The Issue Department of Insurance emergency rule 4ER95-1, effective August 1, 1995, adopted by reference certain amendments to the Florida Windstorm Underwriting Association (FWUA) Plan of Operation and Articles of Agreement. The amendments included a provision that membership in FWUA shall terminate at the end of the association year during which the member is no longer licensed to transact property insurance in the state. Sued for an assessment to pay claims resulting from Hurricane Opal, Preferred Mutual Insurance Company now challenges the emergency rule, and more particularly the extended membership provision. Issues for disposition in this case are the standing of Preferred Mutual and the validity of 4ER95-1.
Findings Of Fact The Parties Petitioner, Preferred Mutual Insurance Company (Preferred) is an advance premium cooperative organized under the laws of the State of New York, with its principal place of business in the State of New York. During 1995, at least until September 24, 1995, Preferred was a member of the Florida Windstorm Underwriting Association (FWUA). FWUA is an unincorporated association of private insurance companies organized under the authority of section 627.351(2), Florida Statutes, to provide windstorm insurance coverage to those “...applicants who are in good faith entitled to, but are unable to procure, such insurance through ordinary method.” Section 627.351(2)(a), Florida Statutes (1995). The applicants are from geographical areas determined to be eligible pursuant to section 627.351(2)(c), Florida Statutes. The Department of Insurance (DOI) is the state agency responsible for enforcing and interpreting the Florida Insurance Code, including Chapters 624 through 631, Florida Statutes. Bill Nelson is the Treasurer and Insurance Commissioner of the State of Florida. Hurricane Season Hurricane Andrew occurred in August 1992, with lasting impact on the insurance industry in Florida. In March 1993, DOI approved new windstorm eligible areas including Dade and Broward County, thus substantially increasing the exposure of FWUA to potential loss. In 1994 and 1995, in the event of a windstorm in its covered territory, the only process available to FWUA to pay claims exceeding funds on hand from premiums was to assess FWUA members. In 1994, the Florida legislature amended section 627.351(2), Florida Statutes to limit assessments to ten percent of gross written premiums for the state. The FWUA board began investigating methods of meeting its responsibility to continue paying claims on a timely basis. The board directed its executive director to contact reinsurers for proposals, but the proposals she received did not provide sufficient coverage or were prohibitively costly. When this more traditional method became unavailable, FWUA, in early 1995, commenced seeking a $1 billion line-of-credit from the banking industry. By spring of 1995 the FWUA board and its executive director were heavily involved in obtaining banking proposals, negotiating with the banks and educating them regarding FWUA. In May 1995, the board determined to negotiate further with Chase Manhattan Bank, with other banks participating in syndication through that bank. The education process included many telephone calls and meetings to explain statutory restrictions, the assessment pool and FWUA’s relationship to the voluntary market. Once that process was accomplished, and after the banks were given a deadline to decide whether they wanted to participate, FWUA had to negotiate a credit extension contract acceptable to the selected banking syndicate. In its negotiations the syndicate insisted on assurances that the FWUA membership base was reasonably stable and predictable, and that assessments of members could reasonably be expected to cover repayments to the banks. The banks, through counsel, reviewed FWUA’s governing documents, and DOI and FWUA drafted necessary amendments to the documents. Meanwhile, the 1995 hurricane season commenced and Hurricane Allison hit Florida the first week of June. It became urgent that the line-of-credit contract be closed as soon as possible before Labor Day when historically the hurricane season is most active. The Emergency Rule On July 21, 1995, FWUA’s executive director, Rebecca Fussell, sent amendments to the Plan of Operation and Articles of Agreement to all FWUA members with a ballot form for their vote. The three-page cover letter outlines the purpose of the line-of credit and the need for immediate action by the members. The letter also includes this language: The above is a brief description of the principal points covered by the proposed amendments regarding the line of credit. The Department of Insurance has, in addition, asked that Article IV of the Articles of Agreement be clarified to provide that the obligations of members who cease doing business during the year extends to December 31st of that year, and a change in Article IV has been made to accomplish this. You are urged to review the attached in its entirety. (Petitioner’s exhibit no. 9) Prior to August 1995, the FWUA Articles of Agreement, Article IV, Membership, provided: Eligibility. Every Insurer licensed to transact property insurance on a direct basis in the State shall be a Member of the Association. Termination. Membership of any Member shall terminate when such member is no longer licensed to transact property insurance in the State. Any member whose membership in the Association has been terminated shall, nevertheless, continue to be governed by the Plan of Operation and the Articles of Agreement in order to complete its obligations for the current Association Year with regard to any assessments, losses, expenses, contracts or undertakings under the Plan of Operation. (Petitioner’s exhibit no. 6) (emphasis added) The August 1995 version provides: Eligibility. Every Insurer licensed to transact property insurance on a direct basis in the State shall be a Member of the Association. Termination. Membership of any Member shall terminate at the end of the Association Year during which such Member is no longer licensed to transact property insurance in the State. Any member whose membership in the Association has been terminated shall, nevertheless, continue to be governed by the Plan of Operation and the Articles of Agreement in order to complete its obligations with regard to any assessments, losses, expenses, contracts or undertakings under the Plan of Operation. (Petitioner’s exhibit no. 2) (emphasis added) By July 28, 1995, a 56% weighted majority of FWUA members had approved the amendments. On August 2, 1995, DOI filed with the Secretary of State emergency rule 4ER95-1, a statement of the facts and circumstances supporting the emergency rule, and modifications to the FWUA Plan of Operation and Articles of Agreement incorporated by reference in the emergency rule. On August 18, 1995, the notice of adoption of emergency rule 4ER95-1 was published in the Florida Administrative Weekly. The text of the Amended and Restated Plan of Operation and Restated Articles of Agreement filed with the Secretary of State is substantially the same as that provided to the members on July 21, 1995.1 The text of the published rule adopts by reference the August 1995 version of the FWUA’s Amended and Restated Plan of Operation and Restated Articles of Agreement, thus superseding the previous March 1990 version adopted by reference in DOI rule 4J-1.001, Florida Administrative Code. The notice of emergency rule 4ER95-1 appearing in the August 18, 1995, Florida Administrative Weekly outlines specific reasons for finding an immediate danger to the public health, safety or welfare. Those reasons include the potential exposure of FWUA to claims beyond its capacity to immediately pay. The reasons recount the search for alternatives and Chase Manhattan Bank’s offer of a line-of-credit, which offer needed to be accepted by August 15, 1995. The notice of 4ER95-1 also details the background of increased exposure of FWUA and the need for the FWUA to find a ready source of funds to promptly pay claims in the event of a hurricane. The notice describes the urgency for amendments to the Plan of Operation; and the notice explains the reasons for concluding that the procedure used for promulgating the emergency rule is fair under the circumstances. Finally, the notice summarizes the rule, as follows: SUMMARY OF THE RULE: Emergency rule 4ER95-1 (4J-1.001) adopts a revised Plan of Operation and Articles of Agreement for the FWUA. The revisions provide additional definitions, describe the powers and duties of the FWUA; authorize borrowing of funds for deficits and the issuance of bonds; permits [sic] the pledging of assessments for a line of credit; provides [sic] notice for assessments for debt service; provides [sic] procedures for obtaining approval of credit and need therefor; provides [sic] criteria for the subsidiary authorized by law; and procedures for the issuance of government bonds. Post-Amendment Events In the culmination of a lengthy process during which Preferred attempted to withdraw as an insurer in the state of Florida, Preferred’s vice-president for research and statistics, Lynn J. Woodard, on September 28, 1995, addressed a letter to Honorable Bill Nelson, Treasurer and Insurance Commissioner, Florida Department of Insurance, The Capitol, PL-11, Tallahassee, Florida 32399-0300. The letter provides, in pertinent part: Effective September 24, 1995, Preferred Mutual is surrendering its Certificate of Authority to transact insurance in the State of Florida. The reason for this surrender will be evident if you review the Consent Order signed by your office on June 9, 1995, in Case Number: 07376-93-C(SMH). (Petitioner’s exhibit no. 10; FWUA’s exhibit no. 10) The date that the letter was received at DOI is a matter of dispute between the parties. A copy of the letter produced by DOI reflects that it was stamped received in “P&C Solvency, Office of the Chief” on October 10, 1995. Preferred’s copy of the letter, from Lynn Woodard’s file, has a post office return receipt attached, which receipt reflects that an article addressed to Honorable Bill Nelson in the same manner as Woodard’s letter, was delivered on October 2, 1995, and was stamped by the Department of Insurance and Treasurer, State Fire Marshall. DOI insists the letter was received on October 10, 1995; Preferred claims that it was delivered on the earlier date. For purposes of this proceeding it is unnecessary to resolve the conflict or to establish precisely when the letter was received by DOI. Hurricane Opal hit Florida on October 4, 1995, the last major event in an extremely active hurricane season, a season which produced the greatest losses in FWUA’s history. On or about October 17, 1995, FWUA sent an assessment of $243,509.00 to Preferred Mutual for Hurricane Opal. Preferred has not paid the assessment and contests the liability which is the subject of a lawsuit pending in Jacksonville, Florida. The amended complaint in Florida Windstorm Underwriting Association v. Preferred Mutual Insurance Company, case no. 96- 3879, in the Circuit Court, Fourth Judicial Circuit, in and for Duval County, Florida, alleges in paragraph 10: 10. As of January 1, 1995, and through September 23, 1995, Preferred was an insurer licensed to transact property insurance on a direct basis in the State of Florida. Effective September 24, 1995, Preferred withdrew from the State of Florida and surrendered its certificate of authority. However, by virtue of its license to transact property insurance on a direct basis in this state in 1995, Preferred was a member of FWUA for the entire calendar year 1995 and subject to the terms of the Amended Plan, including liability for any assessments levied by the Board on its members for the year 1995. (Petitioner’s exhibit no. 7) In that same civil action, an “Order on Defendant’s Motion to Dismiss Complaint”, paragraph 2, states: 2. Based upon the statement by counsel for Plaintiff, made on the record of this hearing, to wit, that the document attached to the Complaint is not a “contract” with the Defendant, and that the Complaint is not based on breach of contract but is actually based on an alleged “obligation” arising by virtue of Department of Insurance Emergency Rule 95-1, which rule allegedly adopted the amended Plan of Operation and Articles of Agreement of the Plaintiff association, thereby allegedly conferring on the Plan the force of law and allegedly binding PREFERRED to the terms and conditions thereof; and, further based upon the amendment of the Complaint instanter, over objection of Defendant, at the hearing of this cause, wherein Plaintiff was given leave to amend the Complaint to allege “obligation” rather than “contract,” PREFERRED’S Motion to Dismiss on this first ground is hereby denied. (Petitioner’s exhibit no. 8) Final Analysis Most of the changes to the Plan of Operation and Articles of Agreement, adopted by reference in 4ER95-1, were essential to FWUA’s closing on the line-of-credit offer. These essential changes are described in the emergency rule notice’s summary of the rule. Without those changes, FWUA did not have the authority to accept the Chase Manhattan Bank offer. FWUA and DOI acted promptly and prudently to identify a source of funds and to effectuate the changes necessary to secure that source. The need for emergency action was not occasioned by avoidable delay or administrative inaction. The need for emergency changes to the Articles of Agreement, Article IV, membership provisions, however, is not described in the notice of the rule nor is the need established in the record of this proceeding. While the banks were interested in assuring a stable and identifiable membership subject to assessments, there is no evidence that the changes to Article IV were a condition of extending credit to FWUA. Those changes, according to FWUA’s executive director, were requested by DOI, and were merely part of the documents reviewed and approved by the bank. More significantly, for purposes of this proceeding, the Article IV membership changes are nowhere mentioned in the text of the emergency rule notice provided to the public in the Florida Administrative Weekly. Those membership changes, which are very different from the powers and duties amendments, are not included in the valid and specific justification for the emergency adoption of the amended plan of operation.
The Issue The issues in this case are whether Respondent, Timothy Michael Crowley, committed the offenses alleged in an Administrative Complaint issued by Petitioner, the Department of Financial Services, on September 14, 2006, and, if so, what penalty should be imposed.
Findings Of Fact The Parties. Petitioner, the Department of Financial Services (hereinafter referred to as the "Department"), is the agency of the State of Florida charged with the responsibility for, among other things, the investigation and prosecution of complaints against individuals licensed to conduct insurance business in Florida. Ch. 626, Fla. Stat. Respondent Timothy Michael Crowley was, at the times relevant, licensed in Florida as a life and health (2-18) agent, and a general lines, property and casualty agent. Mr. Crowley’s license number is A058537. Mr. Crowley, who is 61 years of age, has been an insurance agent for approximately 30 years. At the times relevant to this matter, Mr. Crowley was employed by Insurance Center of South Florida (hereinafter referred to as “Insurance Center”). Insurance Center is located in Coral Springs, Florida. At all relevant times, Mr. Crowley transacted commercial lines of insurance for Insurance Center. Count I; Xiaoqu Ma and Q-Nails. The Department has abandoned the charges of Count I, involving Xiaoqu Ma and Q-Nails, in Department’s Proposed Recommended Order. The evidence concerning Count I failed to prove the factual allegations necessary to support the charges of Count I. Count II; Charles Rosenthal and Cer-Tax, Inc. On or about December 15, 2004, a letter and three forms were faxed from Mr. Crowley on Insurance Center letterhead to Cer-Tax, Inc. (hereinafter referred to as “Cer-Tax”), an accounting business owned and operated by Charles Rosenthal. Insurance Center had been providing office general liability insurance coverage to Cer-Tax for several years. Mr. Crowley’s letter was sent to Cer-Tax because it was time for Cer-Tax to renew its insurance. Mr. Crowley stated, in part, the following in his letter, which was dated December 10, 2004, to Cer-Tax: We are pleased to offer the following quote for the renewal of your expiring office general liability policy. North Point Insurance Company $300,000 General Liability Policy Aggregate $300,000 General Liability Per Occurance [sic] $100,000 Damage to Rented Property of Others This policy is for premises liability only. Total annual premium $582.00 This quote is based on the imformation [sic] provided, subject to loss history verification, a satisfactory inspection and compliance with all recommendations. In order to bind the coverage we will need a check in the amount of $582.00 and the enclosed forms signed. You can fax the forms back to me and then please mail the originals with your signature. Please be sure to read the attached notice of terrorism insurance coverage. This notice is required by Federal Law and must be signed at the time of binding. Please feel free to call in the event you should have any questions regarding your coverages or the renewal process. The three forms attached to the December 10, 2004, letter for Mr. Rosenthal’s signature included: a “Notice-Offer of Terrorism Coverage and Disclosure of Premium” form; an “Applicant Information Section”; and a document titled “Nation Safe Drivers Enrollment Application” (hereinafter referred to as the “Nation’s Application”). While Mr. Crowley’s letter clearly indicates that all three forms, including the Nation’s Application, had to be signed on behalf of Cer-Tax and a total payment of $582.00 had to be made “[i]n order to bind the coverages,” described in the letter as “general liability” coverages, the Nation’s Application had nothing to do with the office general liability coverage Cer-Tax desired and Mr. Rosenthal thought he was renewing. In fact, the Nation’s Application was for an ancillary insurance coverage or product that provided accidental death benefits and membership in a motor club. Insurance Center had begun selling the Nation Safe Drivers product after Mr. Crowley became employed by Insurance Center. In addition to having no direct relationship to the office general liability coverage Cer-Tax desired and Mr. Rosenthal was told by Mr. Crowley in his December 10, 2004, letter Insurance Center was renewing, there was a separate charge for the Nation Safe Drivers product. The charge was $100.00 and it was included in the $582.00 charge Mr. Crowley told Cer-Tax was the total annual premium for Cer-Tax’s renewal of its office general liability policy. The actual cost of the office general liability insurance policy was $482.00, a fact which was not explained by Mr. Crowley to Mr. Rosenthal. Even if Mr. Rosenthal had paid more attention to the documents he was told to sign, it is unlikely that Mr. Rosenthal or any other reasonable person would have concluded that he was paying for anything other than the renewal of Cer-Tax’s office general liability insurance policy. Nor should Mr. Rosenthal, given Mr. Crowley’s explanation, have reasonably concluded that the Nation Safe Drivers product was a policy separate from the one he thought he was purchasing. As instructed in the December 10, 2004, letter from Mr. Crowley, on or about December 16, 2004, Mr. Rosenthal signed the three documents where they had been marked with an “x” in a circle. Mr. Rosenthal also included his birth date on the Nation’s Application. The forms and a check for $582.00 payable to Insurance Center were returned to Insurance Center. Insurance Center, while informing Mr. Rosenthal and Cer-Tax that it was selling Cer-Tax an insurance product from North Pointe Insurance Company, actually sold two separate products: an office general liability policy from North Pointe Insurance Company; and a Nation Safe Drivers product providing accidental death benefits and membership in a motor club. The latter product was not one which Cer-Tax was aware it was purchasing or one that it desired. While Mr. Rosenthal is an educated accountant, authorized to represent clients before the Internal Revenue Service, he is not an insurance agent. Mr. Rosenthal, given the representations in Mr. Crowley’s December 10, 2004, letter, acted reasonably in following Mr. Crowley’s instructions and in not inquiring further about the Nation’s Application. Count III; Selma Schevers and Realty Unlimited, Inc. On or about December 10, 2004, a document and three forms were faxed by Mr. Crowley to Realty Unlimited, Inc. (hereinafter referred to as “Realty Unlimited”), and Selma Schevers, the owner of Realty Unlimited. Mr. Crowley stated, in part, the following in the document: Insurance Company: National Insurance Company---Rated A+ by A.M. Best Co. Business Personal Property Business property - $25,000.00 per location #1 & #2, Location #3 $40,000 special form including theft valued on a replacement cost basis. $500 deductible Theft sublimt [sic] $25,000 Including wind/hail 2% deductible or $1,000 whichever is greater Any other peril deductible - $1,000 Business income $100,000 per location payable 1/3 over 90 days Commercial General Liability Coverage General Aggregate: $2,000,000 Per Occurrence: Products and Completed $1,000,000 Operations: $Excluded Personal Injury: $1,000,000 Advertising Injury: $Excluded Fire Damage Leagal [sic] Liability: $100,000 Medical Payments: $5,000 Deductible $500 per claim – Occurrence Basis Professional Liabilty General Aggregate: None Included in General Liability Total Annual Premium $5190.00 . . . . Please sign the two applications, terrorism form, and the Nations enrollment form. Please fax back to me with your check and be sure to mail the original signatures to me. Also please sign this form and return the original to me to authorize me to sign your name to the premium finance agreement. X I will bind your coverages as soon as I receive your check and the faxed signed forms. I will then send you a certificate of insurance showing all the coverages are in effect. Please call should you have any questions about your coverages or what needs to be signed. One of the forms sent to Ms. Schevers was a Nation’s Application identical to the one sent to Cer-Tax. While Ms. Schevers could not remember seeing the Nation’s Application, she did identify her date of birth written on the application as being in her handwriting. While Mr. Crowley’s letter, unlike the one sent to Cer-Tax, identifies the Nation’s Application, his letter only describes the insurance Realty Unlimited was interested in purchasing, which was business general liability insurance, and fails to explain what the Nation’s Application is for. Mr. Crowley indicates in the document that he will “bind your coverages as soon as I receive your check and the faxed signed forms,” which included the Nation’s Application. Mr. Crowley also suggested in the document that the “Total Annual Premium” of $5,190.00 was for the business general liability insurance. He failed to inform Realty Unlimited that the $5,190.00 premium included an additional charge of $200.00 for Nation Safe Drivers coverage, coverage which had not been requested by Realty Unlimited and was unwanted coverage. While Ms. Schevers, on behalf of Realty Unlimited, signed some of the forms sent to her by Mr. Crowley, she did not sign the Nation’s Application. She returned the signed forms on or about December 10, 2004, with a down payment of $1,480.00, which Mr. Crowley had indicated was acceptable. The down payment from Realty Unlimited was divided by the Insurance Center, with $1,280.00 being applied toward the business general liability insurance desired by Realty Unlimited and $200.00 applied in full payment for Nation Safe Drivers coverage despite the fact that Ms. Schevers had not signed the Nation’s Application. Insurance Center, while informing Ms. Schevers and Realty Unlimited that it was selling Realty Unlimited an insurance product from National Insurance Company, actually sold two separate products: a business general liability insurance policy from National Insurance Company; and a Nation Safe Drivers product providing accidental death benefits and membership in a motor club. The latter product was not one which Realty Unlimited was aware it was purchasing, one that it desired, or one for which Ms. Schevers even signed an application. Nor was it one, assuming Ms. Schevers saw the Nation’s Application, Ms. Schevers should have realized was not part of the insurance product she wished to purchase. Counts IV and V. The Department has abandoned the charges of Counts IV and V at hearing and in Department’s Proposed Recommended Order. No evidence concerning Counts IV and V was presented at hearing to support the charges of these Counts. Aggravating/Mitigating Factors; Prior Disciplinary Action Against Mr. Crowley. In addition to this disciplinary matter, an Administrative Complaint (hereinafter referred to as the “1997 Administrative Complaint”) was issued against Mr. Crowley on or about April 2, 1997. The charges of the 1997 Administrative Complaint, which included allegations of wrong-doing similar to those at issue in this case, were resolved by a Consent Order issued pursuant to a Settlement Stipulation for Consent Order. Among other things, the Consent Order ordered that Mr. Crowley cease and desist from using any methods or practices in the business of insurance which would constitute the act or practice of “sliding.” Aggravating/Mitigating Factors; Reimbursement of Premiums. The premiums paid by Cer-Tax and Realty Unlimited have been refunded by Mr. Crowley and Insurance Center.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered by the Department finding that Timothy Michael Crowley violated the provisions of Chapter 626, Florida Statutes, described, supra; dismissing all other charges; and suspending his license and appointment for a period of twelve months. DONE AND ENTERED this 27th day of November, 2007, in Tallahassee, Leon County, Florida. S LARRY J. SARTIN Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 27th day of November, 2007. COPIES FURNISHED: Robert Alan Fox, Senior Attorney Division of Legal Services Department of Financial Services 612 Larson Building 200 East Gaines Street Tallahassee, Florida 32399-0333 Jed Berman, Esquire Infantino and Berman Post Office Drawer 30 Winter Park, Florida 32790-0030 Honorable Alex Sink Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Daniel Sumner, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0307
The Issue Whether Petitioner should be granted a license to engage in business as an insurance adjuster in the State of Florida.
Findings Of Fact Respondent Agency is charged by law with licensure of non-resident "all (insurance) lines" public adjusters. On or about July 21, 2005, Respondent denied Petitioner's application for such licensure as follows: You have never been licensed in this state to engage in business as an insurance adjuster. However, on or about October 1, 2004, you identified yourself as a licensed public adjuster to William H. Baker, of 329 Live Oak Road, Vero Beach, Florida, and solicited Mr. Baker to hire you to adjust a claim for hurricane damage with his insurer, Safeco Insurance Company. On or about November 4, 2005, Safeco received a Notice of Representation from you indicating that you were Mr. Baker's adjuster on his claim. On or about November 11, 2004, you met with a Safeco representative and attempted to settle Mr. Baker's claim. Legal Basis for Denial The denial is based upon the following Florida Statutes: Section 626.112(3), Florida Statutes states: (3) No person shall act as an adjuster as to any class of business for which he or she is not then licensed or appointed. Petitioner timely requested a disputed-fact hearing, and the cause was referred to the Division of Administrative Hearings on or about December 2, 2005. The case was scheduled for final hearing on February 21, 2006, in Tallahassee, Florida, by a Notice mailed December 27, 2006. An Order of Pre-hearing Instructions was entered the same date. Petitioner requested a continuance by a letter filed February 15, 2006. On February 21, 2006, an Order was entered granting a continuance until April 20, 2006. On April 17, 2006, Petitioner filed a letter requesting another continuance. On April 24, 2006, an Order was entered granting a continuance and requiring that the parties submit mutually agreeable dates for hearing by May 10, 2006. On May 10, 2006, a Consented Response was filed. On May 15, 2006, a Notice of Hearing for June 19, 2006, was entered and mailed. On June 19, 2006, when the final hearing was convened, Petitioner was not in attendance. Respondent's counsel and Respondent's agency representative were in attendance. Respondent's counsel represented that she had been unable to get any telephonic response from Petitioner for several weeks. The undersigned inquired if any Pre-hearing Stipulation, as required by the Order of Pre-hearing Instructions had been entered, and Respondent's counsel answered in the negative. The undersigned inquired if, due to the nature of the license denial, any agreement to shift the duty to go forward had been reached, and Respondent's counsel answered in the negative. The Division's file reflects no stipulations. The undersigned waited a half-hour for Petitioner to appear. He did not appear by the end of that half-hour. Inquiry within the Division revealed that Petitioner had neither come to the building housing the hearing room, nor had he telephoned the secretary to the undersigned with any excuse for his absence.
Recommendation Upon the foregoing Findings of Fact and Conclusion of Law, it is recommended that the Department of Financial Services enter a final order denying Petitioner's license application. DONE AND ENTERED this 29th day of June, 2006, in Tallahassee, Leon County, Florida. S ELLA JANE P. DAVIS 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 29th day of June, 2006. COPIES FURNISHED: Honorable Tom Gallagher Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Carlos G. Mu?niz, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Roxanne Rehm, Esquire Department of Financial Services 200 East Gaines Street Tallahassee, Florida 32399-0333 Christopher C. Karpells 857 Brownswitch Road Unit 154 Slidell, Louisiana 70458 Christopher C. Karpells 585 Old Jail Lane Barnstable, Maryland 02630
Findings Of Fact Essential Background. The Respondent, Larry Wayne Lindsay, is and has been at all times pertinent to this case, eligible for licensure as a general lines agent and as a life and health agent. Effective between December 31, 1987, and January 1, 1988 (the written agreement is dated December 24, 1987), Lindsay's Friendly Auto Insurance of Polk County, Inc., formerly Friendly Auto Insurance Agency of Lake Wales, Inc. (Friendly of Lake Wales), and Friendly Auto Insurance of Winter Haven, Inc. (Friendly of Winter Haven), sold their assets, including the leasehold on the Friendly of Winter Haven business location, to Central Florida Insurance Agency of Winter Haven, Inc. (Central), for $500. The Respondent, Larry Wayne Lindsay (Lindsay), signed the agreement on behalf of the sellers. Kimberly Strayer, then Lindsay's fiance, now his wife, is the sole legal owner, officer and director of Central. Effective between December 31, 1987, and January 1, 1988 (the written agreement is dated January 27, 1988), Friendly Auto Insurance of Haines City, Inc. (Friendly of Haines City), sold its assets, including the leasehold on its business location, to Ridge Insurance Agency, Inc. (Ridge), for $200. Lindsay signed the agreement on behalf of the seller. Kimberly Strayer is the sole legal owner, officer and director of Ridge. When it was formed in approximately April of 1984, Lindsay and Ruth Kent were the initial directors of Friendly of Winter Haven. The two of them remained the directors and officers of the corporation through at least January of 1987, according to the corporation's annual reports. At some point before December 31, 1987, Kent transferred all of her interest in the corporation to Lindsay, who became the sole owner, officer and director of the corporation. But the evidence was not clear when Kent transferred her interest to Lindsay or what Lindsay's ownership interest in the corporation was up to the time of the transfer. Lindsay was the full-time agent in charge of Friendly of Winter Haven in March of 1983, according to Department of Insurance records, but the evidence was not clear how long he remained full-time agent in charge. At some point, he was replaced by Thomas Shaw. The evidence was not at all clear who were the owners, directors or officers of Friendly of Lake Wales at any point in time before Lindsay, acting on its behalf, transferred its assets to Central. Robert Seese was its nominal full-time agent in charge starting approximately in July, 1986, until approximately September, 1988, according to the evidence, but he was not actually in charge of the office, had little to do with the business and spent little time at the business. He essentially allowed Friendly of Lake Wales to use his name, license and facsimile stamp. Lindsay also submitted some applications for insurance from the Lake Wales office in the fall of 1987. The evidence was not at all clear when Seese's nominal role as the full-time agent in charge was terminated or who was the full-time agent in charge when Seese was not. When it was formed in approximately September of 1983, Lindsay and Ruth Kent were the initial directors of Friendly of Haines City. The two of them remained the directors and officers of the corporation through at least January of 1987, according to the corporation's annual reports. At some point before December 31, 1987, Kent transferred all of her interest in the corporation to Lindsay, who became the sole owner, officer and director of the corporation. But the evidence was not clear when Kent transferred her interest to Lindsay or what Lindsay's ownership interest in the corporation was up to the time of the transfer. When it was formed in approximately September of 1984, Lindsay and Ruth Kent were the initial directors of Friendly Auto Insurance Agency of Bartow, Inc., (Friendly of Bartow). The two of them remained the directors and officers of the corporation through at least January of 1987, according to the corporation's annual reports. In May, 1987, Lindsay was the full-time agent in charge of Friendly of Bartow, according to Department of Insurance records in evidence. At some point in time, Lindsay transferred all of his interest in the corporation to Kent. But the evidence was not clear when Lindsay ceased acting as full-time agent in charge of Friendly of Bartow, when Lindsay transferred his interest to Kent or what Lindsay's ownership interest in the corporation was up to the time of the transfer. When Central began doing business at the former Friendly of Winter Haven location in January, 1988, Seese transferred his license there and began to pose as its full-time agent in charge. In fact, Seese was not in charge of Central's business, had very little to do with the business and spent practically no time at Central's office. Essentially, all he did was allow Central to use his name, license and facsimile stamp. Lindsay often was at Central giving advice to Strayer and, as a practical matter, acting in the role of the full-time agent in charge of Central. Ridge began doing business at the former Friendly of Haines City location in January, 1988, without having notified the Department of Insurance of the identity of its full-time agent in charge. Strayer testified that Ridge had no full-time agent in charge but conceded that she knew it was illegal to operate without one. In fact, Lindsay spent much of his time at Ridge and essentially ran the office, acting as if he were the full-time agent in charge. Business with the FJUA is produced by agents who are licensed by the FJUA to produce business at a certain location and assigned to a particular insurance company. When they began doing business, neither Ridge nor Central had a relationship with FJUA. Lindsay had been an FJUA producer assigned to State Farm Mutual Insurance Company (State Farm) and licensed to produce business at Friendly of Bartow. Although the evidence is not clear when Lindsay stopped producing FJUA business at Friendly of Bartow, he officially was terminated as a producer at that location on or about April 21, 1988. Seese had been an FJUA producer at Friendly of Lake Wales assigned to State Farm from July, 1987, officially until approximately February 9, 1988. Thomas Shaw, who was the full-time agent in charge of Friendly of Winter Haven, had been an FJUA producer assigned to State Farm at that location--the same location Central later assumed. There is no evidence when or if Shaw officially was terminated as a producer at the Friendly of Winter Haven location. Lindsay knew, and should have known, that Ridge had not yet been licensed by the FJUA to produce FJUA business at its location or that it had been assigned to State Farm. When Ridge began doing business, applications for FJUA insurance coverage first were transmitted to Central to be submitted by Central, over Seese's facsimile stamp, to State Farm. Transactions Alleged Under Counts I Through VIII. On or about January 14, 1988, Ridge took from David Doolin of Davenport, Florida, an application and $70 as a down payment for coverage under the FJUA and bound the coverage. (Count I.) On or about January 20, 1988, Ridge took from Rachel McKenny of Haines City, Florida, an application and $56 as down payment for six months of personal injury protection (PIP) coverage with United States Underwriters (USU) and bound the coverage. When coverage under USU became unavailable, Ridge advanced McKenny $12 to pay for the down payment on a year of coverage under the FJUA. (Count II.) On or about January 12, 1988, Ridge took from Richard Truett of Haines City, an application and $109 as down payment for a year of coverage under the FJUA and bound the coverage. (Count III.) On or about January 13, 1988, Ridge took from Bruce Tish, Jr., an application and $150 as down payment for and with Dairyland Insurance Company and bound the coverage. When Dairyland insurance became unavailable, Ridge advanced Tish $16 for the down payment on a year of coverage with the FJUA. (Count IV.) On or about January 15, 1988, Ridge took from Germaine Collier of Winter Haven an application and $56 as down payment for six months of PIP coverage with USU and bound the coverage. When USU coverage became unavailable, Ridge advanced Collier $2 for the down payment for a year of coverage under the FJUA. (Count V.) On or about January 15, 1988, Ridge took from Callie Robinson, Jr., of Haines City an application and $56 as down payment for six months of PIP coverage with USU and bound the coverage. When the USU coverage became unavailable, Ridge advanced Robinson $2 for the down payment for a year of coverage under the FJUA. (Count VI.) On or about January 15, 1988, Ridge took from James Belcher, through his wife Peggy, an application and $56 as down payment for six months of PIP coverage with USU and bound the coverage. When the USU coverage became unavailable, Ridge advanced Belcher $12 for the down payment for a year of coverage under the FJUA. (Count VII.) On or about January 15, 1988, Ridge took from Gerald Dempsey of Winter Haven an application and $60 as down payment for six months of PIP coverage with USU and bound the coverage. When the USU coverage became unavailable, Ridge submitted the application for a year of coverage under the FJUA (the down payment for which was only $58.) (Count VIII.) It was not proven, as alleged, that Ridge did not secure the necessary money order for the down payment for the FJUA coverage referred to in Counts I through VIII until on or after March 24, 1988, or that Ridge did not submit the applications referred to in Counts I through VIII until on or about April 12, 1988. To the contrary, it never was made clear from the Department's evidence whether the FJUA applications referred to in Counts I through VIII (Petitioner's Exhibits 18 through 25, in evidence) were among the applications received by State Farm for the first time on or about April 12 and 19, 1988, or whether they were among the applications previously submitted to State Farm but returned by State Farm for various reasons. Lindsay's evidence, which is more persuasive, suggests that Ridge transmitted the applications to Central for processing, money orders for the down payments were obtained and Central sent the applications to State Farm within approximately a week from when they were taken by Ridge. According to Lindsay's version of the events that transpired, State Farm rejected the applications once because Seese's facsimile stamp had been used on the applications. (The applications themselves would support Lindsay's version in this respect. Seese's name is signed over a part of the application that appears to have been "whited-out.") State Farm returned the applications and the money orders. Central then repurchased money orders, had Seese sign the applications and re-submitted the applications. For a second time, State Farm rejected and returned the money orders, this time because the effective date of the coverage was before Seese became licensed by the FJUA and assigned to State Farm as agent at the Central location. The applications also support Lindsay's version in this respect because the effective date of the coverage is changed to start coverage one month later, after Seese's February 9, 1988, appointment date. Central re-purchased money orders again, dated March 24, 1988, and submitted the applications for at least the third time on or about April 12, 1988. All of these applicants received coverage as of the revised effective date. Transactions Alleged Under Counts IX And X. On or about March 11, 1988, Ridge, through Lindsay, took from Charles and Erna Bluschke an application and Erna's $236 check for the down payment for a year of FJUA coverage on their 1984 Thunderbird. (Count IX.) Ridge gave the Bluschkes a Florida Automobile Insurance Identification Card indicating that State Farm was the carrier and that the coverage was bound effective March 11, 1988. When the Bluschkes received no paperwork from State Farm or the FJUA within approximately a month, Mr. Bluschke returned to Ridge and talked to Lindsay. Lindsay told him that the paperwork had not come through but should be in "any day." Approximately another month went by without any paperwork, and Bluschke again went to speak to Lindsay. Bluschke was concerned because State Farm had cancelled him previously, and he wanted to know how he could be sure he had coverage. Lindsay responded, "Don't worry, you're covered." In fact, as Lindsay knew, the Bluschkes' application had not been submitted to State Farm. By the time the Bluschkes had applied, Ridge and Central were in the midst of dealing with problems they were having getting older applications accepted by State Farm and had put the Bluschkes' application aside until the older problems were resolved. They also were attempting to be assigned to an FJUA carrier other than State Farm. Indeed, on or about April 12, 1988, certainly by the time of Bluschke's second inquiry, and perhaps even by the time of his first inquiry, Lindsay had submitted an application as Ridge's general lines agent to be licensed to produce for the FJUA and to be assigned to Allstate instead of State Farm. The representations Lindsay made to Bluschke on the first and second inquiries were knowing misrepresentations made for the purpose of concealing from the Bluschkes the actual status of Ridge's relationship to the FJUA and State Farm. After his second inquiry, Bluschke demanded and received a full refund of his $236 down payment. On or about February 12, 1988, Paris and Helen Dalton of Hamilton, Florida, went to Ridge to purchase insurance for a 1979 Pontiac and a 1977 Dodge Van. (Count X.) They completed an FJUA application and paid $409 down. They were given a Florida Automobile Insurance Identification Card indicating that State Farm was the carrier and that coverage was bound effective February 12, 1988. For the same reasons that Ridge did not submit the Bluschke application, Ridge never submitted the Dalton application to State Farm. In March, 1988, after 30 days had passed, Helen Dalton returned to Ridge because the Daltons had not yet received a payment book from State Farm. "Wanda," who worked at Ridge, assured the Daltons that the policy and payment book would come in the mail and that it sometimes took as much as 90 days. Later in March, 1988, the Daltons' bank asked for proof of insurance on their vehicles. Helen Dalton went to Ridge and got from "Wanda" a copy of the binder, signed by Lindsay. "Wanda" told Dalton that Ridge would call the bank. Ridge never called the bank, as the bank informed the Daltons in June, 1988. Helen Dalton again returned to Ridge, and this time a different person working at Ridge told her that "it's hard to get through to State Farm." Helen Dalton called State Farm directly and was told that State Farm never had received the application and that Ridge and Lindsay were not authorized to write FJUA insurance through State Farm. Dalton returned to Ridge and confronted Lindsay directly with this information. Lindsay offered to "re-write" the policy, but Dalton demanded her money back. Lindsay sent Dalton to Central in Winter Haven to have Strayer refund the money, saying he had no authority to write a refund check, and the Daltons finally got their refund on or about June 27, 1988. Transactions Alleged In Count XI. At least from on or before July 1, 1985, continuously until after December 31, 1986, Friendly of Winter Haven, Friendly of Bartow, Friendly of Haines City, and Friendly of Lake Wales arranged customers' premium financing through Time Premium, Inc., of Boca Raton, Florida. As part of each premium finance transaction, the agency submitted to Time Premium, Inc., an agency check representing the down payment received from the customer and an executed premium finance contract. The agencies also collected monthly payments from insureds and forwarded agency checks to Time Premium on behalf of these insureds. From August, 1985, through July, 1986, these corporate agencies wrote approximately $13,000 in checks payable to Time Premium drawn on the agencies' business accounts. Lindsay personally signed in excess of seven thousand dollars worth of these checks. These checks were returned due to insufficient funds. On December 10, 1986, these four corporate agencies, through Lindsay and Ruth Kent as the directors, executed a promissory note in favor of Time Premium, Inc., in the amount of $13,076.34 to satisfy the outstanding indebtedness on the returned checks. The promissory note required repayment at the rate of $500 per month. As of July 1, 1988, only $2,000 had been repaid.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Petitioner, the Department of Insurance and Treasurer, enter a final order finding the Respondent, Larry Wayne Lindsay, guilty of some, but not all, of the violations alleged in the Administrative Complaint in this case, as reflected in this Recommended Order, and suspending, for a period of one year, his general lines, health and life insurance agent licenses and his eligibility to hold those licenses. RECOMMENDED this 22nd of November, 1989, in Tallahassee, Florida. J. LAWRENCE JOHNSTON Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 22nd day of November, 1989.
The Issue The issue for determination at formal hearing was whether proposed amendments to Rule 4J-2.002, Florida Administrative Code, are an invalid exercise of delegated legislative authority.
Findings Of Fact An admitted or authorized insurance company is a foreign insurance company which is licensed to do business in its home state and another state which is Florida in the case at hand, or is a domestic insurance company licensed to do business in its home state, here Florida. Examples of such insurance companies are Hartford, Travelers and USF&G. A non-admitted or surplus lines insurance company writes coverage for risks which are not normally written by admitted companies. An example of such a company is Lloyd's of London. A risk is eligible to be placed with a surplus lines insurer if, after diligent effort, the full amount of insurance required to cover the risk cannot be placed with admitted insurers, if the rate offered is not less than or broader than that offered by the admitted insurers, and if the policy offered is not more favorable to the insurer than those offered by admitted insurers which actually write similar coverages on similar risks. The surplus lines' premium is usually higher than the admitted insurer's premium. If an insurance agent is unable to place a risk with either an admitted insurer or a surplus lines insurer, the agent can certify the inability to the Market Assistance Plan (MAP) and request assistance from MAP in placing the risk, which has access to all admitted and surplus lines brokers doing business in Florida. MAP was legislatively created to assist those who are unable to obtain property or casualty insurance and is comprised of all insurers licensed to do business in Florida. The Florida Legislature also created the Florida Property and Casualty Joint Underwriting Association (FPCJUA) to provide coverage for certain risks when the risk cannot be placed in the admitted market, the surplus lines market and MAP, i.e., the voluntary market. The FPCJUA is a residual market or market of last resort. It is comprised of all insurers licensed by the State of Florida to write property and casualty insurance coverage in Florida. After the devastation to Florida from Hurricane Andrew in 1992, the premiums for commercial residential coverage greatly increased and became virtually unaffordable. However, coverage was possible if an applicant could afford the premiums being charged. Commercial residential coverage became a hard market which meant that it was hard to obtain insurance for such coverage. Attempting to address the dilemma involving insurance coverage of commercial residential property, in the November 1993 Special Session, the Florida Legislature specifically activated temporary coverage under the Joint Underwriters Association (JUA) for commercial residential properties, i.e., condominium associations, apartment buildings, common elements of homeowners associations and other commercial coverages of residences. As of May 1994, the JUA had not written any coverages for commercial residential properties. Out of approximately 300 to 400 admitted insurance companies in Florida qualified to write commercial residential coverage, only two to five were writing such coverage after Hurricane Andrew. In May 1994, the Department of Insurance by emergency order directed the JUA to write coverages for commercial residential properties under specified guidelines. Without the emergency order, the JUA would not have written coverages for such properties because coverage was being written even though it was being done by only two to five admitted insurance companies and even though the premiums were virtually unaffordable. Finally, the Department of Insurance resorted to a more enduring remedy by seeking to amend Rule 4J-2.002, Florida Administrative Code, to address the dilemma of coverage for commercial residential properties. Foremost, the proposed amendments would modify the FPCJUA's Plan of Operation by temporarily making the coverage for commercial residential property automatically eligible for the FPCJUA without first seeking coverage from the voluntary market. This change would, therefore, transform the FPCJUA, as far as coverage for commercial residential property is concerned, into a market of first resort instead of last resort. Secondly, the proposed amendments would provide for specific deductibles for such coverage. And thirdly, the proposed amendments would provide for the FPCJUA to conduct periodic surveys regarding premiums for such coverage to determine if rates should be adjusted. Standing is not an issue in this proceeding.
The Issue The issue in this case is whether Respondent condominium association should have assessed unit owners, in proportionate shares, to pay for the replacement of hurricane-damaged balcony screens, in accordance with Petitioner's policy that repair costs which do not exceed an insurance deductible are "costs of insurance" that must be paid as "common expenses" regardless of what the declaration of condominium provides concerning reconstruction or repair after a casualty.
Findings Of Fact Respondent Fountains South Condominium No. 3C Association, Inc. ("Association") is the entity responsible for operating the Fountains South Condominium No. 3C ("Condominium"). As such, the Association is subject to the regulatory jurisdiction of Petitioner Division of Florida Land Sales, Condominiums, and Mobile Homes ("Division"). The Condominium was created——and continues to be governed by——a Declaration of Fountains South Condominium No. 3C ("Declaration"), which instrument was recorded, in 1987, in the public records of Palm Beach County, Florida. On October 24, 2005, Hurricane Wilma struck Palm Beach County, causing damage to elements of the Condominium. The damaged property included some portions of the "Common Elements." Also damaged were some parts of the "Limited Common Elements." (The terms "Common Elements" and "Limited Common Elements" are defined in the Declaration, the relevant provisions of which will be set forth verbatim below. Generally speaking, though, the Common Elements comprise all of the property of which the Condominium is composed except for that included within the residential units. The Limited Common Elements, which are a subset of the Common Elements, consist of properties or structures whose use is reserved to a particular unit or units to the exclusion of other units.) Fulfilling a statutory obligation (that will be discussed in detail below), the Association had purchased property insurance to protect the Common Elements and Limited Common Elements. Issued by Nutmeg Insurance Company ("Nutmeg"), Policy No. SW 0000071 (the "Policy") provided coverage to the Association for loss or damage to property from multiple risks, including hurricanes. The premium for the Policy——the effective dates of which were from December 31, 2004 to December 31, 2005——was $395,000. The Policy provided for various deductibles depending on the cause of the covered loss. For loss or damage caused by a hurricane, the deductible was 5 percent of the value of the insured property. It is undisputed that, at the time of Hurricane Wilma, this deductible was approximately a quarter of a million dollars. Under the relevant provisions of the Policy, therefore, Nutmeg would not be obligated to indemnify the Association for any loss or damage caused by Hurricane Wilma unless and until the total losses from that particular occurrence exceeded (roughly) $250,000. The Association paid about $5,000 to repair the damage that Hurricane Wilma caused to the Common Elements, using funds on hand that had been saved for such contingencies. Because this expense was far below the applicable deductible, the Association did not submit a claim to Nutmeg. The Association's position regarding the damage to the Limited Common Elements, consistent with its longstanding view of such matters, was that the costs of repairing or replacing such properties should be borne by the respective unit owners to whose exclusive use the damaged elements were reserved. The Association based its position on a provision of the Declaration (which will be quoted below) that assigns the general responsibility for maintenance and repair of the units, together with the Limited Common Elements appurtenant thereto, to the respective unit owners. At the time of Hurricane Wilma, Haskell and Flora Ginns (the "Ginns") owned Unit No. 201 in the Condominium. (As of the final hearing, the Ginns were still the owners of this unit.) The hurricane caused damage both to their unit and to the screens surrounding the balcony outside their unit. It is undisputed that the balcony and screens appurtenant to the Ginns' unit are part of the Limited Common Elements. The Ginns submitted a claim for these losses to their insurer, Allstate Floridian Insurance Company ("Allstate"). By letter dated January 7, 2006, Allstate denied the portion of the Ginns' claim relating to the damaged screens, asserting that the screens were not covered property under the Ginns' policy because they were within the "insuring responsibility" of the Association. The Ginns did not protest Allstate's decision in this regard. (Allstate paid the full policy limit of nearly $30,000 on the Ginns' claim anyway; thus, its denial of coverage for the damaged screens actually had no effect on the reimbursement that the Ginns received from Allstate.) The Ginns then wrote a letter to the Association's president, Milton Kutzin, requesting that the Association pay to replace the damaged screens. Dated January 16, 2006,i the letter reads as follows: Dear Milton: As you may be aware, the screens on the deck of our condo were severely damaged because of Hurricane Wilma. According to the attached memo, the condo is responsible for replacing them. For your information, my insurance company, Allstate Floridian, has refused payment and has advised us that our condo association is responsible (by law) to replace them. We do have an estimate to replace the screens. I shall be happy to discuss this matter with you at any time. Please let me know approximately when this matter will be settled. (The "attached memo" to which the Ginns referred purports to be an undated letter from the Director of Maintenance of Versailles Court (evidently a residential community) to the homeowners of that project, clarifying the responsibilities of the homeowners, on the one hand, and their homeowners' association, on the other, vis-à-vis maintenance obligations. As far as the undersigned can tell, this Versailles Court memorandum has no bearing whatsoever on the issues at hand.) If the Association responded in writing to the Ginns' letter of January 16, 2006, the document is not in evidence. In any event, the Association refused to repair the screens surrounding the Ginns' balcony because (a) it believed that the Ginns were responsible, under the Declaration, for the cost of such repair and (b) the total losses to the Common Elements and Limited Common Elements (including the screens in question) did not come near the deductible under the Nutmeg Policy, meaning that there were no insurance proceeds to distribute to unit owners for repairs to Limited Common Elements. On January 18, 2006, the Ginns paid a company called Rainguard, Inc. either $1,100 or $1,200 to replace the damaged screens around "their" balcony.ii Meantime, on January 13, 2006, the Division rendered a Declaratory Statement in In Re Petition for Declaratory Statement of Plaza East Association, Inc., Docket No. 2005059934, Final Order No. BPR-2006-00239 (DBPR Jan. 13, 2006)(the "Plaza East Declaration"). In the Plaza East Declaration, the Division made a number of statements concerning the meaning and effect of certain provisions of the Florida Condominium Act ("Act") pertaining to the duties of condominium associations as they relate to property insurance. These statements will be examined in greater detail below. For now, it suffices to quote several sentences that form the core of the Division's policy regarding the scope of an association's "insuring responsibilities": As association is not required to insure 100% of the replacement cost of the condominium property, but must have adequate insurance to replace the property destroyed by a hurricane. The board may include reasonable deductibles in replacement value insurance policies. § 718.111(11)(a), Fla. Stat. A deductible amount is part of the cost of insurance and is a common expense for which reserves might be set aside. § 718.111(11), 718.115, Fla. Stat. As such, an association may not shift the cost of an insurance common expense to an individual unit owner as common expenses must be assessed in the proportions or percentages required under sections 718.104(4)(f), 718.116(9), Florida Statutes. [An association therefore] may not shift the cost of the deductible, a common expense, to only those unit owners whose windows were damaged by the insurable event such as a hurricane. Plaza East Declaration at 16 (emphasis added). The Plaza East Declaration reflected——and continues to be authoritative regarding——the Division's firmly fixed policy, which is that the deductible under a property insurance policy is a "cost" that an association must incur, using common funds collected through proportionate-share assessments. The Division's expert witness made this clear, giving the following testimony (which the undersigned accepts as credible) in deposition: Q. Doesn't [the] Plaza East [Declaration] declare that a deductible is a common expense? A. Well, it makes the deductible a common expense because insurance is a common expense and the deductible is just a part of the insurance purchase decision. * * * Q. Let me ask you this: Is there anything in [the Act] that clearly states that a casualty loss insurance deductible is a common expense? A. No, sir, there's nothing [in the statutes] that specifically says that. Q. But [the] Plaza East [Declaration] says that, doesn't it? A. Plaza East says that, yes, sir. Q. So that's a policy of the Department? A. Yes, sir, that is. Q. And it's a general policy, isn't it? A. Yes, sir. Q. And it's a general policy that would apply to any condominium in South Florida regardless of what the declaration of condominium said? A. Yes, sir. Q. And that's being applied in this case, isn't it? A. Yes, sir. Deposition of James T. Harrison, Jr. (10/29/07) at 20-21. At some point after the issuance of the Plaza East Declaration, the Ginns sought the Division's help in persuading the Association to reimburse them for the new screens. The Division informed the Ginns of the Plaza East Declaration. Armed with this information, the Ginns again pressed the Association to reimburse them for replacing the screens. The Association, again, declined. By letter dated May 3, 2006, the Ginns made a formal complaint to the Division regarding the Association's refusal to pay for the replacement of the screens. The Division acted promptly, completing its investigation into the matter on or before May 10, 2006. Siding with the Ginns, the Division demanded, in a letter dated May 22, 2006, that the Association either reimburse the Ginns or (possibly) be fined. Yet, the Association resisted. On July 28, 2006, the Division entered a Notice to Show Cause against the Association, charging as follows: Count 1: Respondent [Association], in violation of section 718.115(2), Florida Statutes, failed to asses unit owners in their proportionate shares for the common expense insurance deductible to repair damage to condominium property caused by a hazard to be insured by Respondent under section 718.111(11), Florida Statutes. The Respondent refused to treat the hurricane damage to the wrap-a-round deck and screens in unit #201 as a common expense covered by the association's policy under sections 718.111(11) and 718.115(1), Florida Statutes. Specifically, the Respondent failed to reimburse Haskell Ginns and Flora Ginns for damage sustained by Hurricane Wilma to their wrap-a-round screens. Since the May 22, 2006, warning letter, the complainants have replaced their wrap-a- round deck screens at a cost of $1,200.00 and have requested reimbursement from Respondent. The Association demanded a formal hearing.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Division enter a final order rescinding the Notice to Show Cause and exonerating the Association of the charge of failing to assess unit owners, in proportionate shares, to pay the cost of repairing or replacing Limited Common Elements damaged during Hurricane Wilma. DONE AND ENTERED this 10th day of January, 2008, in Tallahassee, Leon County, Florida. JOHN G. VAN LANINGHAM Administrative Law Judge Division of Administrative Hearings 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 10th day of January, 2008.
The Issue The issue for determination is whether Respondent committed the offenses set forth in the Amended Administrative Complaint and, if so, what action should be taken.
Findings Of Fact HSH No. 2 is a six-bed assisted living facility. It provides services to individuals with mental deficits and/or psychiatric issues. HSH No. 2 is located at 20700 Southwest 122nd Avenue, Miami, Florida. After a settlement agreement with AHCA, South Dade was allowed to submit a CHOW to purchase HSH No. 2 from the prior owner. South Dade became the legal owner of HSH No. 2 on December 28, 2005. Prior to obtaining initial licensure from AHCA, South Dade was required to provide AHCA with proof of liability insurance. Liability insurance coverage is for the protection of residents at the assisted living facility in case of injury or death. Without liability insurance, a resident injured at a facility would have no recourse if he/she was harmed or injured in any way. AHCA, not the facility, is listed on each facility’s certificate of insurance as the certificate holder. Additionally, the address of AHCA’s licensure department is listed on each facility’s certificate of insurance in order that AHCA will be notified in the instance of a lapse of insurance coverage. South Dade provided proof of liability insurance to AHCA on October 17, 2005, for the period of September 23, 2005, through September 23, 2006. South Dade obtained the liability coverage from an insurance company in Miami, Florida. Having obtained liability insurance and having provided proof of liability insurance, South Dade obtained licensure from AHCA. South Dade was eventually issued a standard biennial license by AHCA for the period of December 28, 2007, through December 27, 2009. South Dade was the licensee. On September 4, 2007, South Dade, as a corporation, was administratively dissolved due to its failure to file its annual report as required by law. At the time, South Dade was 100 percent owned by Larazo Martinez. South Dade does not dispute that Mr. Martinez allowed the dissolution of South Dade in order for Natalie Egea, who had recently become HSH No. 2’s administrator, to gain ownership of HSH No. 2.1 South Dade continued to carry-on business, as HSH No.2, even though it (South Dade) was administratively dissolved. South Dade’s corporate status was reinstated on May 11, 2009, over two years after its dissolution. Mr. Martinez was listed as the only officer, i.e., president. Instead of applying for a CHOW to begin the process of new ownership of HSH No. 2, an application for renewal of the license was submitted to AHCA. An application for licensure renewal was filed on November 13, 2007, with AHCA. Only South Dade, as the licensee, could apply for renewal of the license. Ms. Egea completed the application for the licensure renewal. She listed Mr. Martinez, the individual, as the owner of HSH No. 2, not South Dade, the corporation. Furthermore, she indicated that the applicant was an individual, not a corporation. Ms. Egea was aware that there was a difference between South Dade, the corporation, and Mr. Martinez, the individual, owning HSH No. 2.2 After receiving the renewal application, AHCA sent a letter dated December 6, 2007, by certified mail, return receipt, to Ms. Egea, as the administrator of HSH No. 2, advising her, among other things, that the application omitted several documents and was, therefore, incomplete; that the liability insurance for HSH No. 2 had expired; and that proof of current liability insurance coverage needed to be provided. Further, the letter advised Ms. Egea that, in several items on one of the forms, she listed herself as the owner of the facility, but, on another document, she listed Mr. Martinez as the owner of the facility and listed herself as the administrator. By letter dated December 20, 2007, Ms. Egea responded to AHCA’s letter dated December 6, 2007, and, among other things, provided the omitted documents and corrected the documents referring to the owner of HSH No. 2 to reflect Mr. Martinez as the owner. Furthermore, Ms. Egea advised AHCA that the facility was having difficulty in obtaining liability insurance coverage. The evidence demonstrates that, when Ms. Egea filed the renewal application, the intent in the application process was to change the ownership of HSH No. 2 to Mr. Martinez, and, eventually, to herself. Further, the evidence demonstrates that Ms. Egea considered Mr. Martinez as owning HSH No. 2, even though AHCA’s licensure documents showed South Dade as owning HSH No. 2 and as the licensee. AHCA issued South Dade a conditional license for the period December 28, 2007, through February 27, 2008, pending proof of liability insurance coverage. Through the issuance of a license to an assisted living facility, AHCA is guaranteeing to the public that that facility is in compliance with all the requirements set by AHCA. But through the issuance of a conditional license, AHCA is putting the public on notice that there are outstanding conditions of licensure that the facility has not met. Even though AHCA renewed the license in the name of South Dade, the application should have been considered a CHOW. AHCA mistakenly treated the application as a renewal, instead of a CHOW. The renewal application was in actuality an application for licensure by an individual, not previously licensed by AHCA. As a result, the application was a CHOW, not a renewal application for licensure. When a facility’s liability insurance coverage expires, the facility is required to provide AHCA with proof of a renewal policy or proof of a new policy. At the expiration of its liability insurance on September 23, 2006, South Dade was unable to immediately renew its liability insurance or obtain new liability insurance from companies in Miami. South Dade blamed the recent hurricanes in the South Florida area as causing insurance companies to become reluctant to issue new liability insurance policies. However, AHCA was the agency licensing and renewing the licensure of assisted living facilities in the entire State of Florida; but AHCA was not aware of any other assisted living facilities in the South Florida area having such difficulty. The undersigned does not find the reason put forth by South Dade for the difficulty in obtaining liability insurance coverage as a plausible reason. AHCA sent a notice of violation (NOV) dated December 4, 2007, by certified mail, return receipt, to Ms. Egea, as the administrator, for the lapse of liability insurance coverage. The NOV, among other things, requested proof of current liability insurance within ten days and indicated, among other things, that the failure to comply could result in an administrative proceeding to revoke the license or deny licensure. AHCA’s interpretation of the ten-day period is the maximum amount of time that a facility has to provide evidence to AHCA that it has current liability insurance and that there has not been a lapse and, therefore, no violation. AHCA’s interpretation is found to be reasonable. South Dade failed to provide proof of insurance within the ten-day period or during the month of December 2007. A second NOV dated January 2, 2008, was sent by certified mail, return receipt, to Ms. Egea, as the administrator, for the failure to have liability insurance coverage. The second NOV also requested proof of current liability insurance within ten days and indicated, among other things, that the failure to comply could result in an administrative proceeding to revoke the license or deny licensure. South Dade was finally able to obtain liability insurance coverage, effective January 2, 2008, through January 2, 2009. AHCA was provided proof of the coverage. However, approximately three months later, the liability insurance coverage was canceled, effective March 24, 2008, for non-payment of premium. Notification of the canceled liability insurance coverage was faxed to AHCA on July 17, 2008. AHCA sent a NOV dated July 18, 2008, the next day by certified mail, return receipt, to Ms. Egea, as the administrator, for the failure to have liability insurance coverage. The NOV also requested proof of current liability insurance within 21 days and indicated, among other things, that the failure to comply could result in an administrative proceeding to revoke the license or deny licensure. AHCA states that the purpose of the NOV dated July 18, 2008, was to make certain that there was no lapse in the policy providing liability insurance coverage, not to provide South Dade a time frame in which to purchase the required liability insurance coverage. The purpose stated by AHCA is found to be reasonable. South Dade received the NOV dated July 18, 2008, on July 23, 2008. South Dade obtained liability insurance coverage on August 12, 2008, effective August 12, 2008, through August 12, 2009. The usual procedure of the insurance agent from whom South Dade obtained the liability insurance coverage was to mail the Certificate of Liability Insurance to both the insured and AHCA when the insurance carrier approves and binds coverage. A finding of fact is made that the insurance agent followed the same procedure in the instant case. On November 3, 2008, AHCA issued its Administrative Complaint charging South Dade, among other things, with failure to maintain liability insurance coverage. After receiving the Administrative Complaint, Ms. Egea contacted the insurance agent regarding the Certificate of Liability Insurance. The insurance agent reiterated to Ms. Egea that the Certificate of Liability Insurance was mailed to AHCA in August 2008. On November 5, 2008, AHCA received the Certificate of Liability Insurance, as proof of insurance, when it was faxed to AHCA by the insurance agent. Also, the liability insurance policy, effective August 12, 2008, had a different policy number than the last liability insurance policy. The different policy number indicated that the liability insurance coverage effective on August 12, 2008, was a new, not a renewal, policy.3 South Dade was without liability insurance coverage from March 24, 2008, until August 12, 2008, when liability insurance coverage was obtained. South Dade failed to maintain continuous liability insurance coverage from March 24, 2008, to August 11, 2008. South Dade had a lapse in liability insurance coverage from March 24, 2008, to August 11, 2008. No evidence was presented to show that any resident was harmed in any form or manner at HSH No. 2.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration enter a final order: Finding that South Dade Elderly Care Corporation, d/b/a Home Sweet Home No. 2, committed the offenses set forth in Counts I, II, and III in the Amended Administrative Complaint. Revoking the license of South Dade Elderly Care Corporation, d/b/a Home Sweet Home No. 2. DONE AND ENTERED this 3rd day of May, 2010, in Tallahassee, Leon County, Florida. ERROL H. POWELL 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 3rd day of May, 2010.
The Issue Whether proposed Rule 69O-170.013(7), Florida Administrative Code, involving insurance coverage by property and casualty insurers under the Terrorism Risk Insurance Act of 2002, meets all procedural and substantive requirements so as to be a valid exercise of delegated legislative authority.
Findings Of Fact Petitioners are property and casualty insurance companies licensed by Respondent to write various commercial insurance lines in the State of Florida. On November 26, 2002, the United States Congress enacted the Terrorism Risk Insurance Act of 2002, Public Law 101-297, 116 U.S.C. 2322 (TRIA). The stated purpose of TRIA is to establish a temporary federal program that provides for a transparent system of shared public and private compensation for insured losses resulting from acts of terrorism, in order accomplish the following: (a) to protect consumers by addressing market disruptions and ensure the continued widespread availability and affordability of property and casualty insurance for terrorism risk; and (b) to allow for a transitional period for the private markets to stabilize, resume pricing of such insurance, and build capacity to absorb any future losses, while preserving state insurance regulation and consumer protections. TRIA provides a federal reinsurance backstop for three years and gives the federal government authority to recoup federal payments made through policy-holder surcharges up to a maximum annual limit in the event of a "certified loss." As a condition for any federal payment, clear and conspicuous disclosures must be provided to policyholders for the premium charged for insured losses covered by TRIA and the federal share of compensation for insured losses under TRIA. TRIA expressly preempts any state requirement for insurers to seek prior approval before using a terrorism coverage rate. However, TRIA does not affect the ability of a state to invalidate a rate filing that is determined to be excessive, inadequate, or unfairly discriminatory. On November 27, 2002, the Florida Department of Insurance (Respondent's predecessor) issued a bulletin discussing TRIA and its impact on the state regulatory scheme. The bulletin made it clear that TRIA "preserved the Department's authority to disapprove any rates pertaining to such losses if it finds them to be excessive, inadequate or unfairly discriminatory." Effective January 7, 2003, Section 20.121(3), Florida Statutes, created the Financial Services Commission (FSC), composed of the Governor, the Attorney General, the Chief Financial Officer, and the Commissioner of Agriculture. Respondent is one of the major structural units of the FSC. The only other major structural unit is the Office of Financial Regulation (OFR). The FSC has no employees aside from persons employed directly by the individually elected officials and those employed directly by the respective structural units. On February 25, 2003, the newly created FSC met to discuss the proposed delegation or authorization of preliminary rulemaking authority to Respondent and OFR. The discussion was set forth in Agenda Item 2 of that meeting. At the February 25, 2003, meeting, the FSC approved the proposed delegation for the Directors of Respondent and OFR, or their respective designees, to act on behalf of FSC, within their respective jurisdictions, with regard to all aspects of the rulemaking process, with the exceptions of the following: final adoption of rules pursuant to Section 120.54, Florida Statutes; (b) emergency rulemaking pursuant to Section 120.54, Florida Statutes; (c) denials of petitions to initiate rulemaking filed by a person regulated by Respondent or OFR or having a substantial interest in an agency rule, pursuant to Section 120.54(7), Florida Statutes; and (d) denials of written proposals for lower cost regulatory alternatives submitted by substantially affected persons, pursuant to Section 120.541, Florida Statutes. On May 13, 2003, the FSC approved the minutes of the February 25, 2003, FSC meeting. It is undisputed that the FSC did not specifically approve the proposed rule at any time before or after Respondent published its intent to develop the proposed rule in the Florida Administrative Weekly. On February 4, 2004, Respondent forwarded a "Notice of Proposed Rule Development Pursuant to Section 120.56(4)(e)2." to the Florida Administrative Weekly. On February 13, 2004, this notice, along with the preliminary text of the proposed rule, was published in Section I of the Florida Administrative Weekly. The title of the proposed rule was "Filing Procedures for Property and Casualty Insurance Rates, Rules, Underwriting Guidelines, and Forms." The stated purpose was "[t]o develop rules to adopt procedures and standards for the review and approval of rates for terrorism insurance coverage in accordance with the Terrorism Risk Insurance Act of 2002." During the hearing, Respondent presented another purpose for the development of the proposed rule. That purpose was to respond to an alleged non-rule policy in DOAH Case No.03- 4486RU in accordance with Section 120.56(4)(e)2., Florida Statutes. The announced subject to be addressed by the proposed rule was "[t]errorism insurance endorsements and rates." The specific authority cited for the proposed rule was Section 624.308, Florida Statutes. The laws to be implemented by the proposed rule included Sections 624.307(1), 624.604, 624.605, 627.062, 627.0645, and 627.0651, Florida Statutes. The rule development notice also indicated that a rule development workshop would be held on March 2, 2004, if requested in writing. The February 13, 2004, iteration of the rule stated as follows: (7) This rule applies to that portion of a rate filing relating to terrorism coverage required under the Terrorism Risk Insurance Act of 2002. The Office recognizes the difficulty facing an individual insurer in demonstrating that its rates related to terrorism are not excessive, inadequate, or unfairly discriminatory. An insurer is free to use any generally accepted and reasonable actuarial technique in its filing which it believes demonstrates that the rates requested or implemented are in compliance with Section 627.062, Florida Statutes. If an insurer is unable to demonstrate through its own methodology that the rate requested or implemented complies with Section 627.062, Florida Statutes, then the insurer may, at its option, adopt the methodology, data, and rates of another insurer, as appropriate, that have been previously approved by the Office. By letter dated February 24, 2004, Petitioners requested that Respondent conduct a workshop on the date and time specified in the notice. That workshop was conducted as scheduled. March 12, 2004, was the deadline for submitting written comments with respect to the February 13, 2004, iteration of the proposed rule. On that date, Respondent received a written comment from Stephen Zielezienski, Vice President and General Counsel for the American Insurance Association (AIA). AIA is a national trade association that represents over 400 property and casualty insurers. On behalf of AIA, Mr. Zielezienski commented that allowing an individual insurer to adopt previously approved terrorism risk methodologies, data, and rates of other companies, such as rating/advisory organizations, would be an improvement over the language in the text of the proposed rule. In consideration of the comments made at the workshop and in subsequent written comments, Respondent forwarded a "Notice of Proposed Rulemaking" to the Florida Administrative Weekly on March 24, 2004. The notice, along with an amended text of the proposed rule was published in Section II of the Florida Administrative Weekly on April 2, 2004. The text of the second iteration of the proposed rule, as published on April 2, 2004, states as follows: (7) This rule applies to that portion of a rate filing relating to terrorism coverage required under the Terrorism Risk Insurance Act of 2002. The Office recognizes the difficulty facing an individual insurer in demonstrating that its rates related to terrorism are not excessive, inadequate, or unfairly discriminatory. An insurer is free to use any generally accepted and reasonable actuarial technique in its filing which it believes demonstrates that the rates requested or implemented are in compliance with Section 627.062, Florida Statutes. If an insurer is unable to demonstrate through its own methodology that the rate requested or implemented complies with Section 627.062, Florida Statutes, then the insurer may, at its option, adopt the methodology, data, and rates of another insurer or rating or advisory organization, as appropriate, that have been previously approved by the Office. In addition to the notice, Respondent provided the Joint Administrative Procedures Committee (JAPC) with copies of documents required by Section 120.54(3)(a)4., Florida Statutes. The documents included, inter alia, the text of the proposed rule, a "Statement Relating to Federal Standards or Rule With Reference to Rule Chapter 69O-170 Property and Casualty Insurance Rating," and a "Summary of the Proposed Rule." On April 26, 2004, Respondent received a letter from John Rosner, Chief Attorney for JAPC. Mr. Rosner's letter stated as follows in relevant part: The proposed change provides in part that an insurer may adopt "the methodology, data, and rates of another insurer or rating or advisory organization, as appropriate, that have been previously approved by the Office." Has such approval been memorialized by rule? If not, the rule should be amended to disclose the criteria pursuant to which the Office renders approval of "the methodology, data, and rates of another insurer or rating or advisory organization." In a letter dated August 2, 2004, Steve Fredrickson, Respondent's Assistant General Counsel, responded to Mr. Rosner's letter as follows in relevant part: Specifically, the rule language "methodology, data, and rates of another insurer or rating or advisory organization, as appropriate, that have been approved by the Office" is a reference to other approved filings which have been submitted by other insurers. Section 627.062 and 627.065, Florida Statutes, provide the specific criteria that the Office uses to approve or disapprove a rate filing. The reference above acknowledges that if the specific methodology, data, and rates have previously been approved, we will accept them in another insurer's rate filings. Although the April 2, 2004, notice reflected a possible second public hearing to be held on April 27, 2004, Respondent did not receive a request for another workshop. Nevertheless, in response to issues raised by Petitioners in this case, Respondent reviewed the April 2, 2004, iteration of the proposed rule and ultimately made changes to its text. Specifically, the term "generally accepted and reasonable actuarial technique" in the proposed rule appeared to place an impermissible burden on insurers that was not required by statute. Additionally, the term "as appropriate" was removed and "similar risks" was inserted in the third iteration of the proposed rule. On February 2, 2005, Respondent provided Petitioners with a copy of a Notice of Change. On February 3, 2005, Respondent advised JAPC that it was changing the text of the proposed rule. On February 18, 2005, a Notice of Change was published in Section III of the Florida Administrative Weekly. The text of the third iteration of the proposed rule, and the version that is at issue here, states as follows: (7) This rule applies to that portion of a rate filing relating to terrorism coverage required under the Terrorism Risk Insurance Act of 2002. The Office recognizes the difficulty facing an individual insurer in demonstrating that its rates related to terrorism are not excessive, inadequate, or unfairly discriminatory. An insurer is free to use any methodology the insurer believes demonstrates that the rates requested or implemented are in compliance with Section 627.062, Florida Statutes. If an insurer is unable to demonstrate through its own methodology that the rate requested or implemented complies with Section 627.062, Florida Statutes, then the insurer may, at its option, adopt the methodology, data, and/or rates or loss costs of another insurer or rating or advisory organization that have been previously approved by the Office for similar risks. Petitioners have three (3) terrorism rate filings pending before Respondent in the following lines of business: commercial property, general liability, and surety. Petitioners also have several cases involving terrorism rate filings for other property and casualty lines of business pending before DOAH because Respondent has issued notices of its intent to disapprove each filing. Petitioners are free to make any additional rate filings for terrorism rates in any line of insurance covered by TRIA. Therefore, Petitioners have standing in this case. As stated above, the proposed rule was drafted, at least in part, in response to Petitioners' allegations that Respondent had implemented an invalid non-rule policy in regard to approval or disapproval of terrorism rate filings under TRIA. Respondent was also concerned that others might believe that it was using a non-rule policy. The alleged non-rule policy consisted of Respondent's applying a one percent rate cap for commercial property and casualty terrorism rate filings based upon the terrorism rate filings Respondent approved for use by the Insurance Services Offices (ISO) and the American Association of Insurance Services (AAIS). The record as a whole indicates that Respondent did not draft the February 18, 2005, iteration of the proposed rule to codify the substance of the alleged non-rule policy. In fact, the preponderance of the evidence indicates that the so- called non-rule policy played no role in the development of the proposed rule other than to provide some motivation to initiate the rulemaking process. Instead of imposing a cap on rates, the proposed rule provides Petitioners with several options: (a) an insurer may utilize any methodology, data and/or rates that the insurer believes will demonstrate compliance with Section 626.062, Florida Statutes; (b) an insurer may adopt the previously approved methodology, data, and/or rates or loss costs of another insurer for similar risks; (c) an insurer may adopt the previously approved methodology, data, and/or rates or loss costs of a rating organization for similar risks; and (d) an insurer may adopt the previously approved methodology, data, and/or rates or loss costs of an advisory organization for similar risks. The proposed rule makes it clear to Petitioners and Respondent's staff that an insurer is not required to adopt the previously approved TRIA rate for any rating organization or any other entity. Neither the plain meaning nor the effect of the proposed rule imposes a cap for terrorism rates. Respondent presented testimony at hearing that it intends for insurers to use the term "methodology" in the third sentence of the proposed rule in its broadest sense. As an indication of how broadly Respondent construes the term "methodology" in the proposed rule, Steve Parton, Respondent's General Counsel and the principal author of the proposed rule, testified that an insurer's use of "no methodology" would be considered a methodology. Respondent presented testimony that there is no actuarial component associated with the term "methodology." Despite this testimony, the proposed rule refers to Section 627.062, Florida Statutes, which is the only guide that insurers have in making a decision regarding their terrorism rate methodology. Section 627.062, Florida Statutes, provides as follows in relevant part: 627.062 Rate Standards.-- The rates for all classes of insurance to which the provisions of this part are applicable shall not be excessive, inadequate, or unfairly discriminatory. As to all such classes of insurance: * * * Upon receiving a rate filing, the office shall review the rate filing to determine if a rate is excessive, inadequate, or unfairly discriminatory. In making that determination, the office shall, in accordance with generally accepted and reasonable actuarial techniques, consider the following factors: Past and prospective loss experience within and without this state. Past and prospective expenses. The degree of competition among insurers for the risk insured. Investment income reasonably expected by the insurer, consistent with the insurer's investment practices, from investable premiums anticipated in the filing, plus any other expected income from currently invested assets representing the amount expected on unearned premium reserves and loss reserves. . . . The reasonableness of the judgment reflected in the filing. Dividends, savings, or unabsorbed premium deposits allowed or returned to Florida policyholders, members, or subscribers. The adequacy of loss reserves. The cost of reinsurance. Trend factors, including trends in actual losses per insured unit for the insurer making the filing. Conflagration and catastrophe hazards, if applicable. A reasonable margin for underwriting profit and contingencies. The cost of medical services, if applicable. Other relevant factors which impact upon the frequency or severity of claims or upon expenses. * * * The provisions of this subsection shall not apply to workers' compensation and employer's liability insurance and to motor vehicle insurance. According to Mr. Parton, Respondent considered TRIA and other publications and documentation, indicating that data for terrorism risks is not as predominate as data for other insurance risks. One such publication is a March 4, 2003, report, prepared by the Property/Casualty Extreme Events Committee of the American Academy of Actuaries (AAA) for the National Association of Insurance Commissioners (NAIC), entitled Report to NAIC Terrorism Insurance Implementation Working Group on Ratemaking Issues Related to the Terrorism Risk Insurance Act, which states as follows in relevant part: Introduction For the vast majority of U.S. insurance policy holders, the risk of foreign terrorism first became a real concern with the disastrous events of Sept. 11, 2002. Before that date, insurers in the United States had little or no historical information on losses from acts of foreign terrorism. That lack of information has precluded the use of traditional ratemaking methodology. Catastrophe modeling firms have responded to the information gap by developing computer models that help quantify the financial effect of terrorism on policyholders, insurers, and reinsurers. The development of those terrorism models is comparable to the development of natural catastrophe models in the late 1980s. But a major difference between the terrorism models and the natural catastrophe models is the substantial role that the judgment of experts plays in terrorism models. Such judgment is necessary because of the inherent differences between the risks of terrorism and natural catastrophes. Perhaps the most important of those differences is the human element of terrorism. Because the losses result from intentionally destructive human behavior, and because that behavior can vary with changing human motivations, measurement of expected losses, particularly claim frequency--is difficult to estimate. Nevertheless, the Terrorism Risk Insurance Act of 2002 (TRIA) requires insurers to offer coverage for acts of foreign terrorism to all commercial risks. As part of the offer, insurers must provide a premium quote if there is any additional charge for the coverage. Therefore, insurers must develop rates regardless of the lack of experience and the inherent uncertainly of the peril. The law requires insurers to provide the coverage when accepted by the policyholder. * * * Claim Frequency Issues There is minimal historical data on the frequency of incidents of foreign terrorism in the United States. And the risk of foreign terrorism probably fluctuates with changing world politics. The possibility of war with Iraq, the Palestinian-Israeli situation, tensions with North Korea, and other world crisis may influence the frequency of terrorist attacks. The judgment of experts plays a major role in forecasting the frequency of terrorism. While various techniques (the Delphi method, game theory, and others) can put a structure around the reliance on expert opinion, the fundamentals of modeling are subjective. Because of the high level of uncertainty, insurers may develop many different estimates of the frequency of foreign terrorism. As a result, the range of reasonable estimates may be broad. Claim Severity Issues Like claim frequency, claim severity for foreign terrorism, is difficult to forecast. Again, there is minimal historical data. Modeling for terrorism severity can build on existing modeling and data developed for governments and others in response to the threat of weapons of mass destruction. The possible severity of a nuclear, biological, chemical, or radiological event dwarfs the severity of even the World Trade Center losses. Again, because of the high level of uncertainty, insurers may develop many different estimates for the severity of losses for terrorist attacks. As a result, the range of reasonable estimates may be broad. Ratemaking The lack of historical experience and the unpredictable nature of terrorism losses preclude traditional experience-based methods of determining rates. Insurers generally make rates separately by state and line. However, under the TRIA, an insurer's retentions (exposures) will depend upon its nationwide commercial lines premium. For purposes of ratemaking, insurers will have to allocate their retentions by line or develop an all-lines rate for each policy. Some insurers may consider nontraditional ratemaking approaches, such of the following: Develop an appropriate rate for risk of foreign terrorism through a probability-of-ruin approach or some similar technique Analyze terrorism-related exposures to determine a Probable Maximum Loss (PML), concentration of exposures, or other relevant quantifications Use the cost of funding terrorism exposures through reinsurance or other mechanisms These are also generally accepted approaches for pricing low frequency, high severity exposures, such as catastrophes. Net vs. Direct Insurers generally make rates on a direct basis, before reinsurance consideration. However, the TRIA presents a unique situation because its reinsurance provisions apply to all foreign terrorism coverage provided by insurers. Consequently, many insurers may make rates net of expected recoveries under the TRIA. Some insurers may provide coverage for domestic terrorism, which the TRIA does not address. . . . Modeling Hurricanes Hugo in 1989 and Andrew and Iniki in 1992 convinced most property insurers of the importance of using computer models in ratemaking and in managing the risk of natural catastrophes in the insurance portfolios. Insurers came to realize that historical data on hurricane losses is not sufficient for ratemaking. The number of historical losses for foreign terrorism in the United States is even smaller. With exception of the disastrous events of September 11, 2001, and the 1993 attack on the World Trade Center, there have been no other significant foreign terrorist attacks on U.S. soil. The terrorism models provide a way of quantifying the terrorism exposure for purposes of ratemaking and risk management. Because the models are relatively new, it is likely that they (like other catastrophe models) will evolve by responding to a growing knowledge base (future events, better intelligence of terrorist organizations, and the like). Refinements will likely lead to significant changes in the modeling results. The likelihood that results will change in the future does not mean that a new model is inappropriate. The comparison is not between a future version of a model and the current versions, but between the available models and no model at all. Multiple Models The existence of multiple terrorism models generates competition in the market place to develop the best possible models. Because of the lack of terrorism data, modelers have had to access alternative information sources for their models. With different data sources and different methodology, the various models may generate substantially different results. The unusually broad range of reasonable estimates of expected terrorism losses suggests that many terrorism models may be valid even though they generate a broad range of results. Confidentiality/Proprietary Modeling The capital expenditure to develop a new computer model may be substantial. Without protection of their intellectual property, modelers would not make such investments. While insures and regulators need to review the results of the models for reasonableness, the modelers must be able to protect the details of their methodologies and data as trade secrets. * * * Judgment Since traditional ratemaking methods will not work for developing rates for the risk of foreign terrorism, insurers must rely on their own judgment and that of terrorism experts to develop rates. In fact, judgment, including judgment about the selection of historical data, is a critical part of all ratemaking. But because of the limited amount of data available for terrorism ratemaking, judgment becomes the overriding factor. . . . Underwriters, engineers, general insurance practitioners, attorneys, accountants, financial analysts, actuaries, security agents, and state and federal regulators will all need to contribute their knowledge and creativity. Other Rating/Classification Issues Individual Risk Rating Plans Some insurers and/or policyholders may want to use individual risk rating (IRR) in pricing and/or underwriting an insurance contract providing terrorism coverage. The provisions of these plans can include deductibles, experience rating, retrospective rating, claims-free bonuses, reinstatement premium, premium modification plans, and the like. The actuarial issues involved in designing and implementing such provisions include: Effects on Experience Rating Any large single loss - such as a loss from a terrorist attack that affects a policyholder can significantly change the premium for any policy that uses the policyholder's experience. Underwriting Judgment Insureds' exposure to terrorism risk varies across many coverages - property, business interruption, liability, workers compensation, life, and accident and health. In addition, individual insureds may employ a variety of security measures to guard against terrorist attacks. Any single rating and classification structure may not have sufficient data or model credibility to reflect completely all variables affecting exposure to loss. As a result, the rating structure may need to provide relatively wide ranges for underwriting judgment. Territories The specific attributes of a building, its location and the nature of neighboring buildings (such as major landmarks, government holdings, monuments, and the like) can have a substantial effect on the exposure to risk of terrorism. Therefore, territory is an important classification factor for pricing terrorism coverage. Territory is also important in measuring and monitoring an insurer's concentration of exposures. However, the unique nature of the terrorism exposure may mean that none of the existing territorial rating factors used in property/casualty lines of insurance apply to pricing terrorism coverage. Insurers may need to develop new territory definitions and/or employ significant underwriting judgment to modify existing territory definitions. * * * Identification of Relevant ASOPS Three Actuarial Standards of Practice (ASOPs) directly address issues related to the rating of terrorism exposures. . . . They are ASOP No. 9, Documentation and Disclosure in Property and Casualty Insurance Ratemaking, Loss Reserving, and Valuations (Doc. No. 027), especially Appendix 1 - Statement of Principles Regarding Property and Casualty Ratemaking. The purpose of the Statement of Principles is to "identify and describe principles applicable to the determination and review of property and casualty insurance rates." ASOP No. 39, Treatment of Catastrophe Losses in Property/Casualty Insurance Ratemaking (Doc. No. 072). This standard refers to the Statement of Principles in ASOP No. 9 and provides guidance in evaluating catastrophe exposure and in determining a provision for catastrophe losses and loss adjustment expenses in property/casualty insurance ratemaking. ASOP No. 38, Using Models Outside the Actuary's Area of Expertise (Property and Casualty)(Doc. No. 071). This standard provides guidance in reviewing and using models as well as requiring documentation when an actuary uses models outside his or her area of expertise. The Actuarial Standards Board adopted all three of these standards before terrorism became a significant component of insurance rates. The Casualty Committee of the Actuarial Standards Board is determining the need for revision in ASOP No. 9 and may develop proposals for consideration in 2003. It is unlikely that the Actuarial Standards Board will review the other two standards for any necessary revision. It is also possible that the Board could develop a new standard or that the profession may address the issue through another mechanism. During the hearing, Michael L. Toothman, Petitioner's expert in actuarial science, confirmed that computer simulation modeling to predict terrorism losses is in its infancy. Unlike the modeling used to predict the frequency and severity of natural catastrophes like hurricanes and earthquakes, terrorism modeling has no historic experience base. Therefore, terrorism modeling, which is based in large part on the subjective judgment of various experts, cannot be validated or tested for reasonableness using traditional methods. According to Mr. Toothman, catastrophe modeling for terrorism events may be a useful tool making damage estimates if one knows the location and the nature of a terror attack, i.e. a biological attack involving anthrax in downtown Manhattan. However, such modeling is not as useful in determining the likelihood or frequency of a particular attack occurring, both in terms of location and nature. Mr. Toothman testified that the companies that create and own the terrorism computer models consider them to be intellectual property. The companies do not provide insurers with all the details underlying the model. For example, the models reveal very little information about the experts who provide input for the models, and little or no information about the way the experts arrive at their individual or collective opinions. Therefore, an insurer has no way to evaluate the reasonableness of the process used to generate the models' predictive output. Mr. Toothman was familiar with three companies that have developed catastrophe models for terrorism since 2001: (a) Applied Insurance Research; (b) Risk Management Solutions; and EQECAT. The National Council on Compensation Insurance (NCCI) and the ISO, both of which are rating/advisory organizations, made terrorism rate filings with Respondent based in part on one of these catastrophe models. The proposed rule does not refer to any of the actuarial literature, like the AAA's March 4, 2003, NAIC report. The report itself discusses several methodologies that insurers might use, and repeatedly emphasizes the judgment that insurers must exercise, in developing terrorism rates. Therefore, actuarial publications like the report do not provide a source of guidance for insurers to consider in deciding on a specific methodology that Respondent's staff will accept in reviewing terrorism rate filings. In developing the third sentence in the proposed rule, Respondent considered the Actuarial Standards Board's (ASB) Actuarial Standards of Practice (ASOP) Nos. 9 and 38. These ASOPs relate to the methods used for property and casualty insurance ratemaking that the actuarial community approved before September 11, 2001. The proposed rule does not mention or cite to the ASOPs or the methods described therein. The ASOPs do not on their face discuss terrorism ratemaking. Thus, even if the ASOPs "directly address issues related to the rating of terrorism exposures," they provide little if any guidance to insurers in determining the methodology to use in developing terrorism rates pursuant to the proposed rule. As stated above, the proposed rule refers insurers to Section 627.062, Florida Statutes. Section 627.062(2)(b), Florida Statutes, requires Respondent's staff to review rate filings in accordance with undefined "generally accepted and reasonable actuarial techniques" with regard to 13 factors. The problem is that there is no consensus in the actuarial community regarding generally-accepted actuarial techniques for terrorism ratemaking that an insurer could apply to the statutory factors, including but not limited to the following: (a) past and prospective loss experience within and without the State of Florida; (b) investment income reasonably expected by the insurer; (c) the degree of competition among insurers for the risk insured; and (d) the reasonableness of the judgment reflected in the filing. An insurer cannot predict the frequency and severity of future terrorism events using traditional actuarial techniques because there is no historical data or credible experience base. It follows that insurers cannot predict the associated terrorism losses for ratemaking purposes using generally accepted actuarial techniques. The inability to predict past and prospective terrorism losses makes it difficult, if not impossible, for insurers to show compliance with other factors set forth in Section 627.062(2)(b), Florida Statutes. Under these new and exceptional circumstances, simply stating that insurers may use any methodology they believe complies with Section 627.062, Florida Statutes, provides no standards or criteria for insurers to derive a terrorism rate that Respondent will consider reasonable and appropriate. Finally, Mr. Toothman provided persuasive testimony that the term "methodology" is unclear from the rule. His testimony demonstrated that a "methodology," as contemplated by the rule, consisted of more than merely selecting a rate, multiplying the rate by the underlying premium, and adding the resulting product to the premium. Such a mathematical process is a methodology on how to "calculate" the total premium, but does nothing to explain or justify the rate itself. Mr. Toothman's testimony undermines Respondent's assertion that an insurer could comply with the proposed rule's broad grant of discretion to use "any methodology" by using "no methodology." The fourth sentence in the proposed rule allows insurers to adopt previously approved "methodology, data, and/or rates or loss costs" of other entities "for similar risks." During the hearing, Frank Dino, Respondent's Chief Actuary, testified that he suggested the substitution of the term "similar risks" in the proposed rule for the term "as appropriate" to provide guidance to Respondent's actuary in reviewing the filing. Mr. Dino testified at hearing that the term "similar risks" means a risk that has similar expectation of loss and is a phrase used throughout the insurance industry and actuarial profession. To Mr. Dino, the term "similar risks" as used by the general insurance industry relates to insurance coverage that is substantially similar to another insurance coverage where the expectations of losses are reasonably similar. Mr. Dino also testified that the term "similar risks" in the actuarial community has a similar but more technical definition. According to Mr. Dino, the proposed rule's option to adopt the previously approved rate of another entity for similar risks may or may not mean that an insurer in one line of business can merely adopt the previously approved rate of another insurer in the same line of business. Rather, it is the burden of an insurer to justify its decision that its terrorism risks are similar to the other company's risks. Mr. Dino also admitted that it might be important to compare the concentration of risks and/or the limits of coverage between two entities in order to determine whether they have "similar risks." Mr. Dino did not know whether the size of two companies and the amount of premium they write is necessary to determine the similarity of risks. Mr. Dino considered ASOP Nos. 9 and 12 when he suggested the term "similar risks" for the proposed rule. ASOP No. 9, adopted by ASB in January 1991, discusses documentation and disclosure in property and casualty insurance ratemaking, loss reserving, and valuation. Specifically, Mr. Dino considered Appendix 1 to ASOP No. 9, which provides as follows in relevant part: II Principles Ratemaking is prospective because the property and casualty insurance rate must be developed prior to the transfer of risk. * * * Principle 2: A rate provides for all costs associated with the transfer of risk. Ratemaking should provide for the costs of an individual risk transfer so that equity among insureds is maintained. When the experience of an individual risk does not provide a credible basis for estimating these costs, it is appropriate to consider the aggregate experience of similar risks. A rate estimated from such experience is an estimate of the costs of the risk transfer for each individual in the class. (Emphasis added) ASOP No. 9 does not provide a definition of the term "similar risks" in any context, including terrorism ratemaking. ASOP No. 12, adopted by the ASB in October 1989, discusses risk classification. ASOP No. 12 states as follows in pertinent part: 2.8 Risk Classification--The process of grouping risks with similar risk characteristics so that differences in costs may be recognized. ASOP No. 12 does not define the term "similar risk characteristics" in the context of terrorism ratemaking or otherwise. The AAA's Committee on Risk Classification has published a booklet entitled Risk Classification Statement of Principles. The booklet is attached to ASOP No. 12 as an appendix. The Summary of the of the booklet states that "[t]he grouping of risks with similar risk characteristics for the purpose of setting prices is a fundamental precept of any workable private, voluntary insurance system." The booklet does not define "similar risk characteristics." Section 624.02, Florida Statutes, defines insurance as "a contract whereby one undertakes to indemnify another, or pay or allow a specified amount for a determinable benefit upon determinable contingencies." Record evidence indicates that one element of insurance is a general scheme to distribute the loss among a larger group of person bearing similar risks. However, there is no definition of the term "similar risks" in the statutes, in the existing administrative rules, or in any other publication. The proposed rule does not provide any guidance as to the meaning of the term "similar risks." Mr. Toothman provided persuasive testimony that the term is not a term of art in the actuarial industry and that its meaning as used in the proposed rule is not clear. According to Mr. Toothman, the term "similar risk" does not have a defined meaning, but rather is left to the judgment of the actuary in terms of what is appropriate for a particular situation. He provided credible testimony that the meaning of the term "similar risks" in the context of the proposed rule did not have a standard interpretation and could mean different things to different people. Thus, when Respondent's staff reviews a terrorism rate filing, they are free to chose any meaning or connotation of the phrase in deciding whether an insurer may adopt the rates or rate methodology of another entity.
