The Issue Whether Respondent committed the violations alleged in the Administrative Complaint issued against him and, if so, what disciplinary action should be taken against him.
Findings Of Fact Based on the evidence adduced at hearing, and the record as a whole, the following findings of fact are made: Respondent is now, and has been at all times material to the instant matter, registered as a septic tank contractor with the Department. In July 2002, Respondent entered into a contract with Pro Gold Investments Corp. (Pro Gold), whose president and sole owner is Emerico Kemeny Fuller. The contract provided that Respondent would install a "new septic system" for Pro Gold at 453 Blue Road in Coral Gables, Florida (Blue Road Property) for $4,600.00, a job that should have taken only a "few days" to complete. Pro Gold gave Respondent a "job deposit" of $2,300.00. In July 2003, Pro Gold, by Warranty Deed, conveyed title to the Blue Road Property to Maurits de Blank's company, Mortgage Lending Company LLC (MLC), and it also executed a Bill of Sale, Absolute and Assignments of Contracts, which read as follows: PRO GOLD INVESTMENTS CORP, as Seller, in consideration of Ten Dollars ($10.00) and other valuable consideration paid to it by MORTGAGE LENDING COMPANY, LLC, as Buyer, the receipt of which is acknowledged hereby sells, assigns, grants, transfers, and conveys to Buyer all of Seller's right, title, and interest in the following described goods, contracts and personal property: SEE ATTACHED EXHIBIT "A- PROPERTY" AND EXHIBIT "B- CONTRACTS ASSIGNED" Seller covenants and agrees that it is the lawful owner of goods, contracts, rights or interests transferred hereby; that they are free from all encumbrances, except for outstanding amounts due, if any, to those parties set forth on Exhibit "B," and that it has the right to sell, transfer and assign the goods, properties and rights set forth in the attached Exhibit "A," and the right to transfer and assign the contracts, rights or interests shown on Exhibit "B," and will warrant and defend same against the lawful claims and demands or all persons. The "attached Exhibit 'A- Property'" read, in pertinent part, as follows: (Regarding transfer of 453 Blue Road, Coral Gables, Florida, "the Real Property") (Mortgage currently in favor of Mortgage Lending Company, LLC "the Mortgage") All property rights of any kind whatsoever, whether in property that is real, fixed, personal, mixed or otherwise and whether in property that is tangible or intangible, including, without limitation, all property rights in all property of any kind whatsoever that is owned or hereafter acquired by the Company and that is associated with, appurtenant to or used in the operation of the Real Property or is located on, at or upon the Real Property and is associated with or used in connection with or in operation of any business activity conducted on, at or upon the Real Property, and including, without limitation, the following: * * * All right, title, and interest in those certain contracts and agreements [set] forth in the attached Exhibit "B," which are hereby transferred and assigned to Mortgage Lending Company LLC. Among the "contracts and agreements [set] forth in the attached Exhibit 'B,'" was the aforementioned July 2002, contract wherein Respondent agreed to install a "new septic system" for Pro Gold on the Blue Road Property (Septic System Contract). This contract was still executory. Respondent had not done any work on the site in the year that had passed since the contract had been signed. In the beginning of August 2003, Mr. de Blank met with Respondent and advised him that MLC was the new owner of the Blue Road Property and that MLC had also received an assignment of the Septic System Contract from Pro Gold. In response to this advisement, Respondent stated "he did not do assignments." Following this meeting, Mr. de Blank sent Respondent documentation supporting the assertions he had made regarding MLC's ownership of the Blue Road Property and its having been assigned the Septic System Contract. Mr. de Blank then attempted, unsuccessfully, to make contact with Respondent by telephone. He "left messages," but his telephone calls were not returned. These efforts to telephonically communicate with Respondent having failed, Mr. de Blank "decided that it may make some sense to start a letter writing program." As part of that "program," on September 8, 2003, Mr. de Blank sent Respondent the following letter: Re: 453 Blue Road, Coral Gables As background, and in chronological order: Pro Gold Investments purchased the above cited property and obtained a construction loan from our firm. One of the conditions was that all construction contracts would be assignable to our firm in the event of default. Pro Gold Investments entered into contract with your firm to install a new septic tank and drainfield at 453 Blue Road. Pro Gold Investments defaults and forfeits title in lieu of foreclosure. The deed was recorded on August 4, 2003, at Bk/Pg: 21484/4283. Not recorded but attached for your reference is an assignment of contracts to include the contract Pro Gold Investments entered into with your firm. See further attachment. The original can be inspected in my office. At this point, I request you proceed with the work as soon as practical and under identical conditions as originally agreed with Pro Gold Investments. Please call me at . . . to confirm a start date. Mr. de Blank did not receive any response to his letter. He finally was able, however, to reach Respondent on the telephone. During this telephone conversation, Mr. de Blank made arrangements to meet Respondent at the Blue Road Property to discuss Respondent's doing the work Respondent had agreed to do in the Septic System Contract. This meeting between Mr. de Blank and Respondent took place on September 11, 2003. During the meeting, Mr. de Blank went over with Respondent "what the job [was] going to be." Although Respondent indicated that he was "going to put in th[e] septic tank" per the Septic System Contract, Mr. de Blank had his doubts that Respondent would be true to his word. Following the meeting, Mr. de Blank sent Respondent the following letter: Re: 453 Blue Road, Coral Gables We met today to discuss the above referenced job. My understanding is: You will start the job no later than the first week of October and will complete the job no later th[a]n the last week of October. I will obtain a copy of the approved permit. You indicated you will not need a survey.[1] Should you change you[r] mind, you can always refer to a survey I keep on site. You will have your insurance agent mail to my address a certificate of insurance. Though not discussed: I would like a partial release of payments made to date for the job. See further the attachment. Assuming you concur, then please send a signed and notarized copy to Maurits de Blank, Mortgage Lending Company, Post Office Box 430336, Miami, Florida 33143. Note that I prefer for various legal reasons that you use the release form as provided. Once the job has been started, I would like a list of firms supplying materials to the job. Notwithstanding that he had promised Mr. de Blank that he would "start the job no later than the first week of October," by the middle of October Respondent had yet to even "pull a septic tank construction permit from the City of Coral Gables" (that was needed before any on-site work could begin).2 In an attempt to find out from Respondent what was the cause of the delay, Mr. de Blank started a "calling campaign," but Respondent neither answered the telephone when Mr. de Blank called nor returned Mr. de Blank's calls. On October 19, 2003, Mr. de Blank sent the following letter to Respondent (by certified United States Mail, return receipt requested): Re: 453 Blue Road, Coral Gables I need a firm commitment when you will start and finish septic tank at above address. If you cannot perform the work, then I will need a refund of the deposit given to your firm. Please call to discuss. The end of the month was fast approaching, and Respondent had neither contacted Mr. de Blank nor begun the Septic System Contract on-site work. After paying a visit to Coral Gables City Hall and learning that Respondent had still not even "pull[ed] a septic tank construction permit from the City of Coral Gables," Mr. De Blank found another septic tank contractor, Westland Septic Tank Corp., to do the installation work for MLC that Respondent was contractually obligated to perform. MLC paid Westland $4,400.00 to do the work. Westland completed the job some time prior to November 4, 2003. The work passed all of the necessary inspections. Upon learning that MLC had contracted with Westland, Respondent sent Mr. de Blank a letter complaining that Mr. de Blank had not given Respondent an adequate opportunity to meet his obligations under the Septic System Contract. In the letter, Respondent offered to return only $500.00 of the $2,300 down payment he had received from Pro Gold. Mr. de Blank subsequently informed Respondent that this was not satisfactory and that he wanted the "full deposit back." He added that if he did not get it, he would "go to court." Not having received any portion of the "deposit back," Mr. de Blank, acting on behalf of MLC, in mid-November 2003, filed suit against Respondent in Miami-Dade County Court. On May 14, 2004, a Final Judgment was entered in Miami-Dade County Court Case No. 0313813 in favor of MLC and against Respondent "in the amount of $1,675.00 plus court costs in the amount of $121.00." As of the date of the final hearing in this case, Respondent had not made any payments to MLC. In view of the foregoing, it is found that Respondent abandoned for 30 consecutive days, without any apparent good cause, a project in which he was under contractual obligation to complete; and his failure to go forward with the project, combined with his failure to return any of the deposit he had received, caused monetary harm to a party to whom he was contractually obligated.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby: RECOMMENDED that the Department issue a final order finding Respondent guilty of the misconduct alleged in the Administrative Complaint and disciplining him therefor by fining him $500.00 and suspending his registration for 90 days. DONE AND ENTERED this 4th day of February, 2005, in Tallahassee, Leon County, Florida. S STUART M. LERNER 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 4th day of February, 2005.
The Issue The issue for determination is whether Respondent committed the offenses set forth in the Administrative Complaint and, if so, what action should be taken.
Findings Of Fact At all times material hereto, Mr. Hannifin was licensed by the Department as a resident Life Agent, Life and Health Agent, General Lines (Property and Casualty Insurance) Agent, and Health Agent. Mr. Hannifin's license identification number is A110269. At all times material hereto, Mr. Hannifin was licensed by the State of Florida as an insurance agent. At all times material hereto, Mr. Hannifin was the president of Hannifin & Associates, Inc. He was the only insurance agent in Hannifin & Associates. An investigator with the Department investigated several complaints against Mr. Hannifin. The investigator tape recorded Mr. Hannifin's statement on September 3, 2003, after informing Mr. Hannifin of his Miranda rights and having Mr. Hannifin execute a Miranda warning card. During the statement, the investigator presented several documents to Mr. Hannifin and asked him several questions regarding the documents. The investigator testified at hearing and the tape recording was received into evidence. As to the identification of those documents, the undersigned finds the investigator's testimony credible. Mr. Hannifin made admissions during the taped statement2 (Statement). The undersigned finds the Statement credible. The undersigned took official recognition of a criminal matter involving Mr. Hannifin, regarding the issues in the Administrative Complaint, in the Circuit Court of Palm Beach County, Fifteenth Judicial Circuit: State of Florida v. Mark Dwain Hannifin, Case No. 03-0112566CFA02. In the Information filed in the court case on October 28, 2003, Mr. Hannifin was charged with two counts of misappropriation of insurance funds (Counts 1 and 2) and four counts of uttering a forgery (Counts 3-6). Pertinent to this matter, Count 2 of the Information involved Madd Dogs Installation, Inc. (Madd Dogs Install'n); Count 3 involved Double A Industries (Double A); Count 4 involved Rockwell Development Company (Rockwell Development); and Count 6 involved Royal Professional Builders, Inc. (Royal Professional Builders). Subsequently, Mr. Hannifin entered into a Pretrial Intervention Program, Deferred Prosecution Agreement on all counts, filed in the court case on April 12, 2005, in which, among other things, prosecution was deferred for a period of 12 months provided Mr. Hannifin abided by certain agreed conditions. COUNT I On or about September 20, 2001, Timothy McClure and Brett Carnahan of Madd Dogs Install'n met with Mr. Hannifin at his office.3 They sought to obtain workers' compensation insurance and commercial general liability insurance for Madd Dogs Install'n. Messrs. McClure and Carnahan agreed to obtain the workers' compensation insurance and commercial general liability insurance for Madd Dogs Install'n from Mr. Hannifin. The workers' compensation insurance was to be provided by Florida United Businesses Associations, Inc. (FUBA), and the commercial general liability insurance was to be provided by Burlington Insurance Company (BIC). On that same day, Messrs. McClure and Carnahan completed the applications for the insurance. Mr. Hannifin received from Messrs. McClure and Carnahan a partial premium payment for the workers' compensation insurance in the amount of $1,205.70 in cash; a premium payment for the commercial general liability insurance in the amount of $453.00 in cash; and an application fee for membership in FUBA in the amount of $50.00 in cash. Mr. Hannifin deposited the monies received into the business account of Hannifin & Associates. Hannifin & Associates sent Madd Dogs Install'n four invoices for monthly premiums relating to the workers' compensation insurance. Between November 2001 and February 2002, Madd Dogs Install'n, by and through Mr. McClure by check, made four monthly payments on the premiums due for the workers' compensation insurance. The payments were deposited into the business account of Hannifin & Associates. Mr. Hannifin failed to remit any of the payments from Madd Dogs Install'n to BIC, to FUBA or to any other insurance company. Mr. Hannifin never obtained the workers' compensation insurance and the commercial general liability insurance for Madd Dogs Install'n. Mr. Hannifin admitted in his Statement that, due to cash flow problems, he diverted the monies paid by Madd Dogs Install'n to his own use. Mr. Hannifin admitted in his Statement that he did not return the money to Mr. McClure.4 Among the conditions provided in the Deferred Prosecution Agreement was that Mr. Hannifin would pay Mr. McClure $8,763.60. COUNT II Mr. Hannifin issued to Madd Dogs Install'n a Certificate of Liability Insurance (Certificate). The date on the Certificate was November 28, 2001. The Certificate provided, among other things, that the insured was Madd Dogs Install'n; that the insurers were BIC for commercial general liability coverage and FUBA for workers' compensation coverage; that the policy number for the commercial general liability was B20394871; that the policy number for the workers' compensation coverage was F4673920; that the coverage period for the policy was September 20, 2001 through September 20, 2002; that the certificate holder was Rockwell Development; and that the "Certificate is issued as a matter of information only and confers no rights upon the certificate holder. . . ." Mr. Hannifin signed the Certificate, as the authorized representative. Madd Dogs Install'n provided a copy of the Certificate to Rockwell Development. Before permitting subcontractors to perform work on its projects, Rockwell Development requires the subcontractors to provided proof of insurance. Madd Dogs Install'n was a subcontractor of Rockwell Development. An inference is drawn and a finding is made that, without the Certificate, Rockwell Development would not allow Madd Dogs Install'n to perform any work at its (Rockwell Development) projects. Mr. Hannifin knew that Rockwell Development would receive a copy of the Certificate.5 Count II contains an allegation that Mr. Hannifin furnished a copy of the Certificate to Rockwell Development. The evidence failed to demonstrate that Mr. Hannifin or anyone in his office, which would satisfy showing that he furnished the Certificate, furnished the copy to Rockwell Development. However, failure to prove this allegation is inconsequential in that the evidence demonstrates that Mr. Hannifin knew that a copy of the Certificate would be furnished to Rockwell Development whether he, or someone in his office, or Madd Dogs Install'n furnished the copy. Madd Dogs Install'n was not insured with either BIC or FUBA. Mr. Hannifin knew that Madd Dogs Install'n did not become, and was not, insured by either BIC or FUBA. He did nothing to cure the non-insurance coverage. Further, as a result, Mr. Hannifin knew that the policy numbers for coverage were nonexistent and, therefore, false. The Certificate was a false material statement. COUNT III Mr. Hannifin issued to Madd Dogs Install'n a Certificate. The date on the Certificate was March 21, 2002. The Certificate provided, among other things, that the insured was Madd Dogs Install'n; that the insurers were BIC for commercial general liability coverage and FUBA for workers' compensation coverage; that the policy number for the commercial general liability was B958477322; that the policy number for the workers' compensation coverage was F4673920; that the coverage period for the policy was September 20, 2001 through September 20, 2002; that the certificate holder was Double A; and that the "Certificate is issued as a matter of information only and confers no rights upon the certificate holder. . . ." Mr. Hannifin signed the Certificate, as the authorized representative. Before permitting subcontractors to perform work on its projects, Double A requires the subcontractors to provided proof of insurance. Madd Dogs Install'n was a subcontractor of Double A. Based on the evidence presented, an inference is drawn and a finding is made that Mr. Hannifin provided a copy of the Certificate to Double A.6 An inference is drawn and a finding is made that, without the Certificate, Double A would not allow Madd Dogs Install'n to perform any work at its (Double A) projects. Mr. Hannifin knew that Double A would receive a copy of the Certificate. Madd Dogs Install'n was not insured with either BIC or FUBA. Mr. Hannifin knew that Madd Dogs Install'n did not become, and was not, insured by either BIC or FUBA. He did nothing to cure the non-insurance coverage. Further, as a result, Mr. Hannifin knew that the policy numbers for coverage were nonexistent. The Certificate was a false material statement. COUNT IV Mr. Hannifin issued to R. K. Drywall7 a Certificate. The date on the Certificate was August 26, 2002. The Certificate provided, among other things, that the insured was R. K. Drywall; that the insurer was Florida Citrus Association (FCA), which is also FUBA, for workers' compensation coverage; that the policy number for the workers' compensation coverage was FLWC96850049; that the coverage period for the policy was August 17, 2002 through August 17, 2003; that the certificate holder was Royal Professional Builders; and that the "Certificate is issued as a matter of information only and confers no rights upon the certificate holder. " Mr. Hannifin signed the Certificate, as the authorized representative. Mr. Hannifin did not forward any money to FCA for the workers' compensation coverage. R. K. Drywall was not insured by FCA. Mr. Hannifin knew that R. K. Drywall did not become, and was not, insured by FCA. He did nothing to cure the non- insurance coverage. Further, as a result, Mr. Hannifin knew that the policy number for coverage was nonexistent. The Certificate was a false material statement. An inference is drawn and a finding is made that, without the Certificate, Royal Professional Builders would not allow R. K. Drywall to perform any work at its (Royal Professional Builders) projects. Mr. Hannifin admitted in his Statement that he furnished Royal Professional Builders a copy of the Certificate. Mr. Hannifin also admitted in his Statement that he returned to R. K. Drywall all the monies paid to him. Count IV contains an allegation that Mr. Hannifin signed and furnished the Certificate to Royal Professional Builders on August 26, 2001, instead of August 26, 2002. In the proposed findings of fact of the Department's post-hearing submission, the Department again refers to the date as August 26, 2001, in spite of the evidence to the contrary; and, as supported by the evidence, refers to the year of another Certificate, showing R. K. Drywall as the insured and Badger Homes, Inc., as the certificate holder, as 2002. At no time did the Department make a request to declare the year of 2001 as a scrivener's error and to amend the Administrative Complaint accordingly. Taking into consideration that the burden of proof is upon the Department by clear and convincing evidence and taking into consideration the evidence presented at hearing and the Department's post-hearing submission, the undersigned considers the year of 2001 in the Administrative Complaint to be critical and not a harmless error. Therefore, the undersigned finds that the Department failed to show that the Certificate's date was August 26, 2001, as alleged in the Administrative Complaint.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services enter a final order: Finding that Mark D. Hannifin committed the following violations: Count I--violated Sections 626.611(7), (9) and (10) and 626.621(2) (by failing to comply with Section 626.561(1)), Florida Statutes (2001); and Counts II and III-- violated Sections 626.611(7) and (9), and 626.621(6) (by engaging in or committing the methods or acts or practices defined in Section 626.9541(1)(e)1.b. ,c., and e.), Florida Statutes (2001); and Revoking the licenses and appointments of Mark D. Hannifin. S DONE AND ENTERED this 5th day of December, 2005, in Tallahassee, Leon County, Florida. ___________________________________ ERROL H. POWELL 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 5th day of December, 2005.
The Issue At issue in this proceeding is whether Payroll Management, Inc. (“PMI”), a former self-insurer, should be required to increase its qualifying security deposit with the Florida Self- Insurers Guaranty Association, Inc. (“FSIGA”), from $5,144,108 to $7,434,705, as directed by the Department of Financial Services, Division of Workers’ Compensation (the “Department”).
Findings Of Fact Based on the oral and documentary evidence adduced at the final hearing, and the entire record in this proceeding, the following Findings of Fact are made: The Department is the state agency responsible for administering the Workers’ Compensation Law, chapter 440, Florida Statutes. The Department’s responsibilities include administration of the self-insurance program in conjunction with FSIGA, pursuant to sections 440.38, 440.385, and 440.386, Florida Statutes. FSIGA is a private, not-for-profit corporation created by section 440.385. The chief purpose of FSIGA is to guarantee payment of covered workers’ compensation claims to employees of its insolvent member self-insurers. All self-insurers, other than public utilities and government entities, are required to be members of FSIGA as a condition of their authority to self- insure. § 440.385(1)(a), Fla. Stat. Sections 440.10(1) and 440.38(1) establish the general requirement that employers must obtain and maintain workers’ compensation insurance in Florida. The exception to this general requirement is set forth in section 440.38(1)(b), which allows an employer to self-insure after furnishing satisfactory proof to FSIGA that such employer “has the financial strength necessary to ensure timely payment of all current and future claims individually and on behalf of its subsidiary and affiliated companies with employees in this state and receiving an authorization from the department to pay such compensation directly.” § 440.38(1)(b), Fla. Stat. FSIGA pays the covered claims of current and former insolvent self-insurer members to the extent an insolvent self- insurer's security deposit is insufficient to cover the claims. An insolvency fund is established and managed by FSIGA for the purpose of meeting the obligations of insolvent members after the exhaustion of any security deposit. Pursuant to section 440.385(3)(a), FSIGA assesses its members to maintain the insolvency fund. In the event FSIGA determines that a current or former member lacks financial strength necessary to ensure timely payment of current and estimated future workers’ compensation claims, FSIGA may recommend that the Department require an increase to such member’s “security deposit in an amount determined by the association to be necessary to ensure payment of compensation claims.” § 440.385(3)(b)7.c., Fla. Stat. The Department is required to accept FSIGA’s recommendation unless it finds by clear and convincing evidence that the recommendation is erroneous. §§ 440.38(1)(b) and 440.385(6)(a), Fla. Stat. PMI is a privately owned professional employer organization headquartered in Fort Walton Beach. It has conducted business throughout Florida and the southeastern United States for over 30 years. PMI was authorized as a self- insurer for workers’ compensation in Florida on September 1, 2001. It was required to post an initial security deposit of $1,000,000 with FSIGA. Between 2001 and 2015, FSIGA made annual recommendations to the Department, pursuant to sections 440.38(1)(b) and 440.385(3)(b)7., as to whether PMI should be required to increase its qualifying security deposit based on a review of the company’s financial strength as reflected in its financial statements. By 2015, PMI’s security deposit had grown to $5,144,108. Through 2015, PMI had posted and maintained its qualifying security deposit every year it participated in the self-insurance program. In late March 2016, PMI submitted an actuarial report dated March 25, 2016, to FSIGA. The actuarial report was prepared by Steven Glicksman and determined that PMI’s estimated outstanding losses, i.e., the cost of unpaid claims, were $7,960,339 as of December 31, 2015, and that the actuarial present value of PMI’s estimated outstanding losses as of December 31, 2015, using a four-percent (4%) discount rate as prescribed by Florida Administrative Code Rule 69L-5.218(2), was $7,434,705. The March 25, 2016, report included the following notes: Comparison to Previous Study The estimated outstanding losses (actuarial central estimate) are $7,960,339 as of December 31, 2015. This compares to $5,514,248 as of December 31, 2015 in the previous study (dated April 30, 2015). The variance is a material adverse deviation. The increases in 2015 are due primarily to actuarial payroll in 2015 being $173,681,101 compared to the projected payroll of $110,000,000. Greater payroll corresponds to an increased exposure to loss. We also observed that 2014 is emerging higher than previous projections. Potential for Material Adverse Deviation The estimated outstanding losses are the actuarial central estimate. It is based on the probable outcomes, but not all possible outcomes. The risk of material adverse deviation is a judgment as to actual losses materially exceeding the actuarial central estimate. The Actuarial Standard of Practice (ASOP 36) requires commentary when the actuary “reasonably believes that there are significant risks and uncertainties that could result in material adverse deviation.” ASOP 36 does not specify a materiality standard. As with all insurance programs, there is the possibility that losses will emerge worse than expected. PMI is a relatively small sized program. The historical loss experience had had an occasional large claim. PMI purchases reinsurance to mitigate the impact of catastrophic claims. It currently has a $500,000 self-insured retention. However, there is the potential for multiple large claims within the retention. There have [been several] operational changes that may have impacted loss development. There is convincing evidence that PMI has accelerated its paying losses and is reserving more adequately [than] it has in the recent past. There has been material change in the mix of class codes. There is a roll-forward extrapolation to December 31, 2016. We have supplemented internal data with insurance industry statistics and actuarial judgment. We have not set a materiality standard. However, based on the above factors, we believe that the estimated outstanding loss amount is subject to a significant level of risk of adverse deviation as of December 31, 2015 and December 31, 2016. This disclosure is based on ASOP 36 and is not intended to be exclusive to this situation. Differences in the disclosure from previous studies are not intended to be a material change in our opinion, unless specifically stated otherwise. It is not a qualification of the study. Effective May 1, 2016, PMI voluntarily terminated its authorization to self-insure its workers’ compensation claims in Florida. On May 11, 2016, FSIGA recommended that the Department require PMI to increase its qualifying security deposit by the amount of $2,290,597.1/ That recommendation was made pursuant to sections 440.38(l)(b) and 440.385(3)(b)7. and rules 69L- 5.209(l)(b) and 69L-5.218(2). The recommendation was based on FSIGA's review of PMI's financial statements and FSIGA’s determination of an equivalent credit rating of Caa3 for PMI, a rating that is less than investment grade.2/ FSIGA determined that PMI did not have the financial strength necessary to ensure timely payment of claims incurred as a self-insurer. The Department accepted FSIGA's recommendation, and by letter dated May 25, 2016, required PMI to increase its qualifying security deposit by the amount of $2,290,597, from $5,144,108 to $7,434,705. As of the date of the hearing, PMI had not posted the additional security with FSIGA. Brian Gee, FSIGA’s Executive Director, testified that he conducted an analysis of PMI's financial strength by examining its audited financial statements for the year ending December 31, 2013, and its draft financial statements for the year ending December 31, 2014.3/ He derived an equivalent credit rating by applying a public domain Moody’s Investors Service methodology. He checked his result against a proprietary Moody’s product called RISCCALC PLUS, a model based on a large database of financial statements. The RISCCALC PLUS model uses default frequencies to derive a credit rating. Mr. Gee’s analysis led him to conclude that PMI does not have the financial strength necessary to ensure the timely payment of its self-insured claims. Mr. Gee testified that his review of PMI’s financial information led him to conclude it lacks the financial strength to ensure timely payment of claims. He cited several factors supporting his conclusion: PMI has shown net losses over the past three years; the company is highly leveraged, with low owners’ equity relative to total liabilities; uncertainty regarding the collectability of a $4 million receivable from British Petroleum (“BP”)4/; and a large amount of back taxes owed to the Internal Revenue Service.5/ Mr. Gee also took note of the facts that PMI’s 2014 financial statement was labeled “draft” and was not a signed auditor’s opinion, and that PMI had supplied no financial statement at all for 2015. He stated that FSIGA had been requesting current financial information from PMI but was not receiving it. Mr. Gee concluded there was enough uncertainty in PMI’s financial situation that he could conclude the company lacked the financial strength to ensure the payment of current and future claims without regard to the calculation of an equivalent credit rating required by rule 69L-5.218(4). Mr. Gee’s conclusion is reasonable in light of the evidence and is hereby accepted. Rule 69L-5.209 requires current and former self- insurers, including PMI, to submit financial statements, audited in accordance with Generally Accepted Auditing Standards, to FSIGA no later than 120 days after the end of their fiscal year. PMI’s fiscal year ends on December 31. As of the hearing date, PMI had submitted only draft unsigned financial statements for fiscal year 2014,6/ and no financial statements at all for fiscal year 2015. On May 11, 2016, the Department received FSIGA's letter recommending the Department require PMI to increase its qualifying security deposit to $7,434,705. The recommendation was reviewed by staff of the Bureau of Financial Accountability (the “Bureau”) in the Department's Division of Workers' Compensation. Bureau Chief Greg Jenkins testified that the review did not involve recreating FSIGA’s work in developing an equivalent credit rating for PMI. FSIGA collects and reviews financial statements and loss reserve information from self- insurers pursuant to contract with the Department and is considered the Department’s financial expert as to these tasks. Mr. Jenkins stated that Bureau staff did review other information for accuracy, including the numerical values set forth in FSIGA’s recommendation letter. Based on his staff’s review, Mr. Jenkins approved the FSIGA recommendation. The Division of Workers’ Compensation, concluding that the FSIGA recommendation was not erroneous, recommended to Chief Financial Officer (“CFO”) Jeff Atwater that the Department accept FSIGA’s recommendation and require PMI to increase its qualifying security deposit by $2,290,597, from $5,144,108 to $7,434,705. By letter dated May 25, 2016, signed by CFO Atwater, the Department required PMI to increase its security deposit by the stated amount. On or about October 19, 2016, PMI submitted an updated actuarial report dated October 18, 2016, to FSIGA. The updated actuarial report was prepared by Mr. Glicksman and determined that PMI’s estimated outstanding losses were $7,265,767 as of August 31, 2016, and that the actuarial present value of PMI’s estimated outstanding losses as of August 31, 2016, using a four percent (4%) discount rate as prescribed by rule 69L-5.218(2), was $6,775,263. Mr. Glicksman also included a projection of losses through December 31, 2016, which he explained as follows: The estimated outstanding losses (actuarial central estimate) are $5,758,346 as of December 31, 2016. The present value of the estimated outstanding losses (actuarial central estimate) is $5,369,488 based on a 4.0% interest rate as of December 31, 2016. These amounts assume old payment patterns. However, the amounts for December 31, 2016 are dependent on PMI’s actual payments from September 1, 2016 to December 31, 2016. Since greater payments results in lower estimated outstanding losses, it is possible that PMI will have estimated outstanding losses of less than $5,758,346 (present value $5,369,488) on December 31, 2016. In fact, we have observed that PMI has accelerated payments. From January 1, 2016 to August 31, 2016, paid losses equaled $4,963,579 ($620,488 per month). We have modeled a continuation of accelerated payments. Assuming projected losses paid of $1,959,647 ($477,395 per month) from September 1, 2016 to December 31, 2016, estimated outstanding losses are $5,356,187 and the present value of the estimated outstanding losses are $4,995,098 on December 31, 2016. We believe these amounts are reasonable. [Citations to internal exhibits omitted.] Mr. Glicksman testified that material differences emerged during the period between his completion of the March 25, 2016, report and the October 18, 2016, report. Mr. Glicksman explained that more recent information, including a date certain for PMI’s termination of its self-insurer authorization, improved loss information, increased reserves, and accelerated claims payments, led him to believe that the estimated losses were less than he had originally projected. Mr. Glicksman testified that, upon noticing that PMI’s claims payments had accelerated much faster than he expected, he contacted Ms. Mickle-Bee regarding the claims data. Ms. Mickle- Bee confirmed to Mr. Glicksman that PMI was closing claims as rapidly as possible. At the hearing, Ms. Mickle-Bee testified that PMI has always paid claims at an “aggressive” rate as an overall costs savings measure. She stated that the company’s experience has been that providing quick medical treatment and paying the bills greatly reduces the chances of litigation. Mr. Glicksman supported this view, testifying that “there’s nothing better than a closed claim to reduce costs.” Mr. Glicksman concluded by stating that “there could be no good outcome” to requiring PMI to increase its security deposit to $7,434,705. He testified, “They’re already holding more than enough money to pay off their claims . . . with almost certainty. And by pushing PMI into . . . a financial stress, it can’t improve their situation, it can only hurt it. I don’t know why they would do it.” Mr. Gee testified that he had as yet reached no conclusions about the October 18, 2016, actuarial report. He testified that a claims reviewer had been assigned to look at the case files, which are the main input into the actuarial process. Mr. Gee also stated that he had made “some preliminary findings about some self-insured retention numbers that appear to be incorrect,” but that he was awaiting results from the claims reviewer in order to draw a conclusion about the report. Mr. Jenkins testified that he has received a copy of PMI’s October 18, 2016, actuarial report. Mr. Jenkins stated that he had glanced at the report but was awaiting a recommendation from FSIGA before undertaking a thorough review of the document.
Recommendation Based on the foregoing, it is, therefore, RECOMMENDED that the Department of Financial Services enter a final order requiring Payroll Management, Inc., to increase its qualifying security deposit with the Florida Self-Insurers Guaranty Association, Inc., by $2,290,597, from $5,144,108 to $7,434,705; or, in the alternative, that the Department of Financial Services withdraw its May 25, 2016, letter requiring Payroll Management, Inc., to increase its qualifying security deposit by the amount of $2,290,597, from $5,144,108 to $7,434,705 and issue a letter requiring PMI to increase its qualifying security deposit to the amount recommended by the Florida Self-Insurers Guaranty Association, Inc., after its review of the October 18, 2016, actuarial report submitted by Payroll Management, Inc. DONE AND ENTERED this 5th day of April, 2017, in Tallahassee, Leon County, Florida. S LAWRENCE P. STEVENSON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 5th day of April, 2017.
The Issue By this action Petitioner seeks to recover costs, expenses and damages associated with state response to an oil spill incident occurring February 26, 1987, within three miles of the Florida shoreline. Respondent's vessel was responsible for that spill. In particular the costs, expenses and damages claimed are related to salaries, per diem allowances, Federal Express charges, beach sand replacement, equipment, use of a cellular phone, and consulting work at the shore and off site. Petitioner also seeks damages for bird mortality resulting from the spill. See Chapter 376, Florida Statutes, and Chapter 16N- 16, Florida Administrative Code.
Findings Of Fact On the evening of February 26, 1987, the motor vessel Fernpassat struck the south jetty at the entrance to the St. Johns River at a location within three miles of the Florida shoreline. In doing so it ruptured the hull and spilled a substantial amount of heavy fuel oil. The type of the oil was No. 5 or 6 Bunker C. A preliminary estimate placed the amount of oil in excess of 100,000 gallons. While the true amount may have been somewhat less, it was a significant spill in that it substantially threatened the public's welfare and the environment and generated wide public interest. Petitioner's exhibit 3 is a map which depicts the basic location where the vessel collided with the jetty with an "X" mark. The area impacted by the discharge ran from roughly Atlantic Beach, Florida, to Guana State Park in St. Augustine, Florida. This is approximately 25 miles of beach front. Beach property over which Petitioner has regulatory and proprietary responsibility had oil deposited upon it. The oil spill killed or injured a number of birds. The event was responded to by the "Federal Region IV Regional Response Team" (RRT). The federal on-scene coordinator (OSC) was Captain Matthew Woods, U.S. Coast Guard. The RRT, through management and control provided by the OSC, took necessary steps to combat the effects of the spill. Respondent immediately accepted responsibility for the cleanup through the use of a consultant and cleanup contractor. Under this arrangement the OSC monitored the contractor's cleanup efforts to make certain that the job was done satisfactorily. Florida officials were part of the RRT. Rule 16N-16.009(21), Florida Administrative Code, calls for personnel from Petitioner; the State of Florida, Department of Environmental Regulation (DER); and the State of Florida, Department of Community Affairs (DCA) to represent state interests as members of the RRT. Each of these agencies participated as members of the RRT. This furthered the legislative intent expressed at Section 376.021(6), Florida Statutes, to support the RRT through implementation of the "Federal Water Pollution Control Act," which is also known as the "Clean Water Act," 33 U.S.C. ss. 1251-1376. By its efforts the RRT promoted the removal of the oil in accordance with a national contingency plan. Pursuant to Section 376.021(6), Florida Statutes, the state is expected to complement applicable provisions within the "Federal Water Pollution Control Act" as well as render the support previously described. Both the support and complementary functions of the state are part of Florida's "Pollutant Spill and Prevention Control Act," Sections 376.011-376.17, 376.19-376.21, Florida Statutes. Chapters 16N-16, Florida Administrative Code, more completely identifies the role played by the state agencies in this instance. This chapter was adopted pursuant to authority set out in Section 376.07, Florida Statutes, which, among other things, empowered Petitioner to make rules which developed and implemented criteria and plans to respond to spills such as the one at issue. In its complementary role the state has established a "State Response Team" (SRT). This organization in defined at Rule 16N-16.009(13), Florida Administrative Code. It is constituted of predesignated state agencies available continually to respond to a major spill. This incident was a major spill or discharge as defined in Rule 16N-16.009(18), Florida Administrative Code. The predesignated state agencies, pursuant to the rule defining the SRT and Section 376.07(2)(e), Florida Statutes, act independently of the federal authorities, although they are expected to cooperate with the federal authorities in the efforts at cleanup. What that meant here is that notwithstanding the concerns which Captain Woods had and the state participation in the RRT through Petitioner, DER and DCA, there was a parallel function by the SRT which had its own mandate. This allowed the SRT to pursue an independent agenda in the spirit of cooperation with the OSC in an attempt to protect the resources over which the state has jurisdiction, including the beach front and birds. Both Captain Woods and the consultant to the spiller, James L. O'Brien, who is a man of considerable credentials in giving advice about oil spill problems, expressed their understanding of the interests which the state might have in carrying out its functions and did not find that reality a hindrance in performing their duties. As a result, even though state employees and equipment and consultants to the state had limited utility for the OSC and the consultant to the spiller in carrying out their duties, it does not follow that claims by the state for reimbursement in categories set out in the statement of issues must fail unless found to support the OSC or spiller's choice in attempts at cleanup. The question is whether the costs, expenses and damages are reasonably related to support for the RRT or complementary of that function through the SRT and owed or expended from the Florida Coastal Protection Trust Fund (Fund) for recoverable items. See Section 376.11, Florida Statutes. Petitioner's exhibit 15 is a copy of the state contingency plan. See Section 376.07(2)(e), Florida Statutes. It identifies the membership of Petitioner, DER and DCA. Other claimants for costs, expenses, and damages who were involved in the response to this incident as predesignated agencies are the Florida Game and Fresh Water Fish Commission (Commission), the State of Florida, Department of Transportation (DOT), and the Attorney General. The state contingency plan explains the operational responsibilities of state agencies when responding to the incident. This is a more specific reference to those responsibilities as envisioned by the general guidelines announced in the "Pollution Spill Prevention and Control Act." Having considered the testimony and exhibits in the context of the state support and complementary role in responding to the spill contemplated by the aforementioned laws, regulations and contingency plans, the costs, expenses and damages sought by the Petitioner are reasonably related to those purposes. Those costs, expenses and damages are detailed in Petitioner's exhibit 16 and summarized in Petitioner's exhibits 8 and 9. With the exception of $15,654.37 in costs and expenses for Petitioner's Executive Office and Division of Law Enforcement and $3,336.16 for salaries for the Commission, DOT and DCA, all claims for expenses and costs have been paid from the Fund. Petitioner wishes to impose the costs, expenses and damages in the state response whether or not claims were disbursed from the Fund. The damage claim associated with future beach re-nourishment by replacement of sand that had been befouled by oil and needed to be removed is a reasonable claim in the amount of $10,222.50. It has been paid from the Fund and is held in the Erosion Control Trust Fund until needed. The on-scene consulting fee of $3,525.00 and the oil spill assessment study fee of $9,880.00 commissioned by Petitioner through Jacksonville University are reasonably related to the Department's role in response to the spill. As Petitioner's exhibit 8 depicts, $30,312.53 has been disbursed from the Fund in costs, expenses and damages reasonably related to the response to the spill. There remains unpaid from the Fund the aforementioned costs and expenses in the amount of $18,990.53 which are reasonably related to the response to the spill. Those latter amounts, although presented for payment from the Fund by the agencies in question, were not paid, based upon some fiscal anomaly. By inference, it does not appear from this record that the Fund owes the agencies for these claims. According to Section 376.13, Florida Statutes, on February 27, 1987, Governor Martinez declared a state of emergency in response to the oil spill. That proclamation was withdrawn on March 25, 1987. The activities for which claims for costs and expenses are advanced transpired in the time frame of the state of emergency declaration. The amount which Respondent has expended in the cleanup effort is $700,000 plus or minus $200,000. None of this money has been paid to satisfy claims for costs, expenses and damages previously described. While it has been found that costs, expenses, and damages are reasonably related to the state's purposes in responding to the spill, not all items are recoverable. They are only recoverable if recognized for recovery by Chapter 376, Florida Statutes, and Chapter 16N-16, Florida Administrative Code, and owed or expended from the Fund. Petitioner's claims in its exhibit 8 in the amount of $12,901.30 and DOT claims for $675.19 in that exhibit qualify for recovery as well as the on-scene consulting fee of $3,525.00. Other claims do not qualify with the exception of a limited recovery for bird mortality. Reasons for this fact finding are set forth in the conclusions of law. Petitioner has disbursed $176,058.00 to the Commission for damages related to alleged bird mortality. This money was disbursed from the Fund. Petitioner now concedes that the amount should be reduced by half. This recognizes that the cost estimate for damages dealt with pairs of birds not single birds. Petitioner now asks for $88,075.00. Two hundred fourteen (214) birds are said to have died as a result of the spill, according to Petitioner. Petitioner seeks damages for each of these birds. The number proven to have been killed by the event and the theory upon which the damage claim is predicated leads to a result which diminishes the claim for reasons to be explained. As with other claims, Section 376.021.(4)(c), Florida Statutes, anticipates the payment of damages from the Fund. Section 376.11(1), Florida Statutes, is in aid of recovery of damages, as is Section 376.11(4)(d), Florida Statutes. However, these claims must be susceptible to proof that readily identifies and explains valuation methods of the birds and recognizes the predicate of establishing the actual number lost in this episode. For the most part, Petitioner has failed in the endeavor. Mark Damian Duda is a wildlife biologist with the Commission. He earned a bachelor of science degree from West Virginia University and received his master's degree in natural resource policy and planning from Yale University, both with honors. He was assigned the task of trying to arrive at an acceptable method for valuing birds that had been killed. His assessment is generally set forth in a report, a copy of which is Respondent's exhibit 3. Having considered a number of options, he reached the decision to employ what he describes as the replacement value method. Quoting from his report concerning this method, he has this to say: Replacement Value Method We believe the replacement value method is the most useful and logical method to determine the value of wildlife lost in the February 27 Jacksonville oil spill. A replacement cost approach can avoid many of the problems involved in attempting to estimate the use of value of biological resources. Under the replacement cost approach, the resource is valued at what it would cost to replace it. If the resource is replaced, the problems of identifying all its uses, the monetary value of these uses, and the users affected by the resource loss are eliminated, except for the period between the initial loss and the replacement. Four Florida institutions were asked to estimate the cost of obtaining specimens of the birds killed in the Jacksonville oil spill, or the price at which they would be willing to sell members of each species. Their estimates are shown in Table 4. One problem with most of these estimates is that they are not true replacements costs; but rather the cost of collecting already existing specimens from the wild and redistributing them to the Jacksonville Area. This does not represent true replacement, since true replacement requires a complete recovery of the species population. This can be most clearly assured by using only captive breeding programs for replacement. However, many of the species in this list probably cannot be bred in captivity. Therefore, true replacement of these species through captive breeding is probably impossible. It is absurd to value them at zero since they cannot be replaced. Therefore, this section presents some calculations on the assumption that they could be redistributed or replaced. Table 1 presents the replacement costs for the birds. The numbers were derived by multiplying the number of dead birds times the average replacement costs given in Table 4. Using this approach, the total replacement costs for the birds estimated to have been killed in the Jacksonville oil spill is $176,058.00. It should be noted that we use a deliberately conservative approach, using body counts only, and thereby underestimating the total mortality. There is an increasing amount of scientific literature indicating that actual body counts appear to significantly underestimate the total mortality resulting from a spill. For example, there have been a variety of experiments that show only 5 percent to 25 percent of the birds that die at sea, wash in or beach themselves on shore. The percent of loons found is probably even lower because of their low buoyancy and wide-ranging distribution. An alternative approach to estimating replacement costs is to estimate the cost of creating new habitat or enhancing existing habitat to support enough nesting pairs of each species to replenish the population. Again, to represent true replacement costs, this should be new or enhances habitat, not just the cost of acquiring already existing habitat. Tables 1 and 4 within Respondent's exhibit 3 are replicated here for convenience as Appendix 2 and Appendix 3, respectively. The numbers of birds shown in Duda's table are not numbers about which he has direct knowledge. They are numbers purportedly obtained from Tim O'Meara and Peter Southall, biologists who work for the Commission who got their information from the Central Region and Northeast Region, respectively. In particular, they allegedly received their information from rehabilitators working in the two regions. Neither biologist testified at hearing, and the exhibits do not satisfactorily establish what involvement the biologists had in a direct inventory of birds, if any, or the other sources of their information which was then given to Duda in preparing his report. The rehabilitators in the Central Region did not testify nor were any exhibits presented which spoke to records kept by those individuals that set out bird deaths in that area. The only person who presented any reliable information concerning bird mortality was Cindy Mosling, rehabilitator in the Northeast Region. Any records which she maintained were not produced at hearing. Nonetheless, she did remember some details concerning bird mortality, and from this testimony 56 common loons, 3 gannets, 1 black skimmer and 2 hooded mergansers are found to have died as a result of the oil spill. The replacement value method by Duda speaks to the fact that his method does not constitute a complete recovery of the species population. Instead, what is shown in Respondent's exhibit 3 is averaging of estimates from Table 4 on costs for collecting existing specimens from the wild and releasing them back to the Jacksonville area after a period as opposed to a captive breeding program. That explanation is not correct, either, because there is no intention to release birds to the wild after raising them or rehabilitating them in captivity in one of the Florida institutions mentioned in Table 4. Moreover, only one of those programs has been relied upon by Petitioner in arriving at a cost estimate. That program is Sea World. As a consequence, the cost analysis in Table 1 related to hooded mergansers is incorrect in that it reflects an average of $150 and not the $200 quoted by Sea world. Again, the prices reflect pairs and not single birds. Robin Friday is the curator from Sea World who supplied cost estimates for pairs in Table 4 to Respondent's exhibit 3. He arrived at his price estimates in a 15 to 20 minute telephone conversation with Duda. To the extent he had no actual experience with price lists reflecting cost of a specie, he assumed that theoretical permits would be issued to collect live birds or eggs in the wild and that he would keep them in a captive environment, hoping they would breed while in captivity. In the latter category, the costs to promote the outcome of breeding in captivity formed his estimate. It can be seen that this departs from Duda's method for valuation. Notwithstanding this fact, Duda relied upon the price quotation by Friday. The main species of birds which Friday has had experience with are waterfowl. Of the species which have been verified as lost in this incident, he had had experience with common loons and hooded mergansers. The hooded merganser is a waterfowl with which he has close experience in breeding, acquisition and disposition. The common loon is a shore bird. In his career he has worked to rehabilitate two or three of those birds. He has had no experience with gannets and black skimmers, which are shore birds. As Friday identified, waterfowl may be sold, shore birds may not. Sale of the shore birds is prohibited by law. His price quotes for the hooded mergansers are from actual experience in sales. His quotations on the other species are matters of conjecture in collecting, housing, feeding and establishing a breeding program for them based upon limited experience in rehabilitating common loons and no experience with gannets and the black skimmer. The price estimate on the hooded merganser of $100 per bird is accepted. The price estimates for common loons, gannets and black skimmers are not. They are too speculative. Jean Benchinol is a curator in Gulf Breeze, Florida, who works for Animal Park, Inc. She testified at hearing. She was presented as a witness who could corroborate the Friday opinion on bird valuation. Her cost estimates may be found as Petitioner's exhibit 14, quotes for single birds. She has had direct involvement with hooded mergansers. She has sold those birds and quoted the price at hearing as being $100. This coincides with the price per bird quoted by Friday. For other birds in her price estimates that cannot be bought and sold and that remain at issue here, that is, common loons, gannets and the black skimmer, she categorized them as capable of surviving in captivity or not. The black skimmers can live in captivity and the common loon and gannet cannot, according to the witness. She had had a common loon in captivity before and noted that it did not do well, being more receptive to northern climes. At hearing her opinion about birds that could not survive in the Florida environment was rejected. In this final analysis, that refers to the common loons and gannets. Likewise, having considered her explanation concerning her valuation for the black skimmer, that opinion is rejected. In rejecting this method, the cross examination at hearing concerning valuation for the royal tern was significant in that it pointed out the inexact and unreliable nature of the method. This method contemplated receiving a live bird in her facility and the costs for medication, housing, feeding and staff time for approximately 60 days. In summary, on the subject of bird mortality, there is no inherent prohibition against valuation; birds do have a value that can be measured in monetary terms. Here the effort to arrive at that understanding fails in the inventory of casualties and method of valuation, with a limited exception. It is also observed that the Respondent had paid the rehabilitators to house, feed and nurse birds back to health that were injured, a similar activity to the theoretical exercise envisioned by Duda, Friday and Benchinol.
Recommendation Based upon the consideration of the facts and the conclusions of law reached, it is, RECOMMENDED: That a Final Order be entered which requires the Respondent to reimburse the Fund in the amount of $17,301.58 and dismisses all other charges against Respondent. DONE and ENTERED this 26th day of July, 1990, in Tallahassee, Florida. CHARLES C. ADAMS, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 26th day of July, 1990. APPENDIX 1 The following discussion is given concerning the proposed facts of the parties. Petitioner's Facts Paragraphs 1 and 2 are subordinate to facts found. Paragraph 3 is not necessary to the resolution of the dispute. Paragraphs 4 and 5 are subordinate to facts found. The first two sentences of Paragraph 6 are subordinate to facts found. The last two sentences are not necessary to the resolution of the dispute. Paragraph 7 is not necessary to the resolution of the dispute. Paragraph 8 is subordinate to facts found. The first two sentences of Paragraph 9 are subordinate to facts found. While it is agreed that the correspondence from Petitioner to Respondent did not indicate that claims for costs and expenses were only subject to collection if paid from the Florida Coastal Protection Trust Fund, in the administrative forum recoupment of costs, expenses and damages may only be permitted for monies owed or expended from the fund. Paragraphs 10-13 are subordinate to facts found. It is acknowledged as set forth in Paragraph 14 that money was transferred from Coastal Protection Trust Fund to the Erosion Control Trust Fund for future beach renourishment. The more relevant fact is whether the claim for damages of value under the renourishment is legitimate and that determination has been made favoring the Petitioner. The concept of using the funds that are being held for purposes of future renourishment is in keeping with a reasonable disposition of the damage claim. Paragraphs 15-24 are subordinate to facts found. The first sentence to Paragraph 25 is contrary to facts found. The second sentence is subordinate to facts found. The third sentence is an accurate statement of what Table 1 contributes but the findings in that table are rejected in part. The first sentence to Paragraph 26 is subordinate to facts found. The second sentence is accepted in the sense of recognizing that a list was maintained; however, that list was not produced at hearing as an aide in determining the number of birds that were killed. The third sentence is rejected. The fourth and fifth sentences are knowledged and those underlying facts were taken into account in accepting the representations by the witness Mosling concerning the number of birds that died as a result of the oil spill which she could recall. Paragraph 27 is subordinate to facts found. Paragraph 28 is subordinate to facts found. Paragraph 29 is not necessary to the resolution of the dispute. The first sentence to Paragraph 30 is subordinate to facts found. The second sentence is not necessary to the resolution of the dispute. The first sentence to Paragraph 31 is subordinate to facts found. The second sentence is accepted with the exception that certain categories of water fowl are bought and sold in the free market. Concerning the third sentence, while it is acknowledged that curators are the better persons to attempt valuation, they must have sufficient understanding of the varieties on which they are commenting to have their opinions accepted and their methods of analysis of costs must stand scrutiny. This was not achieved in this instance. The last sentence in Paragraph 31 is not accepted in that the replacement value method was not adequately explained and does not allow a ranking of whether it is inexpensive, or cheaper or some where in the middle. Paragraph 32 is subordinate to facts found. The first sentence to Paragraph 33 is subordinate to facts found. The second sentence is subordinate to facts found as it references hooded mergansers. The other references are to species which have not been found to have been lost to the spill. The last sentence is accepted in the sense that the remaining species have limitations placed upon their use by state and federal law which prohibits the buying and selling. Paragraph 34 in its reference to the cost of hooded mergansers is accepted. The balance of the information was not utilized in that the Petitioner failed to demonstrate that other species had been lost to the spill. In Paragraph 35 of the species that testimony was presented about, only the common loon, gannets and black skimmer pertain. While it is acknowledged that the method that the witness Friday used to estimate the value of those species is an accurate portrayal of his efforts, those efforts were rejected as were those of Ms. Benchinol described in Paragraph 36. In Paragraph 36 the explanation of her methods is correct. The methods were not accepted either in support of the testimony by Friday or in her own right. There is no significance to the discussion concerning the brown pelican and inadequate proof was made that the brown pelicans were lost. Respondent's Facts The first sentence to Paragraphs 1 is subordinate to facts found. The last two sentences are not necessary to the resolution of the dispute. As to Paragraph 2, it is acknowledged that Mr. Healey served as the liaison to the RRT and OSC. In the second sentence to that paragraph it is accepted that the state supports the RRT. It also has the function to compliment the RRT and to act independent of the federal response. The first sentence to Paragraph 3 is subordinate to facts found. The second and third sentences are not necessary to the resolution of the dispute. The fourth and fifth sentences are subordinate to facts found. While Paragraph 4 accurately describes the circumstance, this did not deter the state from pursuing its independent function in responding to the spill event. Paragraph 5 accurately portrays the OCS's idea of who was necessary to support the federal response. It does not preclude the activities of other state employees in carrying out their functions. Paragraph 6 is contrary to facts found. Paragraph 7 is a correct statement but does not preclude the state's efforts in its own right at responding to the spill. Paragraph 8 is subordinate to facts found. Paragraph 9 while an accurate portrayal does not preclude the state in its efforts. The same pertains to Paragraph 10. Paragraph 11 is contrary to facts found. Paragraph 12 is subordinate to facts found. Paragraph 13 is contrary to facts found as is Paragraph 14. Paragraph 15 is subordinate to facts found. Paragraph 16 is not relevant. Paragraph 17 is an accurate portrayal of the federal use of the state helicopter but does not preclude request for reimbursement for uses which the state had of that helicopter. Paragraph 18 is subordinate to facts found. The first two sentences within Paragraph 19 are subordinate to facts found. The third and fourth sentences are not relevant to the issue of whether the state was entitled to seek the assistance or Jacksonville University for its own purposes distinct from those of the federal response. The latter sentence is a correct portrayal of the outcome but for reasons different than contemplated by the Respondent. Paragraph 20 is subordinate to facts found. Paragraph 21 is subordinate to facts found. Paragraph 22 is subordinate to facts found in its first two sentences. The third sentence is not accepted beyond the fact that the Department of Interior using a nonconsumptive use technique, whether other federal agencies use that method was not subject to determination from the record. The first three sentences to Paragraph 23 are not necessary to the resolution of the dispute. The fourth sentence is not accepted. The fifth and sixth sentences are subordinate to facts found. As to the seventh sentence, it is not clear that there was the intention of redistributing to the Jacksonville area. The eighth sentence is subordinate to facts found. Paragraph 24 is subordinate to facts found as are Paragraphs 25 and 26. The suggestion of the price for hooded mergansers as set out in Paragraph 27 is not accepted. The lesser scaup was not found to have been lost to the spill. The state price of $100.00 per bird for hooded mergansers is accepted. Paragraphs 28-31 are subordinate to facts found as it pertains to the species that were proven to have been lost. Paragraph 32 is not necessary to the resolution of the dispute. Paragraphs 33 and 34 are subordinate to facts found, with the exception that it has been determined that the number of dead birds which Ms. Mosling can recall involvement with is accepted. Paragraphs 35 through 37 are subordinate to facts found in the species determined to have been lost, with the exception that the actual price for hooded mergansers was $100. COPIES FURNISHED: Tom Gardner, Executive Director Department of Natural Resources 3900 Commonwealth Boulevard Tallahassee, FL 32399 Kenneth J. Plante, General Counsel Lynn M. Finnegan, Assistant General Counsel Department of Natural Resources 3900 Commonwealth Boulevard Tallahassee, FL 32399 Robert B. Parrish, Esquire James F. Moody, Jr., Esquire Taylor, Moseley & Joyner 501 West Bay Street Jacksonville, FL 32202
Findings Of Fact At present, and at all times relevant, Michael Mason is, and has been president of International Assurance Underwriters, Inc. (IAU), 2600 Maitland Center Parkway, Maitland, Florida. Respondent Mason was licensed as an insurance agent in the State of Florida in 1978 and continued to be licensed at all times relevant to this proceeding. He is currently eligible for licensure as a surplus lines insurance agent and general lines insurance agent. Prior to its emergency temporary suspension in this proceeding, Mason's license has not been subject to discipline. IAU was incorporated on or about March 11, 1991. Its directors were Michael Mason, John Erb and Robert Campbell. Shortly thereafter, a Limited Binding Authority Agreement was made between Assicurazioni Generali, S.P.A. (Generali), an international insurance company with a branch in London, and Leslie & Godwin Special Risks Ltd., London, (Leslie & Godwin) authorizing Leslie & Godwin to bind insurances, issue certificates of insurance, and settle claims on behalf of Generali. M.C. Rutty, Citadel Insurance Services, Ltd., London (Citadel), was designated as intermediary. Article II of the agreement provides, in pertinent part,"... the binding of insurances hereunder shall be the responsibility of one of the persons named in Section B.2 herein...." (Petitioner's Exhibit #16) Section B.2 provides, in pertinent part: 2. Persons authorized to use this Limited Binding Authority It is a condition of this Agreement that all insurances submitted hereunder must be first accepted and approved by the following persons: Michael T. Mason John K. Erb [names handwritten and initialled by Barry West, Director of Leslie & Godwin, and Maurice Rutty] (Petitioner's exhibit #16) The agreement provided for Generali to insure hospitality businesses (hotels, motels, restaurants, bars, taverns and the like) in the United States, for property limits up to $1,000,000 per location, general liability limits up to $1,000,000 and liquor legal liability up to $1,000,000. Under the arrangement, IAU, as approved producing agent, obtained requests for insurance from its subagents and other brokers or companies. Requests were forwarded to Generali, through Citadel and Leslie & Godwin. Generali was the ultimate authority to approve the risk, but Leslie & Godwin and IAU had some limited authority to bind the company on a temporary basis. Each month a bordereau, or list, was to be submitted by IAU through Citadel and Leslie & Godwin showing what policies were written that month. Premiums were due thirty (30) to forty-five (45) days from the end of the month. IAU immediately began providing insurance business for Generali, primarily involving insureds in Florida, and primarily through three Florida insurance companies: Hull & Company, Hummel Co., and Southeast Insurers, Inc. Except for delays in getting copies of policies in some cases, representatives from these companies noted nothing out of the ordinary in their dealings with IAU or Michael Mason. Claims were made and paid; premiums were paid by the companies to IAU. Sometime around the end of October or early November 1991, the companies learned that a cease and desist order had been entered by the Florida Department of Insurance against IAU. Maurice Rutty and attorneys representing Leslie & Godwin and Citadel met with the companies and obtained lists of policies obtained for them by IAU. At the time that the cease and desist order was entered, the companies had on hand premium funds due to be paid to IAU for Generali policies. Those funds have not been paid and allegedly remain in the companies' accounts. Notwithstanding the risk limits in the Limited Binding Authority Agreement, a substantial number of policies were written by IAU for more than $1,000,000. Ocean Properties was an account involving multiple properties, mostly hotels, with an aggregate risk of $300 to $400 million. A single building in the Bahamas was insured with $45 million property coverage. Maurice Rutty claims that Generali never approved the coverage beyond the $1 million limit, but instead obtained excess coverage beyond the limit after Generali learned of IAU's actions. Rutty admits that Generali routinely approved limits beyond $1 million, but only to $1.2 or $1.5 million. Michael Mason claims that he properly forwarded the paperwork to Citadel, that he never dealt directly with Generali, but that the policies were approved. In June 1991, Generali informed Citadel that it would no longer write policies in Florida as it was concerned about windstorm liability. This change was conveyed to Michael Mason by telephone by Maurice Rutty and by facsimile transmission from Eve Russell, Rutty's partner. In a telephone call with Rutty, Mason argued that the limitation would cripple IAU as most of its work was in Florida. Mason also provided a list of Florida policies showing what he believed was an acceptable ratio of coastal to inland properties. Mason continued to approve policies for Generali on Florida properties. Mason believed that he and Generali, through communication with Citadel, had gotten around the problem of windstorm hazards. The Limited Binding Authority Agreement includes a section styled "underwriting guidelines". One such guideline is that "...a wind exclusion or deductible may apply to risks located within one mile from the coastline." (Petitioners exhibit #16) Mason considered that a discretionary guideline and included windstorm deductibles on some risks located by the ocean. The bordereaux, or lists, submitted by Mason to Citadel were reasonably appropriate, according to Maurice Rutty, except for one or two premium discrepancies, which is normal. The premiums submitted to Citadel for Generali's policies from IAU and other producers were net premiums, after the commissions were deducted. At some point Mason learned that someone in his office had bound risks that were not originally submitted on his list. A supplemental list was filed for those six policies and the premiums were submitted. After Maurice Rutty learned that the bank account set up by Citadel in the United States for receipt of premiums was frozen by the Florida Department of Insurance, he traveled to Florida to meet with the various companies who were providing business to IAU for Generali. He found what he claimed were approximately 140 policies which were written through IAU but were never approved by Generali. With one exception, eventually all of those policies were covered by Generali. The exception was a large policy for the Catholic Diocese of Nassau, Bahamas, which Generali cancelled after a 3-month notice. The policy was beyond the scope of the hospitality program described in the Limited Binding Authority Agreement. No one from Generali nor Leslie & Godwin testified, and the exact nature of the relationship between those companies and IAU was not clearly established. Michael Mason was not a signatory to the Limited Binding Authority Agreement. Rutty's testimony regarding what was approved or disapproved by Generali was unclear. He insisted that Generali did not approve the coverage beyond $1 million, but excess policies were acquired by Generali for the additional amounts. He conceded that facsimile notices of those policies and the Florida policies written after June 1991 could have been received by Citadel, but he did not explain how the coverage denial by Generali was communicated to Mason or IAU. He insisted that coverage was ineffective prior to approval by Generali or by Barry West, but the language of the Limited Binding Authority Agreement appears to delegate some approval responsibility to Mason and Erb. Evidence on what premiums are still due from IAU is also unclear. The Florida companies providing business to IAU concede that they are holding some premium funds. Mason has over $1 million in bank accounts that are frozen by the Florida Department of Insurance. He argues that these funds are sufficient to pay any premiums that were due from IAU when the emergency agency action was taken the end of October 1991. Counsel for the agency concedes that no audit was done, but he has added the premiums for all the policies written by IAU for Generali that were submitted by Hull & Company, Hummel Company and Southeast Insurers, Inc., and those premiums exceed the funds available in Mason's accounts. This exercise does not prove a misappropriation by Mason. It fails to take into account funds still being held by the three companies and funds which even Maurice Rutty concedes were paid for premiums up to the liability limits of $1 million (see transcript, p. 145, lines 11-12). No Florida insurance consumer testified as to failure to receive requested insurance or the incurrence of financial losses, and evidence by the three company representatives did not establish these alleged violations by Mason. The evidence did establish that a once cordial and informal relationship between Citadel and IAU deteriorated by October 1991. Mason also conceded that some problems existed with staff in his office, but except for the delayed submittal of six policies, the nature of the problems was not defined. No witness explained how those internal problems constituted violations of the Florida Insurance Code.
Recommendation Based on the foregoing, it is hereby, recommended that the Administrative Complaint dated November 18, 1991, be dismissed. RECOMMENDED this 1st day of May, 1992, in Tallahassee, Leon County, Florida. MARY CLARK Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904)488-9675 Filed with the Clerk of the Division of Administrative Hearings this 1st day of May, 1992. APPENDIX TO RECOMMENDED ORDER, CASE NO. 91-7548 The following constitute rulings on the findings of fact proposed by Petitioner: Adopted in paragraph 1. Adopted in paragraph 2. Adopted by implication in paragraphs 3 and 5. Adopted in part in paragraph 4, otherwise rejected as unsupported by the evidence. 5.-6. Rejected as contrary to the weight of evidence. Adopted in paragraph 4. Adopted in part in paragraph 4, otherwise rejected as unsupported by the weight of evidence. The actions of the parties, including Generali and Citadel, as well as IAU were not in strict compliance with the Limited Binding Agreement and it is apparent that other agreements, written or oral, existed to govern those actions. 9.-10. Adopted in paragraph 4. 11. Adopted in paragraph 7. 12.-13. Adopted in paragraph 8. Adopted by implication in paragraph 9. Addressed, but not adopted, as unsupported by competent clear evidence. Adopted in paragraph 5. 17. Rejected as contrary to the weight of evidence. 18. Adopted in summary in paragraph 5. 19.-21. Rejected as irrelevant. 22. Adopted in paragraph 9. 23.-24. Rejected as irrelevant (see paragraph 11). COPIES FURNISHED: James A. Bossart, Esquire Dept. of Insurance & Treasurer Division of Legal Services 412 Larson Building Tallahassee, FL 32399-0300 Jason Reynolds, Esquire Box 5428 Daytona Beach, FL 32118 Tom Gallagher State Treasurer & Insurance Commissioner The Capitol, Plaza Level Tallahassee, FL 32399-0300 Bill O'Neil, General Counsel Dept. of Insurance & Treasurer The Capitol, PL-11 Tallahassee, FL 32399-0300
