Findings Of Fact Basic is a general contractor specializing in asphalt resurfacing and related construction activities. Its principal offices are in Orlando, Florida. Basic is not currently qualified to bid on construction projects to be let by DOT. Its certificate of qualification expired on June 30, 1984. Until the expiration, Basic had been continuously qualified by DOT to bid on such jobs since 1975. During the time it was qualified, Basic successfully performed approximately fifty state jobs. In early September, 1984, Basic received its annual audited financial statement from its accountants, Fox and Company (Fox), which reflected Basic's financial condition for the year ending on March 31, 1984. On or about September 14, 1984, Basic filed its application for renewal of its certificate of qualification. With the application, Basic filed the audited financial statement prepared by Fox and Company and an additional financial statement prepared by Basic's new accountants, Colley, Trumbower and Howell (Colley). This Colley financial statement was merely a compilation and covered the period April 1, 1984 through June 30, 1984. The audited statement of Fox contained the opinion of a certified public accountant; the compilation of Colley contained no opinion. The audited statement preceded the date of filing by approximately 170 days. DOT reviewed the application and denied it on the ground that the financial statements submitted were of a date more than 120 days prior to the application DOT did not perform a fiscal analysis or further review of the application after it determined that the application did not contain what it believed to be the necessary financial statements. In response to the denial, Basic had Colley prepare an additional financial statement which reflected its financial condition through September 30, 1984. This financial statement was a review and did not contain an opinion of a certified public accountant (See transcript p 47, lines 22 and 23). DOT declined to accept this review. An "audited" financial statement is a financial statement that has been subjected to full audit scrutiny and verification. A compiled financial statement is merely a compilation of financial information as supplied by the client. A reviewed financial statement consists of inquiries and compilation of financial data with application of analytical procedures and is less in scope than an audited financial statement. An "opinion" is a term of art in the field of accounting and refers to an opinion that the basic financial information taken as a whole is fairly stated in all material respects and is in accordance with generally accepted accounting principals. A qualified opinion is subject to the same definition and level of scrutiny, but is qualified as it relates to one or more items in the financial statement. DOT only accepts audited financial statements which express an opinion. The financial information in the reviewed financial statement, when read in conjunction with the audited financial statement reflects that Basic is in an adequate financial situation with positive current rates and a substantial adjusted net worth. Basic is making a profit.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered denying the application of Basic for a certificate of qualification. DONE and ORDERED this 8th day of February, 1985, in Tallahassee, Florida. DIANE K. KIESLING 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 8th day of February, 1985.
The Issue At issue in this proceeding is whether Payroll Management, Inc. (“PMI”), a former self-insurer, should be required to increase its qualifying security deposit with the Florida Self- Insurers Guaranty Association, Inc. (“FSIGA”), from $5,144,108 to $7,434,705, as directed by the Department of Financial Services, Division of Workers’ Compensation (the “Department”).
Findings Of Fact Based on the oral and documentary evidence adduced at the final hearing, and the entire record in this proceeding, the following Findings of Fact are made: The Department is the state agency responsible for administering the Workers’ Compensation Law, chapter 440, Florida Statutes. The Department’s responsibilities include administration of the self-insurance program in conjunction with FSIGA, pursuant to sections 440.38, 440.385, and 440.386, Florida Statutes. FSIGA is a private, not-for-profit corporation created by section 440.385. The chief purpose of FSIGA is to guarantee payment of covered workers’ compensation claims to employees of its insolvent member self-insurers. All self-insurers, other than public utilities and government entities, are required to be members of FSIGA as a condition of their authority to self- insure. § 440.385(1)(a), Fla. Stat. Sections 440.10(1) and 440.38(1) establish the general requirement that employers must obtain and maintain workers’ compensation insurance in Florida. The exception to this general requirement is set forth in section 440.38(1)(b), which allows an employer to self-insure after furnishing satisfactory proof to FSIGA that such employer “has the financial strength necessary to ensure timely payment of all current and future claims individually and on behalf of its subsidiary and affiliated companies with employees in this state and receiving an authorization from the department to pay such compensation directly.” § 440.38(1)(b), Fla. Stat. FSIGA pays the covered claims of current and former insolvent self-insurer members to the extent an insolvent self- insurer's security deposit is insufficient to cover the claims. An insolvency fund is established and managed by FSIGA for the purpose of meeting the obligations of insolvent members after the exhaustion of any security deposit. Pursuant to section 440.385(3)(a), FSIGA assesses its members to maintain the insolvency fund. In the event FSIGA determines that a current or former member lacks financial strength necessary to ensure timely payment of current and estimated future workers’ compensation claims, FSIGA may recommend that the Department require an increase to such member’s “security deposit in an amount determined by the association to be necessary to ensure payment of compensation claims.” § 440.385(3)(b)7.c., Fla. Stat. The Department is required to accept FSIGA’s recommendation unless it finds by clear and convincing evidence that the recommendation is erroneous. §§ 440.38(1)(b) and 440.385(6)(a), Fla. Stat. PMI is a privately owned professional employer organization headquartered in Fort Walton Beach. It has conducted business throughout Florida and the southeastern United States for over 30 years. PMI was authorized as a self- insurer for workers’ compensation in Florida on September 1, 2001. It was required to post an initial security deposit of $1,000,000 with FSIGA. Between 2001 and 2015, FSIGA made annual recommendations to the Department, pursuant to sections 440.38(1)(b) and 440.385(3)(b)7., as to whether PMI should be required to increase its qualifying security deposit based on a review of the company’s financial strength as reflected in its financial statements. By 2015, PMI’s security deposit had grown to $5,144,108. Through 2015, PMI had posted and maintained its qualifying security deposit every year it participated in the self-insurance program. In late March 2016, PMI submitted an actuarial report dated March 25, 2016, to FSIGA. The actuarial report was prepared by Steven Glicksman and determined that PMI’s estimated outstanding losses, i.e., the cost of unpaid claims, were $7,960,339 as of December 31, 2015, and that the actuarial present value of PMI’s estimated outstanding losses as of December 31, 2015, using a four-percent (4%) discount rate as prescribed by Florida Administrative Code Rule 69L-5.218(2), was $7,434,705. The March 25, 2016, report included the following notes: Comparison to Previous Study The estimated outstanding losses (actuarial central estimate) are $7,960,339 as of December 31, 2015. This compares to $5,514,248 as of December 31, 2015 in the previous study (dated April 30, 2015). The variance is a material adverse deviation. The increases in 2015 are due primarily to actuarial payroll in 2015 being $173,681,101 compared to the projected payroll of $110,000,000. Greater payroll corresponds to an increased exposure to loss. We also observed that 2014 is emerging higher than previous projections. Potential for Material Adverse Deviation The estimated outstanding losses are the actuarial central estimate. It is based on the probable outcomes, but not all possible outcomes. The risk of material adverse deviation is a judgment as to actual losses materially exceeding the actuarial central estimate. The Actuarial Standard of Practice (ASOP 36) requires commentary when the actuary “reasonably believes that there are significant risks and uncertainties that could result in material adverse deviation.” ASOP 36 does not specify a materiality standard. As with all insurance programs, there is the possibility that losses will emerge worse than expected. PMI is a relatively small sized program. The historical loss experience had had an occasional large claim. PMI purchases reinsurance to mitigate the impact of catastrophic claims. It currently has a $500,000 self-insured retention. However, there is the potential for multiple large claims within the retention. There have [been several] operational changes that may have impacted loss development. There is convincing evidence that PMI has accelerated its paying losses and is reserving more adequately [than] it has in the recent past. There has been material change in the mix of class codes. There is a roll-forward extrapolation to December 31, 2016. We have supplemented internal data with insurance industry statistics and actuarial judgment. We have not set a materiality standard. However, based on the above factors, we believe that the estimated outstanding loss amount is subject to a significant level of risk of adverse deviation as of December 31, 2015 and December 31, 2016. This disclosure is based on ASOP 36 and is not intended to be exclusive to this situation. Differences in the disclosure from previous studies are not intended to be a material change in our opinion, unless specifically stated otherwise. It is not a qualification of the study. Effective May 1, 2016, PMI voluntarily terminated its authorization to self-insure its workers’ compensation claims in Florida. On May 11, 2016, FSIGA recommended that the Department require PMI to increase its qualifying security deposit by the amount of $2,290,597.1/ That recommendation was made pursuant to sections 440.38(l)(b) and 440.385(3)(b)7. and rules 69L- 5.209(l)(b) and 69L-5.218(2). The recommendation was based on FSIGA's review of PMI's financial statements and FSIGA’s determination of an equivalent credit rating of Caa3 for PMI, a rating that is less than investment grade.2/ FSIGA determined that PMI did not have the financial strength necessary to ensure timely payment of claims incurred as a self-insurer. The Department accepted FSIGA's recommendation, and by letter dated May 25, 2016, required PMI to increase its qualifying security deposit by the amount of $2,290,597, from $5,144,108 to $7,434,705. As of the date of the hearing, PMI had not posted the additional security with FSIGA. Brian Gee, FSIGA’s Executive Director, testified that he conducted an analysis of PMI's financial strength by examining its audited financial statements for the year ending December 31, 2013, and its draft financial statements for the year ending December 31, 2014.3/ He derived an equivalent credit rating by applying a public domain Moody’s Investors Service methodology. He checked his result against a proprietary Moody’s product called RISCCALC PLUS, a model based on a large database of financial statements. The RISCCALC PLUS model uses default frequencies to derive a credit rating. Mr. Gee’s analysis led him to conclude that PMI does not have the financial strength necessary to ensure the timely payment of its self-insured claims. Mr. Gee testified that his review of PMI’s financial information led him to conclude it lacks the financial strength to ensure timely payment of claims. He cited several factors supporting his conclusion: PMI has shown net losses over the past three years; the company is highly leveraged, with low owners’ equity relative to total liabilities; uncertainty regarding the collectability of a $4 million receivable from British Petroleum (“BP”)4/; and a large amount of back taxes owed to the Internal Revenue Service.5/ Mr. Gee also took note of the facts that PMI’s 2014 financial statement was labeled “draft” and was not a signed auditor’s opinion, and that PMI had supplied no financial statement at all for 2015. He stated that FSIGA had been requesting current financial information from PMI but was not receiving it. Mr. Gee concluded there was enough uncertainty in PMI’s financial situation that he could conclude the company lacked the financial strength to ensure the payment of current and future claims without regard to the calculation of an equivalent credit rating required by rule 69L-5.218(4). Mr. Gee’s conclusion is reasonable in light of the evidence and is hereby accepted. Rule 69L-5.209 requires current and former self- insurers, including PMI, to submit financial statements, audited in accordance with Generally Accepted Auditing Standards, to FSIGA no later than 120 days after the end of their fiscal year. PMI’s fiscal year ends on December 31. As of the hearing date, PMI had submitted only draft unsigned financial statements for fiscal year 2014,6/ and no financial statements at all for fiscal year 2015. On May 11, 2016, the Department received FSIGA's letter recommending the Department require PMI to increase its qualifying security deposit to $7,434,705. The recommendation was reviewed by staff of the Bureau of Financial Accountability (the “Bureau”) in the Department's Division of Workers' Compensation. Bureau Chief Greg Jenkins testified that the review did not involve recreating FSIGA’s work in developing an equivalent credit rating for PMI. FSIGA collects and reviews financial statements and loss reserve information from self- insurers pursuant to contract with the Department and is considered the Department’s financial expert as to these tasks. Mr. Jenkins stated that Bureau staff did review other information for accuracy, including the numerical values set forth in FSIGA’s recommendation letter. Based on his staff’s review, Mr. Jenkins approved the FSIGA recommendation. The Division of Workers’ Compensation, concluding that the FSIGA recommendation was not erroneous, recommended to Chief Financial Officer (“CFO”) Jeff Atwater that the Department accept FSIGA’s recommendation and require PMI to increase its qualifying security deposit by $2,290,597, from $5,144,108 to $7,434,705. By letter dated May 25, 2016, signed by CFO Atwater, the Department required PMI to increase its security deposit by the stated amount. On or about October 19, 2016, PMI submitted an updated actuarial report dated October 18, 2016, to FSIGA. The updated actuarial report was prepared by Mr. Glicksman and determined that PMI’s estimated outstanding losses were $7,265,767 as of August 31, 2016, and that the actuarial present value of PMI’s estimated outstanding losses as of August 31, 2016, using a four percent (4%) discount rate as prescribed by rule 69L-5.218(2), was $6,775,263. Mr. Glicksman also included a projection of losses through December 31, 2016, which he explained as follows: The estimated outstanding losses (actuarial central estimate) are $5,758,346 as of December 31, 2016. The present value of the estimated outstanding losses (actuarial central estimate) is $5,369,488 based on a 4.0% interest rate as of December 31, 2016. These amounts assume old payment patterns. However, the amounts for December 31, 2016 are dependent on PMI’s actual payments from September 1, 2016 to December 31, 2016. Since greater payments results in lower estimated outstanding losses, it is possible that PMI will have estimated outstanding losses of less than $5,758,346 (present value $5,369,488) on December 31, 2016. In fact, we have observed that PMI has accelerated payments. From January 1, 2016 to August 31, 2016, paid losses equaled $4,963,579 ($620,488 per month). We have modeled a continuation of accelerated payments. Assuming projected losses paid of $1,959,647 ($477,395 per month) from September 1, 2016 to December 31, 2016, estimated outstanding losses are $5,356,187 and the present value of the estimated outstanding losses are $4,995,098 on December 31, 2016. We believe these amounts are reasonable. [Citations to internal exhibits omitted.] Mr. Glicksman testified that material differences emerged during the period between his completion of the March 25, 2016, report and the October 18, 2016, report. Mr. Glicksman explained that more recent information, including a date certain for PMI’s termination of its self-insurer authorization, improved loss information, increased reserves, and accelerated claims payments, led him to believe that the estimated losses were less than he had originally projected. Mr. Glicksman testified that, upon noticing that PMI’s claims payments had accelerated much faster than he expected, he contacted Ms. Mickle-Bee regarding the claims data. Ms. Mickle- Bee confirmed to Mr. Glicksman that PMI was closing claims as rapidly as possible. At the hearing, Ms. Mickle-Bee testified that PMI has always paid claims at an “aggressive” rate as an overall costs savings measure. She stated that the company’s experience has been that providing quick medical treatment and paying the bills greatly reduces the chances of litigation. Mr. Glicksman supported this view, testifying that “there’s nothing better than a closed claim to reduce costs.” Mr. Glicksman concluded by stating that “there could be no good outcome” to requiring PMI to increase its security deposit to $7,434,705. He testified, “They’re already holding more than enough money to pay off their claims . . . with almost certainty. And by pushing PMI into . . . a financial stress, it can’t improve their situation, it can only hurt it. I don’t know why they would do it.” Mr. Gee testified that he had as yet reached no conclusions about the October 18, 2016, actuarial report. He testified that a claims reviewer had been assigned to look at the case files, which are the main input into the actuarial process. Mr. Gee also stated that he had made “some preliminary findings about some self-insured retention numbers that appear to be incorrect,” but that he was awaiting results from the claims reviewer in order to draw a conclusion about the report. Mr. Jenkins testified that he has received a copy of PMI’s October 18, 2016, actuarial report. Mr. Jenkins stated that he had glanced at the report but was awaiting a recommendation from FSIGA before undertaking a thorough review of the document.
Recommendation Based on the foregoing, it is, therefore, RECOMMENDED that the Department of Financial Services enter a final order requiring Payroll Management, Inc., to increase its qualifying security deposit with the Florida Self-Insurers Guaranty Association, Inc., by $2,290,597, from $5,144,108 to $7,434,705; or, in the alternative, that the Department of Financial Services withdraw its May 25, 2016, letter requiring Payroll Management, Inc., to increase its qualifying security deposit by the amount of $2,290,597, from $5,144,108 to $7,434,705 and issue a letter requiring PMI to increase its qualifying security deposit to the amount recommended by the Florida Self-Insurers Guaranty Association, Inc., after its review of the October 18, 2016, actuarial report submitted by Payroll Management, Inc. DONE AND ENTERED this 5th day of April, 2017, 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 5th day of April, 2017.
The Issue Whether Respondent failed to remit premiums or submit applications for insurance; misappropriated and converted funds for her own use and benefit or unlawfully withheld monies belonging to insureds as set forth in the Administrative Complaint filed herein signed August 2, 1993.
Findings Of Fact Respondent, Margaret Ann Edwards, is currently eligible for licensure and is licensed in Florida as a health insurance agent, and was so licensed at all times relevant to these proceedings. During times material, Respondent served as a general agent for LHCA. Respondent operated through a corporate entity known as Chartered Financial Advisors, Inc., which served as a clearing house for insurance agents. Insurance agents who operate as general agents are well versed in operating an insurance agency. On or about March 4, 1991, LHCA and Respondent entered into an agency agreement whereby Respondent agreed to solicit insurance products on behalf of LHCA. The agreement provided in relevant part: (2) ACCOUNTING All monies received for the Company by the General Agent for premiums, by reason of this Agreement, shall belong to the Company and shall be received and held by the General Agent in a fiduciary capacity only. The initial premiums shall be forthwith paid and delivered to Chartered Financial Advisors, Inc. All other premiums shall be forthwith paid and delivered to the Company. (5) INDEBTEDNESS If the Company, for any reason, refunds the premium on any Authorized Policy solicited by the General Agent, Representatives or employees, the General Agent shall refund to the Company any monies received by the General Agent, Representatives or employees by reason of the payment of such premiums. To the extent not refunded, said amount shall constitute an indebtedness by the General Agent to the Company. Prior to its agreement with LHCA, Respondent had been involved in the insurance business for an extended period of time and was familiar with the duties and obligations of a general agent. General agents who have good credit histories are granted "netting" authority. Netting authority is a procedure whereby the agent is given the authority to receive gross premiums from applicants for insurance and to withhold their net "commissions" from the gross premiums and remit the balance, or net premiums, to the company (LHCA). Respondent maintained a business bank account with Barnett Bank, and she was the sole signator on that account. The account was used to conduct her insurance business and to implement the netting authority arrangement that she had with LHCA. During August, 1992, LHCA became increasingly concerned about Respondent's failure to timely remit premiums due to LHCA on policies issued by the company, as well as premium refunds not being made by the Respondent to insurance consumers. LHCA made Respondent aware of these concerns by telephonic messages and by written communiques. LHCA's concerns about Respondent were not resolved and during January, 1993, LHCA terminated its agency agreement with Respondent. After termination of the agency agreement, LHCA was contacted by insurance consumers, Austin Jenkins, Bernice Caldwell, Mrs. Robert Bolling, and Robert Stopford about either policies that they had applied for and had never received or about policies which they were desirous of cancelling and/or obtaining a refund. LHCA demanded an explanation from Respondent about the complaints from the referenced consumers. Respondent thereafter sent a check to LHCA in the amount of $9,841.02 which Respondent represented as being owed to LHCA for the premium payments for insurance applications previously solicited and sold to the consumers. Respondent's check, which represented the refund of net premiums which was due and owing to LHCA, did not clear the bank and was returned for insufficient funds. Jonathan Miller of LHCA contacted the Respondent and attempted to amicably resolve the matter. Respondent advised Miller to redeposit the check as the funds were now in her account. Miller followed Respondent's directive and the check failed to clear the bank the second time due to insufficient funds. Miller did not authorize Respondent to cover refunds by using net commissions which were owed to LHCA. During this period, LHCA began receiving numerous inquiries from additional insurance consumers about the status of health insurance policies purchased through Respondent or her subagents, but for which the company had no record and had received no net premiums. The number of policies involved was approximately twelve. LHCA conducted an investigation and instructed the inquiring consumers to provide, among other things, proof of payment and other pertinent evidence to substantiate their claims. As a result, LHCA refunded premium payments to each individual consumer, including consumers Jenkins, Caldwell, Bolling, and Stopford. Austin Jenkins made application for insurance to be issued by LHCA through a subagent of Respondent and tendered a check in the amount of $3,868.00 made payable to LHCA. This check was deposited into Respondent's business account maintained at Barnett Bank. Bernice Caldwell, another consumer, also made application for insurance to be issued by LHCA through a subagent under contract with Respondent, and tendered a check in the amount of $7,072.00 made payable to LHCA. The check was deposited into Respondent's business account with Barnett Bank. Robert Bolling made application for insurance to be issued by LHCA of America, through a subagent under contract with Respondent, and tendered two checks in the amounts of $3,195.68 and $2,525.20, respectively, made payable to LHCA. These two checks were deposited into Respondent's business bank account maintained at Barnett Bank. Robert Stopford made application for insurance to be issued by LHCA through a subagent under contract with Respondent, and tendered a check in the amount of $3,996.20 made payable to LHCA. This check was also deposited into the business bank account maintained by Respondent at Barnett Bank. All of the above mentioned checks were negotiated and cleared their respective banks. The funds were thereafter transferred and credited to Respondent's business bank account maintained at Barnett. Insurance consumers Jenkins, Caldwell, Bolling, and Stopford intended their checks to be the initial premium for insurance policies which they applied for with LHCA. LHCA never received any applications for insurance or premium payments from Respondent on behalf of the above named consumers. The premium refunds made by LHCA to insurance consumers, Jenkins, Caldwell, Bolling, and Stopford were reflected on Respondent's account current statements with LHCA. As of December 31, 1993, Respondent owed LHCA the sum of $53,227.65. This sum represented premiums received by Respondent for insurance policies, but which remained unremitted to LHCA. LHCA has demanded payment from Respondent for the above refunds without success. In an attempt to recover its funds paid on behalf of Respondent, LHCA filed a civil suit in Sarasota County Circuit Court, Case No. 93-003262-CI-018. On March 9, 1994, a Summary Final Judgement was entered in the circuit court case filed against Respondent in the amount of $53,225.43. As of the date of hearing, the judgment remains unsatisfied. Respondent was involved in an automobile accident during April, 1992. The accident was the source of injuries to Respondent and limited her ability to actively engage in the operation of her agency. Under the subagency agreement Respondent utilized to hire subagents, Respondent kept approximately fifty-three percent (53 percent) of the net commission and she paid her agents amounts ranging from forty-seven percent (47 percent) up to, and in some cases, sixty percent (60 percent) of the net commissions that she received. When policies were cancelled and the subagents refused to return the premiums which they had been advanced, Respondent found herself financially unable to remit the payments either to the insureds or to LHCA as demanded. Respondent contends that Miller advised her to pay refunds from other net commissions due LHCA. As noted, Miller denies making any agreement with Respondent to use LHCA's net funds. Respondent's contention that she was told by LHCA's representative, Jonathan Miller, to deduct company net premiums from other policies to pay for refunds that were due to other consumers is not credible. In this regard, the agency agreement between Respondent and LHCA provides the procedure whereby LHCA was entitled to a refund from any premiums advanced on behalf of any authorized policies solicited by any general agent, as Respondent, or Respondent's representatives or employees. This procedure is set forth in subparagraph 5 of the agency agreement in effect between Respondent and LHCA. Additionally, the accounting procedures section of the agreement between Respondent and LHCA clearly states that all monies received for the company, as LHCA, by the general agent (Respondent) for premiums, by reason of their agreement, belong to LHCA and shall be received and held by the general agent in a fiduciary capacity only. Given these clear provisos in the agreement between the parties, Respondent's contention that she had entered into other oral agreements with LHCA for return of the premiums does not withstand scrutiny and is not credible.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that: Respondent's licenses and eligibility for licenses be suspended for nine (9) months, pursuant to Rule 4-231.080, Florida Administrative Code. It is further RECOMMENDED that: Petitioner enter a Final Order requiring that Respondent make satisfactory restitution to Life and Health Insurance Company of America prior to any request for reinstatement of her insurance licenses as authorized pursuant to s. 626.641, Florida Statutes. RECOMMENDED in Tallahassee, Leon County, Florida, this 18th day of October, 1994. JAMES E. BRADWELL 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 18th day of October, 1994. APPENDIX to RECOMMENDED ORDER IN CASE NO. 93-5080 Rulings on Petitioner's proposed findings of fact: Paragraph 20, adopted as modified, paragraph 18, Recommended Order. Paragraph 23, adopted as relevant, paragraphs 22 and 23, Recommended Order. Paragraph 23, adopted as relevant, paragraphs 18 and 22, Recommended Order. Paragraph 24, rejected, legal argument and/or conclusionary. Rulings on Respondent's proposed findings of fact: Paragraph 1, adopted as relevant, paragraph 10-13, Recommended Order. Paragraph 6, adopted as modified, paragraph 3, Recommended Order. Paragraph 9, rejected, as a restatement of testimony. Paragraph 10, adopted as modified, paragraphs 1 and 3, Recommended Order. Paragraph 14, rejected, irrelevant and not probative. Paragraphs 16 and 18, rejected, contrary to the greater weight of evidence, paragraphs 8 and 23, Recommended Order. Paragraph 19, rejected, irrelevant and unnecessary. Paragraphs 21-26, rejected, contrary to the greater weight of evidence, paragraphs 2,5,7, and 23, Recommended Order. Paragraphs 27 and 28, adopted as relevant, paragraphs 19 and 20, Recommended Order. COPIES FURNISHED: James A. Bossart, Esquire Division of Legal Services 412 Larson Building Tallahassee, Florida 32399-0300 John L. Maloney, Esquire 5335 66th Street North, Suite 4 St. Petersburg, Florida 33709 Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Bill O'Neil General Counsel Department of Insurance The Capitol, PL-11 Tallahassee, Florida 32399-0300
The Issue Whether Jax Painting and Restoration, Inc. (“Respondent”), failed to secure the payment of workers’ compensation insurance coverage for its employees; and, if so, whether the Department of Financial Services, Division of Workers’ Compensation (“Petitioner” or “Department”), correctly calculated the penalty to be assessed against Respondent.
Findings Of Fact The Department is the state agency charged with enforcing the requirement of chapter 440, Florida Statutes, that employers in Florida secure workers’ compensation coverage for their employees. § 440.107(3), Fla. Stat. Respondent was a Florida for-profit corporation doing business in Jacksonville, Florida, from May 1, 2014, until it was administratively dissolved on September 23, 2016. Michael Percival was Respondent’s President and Registered Agent, with a mailing address of 4833 De Kalb Avenue, Jacksonville, Florida. On April 25, 2016, Deryk Gallegos, the Department’s Compliance Investigator, encountered Mr. Percival and Richard Hill at a home under renovation at 4254 Marquette Avenue in Jacksonville. Mr. Gallegos observed the two men cutting raw wood and installing trim around the doorway. Mr. Gallegos identified himself and requested proof of workers’ compensation insurance. Mr. Percival identified himself as Respondent’s owner, and Mr. Hill as an employee. Mr. Percival indicated both men were exempt from workers’ compensation insurance coverage. Mr. Gallegos consulted the Secretary of State, Division of Corporations “Sunbiz” website and identified Respondent as an active Florida corporation and Mr. Percival as its only corporate officer. Mr. Gallegos consulted the Department’s Coverage Compliance Automated System (“CCAS”) and found Respondent had no workers’ compensation policy. However, CCAS revealed an exemption on file for Mr. Percival. CCAS showed no exemption for Mr. Hill and no coverage for him separately. After consulting his supervisor via telephone, Mr. Gallegos issued Mr. Percival a Stop-Work Order and a Business Records Request (“BRR”). The BRR requested records to establish Respondent’s payroll in order to calculate the penalty for failure to secure workers’ compensation coverage for Respondent’s employees. Some months later, on August 3, 2016, Mr. Percival met with Department Compliance Facilitator, Pete Vallejo, who reviewed the BRR with Mr. Percival and explained the types of business records needed to establish Respondent’s payroll, including bank statements, check images, W-2 forms, tax returns, and a cash ledger, for the audit period of May 7, 2014 through April 25, 2016. Later that month, Mr. Percival emailed Mr. Vallejo a W-2 form for Mr. Hill and two pay stubs for checks issued to Mr. Hill. Mr. Vallejo reviewed the documents and informed Mr. Percival that additional records were still needed to establish payroll, including bank statements, check images, and a cash ledger. The W-2 form submitted by Mr. Percival was for Mr. Hill’s employment by “Ally HR, Inc.” for 2016. It reflects total wages paid in the amount of $17,572.70. One of the pay stubs submitted by Mr. Percival was to Mr. Hill from “Southside Paint + More, Inc.,” on May 15, 2015, showing total year-to-date earnings of $3,615. Mr. Percival’s intent was to establish that Mr. Hill did not work full-time for Respondent during the audit period. The documents are insufficient to determine Respondent’s payroll to Mr. Hill during the audit period. At the end of August, Mr. Vallejo received additional records from Mr. Percival, including bank statements, check images, and a cash ledger. Bank statements submitted by Mr. Percival for the audit period were insufficient to establish Respondent’s payroll. The bank statements revealed over $260,000 in cash withdrawals. A cash ledger provided by Mr. Percival allocated the majority of the cash payments to materials. Respondent submitted no backup records to substantiate the cash ledger payments. The Department requested, but did not receive, from Respondent, tax returns, receipts, and invoices from Respondent to verify the listed cash transactions. The cash ledger allocated payroll to Mr. Hill beginning on February 5, 2016, and ending on April 25, 2016, in a total amount of $3,310. The Department’s Lead Auditor, Lawrence Pickle, calculated the penalty assessed in the Department’s Amended Order of Penalty Assessment. Because the records submitted by Mr. Percival were insufficient to establish Respondent’s payroll for the audit period, Mr. Pickle imputed the payroll based on the statutory formula. See § 440.107(7)(d)1., Fla. Stat. Based upon Mr. Gallegos’ observations of the work being performed at the jobsite, Mr. Pickle determined that the type of construction work performed was carpentry. Mr. Pickle consulted the Scopes Manual published by the National Council on Compensation Insurance and utilized classification code 5645, the carpentry classification for construction or remodeling of residences not exceeding three stories in height, for purposes of calculating the penalty. Mr. Pickle then applied the corresponding approved manual rates for classification code 5645 for the related periods of non-compliance.1/ Mr. Pickle applied the correct approved manual rates and correctly utilized the methodology specified in section 440.107(7)(d)1. and Florida Administrative Code Rules 69L-6.027 and 69L-6.028 to determine the penalty to be imposed. Because Respondent did not provide records sufficient to determine its payroll during the audit period, Mr. Pickle correctly assigned the statewide average weekly wage (“AWW”) to the employees identified on the jobsite on the date in question. § 440.107(7)(e), Fla. Stat. Mr. Pickle likewise correctly utilized the AWW multiplied by two when applying the statutory formula for calculating the penalty to be assessed. See § 440.107(7)(d)1., Fla. Stat. On August 3, 2016, the Department hand-delivered Mr. Percival an Amended Order of Penalty Assessment assessing a penalty of $59,195.14, which was fully imputed.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered by the Department of Financial Services, Division of Workers’ Compensation, finding that Jax Painting and Restoration, Inc., violated the workers’ compensation insurance law and assessing a penalty of $59,195.14. DONE AND ENTERED this 5th day of October, 2017, in Tallahassee, Leon County, Florida. S SUZANNE VAN WYK 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 5th day of October, 2017.
Findings Of Fact At all times material hereto, Respondent, Pedro Luis Hereu, was licensed and eligible for licensure as a life and health and general lines insurance agent by Petitioner, Department of Insurance. Respondent also served as President and registered agent of P.H. Insurance, Inc. P.H. Insurance, Inc. was an incorporated life, health, and general lines insurance agency engaged in the business of selling life, health and general lines insurance products through Respondent and other agency personnel acting under the supervision and control of Respondent. Respondent was licensed to represent Union Bankers Insurance Company as a health insurance agent. Sometime prior to October 17, 1989, Respondent applied to become a resident agent for U.S. Security Insurance Company. On or around February 21, 1986, Respondent assisted Mr. Pablo Beade in the preparation of an application for health insurance for Mr. Beade and his family through Union Bankers Insurance Company. Mr. Beade is not fluent in English, and the application is written in English. Respondent, however, speaks Spanish which is Mr. Beade's native language, and with Mr. Beade's permission read the application in Spanish to Mr. Beade and completed the form in English in Mr. Beade's presence. The form consists primarily of "yes" and "no" questions. Mr. Beade answered "no" to all but one question regarding medical treatment in the previous five years. Mr. Beade told Respondent that during that time he had visited a Dr. Gualberto Navarro for a regular checkup only. Respondent noted the information on the form. In his testimony, Mr. Beade, however, stated that he informed Respondent that he had been treated for ulcers in addition to his regular checkup with Dr. Navarro. Respondent disagrees. Considering that Respondent was aware that the Union Bankers would verify Mr. Beade's health history prior to issuing the policy, that Respondent supplied the company with Dr. Navarro's telephone number and address and Respondent's demeanor at the hearing, Respondent's testimony is found to be credible. During his visit with Mr. Beade, Respondent explained to Mr. Beade that the application did not assure that his coverage would be approved by the company. Then, after completing the application, reviewing it with Mr. Beade, and witnessing the execution of it by the Beade's, Respondent collected $3,093.99 in premium dollars from Mr. Beade. Although it is Respondent's custom to collect funds in the form of a check payable to the insurer, Mr. Beade preferred to pay him in cash. Respondent accepted the cash and issued a receipt to Mr. Beade for it. Respondent returned to the P.H. Insurance and gave the cash and the application to his secretary for deposit and processing. According to Respondent, his secretary deposited the cash in the agency trust account and forwarded the application and a deposit to Union Bankers. Respondent's agent's contract with Union Bankers and the regular course of business, which Respondent admitted, obligate him to submit all money collected on behalf of Union Bankers to it immediately upon receipt. Union Banker's attempted to obtain more information from Dr. Navarro concerning Mr. Beade's health, and Respondent attempted to contact Dr. Navarro on behalf of Union Bankers. However, Union Bankers did not receive a response from Dr. Navarro and issued its policy, excluding Mr. Beade. Since coverage of Mr. Beade was excluded from the policy, the premium owed by Mr. Beade required adjustment. Respondent, however, had left Miami during the Summer of 1986 and did not return until October, 1986. It was not until then that he became aware of the company's refusal to insure Mr. Beade. On several occasions Respondent tried to telephone Mr. Beade to discuss the premium adjustment and return of a portion of the premium. His attempts were unsuccessful. On January 30, 1987, he wrote Mr. Beade, but the letter was returned. He physically went to the last known address which Respondent had for Mr. Beade, but no one was home. Respondent has not personally been contacted by Mr. Beade since Respondent's return to Miami. Mr. Beade did, however, file suit against Union Bankers and Respondent; however, the relevant evidence did not indicate the allegations or the judgment, if any, in the litigation. Meanwhile the funds remained in the non-interest bearing trust account. In May, 1989, Petitioner filed the instant complaint against Respondent, and on September 14, 1989, Respondent issued a check in the amount of $1,982.56 to Mr. Beade from the trust account. On October 17, 1989, Petitioner issued its letter demonstrating its intent to deny Respondent's application to become a registered agent for U.S. Security Insurance Company. The instant claim represents the first and only complaint filed with Petitioner against Respondent.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Insurance enter a final order which dismisses the administrative complaint against Respondent, Pedro Luis Hereu, and approves the subject application. DONE AND ORDERED in Tallahassee, Leon County, Florida, this 22 day of March 1990. JANE C. HAYMAN 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 22 day of March 1990. APPENDIX TO THE RECOMMENDED, ORDER IN CASE NO. 89-4931 The following rulings are made on the proposed findings of fact submitted by Petitioner: The proposed findings of fact in paragraph 1 are adopted in material part by paragraph 1 of the Recommended Order. The proposed findings of fact in paragraph 2 are adopted in material part by paragraph 1 of the Recommended Order. The proposed findings of fact in paragraph 3 are adopted in material part by paragraph 2 of the Recommended Order. The proposed findings of fact in paragraph 4 are adopted in material part by paragraph 2 of the Recommended Order. The proposed findings of fact in paragraph 5 are adopted as subordinate to paragraph 6 of the Recommended Order. The proposed findings of fact in paragraph 6 are adopted in material part by paragraph 2 of the Recommended Order. The proposed findings of fact in paragraph 7 are adopted in material part in paragraphs 3. The proposed findings of fact in paragraph 8 are adopted in material part in paragraphs 3. The proposed findings of fact in paragraph 9 are adopted in material part by paragraphs 5 of the Recommended Order. The proposed findings of fact in paragraph 10 are adopted in material part by paragraph 9 of the Recommended Order. The proposed findings of fact in paragraph 11 are adopted in material part by paragraph 6 of the Recommended Order. The proposed findings of fact in paragraph 12 are adopted in material part by paragraph 6 of the Recommended Order. The proposed findings of fact in paragraph 13 are adopted in material part by paragraph 6 of the Recommended Order. The proposed findings of fact in paragraph 14 are rejected as a conclusion of law. The proposed findings of fact in paragraph 15 are adopted in material part by paragraphs 8-10 of the Recommended Order. The following rulings are made on the proposed findings of fact submitted by Respondent: The proposed findings of fact in paragraph 1 are adopted in material part in paragraph 1 of the Recommended Order. The proposed findings of fact in paragraph 2 are adopted in material part in paragraph 2 of the Recommended Order. The proposed findings of fact in paragraph 3 are adopted in material part in paragraphs 3-5 of the Recommended Order. The proposed findings of fact in paragraph 4 are adopted in material part in paragraph 4 the Recommended Order. The proposed findings of fact in paragraph 5 are adopted in material part in paragraph 5 of the Recommended Order. The proposed findings of fact in paragraph 6 are adopted in material part in paragraph 6. The proposed findings of fact in paragraph 7 are adopted in material part in paragraph 7 of the Recommended Order. The proposed findings of fact in paragraph 8 are adopted in material part in paragraph 7. The proposed findings of fact in paragraph 9 are rejected as irrelevant. The proposed findings of fact in paragraph 10 are adopted in material part in paragraph 8 of the Recommended Order. The proposed findings of fact in paragraph 11 are adopted in material part in paragraph 8 of the Recommended Order. The proposed findings of fact in paragraph 12 are adopted in material part in paragraph 8 of the Recommended Order. The proposed findings of fact in paragraph 12 are adopted in material part in paragraph 10 of the Recommended Order. COPIES FURNISHED: Christopher Anderson, Esquire Office of Legal Services 412 Larson Building Tallahassee, Florida 32399-0300 Thomas F. Woods, Esquire Alex D. Barker, Esquire GATLIN, WOODS, CARLSON & COWDERY 1709-D Mahan Drive Tallahassee, Florida 32308 Don Dowdell General Counsel The Capitol Plaza Level Tallahassee, Florida 32399-0300 Honorable Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 =================================================================
The Issue The issue is whether Respondent is liable for a penalty of $4,741.76 for the alleged failure to maintain workers’ compensation insurance for its employees in violation of Chapter 440, Florida Statutes (2008).1
Findings Of Fact Petitioner is the state agency responsible for enforcing the statutory requirement that employers secure the payment of workers’ compensation for the benefit of their employees in accordance with the requirements of Section 440.107. Respondent is a Florida corporation engaged in the construction business. The corporate officers of Respondent in 2007 were: Julie Magill, Glen Magill, Jamie Guerrero, and Richard Magill. The corporate officers after amendment on June 12, 2008, were: Julie Magill, Albert Farradaz, and Farid O’Campo. Corporate officers are eligible to obtain exemption from the requirements of workers’ compensation through the process described in Section 440.05. Construction exemptions are valid for a period of two years. The expiration date of each exemption is printed on an exemption card issued to each card holder. Julie Magill, Glen Magill, and Jaime Guererro obtained construction exemptions as officers of Respondent, pursuant to Section 440.05. Julie Magill acknowledged receiving a card for each exemption with the expiration date printed on each exemption card. The exemption for Julie Magill expired on June 2, 2008. The exemption for Glen Magill expired on May 29, 2008, and the exemption for Jaime Guererro expired on May 29, 2008. Petitioner notifies exemption holders at least 60 days prior to the expiration date. Petitioner sent the Notice of Expiration to Julie Magill at Respondent's current mailing address. On October 5, 2009, an investigator for Petitioner interviewed Mr. Cliff Chavaria, an installer and repairer of air-conditioner units. Mr. Chavaria was an employee of Respondent. Respondent did not maintain workers’ compensation insurance coverage for Mr. Chavaria in violation of Chapter 440. It is undisputed that Mr. Chavaria did not have any type of coverage for workers’ compensation insurance. Mr. Jaime Guererro and Mr. Glen Magill also had no exemptions and no workers’ compensation insurance coverage. Respondent offered tax records for 2007 as Exhibit 8 at the hearing to show gross payroll for Julie and Richard Magill. The offered exhibit was an attempt to re-create tax information from an internet website. Respondent was given 10 days following the date of the hearing to produce an authenticated version of this document. No documentation was received.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services, Division of Workers’ Compensation, issue a final order imposing a penalty assessment in the amount of $4,741.76. DONE AND ENTERED this 15th day of April, 2010, in Tallahassee, Leon County, Florida. S DANIEL MANRY 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 April, 2010.
Findings Of Fact Petitioner in this proceeding is Lykes Memorial Hospital, Inc., (Lykes) a separate, albeit subsidiary, corporation from its parent, Lykes Health Systems, Inc. Lykes is a 166 bed, not-for-profit general acute care community hospital located in Brooksville, Florida. On or about May 30, 1990, Lykes timely filed CON Application No. 6266 to add 30 hospital-based, extended care beds through renovation of existing space. On or about June 14, 1990, Respondent requested Lykes to provide certain items of information omitted from the original application. One of the items requested in Respondent's written omissions request was an audited financial statement of the applicant for Lykes' most current fiscal years, 1988 and 1989. Lykes responded by providing two audits: an audit of Lykes Memorial Hospital, Inc., for the year ending September 30, 1988, and an audit of Lykes Health Systems, Inc., for the years ending September 30, 1989 and 1988 (the consolidated audit). By letter dated July 25, 1990, Respondent notified Lykes that its CON application was being withdrawn from consideration due to the failure of Lykes to submit audited financial statements of Lykes for the most recent fiscal year of operation which ended September 30, 1989. The submission of an audit containing the most current audited financial information is necessary for Respondent to determine an applicant's current financial condition and assess the proposed project's financial feasibility. Such analysis is crucial to a determination of whether the applicant will continue to be an ongoing corporation providing its best services to patients over a long-term period. Respondent's analysis is limited to the audited financial statement of the applicant. To permit an applicant to meet the requirement for an audited financial statement by providing an audited financial statement from an entity different than the applicant opens the door to submission of varying and discretionary types of financial information. Such a practice could result in unfair comparisons of financial information in the process of comparative review with regard to financial information analysis. There are three essential parts to an audited financial statement. Those parts are an independent auditor's opinion; financial statements; and notes to the financial statements. Although Lykes' submission of an audited financial statement for the year ending September 30, 1988, meets requirements contained in Section 381.707(3), Florida Statutes, mandating submission of such a statement by an applicant, the submitted audit was not for the most current fiscal year of operation. Rather, the audit submitted is for the year before. For existing health care facilities such as Lykes, Section 381.707(3), Florida Statutes, also requires the submission of a balance sheet and a profit- and-loss statement for the previous two fiscal years' operation. Respondent has interpreted Section 381.707(3), Florida Statutes, to require an applicant's submission of the most current year's audit. When the application is submitted by an existing health care facility, Respondent requires submission of an audited financial statement for the two most current fiscal years. This requirement is contained in Chapter 11-3, part 6, of Respondent's Certificate of Need Policy Manual. Personnel involved in the preparation of Lykes' application were aware of this requirement. While the audited financial statement of Lykes for the year ending September 30, 1988, provides an auditor's opinion on the financial condition of Lykes, the applicant, at that time; no such opinion is contained in the audit of Lykes Health Systems, Inc., for the years ending September 30, 1988, and 1989, which is specific to Lykes apart from the parent corporation. Respondent does not have access to an applicant's financial records and is therefore dependent upon disclosures or notes to an audited financial statement to provide fair disclosure of the financial statements and identify specific areas of concern. Without such note disclosures, a proper financial analysis cannot be performed. Notes in the consolidated audit of Lykes Health Systems, Inc., are not complete note disclosures for Lykes, the applicant. Further, notes in the consolidated audit were prepared for the consolidated group of businesses operating under the umbrella of Lykes Health Systems, Inc., and not for any individual entity within the group. It is not possible to isolate information applicable to Lykes from the auditor's notes to the consolidated audit. The consolidated audit included statements of revenues and expenses, fund balances, and a balance sheet for Lykes for the fiscal years ending September 30, 1989, and September 30, 1988. However, no decision should be made with regard to those financial statements in the absence of note disclosures specific to Lykes, assuring that an auditor has specifically analyzed that entity and reached an opinion with regard to it. While a note to the consolidated audit contains a breakdown of capital assets for the consolidated group, this is not a specific breakdown of capital assets for Lykes, the applicant. Hence, Respondent cannot determine the applicant's capital assets breakdown. Further examples of the lack of specificity afflicting the consolidated audit include notes which fail to provide a specific breakdown of bonds payable for Lykes; a specific breakdown of or disclosure of contributions by Lykes to the pension plan; and no specific breakdown for Lykes with regard to patient service revenues. Instead, everything is grouped together. The consolidated audit does not contain all of the notes which would appear in an audit of Lykes, the applicant. Additional financial statements included with the consolidated audit contain no notes. The report must be interpreted in relation to Lykes Health Systems, Inc., taken as a whole. The audit of Lykes Health Systems, Inc., cannot be considered a specific audit of Lykes, the applicant. 1/ Rather, the consolidated audit expresses an opinion with regard to the parent corporation.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that a Final Order be entered withdrawing Petitioner's application for CON No. 6266 from further consideration. DONE AND ENTERED this 14th of January, 1991, in Tallahassee, Leon County, Florida. DON W. DAVIS 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 14th day of January, 1991. APPENDIX The following constitutes my specific rulings, in accordance with Section 120.59, Florida Statutes, on findings of fact submitted by the parties. Petitioner's Proposed Findings 1-6. Adopted in substance, though not verbatim. 7-9. Rejected, unnecessary. Adopted in substance. Rejected, unnecessary. Adopted by reference. Rejected, cumulative. Rejected, argumentative. 1st sentence addressed, remainder rejected as unnecessary. 16-17. Rejected, argument. 18-19. Rejected, not supported by weight of the evidence. 20-22. Rejected, argument. 23. Rejected, relevance. 24-25. Rejected, unnecessary and argumentative. Respondent's Proposed Findings 1-3. Adopted in substance, not verbatim. 4. Adopted by reference. 5-15. Adopted in substance, though not verbatim. 16-17. Adopted by reference. COPIES FURNISHED: Stephen A. Ecenia, Esq. Suite 400 First Florida Bank Building Tallahassee, FL 32301 Edward G. Labrador, Esq. Assistant General Counsel Department of Health and Rehabilitative Services 2727 Mahan Dr., Suite 103 Tallahassee, FL 32308 Gregory L. Coler Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, FL 32399-0700 Sam Power Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, FL 32399-0700 General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, FL 32399-0700
The Issue At issue in this proceeding is whether respondent's proposed rule 4- 136.007(2) constitutes an invalid exercise of delegated legislative authority.
Findings Of Fact Background Petitioner, Florida Chamber of Commerce Workers' Compensation Self Insurance Fund, is currently licensed by respondent, Department of Insurance (Department), as a commercial self-insurance fund, and has applied to the Department for permission to convert to an assessable mutual, pursuant to the provisions of Section 628.6011, et seq., Florida Statutes (1991). The proposed name of the assessable mutual, as reserved with the Secretary of State, is Commerce Mutual Insurance Company. On November 8, 1991, the Department published notice of proposed rule 4-136.007 in volume 17, number 45, of the Florida Administrative Weekly. Pertinent to this case, the publication provided the following with regard to the proposed rule: PURPOSE AND EFFECT: To adopt application packages for entities seeking to transact insurance in this state. SUMMARY: Proposed new rule 4-136.001 describes the kinds of application procedures addressed by the chapter. Proposed new rules 4-136.002 through 4- 136.011 establish appli-cation procedures and describe the necessary forms for the various kinds of entities seeking particular licenses, as indicated in the catchlines for each rules. Proposed new rule 4-136.012 adopts the forms described in the preceding rules. * * * 4-136.007 Applications for Permit Submitted for Domestic Assessable Mutual Insurers. Applications submitted for Domestic Assessable Mutual Insurers, pursuant to Section 628.051, Florida Statutes, shall contain all of the following forms in addition to the common forms as specified in 4-136.006: Form DI4-890, "Application for Permit, Domestic Assessable Mutual Insurer," rev. 5/91; Form DI4-892, "Instructions, Part I-IV," rev. 5/91; Form DI4-891, "Required Filings Check List, Sections I-IV," rev. 5/91; Form DI4-893, "Invoice, Domestic Assessable Mutual Insurer," rev. 5/91; Form DI4-894, "Application for Permit To Form A Domestic Assessable Mutual Insurer," rev. 5/91; and Form DI4-896, "Proformas (pages 1-18)," rev. 5/91. The corporate name of any insurer forming as an assessable mutual must contain the words "assessable mutual". Specific Authority 624.308 FS. Law Implemented 624.34, 624.401, 624.404, 624.413, 624.501, 628.051 FS. History -- New By petition filed with the Division of Administrative Hearings on November 27, 1991, petitioner timely challenged the validity of proposed rule 4- 136.007(2) as an invalid exercise of delegated legislative authority. The basis for petitioner's challenge was its contention that the Department had no statutory authority to require that its name include the words "assessable mutual." 1/ As proposed, rule 4-136.007(2) would require petitioner to change the name it has reserved with the Secretary of State for its conversion to an assessable mutual insurance company so as to include the words "assessable mutual." Under such circumstances, the parties have stipulated that petitioner is substantially affected by the proposed rule, and has standing to maintain this rule challenge. The authority for the proposed rule, and the law implemented. There is no specific statutory requirement, and the Department so concedes, that the words "assessable mutual" appear in the name of an assessable mutual insurance company formed pursuant to the provisions of Section 628.6011, et seq., Florida Statutes. Rather, to support the propriety of its rule mandating such a requirement, the Department relies upon the general rulemaking authority granted to it by the legislature, as well as certain specific statutes which it contends the proposed rule implements. The specific authority for rulemaking identified in the published notice of the proposed rule is Section 624.308, Florida Statutes; the general rulemaking authority granted to the Department by the legislature. That section provides, in pertinent part, as follows: The department may adopt reasonable rules necessary to effect any of the statutory duties of the department. Such rules shall not extend, modify, or conflict with any law of this state or the reasonable implications of such laws. (Emphasis added) In the published notice, the Department identified the specific statutes implemented by the proposed rule as follows: section 624.34, which grants authority to the Department of Law Enforcement to accept fingerprints of, and exchange criminal history records with respect to, certain persons involved in the insurance industry; section 624.401, which requires a certificate of authority issued by the Department to transact insurance in or from the State of Florida; section 624.404, which sets forth the general eligibility requirements for an insurer to qualify for a certificate of authority to transact insurance in the State of Florida, none of which relate to the name of the insurer; section 624.413, which sets forth the information required to be included in an application to the Department for a certificate of authority to transact insurance in the State of Florida, including the name of the applicant and the kinds of insurance to be transacted; section 624.501, which establishes certain filing, license, appointment and miscellaneous fees to be paid by, among others, certain insurers; and, section 628.051, which sets forth the information required to be included in an application to the Department for a permit to form a domestic insurer in the State of Florida, including the name, type and purpose of the insurer. While subsection (1) of the proposed rule may reasonably implement the foregoing laws identified by the Department in its published notice, subsection (2) of the proposed rule, at issue in these proceedings, is not marginally pertinent to any of the laws identified by the Department. Under such circumstances, subsection (2) of the proposed rule extends, modifies or conflicts with such laws or any reasonable implication of such laws. Notably, the Department, neither at hearing nor in its proposed final order, placed any reliance on the laws it had identified in its published notice as being implemented by the provisions of the proposed rule at issue in this case. Rather, at hearing, the Department contended that the specific statutes implemented by the proposed rule were Sections 626.9541(1)(a), (b) and (e), and 626.9641(1)(c) and (h), Florida Statutes, and that the specific authority for such rulemaking was Sections 624.308 and 628.6016(1), Florida Statutes. 2/ In its proposed final order, the Department also offered the provisions of Sections 626.9611 and 628.6016(3), Florida Statutes, as providing further specific authority for such rulemaking. No proof was offered, however, that the Department had taken any formal action to amend or modify its proposed rule to reflect the specific laws it relied on in this proceeding for rulemaking authority or implementation, or that any notice of such changes had been published. The specific authority for rulemaking identified by the Department at hearing was section 628.6016(1). This statutory subsection makes applicable to assessable mutual insurers numerous statutory provisions of the Insurance Code, but only one, section 624.308, grants the Department rulemaking authority. Such section is the same general rulemaking authority cited by the Department in its published notice of the proposed rule, discussed supra. In its proposed final order, the Department also offered the provisions of sections 628.6016(3) and 626.9611, as providing further specific authority for such rulemaking. Pertinent to this case, 628.6016(3) makes applicable to assessable mutual insurers section 626.9611, which provides: The department, may in accordance with chapter 120, promulgate reasonable rules as are necessary or proper to identify specific methods of competition or acts or practices which are prohibited by s. 626.9541 or s. 626.9551, but the rules shall not enlarge upon or extend the provisions of ss. 626.9541 and 626.9551. (Emphasis added) As the specific statutes implemented by subsection (2) of the proposed rule, the Department identified, at hearing, sections 626.9541(1)(a), (b) and (e), and 626.9641(1)(c) and (h). Pertinent to this case, section 626.9541 defines the "Unfair methods of competition and unfair or deceptive acts or practices" for which penalties may be imposed, as follows: UNFAIR METHODS OF COMPETITION AND UNFAIR OR DECEPTIVE ACTS. -- The following are defined as unfair methods of competition and unfair or deceptive acts or practices: Misrepresentations and false advertising of insurance policies. -- Knowingly making, issuing, circulating, or causing to be made, issued, or circulated, any estimate, illustration, circular, statement, sales presentation, omission, or comparison which: Misrepresents the benefits, advantages, conditions, or terms of any insurance policy. Misrepresents the dividends or share of the surplus to be received on any insurance policy. Makes any false or misleading statements as to the dividends or share of surplus previously paid on any insurance policy. Is misleading, or is a misrepresenta-tion, as to the financial condition of any person or as to the legal reserve system upon which any life insurer operates. Uses any name or title of any insurance policy or class of insurance policies misrepresenting the true nature thereof. Is a misrepresentation for the purpose of inducting, or tending to induce, the lapse, forfeiture, exchange, conversion, or surrender of any insurance policy. Is a misrepresentation for the purpose of effecting a pledge or assignment of, or effecting a loan against, any insurance policy. Misrepresents any insurance policy as being shares of stock or misrepresents ownership interest in the company. False information and advertising generally. -- Knowingly making, publishing, disseminating, circulating, or placing before the public, or causing, directly or indirectly, to be made, published, disseminated, circulated, or placed before the public: In a newspaper, magazine, or other publication, In the form of a notice, circular, pamphlet, letter, or poster, Over any radio or television station, or In any other way, an advertisement, announcement, or statement containing any assertion, representation, or statement with respect to the business of insurance, which is untrue, deceptive, or misleading. * * * (e) False statements and entries. -- 1. Knowingly: Filing with any supervisory or other public official, Making, publishing, disseminating, circulating, Delivering to any person, Placing before the public, Causing, directly or indirectly, to be made, published, disseminated, circulated, delivered to any person, or placed before the public, any false material statement. And, section 626.9641, establishes a "policyholders bill of rights," as follows: (1) The principles expressed in the follow-ing statements shall serve as standards to be followed by the department in exercising its powers and duties, in exercising administra-tive discretion, in dispensing administrative interpretations of the law, and in promulgating rules: * * * (c) Policyholders shall have the right to insurance advertising and other selling approaches that provide accurate and balanced information on the benefits and limitations of a policy. * * * (h) Policyholders shall have the right to a balanced and positive regulation by the department. The proposed rule, which requires any insurer forming as an assessable mutual, to include the words "assessable mutual" in its corporate name, exceeds the Department's grant of rulemaking authority, and bears no reasonable relationship to the statutes identified by the Department as being implemented by it. Succinctly, the Department's rulemaking authority insofar as it relates to sections 626.9541 and 626.9551, the laws identified by the Department as implemented by the proposed rule, is defined and limited by section 626.9611 to the promulgation of rules "to identify specific methods of competition or acts or practices which are prohibited by s. 626.9541 or s. 626.9551." The proposed rule does not purport to identify a failure to include the words "assessable mutual" in the corporate name as a prohibited act, and therefore exceeds the Department's grant of rulemaking authority and fails to implement the laws relied upon by the Department.
Conclusions Based on the foregoing findings of fact and conclusions of law, it is ORDERED that proposed rule 4-136.007(2) is an invalid exercise of delegated legislative authority. DONE AND ORDERED in Tallahassee, Leon County, Florida, this 24th day of February 1992. WILLIAM J. KENDRICK Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 24th day of February 1992.
The Issue The basic issue in this case is whether the Petitioner's application for CON Number 6220 should be withdrawn from consideration or processed to conclusion on the merits. The disposition of this issue turns on the nature of the financial information submitted in support of the application.
Findings Of Fact The Petitioner, Support Systems Services Corporation (hereinafter "SSSC"), is a Florida corporation. It is a subsidiary of, and is wholly owned by, John Knox Village of Florida, Inc. (hereinafter "JKV"). JKV is a regulated continuing care retirement center. SSSC currently provides home health services to non-Medicare residents of John Knox Village. SSSC seeks to become a Medicare-certified provider of such services. On March 23, 1990, SSSC filed a timely application for a certificate of need ("CON") to establish a Medicare certified home health agency. The SSSC application included audited consolidated financial statements for the years ending December 31, 1988, and December 31, 1989, for an entity described in the audit report as "John Knox Village of Florida, Inc., and Subsidiary." The audited consolidated financial statements submitted as part of the application are consolidated financial statements of both JKV and SSSC. The first paragraph of the notes to the consolidated financial statements includes the following: "The consolidated financial statements include the accounts of the subsidiary. All significant intercompany transactions and balances have been eliminated." The independent financial status of SSSC cannot be determined from the consolidated financial statements submitted with the application. On April 12, 1990, the Department of Health and Rehabilitative Services (hereinafter "DHRS") sent a so-called "omissions letter" to SSSC. The letter described four elements of the application that had been omitted from the application. The omitted element relevant to this case was described in the letter of April 12, 1990, as follows: Audited financial statements were not provided for Support System Services, Inc., (the applicant) in accordance with 381.707(3), Florida Statutes. Please submit the correct audited financial statements for the previous two fiscal years. The letter of April 12, 1990, also included the following information: Section 381.709, Florida Statutes, requires that you respond to the above omissions by May 14, 1990. Failure to provide responses by this date will result in your application being deemed incomplete and administratively withdrawn from further consideration. By letter dated May 7, 1990, SSSC submitted its response to the omissions letter. With regard to the financial statements, SSSC responded, in pertinent part: Section 381.707(3): Pursuant to our conversation of April 30, 1990, please find enclosed the excerpted audited financial statements by Coopers & Lybrand for fiscal year 1988 and 1989. Attached to SSSC's letter of May 7, 1990, were six pages of financial information regarding SSSC. The information consisted of balance sheets for December 31, 1988, and December 31, 1989, statements of revenue and expenses for the years ending December 31, 1988, and December 31, 1989, and consolidating statements of cash flow for the years ending December 31, 1988, and December 31, 1989. The financial information submitted with SSSC's letter of May 7, 1990, did not contain any information from which it could be determined whether those financial statements had been examined by an independent certified public accountant. The financial information submitted with SSSC's letter of May 7, 1990, was not accompanied by an opinion of a certified public accountant as to the fairness with which the financial statements presented financial position, results of operations, and cash flows. The financial information submitted with SSSC's letter of May 7, 1990, was not an audited financial statement. At the time SSSC filed its CON application there were no audited financial statements in existence that addressed only the financial status of SSSC. By letter dated May 15, 1990, DHRS advised SSSC, inter alia: In accordance with the provisions of Sections 381.707 and 381.709(3), Florida Statutes, you were given until May 14, 1990, to respond satisfactorily to the omissions noted in the correspondence from this office dated April 12, 1990, relative to your proposal to initiate a Medicare certified home health agency in Broward County. Because of your failure to provide separate and complete audited financial statements for Support Systems Services Corporation (the applicant and license holder) as required by Section 381.707(3), Florida Statutes, your proposal has been withdrawn from further consideration effective May 14, 1990. The letter of May 15, 1990, also advised SSSC of its right to invoke administrative hearing proceedings, which rights were timely invoked by SSSC. In the February 17, 1989, issue of the Florida Administrative Weekly, the DHRS published a "Notice To All Potential Certificate Of Need Applicants." That notice was for the purpose of informing future applicants regarding the need to include an audited financial statement "of the applicant." The DHRS procedure manual for processing certificate of need applications addresses, in Chapter 11, the need for an audited financial statement "of the applicant." Neither the F.A.W. notice of February 17, 1989, nor Chapter 11 of the manual specifically mention consolidated statements, but both emphasize that the required audited financial statement must be that "of the applicant." The purpose for the requirement of an audited financial statement of the applicant is two-fold. First, where there are competing applicants, it assists the DHRS in making its determination with respect to which applicant is the better candidate for a CON. Second, the audited financial statement provides an objective source of evidence (through the independent opinion of the auditor) as to the applicant's financial condition and capabilities. These purposes are not fulfilled by the financial information submitted by SSSC with its application or in its response to the omissions letter.
Recommendation Based on all of the foregoing, it is RECOMMENDED that the Department of Health and Rehabilitative Services issue a final order in this case deeming the Petitioner's application to be incomplete and withdrawing the application from further consideration. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 3rd day of December 1990. MICHAEL M. PARRISH Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 3rd day of December, 1990. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 90-4448 The following are my specific rulings on all proposed findings of fact submitted by all parties. Findings proposed by Petitioner: Paragraphs 1, 2, 3, 4, and 5: Accepted in substance. Paragraph 6: First sentence accepted in substance. Second sentence rejected as contrary to the greater weight of the evidence. Paragraph 7: Rejected as subordinate and unnecessary details. Paragraphs 8 and 9: Accepted in substance. Paragraph 10: Rejected as subordinate and unnecessary details. Paragraph 11: First sentence accepted. The remainder is rejected as, for the most part, subordinate and unnecessary details; portions are also contrary to the greater weight of the evidence. Paragraph 12: Rejected as irrelevant. Paragraph 13: Accepted in substance, without the editorial implications. Paragraphs 14 and 15: Accepted in substance. Paragraphs 16, 17, and 18: Rejected as subordinate and unnecessary details. Paragraphs 19 and 20: Rejected as contrary to the greater weight of the evidence. Paragraph 21: Rejected as constituting argument or subordinate and unnecessary details. Paragraph 22: Rejected as constituting argument or conclusions of law, rather than proposed findings. Paragraphs 23, 24, and 25: Rejected as irrelevant. Paragraph 26: Accepted in substance. Paragraph 27: Rejected as contrary to the greater weight of the evidence. Findings proposed by Respondent: Paragraph 1: Rejected as constituting conclusions of law, rather than proposed findings of fact. Paragraphs 2, 3, 4, 5, 6, 7, and 8: Accepted in substance, with some subordinate and unnecessary details omitted. Paragraph 9: Rejected as subordinate and unnecessary details. Paragraph 10: Accepted in substance. Paragraph 11: For the most part rejected as unduly repetitious or as subordinate and unnecessary details. Paragraphs 12, 13, 14, and unnumbered paragraph at end: Rejected as constituting argument, rather than proposed findings of fact. COPIES FURNISHED: Alisa S. Duke, Esquire DYKEMA GOSSETT 790 East Broward Boulevard Suite 400 Fort Lauderdale, Florida 33301 Edward Labrador, Esquire Assistant General Counsel Department of Health and Rehabilitative Services 2727 Mahan Drive Fort Knox Executive Center Tallahassee, Florida 32308 Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Linda K. Harris, Esquire General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700
