The Issue At issue in this proceeding is whether respondent committed the offenses alleged in the amended administrative complaint and, if so, what disciplinary action should be taken.
Findings Of Fact Respondent, Harold Sydney Rose (Rose) was, at all times material hereto, licensed in the State of Florida as a life and health insurance agent and health insurance agent. During all such times, Rose did business as the Harold Rose Insurance Agency, an unincorporated business, in Dade County, Florida. Here, petitioner has filed an amended administrative complaint against Rose which charges him with certain misconduct which was alleged to have arisen while he was an agent for Union Bankers Insurance Company (Union Bankers) and United American Insurance Company (United American). Count I of the complaint concerns allegations that Rose failed to remit premiums and applications solicited on behalf of Union Bankers, and misappropriated and converted such monies to his own use and benefit or unlawfully withheld such monies from the insurer and insured. Counts II-V of the complaint allege similar conduct which purportedly occurred during the course of his agency relationship with United American. The Union Bankers transaction Pertinent to Count I, Rose's agent's contract with Union Bankers, dated September 27, 1984, provided: 5. SOLICITATION The agent is hereby authorized to solicit and procure applications for individual life insurance, accident and health annuity policies and to promptly deliver such applications to this Company. The Company shall have the right at all times to reject any application submit- ted for insurance without specifying any reason for rejection. * * * 11. COLLECTION OF MONEY The Agent is not authorized to receive any money due or to become due to the Company ex- cept the initial first-year premiums on appli- cations obtained by/or through him in exchange for the Conditional Receipts furnished by the Company. Any and all monies or securities re- ceived by the Agent for and on behalf of the Company shall be securely held by the Agent in a fiduciary capacity and shall not be used by the Agent for any personal or other purposes whatsoever, but shall be immediately paid over to the Company. While the literal terms of his agreement with Union Bankers would imply that Rose was required to hold all premiums in trust and immediately remit them to the company, his agreement with the company actually permitted him to retain his commission from the first-year premium and remit the balance (referred to as the "net") to the company, along with the application, within ten days of receipt. If the company declined to issue the policy, then Rose's account was debited for the amount he had retained. During early 1992, as a consequence of complaints from applicants, Union Bankers became concerned that Rose was not timely submitting applications and premiums due the company on policies he solicited. As a consequence, by letter of April 3, 1992, Union Bankers terminated Rose's agency agreement, effective April 18, 1992. Subsequently, following repeated demands by Union Bankers that Rose submit to it all applications and premiums he had received on behalf of the company, the Rose Agency submitted new business reports, together with applications and partial premium payments to the company. This information was received about the end of June or early July 1992, and reflected significant delays in forwarding applications and premiums to Union Bankers. Regarding such delays, the competent proof demonstrated the following: On March 16, 1992, Rose solicited an application on behalf of Union Bankers from Dennis Rehman, as well as an application from his wife Gail, for health insurance, and received two checks from them, one for $1,073 and the other for $409, representing the first year premium. These checks were deposited to the account of the Harold Rose Agency at Florida International Bank on March 18, 1992. Notwithstanding, Rose did not forward the application to Union Bankers until June 1992, and then only upon complaint of the applicants and demand by Union Bankers. When submitted, the application was accompanied by a check from the Harold Rose Agency to Union Bankers for $787.00, the correct net premium, and the policies were issued in July 1992. On March 23, 1992, Rose solicited an application on behalf of Union Bankers from Clarence Medlin for home health care insurance, and received a check in the sum of $953.00, representing the first year premium. Notwithstanding, Rose did not forward the application to Union Bankers until on or about June 25, 1992, and then only upon complaint of the applicant and demand by Union Bankers. When submitted, the application was accompanied by a check from the Harold Rose Agency to Union Bankers for $142.95, which was significantly less than the net commission of $333.55 that was due. Nevertheless, Union Bankers underwrote the application. On April 1, 1992, Rose solicited an application on behalf of Union Bankers from Sally Goldhirsch for home health care insurance, and received from her the sum of $1,033.00, representing the first year premium. Notwithstanding, Rose did not forward the application to Union Bankers until on or about June 25, 1992, and then only following demand by Union Bankers. When submitted, the application was accompanied by a check from the Harold Rose Agency to Union Bankers for $206.60, which was significantly less than the net commission of $361.55 that was due. The ultimate disposition of the Goldhirsch application does not appear of record. On April 7, 1992, Rose solicited an application on behalf of Union Bankers from Morris Olkes for home health care insurance, and received a check in the sum of $1,986, representing the first year premium. The check was deposited to the account of the Harold Rose Agency at Florida International Bank on April 13, 1992. Notwithstanding, Rose did not forward the application to Union Bankers until on or about June 25, 1992, and then only upon complaint of the applicant and demand by Union Bankers. When submitted, the application was accompanied by a check from the Harold Rose Agency to Union Bankers for $397.20, which was significantly less than the net commission of $695.10 that was due. Nevertheless, Union Bankers underwrote the application and delivered a policy to Mr. Olkes. Upon review of the policy Mr. Olkes declined to accept it, and Union Bankers refunded his $1,986 premium. On April 3, 1992, Rose solicited an application on behalf of Union Bankers from Cora Burghard for a home health care insurance policy, and received from her the sum of $1,033, representing the first year premium. Notwithstanding, Rose did not forward the application to Union Bankers until on or about June 25, 1992. When submitted, the application was accompanied by a check drawn on the Harold Rose Agency account for $206.00, which was significantly less than the net commission of $361.55 that was due. The ultimate disposition of the Burghard application does not appear of record. On May 1, 1992, Rose solicited an application on behalf of Union Bankers from Daisy Schumann for a home health care insurance policy, and received from her the sum of $557.00, representing the first year premium. Notwithstanding, Rose did not forward the application to Union Bankers until on or about June 29, 1992. When submitted, the application was accompanied by a check drawn on the Harold Rose Agency account for $111.40, which was significantly less than the net commission of $194.95 that was due. The ultimate disposition of the Schumann application does not appear of record. On April 15, 1992, Rose solicited an application on behalf of Union Bankers from Grace DuMond for a home health care policy, and received from her the sum of $1,075.00, representing the first year premium. Notwithstanding, Rose did not forward the application to Union Bankers until on or about June 29, 1992. When submitted, the application was accompanied by a check drawn on the Harold Rose Agency Account for $215.00, which was significantly less than the net commission of $376.25 that was due. The ultimate disposition of the DuMond application does not appear of record. On April 24, 1992, Rose solicited an application on behalf of Union Bankers from Bernard Bernard for a home health care policy and received from him the sum of $1,588.00, representing the first year premium. Notwithstanding, Rose did not forward the application to Union Bankers until on or about June 29, 1992. When submitted, the application was accompanied by a check drawn on the Harold Rose Agency account for $317.60, which was significantly less than the net commission of $555.80 that was due. The ultimate disposition of the Bernard application does not appear of record. Finally, in August 1992, Union Bankers received an inquiry on behalf of Mr. and Mrs. Anthony Feanny regarding the status of applications they had made for Union Bankers health insurance through the Harold Rose Agency. In this regard, the proof demonstrates that the Feannys were solicited by Allen James, an agent with the Harold Rose Agency, who secured applications for health insurance from them on three occasions, and received checks for the first year premium. The first check was for $2,021.00, dated February 20, 1991, and deposited to the Harold Rose Agency account on February 20, 1991; the second check was for $3,521.00, dated February 28, 1991, and deposited to the Harold Rose Agency account on March 8, 1991; and the third check was for $1,929.67, dated September 23, 1991, and deposited to the Harold Rose Agency account on October 3, 1991. According to Mr. James, the Feannys agreed for the agency to delay sending their applications to Union Bankers until a claim pending with another insurance company had been resolved. Whether that claim was ever resolved does not appear of record; however, the record does demonstrate that none of the three applications or any premiums were ever submitted to Union Bankers, and that, considering the balances maintained in the Harold Rose Agency account discussed infra, those premium funds were not maintained in trust. In August 1992, Union Bankers refunded the Feannys the premiums they had entrusted to the Harold Rose Agency. The premium refunds and premium credits made by Union Bankers to various applicants or insureds were, along with other transactions, reflected on Rose's account current statement with the company. As of August 31, 1991, Rose's statement reflected a debit balance of $21,534.48, and as of January 31, 1994, through the company's application of renewal commissions due Rose to the debit, a debit balance of $11,491.98. Absent additional debits, Rose's account with Union Bankers will be current within 15 to 18 months by applying his renewal commission to the outstanding debt. United American and the Rosenbaum, Jaffer, Lichtman and Rutkin transactions (Counts II-V) Counts II-V of the amended administrative complaint allege that Rose failed to remit premiums and applications solicited on behalf of United American from Fannie Rosenbaum (Count II), Adah S. Jaffer (Count III), Arnold Lichtman (Count IV) and Judith and Norman Rutkin (Count V), and misappropriated and converted such monies to his own use and benefit or unlawfully withheld such monies from the insurer and insured. Pertinent to these counts, the proof demonstrated that on November 19, 1991, United American and Rose, as agent, entered into a vested commission contract. That contract provided: APPOINTMENT AND RELATIONSHIP The Agent shall be a General Agent of the Com- pany and is authorized to solicit in person or through Sub-agents, applications for Insurance. Such applications are subject to Company ap- proval. The Agent may collect only the initial premium payments due on such applications. The relationship between the Agency, or any Sub-agent, and the Company shall be that of an independent contractor only, and not a rela- tionship of employer and employee. Any initial premiums collected by the Agency, or any Sub- agent, shall be held in trust by the Agent, on behalf of the Company, and the Agent shall have a duty to promptly remit the premiums to the Company, less applicable commissions due the Agent. The general transactions of busi- ness including eligibility requirements of ap- plicant will be governed by Company rules which may be changed, altered, or amended from time to time by the Company. COMMISSION COMPENSATION The Agent shall receive as full compensation for any expenses, as well as all services pro- vided by the Agent, the commissions on pre- miums paid on policies issued on applications secured by the Agent or any Sub-agents, as specified and set forth in the Schedule(s) of Commissions shown below. The Agent shall im- mediately remit to the Company all premiums collected by the Agent, or any Sub-agents, less the Agent's initial commission thereon. The Company may discontinue any plan or policy and/or change commissions on existing or new policies, but such change shall not affect any commissions due Agent on policies issued prior to the effective date of the change. The Com- pany shall determine the commission on any policy which is determined to be a replacement or conversion of any existing policy. * * * SCHEDULE OF COMMISSIONS - FLORIDA HEALTH PLANS: First Year Commissions Medicare Supplements - 34 percent, except no commissions will be paid on any portion of the premium for Part B deductible coverage. Other Health Plans - 54 percent, plus re- gistration fee (less $1 on monthly and quar- terly modes). Renewal Years Commissions Medicare Supplements - 17 percent, except renewal years commission will not include any portion of rate increases and no commissions will be paid on any portion of the premium for Part B deductible coverage. Other Health Plans - 12 percent Here, like Rose's agreement with Union Bankers, his agreement with United American permitted him to retain his commission from the first-year premium and remit the net to the company, along with the application. If the company declined to issue the policy, then Rose's account was debited for the amount he had retained. As to Count II, the proof demonstrates that on May 28, 1992, Rose received from Fannie Rosenbaum of Miami Beach, Florida, a check made payable to United American in the sum of $1,637.00 as payment of the initial premium on a United American health insurance policy Rose had solicited. This check was deposited to the account of the Harold Rose Agency at Florida International Bank on May 29, 1992, but no application or premium was remitted to United American. Following inquiry regarding the status of her application and proof of payment of the premium to Rose, and consistent with Ms. Rosenbaum's request of June 22, 1992, United American credited her account with the sum of $1,617.00 to renew a preexisting policy and refunded $20.00 to her. Subsequently, Ms. Rosenbaum requested the return of the balance of the premium ($1,617.00) and it was refunded to her by United American. By letter of July 10, 1992, United American demanded of Rose the premium he had been paid on its behalf by Ms. Rosenbaum, as well as an explanation for its non remittance. On September 22, 1992, United American received from the Rose Agency a partially completed application on Ms. Rosenbaum, but has yet to receive any part of the premium or any explanation for Rose's failure to timely remit the application and premium. As to Count III, the amended administrative complaint alleges that on or about June 9, 1992, Rose solicited and sold to Adah S. Jaffer a United American Health insurance policy, and received from Adah S. Jaffer a check made payable to United American in the sum of $3,475.00 as payment of the initial premium on the policy. The complaint further alleges that Rose failed to remit any premium or submit the application to United American, but misappropriated and converted the funds to his own use. At hearing, the deposition testimony of Adah S. Jaffer, marked as petitioner's exhibit 3, was not received into evidence. Notwithstanding, the testimony of Rose demonstrates that he took an application for insurance from the Jaffers, although its nature does not appear of record, and other competent proof demonstrates that a check dated June 9, 1992, drawn by Harold G. Jaffer and payable to United American in the sum of $3,425 was deposited to the account of the Harold Rose Agency at Florida International Bank on June 10, 1992. Moreover, the proof demonstrates that in September 1992, United American received an inquiry from the Jaffers regarding the status of their application and, upon review, discovered that no application or premium had been received by the company. Upon inquiry, the Rose Agent sent United American an incomplete application on the Jaffers, which was received September 22, 1992, but no premium. Subsequently, United American refunded the Jaffers $3,425, but Rose, despite demand, has failed to remit any part of the Jaffer premium to United American. As to Count IV, the proof demonstrates that on July 10, 1992, Rose received from Arnold Lichtman of Miami Beach, Florida, a check made payable to United American in the sum of $1,352 as payment for the first year premium on a United American Medicare Supplemental Insurance policy Rose had solicited. This check was deposited to the account of the Harold Rose Agency on July 15, 1992, but no application or premium was remitted to United American. Following inquiry by Mr. Lichtman on September 11, 1992, regarding the status of his application, United American discovered that no application or premium had been received by the company. Upon inquiry, the Rose Agency forwarded a partially completed application for Mr. Lichtman to United American on September 22, 1992, but no premium. In the interim, United American refunded Mr. Lichtman $1,352. Notice of the refund and request for reimbursement was mailed to Rose, but he has failed to remit any part of the premium to United American. As to Count V, the proof demonstrates that on July 23, 1992, Rose received from Judith Rutkin of Miami, Florida, a check made payable to United American in the sum of $1,352 as payment for the first year premium on a United American ProCare Plan F Medicare Supplemental insurance policy Rose had solicited. This check was deposited to the account of the Harold Rose Agency at Florida International Bankers on July 27, 1992, but no application or premium was submitted to United American. Mr. Rutkin, who became increasingly concerned about nondelivery of his wife's policy, and lack of communication from Rose, called United American on September 29, 1992, only to learn that no application or premium had been submitted to them. At United American's request, Mr. Rutkin wrote them a letter on October 9, 1992, explaining the circumstances and enclosing a copy of his wife's cancelled check. On October 15, 1992, United American reimbursed Mrs. Rutkin for her premium deposit. Notice of the refund and a request for reimbursement was mailed to Rose, but he has failed to remit any portion of the premium to United American. United American terminated Rose's agency agreement September 2, 1992, for his failure to remit premiums, and demanded reimbursement of the policy premiums. To date, Rose has failed to reimburse United American for the premium refunds it made. Unlike his account with Union Bankers, Rose's account with United American has no outstanding policies upon which Rose could receive renewal commissions and against which United American could apply the debt due it from Rose. The Harold Rose Agency bank account The Harold Rose Agency bank account at Florida International Bank is described as a business checking account, and Harold S. Rose is designated as the owner and sole signatory. As of June 31, 1992, the account had a negative balance (overdrawn) of $798.53, as of July 31, 1992, a positive balance of $1,092.11, as of August 31, 1992, a negative balance of $1,165.55, and as of the date of hearing a positive balance of $2.62. Rose's response According to Rose, he has delegated all office duties at his agency to two secretaries, and they are responsible for processing all applications, handling all finances (bank deposits, check writing, and review of bank statements), responding to inquiries from insurance companies, or anything else that has to do with office operations. Moreover, although he is the sole signatory on the agency bank account, Rose has authorized his secretaries to sign his name and, according to Rose, they sign all the checks on that account. Essentially, Rose suggests he has absolutely nothing to do with any office duties, but restricts his activities to selling and servicing his agents, and that when he takes an application and premium from a client he merely turns it in for processing with his secretaries like any other agent working for him. Rose further averred that he never intentionally withheld applications from the companies and never took any part of a premium that was not his. Notwithstanding, Rose offered no cogent or credible explanation for why the subject applications and premiums were not submitted to Union Bankers and United American in the regular course of business, why client inquiries repeatedly went unanswered, why repeated demands from the insurance companies were necessary to get the applications, why the net premiums due the companies were not held in his account, in trust, until disbursed according to law, or why the premiums have not been paid to the companies on demand or at any time to date. Under the circumstances, Rose's explanation and attempt to distance himself from responsibility for the operations of his agency are rejected as improbable and lacking credibility, and he is found to have intentionally deferred submitting applications and premiums to Union Bankers and United American, and to have diverted premiums entrusted to his agency for other than their intended purposes. 1/ But for the instant case, no complaint has been filed regarding Rose since his licensure as an insurance agent in the State of Florida in 1950, and no prior disciplinary action has been initiated by the Department of Insurance.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that a final order be rendered which revokes respondent's licenses and eligibility for licensure in the State of Florida. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 6th day of April 1994. WILLIAM J. KENDRICK 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 6th day of April, 1994.
Conclusions 1. On August 30, 2012, the Agency for Health Care Administration (“AHCA” or “Agency”), Bureau of Medicaid Program Integrity, issued a Final Audit Report to Respondent, reflecting that Respondent owed AHCA the following. (SEE EXHIBIT 1) Overpayment: $19,306.88 Fines: $3,861.38 for violation(s) of Rule 59G-9.070(7)(e), F.A.C. Cost: $105.18 Grand Total: $23,273.44 2. On September 26, 2012, Respondent filed a Request for Administrative Hearing at the Division of Administrative Hearings. (SEE EXHIBIT 2) 3. On March 19, 2013, the Agency notified Respondent of the following adjustments regarding the above-referenced case. (SEE EXHIBIT 3) Overpayment: $0.00 Fines: $0.00 for violation(s) of Rule 59G-9.070(7)(e), F.A.C. Cost: $0.00 Grand Total: $0.00 Agency for Health Care Administration vs. Americare Home Health Care Services, Inc. DOAH CASE NO.: 12-3283MPI Page 1 of 4 Filed May 14, 2013 12:56 PM Division of Administrative Hearings 4. On March 25, 2013, AHCA filed Agency for Health Care Administration's Notice of Adjustments, wherein AHCA outlined the adjustments — and noted that the matters complained of in Respondent’s Petition for Formal Administrative Hearing are moot. (SEE EXHIBIT 4) 5. On March 28, 2013, AHCA filed Agency for Health Care Administration's Motion to Dimiss due to the above-referenced adjustments. (SEE EXHIBIT 5) 6. On April 1, 2013, Respondent filed its response to AHCA’s notice of the adjustments. (SEE EXHIBIT 6) To date, Respondent has not signed a Settlement Agreement. 7. On April 5, 2013, Administrative Law Judge Edward T. Bauer issued an Order Closing File. (SEE EXHIBIT 7) 8. As of April 5, 2013, AHCA has recouped $19,306.88 in Medicaid reimbursements from Respondent, pursuant to section 409.913(27), Florida Statutes. 9. Within thirty (30) days after the Final Order has been issued, AHCA agrees to refund Respondent in the amount of $19,306.88. 10. Based on the foregoing, this file is hereby CLOSED. DONE AND ORDERED on this PA day of “May. , 2013, in Tallahassee, Florida. Eltz4beth Dudek, Secretary Agency for Health Care Administration A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO A JUDICIAL REVIEW WHICH SHALL BE INSTITUTED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF AHCA, AND A SECOND COPY ALONG WITH FILING FEE AS PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE AGENCY MAINTAINS ITS HEADQUARTERS OR WHERE A PARTY RESIDES. REVIEW PROCEEDINGS SHALL BE CONDUCTED IN ACCORDANCE WITH THE FLORIDA APPELLATE RULES. THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE ORDER TO BE REVIEWED. Agency for Health Care Administration vs. Americare Home Health Care Services, Inc. DOAH CASE NO.;: 12-3283MPI Page 2 of 4 Copies furnished to: Dr. Joseph P. D'Angelo Americare Home Health Care Services, Inc. 20 Northwest 181st Street Miami, FL 33169 Telephone: (305) 770-1141 Facsimile: (305) 655-3817 Email: Docd77@aol.com (Via Electronic Mail and U.S. Mail) Tracie L. Hardin, Esquire Agency for Health Care Administration 2727 Mahan Drive Building 3, Mail Station 3 Tallahassee, Florida 32308 (Interoffice Mail) Agency for Health Care Administration Bureau of Finance and Accounting 2727 Mahan Drive Building 2, Mail Station 14 Tallahassee, Florida 32308 (Interoffice Mail) Bureau of Health Quality Assurance 2727 Mahan Drive, Mail Stop 9 Tallahassee, Florida 32308 (Interoffice Mail) Richard Zenuch, Bureau Chief Medicaid Program Integrity 2727 Mahan Drive Building 2, Mail Station 6 Tallahassee, Florida 32308 (Interoffice Mail) Eric W. Miller, Inspector General Medicaid Program Integrity 2727 Mahan Drive Building 2, Mail Station 6 Tallahassee, Florida 32308 (Interoffice Mail) Division of Administrative Hearings The Desoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (Via U.S. Mail) Agency for Health Care Administration vs. Americare Home Health Care Services, Inc. DOAH CASE NO.: 12-3283MPI CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true and correct copy of the foregoing has been furnished to the above named addressees by U.S. Mail, or the method designated, on this the OE tay of [ey , 2013. Richard Shoop, Esquire Agency Clerk State of Florida, Agency for Health Care Administration 2727 Mahan Drive Building #3, Mail Station #3 Tallahassee, Florida 32308-5403 Agency for Health Care Administration vs. Americare Home Health Care Services, Inc. DOAH CASE NO.: 12-3283MPI Page 4 of 4
The Issue The issue in these consolidated cases is whether the Agency for Health Care Administration ("AHCA") properly disallowed Petitioners' expense for liability insurance and accrued contingent liability costs contained in AHCA's audit of Petitioners' Medicaid cost reports.
Findings Of Fact Based upon the oral and documentary evidence presented at the final hearing, and on the entire record of this proceeding, the following findings of fact are made: Petitioners operate licensed nursing homes that participate in the Florida Medicaid program as institutional providers. The 14 Palm Gardens facilities are limited liability companies operating as subsidiaries of New Rochelle Administrators, LLC, which also provides the facilities with management services under a management contract. AHCA is the single state agency responsible for administering the Florida Medicaid program. One of AHCA's duties is to audit Medicaid cost reports submitted by providers participating in the Medicaid program. During the audit period, Petitioners provided services to Medicaid beneficiaries pursuant to Institutional Medicaid Provider Agreements that they entered into with AHCA. The Provider Agreements contained the following relevant provision: (3) Compliance. The provider agrees to comply with local, state, and federal laws, as well as rules, regulations, and statements of policy applicable to the Medicaid program, including Medicaid Provider Handbooks issued by AHCA. Section 409.908, Florida Statutes (2002)1, provided in relevant part: Reimbursement of Medicaid providers.-- Subject to specific appropriations, the agency shall reimburse Medicaid providers, in accordance with state and federal law, according to methodologies set forth in the rules of the agency and in policy manuals and handbooks incorporated by reference therein. These methodologies may include fee schedules, reimbursement methods based on cost reporting, negotiated fees, competitive bidding pursuant to s. 287.057, and other mechanisms the agency considers efficient and effective for purchasing services or goods on behalf of recipients. . . . * * * (2)(a)1. Reimbursement to nursing homes licensed under part II of chapter 400 . . . must be made prospectively. . . . * * * (b) Subject to any limitations or directions provided for in the General Appropriations Act, the agency shall establish and implement a Florida Title XIX Long-Term Care Reimbursement Plan (Medicaid) for nursing home care in order to provide care and services in conformance with the applicable state and federal laws, rules, regulations, and quality and safety standards and to ensure that individuals eligible for medical assistance have reasonable geographic access to such care. . . . AHCA has adopted the Title XIX Long-Term Care Reimbursement Plan (the "Plan") by reference in Florida Administrative Code Rule 59G-6.010. The Plan incorporates the Centers for Medicare and Medicaid Services ("CMS") Publication 15-1, also called the Provider Reimbursement Manual (the "Manual" or "PRM"), which provides "guidelines and policies to implement Medicare regulations which set forth principles for determining the reasonable cost of provider services furnished under the Health Insurance for the Aged Act of l965, as amended." CMS Pub. 15-1, Foreword, p. I. The audit period in these cases spans two versions of the Plan: version XXIII, effective July 1, 2002, and version XXIV, effective January 1, 2003. It is unnecessary to distinguish between the two versions of the Plan because their language is identical as to the provisions relevant to these cases. Section I of the Plan, "Cost Finding and Cost Reporting," provides as follows, in relevant part: The cost report shall be prepared by a Certified Public Accountant in accordance with chapter 409.908, Florida Statutes, on the form prescribed in section I.A. [AHCA form 5100-000, Rev. 7-1-90], and on the accrual basis of accounting in accordance with generally accepted accounting principles as established by the American Institute of Certified Public Accountants (AICPA) as incorporated by reference in Rule 61H1-20.007, F.A.C., the methods of reimbursement in accordance with Medicare (Title XVIII) Principles of Reimbursement, the Provider Reimbursement Manual (CMS-PUB. 15-1)(1993) incorporated herein by reference except as modified by the Florida Title XIX Long Term Care Reimbursement Plan and State of Florida Administrative Rules. . . . Section III of the Plan, "Allowable Costs," provides as follows, in relevant part: Implicit in any definition of allowable costs is that those costs shall not exceed what a prudent and cost-conscious buyer pays for a given service or item. If costs are determined by AHCA, utilizing the Title XVIII Principles of Reimbursement, CMS-PUB. 15-1 (1993) and this plan, to exceed the level that a prudent buyer would incur, then the excess costs shall not be reimbursable under the plan. The Plan is a cost based prospective reimbursement plan. The Plan uses historical data from cost reports to establish provider reimbursement rates. The "prospective" feature is an upward adjustment to historical costs to establish reimbursement rates for subsequent rate semesters.2 The Plan establishes limits on reimbursement of costs, including reimbursement ceilings and targets. AHCA establishes reimbursement ceilings for nursing homes based on the size and location of the facilities. The ceilings are determined prospectively, on a semiannual basis. "Targets" limit the inflationary increase in reimbursement rates from one semester to the next and limit a provider's allowable costs for reimbursement purposes. If a provider's costs exceed the target, then those costs are not factored into the reimbursement rate and must be absorbed by the provider. A nursing home is required to file cost reports. The costs identified in the cost reports are converted into per diem rates in four components: the operating component; the direct care component; the indirect care component; and the property component. GL/PL insurance costs fall under the operating component. Once the per diem rate is established for each component, the nursing home's reimbursement rate is set at the lowest of four limitations: the facility's costs; the facility's target; the statewide cost ceiling based on the size of the facility and its region; or the statewide target, also based on the size and location of the facility. The facility's target is based on the initial cost report submitted by that facility. The initial per diem established pursuant to the initial cost report becomes the "base rate." Once the base rate is established, AHCA sets the target by inflating the base rate forward to subsequent six- month rate semesters according to a pre-established inflation factor. Reimbursement for cost increases experienced in subsequent rate semesters is limited by the target drawn from the base rate. Thus, the facility's reimbursement for costs in future rate semesters is affected by the target limits established in the initial period cost report. Expenses that are disallowed during the establishment of the base rate cannot be reclaimed in later reimbursement periods. Petitioners entered the Medicaid program on June 29, 2002. They filed cost reports for the nine- month period from their entry into the program through February 28, 2003. These reports included all costs claimed by Petitioners under the accrual basis of accounting in rendering services to eligible Medicaid beneficiaries. In preparing their cost reports, Petitioners used the standard Medicaid Cost Report "Chart of Accounts and Description," which contains the account numbers to be used for each ledger entry, and explains the meaning of each account number. Under the general category of "Administration" are set forth several subcategories of account numbers, including "Insurance Expense." Insurance Expense is broken into five account numbers, including number 730810, "General and Professional Liability -- Third Party," which is described as "[c]osts of insurance purchased from a commercial carrier or a non-profit service corporation."3 Petitioners' cost report stated the following expenses under account number 730810: Facility Amount Palm Garden of Clearwater $145,042.00 Palm Garden of Gainesville $145,042.00 Palm Garden of Jacksonville $145,042.00 Palm Garden of Largo $171,188.00 Palm Garden of North Miami $145,042.00 Palm Garden of Ocala $217,712.00 Palm Garden of Orlando $145,042.00 Palm Garden of Pinellas $145,042.00 Palm Garden of Port St. Lucie $145,042.00 Palm Garden of Sun City $145,042.00 Palm Garden of Tampa $145,042.00 Palm Garden of Vero Beach $217,712.00 Palm Garden of West Palm Beach $231,151.00 Palm Garden of Winter Haven $145,042.00 AHCA requires that the cost reports of first-year providers undergo an audit. AHCA's contract auditing firm, Smiley & Smiley, conducted an examination4 of the cost reports of the 14 Palm Gardens nursing homes to determine whether the included costs were allowable. The American Institute of Certified Public Accountants ("AICPA") has promulgated a series of "attestation standards" to provide guidance and establish a framework for the attestation services provided by the accounting profession in various contexts. Attestation Standards 101 and 601 set out the standard an accountant relies upon in examining for governmental compliance. Smiley & Smiley examined the Palm Gardens cost reports pursuant to these standards. During the course of the audit, Smiley & Smiley made numerous requests for documentation and other information pursuant to the Medicaid provider agreement and the Plan. Petitioners provided the auditors with their general ledger, invoices, audited financial statements, bank statements, and other documentation in support of their cost reports. The examinations were finalized during the period between September 28, 2006, and October 4, 2006. The audit report issued by AHCA contained more than 2,000 individual adjustments to Petitioners' costs, which the parties to these consolidated proceedings have negotiated and narrowed to two adjustments per Palm Gardens facility.5 As noted in the Preliminary Statement above, the first adjustment at issue is AHCA's disallowance of Palm Gardens' accrual of expenses for contingent liability under the category of GL/PL insurance, where Palm Gardens could not document that it had purchased GL/PL insurance. The second adjustment at issue is ACHA's disallowance of a portion of the premium paid by Palm Gardens for the Mature Care Policies. The total amount of the adjustment at issue for each facility is set forth in the Preliminary Statement above. Of that total for each facility, $18,849.00 constituted the disallowance for the Mature Care Policies. The remainder constituted the disallowance for the accrual of GL/PL related contingent liabilities. Janette Smiley, senior partner at Smiley & Smiley and expert in Medicaid auditing, testified that Petitioners provided no documentation other than the Mature Care Policies to support the GL/PL entry in the cost reports. Ms. Smiley testified that, during much of the examination process, she understood Petitioners to be self-insured. Ms. Smiley's understanding was based in part on statements contained in Petitioners' audited financial statements. In the audited financial statement covering the period from June 28, 2002, through December 31, 2002, Note six explains Petitioners' operating leases and states as follows, in relevant part: The lease agreement requires that the Company maintain general and professional liability in specified minimum amounts. As an alternative to maintaining these levels of insurance, the lease agreement allows the Company to fund a self-insurance reserve at a per bed minimum amount. The Company chose to self-insure, and has recorded litigation reserves of approximately $1,735,000 that are included in other accrued expenses (see Note 9). As of December 31, 2002, these reserves have not been funded by the Company. . . . The referenced Note nine, titled "Commitments and Contingencies," provides as follows in relevant part: Due to the current legal environment, providers of long-term care services are experiencing significant increases in liability insurance premiums or cancellations of liability insurance coverage. Most, if not all, insurance carriers in Florida have ceased offering liability coverage altogether. The Company's Florida facilities have minimal levels of insurance coverage and are essentially self-insured. The Company has established reserves (see Note 6) that estimate its exposure to uninsured claims. Management is not currently aware of any claims that could exceed these reserves. However, the ultimate outcome of these uninsured claims cannot be determined with certainty, and could therefore have a material adverse impact on the financial position of the Company. The relevant notes in Petitioner's audited financial statement for the year ending December 31, 2003, are identical to those quoted above, except that the recorded litigation reserves were increased to $4 million. The notes provide that, as of December 31, 2003, these reserves had not been funded by Petitioners. Ms. Smiley observed that the quoted notes, while referencing "self-insurance" and the recording of litigation reserves, stated that the litigation reserves had not been funded. By e-mail dated April 21, 2005, Ms. Smiley corresponded with Stanley Swindling, the shareholder in the accounting firm Moore Stephens Lovelace, P.A., who had primary responsibility for preparing Petitioners' cost reports. Ms. Smiley noted that Petitioners' audited financial statements stated that the company "chose to self-insure" and "recorded litigation reserves," then wrote (verbatim): By definition from PRM CMS Pub 15-1 Sections 2162.5 and 2162.7 the Company does in fact have self-insurance as there is no shifting of risk. You will have to support your positioning a letter addressing the regs for self-insurance. As clearly the financial statement auditors believe this is self- insurance and have disclosed such to the financial statement users. If you cannot support the funding as required by the regs, the provider will have to support expense as "pay as you go" in accordance with [2162.6] for PL/GL. * * * Please review 2161 and 2162 and provide support based on the required compliance. If support is not complete within the regulations, amounts for IBNR [incurred but not reported] will be disallowed and we will need to have the claims paid reports from the TPA [third party administrator] (assuming there is a TPA handling the claims processing), in order to allow any expense. Section 2160 of the Manual establishes the basic insurance requirement: A. General.-- A provider participating in the Medicare program is expected to follow sound and prudent management practices, including the maintenance of an adequate insurance program to protect itself against likely losses, particularly losses so great that the provider's financial stability would be threatened. Where a provider chooses not to maintain adequate insurance protection against such losses, through the purchase of insurance, the maintenance of a self-insurance program described in §2161B, or other alternative programs described in §2162, it cannot expect the Medicare program to indemnify it for its failure to do so. . . . . . . If a provider is unable to obtain malpractice coverage, it must select one of the self-insurance alternatives in §2162 to protect itself against such risks. If one of these alternatives is not selected and the provider incurs losses, the cost of such losses and related expenses are not allowable. Section 2161.A of the Manual sets forth the general rule as to the reimbursement of insurance costs. It provides that the reasonable costs of insurance purchased from a commercial carrier or nonprofit service corporation are allowable to the extent they are "consistent with sound management practice." Reimbursement for insurance premiums is limited to the "amount of aggregate coverage offered in the insurance policy." Section 2162 of the Manual provides as follows, in relevant part: PROVIDER COSTS FOR MALPRACTICE AND COMPREHENSIVE GENERAL LIABILITY PROTECTION, UNEMPLOYMENT COMPENSATION, WORKERS' COMPENSATION, AND EMPLOYEE HEALTH CARE INSURANCE General.-- Where provider costs incurred for protection against malpractice and comprehensive general liability . . . do not meet the requirements of §2161.A, costs incurred for that protection under other arrangements will be allowable under the conditions stated below. . . . * * * The following illustrates alternatives to full insurance coverage from commercial sources which providers, acting individually or as part of a group or a pool, can adopt to obtain malpractice, and comprehensive general liability, unemployment compensation, workers' compensation, and employee health care insurance protection: Insurance purchased from a commercial insurance company which provides coverage after a deductible or coinsurance provision has been met; Insurance purchased from a limited purpose insurance company (captive); Total self-insurance; or A combination of purchased insurance and self-insurance. . . . part: Section 2162.3 of the Manual provides: Self-Insurance.-- You may believe that it is more prudent to maintain a total self- insurance program (i.e., the assumption by you of the risk of loss) independently or as part of a group or pool rather than to obtain protection through purchased insurance coverage. If such a program meets the conditions specified in §2162.7, payments into such funds are allowable costs. Section 2162.7 of the Manual provides, in relevant Conditions Applicable to Self-Insurance.-- Definition of Self-Insurance.-- Self- insurance is a means whereby a provider(s), whether proprietary or nonproprietary, undertakes the risk to protect itself against anticipated liabilities by providing funds in an amount equivalent to liquidate those liabilities. . . . * * * Self-Insurance Fund.-- The provider or pool establishes a fund with a recognized independent fiduciary such as a bank, a trust company, or a private benefit administrator. In the case of a State or local governmental provider or pool, the State in which the provider or pool is located may act as a fiduciary. The provider or pool and fiduciary must enter into a written agreement which includes all of the following elements: General Legal Responsibility.-- The fiduciary agreement must include the appropriate legal responsibilities and obligations required by State laws. Control of Fund.-- The fiduciary must have legal title to the fund and be responsible for proper administration and control. The fiduciary cannot be related to the provider either through ownership or control as defined in Chapter 10, except where a State acts as a fiduciary for a State or local governmental provider or pool. Thus, the home office of a chain organization or a religious order of which the provider is an affiliate cannot be the fiduciary. In addition, investments which may be made by the fiduciary from the fund are limited to those approved under State law governing the use of such fund; notwithstanding this, loans by the fiduciary from the fund to the provider or persons related to the provider are not permitted. Where the State acts as fiduciary for itself or local governments, the fund cannot make loans to the State or local governments. . . . The quoted Manual provisions clarify that Ms. Smiley's message to Mr. Swindling was that Petitioners had yet to submit documentation to bring their "self-insurance" expenses within the reimbursable ambit of Sections 2161 and 2162 of the Manual. There was no indication that Petitioners had established a fund in an amount sufficient to liquidate its anticipated liabilities, or that any such funds had been placed under the control of a fiduciary. Petitioners had simply booked the reserved expenses without setting aside any cash to cover the expenses. AHCA provided extensive testimony regarding the correspondence that continued among Ms. Smiley, Mr. Swindling, and AHCA employees regarding this "self-insurance" issue. It is not necessary to set forth detailed findings as to these matters, because Petitioners ultimately conceded to Ms. Smiley that, aside from the Mutual Care policies, they did not purchase commercial insurance as described in Section 2161.A, nor did they avail themselves of the alternatives to commercial insurance described in Section 2162.A. Petitioners did not purchase commercial insurance with a deductible, did not self- insure, did not purchase insurance from a limited purpose or "captive" insurance company, or employ a combination of purchased insurance and self-insurance. Ms. Smiley eventually concluded that Petitioners had no coverage for general and professional liability losses in excess of the $25,000 value of the Mutual Care Policies. Under the cited provisions of the Manual, Petitioners' unfunded self- insurance expense was not considered allowable under the principles of reimbursement. Petitioners were uninsured, which led Ms. Smiley to further conclude that Section 2162.13 of the Manual would apply: Absence of Coverage.-- Where a provider, other than a governmental (Federal, State, or local) provider, has no insurance protection against malpractice or comprehensive general liability in conjunction with malpractice, either in the form of a limited purpose or commercial insurance policy or a self-insurance fund as described in §2162.7, any losses and related expenses incurred are not allowable. In response to this disallowance pursuant to the strict terms of the Manual, Petitioners contend that AHCA should not have limited its examination of the claimed costs to the availability of documentation that would support those costs as allowable under the Manual. Under the unique circumstances presented by their situation, Petitioners assert that AHCA should have examined the state of the nursing home industry in Florida, particularly the market for GL/PL liability insurance during the audit period, and further examined whether Petitioners had the ability to meet the insurance requirements set forth in the Manual. Petitioners assert that, in light of such an examination, AHCA should have concluded that generally accepted accounting principles ("GAAP") may properly be invoked to render the accrued contingent liabilities an allowable expense. Keith Parnell is an expert in insurance for the long- term care industry. He is a licensed insurance broker working for Hamilton Insurance Agency, which provides insurance and risk management services to about 40 percent of the Florida nursing home market. Mr. Parnell testified that during the audit period, it was impossible for nursing homes to obtain insurance in Florida. In his opinion, Petitioners could not have purchased commercial insurance during the audit period. To support this testimony, Petitioners offered a study conducted by the Florida Department of Insurance ("DOI") in 2000 that attempted to determine the status of the Florida long-term care liability insurance market for nursing homes, assisted living facilities, and continuing care retirement communities. Of the 79 companies that responded to DOI's data call, 23 reported that they had provided GL/PL coverage during the previous three years but were no longer writing policies, and only 17 reported that they were currently writing GL/PL policies. Six of the 17 reported writing no policies in 2000, and five of the 17 reported writing only one policy. The responding insurers reported writing a total of 43 policies for the year 2000, though there were approximately 677 skilled nursing facilities in Florida. On March 1, 2004, the Florida Legislature's Joint Select Committee on Nursing Homes issued a report on its study of "issues regarding the continuing liability insurance and lawsuit crisis facing Florida's long-term care facilities and to assess the impact of the reforms contained in CS/CS/CS/SB 1202 (2001)."6 The study employed data compiled from 1999 through 2003. Among the Joint Select Committee's findings was the following: In order to find out about current availability of long-term care liability insurance in Florida, the Committee solicited information from [the Office of Insurance Regulation, or] OIR within the Department of Financial Services, which is responsible for regulating insurance in Florida. At the Committee's request, OIR re-evaluated the liability insurance market and reported that there has been no appreciable change in the availability of private liability insurance over the past year. Twenty-one admitted insurance entities that once offered, or now offer, professional liability coverage for nursing homes were surveyed by OIR. Six of those entities currently offer coverage. Nine surplus lines carriers have provided 54 professional liability policies in the past year. Representatives of insurance carriers that stopped providing coverage in Florida told OIR that they are waiting until there are more reliable indicators of risk nationwide to re-enter the market. Among the Joint Select Committee's conclusions was the following: In the testimony the Committee received, there was general agreement that the quality of care in Florida nursing homes is improving, in large part due to the minimum staffing standards the Legislature adopted in SB 1202 during the 2001 Session. There was not, however, general agreement about whether or not lawsuits are abating due to the tort system changes contained in SB 1202. There was general agreement that the long-term care liability insurance market has not yet improved. After hearing the testimony, there is general agreement among the members of the Joint Select Committee that: * * * General and professional liability insurance, with actual transfer-of-risk, is virtually unavailable in Florida. "Bare- bones" policies designed to provide minimal compliance with the statutory insurance requirement are available; however, the cost often exceeds the face value of the coverage offered in the policy. This situation is a crisis which threatens the continued existence of long-term care facilities in Florida. To further support Mr. Parnell's testimony, Petitioners offered actuarial analyses of general and professional liability in long-term care performed by AON Risk Consultants, Inc. (AON) on behalf of the American Health Care Association. The AON studies analyzed nationwide trends in GL/PL for long-term care, and also examined state-specific issues for eight states identified as leading the trends in claim activity, including Florida. They provided an historical perspective of GL/PL claims in Florida during the audit period. The 2002 AON study for Florida was based on participation by entities representing 52 percent of all Florida nursing home beds. The study provided a "Loss Cost per Occupied Bed" showing GL/PL liability claims losses on a per bed basis. The 2002 study placed the loss cost for nursing homes in Florida at $10,800 per bed for the year 2001. The 2003 AON study, based on participation by entities representing 54 percent of Florida nursing home beds, placed the loss cost for nursing homes in Florida at $11,810 per bed for the year 2002. The studies showed that the cost per bed of GL/PL losses is materially higher in Florida than the rest of the United States. The nationwide loss per bed was $2,360 for the year 2001 and $2,880 for the year 2002. The GL/PL loss costs for Texas were the second-highest in the country, yet were far lower than the per bed loss for Florida ($5,460 for the year 2001 and $6,310 for the year 2002). Finally, Petitioners point to the Mature Care Policies as evidence of the crisis in GL/PL insurance availability. The aforementioned SB 1202 instituted a requirement that nursing homes maintain liability insurance coverage as a condition of licensure. See Section 22, Chapter 2001-45, Laws of Florida, codified at Subsection 400.141(20), Florida Statutes. To satisfy this requirement, Petitioners entered the commercial insurance market and purchased insurance policies for each of the 14 Palm Gardens facilities from a carrier named Mature Care Insurance Company. The policies carried a $25,000 policy limit, with a policy premium of $34,000. These were the kind of "bare bones" policies referenced by the Joint Select Committee's 2004 report. The fact that the policies cost more than they could ever pay out led Mr. Swindling, Petitioners' health care accounting and Medicaid reimbursement expert, to opine that a prudent nursing home operator in Florida at that time would not have purchased insurance, but for the statutory requirement.7 The Mature Care Policies were "bare bones" policies designed to provide minimal compliance with the statutory liability insurance coverage requirement. The policies cost Petitioners more than $37,000 in premium payments, taxes, and fees, in exchange for policy limits of $25,000. In its examination, AHCA disallowed the difference between the cost of the policy and the policy limits, then prorated the allowable costs because the audit period was nine months long and the premium paid for the Mature Care Policies was for 12 months. AHCA based its disallowance on Section 2161.A of the Manual, particularly the language which states: "Insurance premiums reimbursement is limited to the amount of aggregate coverage offered in the insurance policy." Petitioners responded that they did not enter the market and voluntarily pay a premium in excess of the policy limits. They were statutorily required to purchase this minimal amount of insurance; they were required to purchase a 12-month policy; they paid the market price8; and they should not be penalized for complying with the statute. Petitioners contend they should be reimbursed the full amount of the premiums for the Mature Care Policies, as their cost of statutory compliance. Returning to the issue of the contingent liabilities, Petitioners contend that, in light of the state of the market for GL/PL liability insurance during the audit period, AHCA should have gone beyond the strictures of the Manual to conclude that GAAP principles render the accrued contingent liabilities an allowable expense. Under GAAP, a contingent loss is a loss that is probable and can be reasonably estimated. An estimated loss from a loss contingency may be accrued by a charge to income. Statement of Financial Accounting Standards No. 5 ("FAS No. 5"), Accounting for Contingencies, provides several examples of loss contingencies, including "pending or threatened litigation" and "actual or possible claims and assessments." Petitioners assert that the contingent losses reported in their cost reports were actual costs incurred by Petitioners. The AICPA Audit and Accounting Guide for Health Care Organizations, Section 8.05, provides: The ultimate costs of malpractice claims, which include costs associated with litigating or settling claims, are accrued when the incidents that give rise to the claims occur. Estimated losses from asserted and unasserted claims are accrued either individually or on a group basis, based on the best estimates of the ultimate costs of the claims and the relationship of past reported incidents to eventual claims payments. All relevant information, including industry experience, the entity's own historical experience, the entity's existing asserted claims, and reported incidents, is used in estimating the expected amount of claims. The accrual includes an estimate of the losses that will result from unreported incidents, which are probable of having occurred before the end of the reporting period. Section 8.10 of AICPA Guide provides: Accrued unpaid claims and expenses that are expected to be paid during the normal operating cycle (generally within one year of the date of the financial statements) are classified as current liabilities. All other accrued unpaid claims and expenses are classified as non-current liabilities. As noted above, Petitioners' audited financial statements for the fiscal years ending December 31, 2002, and December 31, 2003, showed that the accrual was incurred and recorded by Petitioners during the audit period. Mr. Swindling prepared Petitioners' cost reports, based on information provided by Petitioners, including trial balances reflecting their costs, statistics on patient days, cost data related to square footage, and revenue information. Mr. Swindling advised Petitioners to include the accrued losses. He believed that the loss contingency was probable and could be reasonably estimated. The losses were probable because it was "a given in the state of Florida at that time period that nursing homes are going to get sued." Mr. Swindling testified that the accrual reflected a per bed loss amount of $1,750, which he believed to be a reasonable estimate of the contingent liabilities faced by Petitioners during the audit period. This amount was much less than the per bed loss indicated by the AON studies for Florida. Mr. Swindling used the criteria set forth in Section 8.05 of the AICPA Guide to establish the estimate. He determined that the lesser amount was adequate based on his discussions with Petitioners' management, who indicated that they had a substantial risk management program. Management also disclosed to Mr. Swindling that Petitioners' leases required $1,750 per bed in liability coverage. See Finding of Fact 22, supra. Mr. Swindling believed that the estimated loss per bed was reasonable based on the AON studies and his knowledge and experience of the state of the industry in Florida during the audit period, as further reflected in the DOI and Joint Committee on Nursing Homes materials discussed above. Mr. Swindling's opinion was that the provisions of the Manual relating to GL/PL insurance costs do not apply under these circumstances. The costs at issue in this proceeding are not general and professional liability insurance costs subject to CMS Pub. 15-1; rather, they are loss contingencies related to general and professional liability, including defense costs, litigation costs, and settlement costs. Mr. Swindling placed the loss contingency under number 730810, "General and Professional Liability -- Third Party" because, in the finite chart of accounts provided by Medicaid, that was the most appropriate place to record the cost.9 Despite the initial confusion it caused the agency's auditors, the placement of the loss contingency under number 730810 was not intended to deceive the auditors. Mr. Swindling opined that, under these circumstances, Sections 2160 through 2162 are in conflict with other provisions in the Manual relating to the "prudent buyer" concept, and further conflict with the Plan to the extent that the cited regulations "relate to a retrospective system as opposed to prospective target rate-based system." Mr. Swindling agreed that the application of Sections 2160 through 2162 to the situation presented by Petitioners would result in the disallowance of the loss contingencies. Mr. Swindling observed, however, that Sections 2160 through 2162 are Medicare regulations. Mr. Swindling testified that Medicare reimbursements are made on a retrospective basis.10 Were this situation to occur in Medicare -- in which the provider did not obtain commercial insurance, self-insurance, or establish a captive insurer -- the provider would be deemed to be operating on a pay-as-you-go basis. Though its costs might be disallowed in the current period, the provider would receive reimbursements in subsequent periods when it could prove actual payment for its losses. Mr. Swindling found a conflict in attempting to apply these Medicare rules to the prospective payment system employed by Florida Medicaid, at least under the circumstances presented by Petitioners' case. Under the prospective system, once the contingent loss is disallowed for the base period, there is no way for Petitioners ever to recover that loss in a subsequent period, even when the contingency is liquidated. During his cross-examination, Mr. Swindling explained his position as follows: . . . Medicare allows for that payment in a subsequent period. Medicaid rules would not allow that payment in the subsequent period; therefore you have conflict in the rules. When you have conflict in the rules, you revert to generally accepted accounting principles. Generally accepted accounting principles are what we did. Q. Where did you find that if there's a conflict in the rules, which I disagree with, but if there is a conflict in the rules, that you follow GAAP? Where did you get that from? I mean, we've talked about it and it's clear on the record that if there is no provision that GAAP applies, but where did you get that if there's a conflict? Just point it out, that would be the easiest way to do it. A. The hierarchy, if you will, requires providers to file costs on the accrual basis of accounting in accordance with generally accepted accounting principles. If there's no rules, in absence of rules -- and I forget what the other terms were, we read it into the record before, against public policy, those kind of things -- or in my professional opinion, if there is a conflict within the rules where the provider can't follow two separate rules at the same time, they're in conflict, then [GAAP] rules what should be recorded and what should be reimbursed. * * * Q. [T]he company accrued a liability of $2 million for the cost reporting period of 2002-2003, is that correct? A. Yes. * * * Q. Do you have any documentation supporting claims paid, actually paid, in 2002-2003 beyond the mature care policy for which that $2 million reserve was set up? A. No. Q. So what did Medicaid pay for? A. Medicaid paid the cost of contingent liabilities that were incurred by the providers and were estimated at $1,750 per bed. Generally accepted accounting principles will adjust that going forward every cost reporting period. If that liability in total goes up or down, the differential under [GAAP] goes through the income statement, and expenses either go up or they go down. It's self-correcting, which is similar to what Medicare is doing, only they're doing it on a cash basis. Mr. Swindling explained the "hierarchy" by which allowable costs are determined. The highest governing law is the Federal statutory law, Title XIX of the Social Security Act, 42 U.S.C. Subsection. 1396-1396v. Below the statute come the federal regulations for implementing Title XIX, 42 C.F.R. parts 400-426. Then follow in order Florida statutory law, the relevant Florida Administrative Code provisions, the Plan, the Manual, and, at the bottom of the hierarchy, GAAP. Mr. Swindling testified that in reality, a cost report is not prepared from the top of the hierarchy down; rather, GAAP is the starting point for the preparation of any cost report. The statutes, rules, the Plan and the Manual are then consulted to exclude specific cost items otherwise allowable under GAAP. In the absence of an applicable rule, or in a situation in which there is a conflict between rules in the hierarchy such that the provider is unable to comply with both rules, the provider should fall back on GAAP principles as to recording of costs and reimbursement. John A. Owens, currently a consultant in health care finance specializing in Medicaid, worked for AHCA for several years up to 2002, in positions including administrator of the audit services section and bureau chief of the Office of Medicaid Program Analysis. Mr. Owens is a CPA and expert in health care accounting and Medicare/Medicaid reimbursement. Mr. Owens agreed with Mr. Swindling that AHCA's disallowance of the accrued costs for GL/PL liability was improper. Mr. Owens noted that Section 2160 of the Manual requires providers to purchase commercial insurance. If commercial insurance is unavailable, then the Manual gives the provider two choices: self-insure, or establish a captive program. Mr. Owens testified that insurers were fleeing the state during the period in question, and providers were operating without insurance coverage. Based on the state of the market, Petitioners' only options would have been to self-insure or establish a captive. As to self-insurance, Petitioners' problem was that they had taken over the leases on their facilities from a bankrupt predecessor, Integrated Health Services ("IHS"). Petitioners were not in privity with their predecessor. Petitioners had no access to the facilities' loss histories, without which they could not perform an actuarial study or engage a fiduciary to set up a self-insurance plan.11 Similarly, setting up a captive would require finding an administrator and understanding the risk exposure. Mr. Owens testified that a provider would not be allowed to set up a captive without determining actuarial soundness, which was not possible at the time Petitioners took over the 14 IHS facilities. Thus, Petitioners were simply unable to meet the standards established by the Manual. The options provided by the Manual did not contemplate the unique market situation existing in Florida during the audit period, and certainly did not contemplate that situation compounded by the problems faced by a new provider taking over 14 nursing homes from a bankrupt predecessor. Mr. Owens agreed with Mr. Swindling that, under these circumstances, where the requirements of the Manual could not be met, Petitioners were entitled to seek relief under GAAP, FAS No. 5 in particular. In situations where a loss is probable and can be measured, then an accounting entry may be performed to accrue and report that cost. Mr. Owens concluded that Petitioners' accrual was an allowable cost for Medicaid purposes, and explained his rationale as follows: My opinion is, in essence, that since they could not meet -- technically, they just could not meet those requirements laid out by [the Manual], they had to look somewhere to determine some rational basis for developing a cost to put into the cost report, because if they had chosen to do nothing and just moved forward, those rates would be set and there would be nothing in their base year which then establishes their target moving forward. So by at least looking at a rational methodology to accrue the cost, they were able to build something into their base year and have it worked into their target system as they move forward. Steve Diaczyk, an audit evaluation and review analyst for AHCA, testified for the agency as an expert in accounting, auditing, and Medicaid policy. Mr. Diaczyk was the AHCA auditor who reviewed the work of Smiley & Smiley for compliance with Medicaid rules and regulations, and to verify the accuracy of the independent CPA's determinations. Mr. Diaczyk agreed with Mr. Swindling's description of the "hierarchy" by which allowable costs are determined. Mr. Diaczyk affirmed that Petitioners employed GAAP rather than Medicaid regulations in preparing their cost reports. Mr. Diaczyk testified regarding the Notes to Petitioners' audited financial statements, set forth at Findings of Fact 22-24, supra, which left AHCA's auditors with the understanding that Petitioners were self-insuring. Mr. Diaczyk pointed out that Section 2162.7 of the Manual requires a self- insurer to contract with an independent fiduciary to maintain a self-insurance fund, and that the fund must contain monies sufficient to cover anticipated losses. The fiduciary takes title to the funds, the amount of which is determined actuarially. Mr. Diaczyk explained that, in reimbursing a provider for self-insurance, Medicaid wants to make sure that the provider has actually put money into the fund, and has not just set up a fund on its books and called it "self-insurance" for reimbursement purposes. AHCA's position is that it would be a windfall for a provider to obtain reimbursement for an accrued liability when it has not actually set the money aside and funded the risk. Medicaid wants the risk transferred off of the provider's books and on to the self-insurance fund. Mr. Diaczyk testified as to the differing objectives of Medicaid and GAAP. Medicaid is concerned with reimbursing costs, and is therefore especially sensitive regarding the overstatement of costs. Medicaid wants to reimburse a provider for only those costs that have actually been paid. GAAP, on the other hand, is about report presentation for a business entity and is concerned chiefly with avoiding the understatement of expenses and overstatement of revenue. Under GAAP, an entity may accrue a cost and not pay it for years. In the case of a contingent liability, the entity may book the cost and never actually pay it. Mr. Diaczyk described the self-insurance and liquidation provisions of 42 C.F.R. Section 413.100, "Special treatment of certain accrued costs." The federal rule essentially allows accrued costs to be claimed for reimbursement, but only if they are "liquidated timely." Subsection (c)(2)(viii) of the rule provides that accrued liability related to contributions to a self-insurance program must be liquidated within 75 days after the close of the cost reporting period. To obtain reimbursement, Petitioners would have had to liquidate their accrued liability for GL/PL insurance within 75 days of the end of the audit period. Mr. Diaczyk also noted that, even if the 75-day requirement were not applicable, the general requirement of Section 2305.2 of the Manual would apply. Section 2305.2 requires that all short-term liabilities must be liquidated within one year after the end of the cost reporting period in which the liability is incurred, with some exceptions not applicable in this case. Petitioners' accrued liability for general and professional liability insurance was not funded or liquidated for more than one year after the cost reporting period. It was a contingent liability that might never be paid. Therefore, Mr. Diaczyk stated, reimbursement was not in keeping with Medicaid's goal to reimburse providers for actual paid costs, not for potential costs that may never be paid. Petitioners responded that their accrued liabilities constituted non-current liabilities, items that under normal circumstances will not be liquidated within one year. Mr. Parnell testified that there is great variation in how long it takes for a general and professional liability claim against a nursing home to mature to the point of payment to the claimant. He testified that a "short" timeline would be from two to four years, and that some claims may take from eight to eleven years to mature. From these facts, Petitioners urge that 42 C.F.R. Section 413.100 and Section 2305.2 of the Manual are inapplicable to their situation. As to Section 2305.2 in particular, Petitioners point to Section 2305.A, the general liquidation of liabilities provision to which Section 2305.2 provides the exceptions discussed above. The last sentence of Section 2305.A provides that, where the liability is not liquidated within one year, or does not qualify under the exceptions set forth in Sections 2305.1 and 2305.2, then "the cost incurred for the related goods and services is not allowable in the cost reporting period when the liability is incurred, but is allowable in the cost reporting period when the liquidation of the liability occurs." (Emphasis added.) Petitioners argue that the underscored language supports the Medicare/Medicaid distinction urged by Mr. Swindling. In its usual Medicare retroactive reimbursement context, Section 2305.2 would operate merely to postpone reimbursement until the cost period in which the liability is liquidated. Applied to this Medicaid prospective reimbursement situation, Section 2305.2 would unfairly deny Petitioners any reimbursement at all by excluding the liability from the base rate. Mr. Diaczyk explained that, where the Medicaid rules address a category of costs, the allowable costs in a provider's cost report are limited to those defined as allowable by the applicable rules. He stated that if there is a policy in the Manual that addresses an item of cost, the provider must use the Manual provision; the provider cannot use GAAP to determine that cost item. In this case, Mr. Diaczyk agreed with Ms. Smiley as to the applicable rules and the disallowance of Petitioners' contingent liability costs. According to Mr. Diaczyk, GAAP may be used only if no provisions farther up the chain of the "hierarchy" are applicable. In this case, the Medicaid rules specifically addressed the categories of cost in question, meaning that GAAP did not apply. Under cross-examination, Mr. Diaczyk testified that the accrual made by Petitioners in their cost reports would be considered actual costs under GAAP, "[a]ssuming that they had an actuarial study done to come up with the $1.7 million that they accrued." Mr. Diaczyk acknowledged that AICPA Audit and Accounting Guide for Health Care Organizations, Section 8.05, does not limit the provider to an actuarial study in estimating losses from asserted and unasserted claims. See Finding of Fact 49, supra, for text of Section 8.05. Mr. Diaczyk pointed out that the problem in this case was that Petitioners gave AHCA no documentation to support their estimate of the accrual, despite the auditor's request that Petitioners provide documentation to support their costs. Mr. Diaczyk's testimony raised a parallel issue to Mr. Swindling's concern that Medicaid's prospective targeting system permanently excludes any item of cost not included in the base rate. Mr. Swindling solved the apparent contradiction in employing Medicare rules in the Medicaid scenario by applying GAAP principles. Responding to the criticism that GAAP could provide a windfall to Petitioners by reimbursing them for accrued costs that might never actually result in payment, Mr. Swindling responded that GAAP principles would adjust the cost for contingent liabilities going forward, "truing up" the financial statements in subsequent reporting periods. This truing up process would have the added advantage of obviating the agency's requirement for firm documentation of the initial accrual. Mr. Swindling's "truing up" scenario under GAAP would undoubtedly correct Petitioners' financial statements. However, Mr. Swindling did not explain how the truing up of the financial statements would translate into a correction of Petitioners' reimbursement rate.12 If costs excluded from the base rate cannot be added to future rate adjustments, then costs incorrectly included in the base rate would also presumably remain in the facility's rate going forward.13 Thus, Mr. Swindling's point regarding the self-correcting nature of the GAAP reporting procedures did not really respond to AHCA's concerns about Petitioners' receiving a windfall in their base rate by including the accrual for contingent liabilities. On April 19, 2005, Petitioners entered into a captive insurance program. Petitioners' captive is a claims-made GL/PL policy with limits of $1 million per occurrence and $3 million in the aggregate. Under the terms of the policy, "claims-made" refers to a claim made by Petitioners to the insurance company, not a claim made by a nursing home resident alleging damages. The effective date of the policy is from April 21, 2005, through April 21, 2006, with a retroactive feature that covers any claims for incidents back to June 29, 2002, a date that corresponds to Petitioners' first day of operation and participation in the Medicaid program. The Petitioners' paid $3,376,906 for this policy on April 22, 2005. Mr. Parnell testified that April 2005 was the earliest time that the 14 Palm Gardens facilities could have established this form of insurance program. In summary, the evidence presented at the hearing regarding the contingent liabilities established that Petitioners took over the 14 Palm Gardens facilities after the bankruptcy of the previous owner. Petitioners were faced with the virtual certainty of substantial GL/PL expenses in operating the facilities, and also faced with a Florida nursing home environment market in which commercial professional liability insurance was virtually unavailable. Lacking loss history information from their bankrupt predecessor, Petitioners were unable to self-insure or establish a captive program until 2005. Petitioners understood that if they did not include their GL/PL expenses in their initial cost report, those expenses would be excluded from the base rate and could never be recovered. Petitioners' leases for the facilities required them to fund a self-insurance reserve at a per bed minimum amount of $1,750. Based on the AON studies and the general state of the industry at the time, Petitioners' accountant concluded that, under GAAP principles, $1,750 per bed was a reasonable, conservative estimate of Petitioners' GL/PL loss contingency exposure for the audit period.14 Based on all the evidence, it is found that Petitioners' cost estimate was reasonable and should be accepted by the agency. Petitioners included their GL/PL loss contingency expenses in their initial Medicaid cost report, placing those expenses under a heading indicating the purchase of insurance from a third party. The notes to Petitioners' audited financial statements stated that the facilities were "essentially self- insured." These factors led AHCA to request documentation of Petitioners' self-insurance. Petitioners conceded that they were not self-insured and carried no liability insurance aside from the Mature Care policies. The parties had little dispute as to the facts summarized above. The parties also agreed as to the applicability of the "hierarchy" by which allowable costs are determined. Their disagreement rests solely on the manner in which the principles of the hierarchy should be applied to the unique situation presented by Petitioners in these cases.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that AHCA enter a final order that allows Petitioners' accrual of expenses for contingent liability under the category of general and professional liability ("GL/PL") insurance, and that disallows the Mature Care policy premium amounts in excess of the policy limits, prorated for a nine- month period. DONE AND ENTERED this 24th day of October, 2008, 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 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 24th day of October, 2008.
The Issue The issue for consideration is whether Respondent's licenses and eligibility for licensure as a life agent, a life and health agent, a general lines agent, a health agent and a dental health care contract salesman in Florida should be disciplined because of the matters set forth in the Administrative Complaint filed herein.
Findings Of Fact At all times pertinent to the matters in issue herein, the Department of Insurance and Treasurer was the state agency in Florida responsible for the licensing of insurance agents and regulation of the insurance industry in this state. Respondent, Michael Charles Peppe was and is currently licensed and eligible for licensure in Florida as a life insurance agent, a life and health insurance agent, a general lines agent and a health insurance agent. He was an officer and director of M. Peppe Agency, Inc., a Florida corporation. During the period in issue herein, Respondent's agency had a brokerage agreement with William Sanner and Mary Lou Sanner who were employed as sub- agents. Constance Abraham, an 85 year old widow first met William Sanner when she moved to Ft. Lauderdale, some 20 or so year ago. They were neighbors in the same apartment building. At that time she was insured with Mutual of Omaha and her policy was transferred to him, an agent for that company, for service. Over the years she purchased quite a bit of other insurance from him. They were all different kinds of health insurance policies and over time, she estimates, she purchased somewhere around 50 policies. During the period between 1985 and 1991, Mrs. Abraham purchased numerous health policies for both herself and her son through Mr. and Mrs. Sanner, though she does not recall ever having dealt with Mrs. Sanner. Records disclose that her coverage was placed with nine different companies and provided coverage in such areas as Medicare Supplement, nursing home insurance, cancer insurance, and hospital expense - indemnity insurance. Over the years approximately 60 policies were issued through Respondent's agency to either Mrs. Abraham or her son. The applications were taken by Sanner who would collect the initial premiums and forward both to Respondent's agency for processing to the various insurers. Some policies were signed by Sanner as agent of record and some were signed by Respondent in that capacity. Only a few were signed by Mrs. Sanner. Mrs. Abraham claims she didn't realize how much health insurance she had. Mr. Sanner would come to her apartment and talk to her about a new policy and she would abide by his advice. Her purchases amounted to approximately $20,000.00 per year in premiums which she would pay by check to Mr. Sanner. At no time did she ever deal with or meet the Respondent, Mr. Peppe. She did not question Sanner deeply about why he was selling her so much insurance. Whenever she asked about a new policy, he would usually have what appeared to he to be a good reason for it such as something was lacking in her coverage. Even when she recognized he was selling her duplicate coverage, he told her it was a good idea to have more. At no time did he or anyone else tell her she had too much insurance. Mrs. Abraham claims to know nothing about insurance herself. However, she was cognizant of the nature of the policies she had, utilizing without prompting the terms, "indemnity", "supplemental", and "accident." Mr. Sanner would come to her home at least once a month She trusted him to help her with her health insurance and would talk with him whenever a policy came up for renewal. On some occasions he would recommend she renew and on others would recommend she drop that policy in favor of another. At no time was she aware, however, of the fact that she was duplicating policies. She also claims she never had to tell Mr. Sanner what she wanted from her coverage. He always seemed to know and would handle not only the purchase of her policies but also the filing of her claims. She can recall no instance where she asked for any coverage and he tried to talk her out of it. Mrs. Abraham denies she was the person who complained to the Department. It was her daughter who noticed what was going on and took matters into her own hands. At no time did either Sanner or the Respondent attempt to contact her after the complaint was filed. Mrs. Abraham and her husband had four children. Her son, Lewis, who is somewhat retarded, lives with her and she also purchased some policies for him. Over the years she has had many occasions to file claims under her policies. It is important to her that she have protection to provide full time care if necessary because she has no family locally to provide that care for her. She had coverage that provided nursing care, a private room in the hospital, and some policies which provided for extended or nursing home care. She recognizes that such care is expensive and wanted enough policies to give her total coverage without out of pocket expense if the care was needed. She keeps track of the policies she has on her personal computer and has been doing so for some six or seven years. She apparently is sufficiently computer literate that she knows what she has and what she is doing. Mrs. Abraham owns a condominium at the Galt Ocean Mile apartment in Ft. Lauderdale. The $20,000.00 figure in policy premiums she mentioned were for her policies only. Those for her son were extra. She has sufficient income from stocks and bonds to pay her premiums, pay her mortgage, and still live comfortably. Her son has his own income from a trust fund and his own investments. At one point in time, when Mrs. Abraham had some recurring health problems and was in and out of hospitals regularly, she received in benefits far more than her actual expenses and made a tidy profit. Nonetheless, she adamantly disclaims she purchased the policies she had for that purpose claiming instead that she wanted merely that both she and her son be able to pay for the best medical care possible in the event it is needed. To that end, Lewis Abraham has filed very few claims against his carriers. Most, if not all, of the companies which provided the coverage for Mrs. Abraham and her son have limits on the amount of total coverage any one policy holder can have in any line of insurance. The limit is cumulative and not limited to policies with a specific company. Taken together, the policies in force for Mrs. Abraham in some cases exceeded that limit and had the insurers been made aware of the totality of her coverage, their policies would not have been issued. This information was not furnished to the companies, however, by either Sanner or Respondent. In addition, on many of the policies the mental condition of a policy holder must be disclosed if that person is retarded or not fully competent. Respondent did not know of Lewis' condition though Mr. Sanner was fully aware of it both as it related to his retardation and his drop foot. On none of the policy applications relating to him, however, was either ever mentioned. Some companies indicated that if Lewis's mental and physical condition had been properly disclosed on the application, they either would not have issued the coverage or, at least, would have referred the matter to the underwriter for further evaluation and a determination as to whether to issue the policy and if so, at what premium. Even more, Lewis' physical and mental condition may have caused the company to decline payment of a claim within two years of issuance of any policy actually written. Respondent received monthly statements from the various insurers with whom his agency did business detailing the transactions for that month. Commissions on each sale were paid by the insurers to Respondent's agency and thereafter, pursuant to an agreement between Respondent and Sanner, the commissions were divided. The commissions paid to Respondent's company by the insurers on all these policies amount to in excess of $18,000.00. Respondent asserts that Mrs. Abraham knew exactly what she was doing and was, in effect, conducting if not a scam, at least an improper business activity through the knowing purchase of duplicative policies and redundant coverage. This well may be true, but even if it is, Mr. Sanner was a knowing accomplice and participant. In addition, while it is accepted that Respondent might not know the status of every policy purchased through his agency or the total activity with any particular client, when his name appears as signatory on policy applications forwarded to a company for whom he accepts or solicits business, as here, it is hard to find he did not have at least a working familiarity with the business written by his sub-agents . This finding is supported by the analysis done of Respondent's pertinent activities here by Milton O. Bedingfield, a 39 year insurance agent and broker for 10 companies, a Certified Life Underwriter, and an expert in life and health insurance. Mr. Bedingfield concluded, after a review of all the policies written for the Abrahams through Respondent's agency, there was a gross oversale of policies and repeated omissions of pertinent information on policy applications. He found a duplication of benefits and overlapping coverage, all without legitimate purpose, especially for an 85 year old woman. Since the average hospital stay is less than 2 weeks, she would not likely benefit from her insurance for the stay. He could not see where Mrs. Abraham would get back in benefits what she has paid in premiums. In Mr. Bedingfield's opinion, this is the worst case of oversale he has seen in his 39 years in the insurance business. He contends the agent stands in almost a fiduciary capacity to his clients - especially the aged who rely on their agent to properly advise them on adequate coverage. There is often an element of fear involved that the unscrupulous agent can profit from. Here, he feels, Respondent's practice falls far short of the state's standard of acceptability on the sale of Medicare Supplemental insurance. On balance, however, Mr. Bedingfield does not know if all the policies he saw stayed in force throughout the period of the policy. Many could have lapsed or been cancelled. In all fairness, as well, where insurance is brokered, as here, the ultimate placing agent normally does not meet the client but must rely on what he is told by the offering agent.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that the Administrative Complaint filed against the Respondent in this case, Michael C. Peppe, be dismissed. RECOMMENDED this 11th day of December, 1992, in Tallahassee, Florida. ARNOLD H. POLLOCK 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 11th day of December, 1992. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 92-2708 The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties to this case. FOR THE PETITIONER: 1. & 2. Accepted and incorporated herein. Accepted and incorporated herein. - 9. Accepted and incorporated herein. Accepted and incorporated herein. & 12. Accepted and incorporated herein. 13. & 14. Accepted and incorporated herein. 15. - 18. Accepted and incorporated herein. Accepted. Accepted. & 22. Accepted. Rejected as not supported by evidence or record except for the fact that Respondent sign and processed applications and premium payments and received a financial benefit from the sales. Accepted. FOR THE RESPONDENT: Accepted so far as it relates Ms. Abraham was well informed and aware of her coverage. Not established, but insufficient evidence of actionable misconduct. Accepted. - 6. Not proper Findings of Fact but more Conclusions of Law. Accepted. Not a proper Findings of Fact. COPIES FURNISHED: James A. Bossart, Esquire Division of Legal Services 412 Larson Building Tallahassee, Florida 32399-0300 Thomas F. Woods, Esquire Gatlin, Woods, Carlson & Cowdrey 1709-D Mahan Drive Tallahassee, Florida 32308 Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Bill O'Neil General Counsel Department of Insurance The Capitol, PL-11 Tallahassee, Florida 32399-0300
The Issue Whether the Petitioner, Robbie Reynolds, is eligible for family medical insurance coverage for medical expenses incurred by the Petitioner's son?
Findings Of Fact The Parties. At all times relevant to this proceeding, the Petitioner, Robbie W. Reynolds, was an employee of Department of Corrections, an agency of the State of Florida. The Respondent, the Department of Management Services, Division of State Employees' Insurance (hereinafter referred to as the "Division"), is an agency of the State of Florida. The Division is responsible for managing the State's employee health insurance system. Participation in the State of Florida Health Insurance Plan. The State of Florida makes health insurance available to its employees (hereinafter referred to as the "State Health Plan"). Employees may choose health insurance through the State of Florida Employees' Group Health Self Insurance Plan or through various health maintenance organizations (hereinafter referred to as "HMOs"). The Division has promulgated Chapter 60P, Florida Administrative Code, regulating the State Health Plan. Employees pay part of the premiums for their health insurance and the State contributes a part of the cost of premiums. The amount of premiums paid by an employee and the State depends on the type of coverage selected. Employees may elect coverage only for themselves ("individual" coverage), or coverage for themselves and certain qualified dependents ("family" coverage). Female employees who elect individual coverage are eligible for the payment of maternity or pregnancy benefits. Included in these benefits are certain benefits for the newborn child referred to as "well-baby care." In order for medical expenses attributable solely to a newborn baby that is ill at or after birth to be covered by the State Health Plan, an employee must elect family coverage for the employee and the child. The family coverage must be effective as of the date the medical expenses are incurred for the child. Open Enrollment Periods. Once an employee selects the type of health insurance he or she desires, that employee generally may change the election only during certain designated periods of time, referred to as "open enrollment periods." During an open enrollment period, an employee may change from HMO coverage to the State of Florida Employees' Group Health Self Insurance Plan, or vice versa, may change from individual coverage to family coverage, or vice versa, and may add or delete dependents to the employee's family coverage. Changes to an employees' State Health Plan coverage made during an open enrollment period are effective for the calendar year immediately following the open enrollment period. Other Changes in Health Insurance Coverage. An exception to the requirement of the State Health Plan that changes in coverage only be made during an open enrollment period is provided for certain specified events, referred to as "qualifying events." The acquisition of an "eligible dependent" during a year may constitute a qualifying event. For example, if an employee marries, the employee may elect family coverage for himself or herself and the employee's spouse. A change from individual coverage to family coverage may also be made if an employee or an employee's spouse gives birth to a child. The change to family coverage as a result of marriage or the birth of a child must be made within thirty-one days after the eligible dependent is acquired. An employee may also elect family coverage as a result of the employee or the employee's spouse becoming pregnant. If the employee or employee's spouse elects family coverage in time for the family coverage to be effective at the time of the child's birth, the child may then be added as a dependent to the family coverage by notifying the Division of the child's birth within thirty-one days after the child is born. In order to change to family coverage when an employee or employee's spouse becomes pregnant, the employee, must apply for the change to family coverage in time for the employee to make a month's premium payment on the first day of at least the month during which the child is born or an earlier month. For example, if an employee elects to change from individual coverage to family coverage for a yet to be born child in July effective for September, the first full month's premium is paid on September 1, and the child is born on September 2, the employee has family coverage for all of September and the child will be covered if the Division is notified of the child's birth within thirty-one days after the date of birth. In order for an employee to make a change in coverage as the result of a qualifying event, the employee must file a Change of Information form with the employee's personnel office. The personnel office forwards the form to the Division. Ms. Reynolds' Health Insurance. Ms. Reynolds, as an employee of the State of Florida, was eligible for state health insurance. She elected to participate in the HMO that was available in the Gainesville area where she is employed. AvMed is the name of the HMO for the Gainesville area and Ms. Reynolds' insurer. Although married, Ms. Reynolds initially elected individual coverage. Ms. Reynolds did not elect family coverage for her husband because he received health insurance benefits from his employer. During 1992, Ms. Reynolds became pregnant. The baby's projected due date was April 15, 1993. The Open Enrollment Period for 1993. The open enrollment period for the next calendar year (1993) after Ms. Reynolds became pregnant took place in October of 1992. During the October 1992 open enrollment period the Department of Corrections, through its personnel office, conducted meetings with employees to discuss health care benefits and coverage available to its employees. Two benefits consultants, trained by the Division, conducted the meetings, providing information to, and answering questions from, employees concerning the open enrollment period. Ms. Reynolds, who was approximately three months pregnant at the time of the benefit consultation meetings, attended one of the sessions. Ms. Reynolds attended the session for the purpose of determining what steps she should take to insure that her yet-to-be-born infant was covered by health insurance. Ms. Reynolds spoke for some time with Gail Page and Jordaina Chambers, benefits consultants of the Department of Corrections. Ms. Reynolds informed the benefits consultants that she was pregnant and that she wanted to insure that her yet-to-be-born infant was covered by her health insurance. Ms. Reynolds was incorrectly told that she could not elect family coverage for just her and her yet-to-be-born infant. This incorrect advice, however, did not have any effect on the effective date Ms. Reynolds ultimately decided to begin her family coverage. Ms. Reynolds also informed the benefits consultants that the baby was due April 15, 1993. The benefits consultants informed Ms. Reynolds that her pregnancy constituted a qualifying event and that she could, therefore, switch to family coverage in order to cover her baby. She was also informed that she would have to notify the Division of her child's birth with thirty-one days after birth to add the child to the policy. After being told that she would have to switch her coverage from individual coverage to family coverage, adding her husband as a dependent, Ms. Reynolds asked the benefits consultants when she should switch to family coverage. Consistent with the policies of the Division, and the training the benefits consultants had received from the Division, the benefits consultants advised Ms. Reynolds that she should elect family coverage effective two or three months prior to her due date. The Division makes this recommendation so that employees can save the increased premiums for family coverage a reasonable period of time before the child is born. In light of the fact that Ms. Reynolds' conversation with the benefits consultants took place during the 1992 open enrollment period and the fact that January 1, 1993 was three and one-half months prior to Ms. Reynolds' due date, Ms. Reynolds was advised by the benefits consultants that it would be reasonable to switch from individual coverage to family coverage through the open enrollment period. Based upon this advice, Ms. Reynolds' family coverage would be effective January 1, 1993. The benefits consultants did not advise Ms. Reynolds of any possible consequences of not electing to switch from individual coverage to family coverage with an effective date prior to January 1, 1993. The benefits consultants also did not tell Ms. Reynolds that she could not choose to switch from her individual coverage to family coverage with an effective date prior to January 1, 1993. On or about October 15, 1992, Ms. Reynolds executed and filed with the Division an Annual Benefit Election Form. Respondent's exhibit 1. Pursuant to this form Ms. Reynolds elected to change her health insurance coverage from individual to family effective January 1, 1993. Ms. Reynolds elected to add her husband as a covered dependent. Based upon the election made by Ms. Reynolds, her family coverage became effective on January 1, 1993. If her child was born before that date, any expenses attributable solely to medical services received by the child would not covered by Ms. Reynolds' medical coverage. If the child was born on or after that date and Ms. Reynolds notified the Division of the child's birth within thirty-one days after the child's birth, any expenses attributable solely to medical services received by the child would be covered by Ms. Reynolds' medical coverage. The evidence failed to prove that the advice given by the benefits consultants in October 1992 was not reasonable based upon the information available to them and to Ms. Reynolds. The evidence also failed to prove that either the benefits consultants or Ms. Reynolds unreasonably failed to realize that the child would be born more than three and one-half months premature. Ms. Reynolds, while reasonably relying on the advice of the benefits consultants, knew or should have known that the ultimate decision as to when to begin family coverage was hers to make. Ms. Reynolds also should have been somewhat wary of the advice she was given, in light of the fact that Ms. Reynolds admitted that she was told by the benefits consultants that they "did not know that much about what she was asking." Despite this warning, Ms. Reynolds testified during the final hearing that she followed their advice because she felt there was "no reason to believe they would be wrong." The Premature Birth of the Reynolds' Child. On December 29, 1992, Ms. Reynolds underwent surgery, due to unforeseen medical complications, to deliver her child. The child died on January 1, 1993. In order to add the child as a dependent to her medical insurance when the child was born, Ms. Reynolds had to have family coverage in effect as of December 1, 1992 or earlier. Unfortunately for Ms. Reynolds, on December 29, 1992 when her child was born, Ms. Reynolds only had individual coverage. The rules governing medical benefits of state employees do not allow employees with individual coverage to add dependents. Therefore, even though Ms. Reynolds attempted to get the Division, through the personnel office of the Department of Corrections, to add her child by notifying the personnel office of the birth of the child immediately after December 29, 1993, the child could not be added to her individual coverage. The child received medical services and incurred medical expenses between December 29, 1992 and January 1, 1993. Those expenses were not covered by the well-baby care provided by Ms. Reynolds' individual coverage. Because Ms. Reynolds did not have family coverage at the time the child was born and the child could not be added to her individual coverage, the medical expenses incurred for the child were not covered by Ms. Reynolds' health insurance. Although the child should be added as a dependent to Ms. Reynolds family coverage which took effect as of January 1, 1993, the evidence failed to prove that any medical expenses incurred for the care of the child on January 1, 1993, were not attributable to a preexisting condition. Therefore, expenses incurred for the care of the child on January 1, 1993, are not eligible for reimbursement. Should the Division be Estopped from Denying Coverage? The Division relies on benefits consultants to assist the Division in administering the State Health Plan. Benefits consultants are trained by the Division, they are state employees and they hold themselves out as representing the State in general and the Division in particular. The Division's rules provide for the active involvement of the various personnel offices in administering the State Health Plan. See, Rule 60P- 2.003(1), Florida Administrative Code. The Annual Benefit Election Forms issued by the Division during the open enrollment specifically provide that the forms are to be turned in to employees' personnel offices. The Division allows personnel offices of the various state agencies to hold themselves out to employees as agents of the Division. In this case, Ms. Reynolds was given advice by benefits consultants, on behalf of the Division and consistent with Division policy, which played a role in Ms. Reynolds making a decision which resulted in medical expenses incurred upon the premature birth of her child not being covered by her medical insurance. While Ms. Reynolds was given some incorrect advice, she was not given incorrect advice concerning the effective date of her family coverage. The advice given to Ms. Reynolds concerning when to start her family coverage was reasonable at the time given and, as she admitted during the hearing, there was no reason in October of 1992 to doubt the wisdom of the advice she received. Ultimately, it was Ms. Reynolds decision. While she may not have understood that advice, she made the decision to make choices and act on the advice even after being warned that the benefits consultants were not knowledgeable about what she was asking.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Management Services, Division of State Employees' Insurance enter a Final Order dismissing Robbie W. Reynolds' petition in this matter. DONE AND ENTERED this 19th day of November, 1993, in Tallahassee, Florida. LARRY J. SARTIN 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 19th day of November, 1993. APPENDIX TO RECOMMENDED ORDER, CASE NO. 93-3731 The Division has submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted. Ms. Reynolds did not file a proposed recommended order. The Division's Proposed Findings of Fact Accepted in 2-3 and 19. Accepted in 4-5, 9 and hereby accepted. Hereby accepted. Accepted in 6 and 9. Accepted in 11-17. Accepted in 7-8. Accepted in 1 and 18-19. Accepted in 23-26. Accepted in 20, 28 and 30-32. But See 27-20. See 29-30. But see 27. Accepted in 34 and 38. See 40. Hereby accepted. Accepted in 40-41 COPIES FURNISHED: Robbie W. Reynolds 2635 South West 35th Place, #1304 Gainesville, Florida 32608 Augustus D. Aikens, Jr. Chief of Bureau of Benefits and Legal Services Division of State Employees' Insurance Department of Management Services 2002 Old St. Augustine Road, B-12 Tallahassee, Florida 32301-4876 William H. Lindner, Secretary Department of Management Services Knight Building, Suite 307 Koger Executive Center 2737 Centerview Drive Tallahassee, Florida 32399-0950 Sylvan Strickland, Esquire Department of Management Services Knight Building, Suite 309 Koger Executive Center 2737 Centerview Drive Tallahassee, Florida 32399-0950
Findings Of Fact The Respondent, William Richard Dobeis, is a Florida licensed life insurance agent, life and health insurance agent, health insurance agent and dental health care contract salesman. In approximately June, 1988, the Respondent was approached by Irene Kyriazis at her place of employment. The Respondent had sold her employer a group health insurance plan in which she participated. She told the Respondent that her husband, Andreas Kyriazis, was dissatisfied with his health insurance and was interested in obtaining coverage through the group policy. This was not possible under the policy terms, but the Respondent told her that the Respondent would be happy to talk to her husband about his insurance and suggested that she make an appointment for the Respondent to meet with her husband for this purpose if her husband so desired. The Kyriazises discussed the matter, and Andreas agreed that his wife should arrange a meeting with the Respondent. The meeting took place on June 23, 1988. At the meeting on June 23, 1988, Andreas stated that his current policy with American States Insurance had a $250,000 lifetime maximum benefit, a $90 maximum daily hospital benefit and a $250 deductible. He wanted a policy with better coverage in those respects. The Respondent asked Andreas to show him the policy. Andreas looked for it but could not find it. Instead, he produced an insurance identification card. Based on what was on the card, and what Andreas had told the Respondent, the Respondent surmised that the policy was an obsolete major medical policy (it was issued in 1977) that probably should be replaced. The Respondent then presented to Andreas a policy with Individual Assurance Company. It was a million dollar policy with only a $150 deductible. The daily hospital bed benefit was higher than the old American States policy. (The evidence was not clear exactly what the daily hospital bed benefit was.) In addition, the Kyriazises could get coverage for their college age son, Nicholas--something they also had under the American States policy and were interested in as well. Andreas was pleased with the policy and decided to submit an application. As the Respondent does routinely, and did in the case of each application Andreas submitted through the Respondent, the Respondent went through the application with the applicant line by line and question by question. The application states, and the Respondent repeats verbally, and it is clear to the applicant, that it is the applicant's duty to answer all questions truthfully, or the policy could be rescinded and benefits not paid. The Respondent carries reference books with him to these meetings so that he can answer virtually any question the applicant might ask the Respondent about the policy or the application. The Respondent completes the application in accordance with the information provided by the applicant, and the applicant signs the application. In the case of the Individual Assurance application, Andreas answered, "no," to the question whether, to his best knowledge, he had been treated for, had been diagnosed as having, or currently was being treated, for heart disease or any other condition related to the heart or circulatory system within the past five (5) years. According to the evidence, this answer was truthful, and there was no reason for the Respondent to have inquired further as to whether the answer would have been different had there not been the five-year qualification to the question. Andreas also stated on his application that he had not been treated for, had not been diagnosed as having, and currently was not being treated for any disorder of the kidneys. According to the evidence, this answer was not truthful. See Finding 17. But there was no reason for the Respondent to have known that it was untrue or to have questioned the answer Andreas gave. Andreas wanted the Respondent to immediately make and leave at the house a copy of the application. The Respondent replied that he could not comply with that request but would mail Andreas a copy as soon as the Respondent got back to the office. The Respondent kept his promise and continued to follow the same procedure in the case of each application Andreas submitted through the Respondent. As the Respondent does routinely, and did in the case of each policy he obtained on behalf of the Kyriazises, the Respondent personally delivered the Individual Assurance policy to the Kyriazises at their home and thoroughly went over the provisions of the policy with them. He told them to let him know if they noticed anything that they did not think was right. He had the same advice stamped on the policy itself. Andreas was completely satisfied with the Individual Assurance policy until he received a letter from the insurance company, addressed to him and dated December 30, 1988, stating that premiums on the policy would be adjusted to reflect a 9.4 percent increase, effective with the February 1, 1989, billing statement. Andreas was irate about the premium increase and insisted that the Respondent find him another policy. The Respondent was reluctant but succumbed to Andreas' angry bluster and pressure. (It was and, as was evident from his demeanor at the final hearing, and apparently from his subsequent dealings with the Department of Insurance, still is Andreas' modus operandi to use angry bluster and pressure tactics to make others bend to his will.) At a meeting on February 1, 1989, the Respondent showed Andreas a policy with Central States Health & Life Co. of Omaha. Like the Individual Assurance policy, the Central States policy had a million dollar maximum lifetime benefit. It paid for a semi-private hospital room with no dollar amount maximum. The deductible was just $100. The son, Nicholas, also could apply for coverage from Central States. It was a good policy and a suitable replacement for the Individual Assurance policy that Andreas no longer wanted. Andreas decided to apply for himself and for his son, Nicholas. The Respondent completed the Central States application in his usual fashion. See Finding 7. One of the questions on the Central States policy was whether Andreas had ever had, among other things, a heart murmur or any disorder of the heart, blood or blood vessels. Andreas falsely answered this question, "no." In fact, Andreas had a heart murmur from the time of his birth. Andreas claims that the Respondent knew of Andreas' history of having a heart murmur. Andreas claims that the Respondent knew this from seeing a copy of Andreas' application to American States which revealed that Andreas had "heart murmur since birth, no complications, no medication." But it has been found that Andreas did not show the Respondent a copy of the American States policy. He had lost it. See Finding 5. Andreas subsequently obtained a duplicate copy from American States that the Respondent saw for the first time at the final hearing. It is found that, notwithstanding Andreas' testimony to the contrary, Andreas did not tell the Respondent about Andreas' heart murmur or any other heart disease or problems on February 1, 1989, or at any time previously. Another question on the Central States application asked whether Andreas had ever had, among other things, sugar or albumin in the urine, kidney stones or any disorder of the kidneys, bladder, prostate, urinary sytem or reproductive organs. Andreas answered this question, "yes," underlining the words "kidney stones," and gave the following details: "Lithotripsy Treatment Performed, Date 10/87, Duration 1 day, Degree of Recovery 100 percent." The coverage on Nicholas was processed as fast as usual, and the Respondent promptly delivered the policy on Nicholas in the Respondent's usual fashion. See Finding 11. But the coverage on Andreas was delayed by the insurance company's investigation of Andreas' medical information. On or about May 17, 1989, Central States finally issued Andreas' policy, effective February 1, 1989, but with a special endorsement requiring Andreas to "waive any benefits for any loss or disability resulting directly or indirectly, in whole or in part from disease or disorder of the heart and/or circulatory system and/or intestinal tract and/or urinary tract." The Respondent promptly delivered the policy on Andreas, with the special endorsement, in the Respondent's usual fashion. See Finding 11. When he explained the special endorsement, Andreas was furious. His anger seemed to be directed both at the insurance company and at his doctors, for whatever they had told the insurance company. In general terms, he adamantly denied that there was any valid reason for the special endorsement. The Respondent tried to calm Andreas down and explain to what Andreas' options were. The Respondent did not know why the special endorsement had been required by the insurance company. The Respondent explained that Andreas could send the company a letter authorizing the company to tell his doctors the reasons for the waiver requirement. The Respondent explained that neither the Respondent, nor even Andreas himself, could get the reasons directly from the insurance company; it would have to go through Andreas' doctors. The Respondent agreed to prepare a letter for Andreas to use to authorize the company to tell his doctors the reasons for the special endorsement. Meanwhile, the Respondent suggested, the Respondent could try to find a temporary policy for Andreas to cover the areas excluded by the special endorsement until the problem was resolved. There was nothing wrong with the Central States policy on Nicholas, and no change was made in that policy. Nicholas' Central States policy remained in effect as of the date of the final hearing, and substantial claims have been paid under the policy due to a serious car accident Nicholas had after obtaining the policy. The Respondent assisted with the claims, and neither Nicholas nor Andreas nor anyone else has complained to the Respondent either about the policy or about the Respondent's service. (Andreas' complaints, voiced for the first time at the final hearing, that he is dissatisfied with the policy because $4,000 of claims were not paid, and Andreas hired an attorney to pursue them, were not proven to be reasonable.) Andreas eventually agreed to the approach suggested by the Respondent and signed the special endorsement waiving the specified coverage. However, probably privately suspecting at least some of the reasons for the special endorsement, Andreas apparently never mailed to the insurance company the authorization letter the Respondent prepared for him. The Respondent never learned from the insurance company, or Andreas' doctors, or from Andreas himself, the reasons for the special endorsement. On or about September 29, 1989, the Respondent met with Andreas for purposes of presenting a United American Insurance Company policy known as "the Golden Rule." This was not a true major medical policy but rather a surgical schedule policy. The purpose of it was not to provide major medical, but just to provide some coverage for the areas excluded by the Central States special endorsement for a few months, until that problem could be resolved. The Respondent completed the "Golden Rule" application in his usual fashion. See Finding 7. One of the questions asked whether Andreas had or had been treated for, among other things, any heart or circulatory disorder in the past two years. This question prompted a discussion of "preexisting conditions," and the Respondent explained that, if Andreas had a medical condition at the time of application, as would be indicated by an affirmative answer to the question, he would not be covered under the policy for six months. When Andreas raised the question what is meant by "having" or "being treated for" a condition, the Respondent answered that if he did not see a physician for treatment, and was not on medication, within the past two years, Andreas could answer, "no." Andreas then answered the question, "no." He also denied any reproductive organ disorder or recurrent urinary tract disorder. There was no reason for the Respondent to question Andreas' answers on the "Golden Rule" application. It was consistent with the way in which Andreas answered the similar questions on the Individual Assurance application. See Findings 8 and 9. The answer on the "Golden Rule" application also would not have been necessarily inconsistent with the special endorsement requirement imposed by Central States. The Respondent still did not know why Central States had required the special endorsement on Andreas' policy. In addition, the answers on the "Golden Rule" application would not have been necessarily inconsistent with an affirmative answer to the question on Andreas' Central States application whether Andreas had ever had, among other things, a heart murmur or any disorder of the heart, blood or blood vessels. Finally, the answers on the "Golden Rule" application were not inconsistent with Andreas' answer on the Central States application that he had had kidney stones but never had sugar or albumin in the urine, or any other disorder of the kidneys, bladder, prostate, urinary sytem or reproductive organs, and that he had lithotripsy treatment in October, 1987, from which he had recovered "100 percent." Cf. Findings 15 and 17. On or about October 16, 1989, the Respondent delivered Andreas' "Golden Rule" policy in the Respondent's usual fashion. See Finding 11. Meanwhile, he continued to look for a major medical policy to replace Andreas' Central States policy. On or about November 20, 1989, the Respondent wrote Andreas to give him "good news." The Respondent had found a major medical policy with United Olympic Life Insurance Company to replace Andreas' Central States policy. As the Respondent wrote, United Olympic policy was a true million dollar major medical policy, with a $150 a year deductible, that paid 80 percent of the next $5,000, after the deductible, and 100 percent of the rest up to the lifetime maximum of a million dollars. There also were other features which the Respondent explained. The Respondent also sent a brochure more fully describing the policy. In addition, the Respondent wrote to Andreas: "If you can answer questions 2 thru 6 no, you qualify." The Respondent completed the United Olympic application in his usual fashion. See Finding 7. Question 2 asked whether Andreas had or had been treated for heart attack, heart disease or disorder, chest pain, stroke, arteriosclerosis, high blood pressure or any other condition related to the heart or cardio-vascular system within the past five years. The Respondent repeated the explanations about the meaning of "preexisting conditions," and the meaning of "having" or "being treated for" a condition, that he had given for the "Golden Rule" application. See Finding 25. After these explanations, Andreas answered the question, "no." Just as with Andreas' answer to the similar question on the "Golden Rule" policy, there was no reason for the Respondent to question Andreas' answer to Question 2 on the United Olympic policy. See Finding 26. Question 1 on the United Olympic application asked whether Andreas had been recommended to receive or was receiving at that time "treatment or medication for any medical condition, including pregnancy." (Emphasis added.) Andreas answered this question, "no." There was no reason for the Respondent to question Andreas' answer to Question 1 on the United Olympic application. It was consistent with the way in which Andreas answered the questions on previous applications submitted through the Respondent. Question 6 on the United Olympic application asked whether Andreas had been diagnosed or treated for disease or injury of the kidney, bladder, or genito-urinary or reproductive systems. Andreas also answered this question, "no." Both Andreas and the Respondent should have known that Andreas' answer to Question 6 on the United Olympic application was false. On the Central States application, Andreas had disclosed that he had kidney stones and received lithotripsy treatment in October, 1987. (Andreas stated on the Central States application that he had recovered "100 percent.") On or about January 31, 1990, the Respondent delivered Andreas' United Olympic policy in the Respondent's usual fashion. See Finding 11. The Respondent had no knowledge of any problem with the United Olympic policy until 1991, when Andreas made claims for a kidney condition and for hospitalization and medical services for a heart condition. The Respondent processed the claims in a prompt and appropriate manner, but payment was slow and some claims were not paid. As a result, Andreas began having problems with creditors and was unable effectively to continue his business of buying and selling of property. In July, 1991, the Respondent prepared a State of Florida Insurance Consumer Service Request for Andreas' signature to send to the Florida Insurance Commissioner to get assistance in procuring prompter payment of the claims. The Respondent also prepared a letter for Andreas' signature asking Andreas' creditors for patience in view of the insurance company's slow processing of claims. On or about August 12, 1991, the administrator for United Olympic sent Andreas a letter, with a copy to the Respondent, notifying them that the company was rescinding Andreas' policy. The letter stated that, contrary to the answers Andreas gave on United Olympic application, the company's investigation had obtained information: (1) that Andreas was taking medication for impotency at the time of the application; (2) that he was diagnosed with mitral valve prolapse in July, 1989; and (3) that he also had continuing problems with kidney stones and urinary tract infections since 1987. When Andreas received the rescission letter, he telephoned the Respondent. The Respondent was in the midst of a previously scheduled appointment at the time but offered to accompany Andreas to the Florida Insurance Commissioner's local offices as soon as he finished with the appointment. But, before the Respondent could finish the appointment and call back, Andreas when to the Insurance Commissioner's office himself and registered a complaint against the Respondent for advising Andreas "that it was not necessary to include this medical information on the application to United Olympic Life." As reflected in these Findings of Fact, Andreas' complaint was not true. The only medical information that the Respondent should have known was incorrect was the answer to Question 6 on the United Olympic application. See Finding 33. But Andreas also knew or should have known this. The Respondent had no special duty, greater than Andreas', to realize that the answer was false. At worst, the Respondent may have been guilty of negligent oversight in this respect. It was not proved that the Respondent knew the answer was false, or that he advised Andreas that Andreas did not have to disclose the kidney stones and lithotripsy on the United Olympic application. Finally, United Olympic rescinded Andreas' policy not because of the kidney stones and lithotripsy, but because Andreas allegedly has had "continuing problems with kidney stones and urinary tract infections since 1987." See Finding 38. There is no evidence that the Respondent knew, or that Andreas ever told him, that Andreas was having "continuing problems with kidney stones and urinary tract infections since 1987." To date, no determination has been made as to whether United Olympic properly rescinded Andreas' policy. Andreas contends that the Respondent knew all along that Andreas had a heart murmur since birth. Andreas equates this knowledge with knowledge of mitral valve prolapse, but the evidence did not prove that the two are the same. In addition, knowledge of a heart murmur since birth is not the same as knowledge of a diagnosis of mitral valve prolapse in July, 1989. Andreas did not admit, and the evidence did not establish, that Andreas was diagnosed with mitral valve prolapse in July, 1989. Moreover, it is found that Andreas did not tell the Respondent about a diagnosis for mitral valve prolapse in July, 1989. As reflected in these Findings of Fact, it was not proven that the Respondent ever misrepresented to Andreas, or misled or deceived him, as to the coverage of any of the policies he sold to Andreas.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Insurance Commissioner enter a final order dismissing the Administrative Complaint in this case. RECOMMENDED this 19th day of April, 1993, in Tallahassee, Florida. J. LAWRENCE JOHNSTON 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 19th day of April, 1993. APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-2707 To comply with the requirements of Section 120.59(2), Fla. Stat. (1991), the following rulings are made on the parties' proposed findings of fact: Petitioner's Proposed Findings of Fact. 1.-4. Accepted and incorporated to the extent not subordinate or unnecessary. Rejected that the Respondent's purpose was to "solicit health insurance," except as described in the Findings of Fact. Otherwise, accepted and incorporated. Rejected as not proven and as contrary to facts found. Accepted and incorporated. However, as reflected in the Findings of Fact, he did not give the Respondent the complete information, or at least the information alleged by United Olympic in rescinding Andreas' policy. Rejected as not proven and as contrary to facts found. Rejected as not proven and as contrary to facts found that the application was completed "as a result of the representations of the Respondent." Otherwise, accepted and incorporated. Accepted and incorporated. See 5., above. Rejected as not proven and as contrary to facts found. See 9., above. 14.-15. Accepted and incorporated. 16. Rejected as not proven and as contrary to facts found. Respondent's Proposed Findings of Fact. 1.-4. Accepted and incorporated. 5.-6. Accepted. Subordinate to facts found, and unnecessary. Accepted and incorporated. Accepted and incorporated to the extent not subordinate or unnecessary. COPIES FURNISHED: William C. Childers, Esquire Department of Insurance 612 Larson Building Tallahassee, Florida 32399-0300 William Richard Dobeis Post Office Box 3387 Seminole, Florida 34642 Honorable Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Bill O'Neil, Esquire General Counsel Department of Insurance and Treasurer The Capitol, PL-11 Tallahassee, Florida 32399-0300
