The Issue Whether either of the Petitioners is entitled to the funds in Unclaimed Property Account Number 117786622.
Findings Of Fact Based on the oral and documentary evidence adduced at the final hearing, and the entire record in this proceeding, the following Findings of Fact are made: The Department is the state agency authorized to administer the Florida Disposition of Unclaimed Property Act, chapter 717, Florida Statutes. In that capacity, the Department, as custodian, receives dormant accounts from various entities and safeguards the funds until the rightful owner files a claim establishing his or her entitlement to the funds. In 2013, the Department received $273,100 from Amco Insurance Company (“Amco”), a subsidiary of Nationwide Insurance Company (“Nationwide”). Amco reported the funds as the proceeds of a Matured Life-Limiting Age insurance policy payable to the “Estate of Larry Bunda” and “Home Q Servicing” (hereinafter cited as “HomEq,” the company’s preferred name styling). Amco also provided a last known address for HomEq of Post Office Box 57621, Jacksonville, Florida 32241, as an additional property identifier. The funds are now identified as Unclaimed Property Account Number 117786622. Global is registered with the Department as a claimant’s representative pursuant to section 717.1400, Florida Statutes, which permits it to file claims with the Department on behalf of apparent owners. In 2015, Global began investigating account number 117786622. In an email dated July 13, 2015, Nationwide reported to Bonnie McKee-Flores of Global that the customer in question was named Larry R. Bunda, born on October 19, 1950, with a reported address of 546 Elm Street, Ramona, California. Global investigated the status of Larry R. Bunda. It obtained a Washington State Certificate of Death indicating that Larry R. Bunda died on September 8, 2008, in Seattle, Washington, of injuries sustained in a motorcycle accident. Global discovered three heirs to the estate of Larry R. Bunda: Amelia Bunda of Bremerton, Washington; Robert Bunda of Bremerton, Washington; and George Bunda of El Cajon, California. On September 13, 2016, Ms. McKee-Flores of Global sent an email to Nationwide requesting the issue date and check number of the check issued to Larry Bunda and HomEq Servicing. Ms. McKee-Flores explained that she was attempting to obtain a release from HomEq’s successor, Ocwen, for the funds to be released to the Bunda estate, and that the information as to the check would help persuade Ocwen to sign the release. Nationwide responded: “The original check # was 0371843635 and it was issued on 11/05/2009.” Nationwide did not state to whom the check was made payable. The three heirs initiated a probate proceeding in the Circuit Court for the Second Judicial Circuit, in and for Leon County, Florida, Case No. 2016 CP 000687. On September 22, 2016, the court entered an Order of Summary Administration adjudging that there be an “immediate distribution of the assets of the decedent” equally to each of the heirs. Each heir was to receive a “one-third (1/3) share of decedent’s share” of the Department’s Unclaimed Property Account Number 117786622. On October 17, 2016, Global filed with the Department a claim on behalf of the Bunda heirs, claiming 50 percent of the funds in account number 117786622, with HomEq (or its successor) entitled to the other 50 percent as the joint named payee on the life insurance policy. The Global claim was filed on Department Form DFS-UP- 108, which is the form prescribed by Florida Administrative Code Rule 69G-20.0021(6) for claims filed by a claimant’s representative. There is no dispute that Global used the correct form to file its claim. On December 19, 2016, Ocwen filed its claim to the “Matured Life--Limiting Age” policy issued by Amco to the “Estate of Larry Bunda” and “Home Q Servicing.” Ocwen claimed the funds as the successor company to HomEq. The Ocwen claim was filed on Department Form DFS-UP- 106, which is the form prescribed by rule 69G-20.0021(4) for claims filed directly by apparent owners, including corporations. At some point after the claims were filed, the Department made further inquiry to Nationwide as to the nature and status of the insurance policy. In an email dated January 30, 2017, Jenn Hupp, a Nationwide premium processor, reported to Department regulatory specialist Tiffani Ealy Claven as follows: “I show that check 378366435 was issued on claim 84M85897 date of loss 10/22/2007. In payment of: POLICY LIMITS FOR DWELLING LOST IN FIRE-- REISSUE OF CK 378364049.” Ms. Hupp did not provide a date for either of the referenced checks, nor did she expressly state to whom they were made payable. Neither check number referenced by Ms. Hupp matched the check number that Nationwide provided to Global on September 13, 2016. None of the referenced checks were made part of the record. The actual policy document was provided to the Department by Nationwide no sooner than October 31, 2017.2/ The Department did not make Global aware that it had the policy document until November 14, 2017, when Global filed a written motion seeking to exclude the policy on grounds of inadequate notice. After hearing argument at the final hearing, the undersigned overruled Global’s objection and admitted the policy. The policy was not a life insurance policy but a homeowner’s policy, number HMC 0009452948-6, issued by Allied Property and Casualty Insurance Company (“Allied Property”), another subsidiary of Nationwide, for the period running from May 6, 2007, to May 6, 2008. The face value of the insurance policy was $273,100 for a dwelling, and included additional coverages for other structures, personal property, and personal liability. The policy declarations page identified Larry R. Bunda of 546 Elm Street, Ramona, California, as the named insured. The policy declarations page identified 546 Elm Street, Ramona, California, as the insured property. The policy identified HomEq as the mortgage loss payee on the first mortgage. HomEq’s address was listed as Post Office Box 57621, Jacksonville, Florida 32241-7621. Nothing in the record explains why Nationwide originally reported the policy to the Department as a life insurance policy, or why it was reported by Nationwide’s Amco subsidiary rather than by Allied Property, the issuer of the policy. In support of its claim, Ocwen submitted a copy of a Deed of Trust, dated October 5, 2005, relating to the property located at 546 Elm Street, Ramona, California. The Deed of Trust identifies Larry R. Bunda as the purchaser/borrower, BNC Mortgage, Inc., as the lender, and TD Service Company as the trustee. The Deed of Trust identifies Mortgage Electronic Registration Systems, Inc. (“MERS”) as the beneficiary, “acting solely as a nominee for Lender and Lender’s successors and assigns.” The Deed of Trust reflects a purchase price of $495,000. The Deed of Trust, in the Uniform Covenants, at paragraph 5, requires Mr. Bunda to insure the property against fire, flood, and other hazards, and further states: All insurance policies required by Lender . . . shall include a standard mortgage clause, and shall name Lender as mortgagee and/or as an additional loss payee and Borrower further agrees to generally assign rights to the insurance proceeds to the holder of the Note up to the amount of the outstanding loan balance. If Mr. Bunda failed to purchase the insurance, then the lender, through its servicing agent, had the authority to purchase insurance at Mr. Bunda’s expense. In the event of loss, insurance proceeds were to be applied to restoration or repair of the property. If restoration or repair were “not economically feasible or Lender’s security would be lessened,” the insurance proceeds would be applied to the amounts secured by the Deed of Trust, with any excess paid to the borrower, Mr. Bunda. Ocwen also provided an Assignment of Deed of Trust, dated August 10, 2011, that specifically identifies 546 Elm Street, Ramona, California, as the subject property. In the Assignment of Deed of Trust, MERS, as nominee for BNC Mortgage, Inc., assigns its rights under the Deed of Trust to U.S. Bank National Association (“U.S. Bank”), as “Trustee under Securitization Servicing Agreement Dated as of December 1, 2005 Structured Asset Investment Loan Trust Mortgage Pass-Through Certificates, Series 2005-11” (the “Securitization Servicing Agreement”). U.S. Bank’s address is listed as c/o Ocwen Loan Servicing, LLC, at Ocwen’s West Palm Beach, Florida, office. The Assignment of Deed of Trust was recorded at the San Diego County Recorder’s Office on August 25, 2011. Ocwen submitted a copy of a Substitution of Trustee, dated March 3, 2011, in which MERS, as nominee for U.S. Bank, and “as trustee for the Securitization Servicing Agreement,” substitutes Western Progressive, LLC (“Western Progressive”), as trustee under the Deed of Trust, in place of TD Service Company, the original trustee. The Substitution of Trustee was not recorded in the San Diego County Recorder’s Office until July 12, 2011. In its preliminary decision, the Department accepted that the Deed of Trust on 546 Elm Street, Ramona, California, was included in the Securitization Servicing Agreement, the first mention of which in the record is in the Substitution of Trustee dated March 3, 2011. Ocwen submitted a Limited Power of Attorney, dated June 1, 2012, listing the Securitization Servicing Agreement among those items over which U.S. Bank granted Ocwen a limited power of attorney. The Assignment of Deed of Trust also names the Securitization Servicing Agreement, implying a connection to the Deed of Trust on the Bunda mortgage. However, the Securitization Servicing Agreement itself is not part of the record in this case. The Assignment of Deed of Trust certainly assumes that the Bunda mortgage is part of the Securitization Servicing Agreement, but there is no document establishing that fact. The failure to tie the Bunda mortgage to the Securitization Servicing Agreement would not affect the assignment of rights from BNC Mortgage to U.S. Bank, or the substitution of trustee from TD Service Company to Western Progressive, because both of those documents are executed in direct reference to the Deed of Trust on the Bunda property. However, the Limited Power of Attorney from U.S. Bank to Ocwen references only the Securitization Servicing Agreement. There is no record evidence directly establishing that Ocwen’s limited power of attorney includes the Deed of Trust on the Bunda property. It appears that the Department was willing to infer that the Deed of Trust is included in the Securitization Servicing Agreement based on the indirect evidence of the Assignment of Deed of Trust and the Substitution of Trustee. Ocwen submitted a U.S. Securities and Exchange Commission Form 8-K filed by Ocwen Financial Corporation, dated September 8, 2010, detailing Ocwen Financial Corporation’s acquisition of “HomEq Servicing,” through its subsidiary Ocwen Loan Servicing, LLC (the “Ocwen” referenced throughout this Order), effective September 1, 2010. The acquisition includes the “mortgage servicing rights and associated servicer advances” of HomEq. In the Form 8-K, HomEq is identified as “the U.S. non-prime mortgage servicing business” owned by Barclays Bank PLC, a British company, and Barclays Capital Real Estate Inc., a Delaware corporation. Florida Division of Corporations documents identify HomEq Servicing as a fictitious name registered by Barclays Capital Real Estate, Inc., on August 29, 2006. The registration was canceled on October 27, 2010. Ocwen submitted a series of notices sent to Larry R. Bunda at 546 Elm Street, Ramona, California, giving notice of transfers of loan servicers. In a notice dated January 27, 2006, HomEq informed Mr. Bunda that the servicing of his account was being transferred from Option One to HomEq, effective February 1, 2006. HomEq sent another notice, dated August 11, 2010, addressed to Larry R. Bunda at 1306 Poindexter Avenue West, Bremerton, Washington 98312-4333. By this time, Mr. Bunda had been dead for almost two years. The address is the same as that given by Mr. Bunda’s heir, Robert Bunda, in the claim documents filed by Global. It is also the address given for “Rob Bunda” as the decedent’s son on Larry R. Bunda’s death certificate. Nothing in the record of this case indicates how HomEq came by this address for Larry R. Bunda in 2010. The August 11, 2010, notice was intended to inform Mr. Bunda that HomEq was transferring the servicing of his account to Ocwen, as of September 1, 2010. This is consistent with Ocwen’s Form 8-K, which stated that Ocwen was acquiring HomEq, effective September 1, 2010. Ocwen submitted a Notice of Default and Election to Sell Under Deed of Trust (“Notice of Default”), dated February 17, 2011, over the signature of Marco Marquez. Mr. Marquez’ position is unclear, as the signature line includes both “Western Progressive, LLC, as agent for beneficiary” and “By LSI Title Company, As Agent.” The relationship of LSI Title Company to this case is unexplained in the record. The document indicates that it was recorded in the San Diego County Recorder’s Office on February 18, 2011. The date on the Notice of Default is prior to the appointment of Western Progressive as trustee by the Substitution of Trustee document dated March 3, 2011. The source of Western Progressive’s authority to do anything regarding the property as of February 17, 2011, is unexplained in the record. The Notice of Default does not state to whom it is addressed. By February 17, 2011, Larry R. Bunda was long dead, but the document includes no acknowledgement of his death or of any effort to locate his heirs. The text of the document repeatedly refers to “your property,” states that “you are behind in your payments” and advises “you” how to obtain a written itemization of the amount “you must pay.” Nothing in the document gives any indication that the “you” being addressed is anyone other than Larry R. Bunda, the borrower, who was dead. The Notice of Default offers the recipient an opportunity to bring the account into good standing by paying all past due payments, stated as $121,831.17 as of February 17, 2011. The Notice of Default goes on to provide: NOTICE IS HEREBY GIVEN: That Western Progressive, LLC is either the original trustee, the duly appointed substituted trustee, or acting as agent for the trustee or beneficiary under a Deed of Trust dated 10/5/2005, executed by LARRY R. BUNDA, A WIDOWER, as Trustor, to secure certain obligations in favor of BNC MORTGAGE, INC., A DELAWARE CORPORATION A CORPORATION [sic], AS LENDER, Mortgage Electronic Registration Systems, Inc., as beneficiary, recorded 10/12/2005, as Instrument No. 2005-0881960, in Book , Page , and rerecorded on as of Official Records in the Office of the Recorder of San Diego County, California describing land therein as: As more particularly described on said Deed of Trust. The subject obligation includes ONE NOTE(S) FOR THE ORIGINAL sum of $495,000.00. A breach of, and default in, the obligations for which such Deed of Trust is security has occurred in that payment has not been made of the following: Installment of Principal and Interest plus impounds and/or advances which became due on 9/1/2008 plus late charges, and all subsequent installments of principal, interest, balloon payments, plus impounds and/or advances and late charges that became payable. You are responsible to pay all payments and charges due under the terms and conditions of the loan documents which come due subsequent to the date of this notice, including, but not limited to, foreclosure trustee fees and costs, advances and late charges. Furthermore, as a condition to bring your account in good standing, you must provide the undersigned with written proof that you are not in default on any senior encumbrance and provide proof of insurance. Nothing in this notice of default should be construed as a waiver of any fees owing to the beneficiary under the deed of trust, pursuant to the terms and provisions of the loan documents. Again, the statements addressed to “you” do not appear to reference anyone other than the borrower, Larry R. Bunda, who was dead well before the Notice of Default was issued. In fact, Mr. Bunda was dead before the due date cited by the Notice of Default. Also, the assertion that Western Progressive “is either the original trustee, the duly appointed substituted trustee, or acting as agent for the trustee or beneficiary under a Deed of Trust dated 10/5/2005, executed by LARRY R. BUNDA, A WIDOWER, as Trustor, to secure certain obligations in favor of BNC MORTGAGE” was not true as of February 17, 2011, at least insofar as the record evidence of this case indicates. Western Progressive was not substituted as trustee until March 3, 2011.3/ The Notice of Default concludes with the following statements: The mortgagee, beneficiary, or authorized agent has fulfilled its obligation under California Civil Code Section 2923.5(a) by contacting the borrower either in person or by telephone to assess the borrower’s financial situation and explore options to avoid foreclosure prior to 30 days of filing the Notice of Default. The borrower was advised of their right to a subsequent meeting within 14 days of the initial contact. In addition, the borrower was provided with the toll-free telephone number made available by the United States Department of Housing and Urban Development (HUD) to find a HUD-certified housing counseling agency. The quoted statements cannot be true. Neither the mortgagee, nor the beneficiary, nor any authorized agent contacted the borrower, Larry R. Bunda, either in person or by telephone, because Larry R. Bunda was dead. The borrower was not advised of his right to a subsequent meeting, nor was he provided with a toll-free HUD number, because he was dead. The record is bereft of information as to the legal effect under California law of falsely attesting to having provided the notice apparently required by the cited provision of that state’s civil code, or of failure to provide notice to the actual, living parties in interest. Unsurprisingly, the borrower did not respond to the Notice of Default and the property proceeded to a trustee’s sale. Ocwen submitted a Notice of Trustee’s Sale, dated July 8, 2011, and recorded in the San Diego County Recorder’s Office on July 12, 2011. This document is signed by Robin Pape, Trustee Sales Assistant, on behalf of Western Progressive, as trustee. The Notice of Trustee’s Sale begins as follows: YOU ARE IN DEFAULT UNDER A DEED OF TRUST DATED 10/5/2005. UNLESS YOU TAKE ACTION TO PROTECT YOUR PROPERTY, IT MAY BE SOLD AT A PUBLIC SALE. IF YOU NEED AN EXPLANATION OF THE NATURE OF THE PROCEEDING AGAINST YOU, YOU SHOULD CONTACT A LAWYER. Nothing in the Notice of Trustee’s Sale gives any indication that it is addressed to anyone other than Larry R. Bunda, who remained dead on July 8, 2011. The Notice of Trustee’s Sale informs the recipient that the trustee’s public auction sale will occur on August 8, 2011, at the South entrance to the County Courthouse, 220 West Broadway, San Diego, California. It lists the street address of the property as 546 Elm Street, Ramona, California 92065, and states that the amount of the unpaid balance and other charges is $610,258.23. Finally, Ocwen submitted a Trustee’s Deed Upon Sale, dated September 20, 2011, and recorded at the San Diego County Recorder’s Office on September 29, 2011. The document states that Western Progressive, as Trustee under the Deed of Trust, “does hereby GRANT and CONVEY to Matthew D. Parker, a named man as his sole and separate property . . . all right title and interest conveyed to and now held by it as Trustee under the Deed of Trust in and to the property situated in the county of San Diego, State of California, described as follows ” There follows a legal description matching the Bunda property at 546 Elm Street, Ramona, California. The Trustee’s Deed Upon Sale also provides as follows: This conveyance is made in compliance with the terms and provisions of the Deed of Trust executed by LARRY R. BUNDA, A WIDOWER as Trustor, dated 10/5/2005 in the Official Records in the office of the Recorder of San Diego, California under the authority and powers vested in the Trustee designated in the Deed of Trust or as the duly appointed Trustee, default having occurred under the Deed of Trust pursuant to the Notice of Default and Election to Sell under the Deed of Trust recorded on 10/12/2005, instrument number 2005-0881960, Book ---, Page and rerecorded on --- as --- of official records. Trustee having complied with all applicable statutory requirements of the State of California and performed all duties required by the Deed of Trust including sending a Notice of Default and Election to Sell within ten days after its recording and a Notice of Sale at least twenty days prior to the Sale Date by certified mail, postage pre-paid to each person entitled to notice in compliance with California Civil Code 2924b. All requirements per California Statutes regarding the mailing, personal delivery and publication of copies of Notice of Default and Election to Sell under Deed of Trust and Notice of Trustee’s Sale, and the posting of copies of Notice of Trustee’s Sale have been complied with. Trustee, in compliance with said Notice of Trustee’s sale and in exercise of its powers under said Deed of Trust sold said real property at public auction on 9/14/2011. Grantee, being the highest bidder at said sale became the purchaser of said property for the amount bid, being $65,000.00, in lawful money of the United States, in pro per, receipt thereof is hereby acknowledged in full/partial satisfaction of the debt secured by said Deed of Trust. Again, there is no indication that any living person with an interest in the estate of Larry R. Bunda was given notice of this sale, despite the assurances of Western Progressive, in the Trustee’s Deed Upon Sale. The facts recited above raise many questions. First, why is this case being heard in Florida? Larry R. Bunda lived in California. His heirs live in the states of Washington and California. Ocwen’s filings indicate that it is based in Boston, Massachusetts. The real property was in California and the Deed of Trust was drafted on a California-specific form. The mortgage was declared in default according to California law, and the foreclosure and subsequent resale were performed under California law. The insurance policy was issued by a California agency. It appears the only connection of this unclaimed property to Florida is the address provided to the Department by Amco in its initial 2013 report: “last known address” of Post Office Box 57621, Jacksonville, Florida 32241. This address turned out to be that of HomEq. According to Ocwen’s Form 8-K, HomEq ceased to exist as a separate company as of September 1, 2010, approximately three years before Amco reported the unclaimed funds to the Department. The only real connections to Florida in this case are Global and Ocwen’s acts of following the money to its landing place at the Department. It is understandable that the Department took custody of the unclaimed property at the time Amco submitted it, given that the only address on the documentation was in Jacksonville. However, at some point it should have occurred to the Department that its unclaimed property counterpart in the State Controller’s Office of California might be better placed to resolve this controversy involving issues of California real property law, inheritance law, and insurance law.4/ One example will suffice to illustrate the problem of a Florida administrative agency attempting to apply California law to resolve these issues. In its proposed recommended order, the Department confidently argues that a 2014 amendment to section 580b of the California Code of Civil Procedure alters the analysis of this case as to the extinguishment of the debtor-creditor relationship during foreclosure proceedings. The Department fails to note that three separate Federal courts in California have concluded that the operation of the 2014 amendment is prospective only. It would therefore be inapplicable to the instant case. See Shin v. Citizens Bank, N.A., 2018 U.S. Dist. LEXIS 14997 at n.2 (S.D. Cal. 2018); Prianto v. Experian Info. Solutions, Inc., 2014 U.S. Dist. LEXIS 94673 at n.2 (N.D. Cal. 2014); Johnson v. Wells Fargo Home Mortg., Inc., 2013 U.S. Dist. LEXIS 185345 at 19 (C.D. Cal. 2013). An agency more familiar with California law might have been aware of the court decisions and the California rules of statutory construction that underlay their conclusions. Given its insistence that California law governs this case, the Department should have considered whether a California tribunal would be better placed to resolve these issues.5/ A second question regards the status of Ocwen, which filed its claim on Department Form DFS-UP-106, the form prescribed for “apparent owners.” Section 717.101(2) defines “apparent owner” as “the person whose name appears on the records of the holder as the person entitled to property held, issued, or owing by the holder.” It is unclear whether Amco or the Department would be considered the “holder” of the insurance proceeds, but it makes no difference as Ocwen’s name did not appear on the records of either entity. Ocwen could ultimately be found to be an “owner” as defined in section 717.101(18), and could be a “claimant” as defined in rule 69G-20.030(14), but Ocwen was not an “apparent owner” at the time it filed its claim, under the express terms of section 717.101(2). Therefore, it appears that Ocwen’s claim was filed on the wrong form and should have been filed on Form DFS-UP-107, prescribed by rule 69G-20.0021(5) for “claims filed by other than apparent owners,” which includes heirs, personal representatives, or beneficiaries, if Ocwen believed it was entitled to claim the funds as an owner. The Department should not have processed the Ocwen claim because it was not “complete” under the terms set forth in rule 69G-20.0021(1)(b), which provides that a complete claim “shall include the correct claim form identified in this rule.” Even if it were accepted that the rule’s definition of “apparent owner” should not be read literally and that Ocwen was entitled to file its claim as “apparent owner” by virtue of its status as HomEq’s purchaser and successor in interest,6/ there remains the question of whether HomEq, and therefore Ocwen, could be considered the “owner” of the unclaimed property in the sense required by section 215.965, Florida Statutes, which provides: Disbursement of state moneys.— Except as provided in s. 17.076, s. 253.025(17), s.717.124(4)(b) and (c), s. 732.107(5), or s. 733.816(5), all moneys in the State Treasury shall be disbursed by state warrant, drawn by the Chief Financial Officer upon the State Treasury and payable to the ultimate beneficiary. This authorization shall include electronic disbursement.[7/] (Emphasis added). The record evidence establishes that HomEq, and Ocwen as its successor, functioned as no more than loan servicers. While it is true that HomEq is named on the insurance policy as the “mortgage loss payee,” there is nothing in the record that establishes HomEq as the “ultimate beneficiary” of the insurance policy. HomEq’s part of the insurance transaction would be to collect the proceeds and pass them on to the ultimate beneficiary of the insurance contract, i.e., the lender whose money is at risk under the Deed of Trust. Ocwen could succeed to no more of an interest than that held by HomEq. The Department argues that “Ocwen is claiming the funds in its own name under the authority of a limited power of attorney to act on U.S. Bank’s behalf as a loan servicer.” For the sake of argument, the undersigned will put aside Ocwen’s failure to connect the Bunda mortgage to the Securitization Servicing Agreement for which it has a limited power of attorney. The Department offers no explanation as to what set of circumstances would allow an entity operating pursuant to a limited power of attorney--by definition,8/ in a representative capacity--to claim ownership, in its own name, of funds it seeks as agent on behalf of its principal. The Department simply takes it as a given that Ocwen may claim as an owner. The Department specifically relies on language from the Limited Power of Attorney giving Ocwen authority to: Demand, sue for, recover, collect and receive each and every sum of money, debt, assessment, and interest (which now is, or hereafter shall become due and payable) belonging to or claimed by U.S. Bank National Association, as Trustee . . . . The Department seems to believe that this language self-evidently establishes Ocwen’s ownership interest in the proceeds of this insurance policy, when it merely authorizes Ocwen to go out and recover funds “belonging to U.S. Bank.” It does not transfer ownership of those funds to Ocwen. It does not make Ocwen the ultimate beneficiary of the insurance policy. The undersigned is aware of cases such as Lenart v. Ocwen Financial Corporation, 869 So. 2d 588 (Fla 3d DCA 2004), in which the court assumed without discussion that a loan servicer such as Ocwen may stand in the shoes of the mortgagee as “owner” for the purpose of litigation over insurance proceeds. However, Lenart involved litigation between private parties. It did not involve an unpaid property claim before the Department, which has very specific requirements under statute and rule, including the “apparent owner” limitation on the use of Form DFS-UP-106 and the “ultimate beneficiary” limitation on the disbursement of moneys from the State Treasury in section 215.965. Even if Ocwen were to establish its right to claim insurance proceeds as the mortgage loss payee, it would not necessarily have proven its right to claim those funds once they have become unclaimed property and passed to the Department’s custody. In its attack on the proposed award to Ocwen, Global contends that Ocwen’s documentation fails to establish that the rights of HomEq as the loss payee on the insurance policy were transferred to Ocwen by its acquisition of HomEq in 2010. As indicated above, the undersigned is persuaded that Ocwen did succeed to HomEq’s rights but finds that those rights are insufficient to establish Ocwen’s status as an owner of the proceeds. The record evidence at most establishes that Ocwen is the agent of the ultimate beneficiary of the insurance policy. Global cites Martin Young v. Department of Banking and Finance, 659 So. 2d 410 (Fla. 1st DCA 1995), for the proposition that the Department may not disburse funds to Ocwen because Ocwen is no more than a creditor in this case. In Martin Young, the Department had awarded unclaimed insurance proceeds to creditors of the apparent owner. On appeal, the Court first held that the Department has no statutory authority to prioritize competing claims, a holding since superseded to a degree by statute. See § 717.1241, Fla. Stat. More to the point, the court held that creditors were not “owners” because they did not have a “legal or equitable interest” in the subject property. “Insurance proceeds are personal property which judgment creditors cannot reach or claim an interest in until after resorting to judicial process.” Martin Young, 659 So. 2d at 411. The Department distinguishes Martin Young by arguing that it involved unsecured creditors, whereas U.S. Bank was a secured creditor by reason of the recorded Deed of Trust containing a power of sale provision and the homeowner’s insurance policy with the standard mortgagee clause. Global accurately points out that the Martin Young court stated no distinction between secured and unsecured creditors. However, the court’s holding appears expressly limited to the reach of judgment creditors who have not obtained a lien by way of writ of execution. The Department is correct that a secured creditor such as U.S. Bank already has a lien on the property and executes on that lien when it forecloses on the secured loan. Of course, the Department’s analysis assumes that U.S. Bank’s agents foreclosed on the property in accordance with California law. As indicated in Findings of Fact 31-45, there is insufficient evidence in the record to establish that the default and foreclosure were properly performed. Though Martin Young appears not to preclude an award to Ocwen, the statutes and rules under which the Department operates do not allow Ocwen, as U.S. Bank’s agent, to claim “ownership” of the unclaimed funds. The question at the heart of this case, regarding the claim of Global and especially that of Ocwen, is: what happened in California? The Department’s preliminary decision to award the claim to Ocwen assumes that a check was issued to the Bunda estate, that the Bunda estate failed to keep up the payments on the property, and that the Bunda estate allowed the foreclosure to occur in 2011. The evidence supports none of the Department’s assumptions. It is known for certain that Larry R. Bunda entered into a Deed of Trust to purchase the property at 546 Elm Street, Ramona, California, on October 5, 2005. It is known for certain that Larry R. Bunda purchased homeowner’s insurance on the property with a face value of $273,100 for the dwelling and that the term of the insurance was from May 6, 2007, to May 6, 2008. It is known for certain that Larry R. Bunda died on September 8, 2008. Beyond these facts, matters become hazier if one relies on the documents in evidence without assuming facts outside the record. One may reasonably presume the correctness of Nationwide’s report that the total loss of Mr. Bunda’s dwelling occurred on October 22, 2007. That date coincides with the time of the Witch Creek fire, which began near the town of Ramona and destroyed over 1,000 residences and other buildings. Therefore, it is reasonable to find that Larry R. Bunda was alive when the loss occurred. Nationwide reported to Global that the original check to pay the insurance claim was check number 0371843635 and was issued on November 5, 2009, more than one year after Larry R. Bunda’s death. Nationwide offered no explanation as to why the check was issued more than two years after the loss was incurred. Nationwide did not provide a copy of the check or state to whom the check was made payable. No explanation was given for the failure of any party to negotiate the check. Nationwide later reported to the Department that two other checks had been issued: check number 378364049 and the reissued check number 378366435. Nationwide gave no dates for these two checks. Nationwide did not provide copies of these checks or state to whom the checks were made payable. No explanation was given for the failure of any party to negotiate either of the checks. No evidence was presented as to why Nationwide issued more than one check. No evidence was presented as to why none of these checks was ever negotiated. If one presumes that the checks were made payable to the policy payees, Larry R. Bunda and HomEq, and that Mr. Bunda was dead at the time they were issued, then one questions why HomEq apparently failed to take any steps to secure the funds for its principal. Was HomEq aware that Larry R. Bunda was dead at the time the checks were issued? Such might be inferred from the August 11, 2010, notice that HomEq sent to Mr. Bunda at his son’s address in Bremerton, Washington. However, it is just as likely that Mr. Bunda moved in with his son after the loss of his home and sent HomEq a forwarding address. Any finding on that score would be speculative. In any event, HomEq was absorbed by Ocwen on September 1, 2010. The record indicates no further correspondence addressed to Bremerton, Washington. As HomEq’s successor, Ocwen should have known of the Washington address, but the record contains no direct mailings from Ocwen to Larry R. Bunda. There is nothing in the record indicating that Western Progressive’s Notice of Default and Notice of Trustee’s Sale were addressed to anyone other than the borrower, Larry R. Bunda, who was long dead by the time the default and foreclosure proceedings on 546 Elm Street began. Nonetheless, the Notice of Default falsely stated that Western Progressive had contacted “the borrower either in person or by telephone” to explore options to avoid foreclosure. Further, at the time it issued the Notice of Default, Western Progressive had yet to be substituted as trustee under the Deed of Trust. Based on this record and the briefs of the parties, there is no way to ascertain the rights (if any) of Larry R. Bunda’s heirs to unwind the sale of the property or seek damages for Western Progressive’s selling of the property without notice to the Bunda estate. This point is important because a large part of the Department’s argument for awarding the claim to Ocwen rests on the assumption that the Bunda heirs “waived” their right to contest the Ocwen claim because of “the foreclosure they allowed to occur in 2011.” There is no record evidence that the Bunda heirs even knew of the foreclosure, let alone “allowed” it to happen. The Department simply assumes a fact not in evidence.9/ Global claims that the Bunda heirs are entitled to one-half of the proceeds of the insurance policy as the successors to Larry R. Bunda as the joint named payee on the policy. Global relies on the Order of Summary Administration entered by the Leon County circuit court on September 22, 2016, adjudging that there be an immediate distribution of the assets to the Bunda heirs. On November 15, 2017, the circuit court on its own motion entered an Order to Set Aside Order of Summary Administration, citing unspecified “abnormalities” that had been found in the estate file. Thus, Global’s reliance on the Order of Summary Administration is misplaced. As to the heirs’ entitlement to one-half of the proceeds, this argument would be more persuasive had the policy been one for life insurance, as the Department and Global originally believed. Because the actual policy was a homeowner’s insurance company, the heirs’ rights would appear to be subsidiary to the rights of the secured creditor to obtain the difference between the value of the note and the price obtained from the trustee’s sale of the property in its damaged condition. Again, however, this hierarchy of rights depends on a finding that the Notice of Default, the Notice of Trustee’s Sale, and the trustee’s sale of the property at 546 Elm Street were conducted in accordance with California law. The Department appears sanguine that this is the case, but the record presented at the hearing does not permit a finding that Ocwen’s principal, U.S. Bank, through its agent, Western Progressive, gave notice to any living person with an interest in Larry R. Bunda’s estate of the default, foreclosure, or trustee’s sale on the property at 546 Elm Street in Ramona, California. The record is not even clear that Western Progressive was an authorized agent at the time it issued the Notice of Default. The record permits no conclusion as to the legal effect of a failure to notify the estate or of falsely attesting that notice has been given to the borrower. Nonetheless, a finding that Ocwen has failed to establish ownership of the funds does not necessitate a finding that the Bunda heirs are entitled to the funds. Enough is known of the situation to permit the conclusion that the Bunda heirs’ claim is likely a subsidiary claim. It would be premature to award them half of the unclaimed property until the Department or some other entity conducts a proper investigation and determines whether the foreclosure on the Bunda mortgage was conducted in accordance with California law. Global’s final ground for claiming entitlement to the funds is that it filed the first complete claim. Section 717.1241(1)(a) provides: When conflicting claims have been received by the department for the same unclaimed property account or accounts, the property shall be remitted in accordance with the claim filed by the person as follows, notwithstanding the withdrawal of a claim: To the person submitting the first claim received by the Division of Unclaimed Property of the department that is complete or made complete. The Department concedes that Global filed all of the necessary paperwork. Its application was not “incomplete” in the clerical sense that Global left out any of the information required by Form DFS-UP-108. The Department contends that Global’s application was not substantively complete in that it did not establish proof of entitlement to the funds on the part of the Bunda heirs. “Proof of entitlement” is expressly required in order for an application to be deemed “complete.” Section 717.1241(3) provides: “A claim is complete when entitlement to the unclaimed property has been established.” See also Fla. Admin. Code R. 69G-20.0021(1)(b)&(c). The Department observes that section 717.1241 is a procedural statute enacted to provide guidance to the Department when it receives claims from two or more claimants, all of whom are entitled to the property. The “first to file” language does not create an independent basis for establishing entitlement but is a way for the Department to choose among entitled claims. For purposes of commencing a review, the Department deems a claim “complete” when all the required documentation has been submitted. If a claim is missing information, the Department may return it to the claimant or request additional information from the claimant. If more information is sought, the claim is abated until the Department receives the requested information or deems the claim withdrawn for failure to provide the information. § 717.124(1)(b), Fla. Stat. If the claimant provides the requested information, then the Department will review the claim on the merits to determine whether entitlement has been demonstrated. The Department argues that the merits review is subsequent to and separate from the claimant’s submission of the required documents. Global has conflated the claimant’s responsibility to provide all required documentation with the Department’s responsibility to review the claim on the merits and determine whether entitlement has been established by a preponderance of the evidence. The mere fact that the claimant provides the documentary information required by statute and rule does not mean the claim is “complete” in the sense that entitlement is established. The Department’s argument is correct. The facts of this case do not permit a finding that the Bunda heirs are entitled to the unclaimed funds. A secured lienholder who followed all proper steps in notifying the borrower or his heirs of the default, of the foreclosure, and of the pending trustee’s sale would be entitled to cover any deficiency with some or all of the proceeds of the insurance policy. Ocwen’s failure to demonstrate that all proper steps were taken means that it is not entitled to the unclaimed funds under the facts of this case, but Ocwen’s failure does not establish that Global’s claim is “complete” on the merits. In summary, Ocwen has failed to establish by a preponderance of the evidence that it is entitled to the funds in Unclaimed Property Account Number 117786622 because: It failed to file its claim on the correct form; It failed to establish its right to claim as an “owner” of the property; and It failed to establish that the foreclosure and sale of the Bunda property were conducted in accordance with California law. Global failed to establish by a preponderance of the evidence that it is entitled to a portion of the funds in Unclaimed Property Account Number 117786622 because its claim is subsidiary to that of the secured creditor, and the evidence did not foreclose the possibility that U.S. Bank may have a valid claim to the property as the secured creditor, if the regularity of the events surrounding the foreclosure and sale of the Bunda property can be established. Under the facts established by the record of this case, neither claimant established its entitlement to Unclaimed Property Account Number 117786622. This finding and recommendation should not preclude the Department from allowing Ocwen to file a proper claim as a representative of U.S. Bank and then undertaking further investigation to establish whether the foreclosure sale on the Bunda property was conducted in accordance with California law. If Ocwen is unable to establish U.S. Bank’s right to the unclaimed property as a secured creditor, then the subsidiary claim put forward by Global on behalf of the Bunda heirs should be held entitled to the property.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the claim of Ocwen Loan Servicing, LLC, for entitlement to Unclaimed Property Account Number 117786622 be DENIED, without prejudice. It is also RECOMMENDED that the claim of Global Discoveries Ltd., LLC, for entitlement to Unclaimed Property Account Number 117786622, be DENIED. DONE AND ENTERED this 23rd day of April, 2018, in Tallahassee, Leon County, Florida. S LAWRENCE P. STEVENSON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 23rd day of April, 2018.
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: Respondent Michael Quintana is currently licensed as a general lines agent in Florida. On or about January 18, 1983, respondent went to the home of Shirley W. McLaughlin for the purpose of soliciting insurance. Mrs. McLaughlin agreed to purchase a homeowners insurance policy and "mortgage" insurance was also discussed. She supplied the necessary information and signed the applications for both the homeowner insurance and the "mortgage" insurance. While she did not desire to purchase what she understood to be strictly "life" insurance, she did understand that what she "was getting at that particular time was protection for the house, period." (TR. 32) She further understood that she was applying for coverage that would pay something if either she or her husband died, and that such would be payable to the beneficiaries. While she was given the opportunity to review all the papers she signed on January 18, 1983, Mrs. McLaughlin apparently did not understand that the premium payments for the "mortgage" insurance would be automatically withdrawn from her bank account. Sometime after her application for homeowners insurance was refused because of a space heater in her home, Mrs. McLaughlin learned from her bank of the automatic withdrawal of premium payments for the "mortgage" insurance. She thereafter cancelled such insurance and all monies were refunded to her. The cover sheet for the "mortgage" insurance policy identifies the policy as a "joint reducing term life insurance policy." The inserted printout setting forth the costs and benefits describes the basic policy as "joint reducing term life (20-year mortgage term) with disability waiver benefit." Agents within the company with which respondent was employed on January 18, 1983, typically refer to such a policy as a "mortgage insurance policy" or a "mortgage cancellation policy," as opposed to a "life insurance policy." The term "mortgage" is used to delineate that a specific policy has been purchased for a specific loss. The beneficiary of such a policy has the option of either paying off the mortgage or using the money for any other purpose.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that the Administrative Complaint filed on June 11, 1984, be DISMISSED. Respectfully submitted and entered this 25th day of January, 1985, in Tallahassee, Florida. DIANE D. TREMOR 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 28th day of January, 1985. COPIES FURNISHED: William W. Tharpe, Jr. 413-B Larson Building Tallahassee, Fla. 32301 Timothy G. Anderson 620 E. Twigg Street Tampa, Fla. 33602 Bill Gunter Insurance Commissioner The Capitol Tallahassee, Fla. 32301
The Issue Whether Highlands has standing to challenge the Department's Emergency Rule 4ER93-20, Florida Administrative Code, and if so, whether Sections 2(d) and 6(a) should be invalidated because they constitute invalid exercise of delegated legislative authority?
Findings Of Fact The Moratorium Statute During Special Session B of 1993 the Florida Legislature passed HB 89- B. The Governor signed the bill into law on June 8, 1993. Now codified as Section 1 of Chapter 93-401, Laws of Florida, the law, in pertinent part, provides as follows: Section 1. Moratorium on cancellation and nonrenewal of residential property coverages.-- * * * (3) MORATORIUM IMPOSED.--Effective May 19, 1993, no insurer authorized to transact insurance in this state shall, until the expiration of this section pursuant to subsection (6), cancel or nonrenew any personal lines property insurance policy in this state, or issue any notice of cancellation or nonrenewal, on the basis of risk of hurricane claims. All cancellations or nonrenewals must be substantiated by underwriting rules filed with and accepted for use by the Depart- ment of Insurance, unless inconsistent with the provisions of this section. The Department of Insurance is hereby granted all necessary power to carry out the provisions of this section. Pursuant to the Moratorium Statute, on an emergency basis, the Department promulgated Emergency Rule 20. The Challenged Sections The sections of Emergency Rule 20 Highlands seeks to have invalidated are 2(d) and 6(a): 4ER93-20 Procedures For Applying for Moratorium Exemption and Required Insurer Corrective Action on Previous Notices of Cancellation or Nonrenewal. * * * (2) General Provisions. * * * (d) House Bill 89-B, as enacted at the May 1993 Special Legaislative (sic) Session, revoked all prior approvals issued by the Department, of insurer plans for programs of onrenewals and cancellations, where the non- renewal or cancellation was not effective as of May 19, 1993, notwithstanding that the notice of nonrenewl or cancellation was issued before May 19, 1993. * * * (6) Required Action On Prior Notices of Cancellation. (a) Any insurer which, prior to May 19, 1993, shall have issued any notice of cancellation or nonrenewal, whether approved by the Department or not, upon the basis of risk of hurricane claims, which cancellation or non- renewal was not yet effective as of May 19, 1993, shall revoke said notice and shall not cancel or nonrenew such policy, or if same has been cancelled or non-renewed subsequent to May 19, 1993, shall immediately reinstate coverage without lapse as if there had been no cancellation or nonrenewal. The insurer shall also, by no later than June 10, 1993, mail by first class mail to every policy holder and agent who was sent such notice or whose policy was so cancelled or non-renewed, written advice that the previous notice is withdrawn, and that the coverage will not be cancelled or nonrenewed, or that the coverage is rein- stated, as the case may be. In the event that the renewal premium has not been received because the insured was operating under the impression that the coverage was not renewable, or a premium is due because the insurer has already refunded the unearned premium, the insurer shall allow the insured a reasonable period after receipt of an invoice from the insurer, in which to forward the required premium, and the insurer shall provide coverage during that reasonable period. Insurance and the parties Insurance is defined in Florida as "a contract whereby one undertakes to indemnify another or pay or allow a specified amount or a determinable benefit upon determinable contingencies." Section 624.02, Florida Statutes. A highly regulated business activity, insurance is regulated primarily at the state level. The Department of Insurance, among other powers and duties, enforces the provisions of the Florida Insurance Code against insurers, including Highlands, defined by the Code as, "those persons engaged as indemnitor, surety or contractor in the business of providing insurance." Section 624.02, Florida Statutes. Highlands Insurance Company, domiciled in Texas, is a stock insurance company admitted to transact insurance in Florida as a foreign insurer. After many years of transacting insurance in Florida, Highlands was issued a "new permanent Certificate of Authority" from the Department by letter dated November 22, 1991. The certificate authorized Highlands to write "Homeowner Multi Peril" and "Commercial Multi Peril" lines of business as well as numerous other lines. Pursuant to its Certificate of Authority the standard homeowner's policy issued in Florida by Highlands allowed for cancellation by the homeowner at any time through notice to the company. It allowed for cancellation by Highlands under limited circumstances. And it allowed for non- renewal by written notice within a certain number of days before the policy's expiration date. Reinsurance From the early 1960s through June 30, 1993, Highlands wrote its Florida property and casualty insurance, through a reinsurance facility ("SU Reinsurance Facility") made available by Southern Underwriters, Inc. ("Southern"). Under the terms of the SU Reinsurance Facility, 93.5 percent of homeowners and commercial risks insured by Highlands are reinsured to a large group of reinsurers. Highlands retains only 6.5 percent of its homeowners and commercial lines risks. The SU Reinsurance Facility consists of two principal reinsurance agreements, which, in the aggregate, reinsure 93.5 percent of the liabilities of the homeowners and commercial lines insurance written in Florida by Highlands and its wholly owned subsidiary, Highlands Underwriters Insurance Company ("HUIC"). One agreement is the Quota Share agreement, the other is the Obligatory Surplus agreement. For each homeowners or commercial policy, the risks are ceded pro-rata under the two agreements, 25 percent to the Quota Share and 75 percent to the Obligatory Surplus. Highlands and HUIC retain 16 percent and 5.5 percent, respectively of the 25 percent of total risk attributable to the Quota Share agreement for a total of 5.375 percent of total risk. Highlands retains 1.5 percent of the 75 percent of total risk attributable to the Obligatory Surplus agreement or 1.125 percent of total risk. Highlands exposure to total risk, therefore, is 6.5 percent. The total risk for each policy attributable to Quota Share is 19.625 percent and to Obligatory Surplus 73.875 percent which equals, together, 93.5 percent of total risk. Hurricane Andrew and Claims against Highlands Hurricane Andrew struck Florida on August 24, 1992. The most costly civil disaster in the history of the United States, it caused over 16 billion dollars ($16,000,000,000) in insured losses, alone. As a result of the hurricane, Highlands incurred claims totalling approximately 337.3 million dollars ($337,300,000) under its homeowner and commercial lines policies. Highlands' 6.5 percent share of the losses on these claims was 21.9 million dollars ($21,900,000). The reinsurers' 93.5 percent share of the losses on the claims was 315.4 million dollars ($315,400,000). Highland's 1992 year-end policyholder surplus was 255.4 million dollars ($255,400,000). Thus, the claims incurred by Highlands as the result of Andrew exceeded its 1992 surplus by more than 80 million dollars ($80,000,000). Quota Share Reinsurance Cancellation By letter dated January 15, 1993, Highlands was formally notified that its reinsurers had terminated the Quota Share Facility for policies to be written or renewed on and after July 1, 1993. Highlands was unable to secure reinsurance to replace the terminated reinsurance. Highlands Response to Reinsurance Loss Based on the loss of the Quota Share reinsurance, Highlands notified the Department by letter dated January 22, 1993 (one week after the date of the letter by which Highlands received formal notice of the termination of the Quota Share reinsurance) that it would cease to write "Dwelling and Homeowner's insurance effective May 1, 1993 and after," Pet.'s Ex. 4., that is, that it would "discontinue" the writing of the "Multi Peril Homeowner's" line of insurance, one of the many lines authorized by the Certificate of Authority as shown on the certificate face. The January 22 "Discontinuance" letter was sent, in the words of Highlands' Vice-President for Reinsurance Jose Ferrer, because, "the magnitude of our involvement in Florida especially with Hurricane Andrew was such that we were losing our reinsurance protection, we had to take immediate action to protect our company." (Tr. 36) On January 22, 1993, discontinuance by an insurer from transacting any line of insurance in Florida was governed by Section 624.430, Florida Statutes and Emergency Rule 4ER92-11. Section 624.430, F.S., bears the catchline "Withdrawal of insurer or discontinuance of writing certain classes of insurance." With regard to the action taken by the January 22 letter, (notice of discontinuance of a line), the statute provides, in pertinent part: Any insurer desiring to ... discontinue the writing of any one or multiple kinds or lines of insurance in this state shall give 90 days' notice in writing to the department setting forth its reasons for such action. Rule 4ER92-11, (the "Withdrawal" Rule) entitled "Withdrawal of Insurers From the State," includes discontinuances of any line of property insurance as well as the complete cessation of writing any insurance business in an expansive definition of withdrawal: ... to cease substantially all writing of new or renewal business in this state, or to cease writing substantially all new or renewal business in any line of property insurance in this state; or in either of the two preceding instances, to cut back on new or renewal writings so substantially as to have the effects of a withdrawal. Section (2)(b), 18 Fla. Admin. Weekly 7318 (Nov. 25, 1992). The Withdrawal Rule goes on to interpret Section 624.430 as "authorizing the Department to evaluate the sufficiency of the reasons" for withdrawal (or as in the case of Highlands for discontinuance of one or more lines) and to "impose reasonable terms and conditions regarding withdrawal [including discontinuance] as are necessary to prevent or reasonably ameliorate such adverse consequences." Id. Section 3(c). At no time after Highlands' Notice was received by the Department and before May 1, 1993 did the Department provide a written response, request a meeting, impose conditions upon discontinuance, or otherwise object to or deny Highlands' Notice. In addition to mailing a notice that it would cease to write Homeowner's and Dwelling lines effective May 1, 1993, Highlands began sending out non-renewal notices. Some were sent after May 19, 1993, the effective date of the Moratorium Statute. Highlands began sending non-renewal notices because of the loss of reinsurance and because of its position that the moratorium did not apply to Highlands. It did not matter to Highlands whether Andrew had occurred or not. If the reinsurance had been cancelled without a hurricane, Highlands would have taken exactly the same steps. On the other hand, if the reinsurance had remained in place in the wake of Andrew, Highlands would be writing the same lines and policies it did before Andrew. Mr. Ferrer believed the reinsurance was cancelled, not because of the risk of future hurricane loss, but "as the result of the massive loss from Hurricane Andrew." (Tr. 51) While the obvious inference to be drawn from his belief is that the reinsurer fears the risk of future hurricane loss, that is not the only inference that could be drawn. Massive losses could render a reinsurer incapable of providing any reinsurance to any party under any circumstances, regardless of the risk of future hurricane claims. Nonetheless, Mr. Ferrer testified that if there were no risk of future hurricane loss to homeowners, Highland would continue to write policies it is now refusing to renew: Q ... If there were no risk of hurricane loss, would you write the business? A Yes, if we can include wind on all policies. HEARING OFFICER MALONEY: Could you repeat that answer ... ? A The answer is, if there is no windstorm ability, hurricane ability, we will have no problem writing the policies. (Tr. 54) Thus, Highlands began sending 45-day notices of nonrenewals to its homeowners policy holders, on the basis of its position that it had withdrawn the line in Florida and because it had lost its reinsurance. But Highlands is also not renewing policies which expire during the moratorium because of risk of future hurricane loss. Insurance Crisis in the Aftermath of Andrew The immensity of Andrew's impact to insurers doing business in Florida created an extremely serious situation for the Florida property insurance market. The Legislature described the situation this way: Hurricane Andrew ... has reinforced the need of consumers to have reliable homeowner's insurance coverage; however, the enormous monetary impact to insurers of Hurricane Andrew claims has prompted insurers to propose substantial cancellation or non- renewal of their homeowner's policyholders. ... [T]he massive cancellations and non- renewals announced, proposed, or contemplated by certain insurers constitute a significant danger to the public health, safety and welfare, especially in the context of a new hurricane season, and destabilize the insurance market. (Ch. 93-401, Laws of Florida, Section 1., Pet.'s Ex. 15). Between Hurricane Andrew and May 1993, the Department received notices from 38 insurers seeking to withdraw from homeowners insurance or reduce their exposure for homeowners insurance in the state. Twenty of these insurers filed notices of total withdrawal from the homeowners line. Eighteen sought to impose restrictions on new or renewal homeowners' business. Together the 38 insurers comprise approximately 40 percent of the Florida homeowners market. Of the 18 insurers seeking to impose restrictions, the greatest single source of impact on the Florida market came from the changes proposed by Allstate Insurance Company. Allstate proposed to nonrenew 300,000 homeowners policies in certain coastal counties. The Department scheduled two days of public hearing on Allstate's notice of intent to restrict writings. The first was scheduled to take place in Clearwater on May 17. The second, held in Plantation on May 18, was attended by "[p]robably close to a thousand [people] -- in excess of 500 hundred anyway. There was a lot of people." (Testimony of Witness Kummer, Tr. 148). Complaints from citizens were received expressing that "it was inappropriate for Allstate to be able to cancel their policies and that something should be done to assist in that." Id. at 150. The Department's Response On May 19, 1993, the Department promulgated Emergency Rule 4ER93-18, imposing a moratorium on the cancellation and nonrenewal of personal lines policies including homeowners, as follows: (3)90 Day Moratorium Imposed. As of the effective date of this rule, no insurer authorized to transact insurance in this state shall, for a period of 90 days, cancel or non- renew any personal lines property insurance policy in this state, or issue any notice of cancellation or nonrenewal, on the basis of risk of hurricane claims. All cancellations or nonrewals (sic) must be substantiated by underwriting rules established and in effect on August 23, 1992. The State's Response to the Insurance Crisis a. The Governor's Proclamation and Call for a Special Session. On May 25, 1993, Governor Chiles issued a Proclamation. Addressed "To the Honorable Members of the Florida Senate and Florida House of Representatives," it contains the following pertinent "Whereas" clauses: WHEREAS, the damage resulting from Hurricane Andrew has prompted the insurance industry in Florida to propose substantial cancellation or nonrenewals of homeowner insurance policies, and WHEREAS, it is appropriate to provide a moratorium period to protect Florida's home- owners while a study is conducted to assess the effect of these extraordinary events on the insurance industry which occurred as a result of Hurricane Andrew, and WHEREAS, a study of the commercial viability and competitiveness of the property insurance and re-insurance industry in Florida would provide the Governor and the Legislature with the information needed to assess whether current regulatory statutes should be amended, and WHEREAS, certain additional statutory amend- ments are required to make necessary insurance coverage available to provide fundamental protection to the citizens of this state, and WHEREAS, it is appropriate to amend the pro- clamation of May 13, 1993, to add to the matters considered by the Florida Legislature convened in special session, the implementa- tion of a moratorium on personal lines property insurance cancellations or non- renewals, ... (Pet.'s Ex. 24). The Proclamation convenes the Legislature for the purpose of considering: (a) Legislation to implement and, if necessary extend for [a] period not to exceed 90 additional days, the emergency rule promulgated by the Insurance Commissioner, 4ER93-18. 1993 Special Session B Pursuant to the Governor's May 25, 1993 Proclamation and a May 13, 1993 Proclamation, the 1993 Florida Legislature was called into special session, Special Session B. Finding the public necessity for an orderly property insurance market to be overwhelming, the 1993 Legislature imposed, "for a limited time," a moratorium on cancellation or nonrenewal of personal lines residential property insurance policies, beginning May 19, 1993. Id. The moratorium applies to personal lines residential property insurance. It does not apply to commercial coverages or passenger auto coverages, whether commercial or private. The Legislature allowed an exception from the moratorium for those insurers which "affirmatively demonstrate to the department that the proposed cancellation or nonrenewal is necessary for the insurer to avoid an unreasonable risk of insolvency." Section 1(4), Ch. 93-401, Laws of Florida. If the department determines that the exception affects more than 1 percent of any class of business within the personal lines residential property market, then the department may set a schedule for nonrenewals, cancellation or withdrawal that avoids market disruption. Presumably, the moratorium will cover the 1993 hurricane season. The section of Ch. 93-401, Laws of Florida, that imposes the moratorium is repealed on November 14, 1993. Promulgation of Emergency Rule 20 On June 4, 1993, the Department promulgated Emergency Rule 20, effective the same date. According to the testimony of Hugo John Kummer, Deputy Insurance Commissioner, Emergency Rule 20 embodies three aims: first, to set a procedure for applying for a moratorium exemption allowed by the Moratorium Statute, [set forth in the rule outside Sections 2(d) and 6(a)]; second, to require a notice to update consumers who had received notices of cancellation or nonrenewal with the information that the earlier notices had been rendered temporarily ineffective under the moratorium, [Section 6(a)], and; third, to inform insurers who had entered consent orders with the Department governing the method with which the insurers were with- drawing from the State or restricting coverage, that the approvals by the Department found in the consent orders were overridden by the Moratorium Statute, [Section 2(d)]. (Tr. 136) On this last point, Mr. Kummer's testimony is consistent with the testimony of Douglas Shropshire, Director of the Department's Division of Insurer Regulation, one of two drafters of Emergency Rule 20 and the drafter of Section 2(d). Mr. Shropshire testified that the rule "simply reiterates the statute and provides the procedures for implementing [the Moratorium Statute]." Resp.'s Ex. 11, p. 25. With regard to Section 2(d), Mr. Shropshire testified as follows: Q Now, could you please direct your attention specifically to just the words, "Revoked all prior approvals issued by the Department," and explain how this implements the statute. A It simply repeats what the statute provides. It, basically, reiterates the statute. That moratorium statute, 89-B, essentially freezes all cancellation or nonrenewal action during the pendency of the 89-B moratorium. Q What would be the status of the moratorium, subsequent to November 14th, 1993, as you understand it? A Assuming that no other legislation is enacted that affects the subject at the special session, then prior approvals would be, again, effective, and companies could again being (sic) acting -- they could, basically, pick up where they had left off when the moratorium began. Q All right. What, if any, additional restrictions does the language place upon insurers above the requirements of the statute? A Absolutely, none. It is apparent, therefore, that if the Department's silence in response to Highlands' January 22, 1993 "Discontinuance" Letter constituted an "Approval," it was not the intent of the Department through the promulgation of Section 2(d) of Emergency Rule 20 to revoke that approval. The goal of the Department in promulgating the section was simply to inform parties to Consent Orders that any Department approval contained in the Consent Order had been revoked. Moreover, the Department's intent in using the term "revoke" was not "revoke" in the legal sense of rendered null and void and forever ineffective but more akin to "suspend" in a temporal sense. It was the Department's intent that any prior approval by the Department of a withdrawal or imposition of restrictions by an insurer was simply suspended by the Moratorium Statute temporarily, that is, for the life of moratorium - until November 14, 1993. Likewise, if the Department's silence following the January 22 Discontinuance Letter constituted an "approval," it would be the Department's intent that Section 2(d) would have no effect other than suspending the approval until the repeal of the Moratorium Statute on November 14, 1993. The import of the Department's intent in promulgating Emergency Rule 20 is dependent on whether the rule is ambiguous or plain on its face as concluded below in this order's Conclusions of Law.
Findings Of Fact Respondent has worked in the insurance business some eleven years, including a five year stint with the Metropolitan Life Insurance Company in New York and two years with Gulf Life Insurance Company. Although respondent remained an ordinary agent for Independent Life Insurance Company until January of 1978, he and a partner, William Andrew Carrigan, contracted, in October of 1977, with Gordon Burnham, one of PIC's managing general agents, to act as general agents for the sale of life, health and disability insurance on a franchise group basis. On behalf of PIC, they sought out employers willing to let them offer insurance to their employees and to arrange for payment of premiums by payroll deduction. Under the arrangement with PIC, respondent's partnership, Carrie & Associates, was permitted to borrow, subject to a weekly maximum, the lesser of $250.00 or "fifty percent of [the] annualized commission," p. 21, Lee Logan's deposition, whenever respondent or his partner sold an insurance policy and submitted the appropriate papers to PIC. The indebtedness respondent and his partner incurred in receiving the advance was to be gradually reduced, as premiums on the policy were paid to PIC. In the event a policy was cancelled before the advance was repaid, PIC was authorized to look to other policies sold by the same agents for repayment. Respondent and his partner regularly asked for advances and ordinarily received them within a week of forwarding a new policy application to PIC. Ordinarily, the first month's premium was required to accompany an application for a new policy. When, however, a new policy was sold to an employee of an employer who already deducted PIC premiums from employees' paychecks, there was no requirement that the first month's premium accompany the papers respondent or his partner furnished PIC. In the event PIC received no premium within 30 days, PIC was authorized to look to other policies sold by the partnership for repayment of the advance. By February of 1978, Carrie & Associates had sold insurance policies to employees of, among other businesses, Tower Coiffures in Lakeland and Seminole Bakery in Sanford. Business was slow that February, so respondent decided to write applications for insurance policies for nonexistent people, in order to improve his cash flow. He wrote an application for life insurance for a fictitious Peter Paulson, whom he described as a 34 year old Texan, 5 feet 9 inches tall, weighing 149 pounds, and whom he falsely reported to be an employee of Seminole Bakery. He wrote an application for life and health insurance for a fictitious Bob Webb, falsely reporting him as an employee of Seminole Bakery, and on Rohnda (sic) Webb, Bob's imaginary wife. In connection with the Webb application, respondent signed his partner's name in a blank on a form entitled "Signature of Soliciting Agent," only apprising his partner afterwards. Respondent wrote applications for insurance for fictitious persons named Brian Williams, Christine Williams, Robert Jackson, Muriel Carter and Kim Stone, whom he falsely reported to be employees of Seminole Bakery, as well as for Kim's fictitious spouse, Ronald Stone. He wrote applications for life and health insurance for a fictitious Virginia Birch and for a fictitious Janice D. Boynton, falsely reporting them as employees of Tower Coiffures. In each instance, respondent forwarded the falsified papers to PIC and, in each instance, PIC advanced money on the strength of the papers. At the time of the hearing, respondent (who is no longer licensed as an agent with PIC) and his partner owed PIC $5,342.31, representing unrepaid commission advances on lapsed or fictitious policies, together with accrued interest. At the time of the hearing, proceeds from policies still in force applied against this indebtedness at the rate of $60.48 per month. Charles William "Bill" Honaker employed respondent as an insurance agent, at the time of the hearing. Mr. Honaker began in the insurance business in 1953. Since that time he has seen "bogus" policies many times, yet he has never heard of a state license revocation for a one-time bogus business problem.
Recommendation Upon consideration of the foregoing, it is RECOMMENDED: That petitioner revoke respondent's license as an insurance agent. DONE and ENTERED this 27th day of July, 1979, in Tallahassee, Florida. ROBERT T. BENTON, II 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 27th day of July, 1979. COPIES FURNISHED: Patrick F. Maroney, Esquire 428-A Larson Building Tallahassee, Florida 32301 James W. Markel, Esquire and Leslie King O'Neal, Esquire Post Office Drawer 1991 Orlando, Florida 33802
