Findings Of Fact The Petitioner is an agency of the State of Florida charged, under Chapter 475, Florida Statutes, with enforcing the licensure standards embodied in Chapter 475, and regulating the manner of practice of licensed real estate brokers pursuant to the standards enumerated in Chapter 475, Florida Statutes and the rules promulgated pursuant thereto. The Respondent, Stewart J. Love, at all times pertinent hereto, has been a licensed real estate broker in the State of Florida, holding license number 0145076. That license is issued to Stewart J. Love, t/a Love Realty, 2120 Westfield Road, Pensacola, Florida 32505. A previous Administrative Complaint was filed against the Respondent by Petitioner on June 23, 1988. That Complaint, in essence, also charged two violations of Section 475.25(1)(b), Florida Statutes involving alleged fraud and misrepresentation, concealment, dishonest dealing, culpable negligence and the like It involved two separate real estate transactions which the Respondent engaged in. The first transaction concerned a piece of property Respondent purchased with an existing mortgage and shortly thereafter resold. The Respondent was charged with failing to assume the existing mortgage and, in essence, with not keeping the mortgage payments current, with receiving funds from his purchasers without properly accounting for them in proper escrow accounts and with failing to formally consummate the sale, as well as with issuing a check to the mortgagee bank holding the delinquent mortgage upon insufficient funds. With regard to the other transaction, the Respondent, in essence, was charged with purchasing a piece of property, recording his warranty deed from the sellers, but never properly paying the sellers monies that were due them for the property nor carrying through with the promise to assume the mortgage on that piece of property. That complaint culminated in DOAH Case No. 88-4570, in which the Respondent was charged in pertinent part with violations of Section 475.25(1)(b), Florida Statutes. During the course of that proceeding the Petitioner and Respondent entered into negotiations such that a stipulated adjudication of that proceeding by the agency was effected. The Respondent neither admitted nor denied the charges, but rather agreed to a fine of $500.00, as well as to making restitution of all monies owed to the alleged injured parties and to having his license being placed on probationary status for a period of one year for "culpable negligence" in violation of 475.25(1)(b), Florida Statutes. A final order is in evidence as part of Petitioner's Exhibit 1 in this proceeding. Donald and Teresa Winingar, husband and wife, in 1986 found themselves in rather straitened financial circumstances. Their home mortgage was in arrears and was threatened by foreclosure by the mortgagee. The ultimate result of their financial problems caused them to search for a new place to reside. They located six acres of land owned by Donna Day Bowers. The acreage had a small frame house approximately 20 years of age on it. They began negotiating with Ms. Bowers concerning purchasing the property from her The Winingars discussed the price with Ms. Bowers and ultimately a purchase price of approximately $12,000.00 was agreed upon. The Winingars realized that they could not pay cash for the property but would have to secure financing arrangements in order to purchase it. The Winingars had approximately $4,500.00 in cash and at first attempted to have the balance financed by the owner and seller, Ms. Bowers. That arrangement did not come to fruition and so the Winingars searched for another source of funds in order to finance the purchase of the Bowers property in this search they somehow came in contact with the Respondent Stewart Love, a real estate broker. After negotiations with Mr. Love he agreed to finance the purchase of the Bowers property for the Winingars. This resulted in a verbal agreement entered into between the Winingars and the Respondent whereby the Winingars would pay Love $4,500.00 in cash and he would finance the balance of $8,500.00 of the purchase price by a mortgage. Love, or the corporation of which he was president and part owner, Courthouse Investments, Inc., would collect interest on the $8,500.00 mortgage and note from the Winingars. Love also assessed the Winingars a $2,000.00 fee for handling the transaction, the purpose of the fee being unclear. It was apparently some sort of "broker's fee," although Love did not represent the Winingars as a realtor. On October 16, 1986 Respondent entered into an agreement called a "Warranty Deed to Trustee Under Land Trust Agreement pursuant to Section 689.071, Florida Statues," with the seller of the property, Donna Day. That instrument conveyed title to the property to the Respondent as Trustee in fee simple. The "warranty deed to trustee" document granted the trustee, Love, full power and authority to sell, lease, encumber and otherwise manage and dispose of the property in accordance with the terms of that instrument and with a trust agreement. The trust agreement itself, providing for powers and duties of the trustee and beneficiary of the trust is not evidence and the terms of it are unknown. In any event, having purchased the property from Donna Day (also known as Donna Day Bowers) the Respondent the following day, October 17, 1986, agreed to sell the property to Donald and Teresa Winingar. The Winingars on that day gave the Respondent $4,500.00 in cash as a down payment for the Bowers property. Thereafter, on or about October 31, 1986, the Winingars executed a mortgage note for the amount of $8,500.00 remaining on the purchase price, payable in favor of Courthouse Investments, Inc., a corporation partially owned by and represented by the Respondent Love and of which the Respondent was President. That mortgage note provides that the note was to be for a principal balance of $8,500.00 with payments of $130.00 per month for 265 months at an interest rate of 18% per annum. The note provided for no prepayment penalties and for $6.00 for late fees for each late payment. Additionally, the Winingars executed a promissory note payable to Stewart J. Love for the above-mentioned fee, in the amount of $2,000.00. That note provided that one balloon payment was to be due six years from October 30, 1986 at the rate of 12% per annum, payable in one payment. The Winingars began making monthly payments on the mortgage note of $130.00 per month and made those payments to Stewart J. Love. They were frequently behind in their payments but made payments sporadically until approximately May of 1988. When the Winingars and Mr. Love first engaged in negotiating the financing arrangement, Love informed the Winingars that he would have his attorney draft an agreement whereby the property would be held in trust by Love on behalf of the Winingars allegedly so that it could not be attached by any creditors of the Winingars. This was apparently because the Winingars were involved in a foreclosure action concerning their previous residential property and feared a deficiency judgment from that foreclosure proceeding which might endanger their rights to the land in question. Whether or not their credit was in such peril, Love assured them that he would obtain title to the property from the seller in the form of a trust arrangement, with the beneficial interest to be conveyed to the Winingars, in order to allegedly protect their interest in the six acres from the claims of creditors. Love then at some point showed a photocopy of a document entitled "Warranty Deed to Trustee Under Land Trust Agreement pursuant to Section 689.071, Florida Statutes," to the Winingars and advised them that form of agreement would be drafted to represent their mutual arrangement regarding the sale and ownership of the property, pending final payment by the Winingars. After the initial down payment of $4,500.00 was made by the Winingars, however, they had to make repeated demands of the Respondent for the execution of an agreement or contract to to formalize their arrangement regarding the purchasing of the Bowers property. The purchase arrangements from October 1986 to May 1987 were merely verbal aside from the execution of the mortgage note in question. Finally, on May 1, 1987, a document entitled "Agreement to Convey Beneficial Interest" was signed and executed by the Respondent as President of Courthouse Investments, Inc., "beneficiary," and the Winingars. That agreement provided, in pertinent part, that the total purchase price should be $8,500.00, which acknowledged, in effect, that the remaining $4,500.00 of the originally agreed upon purchase price had already been paid. The agreement also provided that when the principal sum of the purchase price had been paid in full that the beneficiary would instruct the trustee (Stewart Love) to deliver to the grantees (the Winingars) a warranty deed showing good and marketable title to the property. The beneficiary held the beneficial equitable interest in the property with the legal title being held by the Respondent as trustee. The beneficiary was Courthouse Investments, Inc., of which the trustee, the Respondent, was the President. He signed the agreement to convey beneficial interest as the President of that corporation. The agreement also provided that the grantees would be, permitted to go into possession of the property immediately on the date of its execution (May 1, 1987) and would assume all liability for insurance, taxes and maintenance after that date. ,It was also expressly agreed that all oil, gas and mineral rights were to be conveyed to the grantee. Presumably, that meant that all gas and mineral rights were to be conveyed upon the conveying of the warranty deed to the grantees when the purchase price was paid in full. In any event, the agreement clearly provided that when the principal sum of the purchase price was paid in full that a warranty deed conveying good and marketable title would be immediately conveyed to the grantees and, in that connection, the mortgage note already executed at that time by the grantees and the respondent provided that there would be no penalty for early payment of the purchase price or principal amount of the mortgage note referenced in the Agreement to Convey Beneficial Interest. This Agreement to Convey Beneficial Interest reveals additionally that Courthouse Investments, Inc. was the beneficiary of the trust set up by the above-mentioned warranty deed instrument from the original owner to the Respondent, as well as the fact that the Respondent is the President of the beneficiary corporation. Thus, there is no doubt, based upon the terms of the Agreement to Convey Beneficial Interest and the manner in which it was executed by the Respondent as President of the beneficiary corporation, that the Respondent knew that the parties thereto had agreed that all oil, gas and mineral rights were to be conveyed to the grantee upon the payment of the principal sum of the mortgage involved and that the trustee (the Respondent) would be obligated to transfer fee simple title to the grantees by warranty deed upon full payment, at any time, by the grantees. The "Warranty Deed to Trustee . . . " referenced above, however, clearly reveals that the seller, Donna Day (a/k/a Donna Day Bowers) had retained one-half the mineral rights and thus neither the Respondent/Trustee nor the beneficiary corporation had any ability to convey all gas and mineral rights to the grantees simply because the Respondent as trustee with legal title and the beneficiary corporation, the holder of equitable title, only owned one-half of the oil, gas and mineral rights. Since the Respondent/trustee arranged and conducted the purchase transaction with Ms. Bowers whereby he took fee simple title as trustee to the property in question under an instrument which revealed on its face that Ms. Bowers retained half the mineral rights, and since that same Respondent executed the agreement to convey beneficial interest (analogous to a contract for deed) to the Winingars as president of the beneficiary corporation which was the Grantor under that instrument purporting to convey all oil, gas and mineral rights (upon payment of the full purchase price), the Respondent is chargeable with knowledge that the representation concerning oil, gas and mineral rights contained in the Agreement to Convey Beneficial Interest did not accurately represent the ownership situation with regard to those oil, gas and mineral rights. After the Winingars made the initial down payment of $4,500.00 cash in October 1986 and during the time when they were making repeated demands for the execution of a contract to formalize their agreement regarding purchasing of the Bowers property, Mr. Love brought a representative of a financial institution known as "C&S Family Credit" (C&S) to the Winingars' home, sometime in January 1987. This representative and the Respondent informed Teresa Winingar that C&S Family Credit was considering the purchase of their mortgage from the Respondent. The Respondent and the C&S representative, however, advised Ms. Winingar to continue making her monthly payments of $130.00 to the Respondent and not to C&S. The Following year, in May, 1988, Teresa Winingar went to the Respondent's office to pay off the balance of the $8,500.00 mortgage note. Mr. Love informed her at that time that he could not accept the payoff because he did not have a clear title to the property to transfer to the Winingars at that time. The Agreement to Convey Beneficial Interest required the Respondent to transfer marketable title by general warranty deed upon tender of the payoff of the principal balance on the mortgage note. This he did not do. Thereafter, in June of 1988, a representative from C&S again visited the Winingars at their home. This time he informed Mrs. Winingar that his company was about to foreclose on the property at issue because a mortgage on the Winingar's property was in arrears. This was a mortgage executed by the Respondent in favor of C&S as mortgagee and which encumbered the property the Winingars were purchasing. At some point after that June 1988 visit by the C&S representative, C&S filed a foreclosure action against Stewart J. Love and the Winingars. Prior to the May 1988 offer by Mrs. Winingar to pay off the mortgage note, the Respondent's because he could not convey clear title, and the visit by the C&S representative informing Ms. Winingar of the delinquency of the Respondent's mortgage, the Winingars had no knowledge that the Respondent had executed a mortgage on their property in favor of another party. The mortgage executed in favor of C&S encompassed several pieces of property owned by the Respondent, including the piece of property being purchased by the Winingars. The evidence does not reflect that the Respondent made any arrangements with C&S to obtain a partial release of that mortgage as to the Winingar's property at such point as they should tender full payment of the balance of their purchase money mortgage note. While the Respondent, as trustee and holder of fee simple title to the Winingars' property might have had legal authority to mortgage the property to C&S, he was equally obligated under the agreement to convey beneficial interest to insure that their equitable interest in the property was protected, such that he would be able to convey good and marketable title by warranty deed upon the payment by the Winingars of the principal sum of the purchase price. This he was unable to do because he had failed to make arrangements with C&S for a partial release of mortgage or other means of insuring that the Winingars' property was unencumbered at the point of their tendering payment of the remaining purchase price. This negligent failure to insure that the Winingars' equitable interest in the property was protected resulted in the foreclosure action filed by C&S against the Respondent and the Winingars' interest in the property because the Respondent had not made payments on the C&S mortgage in a timely manner. The conveyance of fee simple title to the Respondent by the "Florida Land Trust Agreement" containing the reservation in the original owner of one- half of the oil, gas and mineral rights was recorded, so that any prospective purchaser or his representative searching the title of the subject property could have determined that the Respondent only owned one-half of the mineral rights to the property. Nevertheless, the Winingars were under the impression that they were to receive all mineral rights to the property. This impression may have arisen from the fact that the clause in the agreement to convey beneficial interest provides that . . . "All oil, gas and mineral rights are to be conveyed to the grantee." This agreement appears to be a form or "fill-in- the-blank" agreement prepared by the Respondent himself and not an attorney. Thus, it appears that the mineral rights clause referenced above is a "standard one" which was probably inadvertently left in that form in the agreement when it was executed due to the Respondent's negligence. It has not been established that he intentionally misrepresented the state of his ownership of mineral rights which he would be able to convey to the grantees. In fact, some eighteen months after the original purchase transaction between the Winingars, the Respondent and Courthouse Investments, Inc. was entered into, the Respondent executed the renewal of a preexisting oil lease with regard to the subject property. He, or his corporation, collected the sum of $238.00 lease payment as a result of that renewal. At the time of that lease renewal the Respondent still had legal title to the property and one-half of the mineral rights. This would not have been the case, however, had he timely transferred title to the Winingars in May of 1988 when they tendered payment in full of the remaining balance of the purchase price and at which point he was unable to convey marketable title for the reasons delineated above. In any event, the Winingars were shown to have been entitled to the Respondent's mineral rights at the point of their tender of full payment of the remaining purchase price in May of 1988, at which point title should have been transferred, together with the mineral rights held by the Respondent, which did not occur. As a result of the Respondent's failure to convey title upon the fulfillment of the condition in the above-referenced agreement regarding payment and the dispute which arose between the parties concerning the mineral rights and the proceeds from the lease, the Winingars apparently obtained counsel and instituted legal proceedings against the Respondent of an undisclosed nature. Criminal proceedings were instituted by the State's attorney against the Respondent. These proceedings resulted in a plea of "Nolo Contendere" by the Respondent in order to avoid the expense and anguish of trial and was a negotiated settlement of the criminal charges. Through the plea negotiation arrangement which was accepted by the Court, on February 14, 1990, an order withholding adjudication of guilt and placing the defendant (Respondent) on probation was entered in the case of the State of Florida v. Stewart J. Love, Case NO. 88-5765 CFA. See Petitioner's exhibit (3) in evidence. That order was entered pursuant to the plea of Nolo Contendere entered by the Respondent to the offense of petit theft. The subject matter of the theft charge was the $238.00 lease payment which the Respondent had maintained he or his corporation was entitled to and which the Winingars believed they were entitled to. In any event, the Respondent was placed on probation for a period of six months and was ordered to pay restitution in the amount of the $238.00 to the Winingars. He was also ordered to pay certain costs and was ordered to set a firm closing date by which the Winingars could obtain clear title to the property upon their payment of the balance due, as well as applicable closing costs, including one- half title insurance. The Respondent was ordered by the Court to attend and assist in the closing of the transaction. The Court also ordered that the Respondent would not be liable to clear any encumbrances to the title to the property which had been caused by the Winingars. Ultimately, the Winingars failed to tender the remaining purchase price and therefore the closing never occurred.
The Issue Whether proposed amendments to Rule 4-7.009, Florida Administrative Code, constitute an invalid exercise of delegated legislative authority. Specifically at issue in this proceeding are the proposed amendments to Rule 4-7.009 which restrict, under certain circumstances, compensation paid to sellers of credit insurance products and which require premium refunds to some purchasers of credit insurance.
Findings Of Fact Credit insurance is a form of group insurance marketed and sold to consumers by creditors or, in the case of motor vehicle financing, by vehicle dealers. The insurance can be purchased by a debtor at the time the debtor enters into a loan agreement. Credit insurance is purchased by debtors as protection against risk of loss caused by unexpected events occurring during the term of the insurance contract. Credit insurance provides for the payment of the balance of the debt upon the death or disability of the insured debtor. Otherwise stated, the benefit of such insurance to the debtor is the assurance that, if the debtor becomes unable, due to death or disability, to make the required periodic payments, the insurer will pay off the balance of a loan or other debt obligation. Sellers of credit insurance products are compensated in the form of commissions paid to sellers by insurers. Additional compensation is periodically paid by some insurers to sellers based upon the profitability of each seller's line of business. Beginning in late 1990, the Department of Insurance ("Department") proposed amendments to administrative rules relating to credit life and credit health and accident insurance products. The Petitioners have challenged the provisions of the proposed rule restricting the level of compensation paid to the sellers of credit insurance products and requiring insurers to make "experience refunds". As set forth in the Department's Notice of Change, published in the November 27, 1991 edition of the Florida Administrative Weekly (Vol. 17, No. 48), the proposed rule amendment provides in relevant part as follows: 4-7.009 Determination of Reasonableness of Benefits in Relation to Premium Charge General Standard. Under the Credit Insurance Law, benefits provided by credit insurance policies must be reasonable in relation to the premium charged. In determining whether benefits are reasonable in relation to premium, the Department shall consider loss experience, allocation of expenses, risk and contingency margins, and policy acquisition costs. This requirement is satisfied if the premium rate charged develops or may be reasonably expected to develop a loss ratio of not less than 1. (a) 55% for credit life insurance and 2. (b) 50% for credit accident and health insurance, and either the insurer does not pay compensation in excess of 30% of the net direct written premium based upon the applicable prima facie rates set forth in Rules 4-7.010 and 4-7.011, or the insurer demonstrates to the satisfaction of the Department that payment of compensation in excess of said 30% is actuarially sound. "Compensation" means money or anything else of value paid by the insurer and/or by any reinsurer to any agent, producer, creditor, or affiliated body. On the basis of relevant experience, uUse of rates not greater than those contained in Rules 4-7.010 and 4-7.011 ("prima facie rates") shall be deemed currently reasonable premium rates reasonably expected to develope the required loss ratio, subject to a later determination of experience refunds, if any, as described herein. An insurer may only file and use rates with such forms which are greater than the prima facie rates set forth in Rules 4-7.010 and 4-7.011 upon a satisfactory showing to the Department Commissioner that the use of such rates will not result on a statewide basis for that insurer of a ratio of claims incurred to premiums earned of less than the required loss ratio. Furthermore, the extent to which an actual rate is greater than that set forth may not exceed the difference between (a) claims which may be reasonably expected and (b) the product of the required loss ratio and the prima facie rates set forth in Rules 4-7.010 and 4-7.011 for the coverage being provided. (2) The Department Commissioner shall, on a triennial basis, review the loss ratio standards set forth in subsection (1), above, and the prima facie rates set forth in Rules 4-7.010 and 4-7.011 and determine therefrom the rate of expected claims on a statewide basis, compare such rate of expected claims with the rate of claims for the preceding triennium, determined from the incurred claims and earned premiums at prima facie rates reported in the annual statement supplement, and adopt the adjusted actual new statewide prima facie rates for Rules 4-7.010 and 4-7.011 to be used by insurers during the next triennium. The new rates will be set at levels that would have produced the loss ratios set forth in subsection (1), above. To make this comparison and redetermination, insurers shall report in the annual statement supplement format, each year, claims and earned premiums, separately, for business written with premiums based on Rules 4-7.010 and 4-7.011. * * * Insurers will calculate a dollar amount of loading each year based upon the insurer's earned credit life and credit accident and health premium in this state for the same year. Loading will be calculated as 45% of earned premium for life insurance and 50% of earned premium for credit accident and health insurance. For this calculation, earned premium shall be based on the rates set forth in Rules 4-7.010 and 4-7.011. Insurers shall calculate an Experience Refund Amount each year for credit life and credit accident and health insurance written in this state after the effective date of this rule. Experience Refunds can be positive or negative. Positive Experience Refunds are to be refunded in the following manner: Experience refunds are to be allocated to accounts which have positive Experience Refund Amounts in proportion to the ratio of each account's refund amount to the total of all positive refund amounts. For the purpose of this allocation, all individual policies are to be treated as one account. The Experience Refund Amount allocated to a particular account is to be refunded to all certificate holders or individual policyholders of such account in proportion to the premiums earned for each certificate holder or individual policyholder to the total of all premiums earned for such account. Earned premiums for Experience Refund purposes are to be equal to paid premiums for the calendar year less unearned premium reserves at the end of the calendar year plus unearned premiums at the beginning of the calendar year. Unearned premium reserves are to be calculated pro rata. Credit policies issued on a non-contributory basis are excluded. Non-contributory means that individual insureds pay no part of the insurance premium. Premiums are paid by the policyholder out of policyholder funds. Individual credit policies issued on a participating basis are to be excluded. All new loans insured after the effective date of this rule are subject to the Experience Refund calculation and distribution, if any. Individual refunds of less than $10 do not have to be made. Experience Refunds are to be determined for each calendar year as follows: Earned Premium, less Loading as determined above, less Incurred claims, less The sum of any carry forwards for the three previous years. An insurer that uses rates which are 10% or more below the rates set forth in Rules 4-7.010 and 4-7.011 shall not be required to calculate or make an Experience Refund. The Florida Bankers Association ("FBA") is the trade association of the Florida banking industry, many of whom sell credit insurance to their customers. The Florida Automobile Dealers Association ("FADA") is a trade association of franchised new car and truck dealers, approximately 65% of whom sell credit insurance. The Florida Recreational Vehicle Dealers Trade Association ("FRVDTA") is a trade association of recreational vehicle dealers, approximately 35% of whom sell credit insurance. The FBA, the FADA, and the FRVDTA are substantially affected by the proposed rule amendment at issue in this case. Specifically the FBA, the FADA, and the FRVDTA are substantially affected by the proposed regulation of compensation paid to sellers of credit insurance products and by the proposed requirement that, under some circumstances, refunds be made to credit insurance purchasers. The Consumer Credit Insurance Association ("CCIA") is a trade association of credit insurance companies, at least 50 of whom sell credit insurance in Florida. The CCIA is substantially affected by the proposed rule amendment provision related to premium refunds to some insureds. Credit insurance is priced and sold without regard to sex or age of the debtor. There is little underwriting of credit insurance risks. Due primarily to the age of the population and the effect of mandated coverages, Florida's credit insurance claims are higher than in other states. There are currently in excess of eighty million credit insurance policies in force in the United States. Credit insurance is sold under master policies issued by insurers to producers, such as banks and vehicle dealers. Producers sell the insurance product and maintain records of the credit insurance purchasers, who hold certificates issued under each master policy. Credit insurance premiums are based upon the amount financed by the debtor and are calculated according to rates established on a statewide basis by the Department. Credit insurers may not charge more than the prima facie rates for credit insurance, therefore, there is no benefit to consumers to "shop around" for credit insurance. Although credit insurers are not prohibited from charging less than the prima facie rates, there is no evidence that any insurer charges less than the Department's adopted rates. Since 1982, the Department-approved prima facie credit life premium rate was $.60 for every $100 financed. The rate was based on the Department's determination that a $.60 prima facie rate would result in insurers paying out approximately 60% of premium dollars in claims paid to insureds, and that a 60% "loss ratio" was reasonable. The "loss ratio" is the fraction of premium dollars paid out in claims. The $.60 prima facie rate did not yield a 60% loss ratio. The loss ratios for some insurers was substantially less that 60%. On September 1, 1991, the Department reduced the prima facie credit life and credit health and accident rates. In establishing new prima facie rates, the Department established a 55% loss ratio for credit life insurance and a 50% loss ratio for credit disability. The revised prima facie rates are based upon data from calendar years 1986, 1987 and 1988. Such data includes information related to paid claims, earned premium, and insurer administrative overhead expenses. The setting of such rates is an actuarial exercise intended to provide a reasonable projection of premium rates and loss ratios. There is no evidence that the revised prima facie rates result in premiums which are excessive in relationship to the amount of the loans insured. The revised prima facie rates are reasonably expected to yield the revised loss ratios. The rule provides a triennial review mechanism to ascertain whether the expected loss ratios are being met and to adjust prima facie rates if such is indicated. The review is a reasonable method of assuring that such loss ratios are met. Currently, commissions are paid by insurers to producers (i.e. banks and dealers) as compensation for selling the product. The amount of commission is determined by agreement between the insurer and producer. Commissions for the sale of credit insurance vary widely and, in some cases (generally involving the sale of credit insurance related to automobile purchases) may be as high as 60% of the premium paid by the consumer. In addition to payment of commissions, some insurers retrospectively compensate producers by periodically paying an amount based upon the profitability of each producer's business. Compensation levels largely determine which credit insurer's product a producer chooses to sell. The proposed rule limits total compensation levels, absent specific authorization by the Department, to 30% of the net direct written premium based upon the applicable prima facie rates. Compensation levels have no impact on the premiums charged to consumers purchasing credit insurance. Premiums charged are based on the Department's prima facie rates. The proposed rule permits a credit insurance company to exceed the 30% compensation restriction where the insurer can establish that the payment of compensation in excess of the 30% is "actuarially sound". The determination of whether payment of commission in excess of 30% is "actuarially sound" is left to the discretion of the Department. There is no statutory, rule, or commonly accepted definition of the term, although the Department's actuary stated that a product determined to be "actuarially sound" would be a "self-supporting" product, either profitable or "breaking even". He further opined that he would consider investment income in a determination of actuarial soundness, although the proposed rule does not require such consideration. The Department's purpose in enacting the proposed compensation restriction was to protect insurers from insolvency and financial instability. The commission restriction was not designed to protect against excessive charges in relation to the amount of the loan, duplication or overlapping of insurance, or the loss of a borrower's funds by short term cancellation of a policy. The commission restriction was not intended to, and will not, ensure that the loss ratios deemed reasonable by the Department will be met. In adopting a 30% compensation restriction, the Department calculated that, assuming the 55% loss ratio was met, $.55 of each premium dollar would be paid in claims. The Department assumed that $.15 of each premium dollar would cover overhead expenses and profit. According to the Department, the remaining $.30 is the most an insurer could pay as compensation to the producers without affecting the solvency of the insurer. In calculating the commission restriction, the Department did not consider the effect of an insurer's investment income on the ability to pay commission. There is no evidence that payment of commissions in excess of 30% of net direct written premiums has adversely affected the solvency of any credit insurer doing business in Florida. There is, in fact, no history of credit insurer insolvency in Florida. Nationwide, there has been little problem of insolvency in the credit insurer business, with no more than four insurers having become insolvent. In each of those cases, the insolvency resulted from poor management of assets, and was not related to payment of excess commissions to producers. The Department asserts that, absent such restrictions, insurers will pay excessive compensation in order to compete for producers, and that such excess compensation, coupled with administrative expenses and a 55% loss ratio, will threaten the solvency of the companies. The assertion is not supported by the greater weight of credible evidence. The proposed rule also requires insurers, under some circumstances, to make experience-based refunds to credit insurance purchasers. In determining whether a refund is required, an insurer first calculates whether the insurer has met or exceeded the 55% loss ratio for the prior year. If the loss ratio is met or exceeded, no refunds are required. If an insurer determines that the 55% loss ratio was not met, the insurer calculates the difference between targeted 55% loss ratio and the actual percentage of premium dollars paid out in claims. The insurer then identifies each producer account which had a loss ratio of less than 55%, determines the identity and location of each certificate holder (insured) in each producer's account, and makes a refund to each identified certificate holder. Individual refunds of less than $10 to an individual consumer are not required. The proposed rule permits insurers to carry excess losses forward for a period of three year, to offset years when the targeted loss ratio is not met. However, such excess losses may not be carried forward beyond the three year period. Whether a consumer receives a refund is unrelated to the premium paid by the consumer. An individual consumer ("A") purchasing a car and credit insurance at Dealer "A" may receive a refund, while a Consumer "B" purchasing the same car and credit insurance from Dealer "B" may not receive a refund, if Dealer A's line of business with the insurer meets the target loss ratio and Dealer B's line of business with the same insurer fails to meet the loss ratio. The benefit of the credit insurance is the assurance that, under certain conditions, the insurer will pay off the balance of a loan or other debt obligation. If Consumer A receives a refund and Consumer B does not, Consumer A pays more than Consumer B for the same insurance protection. The Department's purpose in enacting the proposed experience refund was to ensure that the 55% loss ratio would be met. However, the experience refund provision, combined with the three year limit for charging off excess losses, will eventually result in loss ratios which will exceed the 55% ratio which the Department has determined to be reasonable. There is no need for experience refunds when the prima facie rates established by the Department are appropriately set. Such rates are designed to produce an acceptable loss ratio. It is reasonable to believe that the Department's revised prima facie rates will result in acceptable loss ratios. The refund proposal was not designed to protect against excessive charges in relation to the amount of the loan, duplication or overlapping of insurance, or the loss of a borrower's funds by short term cancellation of a policy. The proposed rule provides that an insurer charging a premium based on rates at least 10% below the prima facie rates are not required to calculate the experience refund. There is no credible rationale supporting the use of 10% as the threshold under which an insurer escapes the refund calculation, although the resulting loss ratio likely approaches the 60% loss ratio suggested by the National Association of Insurance Commissioners. Of the actuaries testifying at hearing, one opined that a rate 10% less than the prima facie rate was viable, the other opined that it was not. Because the Department's revised prima facie rates are reasonably calculated to result in a 55% loss ratio, an insurer charging less than the prima facie rate will likely exceed the 55% loss ratio. In connection with the final version of the proposed rule, the Department did not prepare an economic impact statement. The Department did not estimate the costs of insurer compliance with the refund provisions. The expense required of insurers in order to establish experience refund payment systems is significant. Information management systems will require extensive modification to permit such data to be maintained. Substantial amounts of data, which is not currently provided to insurers, must be collected and accurately maintained to permit refunds to be made. Such costs were not included in administrative expenses considered by the Department when the revised prima facie rates were established. Presently, credit insurers maintain limited data related to insureds purchasing credit insurance in connection with installment loans. Although such data may be initially collected by producers, insurers are typically provided only with the name of the debtor and loan number. Data is transmitted to insurers either electronically or through paper files. In either case, data must be converted to usable form by insurers. In approximately seventy percent of credit insurance business, addresses of insureds are not transmitted to insurers. There is no credible evidence that current addresses of insureds are continuously maintained by either insurer or producer in installment debt insurance, since there is little need to question original data as long as periodic payments are being timely made. In a form of credit insurance known as "monthly outstanding balance" insurance, bulk accounts are received by insurers, who generally does not receive either names or addresses of insureds. Consumers whose monthly outstanding balance indebtedness is insured are more likely to provide producer/creditors with current addresses, but such data is not provided to insurers. As to credit insurers, although most insurers currently process refund checks, the additional expense of establishing or modifying systems capable of compliance with the proposed refund requirement could amount to as much as five percent of each premium dollar. One bank official estimated that, as to his bank, the expense of complying with the refund provisions would include an initial cost of $1.1 million and an annual cost of $350,000 to $500,000. A credit insurance information systems and processing executive estimated that the 31 producers writing business for his company would incur costs of $1,860,000 to comply with the rule, and that his own company's costs would be in the range of $4-5 million. The Department suggested that, rather than modify existing mainframe computer systems, such data could be maintained by insurers on personal computers and microcomputer networks. The Department asserted that such systems would be less expensive and require less modification than the process outlined by industry representatives. However, there is credible testimony establishing that significant resources would be involved in determining whether such conversion to microcomputers would be feasible or warranted. In any event, there is no evidence that such conversion could be accomplished in a timely manner permitting the insurers to comply with the proposed rule requirements. The greater weight of the evidence establishes that the expenses estimated by the industry representatives are reasonable based upon the existing management information systems maintained by the industry.
The Issue The issues for consideration are those promoted by an administrative complaint brought by the Petitioner against the Respondent in which the Petitioner alleges that the Respondent has violated various provisions of the insurance code, Chapter 626, Florida Statutes, in conducting business in Florida under licenses held with the Petitioner agency. The particulars of the administrative complaint are more completely set forth in the conclusions of law section to this recommended order.
Findings Of Fact Petitioner's exhibit 1 admitted into evidence is a document from Bill Gunter, Insurance Commissioner and Treasurer for Florida, announcing that the Petitioner, State of Florida, Department of Insurance and Treasurer, has records pertaining to the Respondent, Terry Vernon Smith, about his residence and business addresses. Those addresses are respectively, 4000 Southwest 5th Avenue, Ocala, Florida, 32670, and Silver Point Complex, Northeast 3rd Street and Silver Springs Boulevard, Ocala, Florida, 32670, effective April 9, 1979. Effective April 8, 1980, those addresses are, respectively, 4000 Southwest 5th Avenue, Ocala, Florida 32670, and 3423 Northeast Silver Springs Boulevard, Suite 5, Ocala, Florida 32670. At times relevant to the administrative complaint, Respondent was an independent insurance agent representing Nationwide Insurance in Florida. At times relevant to the administrative complaint, Respondent financed insurance premiums through Premium Service Company of Florida, Jacksonville, Florida. In this process, Respondent received from the insuring companies or through their managing or general agents, certain unearned refunds associated with three of the four contracts that the Premium Service Company of Florida had financed. That company attempted on numerous occasions to have those refunds given to it to make the company, Premium Service Company of Florida, whole concerning its exposure as finance agent for the insurance premiums. Eventually it was necessary for Premium Service Company of Florida to secure the assistance of the Petitioner agency to try to rectify the problem with the Respondent pertaining to the refunds. There was also a problem in which Respondent was responsible for paying over an unearned commission to the finance company in order to resolve a remaining balance in a customer account of Premium Service Company of Florida which had been financed by Premium Service Company of Florida. The details of the resolution of these problems with Respondent are set forth in the succeeding discussion. In the transactions involving Premium Service Company of Florida, Respondent would use that organization for premium financing by utilizing application materials furnished by the finance company. He would have the customers sign one of Premium Service Company of Florida's finance agreements in order to secure part of the payment of the premium. The finance company would prepay the premium to the insuring company on behalf of the customer to place the insurance in effect and the customers were to reimburse Premium Finance Company a monthly amount to satisfy the finance debt. One of the individuals who sought Premium Service Company of Florida's assistance in financing his insurance premium was William C. Erney. The details of that finance agreement are set forth in the composite Petitioner's Exhibit 3 admitted into evidence. On October 24, 1983, Erney completed a premium finance agreement with the Respondent's insurance agency which was known as Terry V. Smith Insurance Agency. Erney paid down $127 and financed an additional $236 through the Premium Service Company of Florida. The premium finance company was due the $236 borrowed plus documentary stamp charges and finance charges for the use of their money. The total amount to be reimbursed was $270.60. Six equal installments were to be paid at $45.10 per month starting on November 24, 1983, for Erney to satisfy his indebtedness to Premium Service Company of Florida. Erney did not make the installment payments, and as a consequence the premium finance company issued a notice of cancellation to the insuring company. The policy was cancelled effective November 24, 1983. This left the gross amount of unearned premium as $277. The net unearned refund in the policy was $242.38, which the insuring company sent to the Respondent on February 24, 1984. Respondent needed to add his unearned commission of $34.60 to the $242.38 in order to make the premium service company whole in the amount owed to it, which was $277. This total amount was not satisfied until after the premium service company had complained to the Petitioner agency on October 19, 1984, on the subject of Respondent's tardiness in remitting the $277 to the finance company. The payment which satisfied the Erney account outstanding with Premium Service Company of Florida came about on November 16, 1984, when Respondent paid that item off, together with others which will be subsequently discussed. A copy of the check paying off the account may be found as part of Petitioner's composite Exhibit 7 admitted into evidence. From March 1984 until receipt of its money in the Erney account in November 1984, the premium finance company made proper demands of the Respondent's insurance agency on a monthly basis, without positive results. On May 13, 1983, Herbert Holt bought insurance through the Respondent's insurance agency. The details of that purchase may be found in Petitioner's composite Exhibit 4 admitted into evidence. The purchase price of the insurance was $246 with a cash downpayment of $86. One hundred sixty dollars of the premium was financed through Premium Service Company of Florida, together with documentary stamps and a finance charge. Holt was to pay six equal installments of $31.65 beginning June 15, 1983, in order to pay off his financing arrangement with Premium Service Company of Florida. Holt did not honor the terms of his contract for repayment to the Premium Service Company of Florida, causing the cancellation of the policy effective October 23, 1983. That left owning to the premium finance company $76.46 for unearned refund. One hundred thirty-one dollars, the amount of gross unearned premium, had been credited to Respondent's agency effective October 1983. The premium finance company did not get its $76.46 refund from the Respondent's company until November 1984. On June 9, 1983, Edna A. Irmie purchased insurance from the Respondent's insurance agency. The cost of the policy was $299 with a cash downpayment of $104 and an unpaid balance financed in the amount of $195 plus documentary stamps and finance charges by Premium Service Company of Florida. The agreement between the premium service company and the purchaser of insurance was for a payment of six installments in the amount of $37.86 beginning July 9, 1983. The particulars of this purchase may be found in Petitioner's composite Exhibit 5 admitted into evidence. Ms. Irmie did not honor her agreement for payment of the installments in accordance with the repayment schedule, and on October 5, 1983, a notice of cancellation was issued by Premium Service Company of Florida, requesting cancellation due to nonpayment of the premium financing. The insuring company effected the cancellation on October 19, 1983, and returned a gross unearned premium in the amount of $191 to the Respondent's insurance agency in October 1983. The balance owed to the premium finance company from Respondent for its participation in the finance of the Irmie insurance was $161.44. That remittance was not presented to the premium finance company until November 1984. On June 30, 1983, D. N. S. Sharma, d/b/a Country Cupboard, purchased insurance from the Respondent's agency in which the price of the insurance was $1,003.50. Petitioner's composite Exhibit 6 admitted into evidence contains the details of this purchase. Three hundred fifty-three dollars and fifty cents was paid down and $650 plus documentary stamps and finance charges were financed through the Premium Service Company of Florida concerning this purchase of insurance. The insurance consumer was to pay six equal installments in the amount of $118.35 beginning August 1, 1983. None of the scheduled installment payments were paid, and on August 30, 1983, notice of cancellation was issued to the insurance company requesting cancellation for nonpayment of the premium financing. On October 5, 1983, $558 was received by Premium Service Company of Florida related to net unearned premiums/refund. The balance owed by Sharma related to the insurance premium financing was $720.10. This left a deficit in the amount of $77.13 which was due the finance company from the Respondent's unearned commission. That money from the Respondent was not received until November 1984 as a part of the settlement of all the aforementioned premium finance cases. The balance of the money owed to the premium service company, $720.10, excluding the net unearned refund and the Respondent's unearned commission, was written off as a bad debt loss when the Premium Service Company was unable to get the purchaser to pay the difference between $720.10 and the $635.51 collected in the two categories described. The settlement check was written in the amount of $592.03, which is set forth in Petitioner's Exhibit 7 admitted into evidence. In the Petitioner's composite Exhibit 7 which includes a copy of the check satisfying the Premium Service Company of Florida on the various accounts set forth recently, there is a copy of the letter which accompanied the check, and in this letter Smith acknowledges the lateness of payment in these accounts. His acknowledgment is confirmation of inordinate and unacceptable delay in the payment of monies to Premium Service Company of Florida which should have been presented much earlier. Respondent, in his association with Nationwide Insurance, was involved with that affiliation for seven years. During that time, his supervisor from Nationwide Insurance was Kenneth Collett. As established by the witness Collett, on September 20, 1985, Linda L. Humbertson purchased automobile insurance through the Respondent's agency from Nationwide Insurance. She paid $103.10 for the policy. That policy was later cancelled for nonpayment of the premium, when in fact Ms. Humbertson had paid the $103.10 for the insurance premium to Respondent's insurance agency. Petitioner's exhibit 8 admitted into evidence contains a receipt dated September 20, 1985, in the amount of $103.10 pertaining to the automobile insurance purchased by Humbertson and signed with the Respondent's name as receiving those moneys. What had happened in this instance is that Humbertson had renewed her insurance with Nationwide by paying the premium payment to Respondent's agency and that money had not been remitted to Nationwide. According to Collett, and his testimony is accepted, it was incumbent upon Respondent in the ordinary course of business to send the premium payment to Nationwide as Respondent had done in the past; however, in this situation with Humbertson, Respondent did not remit as required. Subsequently, Humbertson's policy which had been cancelled was reinstated and Respondent's account on commissions with Nationwide was debited for future commissions earned to make up the $103.10. On December 11, 1984, Econsul Corporation of Ocala, Florida, purchased a workers compensation policy from the Respondent's agency through Nationwide. The $785 check paid to the Respondent's agency may be found as Petitioner's exhibit 10. Respondent never submitted the application for the workers compensation insurance after completing the application form, nor the check related to the insurance purchase. This circumstance was later discovered by Collett. The consequence of the failure to submit the application form was that Econsul was without workers compensation coverage from December 11, 1984, through August 2, 1985. The Econsul premium payment of $785 was placed in the checking account of Respondent's insurance agency. On October 28, 1985, and again on November 7, 1985, Collett, in behalf of Nationwide, inquired of the Respondent concerning the whereabouts of the check from Econsul for workers compensation benefits. Respondent did not reply to these letters. The letters are set out in Petitioner's composite Exhibit 9 admitted into evidence. Subsequently, Nationwide Insurance Company charged a minimum premium to Econsul to comply with the laws related to workmen's compensation and refunded the balance of its premium payment, Econsul having made other arrangements for workmen's compensation insurance. The money which was associated with the coverage for Econsul in the requisite period for compliance with workmen's compensation was charged against the commission account of the Respondent, thereby satisfying the demands of Nationwide. From the evidence presented, it is inferred that Respondent is licensed by Petitioner to sell insurance in Florida.
The Issue The issues in these proposed rule challenge proceedings are whether the Department of Revenue’s Proposed Rules 12B-8.003 and 12B-8.016 and Proposed Forms DR-907 and DR-908 constitute invalid exercises of delegated legislative authority. Essentially, the proposed rules and forms respond to the decision in Department of Revenue vs. Zurich Insurance Company, 667 So. 2d 365 (Fla. 1st DCA 1995)(Zurich), and state: (1) that workers’ compensation administrative assessments (WCAA) imposed under Section 440.51(5), Florida Statutes (1995), are “special purpose obligations or assessments imposed in connection with” workers’ compensation insurance; (2) that the retaliatory tax under Section 624.5091, Florida Statutes (1995), does not apply as to WCAA; (3) that WCAA are treated as deductions from the insurance premium tax imposed under Section 624.509, Florida Statutes (1995), as provided in subsection (7) of that statute, and are not added back in, for purposes of calculating retaliatory taxes. The positions taken in the various proposed rule challenges include: (1) Zurich was wrongly decided or no longer controlling, and WCAA are not “special purpose obligations or assessments imposed in connection with” workers’ compensation insurance; (2) as a matter of statutory interpretation, even if WCAA are “special purpose obligations or assessments imposed in connection with” workers’ compensation insurance, WCAA are not to be deducted from insurance premium taxes, or are to be added back, for purposes of calculating retaliatory taxes; (3) if not so interpreted, the proposed rules and forms violate the equal protection clause of the United States Constitution; (4) the published notice of the proposed rules and forms was fatally defective; and (5) the proposed rules and forms cannot be applied retroactively.
Findings Of Fact House of Representatives Insurance Committee Final Staff Analysis of CS/CS/CS/HB 336 (1989) contains the following example in Section II.D: D. FISCAL COMMENTS: The following is an example of an out-of-state Property & Casualty Company’s tax calculations under the provisions of this bill (assuming the company’s state of domicile imposes a 2.0% rate). Total Premiums Written in Florida $1,000,000 Premium Tax Rate x 1.75% Gross Premium Tax $17,500 Credit for Municipal Taxes ($5,000) Credit for Workers’ Comp. Assessments ($5,000) Net Premium Tax $7,500 Payroll Paid to Eligible Florida Employees $30,000 Factor for calculating Maximum Salary Credit x 15% Maximum Salary Credit $4,500 Net Premium Tax $7,500 Factor for Calculating Maximum Combined Credit 65% for Salaries and Corporate Income Taxes Paid Maximum Combined (Salary plus CIT) Credit $4,875 Corporate Income Taxes Paid in Previous Year ($2,200) Usable Salary Credit (Cannot Exceed Maximum $2,675 Salary Credit) Net Premium Tax $7,500 Corporate Income Tax Credit ($2,200) Usable Salary Credit ($2,675) Total Premium Taxes (Paid to GR) $2,625 Probable Tax from Retaliation against $535 Salary Credit ($2,675 x 20%) Retaliatory Taxes from the Rate $2,500 Differential ($1,000,000 x .25%) $3,035 Total Premium and Retaliatory Taxes $5,660 Paid to General Revenue House of Representatives Committee on Finance & Taxation Bill Analysis and Economic Impact Statement of PCB FT 94-12 (1994), stated that the 1994 amendments to Section 624.5091, Florida Statutes (1993), had no fiscal impact. The amount of workers’ compensation administrative assessments may vary. Currently, the amount of workers’ compensation administrative assessments exceeds premium taxes, which limit the amount allowed as a deduction against premium taxes under section 440.51(5), Florida Statutes.
Findings Of Fact Petitioner is the administrative agency charged with responsibility for administering and enforcing the provisions of Chapter 493, Florida Statutes. Respondent, Mortgage Refunds Research and Consulting ("Mortgage"), is a Florida corporation that is wholely owned by Respondent, Richard Vidair. Respondent has sole responsibility for the direction, control, operation, and management of Mortgage. Respondent is not licensed as a private investigator and Mortgage is not a licensed private investigative agency. Respondent is considered by the United States Department of Housing and Urban Development to be a third party tracer. Respondent and his agency locate persons who may be owed refunds for mortgage insurance premiums. From sometime in August, 1990, through May 2, 1991, Respondent contacted individuals who may be owed mortgage insurance refunds by the federal government. Respondent solicited a fee contingent upon actual receipt of the mortgage refund from the federal government. Respondent obtained from the United States government a list of persons owed mortgage refunds. Such lists are available to anyone for a nominal processing fee. Respondent determined the whereabouts of persons named on the list. Respondent either telephoned or mailed a letter to the person named on the list and informed that person of the service offered by Respondent. Respondent included in the letter sent to the person a finder's fee agreement to be signed by the person on the list. Once the contract was signed and returned to Respondent, Respondent provided the person on the list with additional documents to be filled out for the purpose of filing a claim with the federal government. Government refunds were mailed directly to the person on the list. The terms of the finder's fee agreement required the person on the list to pay Respondent's fee within three days of the date the person received his or her money from the government. The agreement further provided that if Respondent's fee was not paid within 30 days, Respondent was entitled to a fee equal to 50 percent of the government refund. Finally, the agreement provided that all collection and legal expenses incurred by Respondent in collecting the finder's fee must be paid by the other party. Respondent received a letter in March, 1991, from the Division of Licensing notifying Respondent that his activities required licensure. After conferring with his attorney, Respondent terminated his activities in Florida but continued his activities outside the state. On October 14, 1987, an attorney for the Division of Licensing issued an internal legal opinion to then Division Director Dave Register. The opinion concluded that persons who engage in the business of locating individuals to whom mortgage insurance premium refunds are due from the federal government are not required to be licensed pursuant to Chapter 493, Florida Statutes. On October 30, 1987, Ken Rouse, General Counsel, Department of State, issued a legal opinion which rescinded the prior internal opinion and concluded that such activities must be licensed.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a Final Order finding Respondent guilty of violating Section 493.6118(1)(g), Florida Statutes, and Florida Administrative Code Rule 1C-3.122(1), imposing an administrative fine of $500 pursuant to Florida Administrative Code Rule 1C-3.113(1)(a)2, imposing an administrative fine of $150 pursuant to Florida Administrative Code Rule 1C- 3.113(1)(b)2, and ordering Respondent to cease all investigative activities until Respondent is properly licensed in accordance with Chapter 493. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 23 day of January 1992. DANIEL MANRY 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 23th day of January 1992.
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: Respondent, Department of Banking and Finance, Division of Finance (Division), is the state agency charged with administering the mortgage brokerage guaranty fund (fund) codified in Sections 494.042 through 494.045, Florida Statutes (1987). Among other things, the Division processes claims for payment from the fund by persons who were parties to a mortgage financing transaction and who have suffered monetary damages as a result of a violation of the law by a licensed mortgage broker. In this case, the perpetrator was Stackhouse Mortgage Corporation (Stackhouse), which held mortgage brokerage license number HB-0006527 from September 19, 1976 through August 31, 1986 and operated at least part of that time in the Brevard County area. In order to perfect a successful claim and be assured of participating in the distribution of moneys from the fund, a person must satisfy a number of statutory criteria within a specified time period after the first notice is filed. This proceeding involves a number of claims by various parties who suffered monetary damages as a result of the illicit acts of Stackhouse. The principal factual issues are whether petitioners, Robert Motes, Machiko Motes, Madge Chesser and Christiane E. Driscoll, all claimants, satisfied the required statutory criteria within the specified time period, and whether the first valid and complete notice of a claim was filed on January 20, 1987 as maintained by the Division, or occurred on a later date as urged by petitioners. These issues are crucial to petitioners' interests since the amount of money to be distributed from the fund for all claimants (on a pro rata basis) is $100,000, and all of that money has been proposed to be distributed to intervenors and other claimants because of the alleged untimeliness of petitioners' claims. The Stackhouse matter first came to the Division's attention on January 20, 1987 when it received by certified mail a letter containing a copy of a complaint filed against Stackhouse by intervenors, Richard S. and Althea M. Rucki, in the circuit court of the eighteenth judicial circuit in and for Brevard County. This filing constituted the first valid and complete notice of the matter. As such, it triggered a two year time period in which other claimants had to file such notice with the Division and then satisfy all statutory criteria in order to share in the first, and in this case the only, distribution of moneys from the fund. Intervenors eventually obtained a summary final judgment against Stackhouse on January 10, 1989 in the amount of $27,200 plus $1,972 in interest, $76 in court costs, and $2,000 in attorney's fees. Copies of the judgment, unsatisfied writ of execution and affidavit of diligent search were filed with the Division on January 19, 1989, or within two years from the date the first notice was filed. After the Rucki notice was filed, a number of claimants, including the other intervenors, filed their notices with the Division within the two year time period and thereafter satisfied all pertinent statutory criteria. Their names, dates of filing their final claims with the Division, and amounts of final judgment, including costs and fees, are listed below in the order in which the claimants filed their first notice with the Division: Claimant Date of Filing Claim Amount of judgment Roberts January 19, 1989 $84,562.30 Rucki January 19, 1989 31,248.00 Gantz January 19, 1989 15,634.28 Carman January 19, 1989 48,767.87 Thomas July 21, 1988 40,103.22 Hahn January 19, 1989 14,165.14 Ulriksson January 18, 1989 14,497.00 Choate January 18, 1989 28,994.00 Anderson December 22, 1988 84,443.20 Resnick December 22, 1988 32,912.22 It is noted that each of the foregoing claimants satisfied all statutory requirements prior to the date of the filing of their respective final claims with the Division. This included the obtaining of a judgment against the debtor, having a writ of execution issued upon the judgment which was later returned unsatisfied, and thereafter having made a reasonable search and inquiry to ascertain whether the judgment debtor possessed any property or other assets to be used in satisfying the judgment. Based upon the judgments obtained by the above claimants, those persons are entitled to distribution from the fund in the following pro rata amounts: Anderson claim - $10,950.00 Resnick claim - 10,950.00 Carman claim - 10,950.00 Thomas claim - 10,950.00 Ulriksson claim - 7,937.83 Choate claim - 10,950.00 Roberts claim - 10,950.00 Gantz claim - 7,697.63 Hahn claim - 7,714.54 Rucki claim - 10,950.00 $100.000.00 On July 27, 1988 petitioners, Robert and Machiko Motes and Madge Chesser, filed their notices with the Division. On August 2, 1988, they were advised by the Division that "the first time period for payment of the Guaranty Fund claims is `two years after the first claim.'" Even so, petitioners did not complete all required statutory steps and file their final claims with the Division until March 1, 1989, or after the two year period had expired. Petitioner, Christiane E. Driscoll, filed her notice, copy of complaint and final judgment on January 23, 1989. Thereafter, she completed all required statutory steps and filed her final claim with the Division on June 6, 1989. As a consequence, none of petitioners are entitled to share in the first distribution of moneys from the fund. An attorney who once represented Driscoll, Rafael A. Burguet, made inquiry by telephone with a Division employee in either late December 1988 or early January 1989 concerning the steps required to process a claim on behalf of his client. It was his recollection that the Division employee did not advise him that the two year period for perfecting claims was triggered in January 1987. On January 20, 1989, Burguet sent a letter to the Division with a copy of the complaint and final judgment against Stackhouse. In the letter, he requested the Division to "please advise as to what further requirements you may have to file this claim." On January 23, 1989 a Division employee acknowledged by letter that the Division had received the complaint and judgment. The letter contained copies of the relevant portions of the Florida Statutes and advice that "claims for recovery against Stackhouse Mortgage Corporation are currently being forwarded to our Legal Department for the drafting of a Notice of Intent to either grant or deny payment from the Fund." There is no evidence that the Division made any positive representations to Burguet that either mislead him or caused him to delay in filing his claim. Similarly, the Division responded on August 2, 1988 to the initial filing of the Motes and Chesser notices with advice that the time period for complying with the statutory criteria was "two years after the first claim." Although there were subsequent telephone conversations (but no written communications) between their attorney and the Division, there was no evidence that the Division made any positive representations that would mislead petitioners or otherwise cause them to delay processing their claims. Petitioners Motes and Chesser contend that the first valid and complete notice was not received by the Division until May 20, 1987 when intervenor Carman filed a complaint against Stackhouse in circuit court and also filed her claim and copy of the complaint with the Division the same date. Under this theory, the two year period would not expire until May 19, 1989. This contention is based on the fact that the Rucki complaint was filed in circuit court on January 9, 1987 but the claim and copy of the complaint were not filed with the Division until January 20, 1987. Petitioners contend that subsection 494.043(1)(e) requires both acts to be accomplished the same date. However, this construction of the statute is contrary to the manner in which it has been construed by the Division. According to the stipulated testimony of an employee of the Brevard County sheriff's office, if the property to be levied on is not listed on the instructions to levy, the sheriff's office requires a court order prior to filing a return nulla bona. In this case seven claimants obtained such a court order directing the sheriff to furnish a return nulla bona as to the writ of execution. However, petitioners Motes and Chesser did not do so until after the two year time period had expired. The records received in evidence reflect that the initial inquiry made by Robert and Virginia R. Enteen was never pursued and therefore their claim should be denied.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that respondent enter a final order distributing the moneys from the mortgage brokerage guaranty fund in a manner consistent with its proposed agency action entered on June 21, 1989. The requests of petitioners to share in the first distribution of moneys from the fund should be DENIED. DONE and ORDERED this 11th day of December, 1989 in Tallahassee, Leon County, 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 11th day of December, 1989.
The Issue The issues to be decided are: 1) whether Petitioner, Amerisure Mutual Insurance Company (Amerisure), is entitled to a credit or refund due to the elimination of credits by Respondent, Department of Financial Services (Respondent or the Department), that Amerisure claims accrued in the calendar year 2009 and should apply to future assessments owed to the Special Disability Trust Fund (SDTF) and the Workers? Compensation Administration Trust Fund (WCATF)(collectively the Trust Funds); 2) whether the elimination of these credits was accomplished by the Department?s application of a policy meeting the definition of a rule that has not been adopted through the chapter 120 rulemaking process; and 3) whether any refund or credit is barred by the statute of limitations in section 215.26, Florida Statutes.
Findings Of Fact Amerisure is a carrier as defined in section 440.02(4), Florida Statutes, authorized to transact the workers? compensation line of business in the State of Florida. At all times relevant to the Department?s Notice of Intent, Amerisure was authorized to transact the workers? compensation line of business in Florida, and required to pay assessments to both the SDTF and WCATF. Pursuant to section 440.49(9)(b), Florida Statutes, the SDTF is maintained by annual assessments, paid quarterly, upon the insurance companies writing compensation insurance in Florida; the commercial self-insurers under sections 624.462 and 624.4621, Florida Statutes; the assessable mutuals as defined in section 628.6011, Florida Statutes; and the self-insurers under chapter 440, Florida Statutes. Section 440.49(9)(b) requires the Department to determine the rate each year for the next calendar year, based on the Department?s estimate of the amount of money necessary to administer section 440.49, and to maintain the SDTF for that next calendar year. In addition, the total amount to be assessed against all entities subject to assessment is prorated among those entities. Similarly, pursuant to section 440.51(1), the WCATF is maintained by annual assessments, paid quarterly, upon the carriers writing compensation insurance in Florida and self- insurers. Section 440.51(1) provides that the rate is determined each year for the next calendar year based on the anticipated expenses of the administration of chapter 440 for the next calendar year. In addition, the total amount to be assessed against all entities subject to assessment is prorated among those entities. Workers? compensation policies are unique insurance policies in that they provide statutorily mandated coverage that must be purchased by most employers; they provide “no fault” coverage and have no maximum dollar amount limit in the primary coverage of medical benefits. To make such coverage affordable, the market has developed various types of policies which allow an employer, based upon its size and financial wherewithal, to limit its exposure for a possible reduction in premium. For example, there are standard policies that provide coverage from the first dollar of loss, there are large deductible policies where the employer shares in a greater amount of risk, there are retrospective policies where final premium amount is determined on the basis of loss development during the policy, and there are dividend plans which also take into account loss experience. Most workers? compensation policies are annual policies which can incept at any given day within a calendar year. It is not unusual for a workers? compensation policy to run between two calendar years. Regardless of the kind of workers? compensation policy issued to an employer, the initial premium at the time of policy inception is referred to as an “estimated premium.” This is because the “estimated premium” is based on the actual number of employees in a company?s payroll and the payroll classifications as to each employee?s particular job -- e.g., executive supervisor, window cleaner, etc. Because the final exposure is unknown until the last day of coverage, the “estimated premium” is always subject to change. Most workers? compensation policies have standard language copyrighted by the National Council on Compensation Insurance (NCCI), a statistical and rating organization which files rates and forms in Florida for use by carriers, which address this very point. Under the “Part Five Premium” section of a standard NCCI policy, “Section E” states that the premium shown on the information page, schedules, and endorsement is an “estimate.” Section E further states that the final premium will be determined by an audit after the policy ends by using the actual and not the estimated premium base, and the proper calculations and rates that lawfully apply to the business and work covered by the policy. Finally, Section E provides that if the actual premium is more than what the policyholder paid as an estimated premium, the insured must pay the balance. Conversely, if it is less than what was paid, the insurance company will refund premium. When audits are performed either at the end of the policy year or later, premiums may be refunded to a policyholder. Dividend plans are a kind of workers? compensation policy which allows for a dividend payment back to the policyholder if the actual loss experience observed is more favorable than anticipated. The payment of a dividend is not guaranteed, but is subject to the approval of an insurer?s Board of Directors. Significantly, the earliest that a dividend can be paid out under a dividend plan is six months after the policy has ended. As such, dividends are never paid in the same calendar year as a policy incepts. All workers? compensation carriers writing business in Florida pay an assessment on every premium dollar to fund the SDTF and WCATF. When the NCCI files for rates in Florida, it takes into account the assessments paid by carriers to the Trust Funds, and the charge for the assessments is included in the rates developed by the NCCI. The rate is the amount applied to the payroll, and the product of the payroll and rate equals the premium for a particular payroll classification. Reporting and Collection of Assessments The Department provides pre-printed forms entitled “Carrier and Self-Insurance Fund Quarterly Report” to workers? compensation carriers, such as Amerisure, to self-report “net premium” amounts on a quarterly basis. The Department also provides a “spreadsheet” form that the carriers may utilize to indicate how they are calculating the net premium amount for each of the trust funds. After calculating the net premium amount for each trust fund on the spreadsheet, the carrier writes in that net premium amount on the quarterly report and multiplies that amount by the assessment rate set by the Department (which is reflected on the quarterly report form). If a carrier returns more premium and/or pays more in dividends than it has written in one quarter, it has a “negative net premium” and owes no assessment for that quarter. The quarterly report form provides empty circles, referred to on the form as “buttons,” for the carrier to fill in indicating whether the net premium amount is negative or positive. When a carrier has negative net premium for a quarter, a credit amount is reflected on the next quarterly report form to be applied toward future assessments. This credit amount is pre-printed by the Department on the next quarter?s form. This amount appears in the “debit/credit box” on the quarterly report form or in the “balance carried forward” on the spreadsheet. The direct written premium in the insurance industry is the summation of all premiums for a given period less any returns made during that period. Amerisure subtracts any premium returned during the calendar year from its gross number to determine direct written premium, regardless of what year the policy, for which premium is returned, incepted. In order to calculate the net premium amount for assessment purposes, Amerisure deducts the amount of dividends paid or credited to policyholders from their direct written premium amount, regardless of the fact that the policy year for the dividend being paid is a different calendar year than the year that the dividend is paid or credited. By statute, workers? compensation insurance companies, such as Amerisure, are assessed by the Department for contributions to the SDTF based on the amount of “net premiums written,” and companies are assessed for contributions to the WCATF based on the amount of “net premiums earned” or “net premiums collected.” Since at least 2004, Amerisure has been utilizing “direct written premium” to calculate the “net premium” or “net premium collected” amount listed in its quarterly reports for both the SDTF and WCATF Funds. The Department utilizes annual reports filed with the NAIC by carriers to perform their audits and determine if an insurer has accurately reported the amount of net premium subject to assessments for the Trust Funds. Assessments to the Trust Funds are paid by Amerisure during the quarter that premium is written. Premium is considered written when a policy first incepts or when additional premium is charged on a policy. Because Amerisure utilizes net written premium as a “proxy” for net collected premium, it pays more in trust fund assessments up front than it would if it were able to report the company?s actual collected premium. Amerisure?s 2009 Credits In the last two quarters of 2008, Amerisure began to experience negative net premium. This continued through all of calendar year 2009 until Amerisure once again experienced positive premium in calendar year 2010. Amerisure?s negative premium was a result of the economic downturn, which gravely impacted a large portion of Amerisure?s Florida customer base in the construction industry. Due to so many employers downsizing their workforce, Amerisure returned 12 million dollars in premium in calendar year 2009. The majority of the 12 million dollars of premium returned to policyholders was for approximately 1200 policies which had incepted prior to 2009 and for which assessments had been paid into the trust funds prior to 2009. Amerisure?s payment to the trust funds of the original assessment amounts on the policies that incepted prior to 2009 was based on “estimated premium,” on what Amerisure believed the premium to be at that point in time, prior to the calculation of the final premium. According to Raymond Neff, who was accepted as an expert in the field of workers? compensation insurance, Amerisure?s experience of negative net premium in late 2008 and 2009 was not unique in the workers? compensation construction sector as verified by NCCI data showing similar impacts to other carriers due to the recession and reductions in payroll during this time frame. The Department did not rebut his testimony in any meaningful way. Reporting and Payments for the SDTF For the time periods in 2008, Amerisure paid quarterly assessments to the SDTF based upon reported net premiums written, or did not pay assessments due to reported negative net premiums written, as follows: for the quarter ending March 31, 2008, Amerisure reported $27,651,422 in net premiums, and paid an assessment of $1,249,844; for the quarter ending June 30, 2008, Amerisure reported $5,282,751 in net premiums, and paid an assessment of $238,780; for the quarter ending September 30, 2008, Amerisure reported negative net premiums of $923,570, and no assessment was due or paid; and for the quarter ending December 31, 2008, Amerisure reported negative net premiums of $1,269,343, and no assessment was due or paid. Because of premium refunds made to policyholders in the quarters ending September 30, 2008, and December 31, 2008, resulting in an overpayment, Amerisure received a credit against future SDTF assessment payments in the amount of $99,119.66. For the time periods in 2009, Amerisure did not owe or pay assessments to the SDTF due to reported negative net premiums written, resulting from reported payment of premium refunds to policyholders, as detailed below. For the quarter ending March 31, 2009, Amerisure reported negative net premiums of $1,422,158, and no assessment was due or paid. When the Department provided Amerisure with its Carrier and Self-Insurance Quarterly Premium Report to complete for the quarter ending March 31, 2009, it included a $99,119.66 "Debit/Credit" carried over from 2008 for the SDTF on the report form. For the quarter ending June 30, 2009, Amerisure reported negative net premiums of $2,382,484, and no assessment was due or paid. When the Department provided Amerisure with its Carrier and Self-Insurance Quarterly Premium Report to complete for the quarter ending June 30, 2009, it included a $163,401.20 "Debit/Credit" for the SDTF on the report form. This amount was the sum of $99,119.66 carried over from 2008, plus a $64,281.54 credit from the quarter ending March 31, 2009, calculated by application of the 2009 assessment rate to the $1,422,158 reported negative net premium for the quarter ending March 31, 2009. For the quarter ending September 30, 2009, Amerisure reported negative net premiums of $2,392,606, and no assessment was due or paid. When the Department provided Amerisure with its Carrier and Self-Insurance Quarterly Premium Report to complete for the quarter ending September 30, 2009, it included a $271,089.48 "Debit/Credit" for the SDTF on the report form. This amount was the sum of $99,119.66 carried over from 2008; plus a $64,281.54 credit from the quarter ending March 31, 2009, calculated by application of the 2009 assessment rate to the $1,422,158 reported negative net premium for the quarter ending March 31, 2009; plus a $107,688.28 credit from the quarter ending June 30, 2009, calculated by application of the 2009 assessment rate to the $2,382,484 reported negative net premium for the quarter ending June 30, 2009. For the quarter ending December 31, 2009, Amerisure reported negative net premiums of $3,237,419, and no assessment was due or paid. When the Department provided Amerisure with its Carrier and Self-Insurance Quarterly Premium Report to complete for the quarter ending December 31, 2009, it included a $379,235.27 "Debit/Credit" for the SDTF on the report form. This amount was the sum of $99,119.66 carried over from 2008; plus a $64,281.54 credit from the quarter ending March 31, 2009, calculated by application of the 2009 assessment rate to the $1,422,158 reported negative net premium for the quarter ending March 31, 2009; plus a $107,688.28 credit from the quarter ending June 30, 2009, calculated by application of the 2009 assessment rate to the $2,382,484 reported negative net premium for the quarter ending June 30, 2009; plus a $108,145.79 credit from the quarter ending September 30, 2009, calculated by application of the 2009 assessment rate to the $2,392,606 reported negative net premium for the quarter ending September 30, 2009. For the time periods in 2010, Amerisure paid quarterly assessments to the SDTF based upon reported net premiums, as detailed below. For the quarter ending March 31, 2010, Amerisure reported net premiums of $828,566, and paid an assessment of $37,451.18. The assessment was paid by application of $37,451.18 of the $99,119.66 credit carried over from 2008. When the Department provided Amerisure with its Carrier and Self-Insurance Quarterly Premium Report to complete for the quarter ending March 31, 2010, it included a $99,119.66 "Debit/Credit" carried over from 2008 for the SDTF on the report form. The credits of $64,281.54, $107,688.28, and $108,145.79 recognized in the reports for the quarters ending June 30, September 30, and December 31, 2009, were deleted. However, the Department did not otherwise notify Amerisure that it was deleting the credits or why it was deleting the credits. It also did not provide a point of entry for Amerisure to challenge the deletion of the credits. For the quarter ending June 30, 2010, Amerisure reported net premiums of $1,282,179. It paid an assessment of $57,954.49 by application of $57,954.49 of the $99,119.66 credit carried over from 2008. For the quarter ending September 30, 2010, Amerisure reported net premiums of $937,504. It paid an assessment of $13,687.56 in part by application of the remainder of the $99,119.66 credit carried over from 2008, along with a payment of $9,974.01. For the quarter ending December 31, 2010, Amerisure reported net premiums of $657,457, and paid an assessment of $9,597.41. For the time periods in 2011, Amerisure paid quarterly assessments to the SDTF based upon reported net premiums, as follows: for the quarter ending March 31, 2011, Amerisure reported $2,455,230 in net premiums, and paid an assessment of $35,846.36; for the quarter ending June 30, 2011, Amerisure reported $1,741,790 in net premiums, and paid an assessment of $25,430.13; for the quarter ending September 30, 2011, Amerisure reported $2,054,805 in net premiums, and paid an assessment of $30,000.15; and for the quarter ending December 31, 2011, Amerisure reported $1,823,063 in net premiums, and paid an assessment of $26,616.72. For the time periods in 2012, Amerisure paid quarterly assessments to the SDTF based upon reported net premiums, as follows: for the quarter ending March 31, 2012, Amerisure reported $4,816,098 in net premiums, and paid an assessment of $69,351.81; and for the quarter ending June 30, 2012, Amerisure reported $2,072,685 in net premiums, and paid an assessment of $29,846.66. Reporting and Payments for the WCATF For the time periods in 2008, Amerisure paid quarterly assessments to the WCATF based upon reported net premiums, or did not pay assessments due to reported negative net premiums, as follows: for the quarter ending March 31, 2008, Amerisure reported $30,353,820 in net premiums, and paid an assessment of $75,885; for the quarter ending June 30, 2008, Amerisure reported $6,696,958 in net premiums, and paid an assessment of $16,742; for the quarter ending September 30, 2008, Amerisure reported $874,225 in net premiums, and paid an assessment of $2,186; and for the quarter ending December 31, 2008, Amerisure reported $1,271,387 in negative net premiums, and no assessment was due or paid. Because of premium refunds made to policyholders in the quarters ending September 30, 2008, and December 31, 2008, resulting in an overpayment, Amerisure received a credit against future WCATF assessment payments in the amount of $3,178.47. For the time periods in 2009, Amerisure did not owe or pay assessments to the WCATF due to reported negative net premiums resulting from reported payment of premium refunds to policyholders, as detailed below. For the quarter ending March 31, 2009, Amerisure reported $1,321,194 in negative net premiums. When the Department provided Amerisure with its Carrier and Self- Insurance Quarterly Premium Report to complete for the quarter ending March 31, 2009, it included a $3,178.47 "Debit/Credit" carried over from 2008 for the WCATF on the report. For the quarter ending June 30, 2009, Amerisure reported $2,990,876 of negative net premiums. When the Department provided Amerisure with its Carrier and Self- Insurance Quarterly Premium Report to complete for the quarter ending June 30, 2009, it included a $6,481.46 "Debit/Credit" for the WCATF on the report, which is the sum of $3,178.47 carried over from 2008, plus a $3,302.99 credit from the quarter ending March 31, 2009, calculated by application of the 2009 assessment rate to the $1,321,194 reported negative net premium for the quarter ending March 31, 2009. For the quarter ending September 30, 2009, Amerisure reported $2,176,521 in negative net premiums.2/ When the Department provided Amerisure with its Carrier and Self- Insurance Quarterly Premium Report to complete for the quarter ending September 30, 2009, it included a $13,958.65 "Debit/Credit" for the WCATF on the report. This amount was the sum of $3,178.47 carried over from 2008; plus a $3,302.99 credit from the quarter ending March 31, 2009, calculated by application of the 2009 assessment rate to the $1,321,194 reported negative net premium for the quarter ending March 31, 2009; plus a $7,477.19 credit from the quarter ending June 30, 2009, calculated by application of the 2009 assessment rate to the $2,990,876 reported negative net premium for the quarter ending June 30, 2009. For the quarter ending December 31, 2009, Amerisure reported $3,549,615 in negative net premiums. When the Department provided Amerisure with its Carrier and Self- Insurance Quarterly Premium Report to complete for the quarter ending December 31, 2009, it included a $19,399.95 "Debit/Credit" for the WCATF on the report. This amount was the sum of $3,178.47 carried over from 2008; plus a $3,302.99 credit from the quarter ending March 31, 2009, calculated by application of the 2009 assessment rate to the $1,321,194 reported negative net premium for the quarter ending March 31, 2009; plus a $7,477.19 credit from the quarter ending June 30, 2009, calculated by application of the 2009 assessment rate to the $2,990,876 reported negative net premium for the quarter ending June 30, 2009; plus a $5,441.30 credit from the quarter ending September 30, 2009, calculated by application of the 2009 assessment rate to the $2,176,521 reported negative net premium for the quarter ending September 30, 2009. For the quarters in 2010, Amerisure paid quarterly assessments to the WCATF based upon reported net premiums, as detailed below. For the quarter ending March 31, 2010, Amerisure reported $225,027 in net premiums, and paid an assessment of $1,800.22 by applying $1,800.22 of the $3,178.47 credit carried over from 2008. When the Department provided Amerisure with its Carrier and Self-Insurance Quarterly Premium Report for the quarter ending March 31, 2010, it included a $3,178.47 "Debit/Credit" carried over from 2008 for the WCATF on the report. The credits of $3,302.99, $7,477.19, and $5,441.30 recognized in the reports for the quarters ending June 30, September 30, and December 31, 2009, were deleted. The Department did not otherwise notify Amerisure that it was deleting the credits or why it was deleting the credits. The Department also did not provide an opportunity for Amerisure to challenge the deletion of the credits. For the quarter ending June 30, 2010, Amerisure reported $2,011,533 in net premiums, and paid an assessment of $16,092.26, which was paid in part by application of the remainder of the $3,178.47 credit carried over from 2008. For the quarter ending September 30, 2010, Amerisure reported $1,094,027 in net premiums, and paid an assessment of $23,466.23. This payment included $14,714.01 due for an assessment owed for the quarter ending June 30, 2010. For the quarter ending December 31, 2010, Amerisure reported $656,608 in net premiums, and paid an assessment of $5,252.86. For the time periods in 2011, Amerisure paid quarterly assessments to the WCATF based upon reported net premiums, as follows: for the quarter ending March 31, 2011, Amerisure reported $2,456,006 in net premiums, and paid an assessment of $24,068.86; for the quarter ending June 30, 2011, Amerisure reported $1,864,571 in net premiums, and paid an assessment of $18,272.80; for the quarter ending September 30, 2011, Amerisure reported $2,539,405 in net premiums, and paid an assessment of $24,866.17; and for the quarter ending December 31, 2011, Amerisure reported $1,782,608 in net premiums, and paid an assessment of $17,469.56. For the time periods in 2012, Amerisure paid quarterly assessments to the WCATF based upon reported net premiums, as follows: for the quarter ending March 31, 2012, Amerisure reported $4,837,632 in net premiums, and paid an assessment of $84,658.56; and for the quarter ending June 30, 2012, Amerisure reported $2,348,810 in net premiums, and paid an assessment of $41,104.18. For its Carrier and Self-Insurance Fund Quarterly Premium Reports submitted to Respondent for the quarters ending March 31, 2008; June 30, 2008; September 30, 2008; and December 31, 2008, premium refunds made to policyholders included in the calculation of "net premiums" and "net premiums written" reflect premium refunds made to policyholders by Amerisure in the calendar year 2008. For its Carrier and Self-Insurance Fund Quarterly Premium Reports submitted to the Department for the quarters ending March 31, 2009; June 30, 2009; September 30, 2009; and December 31, 2009, premium refunds made to policyholders included in the calculation of "net premiums" and "net premiums written" reflect premium refunds made to policyholders by Amerisure in the calendar year 2009. For its Carrier and Self-Insurance Fund Quarterly Premium Reports submitted to the Department for the quarters ending March 31, 2010; June 30, 2010; September 30, 2010; and December 31, 2010, premium refunds made to policyholders included in the calculation of "net premiums" and "net premiums written" reflect premium refunds made to policyholders by Amerisure in the calendar year 2010. For its Carrier and Self-Insurance Fund Quarterly Premium Reports submitted to the Department for the quarters ending March 31, 2011; June 30, 2011; September 30, 2011; and December 31, 2011, premium refunds made to policyholders included in the calculation of "net premiums" and "net premiums written" reflect premium refunds made to policyholders by Amerisure in the calendar year 2011. For its Carrier and Self-Insurance Fund Quarterly Premium Reports submitted to the Department for the quarters ending March 31, 2012, and June 30, 2012, premium refunds made to policyholders included in the calculation of "net premiums" and "net premiums written" reflect premium refunds made to policyholders by Amerisure in the calendar year 2012. For its Carrier and Self-Insurance Fund Quarterly Premium Reports submitted to the Department for the quarters ending March 31, 2008; June 30, 2008; September 30, 2008; and December 31, 2008, premium refunds made to policyholders included in the calculation of "net premiums" and "net premiums written" reflect refunds made to policyholders by Amerisure for policies where assessments for premium for those policies were paid in calendar years prior to 2008. Likewise, for its Carrier and Self-Insurance Fund Quarterly Premium Reports submitted to the Department for the quarters ending March 31, 2009; June 30, 2009; September 30, 2009; and December 31, 2009, premium refunds made to policyholders included in the calculation of "net premiums" and "net premiums written" reflect refunds made to policyholders by Amerisure for policies where assessments for premium for those policies were paid in calendar years prior to 2009. Events Following the Deletion of 2009 Credits Gene Smith, Assessments Coordinator for the Division of Workers? Compensation of the Department, has the responsibility to calculate the assessment rate for the Trust Funds. Evelyn Vlasak was Mr. Smith?s predecessor as Assessments Coordinator. On September 13, 2010, Gene Smith sent an e-mail requesting that Amerisure provide for each quarter in 2008 and 2009 “[a]n original computer generated run showing the written premium for all Line of Business 160 (workers? compensation) in Florida by policy number with totals at the end.” Amerisure provided the requested information via Excel spreadsheet on October 1, 2010. By letter dated December 9, 2010 (received on December 14, 2010), Mr. Smith stated, in pertinent part: We received the excel spreadsheet of Amerisure Mutual Insurance Company?s 2008- 2009 Policy Level Details. To complete our audit we also need the detailed documentation for dividends and large deductibles. Please review the list below, and provide the requested documentation by December 20, 2010. The same Policy Level Detail spreadsheets for each quarter from January 1, 1999, through the current quarter 2010. There is no need to provide 2008 and 2009 as you have already provided these. Detail of annual dividends declared and paid from January 1, 1999, through the current quarter 2010. Detail of quarterly large deductible “add backs” from January 1, 1999, through the current quarter 2010. In response, Amerisure?s counsel contacted Mr. Smith via e-mail on December 14, 2010, to ask why the Department needed this information. Mr. Smith responded by e-mail on January 2, 2011, stating that the Department would respond very soon. On January 4, 2011, David Hershel, an attorney for the Department, contacted Amerisure?s counsel and advised that the additional data requested in the December 9, 2010, letter was needed to review the credit amounts claimed by Amerisure. Mr. Hershel stated that the Department would send a revised letter, paring down its information request. On January 10, 2011, Mr. Smith sent a letter, which stated: We received the excel spreadsheet of Amerisure Mutual Insurance Company?s 2008- 2009 Policy Level Details. To complete our audit we also need the detailed documentation for dividends and large deductibles, as well as the payments for the second and third quarters of 2010. Please review the list below. Detail of annual dividends declared and paid from January 1, 2008, through the 4th quarter 2010. Detail of quarterly large deductible “add backs” from January 1, 2008, through the 4th quarter 2010. Payments for the second and third quarters of 2010 for the WCATF as required by Florida law. Please provide the requested documentation by January 21st, 2011. Thank you in advance for your time and assistance. If you have any questions, please feel free to contact me. On January 17, 2011, Amerisure agreed to send in the requested payments as a sign of good faith. In this transmittal, Amerisure reserved its rights to withhold against further assessments. On January 27, 2011, Amerisure provided Gene Smith with Excel spreadsheets containing the information sought in items 1 and 2 of the January 10, 2011, letter. On July 1, 2012, some 17 months later, Gene Smith responded by letter, directing that the appropriate procedure and remedy to request a refund of monies paid into the State Treasury is set forth in section 215.26, Florida Statutes, and providing the forms developed for this request. On September 26, 2012, Amerisure submitted its applications for credit or refund pursuant to section 215.26. Amerisure requested a credit or refund of $25,095.70 paid into WCATF and $236,663.25 paid into SDTF from October 26, 2010, through July 26, 2012, which Amerisure alleges it should not have been required to pay in light of the amount of credit it had accrued in 2008 and 2009. For example, the request for refund with respect to the SDTF states: Through the reporting period of June 30, 2012, Amerisure has paid $236,663.25 in assessments to the SDTF that the company should not have been required to pay since it had credits that should have been applied against its assessment liability. As such, Amerisure requests a refund of the total amount of $236,663.25 paid into the SDTF between September 30, 2010, and June 30, 2012. Furthermore, Amerisure asserts its right to apply, and requests the SDTF to facilitate, the application of the remaining credit balance of $189,783.75 against future assessment liability. The Department denied Amerisure?s request for refund of the overpayment of assessments paid into the SDTF and WCATF from January 2011 onward in its NOI dated January 28, 2013. The Department states in its NOI that Amerisure is “seeking to be paid in cash for supposed credits which it never accrued.” The denial letter also informed Amerisure of its right to an administrative hearing. Amerisure timely filed a Request for Administrative Hearing, which gave rise to this proceeding. The statement that the credits never accrued is inconsistent with the Department?s prior calculation of the credits on the reporting forms that the Department sent to Amerisure each quarter to complete. The forms for 2009 clearly indicated accrued credits and Department staff acknowledged eliminating those credits. The Department?s Treatment of “Excess Credits” Maya Brown is a government analyst with the Department?s Division of Workers? Compensation. Her duties include creating manuals, performing audits on insurance carriers, and processing refunds for carriers. According to Ms. Brown, she was instructed in 2009 by Ms. Vlasak that at the end of a year, if a company has negative premiums and does not owe any assessments or has not paid any assessments, that balance, which she described as “excess credits,” is then removed. Based upon this understanding, Ms. Brown removed $451,532 (which Amerisure refers to as the 2009 credits) from Amerisure?s rolling calculations when the 2010 quarterly report forms were sent to Amerisure. She did not call Amerisure and notify them that she was deleting the credits or of the reason for doing so, and does not know of anyone else providing that information to Amerisure. The quarterly report form for the first quarter of 2010, however, carried forward the 2008 credits that Amerisure had accumulated in 2008. Ms. Brown first learned about the concept of “excess credits” in 2004 when she was trained to perform audits by Ms. Vlasak. Since 2004, the only other Assessment Unit employee performing audits besides Ms. Brown was Ms. Vicki Griffin. Ms. Griffin was also trained by Ms. Vlasak and utilized the same procedures with regard to “excess credits.” Sometime before May 2009, Ms. Vlasak drafted proposed rules for the Assessment Unit that addressed “excess credits” based on negative “net premium”. An early version of the draft rules was prepared as early as March 29, 2006. The July 26, 2008, draft of proposed rule 69L-4.003, entitled “Completion of Quarterly Reports and Payment of Assessment by Carriers,” included the following in subsection (e)(5): If as a result of premium offsets for dividends paid or credited and premium refunds, a Carrier will owe no assessments for any of the four calendar year quarters, the Carrier will be able to apply the unused premium offset to reduce assessments owed in any of the other three quarters of the same calendar year. However, after the Quarterly Report is filed for the period ending December 31, the Division will adjust the Carrier?s records to remove any credits due to these premium offsets that were not used in that year. Therefore the (credit) debit pre-printed on the upcoming March 31st Quarterly Premium and Assessment Report will reflect only overpayment of assessment(s) owed for the previous calendar year. If this adjustment is necessary, the Carrier will be [sic] receive written notification. Section (h) of the draft proposed rule addressed the Department?s procedure for “overpayments”: When a Carrier has computed its net assessable premiums and assessments according to this rule and later determines that either the WCATF or SDTF assessment has been overpaid, the company may elect to apply the overpayment against future assessments owed to the same fund or may submit an [sic] refund request under Section 215.26, Florida Statutes. Written notification of an overpayment must be accompanied by detailed documentation of the computation of the alleged overpayment, a copy of the State Page of the Annual Report for the referenced year, and as needed, revised Quarterly Reports. Written notification that a refund has been requested must meet the requirements of Section 215.26, Florida Statutes, including the submission of the approved form. The refund request must be received within three years of the date the alleged overpaid amount was initially deposited into the state treasury. Written notification of the election to apply the overpayment against future assessment payments must be received within three years of the date the overpaid amount was initially deposited into the state treasury. Upon verification of an overpayment, future assessments may be offset until the verified overpayment is fully utilized, with no time limitations. Each Carrier shall bear the responsibility to notify the Division in written format, that an overpayment may have occurred and to provide documentation that will allow the Department to verify the amount of the alleged overpayment. If an overpayment has occurred, and revised Quarterly Reports are submitted, the Carrier does not submit an Application for Refund on an approved form, the Carrier will be allowed to offset future assessments to the extent of the overpayment. However, after the end of the three-year window, in the absence of a written refund application, the unused portion of the overpayment, if any, will no longer be available as an offset against future assessments, or for the issuance of a refund pursuant to Section 215.26(2). The Division shall bear the responsibility to acknowledge receipt of this notification and to verify the amount of overpayment, if any, as well as respond to the request for credit or refund. The Department acknowledges that these draft proposed rules were never promulgated or published in a notice of proposed rule development. In 2011, Mr. Jenkins, the new Bureau Chief, revived attempts to promulgate rules for the Assessment Unit. That is, he circulated Ms. Vlasak?s draft proposed rules to members of his staff for their consideration. However, other office priorities took precedence, and as of 2013, no further attempts at rule development have been undertaken by the Department in this regard. Ms. Brown understood that the language in Ms. Vlasak?s draft rules is consistent with what occurred in 2009 regarding Amerisure?s reporting of negative premium. Despite the failure of the Department to adopt the draft rules, or some other version of them, the policy reflected in these proposed rules has been applied by the Department to eliminate Amerisure?s 2009 credits. Ms. Vlasak based her procedures on section 624.5094, Florida Statutes. However, the Department has since acknowledged that the statute does not speak to or define “excess credits.” The elimination of “excess credits” at the end of the year is currently the policy of the Division of Workers? Compensation and is how its employees process quarterly reports and assessment payments. This procedure is also reflected in a draft policy and procedures manual put together by Gene Smith at the direction of Greg Jenkins to capture the policies and procedures of the Assessment Unit. Under the caption “Prior Balance Carried Forward,” the manual provides: . . . a company may report (in very rare circumstances) negative net premium on Line 1 of the Quarterly Premium Report for either the WCATF or SDTF which would otherwise result in a negative assessment amount. This will carry over the following quarter. Should the company continue to reflect a negative amount by calendar year end, these negative amounts are removed per Section 624.5094, F.S. Mr. Jenkins wrote and compiled these policies and procedures when he was the Assessment Unit coordinator, a position he held until about a year and a half ago. If, on the other hand, a carrier only experiences negative net premium during some quarters but not all, these credits may be deemed an “official overpayment” and be allowed to carry forward. The process to determine if an overpayment is “official” has not been written into any policy or procedure, proposed rule, rule, or statute. Determining whether credits for a given calendar year are “excess” or “official overpayments” is a process that occurs only after a company has filed its annual report with the NAIC. This never occurs before March of the year following the year in question. Pursuant to current Department policy, a company cannot request a refund for an overpayment until after it is deemed an “official overpayment.” Mr. Smith testified that he agreed with the Department?s position that section 624.5094 required credits accumulated to be eliminated if the company continued to reflect a negative amount of net premium by the end of the calendar year, despite the fact that the statute does not include or define the term “excess credits.” Mr. Smith acknowledged that his interpretation of section 624.5094 stems from his belief that a carrier can experience negative net written premium for all four quarters of a year, which he believes is a violation of section 624.5094. This, in turn, is based on Mr. Smith?s definition of net written premium. To determine the net premium amount for assessment purposes, Mr. Smith took the position that carriers can only deduct return premium for a policy that incepts in the same calendar year that the premium is returned. Mr. Smith believed that additional premiums collected in a calendar year subsequent to the policy year for which the premium is collected would likewise not be included in the direct written premium or net premium number. Mr. Smith could point to no statute, rule, or bulletin which defines net premium in this fashion. Mr. Jenkins, the Bureau Chief, agreed with Mr. Smith?s interpretation, deferring to his judgment. Mr. Jenkins acknowledged that the determination made with regard to Amerisure?s 2009 credits was based on Mr. Smith?s definition of net premium, because Amerisure could not offset refunds or dividends from prior policy years in determining the amount of net premium. Mr. Jenkins also agreed with Mr. Smith that section 624.5094 “tied the Department?s hands” with regard to Amerisure. The Department?s determination that its “excess credits” policy prevents Amerisure from utilizing the 2009 credits against future assessments is further outlined in a June 9, 2011, email from Victoria Griffin to Gene Smith which states: Gene, You had asked me about my recall of the unit?s procedure for dealing with negative premium and section 624.5094 FS in the past. Since I have been here it has been common practice to accept all reporting at face value to include negative premiums till such time that we received the report from NAIC which reflected the written, earned and dividends the carriers reported, which may include negative amounts. In regards to your question regarding 624.5094, we have not ever reviewed individual policy holder information for any insurance company. My understanding of what happened with the Amerisure Mutual file is that they reported negative premiums for all four (4) quarters of 2009, (stating verbally that they took a loss for that year and wanted to recoup) and they believed that they were entitled to the credit amount reflected for 2009. Regardless of the fact that no assessment amounts had been paid in to the funds for that time frame. When we completed the audit for 2009, those negative amounts were removed; leaving a credit balance reflected from actual overpayments of 2008 to both funds. These overpayments were used towards future assessments and as of 4th quarter 2010 were exhausted. Let me know if you need any more information. Thanks, Vicki If Amerisure and other carriers were to use the Department?s definition of “net premium” and not include additional premium written for policies that incepted in prior calendar years, the Department would most likely experience a substantial drop in the amount of assessments collected for either Trust Fund. This represents the most probable scenario because it is more likely for an insurer to charge additional premium after a year-end or subsequent audit than to return premium. In fact, for the last 12 years that Andrea Koehler has worked at Amerisure, other than the period at issue in 2008-2009, the company consistently wrote more premium than it returned. Most importantly, this interpretation of the definition of net premium is inconsistent with using the amounts listed in a company?s NAIC reports as an audit method to insure proper reporting by the insurance companies. In order for the numbers to be comparable, the amount reported must be consistent with industry practice in reporting to the NAIC.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department enter a final order incorporating the findings of this Recommended Order and reinstating Amerisure?s 2009 credits as credits toward future assessments due to the Trust Funds. DONE AND ENTERED this 15th day of November, 2013, in Tallahassee, Leon County, Florida. S BARBARA J. STAROS 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 15th day of November, 2013.
The Issue Whether Respondent's application of the inflation protection clause of the agreement to purchase real estate, thereby increasing the purchase price, discriminated against Petitioner in violation of the Florida Fair Housing Act (FFHA) and Sections 760.20 through 760.37, Florida Statutes (2004).
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Florida Commission on Human Relations enter a final order dismissing Petitioner's Petition for Relief. DONE AND ENTERED this 24th day of January, 2006, in Tallahassee, Leon County, Florida. S FRED L. BUCKINE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 24th day of January, 2006. COPIES FURNISHED: Denise Crawford, Agency Clerk Commission on Human Relations 2009 Apalachee Parkway, Suite 100 Tallahassee, Florida 32301 Tyrone Harrison 8412 Peterson Road Odessa, Florida 33556 Cristina A. Equi, Esquire Gray & Robinson, P.A. 301 East Pine Street, Suite 1400 Post Office Box 3068 Orlando, Florida 32802-3068 Cecil Howard, General Counsel Commission on Human Relations 2009 Apalachee Parkway, Suite 100 Tallahassee, Florida 32301
The Issue The issues in this case are whether Respondent violated Sections 494.0043(1)(b), 494.0038(1)(a) and (b)1, and 494.0038(2)(a), Florida Statutes (1997), by failing to provide a mortgagee's title insurance policy; by obtaining a mortgage broker fee without a written agreement; and by failing to disclose the receipt of rates, points, or fees on behalf of a lender; and, if so, what, if any, penalty should be imposed. (All chapter and section references are to Florida Statutes (1997) unless otherwise stated.)
Findings Of Fact Petitioner is the state agency responsible for regulating mortgage brokers in Florida. Until September 1999, Respondent was licensed in the state as a mortgage broker pursuant to license number MB9804519. Respondent's license became inactive when Respondent did not renew her license. At all times material to this proceeding, Respondent was the sole owner and operator of Blackstone. Blackstone is licensed in the state as mortgage brokerage business pursuant to license number MBB9901308. On January 8, 1996, Mr. Brian S. Carter and Ms. Lisa G. Carter closed on the purchase of real property located at 1503 Mobile Avenue, Holly Hill, Florida 32117. A non-institutional lender provided a purchase money second mortgage of $19,100 through Karlis and Uldis Sprogis, as co-trustees of the K. E. Sprogis Trust. Respondent was the mortgage broker responsible for the loan in the Carter transaction (the "Carter loan"). On November 12, 1995, Respondent entered into a mortgage brokerage contract with the Carters on behalf of Blackstone. Respondent failed to obtain, or retain in the Carter loan file, a written receipt from the non-institutional lender for the title policy, an opinion of title by an attorney licensed to practice law in Florida, a binder of the title insurance or a conditional opinion of title, or a waiver thereof by the non- institutional lender. In her Petition for Hearing, Respondent admits the foregoing findings pertaining to the Carter loan. On July 11, 1996, Ms. Kay George closed on the purchase of real property located at 2753 Foxdale Drive, Deltona, Florida 32738. Ms. George obtained a purchase money first mortgage in the amount of $56,000 from an institutional lender. Respondent was the mortgage broker responsible for the loan in the George transaction (the "George loan"). On June 15, 1996, Respondent entered into a mortgage brokerage contract with Ms. George on behalf of Blackstone. The mortgage broker contract stated that the mortgage brokerage fee to be paid by Ms. George would not exceed $400. However, the contract disclosed that Respondent would receive between $500 and $2,000 in additional compensation from the lender. The loan-closing documents in the George loan disclose that Respondent received additional compensation of $1,140 comprised of $840 in loan origination fees and $300 in processing fees. The mortgage broker contract failed to disclose the loan origination and processing fees paid by the lender to Respondent. On December 29, 1997, Mr. Roy J. Piper and Ms. Laura A. Piper closed on the purchase of real property located at 30 Arrowhead Circle, Ormond Beach, Florida 32174. EMB Corporation ("EMB") provided a purchase money first mortgage of $68,400. Respondent was the mortgage broker responsible for the loan in the Piper transaction (the "Piper loan"). On December 1, 1997, Respondent entered into a mortgage brokerage contract with the Pipers on behalf of Blackstone. The mortgage broker contract failed to state the amount of the mortgage brokerage fee to be paid by the Pipers. The contract also failed to disclose any additional compensation Respondent was to receive from EMB. The closing documents show that EMB paid Respondent $1,926.25 in additional compensation as a "broker service release premium." On April 9, 1998, Ms. Sunday S. Reiland closed on the purchase of real property located at 300 Chipeway Avenue, Daytona Beach, Florida 32118. Ms. Reiland obtained a first mortgage in the amount of $96,000 from an institutional lender. Respondent was the mortgage broker responsible for the loan in the Reiland transaction (the "Reiland loan"). On March 9, 1998, Respondent entered into a mortgage brokerage contract with Ms. Reiland on behalf of Blackstone. The mortgage broker contract stated that the mortgage brokerage fee to be paid by Ms. Reiland would not exceed $250. However, the contract disclosed that Respondent would receive between $960 and $3,000 in additional compensation from the lender. The loan closing documents in the Reiland loan disclose that Respondent received additional compensation of $730 comprised of a $480 "cash out fee" and a $250 processing fee. The mortgage broker contract failed to disclose the "cash out fee" and processing fee the lender paid to Respondent. On April 23, 1998, Mr. Brian M. Reigel closed on the purchase of real property located at 931 Aspen Drive, South Daytona, Florida 32119. Mr. Reigel obtained a first mortgage in the amount of $39,425 from an institutional lender. Respondent was the mortgage broker responsible for the loan in the Reigel transaction (the "Reigel loan"). On April 8, 1998, Respondent entered into a mortgage brokerage contract with Mr. Reigel on behalf of Blackstone. The mortgage broker contract stated that the mortgage brokerage fee for the Reigel loan would not exceed $550. However, the contract also stated that Respondent would receive additional compensation from the lender ranging between $0 and $3,000. The loan closing documents in the Reigel loan disclose that Respondent received additional compensation of $1,038 from the borrower's funds for a loan discount fee and a processing fee. On October 16, 1998, Mr. William M. Netterville, III, closed on the purchase of real property located at 808 South Grandview Avenue, Daytona Beach, Florida 32118. Mr. Netterville obtained a first mortgage in the amount of $66,000 from an institutional lender. Respondent was the mortgage broker responsible for the loan in the Netterville transaction (the "Netterville loan"). On September 10, 1998, Respondent entered into a mortgage brokerage contract with Mr. Netterville on behalf of Blackstone. The mortgage broker contract stated that the mortgage brokerage fee to be paid by the Mr. Netterville would not exceed $1,000. The loan-closing documents in the Netterville loan disclose that an additional mortgage broker fee of $500 was paid from the borrower's funds to Grandview Financial. The mortgage broker contract failed to disclose the fee paid to Grandview. The mortgage broker contract in the Carter loan stated that the mortgage broker "can make loan commitments." However, Respondent could not make loan commitments. Only the lender could make loan commitments pursuant to a written commitment or "lock-in" for the loan. There is no evidence that the Carters ever obtained the necessary loan commitment from the lender. Respondent represented that the mortgage broker was able to provide loan commitments without disclosing the necessity for a written commitment from the lender.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a Final Order finding Respondent not guilty of violating Section 494.038(1) in the George, Reiland, and Reigel transactions; guilty of violating Sections 494.043(1)(b) and 494.038(2) in the Carter transaction; guilty of violating Section 494.038(1) in the Piper and Netterville transactions; and issuing a written reprimand for Respondent's violations in the Carter transaction; and imposing fines totaling $2,426.25 for Respondent's violations in the Piper and Netterville transactions. DONE AND ENTERED this 27th day of January, 2000, in Tallahassee, Leon County, Florida. DANIEL MANRY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 27th day of January, 2000. COPIES FURNISHED: Honorable Robert F. Milligan Comptroller State of Florida The Capitol, Plaza Level Tallahassee, Florida 32399-0350 Harry Hooper, General Counsel Fletcher Building, Suite 526 101 East Gaines Street Tallahassee, Florida 32399-0350 Chris Lindamood, Esquire Department of Banking and Finance Hurston Tower South, Suite S-225 400 West Robinson Street Orlando, Florida 32801 Teresa M. Steininger 8907 Roberts Drive Dunwoody, Georgia 30350
Findings Of Fact At all times pertinent to the allegations contained herein, Respondent was a licensed Mortgage Broker and the principal broker for Mortgage Associates of Countryside, located at 2623 Enterprise Rd., Clearwater, Florida. The Department was and is the state agency charged with regulating the activities of mortgage brokers in this state. In September, 1987, Andrew Grosmaire and Kevin Gonzalez, compliance officer and financial examiner, respectively, for the Department, pursuant to a complaint from Mark Snyder, conducted an examination of Respondent's affairs as they pertained to his operation as a mortgage broker. During the survey, which covered the period from August, 1986 through August, 1987, Mr. Grosmaire and Mr. Gonzalez examined between 50 and 60 loan files which had culminated in loan closings. In addition, they examined loan files which did not result in closings, bank account records, and other of Respondent's miscellaneous records. In order for an appropriate audit of a closed loan file to be conducted, it is imperative that the loan closing statement be included. Without it, the examiner cannot accurately determine what, if any, closing costs the borrower actually paid and if closing costs paid were consistent with those disclosed by the broker on the Good Faith Estimate Form at the initial interview. Of the closed loan files reviewed, these closing statements were missing from seven files. Respondent admits that several closed loan files did not have the required closing costs statement form enclosed. He attributes this, however, to the failure of his processor, an assistant, to place the closing statement in the file. They were not presented at hearing or thereafter. The investigators examined the Good Faith Estimate Forms in those files which culminated in loans and found that the form utilized by the Respondent failed to contain language, required by statute, which summarized the limits and conditions of recovery from the Mortgage Brokerage Guaranty Fund. Respondent contends that the pertinent statutory section was not in existence at the time he was engaged in mortgage brokerage activities. This was found to be not true. The Act became effective July 1, 1986 and the files surveyed were from the period August, 1986 through August, 1987. Examination of the Good Faith Estimate Forms used by the Respondent in each of the cases which culminated in loan closing revealed that Respondent consistently underestimated closing costs. This resulted in the borrowers generally paying higher closing costs than was initially disclosed to them. On -loans applied for by Mr. and Mrs. Snyder, Mr. Iyer, and Mr. Toland. Respondent redistributed loan points to himself in an amount higher than that which was agreed to by the parties. In the Toland case, Mr. Toland agreed to pay a 1% loan origination fee in the amount of $996.00. The settlement statement dated approximately 2 months later reflected that Toland paid Respondent a loan origination fee of $1,128.00 in addition to a 1% ($664.00) loan discount fee to the lender. This latter mentioned discount fee was not disclosed in advance to Mr. Toland on the estimate form nor was the excess loan origination fee charged. It should be noted here that a second Good Faith Estimate Form, dated nine days after the original, reflecting a 3% loan origination fee, was found in the file. Though signed by Respondent, this second form was not signed by the borrower as required. It cannot, therefore, serve to support Respondent's claim that he advised the Tolands of the higher cost by this second form. There is no showing that the Tolands were aware of it. In the Iyer case, the estimate form dated September 19, 1986 reflected a points and origination charge of $1,332.50 which is 1% of the mortgage loan amount of $133,250.00. The Iyers were subsequently approved for a mortgage in the amount of $145,600.00. The closing statement dated March 6, 1987, almost six months later, reflects that the Iyers paid a 2% loan origination fee of $2,740.00 to Mortgage Associates and a load discount fee of $685.00 to the lender. Here again the Respondent claims that a second cost estimate form reflecting a 2% point and origination fee of $2,912.00 was subsequently executed by the Iyers. However, this second form, found in Respondent's files, is undated and fails to reflect the signature of either Respondent or the Iyers. It cannot, therefore, serve as proof that the Iyers were made aware of the change. It does appear, as Respondent claims, that the bottom of the second form, (here, a copy) , was excluded from the copy when made, but there is no evidence either in the form of a signed copy or through the testimony of the Iyers, that they were aware of the change. Consequently, it is found that the Iyers had not been made aware of the second estimate and had not agreed to pay as much as they did, in advance. As to the Snyder closing, both Mr. Snyder and Respondent agree that it was their understanding at the time the loan was applied for, that Respondent would attempt to obtain a lower interest rate for them than that which was agreed upon in the application and in the event a lower rate was obtained, Respondent's commission points would remain the same as agreed upon in the brokerage agreement. In that case, as Respondent points out, his commission is based on the mortgage amount, not the interest rate, and he would be entitled to the agreed upon percentage of the loan face amount regardless of the interest rate charged by the lender on the loan. The Snyders had agreed to a 1% commission to Respondent plus a 1% loan origination fee to the lender. When the lender agreed to lend at par, without an origination fee, Respondent appropriated that 1% to himself, thereby collecting the entire 2% called for in the application. This was improper. Respondent's claim that it is an accepted practice in the trade is rejected. The Snyders initially made demand upon the Respondent for reimbursement of that additional 1% and ultimately had to hire an attorney to pursue their interests. Respondent subsequently made a $400 partial reimbursement payment of the amount owed but nothing further notwithstanding the fact that the Snyders ultimately secured a Judgement in Pinellas County Court against him for $1,082.52 plus interest, attorney's fees and costs. As a result, the Florida Mortgage Brokerage Guarantee Fund will reimburse the Snyders for their loss. According to the investigators, the Snyders Toland, and Iyer files, in addition to the problems described, also reflected that Respondent received payments for other items which should have gone into an escrow account. These included such things as credit reports and appraisal fees. The Department requires that any money received by a broker other than as commission, be placed in the broker's escrow account pending proper disbursement. Respondent did not have an escrow account. Mr. Gonzalez looked at Respondent's overall operation, including closed files, in an attempt to correlate between income and outgo to insure that Respondent's operation was in compliance with the statute. In addition to his search for an escrow account, Mr. Gonzalez also examined Respondent's "Loan Journal" which by statute is required to contain an entry for each transaction in each loan. The purpose of this journal is to provide a continuing record to show when each item in the loan processing was accomplished. In Mr. Gonzalez' opinion, the Respondent's journal was inadequate. It contained repeat and conflicting entries for specific items which hindered the investigators' ability to determine an audit trail. In addition, all required information was not put in the journal in complete form in each account. In the opinion of the investigators, the Respondent's violations were significant in that they made it impossible for the Department to determine compliance with statutes and Department rules and inhibited the compliance examination. All in all, Respondent's way of handling his accounts, his failure to maintain an escrow account, and his unauthorized increase in commission income, all indicated his actions were not in the best interest of his clients. The investigators concluded that clients funds were not being handled properly and that the purpose of Chapter 494, Florida Statutes, to protect the consumer, was not being met. In Mr. Gonzalez' opinion, Respondent's method of business constituted incompetence as a mortgage broker and "possibly" fraudulent practice. It is so found. Both Mr. Gonzalez and Mr. Grosmaire indicated they had extreme difficulty in attempting to locate Respondent after the complaint was filed by Mr. Snyder, in order to conduct their examination. They finally located him at a site different from that which appeared in the records of the Department. Respondent contends that the Department had been notified in writing within the required time, of his change of location when he filed a notice of fictitious name. He contends that after filing his notice of name change, he received no response from the state but took no action to inquire whether the change had been made. In any case, his current address was in the phone book and had the agents chose to look there, they would have found him. Respondent contends that the good faith estimates required by the statute are just that, an estimate, and that actual figures may vary from and exceed these estimates. This is true, but there is a procedure provided whereby the broker is to notify the client of a change in advance and if the change exceeds a certain amount, it may constitute grounds for voiding the contract. In paragraph 7 of the complaint, Petitioner alleges that Respondent used a form for the estimates which failed to contain a statement defining the maximum estimated closing costs. Review of the statement offered herein reflect this to be a fair analysis. However, Respondent claims that certain items cannot be predicted accurately in that some companies charge more than others for the same item and it was his practice to insert in the estimate portion of the form a "worst case scenario." However, at no time did he address in his form what could be the maximum a prospective purchaser might be expected to pay. Respondent "doesn't like" the total picture painted by the investigators concerning his operation. He claims it is cot a fair and accurate representation. In many cases, he claims, he expended funds on behalf of clients in excess of that he received in either commission or reimbursement and even though he may have received more than entitled in some cases, it "evens out over a period of time." Though this may be so, it is no way to do business. The state requires the keeping of accurate records and, just as the broker should not be required to assume responsibility for other than his own misconduct, neither should the client be required to pay more than is his legal obligation. Respondent professes to know the mortgage business and he resents having his qualifications as a mortgage broker questioned. In his opinion, he has trained himself well and has acted in good faith on the basis of the information available to him at the time. He ignores the impact of the Judgement of the court in the Snyder matter because he feels it was "unilateral." He believes the law is designed to protect the client and he wants to know who protects the broker. It is for that very reason, he contends, that fees paid in advance are not refundable. Mr. Sample feels the Department should be more informative to the brokers and get the governing regulations updated more quickly. Respondent cherishes his license and claims he needs it to make a living. He went out of business once before, several years ago, because of bad business conditions, (the reason he uses for not complying with the court order), but did not declare bankruptcy because he wanted to go back into business and pay off the judgements against him. Though he has been back in business for several years, he has failed to make any effort to pay off any of his former creditors even though in his former operation, he improperly tapped his escrow account for other business expenses.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that the Respondent, Howard E. Sample's license as a mortgage broker in Florida be revoked. RECOMMENDED this 15th day of September, 1988 at Tallahassee, Florida. ARNOLD H. POLLOCK Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904)488-9675 Filed with the Clerk of the Division of Administrative Hearings this day of September, 1988. APPENDIX TO RECOMMENDED ORDER IN CASE NUMBER 88-2858 The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties to this case. Insofar as Petitioner's submission refers to testimony of a witness, that is considered as a proposed finding of fact. FOR THE PETITIONER; Accepted and incorporated herein & 3. Accepted and incorporated herein 4. & 5. Accepted and incorporated herein Accepted and incorporated herein & 8. Accepted and incorporated herein Rejected as contra to the evidence A conclusion of law and not a finding of fact & 11a Accepted and incorporated herein Accepted Accepted and incorporated herein Accepted Accepted and incorporated herein - 18. Accepted 19. - 21. Accepted and incorporated herein Accepted & 24. Accepted and incorporated herein 25. & 26. Accepted and incorporated herein Accepted &-29. Accepted 30. - 34. Accepted and incorporated herein FOR THE RESPONDENT: Nothing Submitted by way of Findings of Fact COPIES FURNISHED: Elise M. Greenbaum, Esquire Office of the Comptroller 400 West Robinson St. Suite 501 Orlando, Florida 32801 Howard E. Sample 2465 Northside Drive Apartment 505 Clearwater, Florida 34621 Honorable Gerald Lewis Ccmptroller, State of Florida The Capitol Tallahassee, FL 32399-0350 Charles L. Stutts, Esquire General Counsel Department of Banking and Finance Plaza Level, The Capitol Tallahassee, FL 3 2399-0350
