, in that Florida Administrative Code Rule 69O-170.003(6)(a) and (7) specifies that: (6)(a) . . . An underwriting profit and contingency factor greater than the quantity 5% is prima facie evidence of an excessive expected rate of return and unacceptable, unless supporting evidence is presented demonstrating that an underwriting profit and contingency factor included in the filing that is greater than this quantity is necessary for the insurer to earn a reasonable rate of return. In such case, the criteria presented as determined by criteria in subsection (7) shall be used by the Office of Insurance Regulation in evaluating this supporting evidence. * * * An underwriting profit and contingency factor calculated in accordance with this rule is considered to be compatible with a reasonable expected rate of return on net worth. If a determination must be made as to whether an expected rate of return is reasonable, the following criteria shall be used in that determination. An expected rate of return for Florida business is to be considered reasonable if, when sustained by the insurer for its business during the period for which the rates under scrutiny are in effect, it neither threatens the insurer's solvency nor makes the insurer more attractive to policyholders or investors from a corporate financial perspective than the same insurer would be had this rule not been implemented, all other variables being equal; or Alternatively, the expected rate of return for Florida business is to be considered reasonable if it is commensurate with the rate of return anticipated for other industries having corresponding risk and it is sufficient to assure confidence in the financial integrity of the insurer so as to maintain its credit and, if a stock insurer, to attract capital, or if a mutual or reciprocal insurer, to accumulate surplus reasonably necessary to support growth in Florida premium volume reasonably expected during the time the rates under scrutiny are in effect. Mr. Schwartz also testified that the last published underwriting profit and contingency factor published by OIR was 3.7%, well below what is identified in Hartford's filings. Hartford counters that reliance on the rule is a misapplication of the rule (with no explanation why), is inconsistent with OIR's treatment of the profit factors in their previous filings, and ignores the language of Section 627.062(2)(b)11., Florida Statutes. No evidence was presented to show whether the expected rate of return threatens Hartford's solvency or makes them more attractive to policyholders or investors from a corporate financial perspective than they would have been if Rule 69O- 170.003 was not implemented. Likewise, it was not demonstrated that the expected rate of return for Florida business is commensurate with the rate of return for other industries having corresponding risk and is necessary to assure confidence in the financial integrity of the insurer in order to maintain its credit and to attract capital. While the position taken by OIR with respect to Hartford's filings may be inconsistent with the position taken in past filings, that cannot be determined on this record. The prior filings, and the communications Hartford had with OIR with regard to those filings, are not included in the exhibits in this case. There is no way to determine whether Petitioners chose to present evidence in the context of prior filings consistent with the criteria in Rule 69O-170.003, or whether OIR approved the underwriting profit and contingency factor despite Rule 69O- 170.003. Having an underwriting profit factor that is considered excessive will result in a higher rate indication. Therefore, it is found that the seventh identified deficiency in the Notices of Intent to Disapprove for the homeowners filings and the second identified deficiency in the Notices of Intent to Disapprove for the dwelling/fire filings is sustained. The eighth identified deficiency is that various components underlying the calculation of the underwriting profit and contingency factors, including but not limited to the return on surplus, premium to surplus ratio, investment income and tax rate are not supported or justified. Return on surplus is the total net income that would result from the underwriting income and the investment income contributions relative to the amount of capital that is exposed. Surplus is necessary in addition to income expected from premium, to insure that claims will be paid should losses in a particular year exceed premium and income earned on premium. Hartford's expected return on surplus in these filings is 15%. The return on surplus is clearly tied to the underwriting profit factor, although the percentages are not necessarily the same. It follows, however, that if the underwriting income and contingency factor is excessive, then the return on surplus may also be too high. Hartford has not demonstrated that the return on surplus can stand, independent of a finding that the underwriting profit and contingency factor is excessive. Premium-to-surplus ratio is a measure of the number of dollars of premium Hartford writes relative to the amount of surplus that is supporting that exposure. Hartford's premium-to- surplus ratio in the AARP homeowners filing is 1.08, which means that if Hartford wrote $108 of premium, it would allocate $100 of surplus to support that premium.3/ The premium-to-surplus ratio is reasonable, given the amount of risk associated with homeowners insurance in Florida. The OIR's position regarding investment income and tax rates are related. The criticism is that the filing used a low- risk investment rate based on a LIBOR (London Interbank Offering Rate), which is a standard in the investment community for risk- free or low-risk yield calculations. The filing also used a full 35% income tax rate applied to the yield. Evidence was presented to show that, if the actual portfolio numbers and corresponding lower tax rate were used in the filings, the rate after taxes would be the same. The problem, however, is that Section 627.062(2)(b)4., Florida Statutes, requires the OIR to consider investment income reasonably expected by the insurer, "consistent with the insurer's investment practices," which assumes actual practices. While the evidence at hearing regarding Hartford's investments using its actual portfolio yield may result in a similar bottom line, the assumptions used in the filing are not based on Petitioner's actual investment practices. As a result, the tax rate identified in the filing is also not the actual tax rate that has been paid by Hartford. The greater weight of the evidence indicates the data used is not consistent with the requirements of Section 627.062(2)(b)4., Florida Statutes. Therefore, the eighth deficiency is sustained to the extent that the filing does not adequately support the return on surplus, investment income and tax rate. The ninth identified deficiency is that the underwriting expenses and other expenses are excessive and not supported. Hartford used the most recent three years of actual expense data, analyzed them and made expense selections based on actuarial judgment. The use of the three-year time frame was both reasonable and consistent with common ratemaking practices. Likewise, the commission rates reflected in the agency filings are also reasonable. The tenth identified deficiency is that the non-FHCF (or private) reinsurance costs are excessive and not supported. The criticism regarding private reinsurance purchases is three- fold: 1) that Hartford paid too much for their reinsurance coverage; 2) that Hartford purchases their reinsurance coverage on a nationwide basis as opposed to purchasing coverage for Florida only; and 3) that the percentage of the reinsurance coverage allocated to Florida is too high. Hartford buys private reinsurance in order to write business in areas that are exposed to catastrophes. It buys reinsurance from approximately 40 different reinsurers in a competitive, arm's-length process and does not buy reinsurance from corporate affiliates. Hartford used the "net cost" of insurance in its filings, an approach that is appropriate and consistent with standard actuarial practices. Hartford also used the RMS model to estimate the expected reinsurance recoveries, which are subtracted from the premium costs. Hartford buys private catastrophic reinsurance on a nationwide basis to protect against losses from hurricanes, earthquakes and terrorism, and allocates a portion of those costs to Florida. Testimony was presented, and is accepted as credible, that attempting to purchase reinsurance from private vendors for Florida alone would not be cost-effective. The cost of reinsurance, excluding a layer of reinsurance that covers only the Northeast region of the country and is not reflected in calculating costs for Florida, is approximately $113 million. Hartford retains the first $250 million in catastrophe risk for any single event, which means losses from an event must exceed that amount before the company recovers from any reinsurer. In 2006, Hartford raised its retention of losses from $175 million to $250 million in an effort to reduce the cost of reinsurance. Hartford purchases reinsurance in "layers," which cover losses based on the amount of total losses Hartford incurs in various events. Hartford allocates approximately 65% of the private reinsurance costs (excluding the Northeast layer) to Florida in the AARP homeowners filing. Only 6-7% of Hartford's homeowners policies are written in Florida. The amount Hartford paid for reinsurance from private vendors is reasonable, given the market climate in which the insurance was purchased. Hartford has demonstrated that the process by which the reinsurance was purchased resulted in a price that was clearly the result of an arms-length transaction with the aim of securing the best price possible. Likewise, the determination to purchase reinsurance on a nationwide basis as opposed to a state-by-state program allows Hartford to purchase reinsurance at a better rate, and is more cost-effective. Purchasing reinsurance in this manner, and then allocating an appropriate percentage to Florida, is a reasonable approach. With respect to the allocation of a percentage of reinsurance cost to Florida, OIR argues that, given that Florida represents only 6-7% of Hartford's homeowner insurance business, allocation of 65% of the reinsurance costs to Florida is per se unreasonable. However, the more logical approach is to examine what percentage of the overall catastrophic loss is attributable to Florida, and allocate reinsurance costs accordingly. After carefully examining both the testimony of all of the witnesses and the exhibits presented in this case, the undersigned cannot conclude that the allocation of 65% of the private reinsurance costs is reasonable, and will not result in an excessive rate.4/ The eleventh identified deficiency is that the FHCF (or CAT Fund) reinsurance costs are excessive and not supported. Hartford purchases both the traditional layer of CAT Fund coverage, which is addressed in a separate filing and not reflected in these filings, and the TICL layer made available pursuant to Chapter 2007-1, Laws of Florida. Hartford removed the costs of its previously purchased private reinsurance that overlapped with the TICL layer and those costs are not reflected in these filings and have not been passed on to Florida policyholders. In estimating the amount of premium Hartford would pay for the TICL coverage, it relied on information provided by Paragon, a consulting firm that calculates the rates for the CAT Fund. As noted in finding of fact number 31, the RMS model, along with three other models accepted by the Hurricane Commission, were used by Paragon for determining expected aggregate losses to the CAT Fund reinsurance layer, clearly a crucial factor in determining the rate for the CAT fund. Hartford did not use the loss recoveries calculated by Paragon, but instead estimated the total amount of premium it would pay for the TICL coverage and subtracted the expected loss recoveries based on the RMS model alone. The expected loss recoveries under the RMS model standing alone were 60% of the loss recovery estimate calculated by Paragon when using all four models. Hartford claimed that its use of the RMS model was necessary for consistency. However, it pointed to no actuarial standard that would support its position with respect to this particular issue. Moreover, given that the premium used as calculated by Paragon used all four models, it is actually inconsistent to use one number which was determined based on all four models (the Paragon-based premium estimate) for one half of this particular calculation and then subtract another number using only one model for the other half (the loss recoveries rate) in order to determine the net premium. To do so fails to take into account the unique nature of the CAT fund, in terms of its low expenses and tax-exempt status. Accordingly, it is found that the CAT-Fund reinsurance costs for the TICL layer are excessive. The twelfth identified deficiency is that Hartford did not consider in the filing that no new business is being written. OIR's explanation of this asserted deficiency is that the costs associated with writing new business are generally higher than that associated with writing renewals. Therefore, according to OIR, failure to make adjustments to their historical experience to reflect the current mix of business, means that the costs included in the filing would be excessive. Hartford began restricting the writing of new business for these filings in 2002. Ultimately, no new business for the AARP program was written after November 2006 and no new business was written for the agency program after June 2006. Credible evidence was presented to demonstrate that a very low percentage of new business has been written over the period of time used for demonstrating Hartford's historical losses. As a result, the effect of no longer writing new business is already reflected in the data used to determine expenses. No additional adjustment in the filing was necessary in this regard. The thirteenth identified deficiency is that no explanation has been provided as to why Hartford believes it is reasonable to return such a low percentage of premium in the form of loss payments to policyholders. For example, for the building policy forms, OIR states that only about 40% of the premium requested by Hartford is expected to be returned to policyholders in the form of loss payments. OIR pointed to no actuarial standard that would require a specific explanation regarding how much of the premium should be returned to policyholders. Nor was any statutory or rule reference supplied to support the contention that such an explanation was required. Finally, the more credible evidence presented indicates that the correct percentage is 44%. In any event, this criticism is not a basis for finding a deficiency in the filing. Alleged Deficiencies in the Dwelling/Fire Filings The seventh deficiency identified in the dwelling/fire filings, not reflected in the homeowner filings, is that the credibility standard and credibility values are not supported. Credibility is the concept of identifying how much weight to put on a particular set of information relative to other potential information. Credibility value is determined by applying the "square root rule" to the credibility value, a commonly used actuarial approach to credibility. Hartford used the credibility standard of 40,000 earned house years in these filings. This credibility standard has been the standard within the industry for personal property filings for over forty years and has been used in prior filings submitted to OIR. Mr. Schwartz testified that his criticism with respect to the credibility standard and credibility values is that Hartford did not explain why they used that particular standard. However, Florida Administrative Code Rule 69O-170.0135 discusses those items that must be included in the Actuarial Memorandum for a filing. With respect to credibility standards and values, Rule 69O-170.0135(2)(e)5., provides that the basis need only be explained when the standard has changed from the previous filing. Given that no change has been made in these filings with respect to the credibility standard, this criticism is not a valid basis for issuing a Notice of Intent to Disapprove. The ninth deficiency in the Notice relating to the dwelling/fire filing in Case No. 07-5187 provides: "No explanation has been provided as too (sic) why Hartford believes it needs such a large rate increase currently, when the cumulative rate change implemented by Hartford for this program from 2001 to 2006 was an increase of only about 10%." With respect to Case No. 07-5188, the deficiency is essentially the same, except the cumulative rate change identified for the same period of time is a decrease of about -3%. Testimony established that the dwelling/fire rate increases were larger than those identified for the homeowners filings because Hartford did not seek rate increases for these lines for several years. The decision not to seek increases was not based on the adequacy of current rates. Rather, the decision was based on an internal determination that, based on the relatively small number of policies involved in these two filings, the amount of increased premium reflected in a rate increase was not sufficient to incur the costs associated with preparing the filings. Mr. Schwartz pointed to no authority, either in statute, rule, or Actuarial Standard, that requires the explanation he desired. He acknowledged that he understood the basis of how Hartford reached the rate increase they are requesting. The failure to provide the explanation Mr. Schwartz was seeking is not a valid basis for a Notice of Intent to Disapprove.
Recommendation Upon consideration of the facts found and conclusions of law reached, it is RECOMMENDED: That a final order be entered that disapproves the rate filings in Case Nos. 07-5185 and 07-5186 based upon the deficiencies numbered 7,8,10 and 11 in the Notices of Intent to Disapprove, and that disapproves the rate filings in Case Nos. 07-5187 and 07-5188 based on the deficiencies numbered 2,3,5 and in the Notices of Intent to Disapprove. DONE AND ENTERED this 28th day of March 2008, in Tallahassee, Leon County, Florida. S LISA SHEARER NELSON 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 28th day of March, 2008.
The Issue The issue in this case is whether Respondent condominium association timely mailed or hand delivered to unit owners either a copy of the annual financial report for the year 2004 or, alternatively, a notice stating that a copy of the report would be provided to any owner, free of charge, upon request.
Findings Of Fact Respondent Eden Isles Condominium Association, Inc. ("Association") is the entity responsible for operating the common elements of the Eden Isles Condominium ("Condominium"), which consists of seven buildings comprising 364 units. As such, the Association is subject to the regulatory jurisdiction of Petitioner Division of Florida Land Sales, Condominiums, and Mobile Homes ("Division"). The Association retained Louis John Claps, C.P.A. & Associates, P.A. ("Claps") to audit the Association's books and prepare a financial statement respecting the year ending December 31, 2004. Thereafter, under a cover letter dated May 2, 2005, Claps delivered to the Association a financial report for the year 2004. This financial report was readily available to the members of the Association's governing Board of Directors ("Board"), who in turn could make copies thereof for delivery to the unit owners in their respective buildings. (The owners in each building elect a "building director" to serve on the Board.) In addition, the financial report was available for inspection and copying at the Association's office; any unit owner who asked for a copy was given one. The Association, however, did not mail or hand deliver to each unit owner either a copy of the financial report or, alternatively, a notice stating that a copy of such report could be had, at no charge, upon request.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Division enter a final order finding the Association guilty of the charge of failing to timely provide each unit owner with either the annual financial report for the year 2004 or, alternatively, a notice stating that a copy of such report would be delivered, without charge, to any owner who requested one. In consequence of the Association's violation of Section 718.111(13), Florida Statutes, the Division should: (a) impose a civil penalty against the Association in the amount of $1,092; (b) order the Association to mail or hand deliver to each unit owner, within 30 days after the date of the Final Order, either a copy of the financial report for the year 2004 or, alternatively, a notice stating that a copy of such report will be provided at no cost to any owner who requests one in writing; and (c) order the Association to furnish the Division, within 45 days after the date of the Final Order, with an affidavit attesting that the remedial action just described has been taken. DONE AND ENTERED this 11th day of May, 2007, in Tallahassee, Leon County, Florida. S JOHN G. VAN LANINGHAM Administrative Law Judge Division of Administrative Hearings 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 11th day of May, 2007.
Findings Of Fact The first issue delineated above has in effect been resolved by the First District Court of Appeal. The Declaratory Statement was issued on June 25, 1980, by the Division, declaring that the Master Association was an "association" as defined in Chapter 718(1), Florida Statutes. The Master Association appealed this Declaratory Statement to the first District Court of Appeal (Exhibit 2). Palm Greens Limited vs. Division of Florida Land Sales and Condominiums, Case No. WW-363. The Respondents filed a petition to stay the Division's proceedings to enforce the rules and the Division denied that petition. The Respondent then filed a petition for review of the denial of the stay in the First District Court of Appeal (Exhibit 5). This petition was denied by the Court. The appellate case was argued in the District Court of on June 2, 1981, and a per curiam affirmance of the declaratory statement was issued on June 4, 1981. That decision has since become final. With regard to the second issue referred to above, there is no question that the Master Association failed to allow the members to view the Master Association's books and records, although the Master Association did offer to allow them to view the books and records upon their agreeing to certain conditions. The agreement could not be reached and therefore the Unit One Association members were never allowed to view the books and records. The President of the Master Association, Mr. Lawrence Sadick, admitted in his testimony that the Master Association had not allowed its members to see the books and records. Similarly, in the Respondent's Amended Formal Response to Notice to Show Cause, the Master Association stated that it "admits that it has denied Number One's request for access to its books and records." The primary dispute to be resolved here is whether the Master Condominium Association, Respondent, increased its 1980 budget assessment over the statutorily prescribed limit of 115 percent of the 1979 assessment. The Respondent, the Master Association, is composed of two members, the Number One Condominium Association and the Number Two Condominium Association. The Number One Association includes those unit owners who purchased units which were constructed in the initial phase of the Palm Greens Condominium development. In 1977, the developer, named above, controlled both the Number One and the Number Two Associations. In 1978, the 678 unit owners in the Number One Association took over control of that sub-association from the developer. The Number Two Association continues to be controlled by the developer. Similarly, the developer controls the Master Association (by control of its Board of Directors) until such time as all the units in the Number Two Association are sold out. In 1977, Palm Greens Limited and Yusem Properties of Del Ray Limited (Developer) maintained a single set of books, records and accounting procedures for all three of these Associations. The Developer did not prepare a separate 1978 budget for the Master Association. When the unit owners of Number One Association assumed control of Number One from the Developer in 1978, the Developer and the Board of Number One entered into an agreement that Number One would continue the budgeting for the recreation area and allocate its cost to Number One and to the Number Two Associations (although statutory responsibility for the budgeting remained with the Master Association). Thus, at that time, the Master Association's primary responsibility was managing the recreation areas which it owned. Although the Developer delegated the budget preparation responsibility for the recreation areas to Number One, it never terminated its ultimate control and authority over the recreation areas and the Master Association. With regard to the authority granted by the Master to Number One to operate the recreation area and to set and collect assessments for the two sub- associations, the Respondent maintains that Number One was required as a condition to the delegation of that authority to keep records of the actual receipts and expenditures during that 1979 budget year and that Number One failed to keep those records. There was no showing, however, that the Master Association, although it delegated the budget preparation responsibility for the recreation areas to Number One, ever informed Number One that it would be required to keep the sole set of books and records of receipts and expenditures for 1979 on behalf of the Master Association. The percentage allocation of the budgetary assessments between Number One and Number Two Associations, of the total Master Association assessment, was based upon the total number of units sold in both associations. As a result, the percentage that each association paid toward the total Master Association assessment changed each year. For example, the total 1979, Master Association assessment was $153,212, of which 73 percent was the percentage contribution of Number One and 27 percent was the percentage contribution of Number Two Association, according to the stipulation entered into between the parties as a result of the pre-hearing conference. The Number One Association Condominium units were essentially sold out at the times pertinent hereto and new sales were continuing in the Number Two Association, such that the percentage contribution between the two associations changed considerably between 1979 and 1980. In effect, Number One Association was paying a smaller portion of the total Master Association assessment and, at the same time, in return for its payment it was sharing a recreation area with many more condominium owners in 1980 than in 1979. Thus, it is not accurate, in determining the percentage amount of change in the total assessment, to compare the amounts each individual unit owner contributed in each year toward the total Master Association assessment. This would in effect, be comparing "apples and oranges" since the total base number of persons paying the Master Association assessment changed considerably from 1979 to 1980 with corresponding changes in the per capita shares of the total assessment paid by each unit owner. The only "similar" assessment which can accurately be used for comparison purposes is the total Master Association assessment for one year against the total Master Association assessment for the succeeding year. Since the Master Association did not prepare a separate budget or assessment for 1979, the $153,212 figures stipulated to by the parties was the figure that the Number One Association extrapolated from its overall budget which included most of the Master Association's recreational facility expenses. At the close of 1979, the Developer which controlled the Master Association asserted and actively assumed its responsibility for the recreation area services and for the first time prepared a Master Association budget and coextensive assessment. The Master Association and the Developer admitted on page 1 of the Amended Formal Response to the Notice to Show Cause that on its face, the 1980 Master Association Recreation budget reflects an increase of more than 115 percent over the 1979 recreation budget prepared by Number One Condominium Association [at the behest of the Master Association." The Master Association also admitted at the hearing that it did not obtain approval for the increase from a majority of the unit owners. The Respondent maintains that the total 1980 Master assessment did not exceed 115 percent of the total 1979 Master assessment if deductions are made for reserves for repairs and replacements (which it maintains were authorized by Section 718.112(2)(f)(k) Florida Statutes [1979]). Thus, the Respondent admitted that on its face the 1900 Master Association budget reflects an increase of more than 115 percent over the 1979 Master Association budget with the qualification that if these reserves for repairs and replacements in the amount of $45,050 are deducted, then the total 1980 Master Association assessment would be within 115 percent of the total Master assessment. The Number One Association is not claiming any excessive payments which the Number Two Association members may have made toward the total Master Association assessment. The Number One Association established that the amount of the increased budgetary assessment over 115 percent for 1980 is $40,784. (See Exhibit 8.) Accordingly, inasmuch as the Number One Association's 1980 share of the 1980 Master Association budget assessment was 59 percent (by agreement of the parties) Number One Association is therefore Paying the pro- rata excessive amount of $24,062.
Findings Of Fact The following findings of fact are made upon the stipulation of the parties in the Prehearing Stipulation and in the course of the hearing: Respondents are developers of a condominium as defined by Section 718.103(14), Florida Statutes. Respondents are developers of The Somerset, a condominium located in Naples, Florida. The declaration of condominium for The Somerset was recorded in the public records of Collier County on or about August 27, 1979. No turnover review as prescribed by Section 718.301(4)(c), Florida Statutes (1985), was provided by the developer to the association within 60 days after the date of transfer of control of the association to non-developer unit owners, or has yet been provided to the association. On or about January 29, 1985, unit owners other than the developer had elected a majority of the members of the board of administration for The Somerset condominium. Letters of annual financial reports of actual receipts and expenditures were not furnished to unit owners following the end of the calendar years 1980, 1981, 1982, 1983, and 1984. No vote of the unit owners was taken to waive reserve accounts for capital expenditures and deferred maintenance for each of the years 1980, 1981, 1982, 1983 and 1984. The following findings of fact are made upon the evidence adduced at hearing. The turnover review and report mandated by Section 718.301(4)(c), Florida Statutes, must be prepared by a certified public accountant. Respondents sought the necessary review from the firm of Rogers, Hill and Moon, which had done the association's accounting prior to the turnover. However, Rogers- Hill was unable to perform the review in the required time. Respondents consulted with two other accounting firms, but neither could provide the turnover report. Respondents suggested to the President of the association that they would pay $1,000 to the association in lieu of the turnover report. The association accepted the offer. Respondents paid $1,000 to the association and gave the association all of Respondents' books, ledgers and receipts. Respondents did not promulgate and mail to unit owners proposed budgets of common expenses for the fiscal years 1982, 1983 and 1984. Respondents guaranteed that the assessments for common expenses imposed upon each unit owner would not exceed $75.00 per month from the date of recording the declaration of condominium until the date of turnover of control of the association. There were no meetings of unit owners of The Somerset condominium until time of the turnover. According to the original proposed budget, the items designated as reserve items were roof replacement, resurfacing, and painting. While Respondents maintain that they properly waived the funding of the reserve account for 1980, 1981, 1982, 1983, and 1984, the only evidence offered to support their testimony is the minutes of the annual meeting for each year. However, the credibility of these documents is suspect. The minutes were admittedly all prepared by Respondents in 1985, well after the supposed annual meetings. For the years 1982, 1983 and 1984, David Davis II was a director. His name appears on the minutes as offered by Respondents. Yet, Davis says he did not attend an annual director's meeting in those 3 years. Davis also says that he never attended a director's meeting at which the funding of reserves was waived. In fact, Davis never attended a director's meeting at which a proposed budget was adopted. The minutes are inherently unreliable because they were created much later in time and appear to directly conflict with the testimony of Davis. The minutes are also self-serving. Accordingly, it is found that Respondents did not properly waive the funding of the reserve account for the years 1980, 1981, 1982, 1983, and 1984. Respondents never disclosed to the unit owners that reserves were not funded. The reserve liability is $8,890.00, calculated at $8.75 per month per unit in Phase I (eight units) from August 31, 1979, and in Phase II (12 units) from November 13, 1981, plus all twenty units for the first quarter of 1985. The original budget allocates $8.75 of the assessments to reserves and the original documents (Section 8.2) specify that assessments are to be paid quarterly on January 1, April 1, July 1, and October 1. Since the turnover occurred on January 29, 1985, the assessments for the first quarter had already been paid to Respondents. Respondents expended money for reserve-type expenses. Their Exhibit 5 shows reserve-type expenditures totalling $8,164.78. However, certain of these expenditures do not qualify as reserve-type expenses and must be excluded. Specifically, payments of $485.00 to David Chalfant for repairs to leaking windows, of $560.00 to Roy Hutchinson for repairs to doors which rotted out from the rain, and of $470 Bayside Sandblasting to repair steel doors and to sandblast stains on the sidewalk, are not reserve items (roof replacement, resurfacing and painting). Therefore, Respondents established that they paid $6,649.78 for reserve-type expenses. Petitioner argues that other items should be eliminated because they are not reserve-type expenses or because they were paid after turnover. These arguments are rejected and it is found that $6,649.78 for reserve-type expenses is accurate and should be offset against the reserve liability. Respondents owe the Association $2,240.22 in reserve funds. Paragraph 8.3 of the declaration of condominium for The Somerset provides: The Board shall, in accordance with Bylaws of the Association, establish an annual budget in advance for each fiscal year, which shall correspond to the calendar year, which shall estimate all expenses for the forthcoming year required for the proper operation, management and maintenance of the condominium. . . . Upon adoption of each annual budget by the Board, copies thereof shall be delivered to each unit owner, and the assessment for each year shall be based upon such budget. . . The unit owners were not notified of any Board of Directors meeting at which a proposed annual budget would be considered or adopted. Further no unit owner received copies of proposed annual budgets, except for the budget set forth in the prospectus with the original condominium documents. In fact, no formal meeting of the Board was held to adopt an annual budget.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Business Regulation, Division of Florida Land Sales, Condominium and Mobile Homes, enter a Final Order and therein order Respondents to take the following actions: Obtain and furnish to the Association a turnover review as required by Section 718.301(4)(c), Florida Statutes (1985). Pay to the Association the sum of $2,240.22 for Respondents' liability for reserves. Pay to the Petitioner a civil penalty of $5,000.00, pursuant to Section 718.501(1)(d)4, Florida Statutes. DONE and ORDERED this 10th day of December, 1986, in Tallahassee, Florida. DIANE K. KIESLING 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 December, 1986.
