The Issue Whether Petitioners' proposed rates are justified pursuant to the requirements of Section 627.062, Florida Statutes, or whether the Department of Financial Services, Office of Insurance Regulation (OIR) was correct in denying the requested rate increases.
Findings Of Fact The Hartford companies are property and casualty insurers transacting insurance in the State of Florida pursuant to valid certificates of authority and the Florida Insurance Code. Two types of personal lines insurance filings submitted by Hartford to the OIR are at issue in this proceeding: two filings for homeowners insurance (Case Nos. 07-5185 and 07-5186) and two filings for dwelling fire insurance (Case Nos. 07-5187 and 07- 5188). Hartford's substantial interests are affected by the notices disapproving the filings in this case. Homeowners insurance includes coverage for a variety of perils in and around a home, is usually purchased by a homeowner, and covers both the structure and the contents of a home. Dwelling/fire insurance is usually purchased by the owners of properties that are leased or rented to others, and provides coverage for the structure only. Both types of insurance cover damage caused by hurricanes. The New Legislation and its Requirements In a special session held in January 2007, the Florida Legislature enacted changes to the Florida Hurricane Catastrophe Fund (CAT Fund), as reflected in Chapter 2007-1, Laws of Florida. The special session was precipitated by a perceived crisis regarding the cost and availability of homeowners insurance after the 2004 and 2005 hurricane seasons. As a result of the substantial number of claims incurred after multiple severe hurricanes each of these years, changes in the insurance marketplace resulted in some insurance companies withdrawing from the Florida market, others non-renewing policies, one company becoming insolvent, and the cost for reinsurance available to all insurers rising dramatically. One of the primary features of the legislation was an expansion of the CAT Fund. The CAT Fund was established in 1993 after Hurricane Andrew to provide reinsurance to insurers for property insurance written in Florida at a price significantly less than the private market. The CAT Fund is a non-profit entity and is tax exempt. Prior to the enactment of Chapter 2007-1, the CAT Fund had an industry-wide capacity of approximately $16 million. The purpose of the changes enacted by the Legislature was to reduce the cost of reinsurance and thereby reduce the cost of property insurance in the state. As a result of Chapter 2007-1, the industry-wide capacity of the CAT Fund was increased to $28 billion, and insurers were given an opportunity to purchase an additional layer of reinsurance, referred to as the TICL layer (temporary increase in coverage limit), from the CAT Fund. Section 3 of Chapter 2007-1 required insurers to submit a filing to the OIR for policies written after June 1, 2007, that took into account a "presumed factor" calculated by OIR and that purported to reflect savings created by the law. The new law delegated to the OIR the duty to specify by Order the date such filings, referred to as "presumed factor filings" had to be made. On February 19, 2007, the OIR issued Order No. 89321-07. The Order required insurers to make a filing by March 15, 2007, which either adopted presumed factors published by the OIR or used the presumed factors and reflected a rate decrease taking the presumed factors into account. The presumed factors were the amounts the OIR calculated as the average savings created by Chapter 2007-1, and insurers were required to reduce their rates by an amount equal to the impact of the presumed factors. The OIR published the presumed factors on March 1, 2007. In its March 15, 2007, filings, Hartford adopted the presumed factors published by OIR. As a result, Hartford reduced its rates, effective June 1, 2007, on the products at issue in these filings by the following percentages: Case No. 07-5185 homeowners product: 17.7% Case No. 07-5186 homeowners product: 21.9% Case No. 07-5187 dwelling/fire product: 8.7% Case No. 07-5188 dwelling/fire product: 6.2% The Order also required that insurers submit a "True-Up Filing" pursuant to Section 627.026(2)(a)1., Florida Statutes. The filing was to be a complete rate filing that included the company's actual reinsurance costs and programs. Hartford's filings at issue in these proceedings are its True-Up Filings. The True-Up Filings Hartford submitted its True-Up filings June 15, 2007. The rate filings were certified as required by Section 627.062(9), Florida Statutes. The filings were amended August 8, 2007. Hartford's True Up Filings, as amended, request the following increases in rates over those reflected in the March 15, 2007, presumed factor filings: Case No. 07-5185 homeowners product: 22.0% Case No. 07-5186 homeowners product: 31.6% Case No. 07-5187 dwelling and fire product: 69.0% Case No. 07-5188 dwelling and fire product: 35.9% The net effects of Hartford's proposed rate filings result in the following increases over the rates in place before the Presumed Factor Filings: Case No. 07-5185 homeowners product: .4% Case No. 07-5186 homeowners product: 2.8% Case No. 07-5187 dwelling/fire product: 54.3% Case No. 07-5188 dwelling/fire product: 27.5% Case Nos. 07-5185 and 07-5186 (homeowners) affect approximately 92,000 insurance policies. Case Nos. 07-5187 and 07-5188 (dwelling/fire) affect approximately 2,550 policies. A public hearing was conducted on the filings August 16, 2007. Representatives from Hartford were not notified prior to the public hearing what concerns the OIR might have with the filings. Following the hearing, on August 20, 2007, Petitioners provided by letter and supporting documentation additional information related to the filings in an effort to address questions raised at the public hearing. The OIR did not issue clarification letters to Hartford concerning any of the information provided or any deficiencies in the filings before issuing its Notices of Intent to Disapprove the True-Up Filings. All four filings were reviewed on behalf of the OIR by Allan Schwartz. Mr. Schwartz reviewed only the True-Up Filings and did not review any previous filings submitted by Hartford with respect to the four product lines. On September 10, 2007, the OIR issued Notices of Intent to Disapprove each of the filings at issue in this case. The reasons give for disapproving the two homeowners filings are identical and are as follows: Having reviewed the information submitted, the Office finds that this filing does not provide sufficient documentation or justification to demonstrate that the proposed rate(s) comply with the standards of the appropriate statute(s) and rules(s) including demonstrating that the proposed rates are not excessive, inadequate, or unfairly discriminatory. The deficiencies include but are not limited to: The premium trends are too low and are not reflective of the historical pattern of premium trends. The loss trends are too high and are not reflective of the historical pattern of loss trends. The loss trends are based on an unexplained and undocumented method using "modeled" frequency and severity as opposed to actual frequency and severity. The loss trends are excessive and inconsistent compared to other sources of loss trends such as Fast Track data. The catastrophe hurricane losses, ALAE and ULAE amounts are excessive and not supported. The catastrophe non-hurricane losses, ALAE and ULAE amounts are excessive and not supported. The particular time period from 1992 to 2006 used to calculate these values has not been justified. There has been no explanation of why the extraordinarily high reported losses for 1992 and 1993 should be expected to occur in the future. The underwriting profit and contingency factors are excessive and not supported. Various components underlying the calculation of the underwriting profit and contingency factors, including but not limited to the return on surplus, premium to surplus ratio, investment income and tax rate are not supported or justified. The underwriting expenses and other expenses are excessive and not supported. The non-FHCF reinsurance costs are excessive and not supported. The FHCF reinsurance costs are excessive and not supported. The fact that no new business is being written has not been taken into account. No explanation has been provided as too [sic] Hartford believes it is reasonable to return such a low percentage of premium in the form of loss payments to policyholders. For example, for the building policy forms, only about 40% of the premium requested by Hartford is expected to be returned to policyholders in the form of loss payments. As a result of the deficiencies set forth above, the Office finds that the proposed rate(s) are not justified, and must be deemed excessive and therefore, the Office intends to disapprove the above-referenced filing. The Notices of Intent to Disapprove the two dwelling/fire filings each list nine deficiencies. Seven of the nine (numbers 1-6 and 8) are the same as deficiencies listed for the homeowners filings. The remaining deficiencies named for Case No. 07-5187 are as follows: 7. The credibility standard and credibility value are not supported. 9. No explanation has been provided as too (sic) why Hartford believes it needs such a large rate increase currently, when the cumulative rate change implemented by Hartford for this program from 2001 to 2006 was an increase of only about 10%. The deficiencies listed for Case No. 07-5188 are the same as those listed for Case No. 07-5187, with the exception that with respect to deficiency number 9, the rate change implemented for the program in Case No. 07-5188 from 2001 to 2006 was a decrease of about -3%. Documentation Required for the Filings Florida's regulatory framework, consistent with most states, requires that insurance rates not be inadequate, excessive, or unfairly discriminatory. In making a determination concerning whether a proposed rate complies with this standard, the OIR is charged with considering certain enumerated factors in accordance with generally accepted and reasonable actuarial techniques. Chapter 2007-1 also amended Section 627.062, Florida Statutes, to add a certification requirement. The amendment requires the chief executive officer or chief financial officer and chief actuary of a property insurer to certify under oath that they have reviewed the rate filing; that to their knowledge, the rate filing does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which the statements were made, not misleading; that based on their knowledge, the information in the filing fairly presents the basis of the rate filing for the period presented; and that the rate filing reflects all premium savings reasonably expected to result from legislative enactments and are in accordance with generally accepted and reasonable actuarial techniques. § 627.062(9)(a), Fla. Stat. (2007). Actuarial Standards of Practice 9 and 41 govern documentation by an actuary. Relevant sections of Standard of Practice 9 provide: Extent of documentation - . . . Appropriate records, worksheets, and other documentation of the actuary's work should be maintained by the actuary and retained for a reasonable length of time. Documentation should be sufficient for another actuary practicing in the same field to evaluate the work. The documentation should describe clearly the sources of data, material assumptions, and methods. Any material changes in sources of data, assumptions, or methods from the last analysis should be documented. The actuary should explain the reason(s) for and describe the impact of the changes. Prevention of misuse - . . . The actuary should take reasonable steps to ensure that an actuarial work product is presented fairly, that the presentation as a whole is clear in its actuarial aspects, and that the actuary is identified as the source of the actuarial aspects, and that the actuary is available to answer questions.. . . . * * * 5.5 Availability of documentation- Documentation should be available to the actuary's client or employer, and it should be made available to other persons when the client or employer so requests, assuming appropriate compensation, and provided such availability is not otherwise improper. . . . In determining the appropriate level of documentation for the proposed rate filings, Petitioner relied on its communications with OIR, as well as its understanding of what has been required in the past. This reliance is reasonable and is consistent with both the statutory and rule provisions governing the filings. Use of the RMS Catastrophic Loss Projection Model In order to estimate future losses in a rate filing, an insurer must estimate catastrophic and non-catastrophic losses. Hartford's projected catastrophic losses in the filings are based upon information provided from the Risk Management Solutions (RMS) catastrophic loss projection model, version 5.1a. Hartford's actuaries rely on this model, consistent with the standards governing actuarial practice, and their reliance is reasonable. Catastrophe loss projection models may be used in the preparation of insurance filings, if they have been considered by and accepted by the Florida Commission on Hurricane Loss Projection Methodology (the Hurricane Commission). The Hurricane Commission determined that the RMS model, version 5.1a was acceptable for projecting hurricane loss costs for personal residential rate filings on May 17, 2006. In addition to approval by the Hurricane Commission, use of the model is appropriate "only if the office and the consumer advocate appointed pursuant to s. 627.0613 have access to all of the assumptions and factors that were used in developing the actuarial methods, principles, standards, models, or output ranges, and are not precluded from disclosing such information in a rate proceeding." §627.0628(3)(c), Fla. Stat. Both the Consumer Advocate and a staff person from the OIR are members of the Hurricane Commission. In that context, both have the ability to make on-site visits to the modeling companies, and to ask any questions they choose regarding the models. Both OIR's representative and the Consumer Advocate participated in the meetings and had the same opportunity as other commissioners to ask any question they wished about RMS 5.1a. The Hurricane Commission members, including the Consumer Advocate, clearly have access to the information identified in Section 627.0628(3)(c). However, there are restrictions on the Hurricane Commission members' ability to share the information received regarding trade secrets disclosed by the modeling companies. For that reason, the Commission's deliberations are not, standing alone, sufficient to determine that the Office of Insurance Regulation has access. In this case, credible evidence was submitted to show that RMS officials met with staff from the Office in July and October 2006 to discuss the model. RMS offered to provide any of its trade secret information to the OIR, subject to a non- disclosure agreement to protect its dissemination to competitors. RMS also opened an office in Tallahassee and invited OIR staff to examine any parts of the model they wished. In addition, both RMS and Hartford have answered extensive questionnaires prepared by OIR regarding the RMS model, and Hartford has offered to assist OIR in gathering any additional information it requires. Most of the questions posed by OIR involve the same areas reviewed by the Commission. RMS' representative also testified at hearing that RMS would not object to disclosure of the assumptions during the hearing itself if necessary. Finally, OIR Exhibit 1 is the Florida Hurricane Catastrophe Fund 2007 Ratemaking Formula Report. The Executive Summary from the report explains how rates were recommended for the Florida Hurricane Catastrophic Fund (CAT Fund) for the 2007- 2008 contract year. The report stated that the RMS model, as well as three other models accepted by the Hurricane Commission, were used for determining expected aggregate losses to the CAT Fund reinsurance layer. Three models, including the RMS model, were also used for analysis of detailed allocation to type of business, territory, construction and deductible, as well as special coverage questions. The models were compared in detail and given equal weight. The report notes that these three models were also used in 1999-2006 ratemaking. The report is prepared by Paragon Strategic Solutions, Inc., an independent consultant selected by the State Board of Administration, in accordance with Section 215.555(5), Florida Statutes. While OIR did not prepare the report, they show no hesitation in accepting and relying on the report and the modeled information it contains in these proceedings. Indeed, one of OIR's criticisms is Hartford's failure to use the report with respect to CAT Fund loss recovery estimates. Based upon the evidence presented at hearing, it is found that the OIR and Consumer Advocate were provided access to the factors and assumptions used in the RMS model, as contemplated by Section 627.0628. The Alleged Deficiencies in the Homeowners Filings1/ A rate is an estimate of the expected value of future costs. It provides for all costs associated with the transfer of risk. A rate is reasonable and not excessive, inadequate or unfairly discriminatory if it is an actuarially sound estimate of the expected value of all future costs associated with an individual risk transfer. In preparing a filing, an actuary identifies the time period that its proposed rates are expected to be in effect. Because ratemaking is prospective, it involves determining the financial value of future contingent events. For the rate filings in question, actuaries for Hartford developed their rate indications by first considering trended premium, which reflects changes in premium revenue based on a variety of factors, including construction costs and the value of the buildings insured. Trended premium is the best estimate of the premium revenue that will be collected if the current rates remain in effect for the time period the filing is expected to be in place. Expenses associated with writing and servicing the business, the reinsurance costs to support the business and an allowance for profit are subtracted from the trended premium. The remainder is what would be available to pay losses. This approach to ratemaking, which is used by Hartford, is a standard actuarial approach to present the information for a rate indication. As part of the process, expected claims and the cost to service and settle those claims is also projected. These calculations show the amount of money that would be available to pay claims if no changes are made in the rates and how much increased premium is necessary to cover claims. The additional amount of premium reflects not only claims payments but also taxes, licenses and fees that are tied to the amount of premium. The first deficiency identified by OIR is that "the premium trends are too low and are not reflective of the historical pattern of premium trends." In determining the premium trend in each filing, Hartford used data from the previous five years and fit an exponential trend to the historical pattern, which is a standard actuarial technique. Hartford also looked at the factors affecting the more recent years, which were higher. For example, the peak in premium trend in 2006 was a result of the cost increases driven by the 2004 and 2005 hurricanes, and the peak in demand for labor and construction supplies not matched by supply. Costs were coming down going into 2007, and Hartford believed that 2006 was out of pattern from what they could anticipate seeing in the future. The premium trends reflected in Hartford's filings are reasonable, reflective of historical patterns, and based on standard actuarial techniques. The second identified deficiency with respect to the homeowner filings was that the loss trends are too high and are not reflective of the historical pattern of loss trends. A loss trend reflects the amount an insurance company expects the cost of claims to change. It consists of a frequency trend, which is the number of claims the insurance company expects to receive, and a severity trend, which is the average cost per claim. The loss trend compares historical data used in the filing with the future time period when the new rates are expected to be in effect. Hartford's loss trends were estimated using a generalized linear model, projecting frequency and severity separately. The model was based on 20 quarters of historical information. The more credible testimony presented indicates that the loss trends were actuarially appropriate. The third identified deficiency is that the loss trends are based on an unexplained and undocumented method using "modeled" frequency and severity as opposed to actual frequency and severity. As noted above, the generalized linear model uses actual, historical data. Sufficient documentation was provided in the filing, coupled with Hartford's August 20, 2007, letter. The method used to determine loss trends is reasonable and is consistent with standard actuarial practice. The fourth identified deficiency is that loss trends are excessive and inconsistent compared to other sources of loss trends, such as Fast Track data. Saying that the loss trends are excessive is a reiteration of the claim that they are too high, already addressed with respect to deficiency number two. Fast Track data is data provided by the Insurance Services Office. It uses unaudited information and is prepared on a "quick turnaround" basis. Fast Track data is based on paid claims rather than incurred claims data, and upon a broad number of companies with different claims settlement practices. Because it relies on paid claims, there is a time lag in the information provided. Hartford did not rely on Fast Track data, but instead relied upon its own data for calculating loss trends. Given the volume of business involved, Hartford had enough data to rely on for projecting future losses. Moreover, Respondents point to no statutory or rule requirement to use Fast Track data. The filings are not deficient on this basis. The fifth identified deficiency in the Notice of Intent to Disapprove is that catastrophe hurricane losses, ALAE and ULAE amounts are excessive and not supported. ALAE stands for "allocated loss adjustment expenses," and represents the costs the company incurs to settle a claim and that can be attributed to that particular claim, such as legal bills, court costs, experts and engineering reports. By contrast, ULAE stands for "unallocated loss adjustment expense" and represents the remainder of claims settlement costs that cannot be linked to a specific claim, such as office space, salaries and general overhead. Part of the OIR's objection with respect to this deficiency relates to the use of the RMS model. As stated above at paragraphs 25-33, the use of the RMS model is reasonable. With respect to ALAE, Hartford analyzed both nationwide data (4.4%) and Florida data (4.8%) and selected an ALAE load between the two (4.6%). This choice benefits Florida policyholders. It is reasonable to select between the national and Florida historical figures, given the amount of actual hurricane data available during the period used. With respect to ULAE, the factors used were based upon directions received from Ken Ritzenthaler, an actuary with OIR, in a previous filing. The prior discussions with Mr. Ritzenthaler are referenced in the exhibits to the filing. The more credible evidence demonstrates that the ALAE and ULAE expenses with respect to catastrophic hurricane losses are sufficiently documented in Hartford's filings and are based on reasonable actuarial judgment. The sixth identified deficiency is that the catastrophe non-hurricane losses, ALAE and ULAE amounts are excessive and not supported. According to OIR, the particular time period from 1992 to 2006 used to calculate these values has not been justified, and there has been no explanation of why the extraordinarily high reported losses for 1992 and 1993 should be expected to occur in the future. OIR's complaint with respect to non-hurricane losses is based upon the number of years of data included. While the RMS model was used for hurricane losses, there is no model for non- hurricane losses, so Hartford used its historical data. This becomes important because in both 1992 and 1993, there were unusual storms that caused significant losses. Hartford's data begins with 1992 and goes through 2006, which means approximately fifteen years worth of data is used. Hartford's explanation for choosing that time period is that hurricane models were first used in 1992, and it was at that time that non-hurricane losses had to be separated from hurricane losses. Thus, it was the first year that Hartford had the data in the right form and sufficient detail to use in a rate filing. Petitioners have submitted rate filings in the past that begin non-hurricane, ALAE and ULAE losses with 1992, increasing the number of years included in the data with each filing. Prior filings using this data have been approved by OIR. It is preferable to use thirty years of experience for this calculation. However, there was no testimony that such a time-frame is actuarially or statutorily required, and OIR's suggestion that these two high-loss years should be ignored is not based upon any identified actuarial standard. Hartford attempted to mitigate the effect of the severe losses in 1992 and 1993 by capping the losses for those years, as opposed to relying on the actual losses.2/ The methodology used by Hartford was reasonable and appropriate. No other basis was identified by the OIR to support this stated deficiency. The seventh identified deficiency is that the underwriting profit and contingency factors are excessive and not supported. The underwriting profit factor is the amount of income, expressed as a percentage of premium, that an insurance company needs from premium in excess of losses, settlement costs and other expenses in order to generate a fair rate of return on its capital necessary to support its Florida exposures for the applicable line of business. Hartford's proposed underwriting profit factor for its largest homeowners filing is 15.3%. Section 627.062(2)(b), Florida Statutes, contemplates the allowance of a reasonable rate of return, commensurate with the risk to which the insurance company exposes its capital and surplus. Section 627.062(2)(b)4., Florida Statutes, authorizes the adoption of rules to specify the manner in which insurers shall calculate investment income attributable to classes of insurance written in Florida, and the manner in which investment income shall be used in the calculation of insurance rates. The subsection specifically indicates that the manner in which investment income shall be used in the calculation of insurance rates shall contemplate allowances for an underwriting profit factor. Florida Administrative Code Rule 69O-170.003 is entitled "Calculation of Investment Income," and the stated purpose of this rule is as follows: (1) The purpose of this rule is to specify the manner in which insurers shall calculate investment income attributable to insurance policies in Florida and the manner in which such investment income is used in the calculation of insurance rates by the development of an underwriting profit and contingency factor compatible with a reasonable rate of return. (Emphasis supplied). Mr. Schwartz relied on the contents of this rule in determining that the underwriting profit factor in Hartford's filings was too high, in that Florida Administrative Code Rule 69O-170.003(6)(a) and (7) specifies that: (6)(a) . . . An underwriting profit and contingency factor greater than the quantity 5% is prima facie evidence of an excessive expected rate of return and unacceptable, unless supporting evidence is presented demonstrating that an underwriting profit and contingency factor included in the filing that is greater than this quantity is necessary for the insurer to earn a reasonable rate of return. In such case, the criteria presented as determined by criteria in subsection (7) shall be used by the Office of Insurance Regulation in evaluating this supporting evidence. * * * An underwriting profit and contingency factor calculated in accordance with this rule is considered to be compatible with a reasonable expected rate of return on net worth. If a determination must be made as to whether an expected rate of return is reasonable, the following criteria shall be used in that determination. An expected rate of return for Florida business is to be considered reasonable if, when sustained by the insurer for its business during the period for which the rates under scrutiny are in effect, it neither threatens the insurer's solvency nor makes the insurer more attractive to policyholders or investors from a corporate financial perspective than the same insurer would be had this rule not been implemented, all other variables being equal; or Alternatively, the expected rate of return for Florida business is to be considered reasonable if it is commensurate with the rate of return anticipated for other industries having corresponding risk and it is sufficient to assure confidence in the financial integrity of the insurer so as to maintain its credit and, if a stock insurer, to attract capital, or if a mutual or reciprocal insurer, to accumulate surplus reasonably necessary to support growth in Florida premium volume reasonably expected during the time the rates under scrutiny are in effect. Mr. Schwartz also testified that the last published underwriting profit and contingency factor published by OIR was 3.7%, well below what is identified in Hartford's filings. Hartford counters that reliance on the rule is a misapplication of the rule (with no explanation why), is inconsistent with OIR's treatment of the profit factors in their previous filings, and ignores the language of Section 627.062(2)(b)11., Florida Statutes. No evidence was presented to show whether the expected rate of return threatens Hartford's solvency or makes them more attractive to policyholders or investors from a corporate financial perspective than they would have been if Rule 69O- 170.003 was not implemented. Likewise, it was not demonstrated that the expected rate of return for Florida business is commensurate with the rate of return for other industries having corresponding risk and is necessary to assure confidence in the financial integrity of the insurer in order to maintain its credit and to attract capital. While the position taken by OIR with respect to Hartford's filings may be inconsistent with the position taken in past filings, that cannot be determined on this record. The prior filings, and the communications Hartford had with OIR with regard to those filings, are not included in the exhibits in this case. There is no way to determine whether Petitioners chose to present evidence in the context of prior filings consistent with the criteria in Rule 69O-170.003, or whether OIR approved the underwriting profit and contingency factor despite Rule 69O- 170.003. Having an underwriting profit factor that is considered excessive will result in a higher rate indication. Therefore, it is found that the seventh identified deficiency in the Notices of Intent to Disapprove for the homeowners filings and the second identified deficiency in the Notices of Intent to Disapprove for the dwelling/fire filings is sustained. The eighth identified deficiency is that various components underlying the calculation of the underwriting profit and contingency factors, including but not limited to the return on surplus, premium to surplus ratio, investment income and tax rate are not supported or justified. Return on surplus is the total net income that would result from the underwriting income and the investment income contributions relative to the amount of capital that is exposed. Surplus is necessary in addition to income expected from premium, to insure that claims will be paid should losses in a particular year exceed premium and income earned on premium. Hartford's expected return on surplus in these filings is 15%. The return on surplus is clearly tied to the underwriting profit factor, although the percentages are not necessarily the same. It follows, however, that if the underwriting income and contingency factor is excessive, then the return on surplus may also be too high. Hartford has not demonstrated that the return on surplus can stand, independent of a finding that the underwriting profit and contingency factor is excessive. Premium-to-surplus ratio is a measure of the number of dollars of premium Hartford writes relative to the amount of surplus that is supporting that exposure. Hartford's premium-to- surplus ratio in the AARP homeowners filing is 1.08, which means that if Hartford wrote $108 of premium, it would allocate $100 of surplus to support that premium.3/ The premium-to-surplus ratio is reasonable, given the amount of risk associated with homeowners insurance in Florida. The OIR's position regarding investment income and tax rates are related. The criticism is that the filing used a low- risk investment rate based on a LIBOR (London Interbank Offering Rate), which is a standard in the investment community for risk- free or low-risk yield calculations. The filing also used a full 35% income tax rate applied to the yield. Evidence was presented to show that, if the actual portfolio numbers and corresponding lower tax rate were used in the filings, the rate after taxes would be the same. The problem, however, is that Section 627.062(2)(b)4., Florida Statutes, requires the OIR to consider investment income reasonably expected by the insurer, "consistent with the insurer's investment practices," which assumes actual practices. While the evidence at hearing regarding Hartford's investments using its actual portfolio yield may result in a similar bottom line, the assumptions used in the filing are not based on Petitioner's actual investment practices. As a result, the tax rate identified in the filing is also not the actual tax rate that has been paid by Hartford. The greater weight of the evidence indicates the data used is not consistent with the requirements of Section 627.062(2)(b)4., Florida Statutes. Therefore, the eighth deficiency is sustained to the extent that the filing does not adequately support the return on surplus, investment income and tax rate. The ninth identified deficiency is that the underwriting expenses and other expenses are excessive and not supported. Hartford used the most recent three years of actual expense data, analyzed them and made expense selections based on actuarial judgment. The use of the three-year time frame was both reasonable and consistent with common ratemaking practices. Likewise, the commission rates reflected in the agency filings are also reasonable. The tenth identified deficiency is that the non-FHCF (or private) reinsurance costs are excessive and not supported. The criticism regarding private reinsurance purchases is three- fold: 1) that Hartford paid too much for their reinsurance coverage; 2) that Hartford purchases their reinsurance coverage on a nationwide basis as opposed to purchasing coverage for Florida only; and 3) that the percentage of the reinsurance coverage allocated to Florida is too high. Hartford buys private reinsurance in order to write business in areas that are exposed to catastrophes. It buys reinsurance from approximately 40 different reinsurers in a competitive, arm's-length process and does not buy reinsurance from corporate affiliates. Hartford used the "net cost" of insurance in its filings, an approach that is appropriate and consistent with standard actuarial practices. Hartford also used the RMS model to estimate the expected reinsurance recoveries, which are subtracted from the premium costs. Hartford buys private catastrophic reinsurance on a nationwide basis to protect against losses from hurricanes, earthquakes and terrorism, and allocates a portion of those costs to Florida. Testimony was presented, and is accepted as credible, that attempting to purchase reinsurance from private vendors for Florida alone would not be cost-effective. The cost of reinsurance, excluding a layer of reinsurance that covers only the Northeast region of the country and is not reflected in calculating costs for Florida, is approximately $113 million. Hartford retains the first $250 million in catastrophe risk for any single event, which means losses from an event must exceed that amount before the company recovers from any reinsurer. In 2006, Hartford raised its retention of losses from $175 million to $250 million in an effort to reduce the cost of reinsurance. Hartford purchases reinsurance in "layers," which cover losses based on the amount of total losses Hartford incurs in various events. Hartford allocates approximately 65% of the private reinsurance costs (excluding the Northeast layer) to Florida in the AARP homeowners filing. Only 6-7% of Hartford's homeowners policies are written in Florida. The amount Hartford paid for reinsurance from private vendors is reasonable, given the market climate in which the insurance was purchased. Hartford has demonstrated that the process by which the reinsurance was purchased resulted in a price that was clearly the result of an arms-length transaction with the aim of securing the best price possible. Likewise, the determination to purchase reinsurance on a nationwide basis as opposed to a state-by-state program allows Hartford to purchase reinsurance at a better rate, and is more cost-effective. Purchasing reinsurance in this manner, and then allocating an appropriate percentage to Florida, is a reasonable approach. With respect to the allocation of a percentage of reinsurance cost to Florida, OIR argues that, given that Florida represents only 6-7% of Hartford's homeowner insurance business, allocation of 65% of the reinsurance costs to Florida is per se unreasonable. However, the more logical approach is to examine what percentage of the overall catastrophic loss is attributable to Florida, and allocate reinsurance costs accordingly. After carefully examining both the testimony of all of the witnesses and the exhibits presented in this case, the undersigned cannot conclude that the allocation of 65% of the private reinsurance costs is reasonable, and will not result in an excessive rate.4/ The eleventh identified deficiency is that the FHCF (or CAT Fund) reinsurance costs are excessive and not supported. Hartford purchases both the traditional layer of CAT Fund coverage, which is addressed in a separate filing and not reflected in these filings, and the TICL layer made available pursuant to Chapter 2007-1, Laws of Florida. Hartford removed the costs of its previously purchased private reinsurance that overlapped with the TICL layer and those costs are not reflected in these filings and have not been passed on to Florida policyholders. In estimating the amount of premium Hartford would pay for the TICL coverage, it relied on information provided by Paragon, a consulting firm that calculates the rates for the CAT Fund. As noted in finding of fact number 31, the RMS model, along with three other models accepted by the Hurricane Commission, were used by Paragon for determining expected aggregate losses to the CAT Fund reinsurance layer, clearly a crucial factor in determining the rate for the CAT fund. Hartford did not use the loss recoveries calculated by Paragon, but instead estimated the total amount of premium it would pay for the TICL coverage and subtracted the expected loss recoveries based on the RMS model alone. The expected loss recoveries under the RMS model standing alone were 60% of the loss recovery estimate calculated by Paragon when using all four models. Hartford claimed that its use of the RMS model was necessary for consistency. However, it pointed to no actuarial standard that would support its position with respect to this particular issue. Moreover, given that the premium used as calculated by Paragon used all four models, it is actually inconsistent to use one number which was determined based on all four models (the Paragon-based premium estimate) for one half of this particular calculation and then subtract another number using only one model for the other half (the loss recoveries rate) in order to determine the net premium. To do so fails to take into account the unique nature of the CAT fund, in terms of its low expenses and tax-exempt status. Accordingly, it is found that the CAT-Fund reinsurance costs for the TICL layer are excessive. The twelfth identified deficiency is that Hartford did not consider in the filing that no new business is being written. OIR's explanation of this asserted deficiency is that the costs associated with writing new business are generally higher than that associated with writing renewals. Therefore, according to OIR, failure to make adjustments to their historical experience to reflect the current mix of business, means that the costs included in the filing would be excessive. Hartford began restricting the writing of new business for these filings in 2002. Ultimately, no new business for the AARP program was written after November 2006 and no new business was written for the agency program after June 2006. Credible evidence was presented to demonstrate that a very low percentage of new business has been written over the period of time used for demonstrating Hartford's historical losses. As a result, the effect of no longer writing new business is already reflected in the data used to determine expenses. No additional adjustment in the filing was necessary in this regard. The thirteenth identified deficiency is that no explanation has been provided as to why Hartford believes it is reasonable to return such a low percentage of premium in the form of loss payments to policyholders. For example, for the building policy forms, OIR states that only about 40% of the premium requested by Hartford is expected to be returned to policyholders in the form of loss payments. OIR pointed to no actuarial standard that would require a specific explanation regarding how much of the premium should be returned to policyholders. Nor was any statutory or rule reference supplied to support the contention that such an explanation was required. Finally, the more credible evidence presented indicates that the correct percentage is 44%. In any event, this criticism is not a basis for finding a deficiency in the filing. Alleged Deficiencies in the Dwelling/Fire Filings The seventh deficiency identified in the dwelling/fire filings, not reflected in the homeowner filings, is that the credibility standard and credibility values are not supported. Credibility is the concept of identifying how much weight to put on a particular set of information relative to other potential information. Credibility value is determined by applying the "square root rule" to the credibility value, a commonly used actuarial approach to credibility. Hartford used the credibility standard of 40,000 earned house years in these filings. This credibility standard has been the standard within the industry for personal property filings for over forty years and has been used in prior filings submitted to OIR. Mr. Schwartz testified that his criticism with respect to the credibility standard and credibility values is that Hartford did not explain why they used that particular standard. However, Florida Administrative Code Rule 69O-170.0135 discusses those items that must be included in the Actuarial Memorandum for a filing. With respect to credibility standards and values, Rule 69O-170.0135(2)(e)5., provides that the basis need only be explained when the standard has changed from the previous filing. Given that no change has been made in these filings with respect to the credibility standard, this criticism is not a valid basis for issuing a Notice of Intent to Disapprove. The ninth deficiency in the Notice relating to the dwelling/fire filing in Case No. 07-5187 provides: "No explanation has been provided as too (sic) why Hartford believes it needs such a large rate increase currently, when the cumulative rate change implemented by Hartford for this program from 2001 to 2006 was an increase of only about 10%." With respect to Case No. 07-5188, the deficiency is essentially the same, except the cumulative rate change identified for the same period of time is a decrease of about -3%. Testimony established that the dwelling/fire rate increases were larger than those identified for the homeowners filings because Hartford did not seek rate increases for these lines for several years. The decision not to seek increases was not based on the adequacy of current rates. Rather, the decision was based on an internal determination that, based on the relatively small number of policies involved in these two filings, the amount of increased premium reflected in a rate increase was not sufficient to incur the costs associated with preparing the filings. Mr. Schwartz pointed to no authority, either in statute, rule, or Actuarial Standard, that requires the explanation he desired. He acknowledged that he understood the basis of how Hartford reached the rate increase they are requesting. The failure to provide the explanation Mr. Schwartz was seeking is not a valid basis for a Notice of Intent to Disapprove.
Recommendation Upon consideration of the facts found and conclusions of law reached, it is RECOMMENDED: That a final order be entered that disapproves the rate filings in Case Nos. 07-5185 and 07-5186 based upon the deficiencies numbered 7,8,10 and 11 in the Notices of Intent to Disapprove, and that disapproves the rate filings in Case Nos. 07-5187 and 07-5188 based on the deficiencies numbered 2,3,5 and in the Notices of Intent to Disapprove. DONE AND ENTERED this 28th day of March 2008, in Tallahassee, Leon County, Florida. S LISA SHEARER NELSON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 28th day of March, 2008.
Findings Of Fact Respondent John Thomas Holmes held a license issued by petitioner at all times pertinent. His appointment by Georgia Life and Health Insurance Company (Georgia Life) expired on February 13, 1991. Petitioner's Exhibit No. 1. He acted as a general agent in Bonifay, Florida, for American Family Life Insurance Company of Columbus (American Family) as recently as January of 1990. His appointment by American Family expired on April 1, 1992. Petitioner's Exhibit No. 1. In January of 1990, J.R. Lunsford, Sr. approached Mr. Holmes and suggested that Mr. Holmes contact older people to whom he had sold insurance, in an effort to sell them medicare supplement insurance issued by Georgia Life, which was less expensive than policies Mr. Holmes had written for American Family. They decided that Mr. Holmes would make appointments with prospects, and that Mr. Lunsford (or both of them together) would try to sell substitute (or in some cases new) insurance policies. They agreed to split expenses and income fifty-fifty. Although he told Mr. Holmes otherwise, Mr. Lunsford was not authorized by Georgia Life to sell its insurance policies in January of 1990. But Mary Nell Smith of Tallahassee, once a close friend of Mr. Lunsford's, was so authorized; and had agreed to write any Georgia Life policies Mr. Lunsford was able to sell. Only on March 1, 1990, did Mr. Lunsford gain official permission to act on behalf of Georgia Life in Florida. Respondent's Exhibit 2. Even then, he needed a general agent's endorsement, which Mary Nell Smith supplied. Of the premiums Mr. Lunsford and Mr. Holmes collected, two-fifths had to be forwarded to Georgia Life under the agreement between Ms. Smith and the company. Ms. Smith retained some of the money she did not forward to Georgia Life: In keeping with an oral agreement with Messrs. Lunsford and Holmes, she was allowed $400.00 a month for her services and to cover expenses, including the expenses of xeroxing various forms and transmitting others to Georgia Life's office in Huntsville, Alabama. At the suggestion of Messrs. Lunsford and Holmes, Ms. Smith met them Thursdays at Hardee's in Chattahoochee to settle accounts. In the restaurant she calculated the amount of commission their activities for the week had entitled the three of them to divide up. She offset chargebacks or the like against any monies otherwise payable to the men, then wrote them checks representing their shares. Georgia Life differs from some insurance companies in requiring only that the general agent forward to the company the net premium (the premium less the agent's commission.) Georgia Life does not require that the entire premium be forwarded to the company, or that the company be the only source of commission payments to its agents. Only rarely did Ms. Smith receive cash from Mr. Holmes or Mr. Lunsford. In the event either of them had received cash from an insured or an applicant for insurance, he ordinarily kept it and she treated it as an offset against the commission share she would otherwise have disbursed by check. For a while, the enterprise went forward more or less to the satisfaction of the principals, earning some $47,000.00 for Mr. Holmes. But Mr. Lunsford and Ms. Smith insisted, after he was legally authorized to do so, that Mr. Lunsford sign the policies written for Georgia Life. This assured that any commission the company owed an agent on account of a renewal premium would be paid to Mr. Lunsford. This circumstance and other matters of contention eventually caused the dissolution of the partnership between Mr. Holmes and Mr. Lunsford. Mr. Holmes felt he was entitled to more money. On September 28, 1990, Mr. Holmes told Mr. Lunsford that he wanted nothing further to do with either Georgia Life or Mr. Lunsford. On August 30, 1990, Messrs. Lunsford and Holmes had persuaded Alvin M. Stewart of Marianna to buy a medicare supplement policy, Georgia Life No. 310872. Petitioner's Exhibit No. 2. At the time, he gave them $246.20 in cash, and they gave him a receipt for that amount. Petitioner's Exhibit No. 3. On the receipt Mr. Lunsford wrote "BAL. $208.20 DUE on DELIVERY if DESIRED." Id. This reflected the parties' understanding that Mr. Stewart could obtain a year's coverage by paying the difference between what he had already paid and the annual premium. Properly accounted for by Mary Nell Smith, the appropriate fraction of the money collected from Mr. Stewart on August 30, 1990, went to the insurance company, which issued a policy originally written remain in effect for six months. On October 9, 1990, Mr. Holmes stopped by Mr. Stewart's house and collected $208.20 from Mr. Stewart. On the receipt Mr. Lunsford had signed and given to Mr. Stewart on August 30, 1990, Mr. Holmes wrote "PD-10-9-1990." Petitioner's Exhibit No. 3. Mr. Holmes did not give the money he collected from Mr. Stewart on October 9, 1990, to Mr. Lunsford, despite his testimony to that effect at hearing. Instead he appropriated it to his own use. On or about September 11, 1990, Messrs. Lunsford and Holmes had called on Rubbin B. Beck of Defuniak Springs. They induced him to execute an application for a Georgia Life medical supplement policy, No. 310956, Petitioner's Exhibit No. 7, and received a payment of $98.30 from him, representing an initial monthly premium payment and a $20.00 registration fee. Id. After an accounting on or about September 13, 1990, Mary Nell Smith mailed Georgia Life a check for $1951.50, an aggregate sum which included half the registration fee and two fifths of the monthly premium Mr. Beck had paid two days earlier. Later Mr. Lunsford and Mr. Holmes returned together to Mr. Beck's and received $354.20 from him. On October 4, 1990, Ms. Smith forwarded two fifths of this amount to Georgia Life with directions that the company "change to annual" the premium mode. On or about November 18, 1990, respondent Holmes called on Mr. Beck. He went alone, and received $437.40 in cash from Mr. Beck, the amount of the final instalment on the annual premium. He signed a receipt for this amount which he left with Mr. Beck. Petitioner's Exhibit No. 5. Despite respondent's claim that he gave this money to Ms. Smith, the money never reached Ms. Smith, Mr. Lunsford or Georgia Life. Mr. Holmes' misappropriations came to light after Messrs. Stewart and Beck received cancellation notices from Georgia Life and inquired of Mr. Lunsford regarding them. In each case, the policies were reinstated, and neither policy holder suffered actual damage.
Recommendation It is, accordingly, RECOMMENDED: That petitioner suspend any license it has issued that respondent now holds and deny any application for licensure or relicensure he may make for a period of three years. DONE and ENTERED this 6th day of November, 1992, in Tallahassee, Florida. ROBERT T. BENTON, II 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 6th day of November, 1992. APPENDIX Petitioner's proposed findings of fact Nos. 1, 3, 5, 7, 8, 10, 11, 13 and 14 have been adopted, in substance, insofar as material. With respect to petitioner's proposed finding of fact No. 2, the payment also included a registration fee. With respect to petitioner's proposed findings of fact Nos. 4, 6 and 12, sums Ms. Smith paid Messrs. Holmes and Lunsford were reduced by the amount she kept for herself. Also with respect to petitioner's proposed finding of fact No. 6, the premium forwarded to Georgia Life was $141.68, not $212.52. Respondent's proposed findings of fact Nos. 1 and 3 have been adopted, in substance, insofar as material. With respect to respondent's proposed finding of fact No. 2, respondent's appointment by Georgia Life ended in February, but he had terminated the partnership the preceding September. With respect to Respondent's proposed findings of fact Nos. 4 and 5 while Mr. Lunsford's testimony has not been credited in every detail, it was clearly and convincingly established that he never received the moneys in question. COPIES FURNISHED: Joseph D. Mandt, Esquire 412 Larson Building Tallahassee, FL 32399-0300 Clifford L. Davis, Esquire 1105 Hayes Street Tallahassee, FL 32301 Don Dowdell, General Counsel Department of Insurance Division of Legal Services 412 Larson Building, 200 East Gaines Street Tallahassee, FL 32399-0300 Tom Gallagher, State Treasurer Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, FL 32399-0300
The Issue The issues to be resolved in this consolidated proceeding concern whether the Petitioner, Abraham Maida's applications to represent certain life insurance companies should be denied based upon his alleged unlawful failure to forward premium funds from insureds to the insurers during the applicable regular course of business. Also at issue are the charges in the Administrative Complaint in the related penal proceeding which concerns the same factual conduct involving the Respondent's alleged failure to forward premiums to the insurers involved in the policy contracts at issue.
Findings Of Fact The Petitioner, Abraham George Maida, is licensed in Florida as a life insurance agent, a life and health insurance agent and a dental health care contract salesman. The Department is an agency of the State of Florida charged with licensing life, health and other types of insurance agents, with regulating their licensure and practice and with enforcing the licensure and practice standards embodied in the statutes cited hereinbelow. Abraham Maida engaged in the business of selling insurance coverage to various employees of the City of Jacksonville. The premium payments for this coverage were collected by payroll deduction from the employees, and lump sum premium checks were remitted over to the Petitioner/Respondent, Mr. Maida, by the appropriate personnel of the City of Jacksonville. Mr. Maida, in turn, was required by his contractual arrangements with the underwriting insurance companies involved and by the Florida Insurance Code, Chapter 626, Florida Statutes, with timely remitting those premium funds over to the insurers who underwrote the risk for the employees in question. Mr. Maida failed to timely remit the premium funds which he collected from the City of Jacksonville to the relevant insurers for the months of February, March and April of 1990, in the case of policy contracts written on behalf of Loyal American Life Insurance Company. Additionally, Mr. Maida failed to timely remit the premium funds received from the City of Jacksonville, after it received them by payroll deduction from its employees, for the months of March, April and May of 1990, with regard to the premium funds due in contracts involving the ITT Life Insurance Company, in accordance with his contract with that company. Mr. Maida failed to timely remit the insurance premiums of James E. Daniels to the ITT Life Insurance Company, as well. The Petitioner/Respondent's contracts with these insurance companies required him to remit premium funds which he received from insureds, within thirty (30) days of receipt, to the insurance company underwriting the risk involved. This the Petitioner/Respondent failed to do for the companies involved in the above Findings of Fact and for those months of 1990 delineated above. In the case of most of the delinquent premium funds due these companies, Mr. Maida authorized them to debit his commission and/or renewal accounts with those companies, which were monies due and owing to him from the companies, in order to make up the premiums which he had not remitted over to the companies involved at that point. That procedure did not defray all of the delinquent premium amounts, however. in the case of ITT Life Insurance Company and the monies owed that company by Mr. Maida, it was established that $10,554.21 of delinquent premium amounts were owing to that company and not timely paid by Mr. Maida. Although he paid the portion of that figure representing the March premium funds due the company for March of 1990, he did not directly pay the premium funds due for April and May of 1990 but, rather, suffered the company to charge those delinquencies, for those months, to his agent's commission account. This procedure still left $4,877.54 unpaid, as of the time of hearing. It was established by witness, Steven Heinicke of that company, that Mr. Maida is their most consistently delinquent agent, in terms of timely remission of premium funds due the company for insurance business which Mr. Maida has written. It has also been established however, that Mr. Maida made a practice of always paying premium funds due the companies for which he wrote insurance in the precise amounts owing, regardless of whether the billing statements to him from those companies had inadvertently understated the amounts which they were due. It was also established that his failure to timely remit the insurance premium funds in question was not due to any intent to defraud those companies of the funds involved or to permanently convert the funds to his own use. Rather, it was established that Mr. Maida's difficulty in timely payment of the premium funds was due to misappropriation of the funds because of financial problems which he was suffering at tee times in question, due at least in part to federal income tax difficulties he was experiencing. There has been no shoring in this record that Mr. Maida is not a competent insurance agent in terms of his abilities and qualifications to fairly and effectively obtain and contract for insurance business with insureds on behalf of the insurance companies he represents. There was no showing that he lacks reasonably adequate knowledge and technical competence to engage in the transactions authorized by the licenses or permits which he presently holds or which he seeks in the licensure application involved in this proceeding.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, and the candor and demeanor of the witnesses, it is, therefore RECOMMENDED: That the Petitioner be found guilty of the violations found to have been proven in the above Conclusions of Law portion of this Recommended Order and that his licenses and eligibility for licensure with the insurers for which license application was made be suspended for a period of three (3) months. DONE and ENTERED this 5th day of June, 1991, in Tallahassee, Florida. P. MICHAEL RUFF Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk the Division of Administrative Hearings this 6th day of June, 1991. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 90-6670 Respondent/Department's Proposed Findings of Fact: 1-7. Accepted. COPIES FURNISHED: Tom Gallagher, State Treasurer and Insurance Commissioner Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, FL 32399-0300 Bill O'Neil, Esq. General Counsel Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, FL 32399-0300 Norman J. Abood, Esq. Willis F. Melvin, Jr., Esq. 1015 Blackstone Building Alan J. Leifer, Esq. Jacksonville, FL 32202 Department of Insurance and Treasurer 412 Larson Building Tallahassee, FL 32399-0300
The Issue The issues which developed were: Did Jackson Greene receive the coverage as asserted by the Department of Administration, and What deductions were made from Greene for the coverage, and What deductions were required for the coverage, and Did Greene owe any additional sums for the coverage?
Findings Of Fact Mr. Jackson Greene was employed by the State of Florida, Department of insurance, on October 15, 1983. When he was employed, Greene became eligible for participation in the state's health insurance plan. He applied for coverage on October 17, 1983, filling out and signing the application form, Petitioner Exhibit 1. Mr. Greene indicated he desired Family I Coverage, insuring himself and his wife, Evelyn Greene, who was not a State employee. See Petitioner Exhibit 1. Family I Coverage was provided by the State as indicated by issuance of an insurance card. Although the Greenes never had occasion to make a claim against the insurance, the insurance was in effect from the date of acceptance into the program through the date of this hearing. The State erroneously failed to deduct the correct amount for insurance premiums from Greene's salary. From November 1983 through July 1984 the State should have deducted $48.46 per month. However, the State deducted only $13.28 per month. From August through April 1986, when the error was caught and corrected, the State should have deducted $55.64/month. However, only $15.18 per month was deducted by the State. From November 1953 through July 1984 the State failed to deduct $316.62 ($48.46 - $13.28 X 9 = $316.62). From August 1984 through April 1956 the State failed to deduct $849.66 over 21 months ($55.64 - $15.18 X 21 $849.66) Over the entire term of coverage (30 months) there is a computed total due of $1,166.28 based upon Respondent's Exhibit 2.
Recommendation The State should recover $1,166.28 from Jackson Greene for underpayment of insurance premiums in 60 equal installments and any unpaid portion be deducted from moneys owed Petitioner for unused sick and annual leave if Petitioner leaves State employment. DONE and ORDERED this 9th day of January, 1987, in Tallahassee, Florida. STEPHEN F. DEAN Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 9th day of January, 1987. APPENDIX TO RECOMMENDED ORDER, CASE NO. 86-3788 The Respondent's Findings of Facts were adopted. The Petitioner's Findings of Facts are not specifically identified; however, both parties agree to the basic facts. The Petitioner's contention is that the state is barred from recovering the unpaid premiums on equitable principles. This legal argument is rejected because Petitioner has suffered no detriment except having to pay higher premiums due to repayment. This detriment is diminished by the extend repayment period recommended. COPIES FURNISHED: Jackson Greene 1303 Ocala Road, Apt. 7 Tallahassee, Florida 32304 Augustus D. Aikens, Jr., Esquire General Counsel Department of Administration 435 Carlton Building Tallahassee, Florida 32399-1550 Gilda Lambert, Secretary Department of Administration 435 Carlton Building Tallahassee, Florida 32399-1550
Findings Of Fact The Respondent is, and at all times material to the allegations in the Administrative Complaint, was a licensed ordinary life insurance salesman in the State of Florida. He first became licensed in 1977, and went to work initially for Occidental Life Insurance Company in Orlando, Florida. After approximately three to four weeks with Occidental Life, he went to work for Lincoln National Life and was transferred to St. Petersburg, where he worked for about three or four months selling health insurance and some life insurance as a rider to the health insurance policies. After leaving Lincoln National Life, he left the insurance business and went to work for a sign company. He worked for no further insurance companies before he joined Coordinated Planning Associates (hereinafter referred to as COPA). He went to work for COPA in April of 1979. In July, 1980, Mr. Wheeler was terminated by COPA and he then became employed by United Companies Life, his present employer. In June or July of 1979, Mr. Wheeler contacted James and Ruby Clinton about purchasing insurance from him. He met with them in their home to discuss his product. At that time, Mr. and Mrs. Clinton had four policies in effect. (See Petitioner's Exhibits 8, 9, 10, and 11.) One policy covered Mr. Clinton and had a rider for his wife, and the other three policies were on each of their three children. When there was an initial contact made by Mr. Wheeler with the Clintons, Mr. Clinton informed Mr. Wheeler that they had more insurance than they could afford. Prior to purchasing insurance from Mr. Wheeler, the Clintons showed Mr. Wheeler their policies, and he went through the policies and explained to the Clintons that he could obtain the same or better coverage from his company for less premium. He also informed them that they could obtain coverage for the children by paying a set premium per year per child per thousand dollars of coverage. After the Clintons purchased their policy from Mr. Wheeler, Mrs. Clinton actually requested insurance on the children, and Mr. Wheeler came by their home once again to pick up the $4.00 payment or deposit for the additional coverage for the children. At the time that Mr. Wheeler sold the new insurance policy to Mr. and Mrs. Clinton, no replacement form was prepared or shown to the Clintons. The Clintons were not knowledgeable in insurance matters and relied upon Mr. Wheeler's representations as to the comparative coverages of his company's policy and their existing policies. The coverage under the policy sold by Mr. Wheeler to the Clintons was not the same or better coverage than those which existed under the policies which were replaced. The policies replaced were whole life policies and covered the entire family. The program being sold by Mr. Wheeler was a retirement savings plan with a term insurance rider and was intended to only supplement and not replace existing coverage. Mr. Wheeler was aware that the Clintons intended to cancel their existing policies and replace them with the policy which he was selling. Mr. Wheeler testified regarding the Clintons on direct examination as follows: Q. Did they mention anything about re- placing their insurance? A. No. They insinuated that yes, they were going to drop it because they needed the money. The original reason we were there was because they needed money, and that's why we were there. And if they could get a good deal on their insurance, or if they could buy a good program and they could turn the other in and get money for it, that's what they were interested in. In fact, Mr. Wheeler's wife actually picked up the existing policies and took care of mailing them to the company after their cancellation. In October of 1979, Mr. Wheeler met with Gary and Darlene Davis of Orlando, Florida, for the purpose of attempting to sell life insurance to them. At the time that they were approached by Mr. Wheeler, Mr. and Mrs. Davis had three life insurance policies issued by Prudential Life Insurance Company in effect. Mr. Wheeler was made aware of these three policies. During the course of the sales presentation, the Respondent went through the existing policies and compared some of the benefits with those of the ITT policy he was attempting to sell. He represented to the Davises that the ITT policy would provide them with better coverage for the entire family for less premium than they were paying for the existing policies. Mr. Wheeler was informed by the Davises that they intended to cancel their existing policies when they purchased the ITT coverage. When Mr. Wheeler met with Mrs. Davis, she showed him the insurance policies on her and her husband. The policy on Mr. Davis had a rider for the children and Mrs. Davis's policy contained an IRA. Mr. Wheeler represented to Mrs. Davis that the COPA program would give her family these same benefits plus a cancer policy for less money. He explained to Mrs. Davis that he could charge a lower premium because he was not an insurance man per se and that because of this his company did not have to pay high commissions like Prudential. He also explained that he worked more with helping people with their finances than with selling insurance and was salaried. In fact, Mr. Wheeler was an insurance salesman working on commissions. The COPA program did not contain an IRA and the cheaper insurance was a term rider not whole life. The basic COPA program which Mr. Wheeler sold to the Davises also did not contain coverage for the Davis children. The true reason the premium was lower was because of the different coverage and different type of insurance. The ITT policy sold to the Davises in fact did not provide the same coverage as that of the policies which were cancelled by the Davises at the time of purchasing the ITT policy. The ITT policy specifically did not provide coverage for the Davis' children, and as a result of this lack of coverage, Mr. and Mrs. Davis were unable to recover any insurance proceeds after their daughter's death during the coverage period of the ITT policy. The ITT policy was a retirement plan designed to supplement existing life insurance and was not intended as a complete life insurance program for a family. Mrs. Davis understood the ITS policy to contain an IRA as part of the policy. The evidence was unclear as to whether Mr. Wheeler actually represented that it contained an IRA or whether he represented that there was a tax benefit within the retirement savings program which the Davises interpreted to mean an IRA. It was clear, however, that Mr. and Mrs. Davis were not knowledgeable in matters of insurance and relied upon the expertise and representations of Mr. Wheeler in cancelling their existing policies and replacing them with the ITT policy. No replacement form comparing the coverage of the existing policies and the ITT policy was prepared or presented to the Davises at the time that they purchased the ITT policy. Mr. Wheeler admitted that he filled out the applications on behalf of the Davises and the Clintons. Question No. Nine on the application forms for ITT of both the Clintons and the Davises asked whether the proposed policies were being issued in a replacement situation. This question on both applications was answered "No" by Mr. Wheeler. Question No. One of the agent's report reads: "Will insurance on any proposed insured now applied for replace or change any life insurance or annuity?" This question was answered "No" on the agent's report for both the Davises and the Clintons. The signature block of the agent's report reflected that they were prepared by Mr. Richard Wheeler. The Respondent admitted that he customarily intentionally avoided information from prospects which might reveal to him the fact that insurance was being replaced and did so in this instance. When Mr. Wheeler began with COPA, he received two weeks' training. The training was designed to teach the "canned" presentation which COPA salesmen were required to use. This presentation was prepared by the more experienced and more knowledgeable officers and managers of COPA. This same presentation was utilized by Mr. Wheeler in the sales presentation to the Clintons and Davises. There was no training regarding replacement of other insurance. Sometime in 1980, after the sales to the Clintons and Davises, Mr. Wheeler was informed by another COPA employee, Greg Gustin, as to particular representations within the canned presentation Mr. Gustin considered to be false. Sometime after this, Mr. Wheeler discussed this with Mr. Larry Taylor of COPA and an official of ITT Life Insurance Company. When Mr. Wheeler tried to change the presentation to eliminate the misrepresentations, he was fired. This occurred July 17, 1980. Mr. Wheeler claimed ignorance of the misleading nature of the canned presentation prior to his discussions with Mr. Gustin. However, Mr. Wheeler admitted that he had intentionally avoided getting information from customers which indicated they were going to cancel their existing policies. The sales presentation also stated "Let me assure you I am not here to sell you anything. Mr. Wheeler's only purpose for visiting these people was to sell them insurance. Mr. Wheeler sold approximately 250 policies while with COPA and has continued to sell life insurance since leaving COPA in July, 1980. The two complaints which are the subject of this administrative proceeding were the only two complaints made against Mr. Wheeler. Since going to work for United Companies Life, Mr. Wheeler has been trained in using replacement forms and now uses those forms whenever his policy replaces existing insurance.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby RECOMMENDED: 1. That the Department of Insurance enter a final order suspending Respondent's license for a period of 30 days. This case is more appropriately a case for a civil fine or probation. However, a violation of Florida Statute Section 626.611 involves a mandatory suspension. There are strong mitigating factors which justify that the mandatory suspension be of short duration. At the tinge the sales were made to Mr. and Mrs. Clinton and Mrs. and Mrs. Davis, the Respondent was relatively new in the insurance business. Upon being employed by COPA, he was given a prepared sales presentation to memorize and use in each sales contact. This presentation was prepared by the officers and managers of COPA who were more experienced and more knowledgeable than Mr. Wheeler about insurance matters. Mr. Wheeler later tried to change the presentation and was fired as a result. These incidents occurred in 1979 and since that time Mr. Wheeler has continued to work as a licensed insurance salesman with no complaints or evidence of violations of the Florida Statutes or Rules of the Department of Insurance. The circumstances giving rise to the violations and the fact that the Respondent was advised by more experienced and knowledgeable individuals clearly bear upon the appropriateness of the particular penalty assigned. See, Drew v. Insurance Commissioner and Treasurer, 330 So.2d 794 (Fla. 1st DCA 1976). RECOMMENDED this 11 day of April, 1983, in Tallahassee, Florida. MARVIN E. CHAVIS Hearing Officer Division of Administrative Hearings 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 12th day of April, 1983. COPIES FURNISHED: David A. Yon, Esquire Legal Division Department of Insurance 413-B Larson Building Tallahassee, Florida 32301 Paul H. Bowen, Esquire Swann & Haddock, P.A. Post Office Box 7838 Orlando, Florida 32854 Honorable William Gunter State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32301
The Issue In this proceeding, pursuant to Section 120.56(4), Florida Statutes, Petitioner United Property & Casualty Insurance Company ("United") challenges several alleged "statements" of Respondent Department of Insurance (the "Department"), which United alleges are rules as defined in Section 120.52(15), Florida Statutes, that have not been adopted properly and therefore violate Section 120.54(1)(a), Florida Statutes. The statements at issue arise from the Department's interpretation and implementation of statutes that authorize insurers such as United to recoup reimbursement premiums paid to the Florida Hurricane Catastrophe Fund (the "CAT Fund"). United seeks a final order: (1) declaring that some or all of the above alleged statements, in whole or in part, violate Section 120.54(1)(a), Florida Statutes; (2) directing that the Department immediately stop relying on any illegal unadopted rule as a basis for agency action; and (3) awarding reasonable attorneys' fees and costs pursuant to Section 120.595(4)(a), Florida Statutes.
Findings Of Fact The evidence presented at final hearing established the facts that follow. The Parties United is a Florida domiciled property and casualty insurance company that received its Certificate of Authority to write homeowners and dwelling fire insurance in this state on April 2, 1999. As an insurer transacting business in this state, United operates within and subject to the regulatory jurisdiction of the Department, which is the executive branch agency responsible for administering and enforcing the Florida Insurance Code. Rates and Premiums United is required by law to establish rates for the lines of insurance it writes in this state. See Section 627.062, Florida Statutes. A "rate" is "the unit charge by which the measure of exposure or the amount of insurance specified in a policy of insurance or covered thereunder is multiplied to determine the premium." Section 627.041(1), Florida Statutes. The term "premium" means "the consideration paid or to be paid to an insurer for the issuance and delivery of any binder or policy of insurance." Section 627.041(2), Florida Statutes. Thus, simply put, the rate times the amount of coverage equals the cost of insurance, which may then be adjusted further to calculate the total premium to be charged a particular policyholder — by applicable discounts, credits, or surcharges included in the insurer's approved rating plan. See, e.g., Section 627.062(2)(d), (e)4, Florida Statutes. Rates and rating plans must be approved by the Department. See Section 627.062, Florida Statutes. The Department's duty is to disapprove rates that are "excessive, inadequate, or unfairly discriminatory." Id. An appropriate and adequate rate "is supposed to pay all the [insurer's costs]," T-222, and afford the insurer "a reasonable rate of return on [the] classes of insurance written [by that insurer] in this state." Section 627.062(2)(a), Florida Statutes. United's Initial Rate Filings and Take-Out Plan On March 3, 1999, United made two initial rate filings with the Department, one for homeowners insurance and the other for dwelling fire. As United explained in its cover letters to the Department, each line of business constituted a proposed "Take Out Program," meaning that United planned to remove homeowners and dwelling fire policies from the Florida Residential Property and Casualty Joint Underwriting Association ("FRPCJUA"). 5/ United also advised the Department that each Manual of Rates and Rules that it was filing was "basically that of the FRPCJUA with some modification to remove extraneous provisions and change names." The parties sometimes have called this type of rate filing a "me too" filing, a descriptive appellation that quickly, if colloquially, conveys the idea that the insurer is taking advantage of the FRPCJUA's already approved rates. On March 3, 1999, the Department's Bureau of Property and Casualty Forms and Rates accepted United's initial homeowners and dwelling fire insurance rates for use. Later, United's rates were approved with an effective date of April 19, 1999. On April 2, 1999, pursuant to a Consent Order with the Department which approved United's take-out plan, United removed approximately 11,500 policies from the FRPCJUA. Each of the policies that United removed from the FRPCJUA is a "covered policy" as defined in Section 215.555(2)(c), Florida Statutes. Consequently, United was required, as is every insurer that writes covered policies in this state, to enter into a "reimbursement contract" with the State Board of Administration, the agency that directs and controls the CAT Fund. Section 215.555(4), Florida Statutes. The CAT Fund and Reimbursement Premiums The legislature created the CAT Fund in November 1993 during a special session that was "called due to a potential crisis in the insurance industry in the aftermath of Hurricane Andrew." 6/ The CAT Fund's purpose was and remains to provide "a stable and ongoing source of reimbursement to insurers for a portion of their catastrophic hurricane losses." Section 215.555(1)(e), Florida Statutes. In consideration for the right to reimbursement from the CAT Fund in the event of a hurricane catastrophe, insurers are required, under their reimbursement contracts, annually to pay into the fund a reimbursement premium. Id.; see also Section 215.555(5), Florida Statutes. Recoupment of Reimbursement Premiums In 1995, the legislature passed a law allowing insurers to recoup reimbursement premiums paid into the CAT Fund. See Chapter 95-276, Laws of Florida. Effective June 14, 1995, this new law, codified as Section 627.062(5), Florida Statutes (Supp. 1996), provided: With respect to a rate filing involving coverage of the type for which the insurer is required to pay a reimbursement premium to the Florida Hurricane Catastrophe Fund, the insurer may recoup the actual amount of reimbursement premium by including in the insurer's rate filing an allowance for the reimbursement premium charged by the Florida Hurricane Catastrophe Fund. In the filing, the insurer must adjust its rates to remove that portion of the rates attributable to catastrophe losses expected to be covered by the Florida Hurricane Catastrophe Fund. In determining what portion of a rate is attributable to catastrophes covered by the Florida Hurricane Catastrophe Fund, the projected recovery from the fund shall be calculated according to the formula specified in s. 215.555(4)(c). During its next regular session, in 1996, the legislature enacted Chapter 96-194, Laws of Florida, which amended Section 627.062(5), Florida Statutes, effective January 1, 1997, to read: With respect to a rate filing involving coverage of the type for which the insurer is required to pay a reimbursement premium to the Florida Hurricane Catastrophe Fund, the insurer may fully recoup in its property insurance premiums any reimbursement premiums paid to the Florida Hurricane Catastrophe Fund, together with reasonable costs of other reinsurance, but may not recoup reinsurance costs that duplicate coverage provided by the Florida Hurricane Catastrophe Fund. Section 627.062(5), Florida Statutes (1997). This version of the section remains in effect today. In 1997, the legislature created yet another new statute addressing the subject of CAT Fund reimbursement premiums. See Chapter 97-55, Laws of Florida. Taking effect on May 9, 1997, Section 672.0629(10), Florida Statutes, provides: A property insurance rate filing that includes any adjustments related to premiums paid to the Florida Hurricane Catastrophe Fund must include a complete calculation of the insurer's catastrophe load, and the information in the filing may not be limited solely to recovery of moneys paid to the fund. The Department's Interpretation and Implementation of the Recoupment Statutes Douglas Hazeltine, an actuary employed by the Department, is the principal regulator regarding recoupment of CAT Fund reimbursement premiums. In that capacity, he is, and at all material times has been, responsible for interpreting and applying Sections 627.062(5) and 627.0629(10), Florida Statutes. Although he denied having a policy-making role at the Department, Mr. Hazeltine testified that his interpretation and application of these particular statutes consistently has been approved by his superiors, with whom (as well as with other colleagues) he has discussed these matters. Accordingly, great weight has been given to Mr. Hazeltine's testimony as an accurate expression of the Department's positions on the meaning and operation of Sections 627.062(5) and 627.0629(10), Florida Statutes (hereafter, collectively, the "Recoupment Statutes"). 7/ The Department takes the view that insurers may pass along the CAT Fund reimbursement premiums to their own policyholders in one of two ways. The first method — which, according to Mr. Hazeltine, is employed by most insurance companies — is to prospectively load the base rates with a CAT Fund Factor (that is, a factor attributable to catastrophic hurricane losses expected to be covered by the CAT Fund, see endnote 3). In the Department's eyes this is simply normal rate-making procedure; the exposure covered by the CAT Fund is built into the insurer's base rates, just as other risks are, as if the insurer itself (rather than the CAT Fund) would pay the portion of any catastrophic hurricane losses expected to be covered by the CAT Fund. The Department does not consider the Recoupment Statutes to either govern or proscribe the accepted practice of prospectively loading base rates with a CAT Fund Factor. The other method is to set base rates that are net of expected recoveries from the CAT Fund (i.e. are not loaded with a CAT Fund Factor) and thereafter to impose a recoupment charge on policyholders to recover for CAT Fund reimbursement premiums paid in the previous year. A recoupment charge is retrospective, in that the insurer is collecting funds to reimburse itself for an expense that it already has paid. As Mr. Hazeltine put it, "recouping refers to something that happened in the past." Transcript of Final Hearing ("T-") 152. That is the "essence of a recoupment." T-220. The term "Recoupment Surcharge" will be used hereafter to refer to a retrospective recoupment charge. The Department considers these two methods of making policyholders pay the CAT Fund reimbursement premiums to be mutually exclusive, in the sense that an insurer must elect to use one method or the other. Thus, according to the Department, an insurer may either prospectively load its base rates to collect in advance for reimbursement premiums that will be paid in the future, or impose a Recoupment Surcharge to recover for the reimbursement premiums after paying them, but it cannot include a CAT Fund Factor in its base rates one year (e.g. 1999) and then impose a Recoupment Surcharge the next (e.g. 2000), else the policyholders would pay twice for the same CAT Fund coverage. The Department's position logically dictates that if an insurer which has been prospectively loading its base rates with a CAT Fund Factor decides to switch to the recoupment method, it must experience a transitional year during which its base rates are reduced by the CAT Fund Factor (because it will recoup the transitional year's reimbursement premiums in the next year) and in which no Recoupment Surcharge is imposed (because the prior year's reimbursement premiums were collected prospectively in the prior year's base rates). 8/ This would have a negative effect on the insurer's cash flow during the transitional year, in relation to the preceding year, which may be one reason why "most companies don't recoup" — although that was not the explanation offered by Mr. Hazeltine. T. 172 (attributing insurers' preference for prospective loading to fact that CAT Fund is "cheap reinsurance"). 9/ The Department's interpretation and application of the Recoupment Statutes is informed by a presumption that every insurer's base rates are prospectively loaded with a CAT Fund Factor unless and until: (a) the insurer makes a recoupment filing pursuant to Section 627.0629(10), Florida Statutes, which demonstrates to the Department that the CAT Fund Factor has been stripped from its base rates, and (b) the Department approves the insurer's recoupment filing, allowing the insurer to impose a Recoupment Surcharge. This presumption is based on the premise that an insurer's rates on file, having already been approved, are adequate and "fully loaded in the Department's opinion." T-223-24; see also T-153, and 170 (Hazeltine: "Whenever a company makes an initial filing, we assume that the rates that are approved -- the Department, we believe the rates that they are charging are fully loaded for all costs and they would remain that way, fully loaded for all costs, until they made a filing to change in some way."). The presumption that an insurer which is not recouping must be prospectively collecting for reimbursement premiums with CAT Fund Factor-loaded base rates is irrebuttable and hence conclusive, as Mr. Hazeltine explained: THE COURT: Can the insurance company overcome that presumption? I mean, if evidence or information is presented, can the insurance company demonstrate inadequacy of its rates by showing, for example, that it isn't -- that it is not prospectively recovering for the CAT Fund premium? THE WITNESS: Well, no, because they have to be. They have to be because there's [sic: should be "they're"] not recouping. So the definition of their rate is that it's prospectively loaded. They somehow have to show -- to recoup, they would have to show that they have an inadequate rate otherwise, and that is why the CAT factor calculation is necessary because they have to show that, without this additional money, they have an inadequate rate. THE COURT: Could they show -- I mean, could they show inadequacy of the rate by demonstrating that there is no catastrophe load in their rate and therefore they're not collecting prospectively? THE WITNESS: No, because the only way there could not be a catastrophe load in their rate is if they had started recouping, if they had already started recouping. Otherwise, it's there, it's implicitly there. T-224-25. 10/ The Department's presumption leads it to the conclusion that any insurer which elects to begin recouping must first adjust its base rates to remove the CAT Fund Factor that is conclusively presumed to be in those rates. T-172 (Hazeltine: Insurers "can come in and recoup, that's allowed, but they have to adjust their base rates."). 11/ Consequently, the Department construes Section 627.0629(10), Florida Statutes which operates on rate filings that include "any adjustments related to" reimbursement premiums 12/ — as controlling for all first-time recoupment filings. 13/ While the Department interprets Section 627.0629(10), Florida Statutes, to be applicable to all insurers making their first recoupment filings, it also considers the statute to be applicable only to first-time filers. Mr. Hazeltine drew the distinction between first-time and repeat filers: Q Now, you just made reference to a filing like United's for a first-time [recoupment] filing. Is there different information required for a company like United that's a first-time company filing for recoupment as versus some other type of company? A Right. Once the filing has been made and the catastrophe factor has been submitted and the indicated rate has been shown in the filing, any subsequent filings we would just simply need to know that a prior filing had been made so that, if they were going to change the recoupment surcharge from say eight to nine percent, if we knew that they made a prior filing, then we would know that they had adjusted their bases rates, so there wouldn't need to be the laying out of the catastrophe factor. T-149; see also T-225 (Hazeltine: "[W]e get filings in where [insurers] are already recouping, and in that situation we know, when they've filed to change their recoupment, that their base rates are net of the coverage of the CAT Fund. We know that because we handled that in a previous filing."). Thus, in the Department's view as expressed by Mr. Hazeltine, Section 627.0629(10) does not apply to an insurer that seeks to adjust a previously approved Recoupment Surcharge because the Department's approval of the insurer's initial recoupment filing signifies that the CAT Fund Factor was removed from the insurer's base rates, which accordingly need not be adjusted again. 14/ The parties agree (or at least United does not dispute) that an insurer wanting to recoup reimbursement premiums must make a filing with the Department. Both parties refer to the necessary filing as a "recoupment filing." They part company, however, on whether a recoupment filing is a "rate filing." The Department says that a recoupment filing is "a type of rate filing." T-165. United says it is not. This particular dispute is not so much about labels as it is about whether the procedural and substantive requirements that rate filings entail should attach to recoupment filings as well. The Department's position that a recoupment filing is a rate filing matters because it leads to the conclusion that the Department is empowered, pursuant to Section 627.062(2)(b), Florida Statutes, to review a recoupment/rate filing to determine if the overall rate (including the Recoupment Surcharge) is excessive, inadequate, or unfairly discriminatory. This in turn means that the Department can disapprove a recoupment filing for failure to provide sufficient "justification" in support of a proposed Recoupment Surcharge, viewed in the context of the insurer's total rate. See T-169. In addition, if recoupment filings are rate filings as the Department maintains, then the procedural and informational requirements of Rule 4-170.014, Florida Administrative Code (governing all homeowners insurance rate filings), and Rule 4-170.0141, Florida Administrative Code (governing dwelling fire insurance rate filings), might apply to them as well. Indeed, on the premise that recoupment filings are rate filings, the Department believes that all of its requirements for recoupment filings are covered by existing statutes and rules. T-253. However, neither of the Recoupment Statutes, nor any other exiting statute or rule, clearly and unambiguously sets forth a requirement that, in order to exercise its right to fully recoup, an insurer must submit a filing — whether it be called a “rate filing,” “recoupment filing,” or something else — that fully complies with the statutes and rules governing rate filings generally. At bottom, the Department's position that recoupment filings are rate filings is an interpretation of the Recoupment Statutes that can be used, and is being used, as a bootstrap to impose filing requirements that are not specifically stated in either Section 627.062(5) or Section 627.0629(10), Florida Statutes. Moreover, the Department does not require recoupment filings to comply with all of the procedures controlling rate filings generally. As Mr. Hazeltine explained: "A retroactive recoupment is a fairly -- is a less involved filing in a sense because the base rate filing may go through a lot of justification for territorial rates or there may be a lot more detail in a base rate filing." T-172 (Emphasis added). Mr. Hazeltine further described the fundamental data indispensable to a first-time recoupment filing as follows: I think what's really needed is what Mr. Stuart said. In making a recoupment filing, you need simply to show the amount of a factor, which you get by dividing the premium into the -- into the amount to be recouped. That gave him the percentage to load the rate, and you need to show your catastrophe load or the calculation of your rate so that the policyholder doesn't wind up paying twice, because if you included it in your base rates and also as a recoupment, then the policyholder would be paying for the coverage of the Catastrophe Fund twice, both in the base rate and also in the factor. * * * . . . Like I said, all you really need to know and all you -- is the projected premium. You need to know how to compute -- how the company's going to compute its factors, and you need some justification or analysis showing the catastrophe load and the total indicated rate. T-136, 142. The truly essential requirements for an insurer's subsequent recoupment filings are fewer still, as previously discussed, because "there wouldn't need to be the laying out of the catastrophe factor." T-149. There are "many types" of rate filings, said Mr. Hazeltine, and the information required to be supplied depends on the type of filing involved. T-165. The Department's statement that recoupment filings are rate filings does not, in itself, inform would-be filers which of the requirements for rate filings generally must be followed — nor do the statutes or any promulgated rules. The Proposed Rule In 1996, the Department developed a proposed rule concerning the recoupment of reimbursement premiums. Initially published on July 26, 1996, in Volume 22, Number 30 of the Florida Administrative Weekly, page 4243, Proposed Rule 4-170.016 (the “Proposed Rule”) was designed to “provide a streamlined rate revision process for the approval of requests for rates which recoup payments to the Florida Hurricane Catastrophe Fund (FHCF) . . . .” Petitioner’s Exhibit 6. The summary description of the Proposed Rule explained that it provided “specified procedures for submitting rate filings to recoup payments made to the FHCF . . . , adopt[ed] forms by reference and provide[d] limitations on amounts recoverable in a given year.” Id. It is interesting to note that the Proposed Rule appeared in the Florida Law Weekly about two months after the legislature had amended Section 627.062(5), Florida Statutes, but some six months before that amendment would take effect. Thus, at the time the Proposed Rule was published, the law allowed an insurer to recoup the “actual amount of reimbursement premium” by making a rate filing which “adjust[ed] its rates to remove that portion of the rates attributable to catastrophe losses expected to be covered by the” CAT Fund. See Section 627.062(5), Florida Statutes (Supp. 1996). Come January 1, 1997, however, Section 627.062(5) would no longer contain the language just quoted; rather, insurers would be entitled to “fully recoup” any CAT Fund reimbursement premiums they had paid without being subject to an express requirement that base rates be adjusted concomitantly. See Section 627.062(5), Florida Statutes (1997). Perhaps to close this potential loophole, the Proposed Rule incorporated the “lame duck” statutory requirement that base rates be reduced in conjunction with a recoupment filing: “If an insurer chooses to apply a recoupment charge, the insurer’s next rate filing must exclude the portion of the rates attributable to catastrophic losses expected to be covered by the FHCF or must cease collecting and charge [sic ?] rates to cover expected losses.” Petitioner’s Exhibit 7 (Proposed Rule as amended by notice published November 15, 1996, in Volume 22, Number 46, Florida Administrative Weekly, page 6658). The Proposed Rule also contained a subsection on filing requirements which read: Filing Requirements. An insurer seeking approval of an FHCF reimbursement premium recoupment charge must submit three (3) copies of the following: Recoupment of FHCS Reimbursement Premium Worksheet, Form D14-1197(10/96) which is hereby incorporated by reference plus any supporting documentation for varying the charge by territory or class; final manual page(s) which include the recoupment factor and an explanation of how it will be applied; documentation of the FHCF reimbursement premium paid by the insurer; proposed declarations page; and copies of Forms D14-1102, D14-1103, and D14-1104 as incorporated in 4-170.014, or dwelling Forms D14-1193, D14-01194 and D14-1195, as incorporated in 4-170.0141. Petitioner’s Exhibit 7. The Proposed Rule was challenged in a Section 120.56(2), Florida Statutes, proceeding. The Department withdrew the Proposed Rule on February 21, 1997, apparently before the entry of a final order in the challenge (and after the present version of Section 627.062(5) took effect on January 1, 1997). Since then, the Department has not formally adopted, nor has it attempted to adopt through rulemaking, any rules that implement the Recoupment Statutes or otherwise specifically govern recoupment filings. The Memorandum and Worksheet The Proposed Rule may have been gone, but its provisions were not forgotten. On July 29, 1997, J. Steven Roddenberry, then the Bureau Chief of the Bureau of Property and Casualty Forms and Rates, issued a Memorandum and attached worksheet to “all insurance companies authorized to write property and casualty insurance in the State of Florida.” Petitioner’s Exhibit 8. The subjects of this Memorandum were “procedures for the filing of 1996 Florida Hurricane Catastrophe Fund recoupment; [and] filing deadline for 1995 Florida Hurricane Catastrophe Fund recoupment.” Id. Mr. Roddenberry testified that the purpose of this Memorandum was to provide guidance to insurers on how to make recoupment filings for CAT Fund premiums paid in 1996 and to notify them that recoupment filings for 1995 reimbursement premiums needed to be made by September 1, 1997. The July 29, 1997, Memorandum was sent to the approximately 400 insurers writing property and casualty insurance in this state at the time. United did not exist in 1997 and therefore was not an original recipient of the Memorandum. The timing of the Memorandum in relation to statutory developments is interesting. As of July 29, 1997, Section 627.0629(10), Florida Statutes, was a brand new law, having taken effect only a couple months earlier on May 9, 1997. Section 627.0629(10), with its reference to CAT Fund premium- related “adjustments” in a “rate filing,” faintly echoes language that was deleted from former Section 627.062(5), Florida Statutes, (“In the [rate] filing the insurer must adjust its rates to remove that portion . . . attributable to” CAT Fund coverage) (emphasis added). But Section 627.0629(10) does not expressly state, as did both former Section 627.062(5) and the Department’s withdrawn Proposed Rule, that an insurer electing to recoup must adjust its rates to remove the portion attributable to catastrophic losses expected to be covered by the CAT Fund. The Memorandum memorialized the Department’s interpretation of the Recoupment Statutes as requiring recouping insurers to reduce their base rates to make them net of expected CAT Fund recoveries. It stated: As in the past, an insurer may choose to either prospectively make rates sufficient to cover the costs of the FHCF assessment, while accounting for coverage provided by it, or impose a recoupment charge to recover the assessment payments made to the FHCF. If an insurer chooses to impose a recoupment charge, the insurer must exclude from its base rate calculation the expected recoveries covered by the FHCF. An insurer may not recoup 1996 premiums paid unless it has made, or concurrently makes, a base rate filing, the calculation of which excludes recoveries from the FHCF. Petitioner’s Exhibit 8 (emphasis added). The statutory interpretation reflected in the underlined sentence from the July 29, 1997, Memorandum remains current and continues to be followed by the Department. The Memorandum also enumerated certain filing requirements which bore a striking resemblance to the ones that the withdrawn Proposed Rule would have prescribed. It stated: An insurer intending to recoup the 1996 FHCF premiums paid in 1996 must file three copies of the following for each year being recouped: Recoupment of FHCF Reimbursement Premium Charge Worksheet (please see attached); Final manual page(s) which include the recoupment factor and an explanation of how it will be applied; Documentation of the FHCF reimbursement premium paid by the insurer for 1996; Proposed declaration page; A rate filing (if appropriate) containing actuarial support that shows the calculation of the catastrophe load; and Copies of homeowner forms: D14-1102, D14-1103, and D14-1104, as incorporated in 4-170.014, Florida Administrative Code, or dwelling forms D14-1193, D14-01194 and D14- 1195, as incorporated in 4-170.0141, Florida Administrative Code. The Recoupment of FHCF Reimbursement Premium Charge Worksheet (“Worksheet”), which was the subject of the Memorandum’s filing requirement lettered a, is substantially similar to the proposed Form D14-1197 that was the subject of the withdrawn Proposed Rule’s filing requirement lettered a. The filing requirements lettered b, c, and d, respectively, in the Memorandum and in the withdrawn Proposed Rule are substantially identical to one another. The filing requirement lettered f in the Memorandum is substantially identical to the one lettered e in the Proposed Rule. 15/ In short, the Memorandum listed the same five filing requirements that the Proposed Rule had spelled out and added a sixth, lettered e, which incorporated a new obligation imposed by the recently enacted Section 627.0629(10), Florida Statutes. Although written three and a half years ago for particular purposes that have passed into history, the July 29, 1997, Memorandum nevertheless sets forth the procedural and informational requirements for recoupment filings that the Department continues to enforce to this day, as Mr. Roddenberry testified: THE COURT: . . . Mr. Roddenberry, about the memorandum, July 29, 1997, memorandum, does that memorandum set forth what currently are the pieces of information required by the Department when a company submits a retro –- or a recoupment filing? THE WITNESS: If I may, when you say currently, do you mean like today? THE COURT: Like today. THE WITNESS: Yes, sir, I believe, if this information was submitted, it would be considered a complete file. I’m afraid that, if some of this was missing, that it would not be considered a complete file. * * * THE COURT: And they would need to make a complete filing in order to be subject to approval –- if the filing were incomplete, the request would be denied? THE WITNESS: Yes, sir, because if it’s incomplete, it probably doesn’t even get past the person that not literally opens the mail –- there’s two or three steps in there –- but the person that makes the assignments to the actuaries, they go through it, and if the filing is incomplete, if it doesn’t have what the statute and the rules require, then they send it back to the company. We do that now. The Inspector General told us we had to do that. T-250-52. The Worksheet form that must be submitted to comply with the Memorandum’s first-listed filing requirement (lettered a) contains 15 numbered lines of requested information, as follows: Year FHCF Assessment Paid Line(s) of Business: Prior Year’s FHCF Premium Paid $ Prior Year’s Carry-Forward? No / Yes –- If Yes, State Amount $ 5 (3) Plus (4) $ 6 Prior Year’s Florida Direct Written Premium Excluding Ex-Wind Policies $ 7 Ratio (3) / (6) x 100 8 Forecast (One Year’s) Direct Written Premium Excluding Ex-Wind Policies $ 9 Ratio (5) / (8) x 100 % Ratio (7) Plus 5% % Formula Recoupment Surcharge Lesser of (9) or (10) % Selected Surcharge Factor Effective Date AVERAGE IMPACT ON POLICYHOLDERS / / Average Premium at Current Rate Levels $ (11) Multiplied by (14) $ Petitioner’s Exhibit 8 (footnotes omitted). Mr. Roddenberry testified that the Worksheet per se is no longer required, but “the information that is requested on that form would have to be provided either in that format or some other format . . . .” T-253. Mr. Hazeltine asserted that certain items on the Worksheet are no longer required. According to Mr. Hazeltine, the items numbered 7, 10, and 11 all pertained to a limitation on amounts recoverable in a given year that was part of the Proposed Rule and which has since been abandoned; therefore, the information requested in these items is no longer required. Similarly, the information relating to the average impact on policyholders sought in the items numbered 14 and 15 is no longer required, according to Mr. Hazeltine. Line items 4 and 5 are not applicable to first-time filers such as United but might be required of repeat recoupment filers. As for item number 6, Mr. Hazeltine equivocated somewhat: on the one hand he said it was not a required item; on the other he stated that it was necessary to know last year’s premium, but “you could just figure it out if you wanted to.” T-144. And finally, Mr. Hazeltine testified that item number 9 was not necessary — although the information sought in number 9 is simply another way of expressing the Recoupment Surcharge required in number 12. 16/ While Mr. Roddenberry’s testimony contradicted Mr. Hazeltine’s in that he stated all of the information sought in the Worksheet is still required to be submitted, whereas Mr. Hazeltine dismissed many items as unnecessary, the conflict between the two is not as great as it seems at first blush. The items relating to the since-discarded limitation (numbers 7, 10, and 11) and policyholder impact (14 and 15) are essentially irrelevant to the determination of an insurer’s Recoupment Surcharge. The information sought in the remaining line items (with the possible exceptions of numbers 6 and 9, which are either irrelevant or cumulative questions) is fundamental and must be provided. What is clear is this: The Department continues to require that insurers submit all of the relevant information requested in the Worksheet, either on that form itself or in some other format. United's Recoupment Filings Under substantially identical cover letters to the Commissioner of Insurance dated June 5, 2000, United attempted, with regard to its homeowners and dwelling fire programs, respectively, to file for "recoupment of the Florida Hurricane Catastrophe Fund premiums for the period of June 1, 1999 through May 30, 2000 applicable to [United's] 'Take-out' of 'FRPCJUA assumption' business." United informed the Department that it would apply surcharges of 1.168 and 1.2803, respectively, to all homeowners and dwelling fire policies renewed on or after September 1, 2000. In addition to a cover letter, each of United's June 5, 2000, submissions consisted of a completed form entitled "Recoupment of The Florida Hurricane Catastrophe Fund Reimbursement Premium Charge Worksheet,” which was substantially similar to (and contained the same 15 line items as) the Department's Worksheet, together with an "Explanatory Memorandum" that provided additional information on items 1-4, 6, and 8. 17/ On June 13, 2000, The Department returned United's recoupment filings without action for failure to include pages 1 and 2 of Form D14-582 (a transmittal sheet and checklist, respectively), and a return envelope, as required by Rule 4-170.013, Florida Administrative Code, which provides procedures applicable to all rate, rule, underwriting guidelines, and form filings for property and casualty insurance. United re-submitted its recoupment filings, together with the requested information, on June 20, 2000. Mr. Hazeltine acknowledged the Department's receipt of these "recent rate filing[s]" by letter dated June 27. 2000. On August 4, 2000, Mr. Hazeltine notified United that the following additional information was required to complete United's recoupment filings: (1) documentation supporting the amounts intended to be recouped; (2) an explanation as to how those amounts were allocated to line of insurance and program; (3) documentation supporting an explanation as to how United intended to adjust the catastrophe provision in its base rates; and (4) the HRCS diskette for homeowners and the DRCS diskette for dwelling. United responded with a letter from its president, Mr. Stuart, dated August 21, 2000. Included with Mr. Stuart's letter were documents substantiating the fact that United had paid about $1.68 million in reimbursement premiums for 1999 and showing an allocation of this premium expense between homeowners and dwelling. Apparently attempting to satisfy the Department's request for an explanation as to how United intended to adjust the catastrophe provision in its base rates, Mr. Stuart wrote: My understanding is that [United's consultant] Mr. Trafton was advised by Steve Roddenberry, via telephone, that United would have to base the ["me-too" takeout] filing upon the 7/97 FRPCJUA filing rather than use the 1998 filing which included the JUA recoupment within the base rates. Therefore, our ["me-too" takeout] filing has the identical base rates, as does the 7/97 FRPCJUA filing. This appeared logical since United would not incur a FHCF premium charge until late in 1999 for the June 1, 1999 FHCF period. Joint Exhibit 1. Translation: United did not intend to adjust its base rates because it believed those rates were not loaded to account for the CAT Fund reimbursement premiums. Finally, Mr. Stuart informed Mr. Hazeltine that United was "preparing the diskettes as referenced in your letter of August 4th and should provide these within the next two weeks." Id. After receiving Mr. Stuart's letter, Mr. Hazeltine attempted to contact Mr. Stuart, who was on vacation and therefore unavailable, and then reached a consultant for United named Terry Godbold, whom he advised that the Department would disapprove United's recoupment filings unless the requested diskettes were received, as well as information on the adjustment of United's catastrophe load. United, however, submitted no further information. As a result, by letter dated September 7, 2000, the Department notified United of its intent to disapprove United's recoupment filings on the ground that United had failed to justify its proposed rates or rate changes. The Department found United's filings to be deficient in the following areas: The rates originally filed were not excessive, inadequate, or unfairly discriminatory. No information, or supporting data, has been supplied in support of this filing to justify changing those rates. Section 627.062(5), Florida Statutes, provides that insurers may recoup reimbursement premiums paid to the Florida Hurricane Catastrophe Fund. However, Section 627.0629(10), Florida Statutes, requires a complete calculation of the insurer's catastrophe load and that the information in the filing not be limited solely to recovery of reimbursement premiums paid to the fund. This filing contains information relating solely to the recovery of moneys paid to the fund. The lack of information provided has been discussed thoroughly with the company during the course of this filing. The HPCS [sic] and DRCS diskettes have not been provided as requested. Joint Exhibit 1. At hearing, Mr. Hazeltine testified that United's failure to provide the diskettes, by itself, (probably) would not have resulted in the disapproval of United's filings. T-189. Are United's Base Rates Net of Expected CAT Fund Recoveries? The question whether United’s base rates are net of recoveries expected from the CAT Fund in the event of a hurricane catastrophe, as the Department has presumed, lies at the heart of United’s claim to be entitled to recoup reimbursement premiums previously paid. It is, therefore, a key question that must be answered in Case No. 00-4212, the Section 120.57 proceeding brought by United to obtain a determination of its substantial interests in recouping premiums paid to the CAT Fund. However, because the merits of United’s claim for recoupment are not directly at issue in this proceeding to challenge alleged unadopted rules, 18/ the dispute regarding the composition of United’s base rates need not be resolved here, except insofar as may be necessary to decide the Department’s attack on United’s standing. The Department contends that United lacks standing to maintain this action because it has not been injured by operation of the alleged unadopted rules, even assuming for argument’s sake that the alleged agency statements are rules by definition, which the Department denies. This argument will be addressed in the legal conclusions below. For the moment, it is sufficient to note that the Department’s position fails to persuade if, as United contends, United’s base rates in fact are not prospectively loaded with a CAT Fund Factor. If United is correct about the composition of its base rates, then it has suffered a substantial injury-in-fact as a result of the Department’s irrebuttable presumption that, unless an insurer is already recouping, its base rates are prospectively loaded. The Department’s standing argument thus implicates, at least to a limited extent, the merits of United’s claim to be entitled to recoup fully the reimbursement premiums it has paid. In view of the need to address this issue without foreclosing or encroaching upon the parties’ respective rights to a full hearing on the merits of United's alleged injury in the appropriate forum, the findings of fact herein on this particular subject are expressly limited so as not to reach beyond the standing issue at hand. Except as specifically decided here, the question whether United’s base rates are prospectively loaded with a CAT Fund Factor is left for, and will need to be litigated fully in, Case No. 4212, which is the proper vehicle for its ultimate resolution on the merits. That said, there is and can be no dispute that United's base rates, as established in its initial rate filings, include a Recoupment Surcharge — of zero. The Premium Calculation Worksheet that United submitted for its homeowners rate filing, in the section dealing with "mandatory additional charges," expressly provides that the CAT Fund Recoupment Surcharge shall be "0." Petitioner’s Exhibit 1. So, too, does the Premium Calculation Worksheet for United's dwelling fire rate filing. Respondent's Exhibit 1. 19/ In his March 3, 1999, cover letter to the Commissioner of Insurance regarding United's homeowners rate filing, United's consultant Mr. Trafton pointed this fact out, explaining: "This [premium calculation] worksheet has been revised to remove, for now, any Assessments for FHCF . . . ." Respondent's Exhibit 1. Mr. Trafton made a similar comment in his cover letter of the same date regarding United's dwelling fire rate filing. Respondent’s Exhibit 1. That United's initial rate filings set a Recoupment Surcharge of zero is consistent with its position that its base rates are not prospectively loaded with a CAT Fund Factor. At the time United made these rate filings, after all, it had paid zero in reimbursement premiums and had nothing to recoup; thus, zero was the most accurate (indeed the only true) number to submit in connection with a Recoupment Surcharge calculation. For that reason, United's representation, in its initial base rate filings, that the amounts to be recouped initially equaled zero cannot be considered the equivalent of a declination of the right to use the recoupment method of recovering CAT Fund premiums. At a minimum, United's filing can reasonably be interpreted as having left the door open to adjusting the stated surcharge of zero to a positive number after reimbursement premiums had been paid, when there would be something to recoup. While not establishing the fact directly, this does raise an inference that United's rates are net of expected CAT Fund recoveries. 20/ This inference was supported by other evidence. Mr. Stuart testified that United had removed the "recoupment charge" from its initial rate filings at the direction of the Department, on the ground that United had not yet paid any reimbursement premiums to the CAT Fund. He also stated that at the time of United's initial rate filings, the company believed that reimbursement for CAT Fund premiums would be achieved on a retrospective basis, using a surcharge to base rates. It was Mr. Stuart's understanding that United's base rates did not include a "CAT Fund recoupment." T-67. Mr. Trafton testified that Mr. Roddenberry had told him in late 1998 that United could not use the "catastrophe protection surcharge that was in the 1998 FRPC JUA rates." T-86. To Mr. Trafton, this meant that United was required to use the FRPCJUA's 1997 base rates because "it goes without saying, if . . . you can't use the catastrophe protection surcharge, you're not using the '98 rates, you're using the '97 rates." T-86. Mr. Trafton testified that as far as he could recall, United's base rates did not "include any credit or factors for expected premiums to be paid to the Catastrophe Fund." T-94. The testimony of Mr. Stuart and Mr. Trafton on the issue of whether United's base rates are prospectively loaded was not rebutted by the Department at hearing (perhaps because the Department conclusively presumes that United's rates are prospectively loaded). But at the same time, their testimony did not directly answer the question whether the 1997 FRPCJUA rates that United adopted were prospectively loaded — a proposition that does not follow necessarily from the premise (which is undisputed) that United's Recoupment Surcharge, as filed, was zero. 21/ Mr. Trafton in particular left the impression that the FRPCJUA's 1997 rates were net of expected CAT Fund recoveries, but he did not say so unambiguously. The conclusion can be deduced from his testimony, but not without difficulty. When Mr. Trafton said that United could not use the "catastrophe protection surcharge" that was "in" the 1998 rates, he might have been referring to a charge that was "built into" (i.e. prospectively loaded in) those rates. 22/ If so, then Mr. Trafton appears to have said (by making it clear that he and the Department perceived a material difference between the two years) that the 1997 rates were not prospectively loaded. (This raises the interesting possibility, not addressed in this record, that the FRPCJUA needed to impose a Recoupment Surcharge in 1998 to recover the past year's reimbursement premiums at the same time it was prospectively loading its base rates to recover in advance for the reimbursement premiums yet to be paid. See endnote 9.) If, on the other hand, Mr. Trafton meant that the FRPCJUA's 1998 rates included a "catastrophe protection surcharge" in addition to the base rates (as a retrospective means of collecting for reimbursement premiums paid), then the implication would be that the 1997 rates were net of expected CAT Fund recoveries, because otherwise the FRPCJUA's recoupment in 1998 would amount to a double recovery. But if this were the case, it is not clear why United could not have used the FRPCJUA's 1998 base rates, which presumably would have been net of expected CAT Fund recoveries, too — unless in 1998 the FRPCJUA were recouping for 1997 reimbursement premiums and also collecting prospectively for 1999 reimbursement premiums, in transition from the recoupment method to the prospective method of recovery. If the assumption is made for argument's sake that the FRPCJUA's 1997 rates were prospectively loaded (from which would follow the conclusion that United's “me-too” rates are prospectively loaded), then it becomes difficult to make sense of Mr. Trafton's and Mr. Stuart's testimony. In that event, the FRPCJUA's 1998 rates could not have included a Recoupment Surcharge (or at least not a full one, see endnote 8). The 1998 rates would have been either net of expected CAT Fund recoveries (in transition from the prospective method to the recoupment method) or prospectively loaded as in 1997. Consequently, the 1997 base rates would have been, respectively, either higher or approximately the same as the 1998 base rates. Not only would either possibility seem to leave no plausible reason for the Department to have directed United to use the 1997 base rates, but also these scenarios contradict the testimony of both Mr. Stuart and Mr. Trafton, each of whom suggested that the 1997 base rates were less generous than the rates in effect in 1998. In sum, the present record establishes that, more likely than not, the FRPCJUA's 1997 base rates were, and therefore United's base rates are, net of expected CAT Fund recoveries. In other words, United's rates are probably not prospectively loaded with a CAT Fund Factor, contrary to the Department's presumption. As explained above, however, the resolution of this case does not demand that a definitive finding of fact be made on this issue. It is enough, for now, to find that United has proved by a preponderance of evidence a reasonable likelihood that, given the opportunity (which it will have in Case No. 00-4212), it can successfully demonstrate that its rates are not prospectively loaded. No more than that is being found at this time. Whether United will succeed on the merits of its claim to be entitled to recoup reimbursement premiums paid to the CAT Fund remains to be seen; nothing decided here is intended to pre-determine the outcome of Case No. 00-4212.
