Recommendation Based on the foregoing Stipulated Facts, Supplemental Findings Of Fact and Conclusions Of Law, it is recommended that Respondent, Department of Banking and Finance, enter a final order that the following disbursements from the Mortgage Broker Guaranty Fund be made Payee on the claims against Polk Investments, Inc.: Amount Amendolaro $ 2,661,22 Victorias 10,000.00 Fournier, Janice 10,000.00 Wilson 1,334.71 Ledfords 6,573.09 Fournier, Robert 10,000.00 Murphy 4,715.49 Murphy as Trustee 4,715.49 Total $50,000.00 RECOMMENDED this 13th day of November, 1986 in Tallahassee, Leon County, Florida. J. LAWRENCE JOHNSON, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 13th day of November, 1986. COPIES FURNISHED: Paul C. Stadler, Jr., Esquire Assistant General Counsel Office of the Comptroller The Capitol, Suite 1302 Tallahassee, Florida 32301 Dennis P. Johnson, Esquire SHELNUT AND JOHNSON, P.A. Suite One Belvedere Professional Center 1525 South Florida Avenue Lakeland, Florida 33806-2436 Cristy F. Harris, Esquire HARRIS, MIDYETTE & CLEMENTS, P.A. Post Office Box 2451 Lakeland, Florida 33806-2451 Honorable Gerald Lewis Comptroller, State of Florida The Capitol Tallahassee, Florida 32301 Charles Stutts General Counsel Plaza Level The Capitol Tallahassee, Florida 32301
The Issue The central issue in this case is whether Petitioners are entitled to recover against the Mortgage Brokerage Guaranty Fund and, if so, the priority of payment to be applied to their claim. A secondary issue is whether claimants who gave notice prior to Petitioners are entitled to payment or whether they have waived or abandoned their claims.
Findings Of Fact Based upon the stipulations filed by the parties and the documentary evidence, I make the following findings of fact: The Mortgage Brokerage Guaranty Fund (the "fund") was created in 1977 to provide recovery for any person who meets all of the conditions prescribed in Section 494.043, Florida Statutes. The Department is charged to disburse the fund according to Section 494.044, Florida Statutes. Section 494.043, Florida Statutes, (Supp.1986) provides: Any person who was a party to a mortgage financing transaction shall be eligible to seek recovery from the Mortgage Brokerage Guaranty Fund if: The person has recorded a final judgment issued by a Florida court of competent jurisdiction in any action wherein the cause of action was based on s. 494.042(2); The person has caused to be issued a writ of execution upon such judgment and the officer executing the same has made a return showing that no personal or real property of the judgment debtor liable to be levied upon in satisfaction of the judgment can be found or that the amount realized on the sale of the judgment debtor's property pursuant to such execution was insufficient to satisfy the judgment; The person has made all reasonable searches and inquiries to ascertain whether the judgment debtor possesses real or personal property of other assets subject to being sold or applied in satisfaction of the judgment, and by his search he has discovered no property or assets or he has discovered property and assets and has taken all necessary action and proceedings for the application thereof to the judgment, but the amount thereby realized was insufficient to satisfy the judgment; The person has applied any amounts recovered from the judgment debtor, or from any other source, to the damages awarded by the court. The person, at the time the action was instituted, gave notice and provided a copy of the complaint to the division by certified mail; however, the requirement of a timely giving of notice may be waived by the department upon a showing of good cause; and The act for which recovery is sought occurred on or after September 1, 1977. Recovery of the increased benefits allowable pursuant to the amendments to s. 494.044 which are effective October 1, 1985, shall be based on a cause of action which arose on or after that date. The requirements of paragraphs (1)(a),(b),(c),(d), and (e) are not applicable if the licensee or registrant upon which the claim is sought has filed for bankruptcy or has been adjudicated bankruptcy; however, in such event the claimant shall file a proof of claim in the bankruptcy proceedings and shall notify the department by certified mail of the claim by enclosing a copy of the proof of claim and all supporting documents. Pertinent to this case, Section 494.044, Florida Statutes, (Supp. 1986) Provides: Any Person who meets all of the conditions Prescribed in s 494.043 may apply to the department for payment to be made to such person from the Mortgage Brokerage Guaranty Fund in the amount equal to the unsatisfied portion of that person's judgment or judgments or $20,000, whichever is less, but only to the extent and amount reflected in the judgment as being actual or compensatory damages. As to claims against any one licensee or registrant, payments shall be made to all persons meeting the requirements of s. 494.043 upon the expiration of 2 years from the date the first complete and valid notice is received by the department. Persons who give notice after 2 years from the date the first complete and valid notice is received and who otherwise comply with the conditions precedent to recovery may recovery from any remaining portion of the $100,000 aggregate, in an amount equal to the unsatisfied portion of that person's judgment or $20,000, whichever is less, but only to the extent and amount reflected in the judgment as being actual or compensatory damages, with claims being paid in the order notice is received until the $100,000 aggregate has been fully disbursed. * * * (3) Payments for claims shall be limited in the aggregate to $100,000, regardless of the number of claimants involved, against any one mortgage broker or registrant. If the total claims exceed the aggregate limit of $100,000, the department shall prorate the payment based on the ratio that the person's claim bears to the total claims filed. The first notice received by the Department alleging a claim against Barry Koltun or Oakland Mortgage Company was filed on August 13, 1984. This notice was filed on behalf of John and Mary Ahern. The Department utilized this notice in computing the two-year period addressed in Section 494.044(1), Florida Statutes. For purposes of recovery from the fund, the individual mortgage broker (Koltun) and the company qualified by the broker (Oakland) are treated as one. Petitioners filed an initial notice of their claim against the fund on October 16, 1985. This claim was asserted against Oakland Mortgage Company, Barry Koltun and Robert Tamarro. On January 23, 1987, the Department issued a "Notice of Intent to Grant or Deny Payment from the Mortgage Brokerage Guaranty Fund Re Oakland Mortgage Company." This notice outlined the status of some thirteen claims which had given notice of their civil actions against the licensee within the two year period. Two claimants, Kusich and Szafran, had provided all documentation required by Section 494.043, Florida Statutes; consequently, they were approved for payment. The Petitioner's claim was denied because they had allegedly failed to satisfy the statutory requirements of Section 494.043, Florida Statutes and had failed to do so prior to August 12, 1986 (the end of the two year period). The Petitioners timely filed a petition for formal Chapter 120 proceedings challenging the Department's denial of their claim for payment. Subsequent to January 23, 1987, Petitioners completed the conditions precedent for recovery and submitted all documentation required to satisfy the requirements of Section 494.043, Florida Statutes. On July 6, 1987, the Department received notice and a claim from the Intervenors. This claim satisfied the requirements of Section 494.043, Florida Statutes. Of the thirteen original claims filed, only two claimants (Kusich and Szafran) completed all conditions of Section 494.043, Florida Statutes, on or before August 12, 1986.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the Department of Banking and Finance, Division of Finance, enter a Final Order finding the claims of Rusich and Szafran eligible for payment, and that the claim of Petitioners be evaluated as part of the second class established in Section 494.044(1), Florida Statutes, DONE and RECOMMENDED this 1st day of December, 1987, in Tallahassee, Florida. JOYOUS D. PARRISH Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 1st day of December, 1987. COPIES FURNISHED: Paul A. Zeigler, Esquire Ruden, Barnett, McClosky, Smith, Schuster & Russell, P.A. Suite 1010, Monroe Park Tower 101 North Monroe Street Tallahassee, Florida 32301 Paul C. Stadler, Jr., Esquire Department of Banking and Finance Division of Finance Suite 1302 The Capitol Tallahassee, Florida 32399-0350 Joseph Degance, Esquire 1995 East Oakland Park Boulevard Suite 101 Fort Lauderdale, Florida 33306 Jack F. Weins, Esquire Boca Bank Building Suite 200 855 South Federal Highway Boca Raton, Florida 33432 Morey Udine, Esquire 3111 University Drive Suite 425 Coral Springs, Florida 32065-6930 Hon. Gerald Lewis Department of Banking and Finance Comptroller, State of Florida The Capitol Tallahassee, Florida 32399-0350 Charles L. Stutts General Counsel Department of Banking and Finance The Capitol Tallahassee, Florida 32399-0350 =================================================================
The Issue The Respondents have been charged with multiple violations of Chapter 494, (1987), the Florida Mortgage Brokerage Act, and administrative rules promulgated pursuant to the act. The violations, described in an amended administrative complaint dated April 16, 1990, are as follows: Rule 3D-40.006(5), F.A.C.: Respondents failed to issue a statement signed by both parties, when receiving a deposit on a mortgage loan, regarding disposition of the deposit and other matters. Section 494.08(10), F.S. and Rule 3D-40.091(2), F.A.C.: Respondents failed to provide a written statement with a summary of limits and conditions for recovery from the Mortgage Broker Guaranty Fund. Section 494.055(1)(b), F.S. and Rule 3D-40.008(1), F.A.C.: Respondents assessed fees for credit reports, phone calls, appraisals and courier services, which fees were not supported by the files. Section 494.055(1)(0), F.S. and Rule 3D-40.006(4), F.A.C.: The department had to issue a subpoena for compensation records. Section 494.055(1)(g) and (p), and Section 494.08(5), F.S.: Borrowers were required to pay higher closing costs than were disclosed on the good faith estimate form. Section 494.08(5), F.S.: Respondents failed to secure executed modified mortgage loan applications from the borrowers or to return excess monies to the borrowers. Section 494.08(5), F.S. and Rule 3D-40.091(1), F.A.C.: Respondents accepted deposits from loan applicants but failed to obtain executed mortgage broker agreements which would disclose the cost of the loans. Sections 494.055(1)(b) and (g), and Sections 494.093(3)(a), (b), (c), and (4), F.S.: Respondents failed to disclose that they would retain both origination fees and discount points as their compensation, and failed to disclose compensation received from the lender in addition to brokerage fees assessed the borrowers on the closing statements. Section 494.055(1)(b), F.S., Section 494.08(5), F.S. and Sections 494.093(3)(a), (b), (c) and (4), F.S.: Respondents collected a servicing release fee from the borrowers when the Respondents were not the lender, and failed to disclose the collection. Section 494.055(1)(e), F.S. and Rule 3D-40.006(b)(a), F.A.C.: Respondents failed to maintain an escrow account.
Findings Of Fact Inlet Mortgage Company, Ltd. ("IMC") is a mortgage brokerage business operating under license #HB65002147500. Its place of business is 700 Virginia Avenue, Suite 105, Ft. Pierce, Florida 34982. John Davis is the principal mortgage broker of Respondent IMC, operating under license #HA246700273. He has been licensed in Florida since approximately 1987, and opened his business in February 1988. As authorized by Section 494.065(1), F.S. (1987), the Department of Banking and Finance ("department") conducted an examination of the affairs of the Respondents for the time period February 1988 through June 1, 1988. The examination was completed on July 5, 1988, with a written report. At the time of the examination Respondents had closed only four loans and had another six in progress. The audit was conducted because a loan processor working for IMC had applied for her mortgage broker license, and her application seemed to imply that she was already practicing mortgage brokering. The audit cleared up this question and the processor was not found to be operating improperly. However, Timothy Wheaton, the department examiner, found other violations by IMC. When an audit or review is conducted by the department, the agency staff first interviews the person in charge to explain the review and to learn about the company. The staff then looks at the licenses, reviews files of closed and active loans, and examines books and accounts, payroll records, and the like. Generally, a sampling of loan files is selected from the broker's loan log, but in this first review all loans were reviewed, as so few existed. The staff writes a preliminary report and conducts an exit interview to let the broker know its findings. Later, a formal report is completed and provided to the broker, who has thirty days to respond. Timothy Wheaton conducted his review of IMC and John Davis at the company office in Ft. Pierce on June 3, 1988 and June 7, 1988. At some point on June 3rd, Wheaton was reviewing compensation records to determine how the broker, his partner and the loan processor were paid. Davis had checkbooks available, but the accountant had not prepared his books as the office had just opened. Wheaton had questions as to whether the checkbooks were all that was available; when he asked for the payroll records, Davis told him he would have to subpoena them. Wheaton returned on Monday with a subpoena and was given the same records as before. Davis admits that he made the demand for the subpoena. He was piqued because he was very busy when the audit staff arrived, and when he suggested they return later, he felt they wrongfully impugned his motives and accused him of hiding something. Respondent Davis has admitted to several "technical" violations or oversights in the loan files at the time of the first review. A summary of the limits and conditions of recovery from the Mortgage Brokerage Guaranty Fund was not being provided, but has been provided since the first audit. Deposits for credit report, appraisal fees and other costs were collected from the borrowers, but the files did not include a statement, signed by the borrowers, describing disposition of the funds in the event that the loan was not consummated, or the term of the agreement. After the first audit Davis has provided such a form statement and has included it in each file. On three closed loans, and one that was still pending, the files did not include documentation to support minimal (i.e., $25.00, $10.00, $6.56) fees for phone calls and courier fees, or fees were collected which exceeded the documentation in the file. Davis explained that these are charges made by the closing attorney, and the files now document those expenses. The difference between what was collected for a credit report and what was spent was returned to the borrower. (For example, $20.30 was returned to borrower, G. Stewart). In three loans closed at the time of the first audit, Davis and IMC received as compensation both the origination fee and a portion of the discount points. In the McCurdy loan, IMC received its 1 percent origination fee ($600.00), plus one half of the 1 percent discount fee ($300.00). In the Alexander loan, IMC received its 1 percent origination fee ($469.00), plus a .75 percent discount fee ($351.75). In the Stewart loan, IMC received its 1 percent origination fee ($612.00), plus 1/2 percent discount fee ($306.00). In each case, the Good Faith Estimate form provided to the borrowers disclosed the fees separately and did not break out which portion of the loan discount would be paid to the lender and which portion would be paid to IMC. The origination fee is sometimes called the broker's fee, although some banks also collect the fee when a mortgage broker is not involved. Discount points are a one-time payment to a lender to increase its yield on the loan. They are a percentage of the loan, paid up front, to reduce the interest rate over the term of the loan. These are distinctly different forms of charges to the borrower. Davis claims that he explained orally to each borrower how much compensation he would receive. The borrowers do not remember the specifics of that explanation, but rather consider the total origination fee and discount fee as their cost of the loan. They knew that the broker was going to be compensated for his services and understood that compensation would come from those fees in some unspecified manner. Davis claims that he checked with some lenders who told him that it was standard practice for part of the broker's compensation to be called a "discount" fee. He considered it a tax advantage to the borrower, as discount fees could be deductible, just as interest is deductible. During the audit, Davis discussed his compensation practice with the agency staff, who explained that, whatever it is called, the broker's compensation had to be fully disclosed to the borrower at the time of application on the Good Faith Estimate form. Between June 3rd and June 7th, Davis attempted to redisclose his compensation to the borrowers, but this resulted in unsigned disclosure forms in the file when the agency review staff returned on June 7th to complete the audit. At the time of the first audit, Davis and IMC maintained an escrow account for the deposits received from applicant/borrowers for audit reports, appraisal fees and other costs. Davis later closed his escrow account because he felt it was costing him money and because he did not consider the funds he received at the time of application to be escrow deposits. In most cases, the credit report and appraisal and other relevant services were ordered the same day as the loan application. Whether the loan was eventually consummated, the customer was still responsible for paying the charge if the services were provided. This is disclosed in a statement at the bottom of the Good Faith Estimate form and in a separate "Notice to Borrower", signed by the applicant which, since the first audit, is maintained in the loan file. According to the Notice to Borrower, if the loan is cancelled or denied, and the services have not been performed, the funds will be returned to the customer, less any cancellation charge by the appraisal or credit firm. These funds are deposits. When the escrow account was closed, Davis deposited the money for appraisals and credit report in his operating account. After services were rendered and an invoice received, he would pay the bill. Barbara Janet (Jan) Hutchersien, conducted the department's second audit of IMC in January 1990. This review covered the period from July 1, 1988 through December 31, 1989. John Davis provided the boxes of loans and bank records and loan log. The auditor used the logs to review a sample of loans from each lender with whom IMC works. The bank records were used to trace funds reflected in the loan files. Ms. Hutchersien found, and noted in her examination report, that no escrow account was maintained, although deposits were received in a sample of loan applications. In the Fishman loan, which closed on 4/11/89, closing costs were disclosed by IMC as $1,822.00 on the Good Faith Estimate form dated 1/12/89, yet those costs actually amounted to $2,075.00, disclosed at closing on the U.S. Housing and Urban Development (HUD) Settlement form, for a difference of $253.00. In determining consistency between a good faith estimate and actual closing costs, the agency staff looks at items which are predeterminable costs. In the Fishman case, the estimate for survey was $225.00, but the actual cost was $400.00, due, according to John Davis, to an oddly-shaped lot. In two loans financed by Greentree Mortgage Corporation, IMC received a substantial fee from the lender, which fee was not disclosed on the Good Faith Estimate form, on the HUD Settlement form, or anywhere in writing to the borrower. File documents call these fees "discount for pricing". In the Meslin loan, closed on 8/11/89, the fee from the lender to broker was $432.00; in the Krueger loan, closed on 7/21/89, the payment was $820.00. These paybacks are called "par plus pricing", a relatively new (within the last five years) form of loan pricing. Par plus pricing allows a borrower who does not wish to pay cash at closing, but who would qualify for a higher interest rate in terms of monthly payments, to avoid paying discount points fee at closing. Instead, the lender pays the points to the broker, and the borrower gets a higher interest rate. This is contrasted with the discount point system where the borrower pays cash points at closing in return for a lower interest rate. Par plus pricing can work to the advantage to all parties: The borrower avoids a large cash outlay at closing, the lender enjoys a higher interest rate over the term of the loan, and the broker receives his money from the lender. The borrower, however, should understand his options, including the option to pay cash at closing for a lower interest rate. Davis did not disclose the payback from the lender in writing because that is the way he says he was told to handle the loan by Greentree's representative. Davis told the borrowers that he was getting his money from the lender. He did not, however, explain that the borrower would be paying a higher interest rate in return, and Roger Krueger did not understand why his loan was at 10 1/4 percent, rather than 9 3/4 percent, which he thought was the going rate at the time of closing. IMC also received funds from the lender in the Barnes loan, closed on 12/30/88. Cobb Financial Partners was the original lender, yet they paid IMC a service release fee ordinarily paid by one lender to another for release of servicing a loan. Although the fee from Cobb to IMC was not disclosed in writing to the borrowers, the Barnes' were told that the fee for IMC's services would come from the lender, rather from them. They were told, and it is disclosed on the Good Faith Estimate form, and on the HUD Settlement Form, that Cobb Partners Financial was paid $900.00 (1.25 percent loan discount) by the borrowers. Of this, $810.00 was returned by Cobb to IMC. John Davis concedes that Cobb, not IMC, was the lender and was not "comfortable" with how Cobb told him to handle his fee. He has not done business with Cobb since this loan and was simply trying to avoid having to charge his fee to Barnes, who had just arrived in town to become the newspaper editor. The borrowers who were the subject of the files in which the agency found violations generally did business with Davis and IMC because they thought he would get the best deal for them. They were financially unsophisticated and trusted him to represent them. They understood that he was being paid for his services and felt that he should be paid. Except for Mr. Krueger, they were generally satisfied with their mortgage rates. The mortgage broker's fiduciary responsibility is to the borrower, rather than the lender, although he must deal fairly and honestly with the lender. The service that the broker provides to the borrower is his knowledge and his ability to shop for the best product. Par plus pricing and other mechanisms by which the broker receives his fee in whole or part from the lender are not considered by the department to be a violation of standards governing the practice of mortgage brokerage, so long as the customer is fully apprised of his options and is informed of the role of those payments in the product or service they are receiving. The Barnes' and Kruegers clearly were not so apprised, nor does the record establish that the Meslins were informed, although they did not testify. Categorizing brokerage fees or compensation as "discount points" is patently misleading, as discount points are used to buy down an interest rate. When the points are diverted instead to the broker, the consumer does not receive the loan for which he has paid. John Davis admits certain technical violations, but unequivocally denies that he wilfully misled his customers or committed fraud. Since the second audit, he has restored his escrow account. He now discloses his compensation as brokers fees rather than discount points, and has learned how to disclose in writing the par plus pricing loans. In considering certain violations as "technical", and in recommending a penalty in this case, the undersigned has considered Respondents' willingness to correct the errors addressed by the department and Respondents' inexperience at the time of the first audit. Although he was involved in banking, insurance, and accounting, John Davis had not practiced mortgage brokering before moving to Florida and starting his business. In his early practice, as evidenced by his own testimony, he was willing to rely on the advice of lenders, rather than to seek guidance from his licensing authority. He misconceived his role as being jointly responsible to the borrowers and lenders with whom he worked, rather than a primary fiduciary duty to the borrowers, his clients. Although the concealment of compensation as discount points was a willful misrepresentation, the record establishes a pattern of ignorance, albeit inexcusable, rather than fraud.
Recommendation Based on the foregoing, it is hereby, RECOMMENDED That a Final Order be entered, finding that Respondents violated Sections 494.055(1)(e), (o), and (q), F.S. (1987); Sections 494.08(5) and (10), F.S. (1987); and Section 494.093(4), F.S. (1987), and imposing a penalty of $1,000.00 fine, and one year probation, with the conditions that Respondent Davis successfully complete a specified amount and type of professional short course work and undergo periodic review and supervision by the agency. DONE AND RECOMMENDED this 30th day of July, 1990, in Tallahassee, Leon County, Florida. MARY CLARK, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904)488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of July, 1990. APPENDIX The following constitute specific rulings on the findings of fact proposed by the parties. Petitioner's Proposed Findings of Facts Rejected as unnecessary. Adopted in paragraphs 3 and 6. Adopted in paragraphs 5 and 6. Rejected as redundant. - 8. Rejected as unsupported by the weight of evidence except as found in paragraph 6. The department was required to obtain a subpoena due to Respondents' feigned or real refusal to produce certain records. Rejected as unnecessary. Adopted in substance in paragraph 13. Adopted in substance in paragraph 7. Adopted in substance in paragraph 7. - 18. Rejected as unnecessary. Adopted in summary in paragraph 8. Rejected as immaterial. The telephone charges were incurred by the closing agent, not Respondents. Rejected as unnecessary. Rejected as contrary to the weight of evidence. Rejected as unnecessary. Adopted in summary in paragraph 7. and Rejected as unnecessary and - 48. Adopted in summary in paragraph 8. 49. - 52. Adopted in summary in paragraph 14. Adopted in paragraph 15. Rejected as unnecessary. Adopted in paragraph 13. and Rejected as unnecessary. Adopted in paragraphs 16 and 20. 59 - 74. Adopted in summary in paragraphs 16-19. Rejected as unnecessary. The conclusion that the handling of "par plus pricing" was fraudulent is rejected as contrary to the weight of evidence. 77. - 81. Adopted in summary in paragraphs 20 and 21. 82. Rejected as contrary to the weight of evidence. 83. Adopted in paragraphs 10 and 12. 84. Adopted in paragraph 10. 85. - 89. Rejected as unnecessary. 90. Adopted in paragraph 22. 91. - 93. Rejected as unnecessary. 94. Adopted in part in paragraph 26. Respondent's Proposed Findings of Fact Adopted in paragraphs 1 and 2. Rejected as unnecessary. Adopted in paragraph 6. Rejected as contrary to the weight of evidence. Adopted in paragraph 3. Adopted in paragraph 13. - 9. Adopted in summary in paragraph 7. Rejected as contrary to the evidence. Liability for payment occurs when the service is rendered, as reflected in Respondent's "Notice to Borrower". Rejected as unnecessary. Adopted in paragraph 12. Rejected as unnecessary and immaterial. Rejected as unnecessary. - 19. Adopted in summary in paragraph 8. 20. - 22. Rejected as unnecessary. Adopted in paragraph 14. Adopted in substance in paragraph 13. Adopted in substance in paragraph 16. Adopted in substance in paragraph 19. Rejected as unnecessary. - 29. Rejected as contrary to the weight of evidence. Included in conclusion of law number 9. Rejected as immaterial. - 33. Rejected as contrary to the evidence. The terms implied that the loans would be at a discounted rate, but were not, because the "discount" (partial) went to the broker. Adopted in paragraphs 19 and 20. Rejected as immaterial. COPIES FURNISHED: Elise M. Greenbaum, Esquire Office of the Comptroller 400 W. Robinson St., Suite 501 Orlando, FL 32801 John O. Williams, Esquire Renaissance Square 1343 East Tennessee St. Tallahassee, FL 32308 Hon. Gerald Lewis Comptroller, State of Florida The Capitol Tallahassee, FL 32399-0350 William G. Reeves General Counsel Dept. of Banking & Finance The Capitol Plaza Level, Rm. 1302 Tallahassee, FL 32399-0350 =================================================================
Findings Of Fact At no time pertinent to the issues herein was Rebecca Love Henderson licensed by the State of Florida, Department of Banking and Finance as a mortgage broker under the provisions of Chapter 494, Florida Statutes. The Department of Banking and Finance is the state agency responsible for licensing and supervising mortgage brokers and associated persons in this state. In early January, 1987, Ms. Henderson began working for MAC, a mortgage banking concern, at its office located at 4045 Tamiami Trail, Pt. Charlotte, Florida. In March, 1987, Carol May Wilson went to MAC's office to see about getting the adjustable rate mortgage then currently existing on her residence changed to a fixed rate mortgage, because her research indicated that MAC had the best mortgage rates available at the time. Ms. Wilson entered the office without an appointment and spoke to the receptionist who called Ms. Henderson to speak with her. On that visit, Ms. Henderson gave Ms. Wilson a pamphlet which contained the then existing mortgage rates and discussed with her the terms and rates, the amount of payment required both as a down payment and as monthly payments, and similar matters. After that discussion, Ms. Wilson left with the pamphlet without making application. After discussing what she had been told by Ms. Henderson with her husband, Ms. Wilson and her husband went back to MAC's office where they again spoke with Ms. Henderson. In this latter conversation, they again discussed the applicable rates and filled out an application for a mortgage. At that time they also paid a $300.00 fee to cover the cost of an appraisal on their property, and several other costs and fees. At this time, Ms. Henderson helped the Wilsons fill out the form and, in addition, prepared and delivered to them a "Good Faith Estimate", and discussed the appraisal costs, points, and the need for a termite inspection. On this second visit, Ms. Henderson gave the Wilsons a rate option form which they and she signed, which locked in the interest rate at 8 1/2 percent. She also gave them a receipt for the appraisal fee they had paid. Both forms reflect Ms. Henderson as a "loan officer." The Wilsons went to MAC on their own. They had not been solicited by Ms. Henderson or any other employee of the firm but came in on the basis of the firm's advertisements. While in the facility, they noticed a display board which indicated the current rates and points being charged and the rate and points reflected on that board were those charged by Ms. Henderson on behalf of MAC. She did not negotiate, or attempt to negotiate any change to either the rates or the points. During her conversation, Ms. Henderson explained the various types of loans available and the various options available but did not urge one over the other. At least one of the forms, the Good Faith Estimate form, was mailed to the Wilsons sometime after their visit and was sent with a cover letter from another employee of the firm. Neither Mr. nor Mrs. Wilson asked to speak with anyone else during either of their visits to MAC. Consequently, they do not know whether they could have done so had they desired. The documentation they received from Ms. Henderson appeared complete and they were satisfied with the service on their mortgage. At some time in early 1987, Donald R. Mullin, accompanied by his wife, went to MAC to refinance his mortgage and on that visit, spoke with Ms. Henderson. Mr. Mullin had previously filled out a loan application form which he had received from Floyd Henderson, also of MAC. Mr. Mullin was referred to MAC by a friend at work. He was not solicited by Respondent. During this meeting, the Mullins presented the forms they had filled out and paid the various appraisal and other fees required. The receipt given them by Ms. Henderson for these fees reflects her as a loan officer. At this meeting, Ms. Henderson did not indicate whether the loan would be approved or not. The only point for negotiation during the Mullin interview was with regard to the appraisal fee. Mr. Mullin had just had an appraisal done for his newly acquired mortgage and did not feel it necessary to have another one. During their conversation, Ms. Henderson agreed to see if the prior appraisal could be used and if so, the fee would be refunded. In fact it was refunded. The loan did not close because Mr. Mullin was not considered to have sufficient income to support the payments. However, at no time during their discussions, did Ms. Henderson make any commitments on behalf of MAC, nor did she offer to change points or rates. Herbert Roshkind and his wife were referred to MAC by their real estate broker and dealt exclusively with Ms. Henderson in all their dealings with the company. She gave them all the specifics relating to their potential loan, including interest rates. She explained that the rates varied weekly and that they could either lock in or not, as they chose. She also discussed the relevant fees for appraisal, credit report, etc., which she made clear were not refundable, and discussed the difference between a fixed rate and a variable rate mortgage. She also advised them of the various terms a loan could be taken for Their loan was complicated to the extent that Mr. Roshkind was retired. His income came from real estate and other investments which could not easily be verified. As a result, Mr. Roshkind was contacted frequently by Ms. Henderson in the course of preparation of the loan documents, requesting additional information. On one occasion, she came to his home to get additional information and to get his signature on a document just prior to closing. Ms. Henderson did not help the Roshkinds fill out their application. She gave them a package which they took home and filled out themselves. In the package was a list of 19 items which would be required to support the application, and her repeated requests for information related to these items. Mr. Roshkind at no time asked to speak with anyone else. He feels, however, that had he desired to do so, he could have. The rates for mortgages were posted on a board in the office and at no time did Ms. Henderson offer to negotiate either rates or points. Further, from the time the Roshkinds first came in to pick up the application package until they returned it to the MAC office filled in, they received no solicitation or any contact at all from Ms. Henderson or MAC. When the loan was finally approved, in May, 1987, they received a commitment form that was signed by George Emery on behalf of MAC but which was delivered by Ms. Henderson. Kimberly Lynn Johnson worked for MAC from May, 1986 to August, 1986 and during that period became familiar with Ms. Henderson and her father, Floyd D. Henderson, one of the principals in the company. During the period she worked there, the office was run by C. F. Cline and Mr. Henderson. Ms. Johnson started work as a secretary-receptionist and progressed up through clerking duties until she was trained to act as a loan processor. At that point, though she was not licensed as a mortgage broker, she began accepting loan applications and dealing with prospective clients just as did Ms. Henderson. When she took loan applications, she would receive the form from the prospective borrower, get the information required, and turn it over to a processor who would send out requests for the verifications required, do or order the credit report, and order an appraisal. At no time during this period was she a licensed mortgage broker nor did she know she had to be such to legally do what she was doing. She found this out only when she began studying for the broker's test approximately a year later. During the period Ms. Johnson worked at MAC, Ms. Henderson was a loan officer and also worked for Monroe Title Company. It was during this period of time, Ms. Johnson observed Ms. Henderson doing much the same type of thing she was doing involving the interviewing of applicants, and discussing with them the application forms, rates, points, fees, and the like, as well. This same type of activity was also done by other loan officers who, as she understood it, were licensed, and who, in addition to their in-office work, also visited builders, realtors, and other possible sources of business for the firm. Ms. Johnson recalls quite clearly that Ms. Henderson was engaged in this outside activity as well. On numerous occasions as she left the office, Ms. Henderson would advise Ms. Johnson where she was going, or her name would appear on the list of builders to be seen by herself and other loan officers. When Ms. Johnson first started with the company, walk-in clients would be referred to a loan officer on a rotating basis. Ms. Henderson and other, licensed, loan officers were on that list for rotation. When she served as a loan officer, Ms. Johnson would stay with her client all the way from application through closing and on almost every occasion, once trained, she would complete the process without any help from a licensed loan officer. The same applied to Ms. Henderson. Ms. Johnson was told by Mr. Cline that it was all right for her to act as a loan officer without a license as a mortgage broker as long as she didn't take a bonus or commission or did not solicit outside the office. Ms. Johnson was paid an hourly wage only. She does not know how Ms. Henderson was paid nor was any evidence admitted to define that. However, considering the fact that Mr. Moulin and Mr. Stillweaa both complained because their income was reduced as a result of Ms. Henderson's grabbing clients and her sharing of Moulin's builder clients, it can be inferred she was, at least in part, paid by commission. Based on representations made by Mr. Cline, Ms. Johnson continued working without question until an inspector from the Department came in for an audit. At this point, she figured that something was wrong and subsequently found that only a loan officer in a commercial bank can take loan applications without being licensed as a mortgage broker. MAC was listed on it's business cards as a mortgage banker. Though Ms. Henderson indicated from time to time she was going out to visit with builders, Ms. Johnson never saw her in negotiations with either builders or realtors. At the time in issue, Ms. Henderson's mother was terminally ill and had to be taken to the hospital and doctor's office on a regular basis. Ms. Johnson agrees it is possible Ms. Henderson could have been performing that service when ostensibly out on a call, but specifically recalls her saying she was, from time to time, going to visit a builder or realtor. She cannot say with certainty what Ms. Henderson did; only what she said she was going to do. Considering the state of the evidence, it is clear that Ms. Henderson did visit builders, and notwithstanding her assertion she may have gone there merely to drop off advertising materials, the likelihood is, and it is so found, she went for the purpose of soliciting business. It also is clear that with the exception of Ms. Henderson and Ms. Johnson, the individuals who processed applications and met with clients were properly licensed as mortgage brokers and were identified as loan officers. Both Mr. Cline and Mr. Henderson were licensed mortgage brokers and supervised, on a routine basis, the files of the other loan officers including Ms. Henderson and Ms. Johnson. In addition, either Mr. Cline or Mr. Henderson was available for consultation if necessary at all times, as was Mr. Gerber, the underwriter. All loans written by the loan officers, licensed or otherwise, had to conform to the same standards. Subsequent to leaving MAC, Ms. Johnson applied for and was, after testing, issued a license as a mortgage broker in Florida by the Department. This occurred after she was identified as operating as an unlicensed broker similar to Ms. Henderson. She, however, was never cited with a Cease and Desist Order. Mr. Kenneth Moulin worked for MAC from December, 1985 through April, 1987 and, along with his family, owned a 20% interest in the stock of the company. He worked in the Pt. Charlotte office along with Ms. Henderson. His primary job as a licensed loan officer and mortgage broker, was to solicit builders and realtors to refer potential customers. Mr. Moulin was licensed as a mortgage broker in February, 1986. Prior to getting his license, he was not allowed to negotiate with clients or to solicit business from builders or realtors. Because he had been previously engaged in the construction business, the majority of his contacts were in the building industry and he had a list of builders he regularly visited. Shortly after Ms. Henderson came to work at MAC, Mr. Cline gave half of the builders on Mr. Moulin's list to her as her source list. This had a negative impact on Moulin's income since at about the same time, his salary was discontinued and his compensation was based solely on commission, doubled in rate at that time. 24 Once half of Moulin's builders list was given to Ms. Henderson, she began calling on them, and he was told by many friends in the building industry, that she was soliciting them for referrals. In March, 1987, Mr. Moulin and Mr. Stillwell, another loan officer, requested of Mr. Cline a different split of the walk-in traffic because Ms. Henderson, whose office was right near the entrance, was pulling in as many of the walk-ins as she could to the exclusion of the other loan officers. After this complaint, Cline arranged a rotating schedule for walk-ins so that each loan officer would get a proportionate share of opportunity. In Mr. Moulin's opinion, based on his observations of Ms. Henderson and her activities, she, though unlicensed, did much the same type of work he did under his license. She solicited business from builders and realtors outside the office and handled walk-in clients from application through closing. He was not allowed to do any of this prior to being licensed, and he stands by this assertion notwithstanding the fact that numerous forms introduced by Ms. Henderson reflect that prior to the date of his license, he was referred to as loan officer. He explains this as occurring when Cline put his name on forms prepared for other people's loans so that he could get credit for them. Considering the nature of the operation as it appears from the general line of testimony, it is found that this did happen. Mr. Moulin initiated the investigation which culminated in this hearing because he felt he was being unfairly treated when cases were taken from him and he did not receive the commissions to which he felt he was entitled. In his letter to the Department, he identified Ms. Henderson as an "unlicensed mortgage solicitor." This appears to be an accurate description. Marcus Combs, testifying for Ms. Henderson, was sent to MAC by a real estate salesman whose broker was reportedly a major owner of the company. As did the others, Mr. Combs observed the rates and points posted on a board in the office lobby and was referred to Ms. Henderson, who he did not previously know, by the receptionist. During their initial interview, Ms. Henderson discussed the items required for the application and gave him a forms package. At this time, Ms. Henderson was in training and there was a man present throughout the meeting as an observer. At no time during their relationship, did Ms. Henderson attempt to negotiate rates or points, nor did she attempt to sell a particular type of loan. At no time did she solicit Mr. Combs to apply for a mortgage and, because he was having difficulty qualifying for a loan, suggested he look elsewhere for the mortgage. She actually referred him to another lending institution from which he ultimately got his mortgage.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that a Final Order be issued by the Department sustaining the Cease and Desist Order entered herein and the denial of Ms. Henderson's application for registration as an associated person with Triple Check Financial Services, Inc. RECOMMENDED this 24th day of October, 1989, 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 24th day of October. 1989. APPENDIX TO THE RECOMMENDED ORDER IN CASE NO. 89-3203 and 89-3769 The following constitutes my specific rulings pursuant to S 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the partiesto this case. For the Department: Accepted and incorporated herein. & 3. Accepted and incorporated herein. 4. - 8. Accepted. Accepted and incorporated herein. - 12. Accepted. Accepted and incorporated herein. - 17. Accepted and incorporated herein. Accepted. Accepted and incorporated herein. - 23. Accepted and incorporated herein. Either hearsay evidence or not supported by the record. Accepted. & 27. Accepted and incorporated herein. 28. - 30. Accepted. 31. - 34. Accepted and incorporated herein. 35. - 43. Accepted and incorporated herein. 44. - 52. Accepted and incorporated herein. For Ms. Henderson: Not a Finding of Fact but a statement of legal authority. Not a Finding of Fact, (except as to dates of alleged infractions), but a Conclusion of Law. Not a Finding of Fact. Not a Finding of Fact but a comment on the Department's legal basis for filing. Not a Finding of Fact. 5a. - 5e. Not Findings of Fact but comments on the sufficiency of the evidence. & 7. Not a Finding of Fact but a comment on the sufficiency of the evidence. Accepted and incorporated herein. Not a Finding of Fact but a comment on the state of the Department's evidence. - 12. Accepted and incorporated herein, except to the second sentence of 12 which is unsupported. First and second sentences accepted. Third sentence is rejected as contra to the weight of the evidence. Accepted as to the issue of signing of statements but rejected as to the allegation of inaccuracy. COPIES FURNISHED: Robert K. Good, Esquire Office of the Comptroller 400 W. Robinson Street, Suite 501 Orlando, Florida 32801 Elise M. Greenbaum, Esquire Office of the Comptroller 400 W. Robinson Street, Suite 501 Orlando, Florida 32801 Rebecca Love Henderson 5635 Bryner Drive Jacksonville, Florida 32244 Hon. Gerald Lewis Comptroller State of Florida The Capitol Tallahassee, Florida 32399-0350 Charles L. Stutts, Esquire General Counsel Department of Banking and Finance The Capitol Plaza Level, Room 1302 Tallahassee, Florida 32399 =================================================================
The Issue Whether the licenses as a limited surety (bail bond) agent and as a legal expense agent held by Latesia Lashonda Chavis should be revoked.
Findings Of Fact Chavis has been licensed in Florida as a limited surety (bail bond) agent, pursuant to Chapter 648, Florida Statutes and as a legal expense agent, pursuant to Chapter 642, Florida Statutes, since 1994, and has performed related work since 1991. In an application dated April 27, 2006, Chavis sought to receive an additional license as a resident managing general insurance (bail bond) agent. On that Application, Chavis answered "NO" to the following questions: Have you ever had any insurance agency contract terminated by an insurance company or managing general agent for any alleged cause? Are you currently indebted to any insurer, managing general agent, agent, or premium finance company? The Department alleged in Count I of the Administrative Complaint that Chavis’ answers to those two questions were false. In Count II, the Department alleged that Chavis owed money for checks that had been returned for insufficient funds for premiums and a build up fund ("BUF") account due, based on a contractual relationship with the Al Estes General Agency, Inc. (the "Estes Agency"), Chavis' managing general agent. Count III alleged that Chavis misappropriated, converted and withheld funds owed to the Estes Agency. Count I Chavis testified that, on April 27, 2007, when she filed the pending application, she was not aware that her contract with the Estes Agency had been terminated, having not been informed until she was contacted by the Department's investigator, Terry Flynn, sometime in August 2006. Chavis also testified that she had been in touch with Al Estes, in January, February, and March about her family problems that were taking her away from devoting herself to the bail bond business and offered to take out a loan to pay him what she owed him. She testified that she was trying to help run a family business, a group home, that her aunt died of cancer in April, and that her mother is still battling cancer. Estes confirmed in his testimony that he recalled her telling him that her husband had used her checkbook to take money out of her account and that her mother was sick. It is undisputed that a letter from the Estes Agency, dated February 9, 2006, was sent to Chavis at her address-of- record with the Estes Agency on that date, in Cocoa, Florida. The letter was "A Termination Notice and Demand for Payment and Accounting." Chavis testified that she did not receive the letter. The Estes Agency also sent, on February 9, 2007, a "Termination Request" for Chavis to be terminated as an agent to their insurer, Safety National Casualty Corporation in Iowa. In addition, the Estes Agency notified the Department of the termination of Chavis as their agent by letter dated February 17, 2006, sent to the Department's Orlando office. In that letter, the Estes Agency listed the following reasons for its actions: Un-report [sic] executed powers, owes premium N.S.F. checks for Premium and BUF accounts Unpaid Premium an (sic) BUF Unpaid Forfeitures and judgments Business phone has been turned off. No response to correspondence sent Will not return phone calls On or about March 27, 2006, the Estes Agency sent as its representative, Norman Britten who was apparently accompanied by other people, to Chavis' Cocoa address to seize the files. When Britten arrived, a neighbor told him that Chavis had moved. The neighbor telephoned Chavis, and asked her if he should tell Britten where she had moved. Britten then also talked to Chavis by telephone and she gave him her address in Fort Pierce, and agreed to meet him at her new address to give him the files on pending cases and accounts. Chavis agreed that these activities took place in late March or early April, just before her aunt's death. The files were taken so that the Estes Agency could meet the requirements and minimize the risks of having unpaid forfeitures become judgments within sixty days that, if not paid within thirty-five days, would result in the State's prohibiting an agency from posting additional bonds. The files were also taken to keep an accounting of remissions, and refunds of forfeited bonds after criminal defendants have been caught. Given the conversations concerning moneys owed, notices, seizure of files, and investigations, all activities that took place in January, February and March 2006, it is reasonable to conclude that Flynn testified truthfully that he informed Chavis of her termination while he was conducting the Department's investigation of her in March 2006. Chavis's testimony to the contrary, that she did not know prior to filing the application in April 2006, that she was answering the two questions cited in the Complaint falsely is rejected as untrue. Nor is Chavis relieved of her personal responsibility to be truthful, because she testified that some other unnamed company with whom she planned to become affiliated told her to give the false answers to those questions, because her BUF account should take care of any money that she owed. There is no showing that the other company knew of the returned checks and unpaid premiums and no reasonable expectation that these debts that were not incurred in the regular course of business would be covered by a BUF account. Additional evidence of her actual knowledge of the termination of her contract with the Estes Agency is the fact that Chavis was negotiating with and seeking licensure with another company, while she admittedly was still dealing with her family's problems that were causing her to neglect her bail bond business. The Department proved the allegations in Count I of its Administrative Complaint that Chavis made material misstatements in response to two questions on an application dated April 27, 2006. Counts II and III Contrary to her explanation that she filed the pending application thinking the BUF account would cover any funds owed to the Estes Agency, Chavis testified that, in conversations with Estes in February and March, she offered to take out a loan to pay the money owed to the Estes Agency, and that he mentioned that she owed approximately $12,000. She said she offered to take out a loan because she did not have the money, but that she did not think that either of them had taken into account the BUF account at that time. Chavis agreed that once the BUF account was depleted, if she still owed money to the Estes Agency, she has not paid it. She also testified that she has not paid anything to cover the checks she issued with insufficient funds and does not deny that she owes that money to the Estes Agency. The senior agent for the Estes Agency testified that, after taking into consideration insufficient funds checks, unpaid and unremitted premiums, the BUF account, and remissions total liabilities incurred by or on behalf of Chavis are $18,851.00. The Department proved the allegations of Counts II and III that Chavis owes money to the Estes Agency, that was misappropriated, converted, or willfully and improperly withheld.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered finding that all licenses held by the Respondent under the Code are revoked and that her pending application be denied. DONE AND ENTERED this 6th day of November, 2007, in Tallahassee, Leon County, Florida. S ELEANOR M. HUNTER 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 6th day of November 2007.
Findings Of Fact On November 15, 1976, the Outrigger Club, Inc., a Florida corporation, through its president, Ervin Freeman, and its Secretary, Joan Dimon, executed a warranty deed conveying all right, title and interest, in and to certain property located at Northeast 135th Street and Biscayne Boulevard, North Miami, Florida, to Petitioner, Biscayne South, Inc. (hereafter Biscayne South), a Florida corporation. The warranty deed was recorded with the Clerk of the Circuit Court of Dade County, Florida, on November 16, 1976. On November 22, 1976, Biscayne South executed a mortgage deed in favor of Fidelity Mortgage Investors, a Massachusetts business trust, as a second mortgage on the same parcel of land to secure the payment of a promissory note in the principal sum of $1,500,000.00 which note was made by Outrigger Club, Inc., on the same date in favor of Fidelity Mortgage Investors. On November 22, 1976, Outrigger Club, Inc., as the "borrower" executed a future advance agreement with Fidelity Mortgage Investors as "lendor". The future advance agreement provides for the advancement of the sum of $1,500,000.00 to be secured by a prior mortgage dated October 27, 1972, executed by Outrigger Club, Inc., in favor of Fidelity Mortgage Investors, which mortgage provided for future advances. On November 22, 1976, a construction loan and disbursement agreement was executed by the parties thereto which provided that the $1,500,000.00 advance be paid to Miami National Bank as disbursement agent for the benefit of Biscayne South. On November 23, 1976, the mortgage deed and the future advance agreement were recorded in the public records of Dade County, Florida, and on that same date, the warranty deed was rerecorded in the public records of Dade County, Florida. Because the 1.5 million dollars was paid to Miami National Bank to be disbursed for future construction work on a draw-down basis, Outrigger Club, Inc., the grantor, never received the 1.5 million dollars. The warranty deed provides in paragraph 9 thereof that the conveyance is subject to: a second mortgage wherein the Outrigger Club Inc., is mortgagor and the trustees of Fidelity Mortgage Investors, a Massachusetts business trust, is mortgagee, dated the day of November, 1976, which said mortgage is given as additional collateral for payment of certain sums as provided under a settlement and release agreement between the Outrigger Club, Inc., a Florida corporation, and Lawrence F. Lee, Jr., and others as trustees of Fidelity Mortgage Investors, a Massachusetts business trust dated the 16th day of January, 1976. Neither the Department of Revenue nor Biscayne South have introduced evidence to establish that such a mortgage in fact exists or if it did, the value of such mortgage. The only mortgage in evidence is Respondent, Department of Revenue's Exhibit 2, which shows Biscayne South as mortgagor rather than the Outrigger Club, Inc., as recited in the warranty deed. However, the future advance agreement introduced as Respondent's Exhibit No. 3, establishes the existence of a mortgage encumbering the subject property in which the Outrigger Club, Inc., is mortgagor and Fidelity Mortgage Investors is mortgagee. Such mortgage is dated October 27, 1972, and not dated with the month of November, 1976, as recited in paragraph 9 of the warranty deed. As recited in the future advance agreement, the mortgage of October 27, 1972, secured an indebtedness of $7,214,000.00. The mortgage provided that future advances could be made to Outrigger Club, Inc., not to exceed in the aggregate $16,500,000.00. The future advance agreement provides that an additional advance of $1,500,000.00 is to be made to Outrigger Club, Inc., thereby increasing the indebtedness represented by the October 27, 1972, mortgage to the aggregate sum of $8,715,000.00. In other words, the buyer of the property sought to borrow an additional 1.5 million dollars. The lender, in order to achieve priority of lien to secure its loan, treated the funding as an advance against a preexisting mortgage originally binding the seller, but then delivered the 1.5 million dollars directly to Miami National Bank for the benefit of the buyer. Accordingly, the seller never received the proceeds of the loan but rather participated in a "book transaction" for the benefit of the buyer and the lender.
The Issue Whether Respondent's proposed disapproval of Petitioners' burglary-theft rate filing (OIR File No. 03-11518) for insurance coverage under the Terrorism Risk Insurance Act of 2002, is based on an invalid agency statement of general applicability which has not been adopted as a rule pursuant to Section 120.54, Florida Statutes. Whether Petitioners' burglary-theft rate filing (OIR File No. 03-11518) for insurance coverage under the Terrorism Risk Insurance Act of 2002 meets all procedural and substantive requirements so as to be approved.
Findings Of Fact The Terrorism Risk Insurance Act of 2002, Pub. L. 101- 297, Nov. 26, 2002, 116 Stat. 2322, a/k/a TRIA, became law in November 2002. Congress found in TRIA that: Widespread financial market uncertainties have arisen following the terrorist attacks of September 11, 2001, including the absence of information from which financial institutions can make statistically valid estimates of the probability and cost of future terrorist events, and therefore the size, funding, and allocation of the risk of loss caused by such acts of terrorism. TRIA's purpose and objective, see Section 101(b)(2), is to: . . . allow for a transitional period for the private markets to stabilize, resume pricing of such insurance, and build capacity to absorb any future losses. TRIA requires insurance companies to separately price and offer insurance coverage for certified acts of terrorism as defined in TRIA in most commercial lines of property and casualty (P&C) insurance. Burglary and theft insurance policies fall in this P&C category. See TRIA §§ 102, 103(a) (3), (c). TRIA provides that the federal government will reimburse an insurance company for 90 percent of the amount of that company's insured losses resulting from certified acts of terrorism that exceed the insurer's TRIA-defined deductible in a given year. TRIA defines insurers' deductibles as seven percent of the previous year's direct earned premium in TRIA Program Year One (2003), 10 percent of the previous year's direct earned premium in TRIA Program Year Two (2004), and 15 percent of the previous year's direct earned premium in TRIA Program Year Three (2005). See TRIA §§ 102(6), (7), (9)-(11), and 103(e)(1)(A). Absent some further Act of Congress, TRIA's assistance to insurers ends with 2005. Therefore, in the event of future certified foreign- sponsored terrorist attacks in the United States, each insurer will be required by TRIA to absorb and pay, without federal reimbursement, all losses equal to, or less than, their respective TRIA deductibles in any given TRIA year and ten percent of all losses exceeding their respective TRIA deductibles, until such time as total industry losses reach $100,000,000 (100 billion dollars) in any given year. At § 106, TRIA addresses state laws as follows: Nothing in this title shall affect the jurisdiction or regulatory authority of the insurance commissioner (or any agency or office performing like functions) of any State over any insurer or other person -- except as specifically provided in this title; and except that-- * * * (B) during the period beginning on the date of enactment of this Act and ending on December 31, 2003, rates and forms for terrorism risk insurance covered by this title and filed with any State shall not be subject to prior approval or a waiting period under any law of a State that would otherwise be applicable, except that nothing in this title affects the ability of any State to invalidate a rate as excessive, inadequate, or unfairly discriminatory . . . [.] AIG traditionally writes insurance policies for large commercial risks with high limits of coverage. Many witnesses, including several actuaries, opined that such insureds may be potential terrorist targets. However, only 8.8 percent of commercial lines insurance in the United States is written by AIG. Insurance companies, like AIG, are in the business of transferring their clients' risks to themselves, but in order for the system to work, as well as for any insurance company to prosper and continue to be able to transfer such risks so as to protect its insureds, the risk assumed by the insurance company must be an intelligent risk. When an insurance company sets a rate, its goal is to accumulate enough capital from premiums and associated investment income to pay predicted losses from the eventuality insured against. TRIA mandated that AIG and other insurers assume a new, specific risk. As a result of TRIA's mandated risk, AIG made rate filings in all 50 states and the District of Columbia, including burglary-theft filings. In Florida, OIR is charged with the review and approval or disapproval of all insurance rate filings. At no time has either party herein contended that September 11, 2001, did not change the perspective of governmental insurance regulators and of members of the insurance industry with regard to underwriting insurers' risk exposure to terrorism on United States' soil. In one form or another, every witness in this case has opined that historical loss data, the bedrock of traditional actuarial predictions, does not exist for insurers to use in making rates for insurance coverage under TRIA. No less an authority than the American Academy of Actuaries has determined that " . . . lack of information has precluded the use of traditional ratemaking methodology." Expert actuarial witnesses and expert underwriting witnesses differ within their respective disciplines and among themselves about whether there were preceding minor terrorist events that could have foretold the two assaults on the World Trade Center (WTC) in New York City in 1993 and 2001, but the only two events that credible testimony, expert or lay, were able to pinpoint as necessary to be considered for forecasting future foreign terrorist activities within the continental United States are the 1993 bombing of the WTC, and the unprecedented loss of life and property that occurred on September 11, 2001, when international terrorists destroyed the WTC, a wing of the Pentagon, and four airplanes. Some witnesses anecdotally opined that the presence of Governor Jeb Bush, the President's brother, in Tallahassee; Disney World and similar theme-based tourist attractions in the Orlando area; the Tampa site of The Southern Command for the United States' military efforts in Iraq and Afghanistan; and Florida's three active nuclear reactors "could" constitute potential terrorist targets in Florida. Other witnesses disagreed. No witness was authoritatively credible as to whether or not these entities raise or lower Florida's susceptibility to terrorist attack within the time frame that TRIA currently is designed to operate (the end of 2005). Some witnesses, some modeling explanations, and some rate filings expressed the belief that geographic concentration of people and/or geographic concentration of commercial buildings made a difference. Others did not. There was general agreement among the witnesses that reasonable persons could disagree on what entities and locations will be future targets. There were also disagreements among the witnesses on the severity and number of attacks that may occur. No witness could say with any reasonable certainty what type of weapon(s) future terrorists might use (i.e., conventional small arms, automatic weapons, car bombs, nuclear devices, bio-chemical hazards, chemical release, etc.) against these, or any other, potential targets. All of these elements affect prediction of the severity and frequency of terrorist attacks, and all of these elements suggest different levels and time periods for terrorists' planning of the next, or many future, attacks. Therefore, all sources confess that ratemaking for insurance coverage under TRIA must rely on informed insurance practitioners, actuaries, lawyers, accountants, security and terrorism experts, and overall, upon informed, reasonable underwriting judgment applied to the opinions of terrorism experts, among others. Each witness who was asked the question, considered it reasonable to rely, in part, on "terrorism experts" to forecast future targets and the frequency and severity of TRIA-covered losses. However, there was no consensus as to who constituted a "terrorism expert" or what might be the qualifications for that designation. The most agreed upon was that governmental or military service would be logical for qualifying a "terrorism expert" and that current or past Central Intelligence Agency (CIA) or Federal Bureau of Investigation (FBI) agents were desirable terrorism experts. OIR employs no terrorism experts. Neither does AIG. No terrorism expert testified at the hearing. Several modeling (simulation) schemes exist for predicting terrorism activity, but all are in their infancy in comparison to other modeling techniques for natural catastrophes, as explained in greater detail, infra. ISO is an insurance rating organization, of which many commercial insurance companies are members, and which is authorized to make advisory rate filings. If the Agency approves an ISO filing, ISO's member insurance companies, and non-member insurance companies alike, need not make their own rate filings. They may simply adopt the rate OIR has approved for ISO. ISO members and non-members also are not obligated by law to adopt the ISO rate. They retain the right to make their own rate filings. ISO TRIA rate filings caution that they are not appropriate for all insurers due to the disparate effects that TRIA has on various insurers. AIG is a member of ISO. On or about December 26, 2002, ISO made two TRIA rate filings in Florida: one for commercial property insurance and one for general liability insurance. AIG did not make a burglary-theft rate filing in Florida until September 4, 2003. In early 2003, when Florida's OIR was considering how to respond to the expected flood of rating organization and private insurance company TRIA rate filings, Shirley Kerns, OIR Bureau Chief, memorialized decisions that OIR's senior management had agreed upon by meetings and collegial conference, as follows: Insurers will need to make a filing documenting whatever rate level affect [sic] is applicable . . . . Depending upon their particular situation (rate adequacy at the time of filing) and related documentation thereof, up to 1% may be justified with appropriate documentation and support regarding the insurer's expected retained losses. Reliance on a model can be a factor in this exercise. Ms. Kerns passed this information on to Sri Ramanujam, a senior, and highly accredited, OIR actuary, and to others in OIR's Bureau of Property and Casualty Forms and Rates. She believed Mr. Ramanujam to be, of all OIR's actuaries, the one who would best understand the Agency's position on TRIA rate filings. Regardless of State statutes or Agency rules, according to Mr. Ramanujam and other OIR witnesses, a rate filing normally proceeds through OIR review more in the nature of a negotiation than a determination by the Agency of a base level of legal sufficiency. The first review is by an insurance or actuarial analyst. It appears that actuarial analysts were assigned to all TRIA rate filings. The analysts may, and frequently do, consult their respective supervising actuaries for directions during the first review. They also routinely request additional or clarifying data from the filer, either by telephone, e-mail, or formal letter, and a timely response is also reviewed as part of the rate filing. When a letter is used, the time frame for the filer's response is obviously clearer. When the analyst is comfortable with making a recommendation as to whether OIR should approve or disapprove a rate filing, he or she passes the file to the supervising actuary. If the actuary has concerns, she or he may request more information from the filer directly or instruct the analyst to do so, and timely responses are again considered. When the actuary is finally comfortable with making a recommendation, the actuary does so in writing, and then, at a "red book" meeting, wherein issues raised by the actuary are discussed among several actuaries and OIR's senior staff, Ms. Kerns "signs off" on either an approval or disapproval of the rate filing. A notice of intent to approve or disapprove is abbreviated as "NOI," and is sent to the filer by an actuary or analyst after Ms. Kerns has acted. There is no legal prohibition against amendments to a rate filing up to the date of a formal NOI letter to the filer. Mr. Ramanujam was assigned to review the ISO commercial property filing, which, like AIG's later burglary- theft filing, is part of the (Property & Casualty) P&C category of insurance. ISO requested a one percent rate increase. At all times material, Mr. Ramanujam found it difficult to meaningfully comment upon or to advise his superiors about, ISO's rate filing, because it was based on modeling (simulation) techniques proprietary to Applied Insurance Research (AIR). Mr. Ramanujam characterized this modeling system as a "black box," because he could not examine what was inside it. AIR is a wholly-owned subsidiary of ISO. AIR and its simulation modeling technique, the Delphi Method, were developed by the Rand Corporation during World War II and have gained acceptance in academia and the commercial world because of their effective use for about 30 years to predict frequency and severity of natural disasters, such as hurricanes and earthquakes. Hurricanes and earthquakes provide several hundred years' worth of past natural catastrophe data as the threshold for AIR and other modeling companies to predict the frequency, severity, and location of future hurricanes and earthquakes. However, terrorism is not a natural catastrophe. Rather than the predictability of physics and climate, which drive most natural disasters, international terrorism prediction must assess human malice, planning, and cunning, within a broad spectrum of potential perpetrators, while factoring-in diverse motives, opportunities, access to targets, and fluctuating world politics. According to Mr. Ramanujam's understanding of ISO's TRIA commercial property rate filing, the inputs to the simulated events AIR model were the subjective opinions of less than 10 unnamed "experts." The Agency's out-sourced actuarial expert, John Robert Hunter, thought AIR's number of experts was even less, between five and seven. Mr. Ramanujam understood that as the whole construct of the AIR-Delphi terrorism model was developed, these few experts weighed their own opinions independently at set stages within the simulation construct to determine how confident each expert was of his predictions, and then, a collective weighing was done somewhere toward the end of the project. The model's final predictions, made up of many component expert opinions from a very few experts, constitute the basis on which ISO made assumptions concerning the frequency of future terrorist events, the locations of such events, the means of terrorist attacks, the severity of the events, and similar components of ISO's forecast. The ISO filing described the AIR-Delphi modeling technique, but did not reveal the number of experts, who the experts were, what their areas of expertise were (although several witnesses, including Mr. Ramanujam, presumed all or some were "terrorism experts"), their qualifications, the substance of their component-part opinions, or where they disagreed or agreed as the model was finally developed. Mr. Ramanujam asked ISO no questions concerning how it used the AIR-Delphi model to request a one percent rate increase, in part, because AIR-Delphi was a proprietary model and, during prior non-TRIA rate filings, ISO had refused to reveal how it used the method. Although he did not have any solid evidence of the contents of the AIR-Delphi model for terrorism to which he could apply his actuarial skills, Mr. Ramanujam recommended approving the ISO TRIA commercial property rate filing at one percent. He did this, in part, because the elaborate description of the AIR- Delphi modeling method provided in ISO's multi-page explanatory memorandum just "seemed reasonable" to him as a actuary, and because Ms. Kerns' memorandum (see Finding of Fact 23) and actuarial literature recognized the use of modeling techniques, generally. On his own, Mr. Ramanujam would only have asked questions of ISO if its modeling technique had resulted in a much higher increase, like six percent. Mr. Ramanujam assumed that ISO's commercial property filing drew its basic data exclusively from its insurance company members, which he considered reasonable. Also, he utilized a personal "approach" to ISO's commercial property filing, figures, and information, which "approach" he resolutely would not characterize as either a "generally accepted actuarial technique, standard, or principle." No statute, rule, or witness characterized the AIR- Delphi system as an "actuarial technique." No statute, rule, or witness established a definition of "actuarial technique" for purposes of this case. Mr. Ramanujam's "approach" calculated that only .6 to .7 percent was justified by the ISO commercial property filing, not the one percent rate increase requested. His "approach" resulted in an estimated $3.34 premium increase on a hypothetical $100,000 policy, which he also pronounced "reasonable." Mr. Ramanujam opined that in the absence of sufficient historical data on terrorism, a rate based on any of these three percentages ( .6, .7, or one percent) "might" be "reasonable," but he thought that the one percent rate proposed by ISO would help small insurers. Even with his assumption of the validity of the AIR-Delphi method, ISO's commercial property filing had not justified to Mr. Ramanujam a one percent increase, but he approved its one percent increase request anyway, without asking any questions. He testified that in the circumstances of approving a TRIA rate, he would only have asked further questions if ISO had requested a new rate above one percent. Despite ISO having an actuarial black box effect which he could not pierce, Mr. Ramanujam took his favorable recommendation of the ISO TRIA commercial property rate filing to a red book meeting, where the filing was approved by the Bureau Chief, Ms. Kerns. ISO was notified thereafter by formal letter. When OIR approved the ISO commercial property TRIA rate filing, OIR issued an April 23, 2003, Informational Memorandum 03-007M, announcing that OIR had approved ISO "form, rule, and rate filings" relating to coverage under TRIA at one percent. This memorandum did not disclose that the ISO TRIA rate filing for general liability insurance, which had been filed the same day as ISO's commercial property filing still remained pending before OIR. ISO's TRIA general liability filing, which was based on the same AIR-Delphi modeling methodology as ISO's commercial property filing, had proposed a category of rates equal to, or less than, one percent of the underlying (non-TRIA) coverage of "average risks." However, ISO's general liability filing also had proposed a second category of TRIA rates, up to 1.6 percent of the underlying coverage, for a limited set of "above average" risks. OIR keeps track of how long a rate filing has been pending and generally expects rate filings to be acted upon promptly. Prompt review and decision is facilitated by holding red book meetings every week or every other week. ISO's TRIA general liability filing did not explain in writing the basis by which ISO allocated particular types of risks to the "average" and "above average" categories of premium. Jack Swisher was the actuary assigned by OIR to the ISO general liability TRIA rate filing. That filing was based on the same type of AIR-Delphi terrorism model as ISO's commercial property filing, no parts of which were explained from the filing itself. ISO's TRIA general liability rate filing was not immediately disapproved as incomplete or unsupported. The Agency sent no deficiency letter seeking any additional information or clarification, even as to ISO's two proposed premium categories. Mr. Swisher just phoned an ISO representative and asked about the two-part risk categorization. Mr. Swisher completed his review of ISO's general liability filing in April 2003. However, despite red book meetings approximately every one-two weeks in the interim, OIR did not approve ISO's general liability filing until October 3, 2003, after a senior management meeting. That senior management meeting and October 3, 2003, had implications for AIG's burglary-theft filing as well. (See Finding of Fact 71.) In April 2003, Mr. Ramanujam drafted, and Ms. Kerns approved, what OIR witnesses referred to as "the standard letter." The standard letter was a specialized deficiency letter to be used whenever OIR made further inquiries for TRIA filings in excess of one percent. Deficiency letters actually sent to TRIA filers who asked for more than a one percent increase varied as to the supplemental materials requested by OIR from the respective filers, but substantially the following language was prescribed for use in every letter: To the extent that the commercial policies associated with the proposed rate change is an all risks policy[sic] with noted exclusions, it is the opinion of the Office of Insurance Regulation (OIR) that all currently approved rates or loss costs do include the "terrorism" risk whether intended or not. Therefore, a rate filing that contemplates a separate premium component over and above what is already approved is considered excessive. Also substantially the following paragraphs were used, regardless of whether the line of TRIA insurance involved P&C: . . . In this context, it may not be out of place to mention that the recent submission by ISO for the so called "covered" risks has called for loss costs of .001 for Building and .001 for Contents based on what they consider a reasonable model but with extensive data base. . . . In comparison, your submission contemplates an increase in premium by % [whatever percentage more than one percent had been requested in the filing] for [TRIA coverage in the given line of business], which in our considered opinion and informed judgment is deemed excessive and thus cannot be supported . . .(Bracketed material added for clarity) The standard letter's one percent language was used consistently, and between April 2003 and August 2003, various actuarial analysts, actuaries, or other OIR employees were sometimes even more explicit than the standard deficiency letter in stating that OIR was not going to approve any TRIA rate filing in excess of one percent for any risk category. For instance, on April 17, 2003, OIR's Mr. Bodiford wrote to Lynn Staubly, Ace American Insurance Company, concerning a general liability TRIA rate filing for more than one percent, stating: So far, no more than 1% has been approved for a terrorism factor. I suggest that you revise to no more than 1%. On April 24, 2003, Mr. Ramanujam wrote to Terri Smith, concerning Universal Underwriters Insurance Company's TRIA rate filing, stating: Any charge in excess of 1% for the certified acts of terrorism will be deemed excessive and I will recommend to my senior management issuance of this office action known as "Notice of Intent to Disapprove" (NOI). It is likely that this office will consider favorably if you will revise the charge downwards to 1% and amend the manual pages accordingly. You may do so this via an e-mail attachment [including the revised manual pages]. On May 21, 2003, Mr. Bodiford wrote to Jason Simmons, who is employed by the Petitioners, concerning an AIG general liability TRIA rate filing for more than one percent, stating: Hopefully, the rate will be 1% or less. So far, that is all we have approved. On May 22, 2003, Mr. Bodiford stated to the same insurers concerning the same rate filing: To make a long story short, the State of Florida has not approved any rate higher than 1% for certified acts of terrorism . . . I advise you to make a change in your rates. On June 2, 2003, Mr. Bodiford wrote to Josh Struve, Chicago Insurance Company, concerning a general liability TRIA rate filing for more than one percent, stating: Revise to 1% or less if you want the filing approved. On June 3, 2003, OIR's Ms. Cai wrote to Sharon Lawrence, Hartford Insurance Company, concerning a commercial multi-peril TRIA rate filing for more than one percent, stating: All terrorism charges above 1% total premium have been considered excessive and required to be revised. On June 16, 2003, OIR's Ms. Arnold wrote to Kathy Salzsiener, Westport Insurance Corporation, concerning a commercial multi-peril TRIA rate filing for more than one percent, stating: The charge for terrorism appears to be excessive. The highest that has been approved is 1%. On July 22, 2003, Mr. Bodiford wrote to Emilie Fetty, Chicago Insurance Company, concerning a professional liability TRIA rate filing for more than one percent, stating: You must revise your terrorism rate to no more than 1%. On August 5, 2003, OIR's Mr. Baltodano wrote to Emilie Fetty, Chicago Insurance Company, concerning a general liability TRIA rate filing for more than one percent, stating: The Office has not approved any terrorism rate over 1%. Most, if not all, of the deficiency letters contained language requesting more information in order to justify a rate above one percent. OIR's senior staff's testimony that reviewing staff, all of whom were experienced in communicating with insurers, wrote the foregoing letters without direct authority to do so, is not credible. On April 24, 2003, Mr. Ramanujam had noted the following in the TRIA rate file record for American Association Insurance Services (AAIS), an insurance rating organization similar to ISO: I spoke at length with Kim Ward and convinced her that any thing [sic] above 1% will be considered excessive notwithstanding all the elaborate explanations provided by them in response to our standard letter. When reviewing the AAIS filing, Mr. Ramanujam knew AAIS took an "all industry approach" in assembling data for its filing. He considered that data gathering system to be as reasonable as ISO's selection of data only from its own member subscribers. (See Finding of Fact 34.) In fact, he considered all the assumptions listed in AAIS's calculations to be reasonable. However, he decided AAIS's rate request was unreasonable because it exceeded one percent. He also considered AAIS's filing unreasonable, per his "approach" (see Finding of Fact 34), which he forecast as a $6.68 increase on a $100,000 policy. He disbelieved the market value assigned by AAIS in its filing, but he never checked it or inquired about it as would have been OIR's standard operating procedure in reviewing rate filings if the Agency's one percent requirement had not been in effect for TRIA rate filings. Even though he could not say that $6.68 was unreasonable on the basis of AAIS's descriptive method, and even if all parts of AAIS's filing were reasonable, Mr. Ramanujam would have pronounced AAIS's filing "unreasonable," because of the percentage rate requested. He acknowledged that even a six to ten percent increase might not be excessive. However, at that point, he was only approving TRIA rate filings at one percent. On September 4, 2003, AIG submitted its TRIA burglary- theft rate filing, which is at issue in this proceeding, through the internet, i.e. OIR's I-file system. AIG's rate filing was submitted on a "use and file" basis, pursuant to Section 627.062, Florida Statutes, which means that AIG has been charging the disputed rate from September 4, 2003, to date. If not approved in this proceeding, OIR can adjust this effect, pursuant to that statute. On September 4, 2003, AIG's rate filing consisted of only a cover letter and two pricing charts, in addition to the universal data letter, which is the form filled out electronically and filed by the I-file system. The copy of the universal data letter for AIG's September 4, 2003, burglary-theft filing which Mr. Ramanujam reviewed failed to correctly mark basic information. The rate change request, rate indicated, earned premium volume, and number of policies, all appeared as zeroes. Although much of the record is devoted to this issue, and a variety of theories were proposed as to how the zeroes appeared, the two most likely explanations are that an AIG employee thought "zero" was the equivalent of "not-applicable" or Mr. Ramanujam saw an altered printed copy of the I-filing. Whatever the cause, these deficiencies amount to non-issues, because Mr. Ramanujam testified that some of the correct answers could be discerned from the rest of AIG's filing and none of the zeroes were sufficient for him to recommend disapproval. Moreover, no request for this information was included in either Mr. Ivarson's standard deficiency letter to AIG or was given as the Agency's reason for ultimate disapproval. (See Findings of Fact 68-69 and 84.) When AIG submitted its TRIA burglary-theft rate filing which is at issue in the instant proceeding, the first of two pages showed judgmental ranges of one to three percent and two to five percent, but the second page, a "manual exceptions" page, converted AIG's underwriters' ranges to discrete categories of one percent, two percent, three percent, and four percent, because AIG understood that Florida Administrative Code Rule 4-170.005, precluded an insurer utilizing a judgmental range of rates. Like the ISO general liability filing which was ultimately approved (see Findings of Fact 39-43, and 71), AIG's burglary-theft filing did not explain how its percentages were determined or how "low" and "high" risks were determined. Despite some waffling by Mr. Ramanujam in hindsight on whether or not AIG's four categories of one through four percent constitute illegal tiers or merely inconsistent statements between two pages of AIG's burglary-theft filing, the best construction of the evidence as a whole is that Mr. Ramanujam did not consider AIG's use of categories fatal at the time of the filing, but became confused at his deposition. Clearly, the deficiency letter (see Findings of Fact 68-69) and the NOI (see Finding of Fact 84) did not target the discrete categories as a fatal flaw, pursuant to Florida Administrative Code Rule 4- 170.005 (now Rule 69O-170.005). The September 4, 2003, AIG rate filing also failed to provide an "explanatory memorandum," as required by Florida Administrative Code Rule 4-170.013 (now Rule 69O-170.013). AIG deliberately chose not to submit such a memorandum. This deficiency clearly hampered the Agency's review and evaluation of AIG's filing. Due to the favored one percent rate, and his initial belief that AIG's burglary-theft filing was deficient in other respects, Mr. Ramanujam instructed Verne Ivarson, the actuarial analyst assigned to the file, to send AIG a September 11, 2003, deficiency letter including the one percent language quoted at Finding of Fact 46, supra. That letter also requested information on how much AIG previously had in its rate for terrorism and how AIG derived that component; what AIG's assumptions were regarding frequency and severity of terrorism acts; and if AIG were building-in a terrorism rate and an insured asked for a terrorism exclusion how would AIG do that, and the amounts. The September 11, 2003, deficiency letter did not require AIG to file an explanatory memorandum, an explanation of its rating categories, or correction/supplementation of the information marked with zeroes. AIG requested extensions of time to respond to the deficiency letter, and two of these requests were memorialized. E-mails and memoranda memorializing phone negotiations, extensions of response time, and other conversations are not always preserved by OIR. Upon the evidence as a whole, it is found OIR granted AIG at least until October 8, 2003, and possibly longer, to respond with the information requested. However, on October 3, 2003, before AIG's response time to the burglary-theft deficiency letter had run, Ms. Kerns signed-off on Mr. Ramanujam's recommended disapproval of AIG's filing. This occurred after a September 30, 2003, meeting involving Kevin McCarty, Director Office Insurance Regulation; Ms. Kerns; Steve Roddenberry, Deputy Insurance Director; Jack Swisher; and Steve Parton, OIR General Counsel, in which ISO's general liability filing at 1.6 percent was a subject of discussion. (See Prehearing Stipulation.) ISO's general liability filing also was approved at 1.6 percent on October 3, 2003. (See Findings of Fact 39-44.) Except for ISO's general liability line of insurance, OIR has not approved any TRIA rate filing for lines of insurance where the rate exceeded one percent of the premium for underlying (non-TRIA) coverage, although a number of insurers filed such rates. Until October 3, 2003, OIR did not approve any TRIA rate filing for general liability insurance where the rate exceeded one percent of the premium for underlying (non-TRIA) coverage. Since October 3, 2003, OIR has not approved any TRIA rate filing for general liability insurance where the rate exceeded the rates indicated in the ISO TRIA general liability rate filing of 1 to 1.6 percent. After October 3, 2003, The Chubb Group made a general liability TRIA rate filing, communicating to OIR that Chubb understood OIR to have a "1% capping rule" regarding TRIA rates, and proposing a TRIA general liability rate of one percent. Although OIR had approved the ISO general liability rate filing at 1.6 percent for a limited set of risks on October 3, 2003, OIR did not inform Chubb that ISO's TRIA general liability rate filing had been approved with a category above one percent. OIR merely accepted Chubb's one percent filing, thereby inherently acknowledging Agency policy to approve only at a one percent cap. On July 23, 2003, Robert L. Thomas, Chief Underwriting Officer for AIG's Domestic Brokerage Group, and OIR's Ms. Kerns, Steve Roddenberry, and Mr. Watford, the OIR actuary assigned to AIG's then-pending TRIA workers' compensation rate filing, had met at the Agency's Tallahassee offices. At that time, their prime focus of discussion had been workers' compensation rates. The other attendees who testified were vague in what they understood to have been discussed or accomplished at this meeting, but Mr. Roddenberry's notes tend to support Mr. Thomas' clear recollection that, in addition to discussing AIG's workers' compensation rate filing, Mr. Thomas had apprised those present of the essential elements underlying his underwriting approach to AIG's burglary-theft filing at issue herein, including AIG's seeking to fund its deductible over approximately eight years, see infra. Mr. Ramanujam was never apprised of the details of Mr. Thomas' July 23, 2003, conversation with OIR senior staff, because he was not the actuary reviewing AIG's TRIA workers' compensation rate filing. Because the July 23, 2003, meeting occurred before AIG's burglary-theft rating was filed with OIR on September 4, 2003, the July meeting does not fall in the category of an amended or supplemental rate filing or constitute any of the negotiations between an insurer and the Agency, as described in Finding of Fact 25. Because it preceded Mr. Ivarson's September 11, 2003, deficiency letter for AIG's burglary-theft filing, the July meeting could not be a response to the deficiency letter, either. Apparently, there was a similar meeting in March 2003, which likewise is irrelevant to the instant case for the same reasons. In September-October, 2003, Jason Simmons, AIG's team leader for its burglary-theft filing, believed he had longer than until October 8, 2003, to file AIG's response to OIR's September 11, 2003, deficiency letter. He filed AIG's response on October 10, 2003. Mr. Ramanujam did not disapprove AIG's filing due to Mr. Simmons' possibly tardy response. He considered it anyway, despite Ms. Kerns' October 3, 2003, disapproval "sign off." AIG's October 10, 2003, response to OIR's deficiency letter on the instant burglary-theft filing consisted of only a three-page letter from Mr. Simmons and an attached copy of the American Academy of Actuaries' (AAA's) "Report to the National Association of Insurance Commissioners Terrorism Insurance Implementation Working Group on Ratemaking Issues Related to the Terrorist Insurance Act," which publication, among other things, commented on the lack of historical data for forecasting losses under TRIA. (See Finding of Fact 13.) Mr. Ramanujam, who is a member of AAA, regarded the AAA Report as important, informational, and a guide for actuaries. He did not consider it a principle, standard, or technique of actuarial practice. He did not consider it binding on the Agency. The greater weight of the other credible evidence is to the same effect. Mr. Ramanujam's and other witnesses' views that Mr. Simmons' letter, with the accompanying AAA Report, could not constitute an "explanatory memorandum" under the rule is rejected, because of the latitude provided by the rule. Mr. Simmons' letter, however, failed to provide the underlying assumptions for AIG's rate request. It alleged a "unique risk profile," without support. It referred to Principle 4 of the "Casualty Actuarial Society 2002 Yearbook", but stated at one point that AIG's objective was to fund a "reasonable portion" of its TRIA deductible, while later stating as the company's goal that ". . . we have evaluated our TRIA deductible in relation to the maximum dollars we can potentially collect before assessing our rate needs." At hearing, AIG attempted to reconcile these two sentences, but on their face, they clearly confused OIR's reviewers, who considered them contradictory. Mr. Ramanujam did not understand AIG's September 4, 2003, filing, as supplemented on October 10, 2003, to be projecting an eight-year timeline (see infra.), but he testified that even six years might be reasonable. He also considered AIG's basing its rates on data gathered from AIG's own market share to be reasonable. He further testified that a rate increase of six to ten percent due to TRIA might not be unreasonable. Yet, he pronounced AIG's rate filing overall unreasonable on the basis of what was omitted from the filing and upon the one percent cap. Mr. Ramanujam did not ask AIG for further information in light of the prior October 3, 2003, disapproval. (See Finding of Fact 71.) AIG was notified of the disapproval by an NOI letter dated October 14, 2003, giving as the Agency's sole reason for denying AIG's TRIA burglary-theft rate filing that the rate increase was "excessive." Upon the whole of the evidence, including but not limited to Findings of Fact 34, 60, and 83, it is found that Mr. Ramanujam applied very different analyses to ISO's commercial property filing than he did to commercial insurers or to other rating organizations. Because he considered one percent of the premium for the underlying (non-TRIA) coverage to be the only significant factor in his recommendation for approval or disapproval of a rate filing, there was one, common standard. But for the one percent Agency cap, it could be said that Mr. Ramanujam applied fundamentally disparate standards to commercial insurers and other industry rating organizations than he had to ISO. However, even considering a few variations in OIR's use of the one percent cap, the inclusion in most deficiency letters of requests for more information to justify a rate increase above one percent, senior staff's incredible testimony that OIR's rate review employees lacked authority to confine themselves to a one percent analysis, and the approval of a 1.6 percent TRIA general liability rate filing for ISO on or about October 3, 2003, the evidence is overwhelming that OIR had in place a statement of general applicability (a one percent TRIA rate cap), which described the procedure or practice requirements of the Agency, and which imposed upon all rate filers a requirement not specifically required by statute or existing rule. AIG's burglary-theft filing was improperly disapproved on the basis of this non-rule policy. Accordingly, AIG's burglary-theft filing is entitled to a Section 627.062(2), Florida Statutes' review in this proceeding. OIR contends that AIG's TRIA burglary-theft rate filing must be denied because it did not contain past and prospective loss experience within and without Florida; any considerations of investment income reasonably expected; the cost of reinsurance; and discussion of trend factors, all of which OIR is to consider under the statute. OIR also complains that AIG did not provide frequency and severity assumptions in filing their response. At all times material, AIG's Richard L. Thomas (see Finding of Fact 76), had significant experience in underwriting unusual risks, and risks without significant historical loss data, such as the Y2K phenomenon. He is on the Board of the Workers' Compensation Research Institute. He serves on the National Council of Compensation Insurers' Ad Hoc Terrorism Committee for Workers' Compensation, which uses actuaries and which engaged Equicat to begin developing a modeling process for TRIA workers' compensation insurance rates. Mr. Thomas was charged by AIG with the responsibility for evaluating the risk that foreign terrorism posed to the insurance written by AIG after the events of September 11, 2001. Mr. Thomas concedes that AIG's TRIA burglary-theft rate filing, even as supplemented on October 10, 2003, did not include investment income, reinsurance, past and prospective loss experience within and without Florida, or trend factors (usually understood to be projections of frequency and severity of losses) as they are routinely prepared for rate filings by the actuarial department within AIG's Domestic Brokerage Group. He testified that AIG's historical loss experience was not included in the filing because it does not exist for terrorism and that his assumptions of pricing and sales were not explained in the filing. However, his assumptions were presented in the de novo hearing. See infra. Evidence adduced at hearing shows that Mr. Thomas assumed an eight-year horizon, thereby predicting frequency, and assumed a 1.2 billion dollar loss, thereby predicting severity of loss(es), as more fully explained, infra. Mr. Thomas testified that he could not find catastrophic "cover" for AIG. Mr. Thomas testified that he considers TRIA itself to constitute reinsurance. Mr. Thomas closely followed the testimony, committee meetings, and successive drafts of TRIA. Upon TRIA's passage, he had the responsibility to evaluate the risk that foreign terrorism posed to insurance written by Petitioners in light of the language employed in the final Act. He supervised development of AIG's TRIA rates. Mr. Thomas informed himself concerning the threat of foreign-sponsored terrorism in the United States and the risk exposure of his company's several lines of business under TRIA in a number of ways. He read governmental publications on the subject. He attended insurance industry-sponsored seminars on such risks to the industry. He evaluated the insured losses that Petitioners and the domestic P&C insurance industry as a whole had experienced as a result of the September 11, 2001, events. He consulted people involved in the study of foreign terrorist organizations and consulted present and former governmental and intelligence personnel, but his unmemorialized conversations with terrorism experts are at least as much a "black box" as ISO's methodology. Mr. Thomas reviewed, to the extent possible, the several proprietary modeling techniques created to assist insurers in evaluating the risks of catastrophic events, such as hurricanes and earthquakes. One such model was the AIR model (simulation) which incorporates the Delphi modeling technique. He reviewed the ISO Florida TRIA burglary-theft rate filing. Mr. Thomas formed the opinion that modeling techniques, such as AIR-Delphi, were good at forecasting severity of future attacks, but he rejected their predictions of location and frequency. Mr. Thomas directed AIG business unit and product line managers to evaluate the risk posed under TRIA to their existing books of business and to recommend rates for TRIA coverage. Without consulting with any terrorism experts and with little to go on but newspapers and internal memoranda, the product line underwriters set about their task. Mr. Thomas testified that he gave these managers little direction because he wanted independent thoughts, concepts, and input in the initial stages of this new rate pricing concept. However, Ms. Gaillard, an actuary with AIG, commented that during AIG's internal data gathering stage, if an AIG division volunteered that it had no TRIA exposure, the internal response was that because TRIA said they have an exposure, that Division needed to develop some rate to support AIG's deductible. This suggests that seeking to cover AIG's deductible was Mr. Thomas' goal from the beginning. Patricia Barrett is AIG's Executive Vice-President for middle market fidelity. Middle market accounts are those less than 100 million dollars. Brian O'Neill is Vice-President and Senior Fidelity Officer for National Union, an AIG component company. Mr. O'Neill oversees risk exposures for accounts over 100 million dollars. Ms. Barrett's and Mr. O'Neill's data gathering and underwriting conclusions for burglary-theft rate setting were reviewed by National Union's Chief Underwriting Officer, William Cotter. A "white paper" was consulted by Ms. Barrett and possibly was consulted by Brian O'Neill and William Cotter. The white paper estimated categories of terrorism risk by type of entity insured. Ms. Barrett did not know the origins of the white paper or how the classifications of the industries named in it were determined. She admitted that the assessments were "pretty subjective." The white paper assumed that AIG's burglary-theft coverage "extends to any burglary and theft arising from a terrorism event and loss of money and securities due to destruction of premises from a terrorism event," and noted that burglary-theft insurance is considered "fidelity" insurance. According to Ms. Barrett, the white paper shows some locations are more likely to be a target but are not necessarily more vulnerable if they are targeted. Yet, on the white paper itself, no symbol for "fidelity" or "burglary-theft" is ranked. With the exception of descriptive examples of potential activity such as "theft of propane gas trucks" and "robbery/burglary of guns, ammunition, and explosives," the white paper does not pinpoint burglary or theft, per se. Taking into account the nature and risk profiles of their books of business and the provisions of TRIA, AIG underwriters Barrett, O'Neill, and Cotter analyzed burglary- theft TRIA rates. Taking into consideration the risk profile unique to AIG's insureds, the likelihood that an existing insured would purchase the terrorism coverage, the need to keep AIG's rates low enough to encourage existing insureds and potential customers to fund the terrorism coverage by purchasing it, and largely hearsay information regarding the terrorism threat, which all or some of the underwriters believed was more likely to occur in areas of a high concentration of people and buildings, Barrett, O'Neill, and Cotter recommended TRIA rates for burglary-theft coverage to Mr. Thomas. Mr. Cotter considered trophy landmarks located in New York City and Washington, D. C. to be more likely targets than lesser targets in more remote areas. Barrett, O'Neill, and Cotter concluded that all risks in AIG's burglary-theft line of insurance presented at least some risk of loss due to a foreign-sponsored terrorism event, and therefore all risks should be charged some (minimal) amount for the terrorism coverage of burglary-theft that TRIA mandated insurers like AIG offer. They also concluded that due to the nature of their insureds' operations and the amount of coverage purchased by those insureds, probably ninety percent of the insureds/risks in AIG's burglary-theft line of business presented a low level of exposure to such losses. Although they went through several processes, Barrett, O'Neill, and Cotter also came up with the belief, as ISO had, that the vast majority of AIG insureds should pay one percent of their underlying premium for TRIA coverage. Some consideration was given by Ms. Barrett to using fractions of one percent for very small risks, but this was ultimately rejected. These three underwriters also concluded that some insureds, because of their nature and the coverage limits purchased, (such as large governmental organizations, middle market commercial operations with very high value, operations with easily transportable products such as jewelry, and national account financial institutions with high cash on hand, which jewelry and cast cash are subject to looters or to destruction during the actual terrorist event), presented higher risks. Based on their underwriting judgment, which was primarily grounded in their own book of business and operating figures, Barrett, O'Neill, and Cotter recommended that AIG create a TRIA charge in ranges from one percent to three percent and two percent to five percent, depending upon whether the risk was judged by the underwriter to be exposed to a terrorism risk and a low or high crime-loss risk. This "range" was refined before being submitted to OIR. (See Findings of Fact 64 and 111.) The manual exceptions page of the burglary-theft filing at issue read: PRICING WITH NO TRIA EXCLUSION, THE FOLLOWING PERCENTAGES WILL BE APPLIED TO THE AT LIMITS COVERAGE PREMIUM TO DETERMINE THE CHARGE FOR TRIA TERRORISM: Middle Market Accounts 1% of gross Annual Premium Includes ALL Middle Market accounts (as defined) except those risks as noted below: 2% of gross Annual Premium = Any Middle Market risk that has an on- premises "money" exposure of $50,000 or greater or a "securities" exposure of $100,000 or greater 3% of gross Annual Premium = All Middle Market governmental agencies, where the limit of liability is equal to or greater than $2.5 Million, regardless of the "money" or "securities" exposure. Commercial/National Accounts Low = 1% of gross Annual Premium Includes ALL Commercial/National categorized with a "Low" risk assessment. High = 2% of gross Annual Premium Includes ALL Commercial/National accounts (as defined) categorized with a "High" risk assessment except those risks as noted below: 3% of gross Annual Premium = Commercial Account: Financial Accounts (w/Cash exposure greater than the deductible) National Account: Case Intensive Risks (w/Cash exposure greater than the deductible) Jewelry Retailers/Wholesalers 4% of gross Annual Premium = National Account: Financial Accounts (w/Cash exposure greater than the deductible) The foregoing price list is similar to the "white paper," but amounts to a shuffling of categories with enormous discretion left in the hands of whoever, within AIG, assigns rates on a customer-by-customer basis. As a result, AIG's pricing for burglary-theft coverage was, in effect, set by rating certain risks either high or low and then assigning a specific percentage of surcharge to that risk for terrorism coverage. Ms. Barrett and Mr. O'Neill did not consult with any actuaries or terrorism experts to reach their assumptions or their pricing categories. Mr. Cotter claimed to have received some advice from experts in terrorism, but he could not explain clearly what that advice was. (Another black box.) None of the three underwriters consulted any writings, treatises, research, or studies written by terrorism experts. Nor did they review any terrorism models. Moreover, none of them were aware of the eight-year timeline ultimately selected by Mr. Thomas, and their geographical and demographical considerations were inconsistent with his. (See Findings of Fact 106 and 121.) At hearing, relative to AIG's conclusion that every one of its insureds had some exposure to terrorist attack and AIG's decision to assign some percentage of risk to every insured, Ms. Barrett was posed the hypothetical of a "Mom and Pop" retail establishment in Sopchoppy, a very small rural Florida town with no acknowledged target attractive to terrorists nearby. She speculated that a messenger from the store, with a cash deposit on his way to a financial institution could be in proximity to a terrorist-targeted truck on the same highway. Ms. Barrett's other speculation as to risk exposure was that a contaminant dropped in a targeted location could drift as a cloud, and seep into the "Mom and Pop" store 50 miles away, rendering the untargeted premises inaccessible. Under AIG's liberal construction of TRIA burglary-theft coverage (see Finding of Fact 104), Ms. Barrett's first hypothetical is barely reasonable, but the second clearly does not take into consideration the probability of other types of concurrent liability coverage. Since every AIG insured may simultaneously present a burglary-theft risk, another property casualty risk, a life or disability risk, or even a multi-peril risk (of which burglary- theft is sometimes a component), it is not clear how every AIG insured entity could be reasonably predicted to present a separate burglary-theft risk, for rating purposes. In light of the foregoing, it was not proven that every one of Petitioners' insureds present some burglary-theft risk. In light of the foregoing, AIG did not affirmatively demonstrate the reasonableness of its assigned categories of risk. Likewise, even given that AIG insureds who deal in jewelry, cash, or securities may present a greater risk than some other commercial enterprises, there was no adequate justification of how AIG would assign insureds to the four percentage categories ultimately listed in its filing. Mr. Thomas claimed to have tested his business units' expert underwriting opinions to ensure reasonableness, but his "strategic analysis" amounts to a "one man decision." On the basis of his studies, Mr. Thomas concluded that concentration of buildings and people was not determinative of where the next terrorist attack(s) might occur and that having already struck New York City and Washington, D.C., it was less likely terrorists would soon strike there again. Both of these assumptions are contrary to some of the assumptions that went into his subordinate underwriters' assignment of high/low risk categories. (See Findings of Fact 106 and 130.) Mr. Thomas also concluded that although it was not possible to predict with any reasonable degree of assurance precisely when, in what geographic locale, or by what means a TRIA-qualifying foreign terrorist attack would occur, it was reasonable to conclude that sometime before September 11, 2009, such an event will occur and will result in losses equal to, or exceeding, the sequelae of losses rippling out from the several events of September 11, 2001. He selected his eight-year time horizon on the following basis: The time between the two known exemplar terrorist WTC events was 1993 to 2001, or eight-years. The unnamed experts he consulted thought that it would take at least another eight years for known terrorist groups to communicate, plan, and carry out another similarly severe attack. The last universally-agreed terrorism exemplar was September 11, 2001. The span of TRIA did not begin until November 2002 and is projected to end with 2005. The severity level Mr. Thomas assumed was a severe event, possibly the equivalent of September 11, 2001, within eight years of that date, not every eight years. The eight years constitute his frequency assumption. Mr. Thomas concluded that AIG's share of the losses from such a terrorist event would more likely than not be in proportion to AIG's market share of the United States domestic P&C insurance market. This component of his formula is a reasonable assumption. Using these figures, Mr. Thomas projected that Petitioners' deductible under TRIA for the year 2003, would be approximately $1.2 billion; for the year 2004, would be approximately $2.2 billion; and for the year 2005, would be approximately $4.0 billion. His estimate for AIG's 2003 TRIA deductible was based on AIG's 2002 direct earned premium data. His estimate for 2004 and 2005 were projected from AIG's known business performance, based on assumptions concerning growth rates. Assumptions regarding growth rates include underwriting prognostications of which categories of insureds already on AIG's book of business will buy TRIA coverage and which potential customers will buy the coverage and when they will buy it. Mr. Thomas's testimony that it is reasonable to assume that insureds with the greatest risk exposure to terrorism will purchase TRIA coverage and that only an attractive rate will draw in the insureds with less exposure is facially logical, but it is of concern that he could simultaneously testify that with AIG customers buying AIG at an increased rate, price is not an impediment to customers making the decision to buy. Considering the severity indications from terrorism simulation models to the extent he had access to them, considering Petitioners' 8.8 percent share of the P&C insurance market, and considering the types of risks that AIG predominantly underwrites (see Findings of Fact 8, 104, and 116), Mr. Thomas concluded that Petitioners' losses from projected terrorist events would probably approximate AIG's deductible in any given year and that AIG should set TRIA premiums so that, over the eight-year time horizon of September 2001 to September 2009, AIG's rates would cumulatively approximate Petitioners' TRIA deductible. Any excess monies not utilized in a given year for a terrorist event were programmed to roll over. Mr. Thomas concluded that, barring intervening terrorism events, the TRIA rates recommended by his subordinate underwriters would accumulate by the end of 2009, the end of his eight-year time horizon, to an amount that would then be available to help fund AIG losses from a terrorist attack. He intended to set AIG burglary-theft rates to result in a collection over his eight-year time horizon which would approximate AIG's deductible in the second year of TRIA's three year timeline. Mr. Thomas is not an actuary and AIG employed no actuaries in the calculations for its TRIA burglary-theft rate filing. All witnesses described terrorism events as high severity/low frequency risks, but all concerned differ on what is to be expected. Some of Mr. Thomas' subordinate underwriters assumed that a large September 11, 2001-type event in an area of highly concentrated buildings and people or trophy targets were more likely to be attacked, but had no concept of how soon. The AIR-Delphi model predicted smaller events in locations other than Florida in less than eight years. Ms. Galliard, one of AIG's actuaries, and OIR's outsourced expert actuary, Mr. Hunter, speaking generally, felt that the 1993 and 2001 WTC events were too few and too unhomogeneous to be useful, by themselves, in determining frequency. Speaking more specifically, Ms. Galliard considered any two events insufficient to discern a pattern or trend. Mr. Hunter testified similarly, but he also believed that it was more reasonable to expect events similar to September 11, 2001, but of lower severity. Simplified, Mr. Thomas assumed a frequency rate of eight years and a severity rate in the second year of 1.2 billion dollars. Any of the foregoing timeframes and severity estimates might be equally "reasonable," with that selected by Mr. Thomas. However, the fact that Mr. Thomas' subordinates had a different concept of potential attack locations and event severity when they gathered the data than the concept upon which Mr. Thomas based the rest of his analysis and upon which AIG based its rate filing is contradictory and troubling. Also, due to 181 third party actions still pending from the 1993 WTC bombing, AIG can only approximate its market share loss for that past event, estimated at .5 billion dollars, plus whatever the third party losses would be, possibly up to 1.9 billion. This position clearly does not produce the predictability normally associated with past loss calculations. Several learned, credentialed actuaries, including but not limited to Mr. Lehmann, Mr. Schaffer, and Mr. Hunter, have applied their skills to the figures provided by Mr. Thomas and have achieved a variety of results. Mr. Lehmann could not match Mr. Thomas's figures, resulting in 1.4 to 1.5 billion accumulated by 2003, instead of 1.2 billion. Mr. Hunter, who has extensive experience with low frequency, high severity federal reinsurance programs such as federal flood, riot, and crime reinsurance, came to a much higher accumulation amount, partly based on different types of investment income and tax rates, which accumulation amount he declared to be unreasonable in relation to the risk involved. Mr. Schaffer reached Mr. Thomas' calculations perfectly, but neither Mr. Thomas nor Mr. Shaffer accounted for investment income. Mr. Hunter interpreted as unreasonable Mr. Thomas' example of investing AIG's premiums in Treasury Bills earning one percent, because such large amounts of money are normally placed in a higher yield investment, such as municipal bonds. He also disagreed with Mr. Lehmann as to the appropriate tax rate and considered Mr. Thomas's no-growth premium projection unrealistic. The evidence as a whole suggests that Mr. Thomas projected one substantial terrorism event within eight years after 2001, more likely later in that time line than earlier, and attempted to set rates to accumulate the capital needed to pay the deductibles from such an event by the end of that eight year period, calculating that if such an event happens sooner than his 2009 horizon, AIG still would be required to pay the losses when the event occurs, even though AIG would not, by then, have accumulated all the capital needed to cover the losses. While the undersigned is not sufficiently skilled to determine which, if any, of the named actuaries is correct in calculating the accumulations, and although it appears that neither Mr. Lehmann or Mr. Hunter fully understood what Mr. Thomas was trying to do, the fact that several varying results were achieved by skilled and credentialed actuaries does not persuade, by a preponderance of the evidence, that Mr. Thomas' figures will produce the results he predicts. It is also disturbing that the highly experienced Mr. Hunter could predict that using Mr. Thomas' assumptions would ultimately require that the insurance industry as a whole would have to suffer a single loss of 55.9 billion dollars at the low end, which is nearly twice that of all insurers' September 11, 2001, losses, and an unreasonable prediction of loss. The American Academy of Actuaries Report attached to AIG's October 10, 2003, response to OIR's deficiency letter supports use of a combination of statistical analysis and modeling to set rates. AIG used neither of those methods as commonly understood. Within AIG's October 10, 2003 response to deficiency letter, under the heading "Casualty Actuarial Society's 2002 yearbook" was the following verbiage: According to Principle 4 of the Statement of Principles Regarding Property and Casualty Ratemaking (page 321) "a rate is reasonable and not excessive, inadequate, or unfairly discriminatory if it is an actuarially sound estimate of the expected value of all future casts associated with an individual risk transfer." Part III, Considerations (page 321) provides considerations that "are intended to provide a foundation for the development of actuarial procedures and standards of practice." The Statement of Principles Regarding Property Casualty Ratemaking, published by the Casualty Actuarial Society in 1988, and apparently not rescinded, states that "a rate is an estimate of the expected value of future costs." The Statement says nothing about covering deductibles.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Banking and Finance, Office of Insurance Regulation, enter a final order disapproving the subject burglary-theft rate filing. DONE AND ENTERED this 23rd day of March, 2005, in Tallahassee, Leon County, Florida. S ELLA JANE P. DAVIS 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 23rd day of March, 2005. COPIES FURNISHED: Honorable Tom Gallagher Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Peter Dunbar, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Daniel C. Brown, Esquire Kelly A. Cruz-Brown, Esquire Robert W. Pass, Esquire Carlton Fields, P.A. Post Office Box 190 Tallahassee, Florida 32302-0190 Elenita Gomez, Esquire Dennis Silverman, Esquire Michael H. Davidson, Esquire Steven Parton, Esquire Department of Financial Services Division of Legal Services 612 Larson Building, Suite 612 200 East Gaines Street Tallahassee, Florida 32399-4206
Findings Of Fact At the time of CMNI's application, Mr. Giunta was president of CMNI and, as such, exercised primary control over the day-to-day activities of CMNI (Tr.12). Mr. Giunta is also the president of Christian Investors Network, Inc. (CINI), and exercised similar control over the activities of that corporation (Tr. 11-12). Mr. Giunta, CMNI, and CINI have never been licensed as mortgage brokers by the Department (Tr. 12-13). CINI, with the knowledge and approval of Mr. Giunta, placed advertisements in the St. Petersburg Times (Tr. 13). One such advertisement appeared in St. Petersburg Times edition of April 20, 1986, under the heading "Loan Information." That advertisement stated "Major Real Estate Financing" and "Residential Real Estate." (Exhibit 1). Sometime in the middle of 1986, Paul Mark called Mr. Giunta in response to an advertisement in the St. Petersburg Times. Mr. Mark was seeking a mortgage loan or loans to build several houses on real estate he owned and so informed Mr. Giunta, who indicated to Mr. Mark that he could arrange a mortgage loan for Mr. Mark (Tr. 28-29). Messrs. Mark and Giunta met shortly after the telephone call. Mr. Mark handed Mr. Giunta a package of documents including a site plan, survey, credit information and a completed mortgage loan application. Mr. Giunta again stated that he would have no problem arranging a mortgage loan for Mr. Mark and requested a fee for such service in the amount of $300.00 (Tr. 30-31). After the meeting, Mr. Mark sent to Mr. Giunta a check made out to Mr. Giunta in the amount of $300.00, together with a letter dated July 16, 1986, confirming that Mr. Giunta would secure mortgage financing (Tr. 31-33); Exhibit 3). In October of 1986, Clifford Clark called Mr. Giunta in response to a newspaper advertisement, seeking a mortgage loan to refinance a certain parcel of property owned by Mr. Clark. Mr. Giunta stated that he could arrange mortgage financing for Mr. Clark at an interest rate of approximately ten percent (Tr. 48-49). After the telephone contact, Messrs. Clark and Giunta met and Mr. Giunta had Mr. Clark fill out a residential loan application (Exhibit 7). Mr. Clark provided Mr. Giunta with originals of his deed to the property and other real estate related documents. Mr. Giunta indicated that he could obtain mortgage financing for Mr. Clark and requested a fee of $250.00, whereupon Mr. Clark gave Mr. Giunta a check for that amount (Tr. 49-51). In early 1986, Robert Miraglia called Mr. Giunta in response to a newspaper advertisement, seeking a second mortgage. Mr. Giunta arranged to meet with Mr. Miraglia to discuss the requested loan. In August of 1986, Russell Foreman contacted Gerald Giunta in response to a newspaper advertisement, seeking a mortgage loan to refinance his home (Exhibit 5). On August 26, 1986, Mr. Foreman met with Mr. Giunta and at Mr. Giunta's request gave him copies of his deed, a survey of the lot, the mortgages to be satisfied and other real estate related documents. Mr. Giunta assured Mr. Foreman that there would be no problem in obtaining a mortgage loan and requested a fee of $200.00. Mr. Foreman wrote a check for that amount and gave it to Mr. Giunta (Exhibit 5). Mr. Giunta never informed Messrs. Mark, Clark, Miraglia and Foreman that he was not a licensed mortgage broker. In approximately April of 1986, Mr. Giunta met with Mr. Arthur M. James, Area Financial Manager for the Department's Tampa Regional Field Office. At that meeting, Mr. James explained to Mr. Giunta that he could not offer to arrange or negotiate mortgage loans on behalf of clients and collect a fee for such service without first becoming licensed by the Department as a mortgage broker (Tr. 84). At some point prior to May 8, 1986, Mr. Giunta was contacted by the Department and informed of the statutes and regulations applicable to advertising his services in the area of real estate financing (Exhibit 2; Tr. 23-24). At some point in 1987, CMNI, with the knowledge and approval of Giunta, listed "Christian Mortgage Network, Inc." in the yellow pages of a local telephone book under the heading of "Mortgages." (Exhibit 1; Tr. 15).
The Issue The issues in this case are whether Respondent violated Sections 494.0043(1)(b), 494.0038(1)(a) and (b)1, and 494.0038(2)(a), Florida Statutes (1997), by failing to provide a mortgagee's title insurance policy; by obtaining a mortgage broker fee without a written agreement; and by failing to disclose the receipt of rates, points, or fees on behalf of a lender; and, if so, what, if any, penalty should be imposed. (All chapter and section references are to Florida Statutes (1997) unless otherwise stated.)
Findings Of Fact Petitioner is the state agency responsible for regulating mortgage brokers in Florida. Until September 1999, Respondent was licensed in the state as a mortgage broker pursuant to license number MB9804519. Respondent's license became inactive when Respondent did not renew her license. At all times material to this proceeding, Respondent was the sole owner and operator of Blackstone. Blackstone is licensed in the state as mortgage brokerage business pursuant to license number MBB9901308. On January 8, 1996, Mr. Brian S. Carter and Ms. Lisa G. Carter closed on the purchase of real property located at 1503 Mobile Avenue, Holly Hill, Florida 32117. A non-institutional lender provided a purchase money second mortgage of $19,100 through Karlis and Uldis Sprogis, as co-trustees of the K. E. Sprogis Trust. Respondent was the mortgage broker responsible for the loan in the Carter transaction (the "Carter loan"). On November 12, 1995, Respondent entered into a mortgage brokerage contract with the Carters on behalf of Blackstone. Respondent failed to obtain, or retain in the Carter loan file, a written receipt from the non-institutional lender for the title policy, an opinion of title by an attorney licensed to practice law in Florida, a binder of the title insurance or a conditional opinion of title, or a waiver thereof by the non- institutional lender. In her Petition for Hearing, Respondent admits the foregoing findings pertaining to the Carter loan. On July 11, 1996, Ms. Kay George closed on the purchase of real property located at 2753 Foxdale Drive, Deltona, Florida 32738. Ms. George obtained a purchase money first mortgage in the amount of $56,000 from an institutional lender. Respondent was the mortgage broker responsible for the loan in the George transaction (the "George loan"). On June 15, 1996, Respondent entered into a mortgage brokerage contract with Ms. George on behalf of Blackstone. The mortgage broker contract stated that the mortgage brokerage fee to be paid by Ms. George would not exceed $400. However, the contract disclosed that Respondent would receive between $500 and $2,000 in additional compensation from the lender. The loan-closing documents in the George loan disclose that Respondent received additional compensation of $1,140 comprised of $840 in loan origination fees and $300 in processing fees. The mortgage broker contract failed to disclose the loan origination and processing fees paid by the lender to Respondent. On December 29, 1997, Mr. Roy J. Piper and Ms. Laura A. Piper closed on the purchase of real property located at 30 Arrowhead Circle, Ormond Beach, Florida 32174. EMB Corporation ("EMB") provided a purchase money first mortgage of $68,400. Respondent was the mortgage broker responsible for the loan in the Piper transaction (the "Piper loan"). On December 1, 1997, Respondent entered into a mortgage brokerage contract with the Pipers on behalf of Blackstone. The mortgage broker contract failed to state the amount of the mortgage brokerage fee to be paid by the Pipers. The contract also failed to disclose any additional compensation Respondent was to receive from EMB. The closing documents show that EMB paid Respondent $1,926.25 in additional compensation as a "broker service release premium." On April 9, 1998, Ms. Sunday S. Reiland closed on the purchase of real property located at 300 Chipeway Avenue, Daytona Beach, Florida 32118. Ms. Reiland obtained a first mortgage in the amount of $96,000 from an institutional lender. Respondent was the mortgage broker responsible for the loan in the Reiland transaction (the "Reiland loan"). On March 9, 1998, Respondent entered into a mortgage brokerage contract with Ms. Reiland on behalf of Blackstone. The mortgage broker contract stated that the mortgage brokerage fee to be paid by Ms. Reiland would not exceed $250. However, the contract disclosed that Respondent would receive between $960 and $3,000 in additional compensation from the lender. The loan closing documents in the Reiland loan disclose that Respondent received additional compensation of $730 comprised of a $480 "cash out fee" and a $250 processing fee. The mortgage broker contract failed to disclose the "cash out fee" and processing fee the lender paid to Respondent. On April 23, 1998, Mr. Brian M. Reigel closed on the purchase of real property located at 931 Aspen Drive, South Daytona, Florida 32119. Mr. Reigel obtained a first mortgage in the amount of $39,425 from an institutional lender. Respondent was the mortgage broker responsible for the loan in the Reigel transaction (the "Reigel loan"). On April 8, 1998, Respondent entered into a mortgage brokerage contract with Mr. Reigel on behalf of Blackstone. The mortgage broker contract stated that the mortgage brokerage fee for the Reigel loan would not exceed $550. However, the contract also stated that Respondent would receive additional compensation from the lender ranging between $0 and $3,000. The loan closing documents in the Reigel loan disclose that Respondent received additional compensation of $1,038 from the borrower's funds for a loan discount fee and a processing fee. On October 16, 1998, Mr. William M. Netterville, III, closed on the purchase of real property located at 808 South Grandview Avenue, Daytona Beach, Florida 32118. Mr. Netterville obtained a first mortgage in the amount of $66,000 from an institutional lender. Respondent was the mortgage broker responsible for the loan in the Netterville transaction (the "Netterville loan"). On September 10, 1998, Respondent entered into a mortgage brokerage contract with Mr. Netterville on behalf of Blackstone. The mortgage broker contract stated that the mortgage brokerage fee to be paid by the Mr. Netterville would not exceed $1,000. The loan-closing documents in the Netterville loan disclose that an additional mortgage broker fee of $500 was paid from the borrower's funds to Grandview Financial. The mortgage broker contract failed to disclose the fee paid to Grandview. The mortgage broker contract in the Carter loan stated that the mortgage broker "can make loan commitments." However, Respondent could not make loan commitments. Only the lender could make loan commitments pursuant to a written commitment or "lock-in" for the loan. There is no evidence that the Carters ever obtained the necessary loan commitment from the lender. Respondent represented that the mortgage broker was able to provide loan commitments without disclosing the necessity for a written commitment from the lender.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a Final Order finding Respondent not guilty of violating Section 494.038(1) in the George, Reiland, and Reigel transactions; guilty of violating Sections 494.043(1)(b) and 494.038(2) in the Carter transaction; guilty of violating Section 494.038(1) in the Piper and Netterville transactions; and issuing a written reprimand for Respondent's violations in the Carter transaction; and imposing fines totaling $2,426.25 for Respondent's violations in the Piper and Netterville transactions. DONE AND ENTERED this 27th day of January, 2000, in Tallahassee, Leon County, Florida. DANIEL MANRY 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 27th day of January, 2000. COPIES FURNISHED: Honorable Robert F. Milligan Comptroller State of Florida The Capitol, Plaza Level Tallahassee, Florida 32399-0350 Harry Hooper, General Counsel Fletcher Building, Suite 526 101 East Gaines Street Tallahassee, Florida 32399-0350 Chris Lindamood, Esquire Department of Banking and Finance Hurston Tower South, Suite S-225 400 West Robinson Street Orlando, Florida 32801 Teresa M. Steininger 8907 Roberts Drive Dunwoody, Georgia 30350
