The Issue At issue in this proceeding is whether the Respondent, Brevard Management, LLC, (Brevard Management) failed to abide by the coverage requirements of the Workers' Compensation Law, Chapter 440, Florida Statutes, by not obtaining workers' compensation insurance for its employees; and whether Petitioner properly assessed a penalty against Respondent pursuant to Section 440.107, Florida Statutes.
Findings Of Fact Based on the oral and documentary evidence adduced at the final hearing, and the entire record in this proceeding, the following findings of fact are made: The Department is the state agency responsible for enforcing the requirement of the Workers' Compensation Law that employers secure the payment of workers' compensation coverage for their employees and corporate officers. § 440.107, Fla. Stat. On July 31, 2008, Eugene Wyatt, an insurance analyst working for the Department, visited the River Palm Motel in Melbourne to investigate the workers' compensation insurance status of several contractors performing renovations on the property. The River Palm Motel is owned by Brevard Management, whose principal owner is Albert Segev. During his visit, Mr. Wyatt spoke to Michael Cole, the hotel's manager, regarding the workers' compensation coverage of the hotel itself. Mr. Cole told Mr. Wyatt that the hotel used Automatic Data Processing, Inc. (ADP), a third-party payroll services provider, to provide workers' compensation insurance coverage. Brevard Management began operating the River Palm Motel on June 18, 2008. On June 19, 2008, Brevard Management entered into an agreement with ADP for the provision of payroll services, including the filing of payroll taxes, using Easy Pay, ADP's proprietary payroll management service. On August 25, 2008, Mr. Wyatt received an anonymous referral alleging that the River Palm Motel was not carrying workers' compensation insurance for its employees. Later that day, Mr. Wyatt returned to the River Palm Motel, this time to investigate the workers' compensation status of the motel itself. Upon his arrival at the motel, Mr. Wyatt spoke with Mr. Cole, who disclosed that Brevard Management owned the motel. Mr. Wyatt conducted a search of the Division of Corporation's website and learned that Mr. Segev was the principal owner of Brevard Management. Mr. Cole provided Mr. Wyatt with invoices for the last payroll period for the River Palm Motel. The invoices indicated that the company had more than ten employees, which led Mr. Wyatt to conclude that the company was required to secure workers' compensation insurance. At his deposition, Mr. Cole confirmed that River Palm Motel had between ten and twelve employees on August 25, 2008. Mr. Cole believed that Brevard Management had secured workers' compensation insurance coverage through ADP. However, the payroll invoices that Mr. Cole provided to Mr. Wyatt showed no deductions for any insurance. Mr. Wyatt consulted the Department's Coverage and Compliance Automated System (CCAS) database, which lists the workers' compensation insurance policy information for each business as provided by the insurance companies, as well as any workers' compensation exemptions for corporate officers. CCAS indicated that Brevard Management had no workers' compensation insurance policy in place and no current, valid exemptions. Mr. Cole provided Mr. Wyatt with a copy of the June 19, 2008, payroll agreement between Brevard Management and ADP, which gave no indication that workers' compensation insurance was included. The evidence at the hearing established that ADP does not automatically provide workers' compensation insurance coverage to entities that enroll for its payroll services. ADP provides such insurance coverage, but only as part of a separate transaction. After receiving authorization from the acting supervisor in the Department's Orlando office, Mr. Wyatt issued the SWO to Brevard Management on August 25, 2008, and personally served it on Mr. Segev on August 26, 2008. On August 25, 2008, Mr. Wyatt gave Mr. Cole a request to produce business records, for the purpose of making a penalty assessment calculation. In response, Mr. Cole provided an employee roster from ADP showing the payroll entries for every Brevard Management employee from the opening of the motel in June 2008 through August 25, 2008. After Mr. Wyatt's visit, Mr. Cole contacted ADP and spoke to Elizabeth Bowen, a workers' compensation sales agent with ADP Insurance Services. Ms. Bowen faxed forms to Mr. Cole to complete in order to obtain a workers' compensation insurance policy. Mr. Cole completed the paperwork and obtained a workers' compensation insurance policy through NorGUARD Insurance Company, effective August 25, 2008. Mr. Cole testified that he believed in good faith that he had obtained workers' compensation insurance at the time he signed up for payroll services with ADP sales representative Clinton Stanley in June 2008. It was only Mr. Wyatt's investigation that alerted Mr. Cole to the fact that Brevard Management did not have the required coverage. Mr. Stanley recalled that Mr. Cole had requested workers' compensation insurance, recalled telling Mr. Cole that his request had to be routed to ADP's separate insurance division, and recalled having forwarded the request to the insurance division. Mr. Stanley had no explanation for why the insurance division did not follow up with Mr. Cole in June 2008. Because he never heard from Mr. Cole again, he assumed that Brevard Management had obtained the requested workers' compensation coverage. It is accepted that Mr. Cole believed that he had purchased the workers' compensation coverage as part of the ADP payroll services; however, the evidence established that Mr. Cole should reasonably have known that this was not the case. Nothing in the June 2008 contractual documentation with ADP indicated that Brevard Management had obtained workers' compensation insurance coverage, and the subsequent ADP payroll registers showed no deductions for workers' compensation insurance. Using the proprietary Scopes Manual developed by the National Council on Compensation Insurance, Inc. (NCCI), Mr. Wyatt assigned Brevard Management's employees the occupation classification code 9052, "Hotel: All Other Employees & Sales Persons, Drivers." This was the same code assigned by Ms. Bowen when she completed the policy paperwork for Brevard Management. Ms. Bowen described this classification as "all inclusive" with respect to hotel employees. Mr. Wyatt calculated an amended penalty based on the payroll records provided by Mr. Cole, from the date Brevard Management became an active limited liability company, June 3, 2008, to the date the SWO was issued, August 25, 2008. Mr. Wyatt divided the total payroll by 100, then multiplied that figure by NCCI's approved manual rate for insurance coverage in 2008 for classification code 9052. That product was then multiplied by 1.5 to arrive at the penalty for the stated period. The total penalty for all employees was $2,112.03. The Amended Order was served on Brevard Management on August 26, 2008, along with the SWO. On August 26, 2008, Mr. Wyatt met with Mr. Cole and Mr. Segev, who produced a copy of the application for workers' compensation insurance placed through NorGUARD Insurance Company and tendered a cashier's check for the full amount of the penalty. The SWO was released on the same day.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses, and the pleadings and arguments of the parties, it is, therefore, RECOMMENDED that a final order be entered by the Department of Financial Services, Division of Workers' Compensation, assessing a penalty of $2,112.03 against Brevard Management, LLC. DONE AND ENTERED this 17th day of April, 2009, in Tallahassee, Leon County, Florida. S LAWRENCE P. STEVENSON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 17th day of April, 2009. COPIES FURNISHED: Tracy Beal, Agency Clerk Department of Financial Services 200 East Gaines Street Tallahassee, Florida 32399-0390 Honorable Alex Sink Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Ben Diamond, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0307 Justin H. Faulkner, Esquire Department of Financial Services Division of Legal Services 200 East Gaines Street Tallahassee, Florida 32399 Albert Segev Brevard Management, LLC, d/b/a River Palm Hotel 420 South Harbor City Boulevard Melbourne, Florida 32901
The Issue The primary issue to be decided in this proceeding is whether Respondent's backdated, retroactive workers' compensation policy complied with the requirements of chapter 440, Florida Statutes. If not, was the penalty properly assessed.
Findings Of Fact The undersigned makes the following findings of fact: Petitioner is the state agency responsible for enforcing the statutory requirement that employers secure the payment of workers' compensation for the benefit of their employees. § 440.107, Fla. Stat.; Pet. Exs. 1, 2, 3. Respondent is a corporation in the State of Florida and was formed on March 6, 1996. Pet. Ex. 4. Respondent operates a preschool located at 15 Northwest 5th Avenue, Hallandale, Florida 33309, known as Hallandale Academy. Pet. Ex. 13 at 4:11-25, 5:1-5. Respondent obtained a workers' compensation policy AWC1098385 through Associated Industries Insurance Company, an insurance carrier authorized to write workers' compensation policies in the State of Florida. Respondent's workers' compensation policy was effective from February 5, 2018, to March 11, 2018. Pet. Exs. 9 and 14. On or about February 28, 2018, Respondent received notification of cancellation of its policy from its insurance carrier. § 440.42(3), Fla. Stat.; Pet. Ex. 9. Respondent's workers' compensation policy was cancelled by Associated Industries Insurance Company on March 11, 2018, at 12:01 a.m. due to nonpayment of the premium. Pet. Exs. 8, 9, 10, and 11. On or about March 11, 2018, Associated Industries Insurance Company notified the Department of the cancelled policy. § 440.185(6), Fla. Stat.; Pet. Ex. 14. On March 16, 2018, Workers' Compensation Compliance Investigators Faline Moeses ("Moeses") and Emily Metzenheim ("Metzenheim") conducted a routine workers' compensation compliance investigation of Respondent's preschool. Pet. Ex. 8. Moeses confirmed that Respondent had no workers' compensation coverage through the Department's internal database, Coverage and Compliance Automated System ("CCAS".)3/ Pet. Exs. 8 and 14. Moeses confirmed that her findings in CCAS matched the information found on the National Council on Compensation Insurance ("NCCI") website.4/ Pet. Ex. 8. Both CCAS and NCCI confirmed that Respondent did not have an active workers' compensation insurance policy on March 16, 2018, when Moeses visited. Pet. Ex. 8. On March 16, 2018, while at Respondent's place of business, Moeses called Respondent's insurance carrier, Associated Industries Insurance Company, and received additional confirmation that Respondent's workers' compensation insurance policy had been cancelled and was not in effect due to nonpayment of premium. Pet. Exs. 8 and 9. Moeses contacted Respondent's corporate officer, Davain Baldeo ("Mr. Baldeo"), by phone. He identified himself as the owner of Baldeo Enterprises, Inc. Pet. Ex. 8. Moeses provided information to Mr. Baldeo about the purpose of the investigation. Pet. Ex. 8. Moeses requested to meet with Mr. Baldeo in person to discuss the investigation. Mr. Baldeo refused the request to meet and asked that Moeses cease speaking with his employees and send all communications by mail.5/ Pet. Exs. 8. On March 19, 2018, a Request for Production of Business Records was sent via certified mail to Respondent. Pet. Exs. 1 and 8. The Request for Production of Business Records requested several categories of business records from Respondent for the period of December 15, 2017, through March 16, 2018. See Petitioner's Exhibit 1 for a detailed description of the records requested. Respondent submitted sufficient business records to the Department in response to the Request for Production of Business Records, to allow it to complete its investigation. Pet. Ex. 5. The records submitted by Respondent confirmed that Respondent employed four or more regular and customary employees during the period of December 15, 2017, through March 16, 2018. Pet. Exs. 5 and 8. On March 19, 2018, Associated Industries Insurance Company, reinstated Respondent's workers' compensation policy and it backdated the policy to March 11, 2018. Pet. Exs. 8, 9, 10, and 11. On April 6, 2018, the Request for Production of Business Records was converted into a BRR based on the lapse in Respondent's workers' compensation insurance coverage between March 11 and March 19, 2018. Pet. Ex. 2. On April 19, 2018, the BRR was served on Respondent. Pet. Ex. 8. Respondent did not provide any additional documents in response to the BRR. Pet. Ex. 8. Department Auditor Christopher Collins was assigned to calculate a penalty for Respondent's noncompliance with Florida's Workers' Compensation Law. Pet. Ex. 8. Respondent's business records were sufficient for the Department to determine Respondent's payroll for the audit review period. The Department assessed a penalty against Respondent for its noncompliance with chapter 440, Florida Statutes. Pet. Ex. 3 and 5. The Department served Respondent with an Order of Penalty Assessment totaling $1,000.00. Pet. Exs. 3 and 11. Respondent's period of noncompliance was March 11 through March 18, 2018, as Respondent failed to secure workers' compensation insurance coverage for this period. Pet. Exs. 8, 9, 10, and 11. Based on Respondent's records, the Department determined Respondent's gross payroll during the period of noncompliance was $3,423.99. Pet. Ex. 11. Respondent's unsecured gross payroll was then divided by 100 so that it could be multiplied by the approved manual rate in order to determine the premium due. Pet. Ex. 11. The approved manual rates are drafted by NCCI and then approved by the Florida Office of Insurance Regulation. § 627.091(4), Fla. Stat. The approved manual rates represent the risk factor associated with each NCCI class code and are critical to calculating a premium. Pet. Ex. 7. The calculations reveal that Respondent would have paid $62.32 in workers' compensation premium for its unsecured gross payroll, had coverage been in place, and not lapsed during the period of March 11 through March 18, 2018. Pet. Ex. 11. The Department demonstrated by clear and convincing evidence that Respondent violated Florida's Workers' Compensation Law by employing four or more employees without securing the payment of workers' compensation from March 11 through March 18, 2018, or a proper exemption. This violation required the issuance of the BRR and OPA to Respondent. Petitioner provided clear and convincing evidence that its penalty calculation was correct.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department enter a final order imposing and assessing the proposed Order of Penalty Assessment against Respondent. DONE AND ENTERED this 7th day of January, 2019, in Tallahassee, Leon County, Florida. S ROBERT L. KILBRIDE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 7th day of January, 2019.
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: At all times relevant to this proceeding, Respondent, Barrett Chambers Miller, was licensed as an agent with Independent Life and Accident Insurance Company in the State of Florida. On March 11, 1981, Respondent signed a Combination Agent's Contract Form 1-7759 with the Independent Life and Accident Insurance Company. Part I, Article 2, of the contract requires the agent to "pay over all monies collected to the manager of the district" or to his representative and forbids the agent to retain any monies collected for any purpose. Part I, Article 1, of the contract requires the agent to "keep true records of the business on the books [and] to forward to the company on company forms a true account each week of his business. Among the "company forms" routinely used by agents in the conduct of their business are: (1) the Premium Receipt Book, (2) the Collection Book, (3) the Ordinary Remittance Report, (4) the Field Accounting Route List, and (5) the Balance Due Account Deficiency Sheet. The Premium Receipt Book is used to record the premium paid by the policyholder; is annotated whenever a premium is paid; and bears the premium paid, the date paid, and the signature or initials of the agent receiving the payment. The Collection Book page bears the name and address of the premium payer, the policy number(s), the type of plan, some statistics as to the insured, the death benefit, and the date on which the premium is paid each month. The Ordinary Remittance Report carries, as to each policy on the agent's debit (list of policyholders to be serviced), an account of the periodic premium collections recorded during the week covered by the report. The Field Accounting Route List is used by the agent to indicate weekly collections on weekly premium payments, and the Balance Due Account Deficiency Sheet is used to charge back deficiencies to the agent's account that are found in his collections turned in weekly. Count I: On May 26, 1981, Annie McKibben, owner of Policies A 39189 on the life of Carol L. Cox, A 39190 on the life of Ronny Cox, Jr., and A 39191 on the life of Stacey Cox, paid to the Respondent by check payable to Independent Life the amount of $13.96, total premium for the three policies listed. The premium card for that policy reflects an altered payment of $13.98 with the signature "B. C. Miller" for the May 1981 payment on the 26th of that month. The Collection Book page reflects collection on May 26, 1981. The Ordinary Remittance Report for the week of May 25, 1981, shows collection of $13.96. There is no Field Accounting Route List in evidence for this account, but the Balance Due Account Deficiency Sheet for the week of August 17, 1981, reflects deficiencies for money not turned in for all three policies for the collections made thereon on May 26, 1981. The check with which Mrs. McKibben paid the premiums in question was subsequently deposited to the account of Independent Life at the Florida First National Bank of Jacksonville. Respondent denies any wrongful withholding on this account. Count II: On some date in June, 1981, Wilma L. Robinson, owner of Policies B 03628 and A 67660, both in her name, wrote Check No. 348 on the Flagship Bank of Jacksonville in the amount of $48.68, payable to Independent Life Insurance and reflecting the notation "Ins. June." Someone, she is not sure who, gave that check to a representative of the company. Her payment book reflects a payment of $23.03 received by B. C. Miller on June 16, 1981. The Collection Book reflects collection on June 16, 1981. The Remittance Report reflects collection on June 16, 1981. The Deficiency Account Sheet, however, reflects a deficiency for money not turned in in the total amount of $23.03. Mrs. Robinson is not sure to whom her check was given. She was sick during that period, and it may be that her husband actually delivered the check; and in early 1981, she began mailing her payment checks in. However, to the best of her knowledge, she had never seen Respondent until he came to her home on January 4, 1983. Count III: In June, 1981, Mrs. Evelyn Reynolds had four policies with Independent Life: 017872 on Debbie Spivey, A0037496 on Angela Reynolds, A0010351 on Sherry D. Reynolds, and A14776 on Robert Reynolds. Though she cannot identify to whom she made her payment that month, her routine practice was to make the payment monthly, sometimes by check and sometimes by cash. On some occasions, Respondent and a Mr. McGroarty from the company both came to get her payment. On some occasions, she left the payment with her mother and does not know to whom it was made. Mrs. Reynolds' payment book shows a payment of $24.02 made on June 9, 1981, with the initials "BCM" reflected in the block for the signature of the agent. The Collection Book page shows collection on June 9, 1981; and the Remittance Report does as well, but the Deficiency Sheet shows a deficiency of $24.02 for monies not turned in but collected that date. Mr. Miller unequivocally denies the initials in the payment book were put there by him, nor was any entry on the Collection Book page relating to this account put there by him. Count IV: Mrs. Evie Bennett does not recognize the Respondent. She has only seen him once before in her life, on New Year's Day, 1983, when he came to her house. She did not meet with him on August 4, 1981, and did not make any payments to him. Her payment book for Policy No. B0000499 in her name reflects a premium payment in the amount of $9.51 made on August 4, 1981; and the entry in the block for the signature of the agent reads "Receipt Miller." The Collection Book page for this account reflects a collection on August 4, 1981, of $9.51. Other pertinent documents reflect a deficiency by reason of monies not turned in of $9.51 for this collection. Mr. Miller denies the entries in both the Payment Receipt Book and the Field Report were made by him. Mr. Edward Cooper owned Policies 05 18285A on Edward Thomas; and 0536115A and 0536115B, both on Mary Cooper. He normally paid his premiums by check once a month to whatever agent came to collect. He does not know to whom he made the payment on July 7, 1981, nor does he know whether he paid on that day by check or cash, notwithstanding his written statement on November 24, 1981, witnessed by Mr. Pat McGroarty, indicates he paid the payments on his Premium Receipt Book to the Respondent. The payment card for these policies reflects that on July 7, 1981, an individual who used the signature "B. C. Miller" received payment of $20.80, representing premiums of $4.16 for each of five weeks including June 29, 1981; July 6, 1981; July 13, 1981; July 20, 1981; and July 27, 1981. The Field Accounting Route List for this Respondent in the period in question reflects a remittance of $16.64 with a shortage of $4.61, which shortage is also reflected on the deficiency page. Mr. Miller admits the signature on the payment card is his, but contends the card was altered. Mr. Kerry Fossett is a field auditor for Independent Life Insurance Company and in November, 1981, was requested to conduct an audit of Respondent's agency. As a part of the audit, he checked policyholders' receipt books and compared them to the agent's account. His audit showed discrepancies on 19 premium receipt cards for a total shortage of $141.75, of which amount the sum of $100.98 occurred when Respondent had the agency. The remainder of the shortage occurred either before or after Mr. Miller was in the job. During the course of the audit, Mr. Fossett found at least one instance where Mr. McGroarty made a collection on Mr. Miller's account and failed to turn it in. In the opinion of the auditor, the shortages in the account of $30 before Mr. Miller took over, when it was handled by Mr. McGroarty, were theft. Mr. McGroarty was discharged from employment with Independent Life and Accident Insurance Company approximately one week after the audit was completed. Mr. Baucom, assistant vice president of the company and custodian of the personnel records, indicated the audit done on Respondent's records revealed a shortage of $361.50. This was subsequently adjusted to $126.18 as a result of the company withholding commissions due Respondent. On February 4, 1983, Mr. Baucom wrote to the Department of Insurance, State of Florida, requesting to withdraw a charge of deficiency against Respondent previously submitted on December 7, 1981, on the basis that the company was not satisfied with the documentation of the alleged deficiency. Thereafter, on April 5, 1982, he again wrote the Department of Insurance reinstating the charge based upon subsequent receipt of "satisfactory documentation" and Mr. Miller's "attitude." Gracie Williams, a policyholder with Independent Life, experienced somewhat of a problem with the company when she and her husband tore down a house on which they had been paying premiums. When the house was removed, they mentioned the fact to Mr. McGroarty, but he did nothing about it. As a result, they paid several months' premiums on property that did not exist. In fact, when Respondent complained about this to Mr. McGroarty, he was told to collect the money or McGroarty would take it from another policy. Jennie L. Wilder also had difficulties on her policy with Independent Life's agent named "Alligood" (sic). She had paid her premiums for six months in advance, but because the agent delayed remitting the premium, she got credit for only three months. On the other hand, Catherine C. DiPerna and her husband have been insured with Independent Life for quite a while. Part of that time, the Respondent was her agent/collector. On June 16, 1981, just about the time of the other alleged shortages in Respondent's remittances, she paid her premium payment to Mr. Miller by check. The check was cashed, she did not receive a notice of lapsed policy, nor did she have any problem with her policy, even though on the Ordinary Remittance Report for the same period used by the Petitioner in the allegations relating to Mrs. Robinson shows no money received from the DiPernas. On March 11, 1981, upon the recommendation of Mr. R. Brenner, an investigator with the Department of Insurance, Respondent went to work for Independent Life as a debit agent in Jacksonville, Florida, under the supervision of Mr. Pat McGroarty, who, also, had had the debit (account) before. After the basic company indoctrination course, Respondent underwent on-the-job training under McGroarty. He never, during the entire time he worked for the company, accepted total responsibility for the account because, in his opinion, there were large discrepancies between the premium receipt cards and the company records when he was assigned the account. Respondent discussed these difficulties with McGroarty and other officials of the company, such as Mr. Ivanoski, Mr. Tharpe, and Mr. Baucom. In April, 1981, Miller saw that his signature as agent was forged on a policy owned by the Petitioner's witness Cooper on the life of Cooper's nephew, Edward Thomas, who, at all times pertinent, was an inmate in the state penitentiary. When Respondent mentioned this to McGroarty, McGroarty told him that Cooper had forged the names and Respondent was with McGroarty when he delivered the policy to Cooper. This is one of the policies which form the allegation in Count V of the Complaint and about which there is an obvious alteration on the Premium Receipt Book showing an increase in the weekly premium of one cent because of a change from a health policy to a life policy. Other difficulties with this particular account were brought by Miller to the attention of the district manager who forced McGroarty to make up the shortage from his own pocket. During a part of the time Respondent worked with the company, he also handled fire policies on a temporary license. He found so many irregularities and such out-and-out corruption, he states, that he intentionally failed the state examination for an industrial fire license. Even after instructions came from the home office terminating Respondent's work in fire insurance, the district manager instructed him to continue to collect fire premiums and turn them over to McGroarty. As a result of all of this, deficiencies show up on his fire accounts for periods after the time he ceased fire business. In fact, documents show collections by Miller on his accounts, even after he left the employ of the company. Respondent unequivocally denies any wrongdoing with regard to his accounts.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law stated above, it is RECOMMENDED: That the Administrative Complaint against the Respondent dated August 27, 1982, and amended on September 24 and December 28, 1982, be DISMISSED. RECOMMENDED this 28th day of February, 1983, in Tallahassee, Florida. ARNOLD H. POLLOCK Hearing Officer Division of Administrative Hearings Department of Administration 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of February, 1983. COPIES FURNISHED: Rhoda Smith Kibler, Esquire David Yon, Esquire Department of Insurance 413-B Larson Building Tallahassee, Florida 32301 S. Perry Penland, Esquire Penland, McCranie & Shad, P.A. Suite 1103, Blackstone Building Jacksonville, Florida 32202 The Honorable Bill Gunter State Treasurer and Insurance Commissioner The Capitol Tallahassee, Florida 32301
The Issue The issues in this case are whether the Florida Real Property and Casualty Joint Underwriting Association (FRPCJUA) failed to comply with applicable requirements and standards of Part I of Chapter 627, Florida Statutes, when it utilized a request for proposals (RFP) in autumn 1995 to arrive at its decision in early 1996 to contract with Intervenors, Audubon Insurance Company (Audubon), AIB Holdings, Inc. (AIB), and American International Insurance Company (AIIC), but not with the Petitioner, Bankers Insurance Company (Bankers), for insurance policy servicing work through the year 1999. Specifically, Bankers asserts: (1) that FRPCJUA improperly gave policy servicing work to AIB, which is not a licensed insurance company; that FRPCJUA violated Chapter 287, Florida Statutes, regarding competitive bidding requirements for state agencies; that, regardless whether Chapter 287 is applicable, whether FRPCJUA acted arbitrarily and in bad faith instead of using procedures equivalent to the procedures found in Chapter 287, Florida Statutes; and (4) that FRPCJUA violated the Government in the Sunshine Law, Chapter 286, Florida Statutes. The Respondent, the Department of Insurance (the Department), and the Intervenors oppose Bankers' assertions. After initially seeking maintenance of the status quo or a contract on the same terms as the others, Bankers now seeks money damages from FRPCJUA, including attorney fees and costs.
Findings Of Fact In response to Hurricane Andrew, which struck in September 1992, insurers either stopped or significantly curtailed writing residential property and casualty insurance in Florida, or in parts of Florida. In response to this crisis, the Florida Legislature enacted Section 627.351, Florida Statutes, which created the Intervenor, the Florida Real Property and Casualty Joint Underwriting Association (FRPCJUA). FRPCJUA is an unincorporated association of insurers licensed to write residential property and casualty insurance in Florida. In addition to the licenses held by its members, FRPCJUA itself also is required by law to be licensed by the Respondent, the Department of Insurance (Department), as an insurer in Florida. FRPCJUA is governed by a Board of Governors chosen in accordance with the statute; some members are appointed by the Insurance Commissioner. The Petitioner, Bankers Insurance Company (Bankers), was represented on the initial FRPCJUA Board of Governors. The FRPCJUA Board hires an executive director and other staff to conduct the day-to-day operations of FRPCJUA. The evidence indicates that Florida Representative John Cosgrove and his staff were the primary drafters of the FRPCJUA legislation and that the House Insurance Committee he chaired was its primary sponsor. Rep. Cosgrove believed that the legislation did not intend to authorize FRPCJUA to contract with non-insurers for policy and claims servicing. Rep. Cosgrove's primary reasons for wanting to limit policy and claims servicing to insurers were to ensure the financial backing of those doing the work and to maintain regulatory control over them. However, policy and claims servicing providers bear no policy risk, and the Department maintains regulatory control over FRPCJUA both under the Section 627.351 and under the statutes regulating licensed insurers. Insurance Commissioner, Tom Gallagher, and his staff also were involved in the enactment of the FRPCJUA legislation. Commissioner Gallagher believed that the legislation authorized FRPCJUA to contract with non-insurers for policy and claims servicing. He believed that the legislation was not designed to enable insurers, who had "created" the insurance crisis by refusing to write or curtailing the writing of, insurance, to keep the lucrative policy and claims servicing to themselves. Section 627.351 requires FRPCJUA to operate pursuant to a plan of operations approved by the Department. FRPCJUA's first plan of operations and its articles of association were approved by the Department in 1993. The First Amended Articles of Association were approved by the Department on December 29, 1993. Before approving them, the Department reviewed both of these documents and required FRPCJUA to make corrections or revisions. Both of these documents provided for the use of insurers (called service carriers) and non-insurers (called servicing providers) to provide policy and claims services for FRPCJUA. In addition, they provided that FRPCJUA itself could provide those services. Bankers' President, David Meehan, was on the FRPCJUA Board when it produced the first two versions of FRPCJUA's plan of operations. Bankers never objected to the provisions for the use of non-insurers to provide policy and claims services. In accordance with the plans of operation, FRPCJUA formed the Shared Market Insurance Services, Inc. (SMISI) to provide policy and claims services for FRPCJUA. SMISI in turn contracted with other entities, including Intervenor, Policy Management Services Corporation (PMSC), which did policy servicing using a computer system it developed called the Point System. In addition to the SMISI contract, FRPCJUA also had policy and claims servicing contracts with five servicing carriers: Bankers; Diamond State Insurance Company; Fortune Insurance Company; Intervenors, Audubon Insurance Company (Audubon); and American International Insurance Company (AIIC). In late 1994, Bankers objected to the growth of SMISI. When Bankers' President tried to persuade Commissioner Gallagher to abolish or down-size SMISI, he was informed that Gallagher himself supported SMISI. In response, Meehan said he was going to resign in protest. Gallagher told Meehan that he intended to ask all representatives of FRPCJUA's members to resign and asked Meehan to wait until all resigned for the sake of appearance. Meehan agreed. Approximately coinciding with Meehan's conversation with Commissioner Gallagher, the Department initiated a market conduct examination of Bankers. For various reasons, Bankers believed and alleged in this proceeding that Bankers was targeted for the market conduct examination and other punitive measures in reprisal for opposing SMISI and for arguing the issue with Commissioner Gallagher. Bankers' allegations were not proven by the evidence in this case, but Bankers' beliefs colored its perception of the Department's dealings with it from then on. They also caused Bankers to suspect that the Department also was trying to influence FRPCJUA to take punitive action against Bankers. But it was not proven that the Department's relations with Bankers had any effect on FRPCJUA's dealings with Bankers. In late 1994, Florida elected Bill Nelson to succeed Tom Gallagher as Insurance Commissioner in January 1995. Commissioner Nelson appointed William Wilson as new chair of the FRPCJUA Board and recommended that Wilson consider James W. (Jay) Newman, Jr., for appointment as new Executive Director of FRPCJUA. Wilson interviewed and hired Newman, who had impressive credentials (including service as Insurance Commissioner for the State of Virginia) and extensive and directly relevant experience. The Department approved FRPCJUA's Second Amended Plan of Operation on July 21, 1995. As with the earlier versions of the plan of operations, the Department reviewed the document and required FRPCJUA to make corrections or revisions before approving it. As with the earlier versions of the plan of operations, the Second Amended Plan of Operation provided for the use of insurers (called service carriers) and non-insurers (called servicing providers) to provide policy and claims services for FRPCJUA. It also provided that FRPCJUA itself could provide those services. Although Bankers no longer was represented on the FRPCJUA Board, it knew of these provisions and voiced no objection to them. By September 1995, FRPCJUA had decided to reduce its business (so-called "depopulation") and thought that it soon would not need so many contracts for policy and claims servicing. It also thought it could save money by reducing the number of servicing contracts. Meanwhile, the contracts of the five servicing carriers were due to expire in February 1996, and the deadline for notice of non-renewal was approaching. (Bankers' contract would have expired in approximately June 1995, but it was extended.) Although all of the contractors were performing satisfactorily, Executive Director Newman thought FRPCJUA should give notice to the five servicing carriers that their contracts would not be renewed and should initiate a request for proposals (RFP) for new contracts. His desire was to reduce the number of contracts from five to either two or three. (The SMISI contracts and subcontracts were not due to expire, and no consideration was given to terminating those contracts at the time.) At the FRPCJUA Board meeting on September 19, 1995, which was noticed and conducted as an open meeting, Newman presented this idea, and the FRPCJUA Board agreed with him. It directed Newman to give notice of non-renewal to the five servicing carriers and to proceed with the RFP process. On October 18, 1995, FRPCJUA published notice in the Florida Administrative Weekly that it would be accepting proposals from insurance companies interested in servicing FRPCJUA policies and that the deadline for proposals would be December 4, 1995. The notice referred those interested to FRPCJUA staff from whom the RFP would be available at a later date. No specifics of the RFP were included in the notice. Prior to the Board's next meeting on October 25, 1995, Newman prepared Proposed Servicing Carrier Selection Criteria. At the Board's meeting on October 25, 1995, which was noticed and conducted as an open meeting, the Board decided to add a provision that FRPCJUA should reserve the right to reject all proposals and instead negotiate contracts apart from the RFP and that the criteria should allow all existing servicing carriers to be eligible for selection. The Board directed Newman to proceed with the RFP so that the Board would be in a position to make its selection decision at its December 1995 meeting. (It does not appear from the evidence that there was a November 1995 meeting of the Board.) Immediately after the meeting on October 25, 1995, Newman began the task of drafting an RFP with the help of FRPCJUA General Counsel Michael Colodny and FRPCJUA staff attorney Fred Karlinsky. At some point in the drafting process, Colodny noticed that, by its terms, the draft RFP only solicited proposals from servicing carriers (insurers) and could be construed to prohibit servicing providers (non-insurers) from responding. To include servicing providers, other modifications to the RFP also would have to made. Newman, Colodny, and Karlinsky re-drafted the RFP to accommodate proposals by servicing providers and issued the re-drafted RFP on November 7, 1995. Bankers did not object to the eligibility of non- insurers to respond to the re-drafted RFP. Instead, it proceeded to prepare its response. On November 17, 1995, FRPCJUA published an amended notice in the Florida Administrative Weekly that it would be accepting proposals from both insurance companies and non- insurers interested in servicing FRPCJUA policies and that the deadline for proposals would be December 6, 1995. The RFP provided for a pre-bid conference to answer any questions on the services to be rendered under the RFP; it also provided an opportunity for written inquiries after the pre-bid conference. The pre-bid conference was held on November 28, 1995. Bankers attended and asked questions about the applicability of Chapter 287, Florida Statutes, and Newman answered that it did not apply. Bankers also asked questions on how to present compensation proposals and how different proposals would be scored. Newman explained that the intent was to encourage creative responses. Questions also were asked at the pre-bid conference about the requirements for a non-insurer to act as a servicing provider. Newman explained the terms of the RFP and confirmed that proposals from non-insurers were welcomed. Bankers did not object then or at any time prior to submission of its proposal. The RFP provided that proposals would be evaluated by FRPCJUA's executive director and staff. Newman asked FRPCJUA Chief Operating Officer, Robert Sklenar, Colodny, and Karlinsky to assist him in evaluating the proposals. Sklenar had extensive (35 years) experience in the insurance industry, mostly as vice-president of personal lines for Travelers Insurance Company. His experience included the design and preparation of competitive scoring processes for vendor selection by Travelers. Newman asked him to prepare the documents to be used for scoring RFP responses (the score sheets). Proposals were received on December 6, 1995. Proposals were received from Bankers, AIIC, Audubon, PMSC, Fortune, Hartford Fire Insurance Company, Mobile America Insurance Group, Inc., National Con-Serv, Inc. (NCSI), American Southern Insurance Company, and Intervenor, AIB Holdings, Inc. (AIB), which had a subcontract for policy and claims servicing with Diamond State. The RFP provided that submission of a response signified acceptance of the terms and conditions of the RFP. Newman, Sklenar, Colodny, and Karlinsky met in Tallahassee to evaluate the responses on December 6, 1995. First, the four jointly evaluated the proposals to determine whether they met seven mandatory criteria. They determined that all ten proposals met the mandatory criteria. Then each evaluator independently scored the ten proposals on each of seven technical criteria, using a numerical point scale of 1 to 5 for each criterion. Then they compared their scores, discussed any differences, and attempted to reach consensus scores for each technical criterion. Then they added the consensus scores given on all technical criteria for each of the ten proposals. At this point in the process, the evaluation team observed that 15 points seemed to be a natural break point and reasoned that American Southern Fortune, Mobile America, and NCSI should be eliminated from further consideration because they got less than 15 points on the technical criteria. Of the proposals still under consideration, Hartford scored 23 on the technical criteria, PMSC scored 22, Audubon scored 21, AIIC scored 20, Bankers scored 18, and AIB scored 17. The evaluators then discussed the top two scorers, Hartford and PMSC. The team did not think FRPCJUA should enter into a contract under the RFP with either Hartford or PMSC. By this time, the evaluation team was aware that the SMISI contract would terminate as of December 27, 1995, for "breaches and defaults of the agreements and obligations owing to the FRPCJUA by SMISI," in accordance with correspondence from FRPCJUA Board Chairman Wilson, dated November 14, 1995; however, it was anticipated that PMSC would continue to handle the SMISI business--fully half of FRPCJUA's total book of business--under a direct contract with FRPCJUA. Due to capacity concerns, the team did not think additional business should be directed to PMSC until those concerns were allayed. Meanwhile, Hartford's proposal disclosed that it would not be in a position to handle a large number of policies for some time, and it proposed either delaying initiation of services or subcontracting with PMSC in the interim. The evaluation team did not think either alternative was acceptable. Evaluation of the mandatory and technical criteria took approximately six hours and was not completed until 1 or 2 a.m. on December 7, 1995. The evaluators decided not to review or evaluate the compensation proposals; however, the other three evaluators persuaded Newman to at least look at the compensation proposals and generally advise the group as to the general nature and parameters of the compensation proposals without identifying the proposers. Colodny was unable to meet again on December 7, 1995. Newman, Sklenar, and Karlinsky met briefly to review the proposals, but it was decided that Newman would conduct a more thorough review and report his findings and recommendations to the others by telephone. Although Newman knew the team would not recommend either Hartford or PMSC, he evaluated their compensation proposals for information and comparison. Hartford offered a flat 18.42% fee. PMSC offered two alternatives. One was a very favorable flat fee of 14.9%; the other proposed flat dollar amounts. Bankers proposed an 18% fee for six-month policies, and an 18.45% fee if FRPCJUA returned to annual policies. The other compensation proposals were tiered by volume (either net written policies or policies in force). AIB structured its compensation proposal as follows: 18% fee for $25 million net written policies (NWP); 17.75% for $25-$30 million NWP; 17.50% for $30- $35 million NWP; 17.25% for $30-$40 million NWP; and 17.00% for more than $40 million NWP. Audubon proposed a 17.9% fee for up to 50,000 policies in force (PIF), 17.5% for up to 100,000 PIF, and 16.9% for over 100,000 PIF. AIIC structured its proposal: 20.0% for up to 50,000 PIF; 19.5% for up to 100,000 PIF; 19.0% for up to 150,000 PIF; 18.5% for up to 200,000 PIF; 18.0% for up to 250,000 PIF; and 17.5% for over 250,000 PIF. In order to evaluate the tiered proposals, Newman had to exercise professional judgment as to future volume in light of FRPCJUA's "depopulation" efforts and intention to replace five contracts with just two or three. Newman did not score the Hartford and PMSC compensation proposals since he knew the team would not be recommending that FRPCJUA should enter into contracts with either under the RFP. In Newman's judgment, based on a 15 point scale, the Audubon and AIB compensation proposals deserved scores of 14, Bankers' proposal deserved a score of 10, and AIIC deserved a score of 9. Adding these scores to the technical scores, Audubon's proposal would be scored the best, with 35 points, AIB would score 31 points, AIIC would score 29 points, and Bankers would score 28 points. As agreed, Newman telephoned the other evaluators to discuss the compensation proposals and Newman's scoring of them. All agreed with Newman's assessments. They decided to recommend that FRPCJUA contract with Audubon and attempt to negotiate with the others to accept Audubon's compensation proposal. Sklenar wanted to recommend that FRPCJUA contract with Audubon and one other; Newman thought it would be more prudent to contract with three. It was agreed to recommend that FRPCJUA first attempt to negotiate with AIB and AIIC to accept Audubon's compensation proposal and to negotiate with Bankers (and, if necessary, those previously eliminated from consideration) only if either AIB or AIIC refused to accept Audubon's compensation proposal. The recommendation of the evaluation team was put in writing on December 11 and was presented to the FRPCJUA Board at its meeting on December 14, 1995, which was noticed and conducted as an open meeting. The evidence was that the Board had a full and open discussion of the recommendation. Ultimately, the Board voted unanimously to accept the evaluation team's recommendation, and it instructed Newman and his staff to proceed with contract negotiations. Section 24 of the Second Amended Plan of Operation provided a means for resolving disputes with respect to any decision of the FRPCJUA Board. Section 24 provided: Except as to any dispute, cause of action, claim or controversy arising under, or out of, any contract or Agreement pertaining to bonding or borrowing by the Association, any person or entity aggrieved with respect to any action or decision of the Board of the Association, or any Committee thereof, (other than matters regarding Assessments which appeals are governed by Sections 15, 16 and 17 hereof) may make written request of the Board for specific relief. All written requests for relief or redress shall be deemed Appeals and shall be delivered to the Executive Director. The Executive Director shall schedule any Appeal for hearing at the next regularly scheduled Board meeting occurring, not less than ten (10) days nor more than forty (40) days from the Executive Director's receipt of the Appeal. Any person or entity whose Appeal for relief is denied by the Board may appeal to the Insurance Commissioner in the manner provided by § 627.371, Florida Statutes. A transcript of any Appeal items shall be made at the time of hearing. In accordance with Section 24 of the Second Amended Plan of Operation, Bankers and Fortune appealed from the FRPCJUA Board's action taken at its meeting on December 14, 1995. Before the next scheduled meeting of the FRPCJUA Board on February 7, 1996, Newman was able to successfully negotiate contracts with Audubon, AIIC, and AIB. However, the contracts were not finalized and executed by the time of the meeting. Bankers also indicated its willingness to accept the terms being offered to the other three if FRPCJUA would agree to contract with Bankers as well. At the Board's meeting on February 7, 1996, which was noticed and conducted as an open meeting, the Board fully and openly discussed several subjects relevant to the RFP contracts, including capacity concerns and whether to contract with Bankers, Fortune and Hartford. Ultimately, a motion was made to reject the RFP process and negotiate contracts with the five existing servicing carriers--i.e., Audubon, AIIC, Bankers, Fortune, and Diamond State--with new contract provisions and a blended compensation rate. The Board voted to approve the motion with only member Diaz voting "no." Bankers and Fortune indicated that the Board's action was acceptable to them, and Chairman Wilson announced that the Board's action mooted the appeals of Bankers and Fortune. Audubon, AIIC, and AIB did not indicate whether the Board's action was acceptable to them. Before the next regular meeting of the Board, all three appealed from the Board's action under Section 24 of the Second Amended Plan of Operation. The next regular meeting of the FRPCJUA Board was held on February 29, 1996, which was noticed and open to the public. The Board considered a motion by member Ricciardelli to rescind its action on February 7, 1996. After a full and open discussion, the Board voted to approve the motion; members McGriff and Burgess voted "no." As part of its attempt to prove improper influence by the Department and arbitrary and capricious action by the FRPCJUA Board, Bankers introduced as evidence that Insurance Commissioner Nelson contacted Board member McGriff once by telephone prior to the meeting on February 29, 1996, to ask him to support the FRPCJUA staff's recommendation made on December 14, 1995. But there also was evidence that Bankers' representatives contacted McGriff several times to ask him to vote to uphold the Board's action on February 6, 1996, and it is self-evident that Commissioner Nelson's telephone contact did not influence McGriff at all. In accordance with Section 24 of the Second Amended Plan of Operation, on February 29, 1996, Bankers filed an appeal of the Board's actions of that date, and Bankers presented its appeal to the Board at a meeting on April 7, 1996, which was noticed and open to the public. After hearing and discussion, the Board denied the appeal. On April 24, 1996, Bankers appealed the Board's decision to the Department of Insurance. It is found from the evidence presented that the FRPCJUA's actions in connection with the RFP were neither arbitrary nor capricious. The Board and its staff set about to reduce the number of servicing contracts it had (other than the SMISI contract) from five to either two or three in order to save money. FRPCJUA thoughtfully adopted a reasonable RFP process for achieving its objective and implemented the RFP in a thoughtful and reasonable manner. The result achieved the objective. FRPCJUA replaced the five existing servicing contracts with three new contracts and has saved FRPCJUA millions of dollars a year in servicing fees. Bankers presented the testimony of an expert in business valuation, RFP processes, and gaming theory in an attempt to prove that the RFP process and the scoring of the proposals was so flawed as to be arbitrary and capricious. But Bankers' evidence itself was flawed. First, Bankers' expert questioned RFP specifications that Bankers accepted. Second, the expert questioned the points given by the evaluators on the scoring scale they used without ever reviewing or considering any proposals other than those submitted by Bankers, Audubon, AIIC, and AIB. Third, while the expert conceded that it was important to understand the thought processes of the evaluators in assessing the validity of their judgments, he had absolutely no evidence and no knowledge about the judgments of Colodny or Karlinsky. Fourth, while the expert criticized the scoring system as not being sophisticated enough to indicate "fractional differences" between proposals, and criticized the team's failure to use a "tie-breaking" mechanism, he conceded that the consensus scoring used by the team was a valid and acceptable way to assess relatively small differences between proposals and to break scoring ties. Fifth, much of the expert's criticism amounted to disagreements as to how to evaluate aspects of the proposals; meanwhile, as the expert admitted, in most cases the evaluation required the exercise of professional judgment, and the evaluation team had more and better expertise. The expert's testimony did not prove that the RFP process and the scoring of the proposals was arbitrary or capricious.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Insurance enter a final order denying Bankers' appeal and claim for money damages and attorney fees. DONE AND ENTERED this 10th day of November, 1998, in Tallahassee, Leon County, Florida. J. LAWRENCE JOHNSTON 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 Filed with the Clerk of the Division of Administrative Hearings this 10th day of November, 1998. COPIES FURNISHED: Douglas A. Mang, Esquire Wendy Russell Wiener, Esquire Mang Law Firm, P.A. Post Office Box 11127 Tallahassee, Florida 32302-3127 Michael H. Davidson, Esquire Division of Legal Services 200 East Gaines Street 612 Larson Building Tallahassee, Florida 32399-0333 Seann M. Frazier, Esquire Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. Post Office Drawer 1838 Tallahassee, Florida 32302 Perry Ian Cone, General Counsel AIB Insurance Group, Inc. 2500 Northwest 79th Avenue Miami, Florida 33122 Michael Colodny, Esquire Stuart B. Yanofsky, Esquire Colodny, Fass & Talenfeld, P. A. 2000 West Commercial Boulevard Suite 232 Fort Lauderdale, Florida 33309 Fred E. Karlinsky Associate General Counsel Florida Residential Property and Casualty Joint Underwriting Association 101 North Monroe Street Suite 1000 Tallahassee, Florida 32301 Zollie M. Maynard, Esquire William C. Owen, Esquire Panza, Maurer, Maynard & Neel, P.A. 215 South Monroe Street, Suite 320 Tallahassee, Florida 32301 Mitchell B. Haigler, Esquire Paul R. Ezatoff, Esquire Katz, Kutter, Haigler, Alderman, Bryant & Yon, P.A. Post Office Box 1877 Tallahassee, Florida 32302 J. Stephen Menton, Esquire Rutledge, Ecenia, Underwood, Purnell & Hoffman, P.A. Post Office Box 551 Tallahassee, Florida 32302-0551
Findings Of Fact Parties Respondent, Department of Insurance (DOI) and Intervenor, Department of Banking and Finance (DBF) are state agencies charged with the regulation of insurance and banking activities, respectively. Great Northern Insured Annuity Corporation (GNA) is an insurance company and agency operating in Florida and elsewhere in space leased in financial institution lobbies, customer service areas and atriums. From its approximately eighty-four locations in Florida it markets annuities, securities and whole life insurance products. Approximately one-third of its 1992 sales of $130 million was in annuities. GNA's principal profits in Florida are derived from its sale of annuities, which it directly underwrites and services. First Nationwide Bank (FNB) leases space in its lobbies and other common areas to insurance agencies and companies, including Vista Financial Group, (Vista). In 1992 Vista sold approximately $13.5 million in annuities from the locations it leases from FNB. First Union Mortgage Corporation (FUMC) is a financial institution with "grandfathered" insurance activities pursuant to section 626.988(5), F.S. It has also been granted a certificate of authority by DOI as a Third Party Administrator pursuant to section 626.88, F.S. Florida Bankers Association (FBA) is a trade association of the banking industry in Florida. It represents its financial institution members. The Association of Banks in Insurance Inc. (ABI) is a trade association of financial institutions and insurance companies. The Florida Association of Life Underwriters (FALU) is a professional association of life, health and direct writer multi-line insurance agents with approximately 8,900 members. James Mitchell and Co. and its subsidiary, JMC Insurance Services Corporation (JMC) are California corporations involved in marketing financial products, including annuities in Florida. Florida Central Credit Union, Railroad and Industrial Federal Credit Union and GTE Federal Credit Union are state or federally chartered credit unions authorized to do business in Florida. Credit Union Services, Inc., a wholly owned subsidiary of GTE Federal Credit Union, sells insurance to credit union members. The Florida Association of Insurance Agents (FAIA) is a trade association representing independent insurance agents in Florida. Barnett Banks Trust Company, N.A. is a trustee for annuities issued by James Mitchell and Company. Barnett Banks Insurance, Inc. is a Florida licensed insurance company providing credit insurance of various types for credit extended by Barnett Banks throughout Florida. BTI Services, Inc. a subsidiary of Barnett, provides records administration services for insurers. Marketing One, Inc., Liberty Securities Corporation and Compulife, Inc. market annuities to existing and prospective customers of financial institutions. Those marketing activities are conducted from lobbies, atriums or other central areas of the premises of the financial institutions. The Financial Institutions Insurance Association is a California non- profit association of financial institutions and insurance companies with members in Florida who lease space to insurance agency tenants. California Federal Bank is a federal savings bank operating branches in the State of Florida and leasing space to a company selling insurance in that space in bank branch offices. The Statute Although other sections of statutes are cited as "law implemented" in proposed Chapter 4-223, its undeniable focus is section 626.988, F.S., as described in the first rule of the proposed chapter: 4-223.001 Purpose. The purpose of these rules is to implement the provisions of Section 626.988, Florida Statutes, and to ensure that customers of financial institutions conduct their business in an atmosphere free from direct or indirect coercion, unfair competition, and unfair or deceptive trade practices, and to implement those statutory provisions which prohibit insurance agents and solicitors who are directly or indirectly associated with, under contract with, or controlled by a financial institution from engaging in insurance agency activities as an employee agent, principal, or agent of a financial institution agency. These rules establish procedures and standards for insurance companies, agencies, agents and solicitors in their relationships and business arrangements with financial institutions. Embodied in Florida's insurance code, a code described as more lengthy than the New Testament, Section 626.988 F.S. enacted in 1974, ". . . generally prohibits banking institutions from engaging in insurance agency activities. . . ." Florida Association of Insurance Agents, Inc. v. Board of Governors, 591 F.2d 334 (U.S. 5th Cir. 1979). The prohibition is accomplished indirectly by forbidding licensed insurance agents or solicitors from engaging in insurance agency activities under certain relationships with financial institutions. There are exceptions to the blanket prohibition, including an amendment in 1990 to permit state chartered banks to sell annuities in the event that federal law permits federal banks to sell annuities. After almost twenty years of attempted enforcement, DOI has described section 626.988, F.S. as "a vague statute with imprecise standards". (Notice of proposed rule, Florida Administrative Weekly, June 26, 1992) The Rules DOI's experience with interpretation and enforcement of Section 626.988, F.S. commenced in earnest in the early 1980's, when insurance companies began to market annuities in the lobbies or public access areas of financial institutions. Many of these companies consulted with the department and obtained guidance as to the applicability of the law to their varied circumstances. In 1985, American Pioneer Life Insurance Company, through its counsel, Edward Kutter, Esquire, inquired of Commissioner Gunter concerning the effect of the law on its operations. American Pioneer Life Insurance Company was a wholly owned subsidiary of American Pioneer Savings Bank. Donald Dowdell, General Counsel of the department, responded by letter dated November 18, 1985. He analyzed the relationships among the insurer, the financial institution, and the insurance agents and determined that there was no significant probability of the financial institution exercising control over the agents: . . . In view of the fact that American Pioneer Savings Bank is the ultimate parent of American Pioneer Life Insurance Company, the specific issue which must be resolved in responding to your inquiry is whether an independent agent appointed by American Pioneer Life is directly or indirectly associated with, or retained, controlled, or employed by American Pioneer Savings Bank. Absent such a relationship, Section 626.988 does not prevent American Pioneer Life and its agents from marketing insurance in this state. . . . These corporate relationships in and of themselves do not create a prohibited relationship between American Pioneer Savings Bank and independent insurance agents appointed by American Pioneer Life. . . . It is recognized that as the corporate parent, American Pioneer Savings Bank may influence or control various corporate activities of its subsidiaries which would not entail control of the solicitation, effectuation and servicing of coverage by insurance agents. If, in fact, American Pioneer Savings Bank does not directly or indirectly control the conduct of insurance activities by American Pioneer Life agents but, instead, the agents sell insurance free of influence from the financial institution, the prohibitions of the statute are inapplicable. (GNA Exhibit No. 8) (emphasis added) Thus, in 1985, the department limited the prohibitions of section 626.988, F.S. to the financial institution's control of, and authority over, an agent's insurance activities. By 1986, other aspects of an association became a concern of the department. Letters responding to inquiries outlined requirements that leased space and insurance sales literature be physically or visually separated from the functions of the financial institution. (GNA Exhibits No. 10, 13 and 16) As a result of the body of opinions being circulated in the form of incipient policy, the department proposed rules implementing section 626.988. These proposed rules were later withdrawn before adoption, but the department continued to use them as guidelines. During this period, DOI received a handful of complaints, mostly from agents. Douglas Shropshire, director of Agent and Agency Services during the relevant period, testified that he could not recall a single consumer complaint with respect to financial institutions engaging in the distribution of insurance products. Gail Connell, identified by Mr. Shropshire as "the Department's person most intimately familiar with field investigation of .988 issues" (Tr. at 760), agreed. (FUMC Exhibit No. 35, at 184-85 See also. FUMC Exhibit No. 36 at 347-50, 353) In 1991, in anticipation of the rule-making mandate of section 120.535, the department reviewed its guidelines. As a part of that review, representatives of the agents' associations, FALU, FAIA and others, were consulted as to the desirability of the rules. In January, 1992, DOI published proposed rules that were substantially similar to the guidelines. Donald Dowdell stated that the proposed rules published at that time represented the department's determination of a reasonable interpretation of the statute, adding, "[T]he line was drawn with the realization of what was happening in the real world today. We could have -- I think the statute prohibits an association, and as I indicated yesterday, if we had wanted to be Draconian about it and make life easier on ourselves, we could have attempted to prohibit any kind of association and see how that would have flown." (FUMC Exhibit No. 36 at 260-261) The rules published in January of 1992 were withdrawn in order to permit the department to correct some perceived inadequacies in the economic impact statement. The rules were presented at a workshop and were republished in June, 1992. The rules were virtually the same as those published in January. A public hearing was held July 12, 1992. On October 6, 1992, DOI published a Notice of Change which materially altered Rules 4-223.003, .004, and .005. According to the Notice of Change, the change was in response to comments received at the public hearing held July 12. More specifically, the amendments were the result of the department's adoption of FALU's position in its petition challenging the June version of the rules. The amendments most significantly provided a definition of "associated" or "associate" and forbade insurance agents from occupying space virtually anywhere within the confines of a financial institution. Mr. Shropshire drafted the amendment to Rules 4-223.003-.005. His source for the definition of "associate" was Webster's Dictionary. Mr. Shropshire testified that the modified proposal resulted from "explosive changes" in the number of banks involved in insurance in this state (Tr. at 793) and information which had come to his knowledge which indicated a need for a more restrictive rule. The two sources of information regarding insurance activities in Florida identified by Mr. Shropshire were the report prepared by investigator Ernest Ulrich in support of the economic impact statement and an ongoing investigation and prosecution of JMC for its marketing of annuities. Both sources predate or were contemporaneous to the June publication of the rules. Mr. Shropshire's reason for the October change was the anticipated difficulty DOI faced in enforcing its rules as originally published. He stated, "So it was getting plain to us that we were going to have to very vigorously and closely and labor-intensively enforce the rule, if it was passed as it was promulgated in June of '92." (tr. at 808) As described by Mr. Shropshire and others, the agency was concerned that insurance activities in financial institutions were not being conducted behind partitions, or even behind planters or other visual separations; and that bank agents were making referrals, taking telephone messages, and setting appointments for insurance agents who covered multiple bank branches on a "circuit-rider" system. Banks leasing space to agents also commonly paid bank employees a bonus for making appointments and referrals of customers to the agents. DOI determined that these leasing arrangements established a strong connection between the bank and the agent, in effect wrapping the insurance program in the bank's colors and presenting it as another bank product. This, to DOI, justified the previously characterized "Draconian" measures. The banks' and other witnesses freely described the economic advantage to a financial institution of having insurance services available at the same location for its customers. Additional amendments to the proposed rules were published in December 1992. Those amendments acknowledge or track the statutory exceptions to the section 626.988(2), F.S. prohibitions. The rules therefore do not apply to mortgage insurance business, credit unions, banks located in cities having a population of less than 5,000, and the sale of annuities when national banks have been authorized to sell such annuities. During the course of the formal hearing, the agency proposed a final change to the rules at issue, clarifying that Chapter 4-223 does not apply to credit life and disability insurance and credit unemployment insurance. (American Banking Insurance Co. Exhibit No. 1) The Economic Impact Dr. Tim Lynch, Director for the Center for Economic Policy Analysis for Florida State University, conducted surveys, collected data and analyzed the economic impact of the June 1992 version of the proposed rules. He prepared the economic impact statement for DOI. Dr. Lynch was consulted by the department about the October changes to the proposed rules and did additional analysis on the impact of the proposed changes. The economic impact statement prepared for the June publication was not amended, but Dr. Lynch's observations are found in his notes, or what he terms a "work in progress". He discussed those observations with department staff and considers the economic impact of prohibiting leases to be at least in the $ millions. The agency did not republish an economic impact statement after the October changes, but plainly considered the impact of those changes as articulated by its consultant, Dr. Lynch. Prohibiting the sale of annuities on bank premises would have a devastating effect on companies engaged in that activity. Banks, also, would be affected, as they recognize a substantial benefit of providing their customers the convenience of an in-house service. Although annuities are defined in Florida law as "life insurance" (See Section 364.602(1), F.S.) they are generally considered investments for future security rather than a cushion against loss. On March 20, 1990, the Office of the Comptroller of the Currency (OCC) issued a formal approval letter stating, among other things, that under controlling Federal banking law, annuities are primarily financial investment instruments that national banks are permitted and authorized to sell. (GNA Exhibit No. 41) A follow-up letter to J. Thomas Caldwell as representative of the Florida Bankers Association specifically concluded that federally chartered banks in Florida were authorized to sell annuities. (GNA Exhibit No. 42) The OCC conclusion with regard to the authority of national banks was upheld in the Variable Annuity Life Insurance Co. v. Robert Clarke, et. al., (VALIC) on November 22, 1991, by the U.S. District Court for the Southern District of Texas, Civil Action No. H-91-1016, 786 F. Supp. 639. The case is pending on appeal before the U.S. Court of Appeals for the Fifth Circuit. (Variable Annuity Life Insurance Company v. Clarke, Case No. 92-2010) In the meantime, the OCC continues to issue opinion letters consistent with its earlier opinion. (See 5/10/93 letter filed as supplemental authority on 6/18/93) National banks are presently selling annuities, and the impact of the October 1992 absolute prohibitions is nullified as to annuity products by the December 1992 amendments addressed in paragraph 30, above.
The Issue Whether Petitioner's claim for medical expenses from August 6, 1982 through February 27, 1983 should be approved, pursuant to the State of Florida Employees Group Health Self Insurance Plan. Petitioner appeared at the hearing accompanied by legal counsel. The Hearing Officer thereupon explained his rights and procedures to be followed in the administrative hearing. Petitioner acknowledged that he understood his rights and elected to represent himself. Petitioner testified in his own behalf at the hearing and the parties stipulated to the introduction of Respondent's Exhibits 1 and 2. A late filed exhibit, Respondent's Exhibit 3, was also admitted in evidence. Respondent presented the testimony of one witness, William R. Seaton, Benefit Analyst for the Respondent's Bureau of Insurance.
Findings Of Fact Petitioner Thomas J. Appleyard, III, is a former state employee who retired with disability in 1976 as a result of cardiac disease. At the time Petitioner retired, he maintained coverage in the state Employees Group Health Self Insurance Plan under which the Blue Cross/Blue Shield of Florida, Inc. serves as the administrator of the plan for the state. Petitioner also receives disability benefits under the Medicare program for medical expenses. (Testimony of Petitioner) The State Group Health Self Insurance Plan provides in Section X, COORDINATION OF BENEFITS, that if an insured has coverage under Medicare, the benefits payable under the state plan will be coordinated with similar benefits paid under the other coverage to the extent that the combination of benefits will not exceed 100 percent of the costs of services and supplies to the insured. Paragraph D of Section X provides that the state plan will be the secondary coverage in such situations and will pay benefits only to the extent that an insured's existing insurance coverage does not entitle him to receive benefits equal to 100 percent of the allowable covered expenses. This provision applies when the claim is on any insured person covered by Medicare. (Testimony of Seaton, Respondent's Exhibit 3) Petitioner was hospitalized at the Tallahassee Memorial Regional Medical Center on three occasions in 1982-33. His Medicare coverage paid all but $261.75 of the hospital expenses. In February 1983, Petitioner also incurred medical expenses to his cardiologist, Dr. J. Galt Allee, in the amount of $248.33. Petitioner was originally denied his remaining hospital expenses by the administrator of the state plan under the erroneous belief that he was receiving regular Medicare benefits for persons over the age of 65. In addition, Dr. Allee's bill was only partially paid by Medicare, subject to the receipt of additional information from the physician. Payment under the state plan was limited to an amount sufficient to reimburse petitioner 100 percent of the amount originally allowed by Medicare. (Testimony of Seaton, petitioner, Respondent's Exhibit 1, 3) Respondent does not receive information on claims filed under the state plan until contacted by an employee. In February 1984, Petitioner requested assistance from William R. Seaton, Benefit Analyst, of Respondent's Bureau of Insurance, regarding his difficulties in receiving proper claims payments. Seaton investigated the matter with the Insurance administrator for the state, Blue Cross/Blue Shield of Florida, and discovered that the latter had not coordinated the hospital expense balance with Medicare. They thereafter did so and as of the date of hearing, there was no longer a balance due to Tallahassee Memorial Regional Medical Center. Seaton also gave written instructions to Blue Cross to review all of Petitioner's claims and make sure that they were paid properly, and to install controls on his and his wife's records. (Testimony of Petitioner, Seaton, Respondent's Exhibit 1-2) The full claim of Dr. Allee had not been paid by Medicare since it had been awaiting requested additional in formation from the physician. Such information was provided after a personal visit had been made to Dr. Allee by Seaton and Medicare then recognized additional eligible expenses. However, a balance of $36.00 is still owed to the physician due to the fact that Blue Cross/Blue Shield had not received the necessary payment information from Medicare as of the day before the hearing. (Testimony of Seaton, Respondent's Exhibit 1) Section XVII of the state's Group Health Self Insurance Plan benefit document provides that an employee who wishes to contest decisions of the state administrator considering the employee's coverage under the plan may submit a petition for a hearing for consideration by the Secretary of Administration. (Respondent's Exhibit 3)
The Issue Whether Respondent violated the provisions of chapter 440, Florida Statutes (2016), by failing to secure the payment of workers' compensation coverage, as alleged in the Second Amended Order of Penalty Assessment; and, if so, what penalty is appropriate.
Findings Of Fact The Department is the state agency responsible for enforcing the requirement of chapter 440 that employers in Florida secure the payment of workers' compensation coverage for their employees and corporate officers. § 440.107, Fla. Stat. Respondent owns and operates a gas station/convenience store in Miami, Florida. The Investigation. The Department received a public referral that Respondent was operating without workers' compensation coverage. The case was assigned by the Department to Compliance Investigator Julio Cabrera ("Cabrera"). Cabrera first checked the Florida Department of State, Division of Corporations, Sunbiz website to verify Respondent's status as an active corporation. Cabrera then checked the Department's Coverage and Compliance Automated System ("CCAS") to see whether Respondent had a workers' compensation policy or any exemptions. An exemption is a method in which a corporate officer can exempt himself from the requirements of chapter 440. See § 440.05, Fla. Stat. CCAS is the Department's internal database that contains workers' compensation insurance policy information and exemption information. Insurance providers are required to report coverage and cancellation information, which is then input into CCAS. Cabrera's CCAS search revealed that Respondent had no coverage or exemptions during the relevant period. On February 23, 2016, Cabrera visited Respondent's place of business and observed two women, Margarita Maya ("Maya"), and Nuri Penagos ("Penagos") serving customers. Cabrera asked to speak to the owner. Maya telephoned John Obando ("Obando"). After introducing himself, Cabrera asked how many employees worked for the business. Obando indicated he needed to check with his accountant. Shortly thereafter, Obando called Cabrera back and indicated that his employees included Maya; Carolina Santos ("Santos"); his wife, Marta Ayala ("Ayala"); and himself. Obando confirmed that the business did not currently have workers' compensation insurance coverage nor did any of the members of the LLC have an exemption. The LLC had three managing members: Obando; Maria Rios ("Rios"); and Carlos Franco ("Franco"). Obando explained that Rios lived out of the country and did not provide services to Respondent. According to Obando, Franco also resides outside of the United States, but he travels to Florida and periodically assists with the running of Respondent's business enterprise. Cabrera contacted his supervisor and relayed this information. With his supervisor's approval, Cabrera issued a SWO and served a Business Records Request. Respondent provided the requested business records to the Department. The evidence showed that during the two-year look-back period, Respondent did not have workers' compensation coverage for its employees during a substantial portion of the period in which it employed four or more employees, including managing members without exemptions. As such, Respondent violated chapter 440 and, therefore, is subject to penalty under that statute. Penalty Calculation. The Department assigned Penalty Auditor Matt Jackson ("Jackson") to calculate the penalty assessed against Respondent. Jackson used the classification code 8061 listed in the Scopes® Manual, which has been adopted by the Department through Florida Administrative Code Rule 69L-6.021(1). Classification code 8061 applies to employees of gasoline stations with convenience stores. Classification codes are four-digit codes assigned to various occupations by the National Council on Compensation Insurance to assist in the calculation of workers' compensation insurance premiums. In the penalty assessment, Jackson applied the corresponding approved manual rate for classification code 8061 for the related periods of non-compliance. The corresponding approved manual rate was correctly utilized using the methodology specified in section 440.107(7)(d)1. and rule 69L-6.027 to determine the final penalties. Utilizing the business records provided by Respondent, the Department determined Respondent’s gross payroll pursuant to the procedures required by section 440.107(7)(d) and rule 69L- 6.027. The Department served an Amended OPA on March 29, 2016, imposing a total penalty of $29,084.62. On May 6, 2016, following receipt of additional records, the Department issued a Second Amended OPA, reducing the penalty to $25,670.88. Because Respondent had not previously been issued a SWO, pursuant to section 440.107(7)(d)1., the Department applied a credit toward the penalty in the amount of the initial premium Respondent paid for workers' compensation coverage. Here, the premium payment amount for which Respondent received credit was $1,718.00. This was subtracted from the calculated penalty of $25,670.88, yielding a total remaining penalty of $23,952.88. No records were provided regarding the compensation of Penagos, who was observed working on the date of the inspection. According to Respondent, Penagos was present and working on that date, not as an employee, but as an unpaid volunteer who was testing out the job to see if it was to her liking. The Department imputed gross payroll for Penagos for February 23, 2016, which resulted in a penalty in the amount of $16.26 and was included in the Second Amended OPA. Respondent's Defenses. At the final hearing, Obando testified that he and the other co-owners of Respondent always attempted to fully comply with every law applicable to Respondent's business and have never had compliance problems. He testified that the business carried workers' compensation coverage until 2013, when its insurance agent advised Respondent it could go without coverage due to the size of the business, if the managing members of the LLC were to apply for, and be granted, an exemption. Obando offered no explanation why Respondent failed to secure the exemptions before letting coverage lapse during the penalty period. Obando also argues that on the date of the investigation, Penagos was not an employee, but rather his sister-in-law, who was trying out the job for a day as a volunteer to determine if she would replace Obando's wife, Ayala, who no longer wanted to work in the store. Obando asserts that only two employees were actually working in the store that day, so Respondent should not have been considered out of compliance. Obando also testified that at most, no more than three employees work at the store on any particular day. Obando testified that Respondent has ample liability coverage and that each worker has health insurance, suggesting that workers' compensation insurance coverage is unnecessary. According to Obando, the $23,952.88 penalty is a substantial amount that Respondent, a small family-owned business, cannot afford to pay. Findings of Ultimate Fact. Excluding Penagos as a volunteer, and Rios as a managing member of the LLC with no active service to Respondent, Respondent was a covered employer with four or more employees at all times during the penalty period. The Department demonstrated, by clear and convincing evidence, that Respondent violated chapter 440, as charged in the SWO, by failing to secure workers' compensation coverage for its employees.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that: The Department of Financial Services, Division of Workers' Compensation, enter a final order determining that Respondent, S & S of Florida, LLC, violated the requirement in chapter 440 to secure workers' compensation coverage and imposing a total penalty of $23,936.62. DONE AND ENTERED this 7th day of December, 2016, in Tallahassee, Leon County, Florida. S MARY LI CREASY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 7th day of December, 2016. COPIES FURNISHED: Joaquin Alvarez, Esquire Trevor Suter, Esquire Department of Financial Services 200 East Gaines Street Tallahassee, Florida 32399-4229 (eServed) John J. Obando S & S of Florida, LLC 8590 Southwest Eighth Street Miami, Florida 33144 Julie Jones, CP, FRP, Agency Clerk Division of Legal Services Department of Financial Services 200 East Gaines Street Tallahassee, Florida 32399-0390 (eServed)
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: Background Respondent, Department of Management Services (DMS), has the responsibility of procuring insurance coverage for all state agencies. One area of coverage is for fire, windstorm and other risks to state owned buildings and their contents. The state is a self-insurer for the first two million dollars of loss through a fire insurance trust fund established for that purpose, but it purchases excess coverage from commercial insurance carriers for any claims in excess of that amount. Prior to this dispute arising, DMS obtained this excess coverage through the solicitation of bids and the awarding of a contract to an insurance company who purchased the excess coverage on behalf of the state. Indeed, petitioner, Acordia of South Florida, Inc. (ASFI), had provided this coverage for the previous nine years. Due to "gaps" in coverage caused by Hurricane Andrew in August 1992, and its desire to reduce rapidly spriraling costs, DMS decided to select an "agent of record" for obtaining the excess coverage. Under this approach, the selected firm (agent of record) would agree to work on behalf of the state to select and negotiate sufficient coverages for the Fire Insurance Trust Fund Excess Property Program. After obtaining the agency head's approval to negotiate a contract under Rule 60A-1.018(2), Florida Administrative Code, rather than use the normal competitive bid or request for proposal process, a DMS staffer, in consultation with the Department of Insurance (DOI), prepared a prequalification questionnaire which was sent to interested vendors on April 28, 1993, inviting them to prequalify for the contract. Based on prequalification, the three highest ranked vendors were required to give an oral presentation to, and answer questions by, an evaluation committee who ranked them based on their presentation and responses. Only four vendors filed prequalifying responses, including petitioner and Johnson & Higgins of Georgia, Inc. (JHGI). After one vendor was preliminarily disqualified, the committee met separately with each of the three remaining vendors and then assigned a score. Under the committee's scoring procedures, JHGI received the highest score and was slated to receive the contract. Petitioner was ranked second. Claiming that the evaluation committee raised new matters during the negotiation process that were not contained in the prequalification questionnaire, ASFI has challenged the award of the contract to JHGI. The Specifications DOI was aware that several other states, including the State of Georgia, were using the agent of record approach for insurance acquisitions. Accordingly, DMS obtained a blank Request for Proposal used by the State of Georgia and gave it to DOI to use in tailoring specifications that would fit DMS' needs. There was no mention or reference to JHGI in any material received from Georgia. During the formulation of the Florida solicitation, DOI did not contact nor receive any input from JHGI. The suggestions by petitioner that JHGI improperly influenced the drafting of the specifications, or that the specifications were drawn in JHGI's favor, are rejected. DMS' invitation to negotiate was issued on April 28, 1993. It advised all vendors that DMS intended "to negotiate to award a contract to a licensed insurance broker/agent for the placement of the State of Florida's Fire Insurance Trust Fund Excess Property Program." (emphasis added) The invitation further stated that each broker/agent must complete the attached prequalifying questionnaire and return it to DMS by 2:00 p. m. on May 7, 1993. The questionnaire was simply intended to screen out bidders that could not qualify, establish minimum standards, and identify qualified firms for further negotiations. It was always envisioned that those vendors who prequalified would be asked additional questions during the actual negotiation process. During these discussions, Rule 60A-1.018(2), Florida Administrative Code, which governs this process, allows the vendor to give a "final firm price, terms and conditions." Of particular relevance to this dispute were the requirements in the questionnaire that each vendor identify (a) the "account executives" who would be assigned to the state's account (subparagraph 2a.), and (b) "information on compensation" (paragraph 4). Paragraph 2 of the questionnaire dealt generally with a vendor's organization and staffing. Subparagraph 2a. required the vendor to state "the name(s) and provide a resume for the account executive(s) who will be assigned to this account." In other words, the vendor was required to name the individuals who would administer the program. The second item in question, which contained a number of typographical errors, pertained to information on compensation and informed all vendors that they would be paid on a "fee basis." Subparagraph 4a. required the firm to "give details on how you will document that coverage are (sic) placed on a 'net' (ex-commission) basis," subparagraph 4b. stated that "(n)o commission may be received for placements of these (sic) coverage," while subparagraph 4c. provided that "(i)f your firm utilizes an intermediary, surplus lines of (sic) London broker owned by your firm or your parent firm, no commissions shall be allowed to these firms." Under this arrangement, then, the successful vendor would provide the services for a flat fee and state the amount of that fee on the questionnaire, and DMS would pay only premiums, with no commissions included, to insurance carriers for the coverage needed. This requirement was considered critical to DMS for controlling costs because DMS wanted to be sure it was paying pure premium to the carriers for risk coverage and not commissions to other entities for merely doing paperwork. Finally, the invitation to negotiate provided that after the questionnaires were timely filed, the three highest ranked vendors would meet individually with an evaluation committee and "verbally present and discuss the information furnished by the broker/agent and to answer questions posed by the committee." The latter questions are found in respondent's exhibit 8. The Evaluation Process The evaluation committee was composed of four persons, three from DMS, and one from DOI. All members participated in the questioning of vendor representatives, and after the session, each reviewed the tape recording of the meeting and independently assigned scores to each of the three vendors. Thereafter, the scores were combined and overall rankings were assigned the vendors. In this case, JHGI received a score of 310, petitioner received a score of 290, and Arthur J. Gallagher & Company, the third vendor, received the lowest score of 230. During the negotiation phase of the process, all vendors were asked to state "the name of one person and one alternate to be the account executive to administer the coverage" (question 2.a.). Petitioner says it had no advance notice that the name of an additional person would be required. Believing that DMS was looking for a person with multiple designations, ASFI initially responded to the question by naming Lee Anne Cross, an employee with CPUC, CIC, and AMIM designations. Since Cross had not handled a billion dollar property account, however, ASFI was given no points for naming that individual. In hindsight, ASFI now says that it would have named a different individual who had the necessary experience in handling large accounts, and this individual would have received at least thirty more points. Whether this assumption is correct is speculative at best. Even so, the committee did not allow petitioner to change its response and name a more qualified individual, and in this respect DMS did not follow the requirements of its own rule (60A-1.018), which contemplates that a vendor be allowed to give a "final firm price, terms and conditions" during the negotiation process. Petitioner contends that by requesting this information during the discussion phase of the process, the committee imposed a new requirement not previously mentioned in the prequalification questionnaire. However, the specifications asked each vendor to "state the name(s) and provide a resume of the account executive(s) who would be assigned to the account," and each vendor was advised to be prepared "to discuss the information furnished by the Broker/Agent and to answer questions posed by the committee." Accordingly, it is found that DMS did not deviate from the requirements stated in the prequalification questionnaire by asking question 2.a. Indeed, petitioner's witness acknowledged that when the question was asked, he simply named the wrong employee. During the negotiation process, all vendors were asked to provide a statement that they intended to comply with the requirement that DMS would pay no commissions to intermediaries who secured excess coverages for the state (question 4.e.). Only ASFI declined to make such a statement. ASFI responded that it could not place coverage without the use of non-owned intermediaries, and thus it would have to pay additional commissions to those entities. Since this was contrary to the clear requirement in paragraph 4, ASFI received only ten points, in contrast to thirty points received by JHGI for that question. After being told that no commissions would be paid, ASFI sought to amend its proposal by increasing its flat fee from $95,000 to $195,000 to take into account the additional commissions it would have to pay. Even then, AFSI's fee would have been $30,000 lower than the $225,000 fee proposed by JHGI. On the theory that the deadline for filing proposals had long since expired, and it would be unfair to allow a vendor to amend its proposal at that point, the committee denied ASFI's request to change its fee proposal. This was contrary to the terms of rule 60A-1.018(2). ASFI contends that by imposing the requirement that commissions could not be paid if non-owned intermediaries were used, DMS added a new requirement not previously found in the specifications. It further argues that by using the word "intermediary" in paragraph 4a. of the prequalification questionnaire, DMS was referring to an owned intermediary, rather than a non-owned intermediary. In addition, it points out that such a distinction was not made when DMS used the competitive bidding process. But under the new negotiation process, the questionnaire had stated in three different ways that DMS did not intend to pay any commissions other than the agent of record fee, no matter what entities were used. Accordingly, there is no basis on which to find that DMS deviated from the requirements of the specifications by asking question 4.e. Finally, ASFI suggests that the specifications were vague and confusing. However, AFSI could have sought to clarify or contest those items prior to being qualified but it failed to do so. Moreover, during the negotiation process, its representative did not indicate to the committee that he was confused or did not understand the requirements, and no objection was ever made until AFSI learned it had not been awarded the contract. Since the other two vendors filed responsive questionnaires, and were not confused, and the challenged language was self-explanatory, it is found that the specifications were not misleading.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that DMS reconsider the three proposals in a manner consistent with its rule and enter a final order awarding the agent of record contract for the Fire Insurance Trust Fund to the vendor "with the best price, terms and conditions." DONE AND ENTERED this 13th day of March, 1995, in Tallahassee, Florida. DONALD R. ALEXANDER 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 13th day of March, 1995. APPENDIX TO RECOMMENDED ORDER, CASE NO. 94-6454BID Petitioner: Partially accepted in finding of fact 1. Covered in preliminary statement. Partially accepted in finding of fact 2. 4-5. Partially accepted in finding of fact 3. 6-9. Rejected as being unnecessary. 10-11. Partially accepted in finding of fact 4. Partially accepted in finding of fact 8. Partially accepted in finding of fact 7. 14-15. Partially accepted in finding of fact 4. Partially accepted in finding of fact 5. Partially accepted in finding of fact 16. Partially accepted in finding of fact 5. Partially accepted in findings of fact 15 and 16. Partially accepted in finding of fact 13. Partially accepted in finding of fact 5. 22. Partially accepted in findings of fact 14 and 16. 23. Partially accepted in finding of fact 15. 24-26. Partially accepted in finding of fact 14. 27. Partially accepted in finding of fact 17. 28-29. Partially accepted in finding of fact 18. 30-31. Partially accepted in finding of fact 16. 32-35. Partially accepted in finding of fact 17. 36. Partially accepted in finding of fact 18. 37. Partially accepted in finding of fact 16. 38. Partially accepted in finding of fact 16. 39. Partially accepted in finding of fact 13. 40. Rejected as being irrelevant. 41. Rejected as being contrary to the evidence. 42. Rejected as being irrelevant. 43. Rejected as being contrary to the evidence. 44. 45. Rejected issues. Rejected as being as being unnecessary irrelevant. for a resolution of the Partially accepted in finding of fact 11. Partially accepted in finding of fact 18. 48. Covered in preliminary statement. 49-54. Rejected as being irrelevant. 55-56. Partially accepted in finding of fact 7. 57-59. Rejected as being irrelevant. 60. Partially accepted in finding of fact 7. 61. Rejected as being irrelevant. 62. Partially accepted in finding of fact 11. 63. Partially accepted in finding of fact 7. 64. Partially accepted in finding of fact 16. Respondent: Partially accepted in finding of fact 3. Covered in preliminary statement. Partially accepted in finding of fact 7. Partially accepted in finding of fact 3. 5. Partially accepted in findings of fact 3 and 7. 6. Partially accepted in finding of fact 7. 7. Partially accepted in finding of fact 8. 8. Partially accepted in finding of fact 13. 9. Partially accepted in findings of fact 1 and 4. 10. Partially accepted in finding of fact 2. 11. Partially accepted in finding of fact 11. 12-14. Partially accepted in finding of fact 7. 15. Partially accepted in finding of fact 11. 16-17. Partially accepted in finding of fact 8. 18. Rejected as being unnecessary. 19. Partially accepted in finding of fact 8. 20. Partially accepted in finding of fact 13. 21. Partially accepted in finding of fact 12. 22. Partially accepted in finding of fact 18. 23. Partially accepted in finding of fact 11. 24-25. Partially accepted in finding of fact 16. 26. Partially accepted in finding of fact 11. 27. Partially accepted in finding of fact 16. 28-30. Partially accepted in finding of fact 11. 31. Partially accepted in finding of fact 19. Rejected as being unnecessary. Partially accepted in finding of fact 18. Partially accepted in finding of fact 19. 35-36. Partially accepted in finding of fact 16. 37-38. Partially accepted in finding of fact 14. 39-41. Rejected as being unnecessary. Note - Where a proposed finding has been partially accepted, the remainder has been rejected as being unnecessary for a resolution of the issues, irrelevant, not supported by the more credible evidence, cumulative, subordinate, or a conclusion of law. COPIES FURNISHED: William H. Lindner, Secretary Department of Management Services Knight Building, Suite 307 2737 Centerview Drive Tallahassee, FL 32399-0950 Paul A. Rowell, Esquire General Counsel Department of Management Services Knight Building, Suite 312 2737 Centerview Drive Tallahassee, FL 32399-0950 Robert S. Cohen, Esquire Post Office Box 10095 Tallahassee, FL 32302 Terry A. Stepp, Esquire Department of Management Services Knight Building, Suite 312 2737 Centerview Drive Tallahassee, FL 32399-0950
The Issue The issue is whether Petitioner properly issued a Stop-Work Order and Amended Order of Penalty Assessment against Respondent for failing to obtain workers' compensation insurance that meets the requirements of chapter 440, Florida Statutes.
Findings Of Fact The Division is a component of the Department of Financial Services. It is responsible for enforcing the workers' compensation coverage requirements pursuant to section 440.107. At all times relevant to this proceeding, Grandview was a corporation registered to do business in Florida. Grandview is a bread and breakfast and was an active company during the two-year audit period from August 22, 2015, through August 21, 2017. On July 19, 2017,1/ Respondent met with a Henderson Insurance agent and learned that Respondent was not in compliance with the workers' compensation requirements. Grandview immediately requested bids to obtain insurance, but did not purchase a policy because it was decided that it was "not the right time." On August 21, 2017, Robert Feehrer ("investigator" or "Feehrer"), compliance investigator for the Division, started an investigation of Grandview. Feehrer discovered that Grandview did not have any workers' compensation policies, employee leasing agreements, or exemptions on file with the National Council on Compensation Insurance. That same day the Division issued Grandview a Stop-Work Order for Respondent's failure to secure the required workers' compensation insurance coverage. Petitioner also served Grandview with a Request for Production of Business Records for Penalty Assessment Calculation ("Request") asking for documentation to enable the Division to evaluate the payroll for the audit period of August 22, 2015, through August 21, 2017, and to determine Respondent's compliance with the Workers' Compensation Law of Florida. Grandview responded timely and provided sufficient business records in response to the Division's Request. Eunika Jackson ("auditor" or "Jackson"), penalty auditor for the Division, was assigned to Grandview's investigation. Jackson reviewed the business records produced by Grandview. Jackson concluded her audit by properly calculating the workers' compensation amount owed by Grandview for the audit period using the Class Code 9052 for lodging facilities. Jackson applied the approved manual rates and methodology specified in section 440.107(7)(d). Grandview had at least four employees2/ during the audit period and did not have any exemptions from workers' compensation insurance coverage requirements during the audit period. Initially, Jackson calculated Grandview's penalty amount as being over $25,000.00. After Grandview timely provided sufficient business records in response to the Request, Jackson correctly applied the penalty reduction credit to the calculation and concluded Grandview owed a reduced penalty amount of $13,755.55. On November 27, 2017, Respondent was served with the Amended Order of Penalty Assessment totaling $13,755.55. On December 18, 2017, Respondent challenged the penalty assessment and requested a formal hearing.
Recommendation Based on the forgoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services, Division of Workers' Compensation, issue a final order affirming the Stop-Work Order and Amended Order of Penalty Assessment in the amount of $13,755.55. DONE AND ENTERED this 30th day of October, 2018, in Tallahassee, Leon County, Florida. S JUNE C. MCKINNEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 30th day of October, 2018.
