The Issue The issue in this case is whether Petitioners' rate filing numbered FCP 07-08928 should be approved.
Findings Of Fact FFB Casualty and FFB General are both stock insurance companies which are domiciled in Florida. FFB General is a wholly-owned subsidiary of FFB Casualty, which in turn is a wholly-owned subsidiary of Southern Farm Bureau Casualty Insurance Company of Jackson, Mississippi (SFB Casualty). FFB is headquartered in Gainesville, Florida, and its insurance products are sold exclusively in Florida. FFB only insures members of the Florida Farm Bureau Federation, a non-profit organization. On June 8, 2006, FFB made a rate filing for their homeowners' line of business seeking a significant rate increase with an effective date of December 1, 2006, in OIR file number 06-07515. Due to the size of the requested rate increase a public hearing was held on August 16, 2006, in Gainesville, Florida, in accordance with the requirement of Section 627.0629, Florida Statutes (2006), which provides that "[a]ny rate filing that is based in whole or in part on data from a computer model may not exceed 15 percent unless there is a public hearing." § 627.0629(7), Fla. Stat. (2006). At the public hearing, Burt Gindy, FFB's vice president of Government Affairs and Compliance, commenced the presentation of FFB by stating: "Okay, then, simply put, this filing is all about catastrophe reinsurance cost." Later in the public hearing, Mr. Gindy stated: "The homeowners' rate filings before you, FCP 06-07515, seeks to recognize the increase in profit catastrophe reinsurance costs that have escalated due to increasing hurricane activity." Mr. Gindy talked about the typical amount of reinsurance sought by FFB, stating: "We typically insure to a 250 year event, this year we've only been able to insure capacity and cost wise to about 160 year capacity. We know AM Best looks at that and we want to keep our AM Best ratings." Insurers, including FFB, generally measure and evaluate their potential losses from hurricanes and other extreme events in terms of probable maximum loss (PML), an estimate of the dollar amount of losses that an insurer will experience at a given probability. For example, a one-percent probability of experiencing a loss greater than a certain amount equals a 100 year or one-in-100 year PML. This does not mean that the insurer is expected to incur the 100 year PML only once every 100 years; it means that in any given year there is a one-percent chance of the insurer incurring a loss of that magnitude. When Mr. Gindy indicated that FFB had typically insured to a 250 year event, he meant that FFB insured for a 0.25 percent chance of loss of a certain magnitude occurring in any given year. On September 25, 2006, the Office approved a rate increase for FFB of +43.8 percent with an effective date of December 1, 2006. Because rate filings are prospective, the rate increase, with an effective date of December 1, 2006, appeared calculated to pay for FFB's 2007 reinsurance program. Since the mid-1990's, FFB has purchased a portion of its reinsurance coverage from the Florida Hurricane Catastrophe Fund (CAT Fund), as required by law.1/ The CAT Fund is a public entity which provides a statutorily specified layer of reinsurance at a substantially lower cost than the private market because of the CAT Fund's non-profit structure and tax exempt status. The effective date of CAT Fund coverage is June 1. FFB normally purchased the remainder of its reinsurance from private reinsurers for one-year terms, which are generally effective on January 1. Through 2006, FFB purchased a significant portion of its reinsurance from its parent company, SFB Casualty, and purchased other layers of coverage from American Ag. Starting in 2007, SFB Casualty no longer provided reinsurance for FFB, and FFB purchased coverage in the global market with the assistance of AON with whom FFB had worked for many years as SFB Casualty's broker. FFB generally begins planning in the summer for its purchase of reinsurance to be effective for the next January 1 by gathering FFB's exposure date (i.e., how many houses FFB insured, where they are located and how much they cost, etc.), which data FFB runs through its own and Alliance Insurance Research (AIR) computer models to estimate FFB's anticipated hurricane losses and PML's. FFB then determines its desired reinsurance structure, including its retention (i.e., amount of losses that could be absorbed by FFB), and sends this information to reinsurance markets in the Fall. After receiving and vetting quotes seeking the most advantageous terms, FFB negotiates its reinsurance program, and most of its reinsurance agreements are bound by December for a January 1 effective date. FFB sometimes makes adjustments to its reinsurance program after January 1 to obtain additional coverage at more favorable prices, subject to market conditions, or to make adjustments due to changes in the CAT Fund. However, the general goal of the company is to always place the lion's share of the reinsurance program by the beginning of the year. By January 1, 2007, FFB had placed the majority of its reinsurance program for 2007. The cost for FFB private reinsurance in January 2007 was $65,984,426. Recognizing a crisis in homeowners' insurance premiums, on January 9, 2007, the Florida Legislature issued a Joint Proclamation to convene a special session pursuant to Article III, Section (3)(c), Florida Constitution, and Section 11.011, Florida Statutes (2006), to commence on January 16, 2007, for the "sole and exclusive purpose" to consider the following: Legislation to reduce current property insurance premiums in Florida; Legislation to reduce the future growth of property insurance premiums in Florida; Legislation to improve availability and stability of property insurance in Florida; Legislation relating to building codes in Florida. The special session convened on January 16, 2007, and on January 22, 2007, the Legislature enacted Chapter 2007, Laws of Florida (Chapter 2007-1), which was signed into law by the Governor on January 25, 2007. One of the primary features of the legislation was a massive expansion of the CAT Fund. Prior to the enactment of Chapter 2007-1, the CAT Fund had an industry-wide capacity of approximately $16 billion for those carriers writing property insurance in the State of Florida. As a result of the enactment of Chapter 2007-1 and the expansion of the CAT Fund, industry-wide coverage went from approximately $16 billion to approximately $28 billion. It was the intent of the Legislature that the expansion of the CAT Fund would result in a rate filing that reflected "savings or reduction in loss exposure to the insurer." Chapter 2007-1 required the Office to issue an order specifying the date or dates on which the required rate filings were to be made and be effective "in order to provide rate relief to policyholders as soon as practicable." By March 15, 2007, the Office was required to calculate a presumed factor or factors to be used in the rate filings required by Chapter 2007-1 to reflect the impact to rates based on the changes to the CAT Fund. The Office issued Informational Memorandum OIR-07-06M, which describes the procedure for the rate filings required by Chapter 2007-1 and provides in relevant part: The purpose of this memorandum is to provide guidance regarding filing procedures for the "Presumed Factors" filing and the subsequent "True-Up" filing. During the 2007 Special Session, the Florida Legislature passed House Bill 1A (HB 1A) requiring every residential property insurer to make a filing with the Office of Insurance Regulation (Office) to reflect the savings or reduction in loss exposure to the insurer. On February 19, the Office issued an order advising residential insurers to make rate filings to include the new discount factors mandated by HB 1A. The new discount factors required in HB 1A have been calculated by the Office and all residential property insurers must make a rate filing incorporating the new savings on or before March 15, 2007. Information related to the presumed factors can be found at http://www.floir.com/HotTopics.htm. The procedure for submitting the "Presumed Factors" filing as prescribed in Section 3 of HB 1A and the True-Up" filing as prescribed in the Office's "Presumed Factors" order can be found in the applicable attachments and are summarized below. A filing adopting the Office's "Presumed Factors" (Short Form). This filing shall reflect the effects of the "Presumed Factors" on the rates currently in effect and shall be made on a "file and use" basis. The filing shall be limited to the effects of the "Presumed Factors" on rates currently in effect, and the elimination of the 25% rapid cash buildup portion of the insurer's Florida Hurricane Catastrophe Fund premium.[2/] The procedures for submitting this type of "Presumed Factors" filing can be found in Attachment A. A filing that uses, but does not strictly adopt the "Presumed Factors" (Long Form). A "Presumed Factors" filing that uses the factors to reflect a rate decrease to take into account the "Presumed Factors" shall be made on a "use and file" basis and shall provide all the information used in preparing the filing including copies of all reinsurance treaties. Such a filing is subject to credits and refunds if the rate reductions are determined inadequate. This type of filing shall also be limited to the effects of the "Presumed Factors" on the rates currently in effect and the elimination of the 25% rapid cash buildup portion of the insurer's Florida Hurricane Catastrophe Fund premium and must be accompanied by a sworn statement from the chief executive officer or chief financial officer and actuary responsible for preparing the filing. The procedures for submitting this type of "Presumed Factors" filing can be found in Attachment B. A "True-Up" Filing as required by the Office's "Presumed Factors" order. After making the "Presumed Factors" filing, insurers shall make a "True-Up" filing pursuant to the "file and use" provisions of s. 627.062(2)(a)1, Florida Statutes, that is a complete rate filing to reflect the savings or reductions in loss exposure to the insurer due to all the provisions of HB 1A and the anticipated 2007 reinsurance program. The procedure for submitting the "True Up" filing is identical to the annual rate filing procedures in I-file, except the appropriate selections now read as "Rates Only Including 'True Up' Filings Pursuant to the 'Presumed Factors' Order" or "Rate & Rule Including 'True Up' Filings Pursuant to the 'Presumed Factors' Order." On March 1, 2007, the Office issued its "Presumed Rating Factors" report, which estimated an overall statewide savings of 24.3 percent attributed to the changes to the CAT Fund made in Section 2 of Chapter 2007-1. The Presumed Factors included the savings from the new reinsurance made available to insurers under Chapter 2007-1 and the savings due to the elimination of the 25 percent rapid cash buildup provision of prior law. On March 15, 2007, FFB made their Presumed Factors filing using the "short form" process described in Informational Memorandum OIR-07-06M. FFB requested and received approval of an overall homeowners' insurance rate decrease of -24.5 percent. The effective date of the filings was to be June 1, 2007. On May 9, 2007, FFB made their "True Up" filing, which is at issue in this case. The first filing sought a rate increase of +26.8 percent, which when combined with the Presumed Factor filing would have resulted in a rate decrease for their policyholders of -3.6 percent. The effective date selected by FFB for their "True-Up" filing was October 1, 2007. On May 14, 2007, the Office acknowledged receipt of FFB's rate filing. In return, the Office asked 51 questions seeking catastrophe model support information in accordance with Section 627.0628, Florida Statutes (2006). The Office also requested that FFB update its statewide rate indications. On May 21, 2007, FFB responded to the Office's May 14, 2007, request by providing a document prepared by Applied Insurance Research (AIR) concerning the AIR model, which FFB had used in its calculations supporting its rate filing. On May 25, 2007, FFB updated the statewide indications and further amended their filing to divide the HO forms and the HXL Form 9. On June 22, 2007, FFB revised the May 9, 2007, filing, claiming that the revision had resulted from the "delay of Florida Farm Bureau Filing 07-15 (OIR Filing FCP 07-03807), the renegotiation of [their] 2007 reinsurance program, a systems restraint not previously accounted for, and to follow up after the March 15, 2004, effective rate filing." The effect of the amendment was that FFB was now seeking a +30.3 percent rate increase, which when combined with their Presumed Factor filing would have resulted in a rate decrease for their policyholders of -1.6 percent. Following its review of the amended filing, the Office asked a number of questions on July 2, 2007. FFB provided additional information in response to the questions on July 8, 2007. On July 10, 2007, a public hearing was held in Tallahassee, Florida, in accordance with Section 627.0629, Florida Statutes (2007),3/ to discuss the rate increase requested by FFB. By letter dated July 17, 2007, and forwarded to FFB on July 19, 2007, the Office issued its Notice of Intent to Disapprove the filing of FFB. The Office listed 12 deficiencies as its grounds for denying the rate filing. The parties have stipulated that items 7, 8, 11, and 12 of the NOI are no longer in issue. The remaining reasons for denial are listed below: The rate filing and requested rate fail to reflect a reduction in policyholder premiums consistent with the expansion of the Florida Hurricane Catastrophe Fund coverage contrary to the intent and requirements of HB1A. Company has not provided sufficient support that the reinsurance cost in the filing reflecting coverage levels, reinsurance premium amounts and expected recoveries does not result in excessive reinsurance cost related to services rendered not permitted per Section 627.062, F.S. Company has not provided sufficient support that Florida Hurricane Catastrophe Fund cost filing is consistent with tax exempt status of the fund. Company failed to completely respond to the Office questions for required disclosure of all assumptions and factors used by the Hurricane model as required by Section 627.0628, F.S. Company has failed to support use of model for Catastrophe losses other than hurricane. Company has failed to support that loss trend is not excessive. * * * Company has failed to support the trend procedure used to adjust hurricane model losses is appropriate and consistent with premium trending in the indications. Company has failed to support the allocation of reinsurance cost to territory in their territorial indications. DEFICIENCY 1: FAILURE TO REFLECT A REDUCTION IN POLICYHOLDER PREMIUMS CONSISTENT WITH THE EXPANSION OF THE CAT FUND FFB received a healthy rate increase in December 2006, ostensibly to alleviate the industry-wide increase in the reinsurance premiums. FFB had the majority of its reinsurance coverage in place by January 2007, and the reinsurance placed FFB at a one-in-190 year PML. FFB had intended to purchase additional reinsurance during 2007 in order to get the PML level closer to the one-in-250 year PML, which had been its goal in previous years. In January 2007, FFB had reinsurance with the CAT Fund, American Ag, and other private reinsurance providers brokered through AON. Chapter 2007-1 provided that the rate change had to consider the available coverage options provided by the expansion of the CAT Fund and provided that any additional cost for private reinsurance that duplicates the coverages offered by the CAT Fund could not be factored in determining the change in the rate. FFB estimates that $25,127,526 of its January 1, 2007, reinsurance premium duplicated the less expensive coverage available from the newly expanded CAT Fund. The estimated premiums for the CAT Fund coverage available after the enactment of Chapter 2007-1 were $7,555,058. The reinsurance treaty between FFB and American Ag contained a provision which allowed FFB to essentially cancel coverage which was duplicative of coverage provided by the CAT Fund as a result of legislative changes. FFB did not have such a provision in its treaties with its other private reinsurers. FFB's Third Master layer of reinsurance was placed with American Ag who, in turn, reinsured that coverage in the private reinsurance market. FFB was able to renegotiate the Third Master layer to remove the CAT Fund overlap because the contract required American Ag's reinsurers to amend the contract if the CAT Fund was amended. The First High reinsurance layer was placed through FFB's broker, AON, with a number of other private reinsurers. Since the treaties with these private reinsurers did not contain a provision similar to the American Ag treaty, these private insurers were unwilling to reduce the coverage with FFB to eliminate duplication from the CAT Fund. FFB had contracted to pay $15,750,000 for it First High coverage. The CAT Fund coverage would have eliminated all but $1.75 million of that premium. FFB had already paid a portion of the $15.75-million premium to it private insurers, and the reinsurers were resisting refunding the premium. FFB offered to purchase a third event coverage for the First High and to add a new top layer of $50 million coverage in return for a reduction of First High premium of several million dollars. The effective date of the renegotiated First High and the new Third High reinsurance contracts were made retroactive to January 1, 2007. FFB purchased a $30 million aggregate following the enactment of Chapter 2007-1 and the renegotiation of their reinsurance program. The increased reinsurance coverage resulting from the renegotiations with the private reinsurers brought FFB's PML more in line with its one-in-250 year goal. In order to determine the amount of reinsurance to purchase to bring it to its one-in-250 year goal, FFB used a near term sensitivity analyses on the AIR model "as a benchmark for its PML determinations and reinsurance program purchases." The near term sensitivity analysis was used in "response to requirements from rating agencies, such as A.M. Best." According to FFB, the use of the near sensitivity analyses "exceeds that of the normal '10K standard' event set and is used in preparation for A.M. Best's annual rating agency review, as required." FFB "believe[d] the version 8.2 representation of near term sensitivity to be overstated, but use[d] this analysis as required by A.M. Best." The use of the near term sensitivity model would result in an increase of the amount of reinsurance needed to reach the one-in-250 year PML. The increase in reinsurance coverage is being borne by the policyholders. As stated by Mark Crawshaw, FFB's expert witness: Generally, the more reinsurance FFB buys, the greater financial security FFB offers its policyholders. However, this greater security comes at a cost of greater reinsurance premiums which are passed on to the policyholders. In other words, there is a trade-off between the level of financial security and the cost of that security to policyholders. The Best's Financial Strength Ratings provide an objective basis for quantifying and evaluating this trade- off. FFB has failed to comply with the intent of the Legislature in Chapter 2007-1. It has failed to reflect in its rate filing the savings in the form of reduction in premiums to the policyholders that would be realized from the expansion of the CAT Fund and the reduction in CAT Fund premiums. DEFICIENCY 2: FAILURE TO PROVIDE SUPPORT THAT REINSURANCE COSTS DOES NOT RESULT IN EXCESSIVE REINSURANCE COST Item 2 addresses the Office's assertion that FFB has not provided sufficient support that the reinsurance cost in the rate filing reflecting coverage levels, premium amounts and expected recoveries does not result in excessive reinsurance cost related to services rendered. In reviewing the rate filing of FFB, the Office determined that FFB's reinsurance costs were significantly higher than the rest of the market. More significantly, the amount of catastrophe recoveries was both unsupported and understated. FFB's support for recoveries in the filing was reliance upon the AIR model, with the only information based on FFB's data for one month. Although believing that a recovery percentage of less than ten percent was an inadequate return given the cost of the reinsurance, the actuary for the Office was unable to independently verify the recoveries. FFB has failed to demonstrate that its reinsurance costs are not excessive related to the services rendered by the reinsurers. DEFICIENCY 3: FAILURE TO PROVIDE SUPPORT THAT THE CAT FUND COST IN THE FILING IS CONSISTENT WITH THE TAX EXEMPT STATUS OF THE CAT FUND Item 3 addresses the Office's assertion that FFB has not provided sufficient support to show that the CAT Fund cost is consistent with the tax exempt status of the CAT Fund. The CAT Fund makes no profit and as a tax exempt entity, has a very large investment income credit. The result is that the CAT Fund will basically pay more for losses to the insurance companies than they will collect in reinsurance premiums. In its rate filing, FFB did not consider the larger recoveries from the CAT Fund that would result from the CAT Fund's tax exempt status and did not provide sufficient support why the tax exempt status of the CAT Fund was not considered. DEFICIENCY 4: FAILURE TO DISCLOSE ALL ASSUMPTIONS AND FACTORS RELATING TO THE USE OF THE AIR MODEL Item 4 addresses the Office's assertion that FFB failed to provide access to all assumptions and factors in the AIR model which FFB used in its rate filing. Section 627.0628, Florida Statutes, provides that an insurer may use a model in a rating filing to determine hurricane loss factors when the model has been determined by the Florida Commission on Hurricane Loss Projection Methodology (Commission) to be accurate and reliable to determine hurricane loss factors, and the Office and the Consumer Advocate appointed, pursuant to Section 627.0613, Florida Statutes, have "access to all the assumptions and factors that were used in developing the . . . model . . . and are not precluded from disclosing such information in a rate proceeding." The AIR model 8.0 used by FFB has been determined acceptable by the Commission for projecting hurricane loss costs in rate filings. Thus, the issue remaining is whether the Office and the Consumer Advocate had access to the assumptions and factors used in developing the model. On May 14, 2007, after the Office received FFB's initial rate filing, the Office sent FFB a standard questionnaire consisting of 51 questions concerning the AIR model which FFB utilized. The same questionnaire is sent to all insurers who use models in their rate filings. As of the final hearing, no insurer has ever answered all the questions to the satisfaction of the Office. In other words, no insurer has physically given the Office all the assumptions and factors that were used in developing the model. This information is proprietary and is not given to the insurer by the company providing the model. The information is available only from the company providing the model. FFB asked AIR to respond to the questions. FFB provided the response prepared by AIR to the Office on May 24, 2007. Some of the responses provided that AIR would make the information available to the Office for review and would work with the Office to provide the information in an acceptable format. Because much of the information is proprietary and confidential, AIR was not willing to relinquish possession of the information to the Office. AIR has an office in Tallahassee, and staff of the Office could review the materials at the Tallahassee Office. By letter dated July 3, 2007, the Office advised FFB that the responses to the catastrophe model questionnaire were incomplete. On July 9, 2007, FFB provided the following response concerning the catastrophe model information requested: Florida Farm Bureau has provided the Office with all the formulas and functions available to us by AIR Worldwide, Inc. The catastrophe models are proprietary by their very nature and require extreme care in disclosure. The AIR model used in this filing was reviewed and accepted by the Florida Commission on Hurricane Loss Projection Methodology (Commission). Additionally, the AIR models are widely used and accepted in the insurance, reinsurance, and capital markets. Reasonability measures are taken and maintained by AIR and Florida Farm Bureau as explained in the IFILE Catastrophe Model Questionnaire. AIR Worldwide, Inc. has worked with and will continue to work with and will continue to be available to the Office regarding their catastrophe models. In complete cooperation with the Office, AIR has extended the availability of their personnel and models to the Office for review, including all formulas and functions, at their Tallahassee office. It is not the intent of AIR or Florida Farm Bureau to conceal any relevant or necessary information from the Office; the proprietary nature of the information simply demands that all protections are in place to keep trade secret information inside the AIR office and out of the public domain. Florida Farm Bureau has submitted its exposure data as requested by the Office to run in the public hurricane model. Although we do not have access to the inner workings of this model and cannot validate its results or methodologies, the Office seems comfortable with its results and has used its results as a reasonability check versus our results in past filings. The Office takes the position that making the information available at the Tallahassee office of AIR is not sufficient and does not provide access to the assumptions and factors requested by the Office. Thus, the Office did not avail itself of the opportunity to go to the AIR office in Tallahassee and review the information. The Office takes the position that FFB did not provide to the Consumer Advocate access to the assumptions and factors used in developing the AIR model. There was no evidence presented that the Consumer Advocate requested such information. In past filings, where no insurer has supplied the requested proprietary information concerning the catastrophe models used, the Office has used the Public Model to test the reasonability of the losses projected by the insurer using a vendor model such as AIR. In the instant case, the Office did submit the data provided by FFB to be inputted in the Public Model. The results of the Public Model showed approximately $5 million more in potential losses than FFB indicated in its rate filing based on the AIR Model. DEFICIENCY 5: FAILURE TO SUPPORT USE OF MODEL FOR CATASTROPHE LOSSES OTHER THAN HURRICANE The Office objected to the modeled figures used by FFB as support for its non-hurricane losses. The expert for FFB provided an analysis for non-hurricane catastrophe losses using FFB's actual historical losses without relying on the results of the model. The actuary for the Office conceded that FFB's expert used a reasonable analysis and the more common method of supporting the non-hurricane catastrophe losses. FFB has provided support through its expert at final hearing for the non-hurricane catastrophe losses. Therefore, the fifth deficiency is not viable and cannot serve as a basis for disapproving the rate filing. DEFICIENCY 6: FAILURE TO SUPPORT THAT LOSS TREND IS NOT EXCESSIVE In its Proposed Recommended Order the Office conceded that the methodology used by FFB's expert at the final hearing with respect to the loss trend was appropriate. Therefore, FFB has provided support that its loss trend is not excessive. DEFICIENCY 9: FAILURE TO SUPPORT THAT THE TREND PROCEDURE USED TO ADJUST HURRICANE MODEL LOSSES IS APPROPRIATE AND CONSISTENT WITH PREMIUM TRENDING IN INDICATIONS In its Proposed Recommended Order, the Office conceded that the methodology used by FFB's expert at the final hearing with respect to premium trending was appropriate. Therefore, FFB has provided support for a zero-percent loss ratio trend by assuming that the hurricane loss trend and the reinsurance premium trend were equal. DEFICIENCY 10: FAILURE TO SUPPORT THE ALLOCATION OF REINSURANCE COST TO TERRITORY IN TERRITORIAL INDICATIONS The tenth deficiency deals with FFB's allocation of the cost of reinsurance on a county-by-county basis. FFB allocated their cost of reinsurance by using the largest 200 storms in their model, rather than the entire 10,000 storm set. The 200 largest storms would invariably be in the more coastal counties and could lead to the coastal counties subsidizing the inland counties, which would be unfair discrimination. The use of the 200 largest storms as opposed to the 10,000 storm set does not support FFB's allocation of reinsurance cost to territory in their indications. In its Amended Petition, FFB alleges that the Office relied on an unadopted rule as a basis to support the NOI. Specifically, FFB alleges that the Office is interpreting Chapter 2007-1 [T]o essentially freeze insurers' reinsurance coverage levels and costs at whatever was already filed and approved for such insurers at the time HB 1A became effective (essentially the reinsurance coverage levels and costs for 2006), unless the change in 2007 reinsurance coverage levels or costs would result in a rate decrease. The Office does not interpret Chapter 2007-1 in the manner asserted by FFB. Chapter 2007-1 does not prohibit an insurer from having a greater amount of reinsurance in 2007 than it did in 2006, but Chapter 2007-1 does require that any savings that resulted from the expansion of the CAT Fund and reduced premiums of the CAT Fund be passed along to the policyholders.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered disapproving FFB's rate filing. DONE AND ENTERED this 1st day of April, 2008, in Tallahassee, Leon County, Florida. S SUSAN B. HARRELL 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 1st day of April, 2008.
The Issue Whether Respondent violated various provisions of the Insurance Code, specifically Sections 626.561(1), 626.611, 626.621 and 626.9521, Florida Statutes, which warrants that Respondent's licenses as an insurance agent should be disciplined.
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant findings of fact are made: 1. Respondent was, at all times pertinent, licensed as a general lines agent and health agent in Florida 2 Respondent was the registered agent, sole director and officer of Sunshine State Insurance of Manatee, Inc. As a result of her corporate capacity, Sheryl Ann Satterfield is responsible for actions of employees working under her direct supervision and control. FINDINGS REGARDING COUNT I On or about April 5, 1991, Respondent's employee solicited an application for automobile insurance from Miguel A. Coronado of Bradenton, Florida. The automobile insurance was to be provided by the Nu-Main of Florida Agency. At this same time, the premium for the automobile insurance was quoted as $414.00 for a six month coverage. After being informed of the premium amount, Mr. Coronado paid Respondent's employee $146.00 in cash as a down payment on the premium. Receipt #6557 was issued which acknowledged receipt of said premium. On or about April 26, 1991, Mr. Coronado received a cancellation from Instant Auto Credit stating that his automobile was an unacceptable vehicle. After receiving this notice, Mr. Coronado went to the Sunshine State Insurance office to discuss the cancellation with Respondent. Respondent refused to refund the $146.00 premium to Mr. Coronado. Respondent never forwarded the $146.00 premium funds received from Mr. Coronado to Nu-Main of Florida. Further, Respondent failed, and refused to refund the premium to Mr. Coronado upon demand. Respondent misappropriated funds held in trust for her own use and benefit. FINDINGS REGARDING COUNT II On or about November 26, 1990, Jodi Spencer of Sarasota, Florida went to Respondent's agency for the purpose of obtaining automobile insurance. Ms. Spencer made a premium down payment of $197.00 on a quote of $697.00 annual premium. Respondent's employee issued receipt #7874 which acknowledged receipt of the $197.00 premium down payment. The auto insurance was to be provided by Nu-Main of Florida, Inc., and American Skyhawk Company. On February 11, 1991, American Skyhawk Insurance Company sent Ms. Spencer a cancellation notice. Respondent was to return $24.50 of unearned commission to Ms. Spencer which she failed to do. FINDINGS REGARDING COUNT III On or about December 31, 1990, Matthew Baker of Bradenton, Florida, went to Sunshine State Insurance Agency to obtain automobile insurance. At this time, Matthew Baker paid a down payment of $197.00 on an annual premium of $1,313.00. The insurance was to be provided by First Miami Insurance Company. Respondent's agency issued receipt #6851 upon receipt of the aforementioned premium down payment. On January 31, 1991, First Miami Insurance Company sent Mr. Baker a cancellation notice. At the time of cancellation Respondent was to return an unearned commission of $154.60. Respondent has failed to return $154.60 in unearned commission to Mr. Baker. FINDINGS REGARDING COUNT IV On or about January 11, 1991, Edwin Soto of Bradenton, Florida, was cancelled by First Miami Insurance Company with whom he had an existing automobile insurance policy. Edwin Soto had purchased this First Miami Insurance Company policy from Respondent. (Testimony of Edwin Soto). As a result of this cancellation Mr. Soto is owed $70.61 from Respondent which she has failed to return to him. FINDINGS REGARDING COUNT V In January 1991, William M. Woodyard of Bradenton, Florida, met with Respondent to renew his general liability and worker's compensation insurance. At this same time Mr. Woodyard gave Respondent his premium down payment. During the latter part of 1991, Mr. Woodyard went to Sunshine State Insurance of Manatee, Inc. to obtain a copy of his worker's compensation policy. Upon Mr. Woodyard's arrival, he met with Joe Money, President of Sunshine State Insurance Group, Inc. No record of insurance or coverage for Mr. Woodyard or his company existed. Previously, Capital Premium Finance Company had issued two return premium checks to Mr. Woodyard. Respondent deposited Mr. Woodyard's return premium checks into the Sunshine State Insurance Agency's checking account in the total amount of $440.80. Mr. Woodyard was entitled to receive a premium refund check and unearned commission check from Respondent. Mr. Woodyard did not receive any premium refund or unearned commission funds from Respondent.
Recommendation Upon the foregoing findings of fact and conclusions of law, it is recommended that Respondent's licenses as an insurance agent in this state be REVOKED. DONE and RECOMMENDED this 20th day of October, 1992, at Tallahassee, Florida. DANIEL M. KILBRIDE 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 20th day of October, 1992. APPENDIX The following constitute specific rulings, pursuant to Section 120.59 (2), Florida Statutes, upon the parties respective proposed findings of fact (PFOF) Petitioner's PFOF: 1. - 27. Accepted in substance. Respondent's PFOF: Respondent did not file proposed findings of fact. COPIES FURNISHED: Willis F. Melvin, Jr., Esquire Daniel T. Gross, Esquire Department of Insurance and Treasurer 412 Larson Building Tallahassee, Florida 32399-0300 Ms. Sheryl Ann Satterfield P.O. Box 333 Polk City, Florida 33868 Tom Gallagher, Commissioner Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Bill O'Neil, Esquire General Counsel Department of Insurance and Treasurer The Capitol, PL-11 Tallahassee, Florida 32399-0300
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.
The Issue Whether Petitioner is entitled to an award of attorney's fees and costs, associated with defending DOAH Case No. 13- 3820PL, pursuant to section 57.111, Florida Statutes (2014), as a small business and a prevailing party.
Findings Of Fact DFS is the state agency charged with the licensing and regulation of insurance agents in Florida and is responsible for administrating the disciplinary provisions of chapter 626, pursuant to sections 20.121(2)(g) and (h), Florida Statutes. At all times material to this case, de la Paz was a licensed general lines insurance agent in Florida. De la Paz also is a director and officer of the MDLPA, which she has co- owned with her daughter, Jenny Mondaca Toledo (Mondaca), since 2000. On October 15, 2003, the Office of Insurance Regulation issued a cease and desist order (Order) against IWSF and NAM from conducting insurance-related activities in Florida, including but not limited to, "transacting any new or renewal insurance business in this state, and from collecting any premiums from Florida insureds." The sale of insurance products by unauthorized entities (UEs) poses a danger to Florida consumers, because UEs are not vetted by the Office of Insurance Regulation, their financial stability is questionable, they may not have sufficient reserves to pay claims for consumers, and they do not participate in the Guarantee Fund which protects consumers should a company become insolvent. DFS has undertaken a variety of media campaigns in an effort to warn licensed agents about the dangers and consequences of providing insurance products through UEs. DFS regularly conducts investigations against agents for selling UE products. Generally, consumers will not know the quality of alleged insurance providers until the consumer makes a claim against their policy. For this reason, DFS cautions agents to verify the status of insurance providers prior to selling a policy. Agents can access the website for the Office of Insurance Regulation or call to inquire about the status of a particular company. The website has been available for approximately 17 years. DFS tried to warn Florida insurance agents that IWSF was an UE; however, IWSF was the most prevalent UE selling in Florida, and approximately 584 consumers were provided with IWSF policies sold by various agents. In an effort to stop the sale of insurance products through IWSF and NAM, DFS obtained a list of Florida customers from the Canadian bankruptcy receiver of IWSF. DFS' Bureau of Investigations sent a survey to these consumers and through the survey, it was determined that Carlos Guzman (Guzman) and Jorge Saez (Saez) purchased IWSF watercraft insurance from MDLPA in April 2009. Field Insurance Regional Administrator Lidia Azcue (Azcue) and Investigator Marlene Suarez (Suarez) opened an investigation regarding this transaction. Azcue and Suarez went to MDLPA on December 4 and 5, 2012. The alleged violation being investigated was that the agency sold unauthorized products, and the purpose was to see if any others were being sold. They did not inform the staff at MDLPA of the reason for the investigation. De la Paz was not present nor was she interviewed during these visits. Azcue and Suarez asked for and received the binder book of MDLPA on a thumb drive. Mondaca was present on the first day of the investigation and was described by Azcue as cooperative. Azcue also requested and received files for other consumers who purchased marine insurance products from MDLPA. As a result of the investigation, and prior to the filing of the Administrative Complaint, DFS obtained the following information and documentation regarding MDLPA and the transaction between MDLPA, Saez, and Guzman: De la Paz and her daughter, Mondaca (referred to on the Bank of America signature card as "Jenny M. Toledo, President") had signature authority for the MDLPA corporate bank account at Bank of America; An IWSF quote printed April 14, 2009, for the vessel owned by Saenz (sic) and Guzman, which was faxed to MDLPA by IWSF to "Odalis" (referring to Odaylis Chiullan (Chiullan), an employee of MDLPA) which references de la Paz and MDLPA as the contact; A fax dated May 6, 2009, from Chiullan to IWSF asking IWSF to bind coverage for Guzman and Saez effective May 6, 2009; Undated handwritten notes on a "File Action Log" form regarding "Jorge Sahel Saez" in the handwriting of Chiullan; A fax dated May 6, 2009, from IWSF to "Odaylis" at MDLPA; An unsigned and undated "Insurance Premium Financing Disclosure Form" to be signed by Guzman and Saez, which was obtained by Chiullan from the premium financing company. In correspondence prior to the issuance of the Administrative Complaint, de la Paz advised DFS that it was Chiullan who had the form signed by Guzman and Saez and transmitted the signed forms and check for the down payment to the finance company; A receipt prepared by Chiullan dated May 6, 2009, acknowledging delivery of $280.00 as a "down payment" by Guzman and Saez for financing of a policy with NAM; The premium finance agreement between the finance company and Guzman and Saez prepared by the finance company and sent to Chiullan. The agreement is signed by Guzman and by de la Paz on behalf of MDLPA as "broker or agent"; Check number 1138 dated May 6, 2009, and drawn on the bank account of Guzman payable to the finance company in the amount of $370.00. This check was delivered to Chiullan and forwarded by her to the finance company along with the signed, original documents for the financing of the balance of the insurance premiums; A fax dated May 12, 2009, from NAM to Odaylis at MDLPA, requesting confirmation of the payment plan arranged with Saez and Guzman; IWSF declaration page for Guzman and Saez; IWSF renewal certificate for Guzman and Saez for the period of May 6, 2010, through May 5, 2011, signed by Guzman on May 4, 2010; and Correspondence from IWSF to de la Paz at MDLPA dated May 13, 2010, returning two checks, one signed by Mondaca and one signed by de la Paz, for reissuance in the name of IWSF. No interviews were conducted as part of the investigation by DFS of de la Paz, Mondaca, Chiullan, Guzman, or Saez. After the field investigation was concluded, the investigative file was forwarded on January 16, 2013, to Veronica Jackson, Government Analyst I, who reviewed the file for legal sufficiency. On May 24, 2013, a letter from Kathy Spencer, Stipulation Program Coordinator with the Office of the Chief Financial Officer, Jeff Atwater (Atwater), was sent to de la Paz alleging that she "aided and abetted an unauthorized entity in the sale of insurance." No further details were provided, nor were any Florida Statutes cited. Attached to the correspondence was a proposed settlement stipulation for consent order which offered de la Paz a $5,000.00 penalty and a one-year period of probation in lieu of having a formal administrative complaint filed against her. On June 13, 2013, de la Paz responded with a letter to Atwater explaining that at no time had de la Paz or anyone at MDLPA received notification that IWSF and NAM were not authorized to sell insurance products in Florida. De la Paz asserted that Chiullan, who held a 220 license and only worked for MDLPA for a few weeks, was the individual who handled the transaction with Guzman and Saez. De la Paz pointed out that to be charged with violation of section 626.734, de la Paz, as the licensed agent and owner of the insurance agency, cannot be subject to disciplinary proceedings due to Chiullan's placing this one policy with IWSF, because she was not aware of such act and the facts constituting a violation of the insurance code. Additionally, de la Paz pointed out that section 626.910 provides a person "aiding an unauthorized insurer" shall pay a civil penalty of not more than $1000.00 for each non-willful violation. De la Paz emphasized that she personally "did absolutely nothing to violate the code, let alone commit a willful violation of the code." For this reason, she could not sign the stipulation admitting that she committed a willful violation. De la Paz's letter was forwarded to Jackson who asked de la Paz for documentation supporting de la Paz's position. De la Paz corresponded with Jackson on June 29 and July 2, 2013. In this correspondence, in addition to once again supplying the requested documentation, de la Paz reiterated her lack of knowledge of IWSF as a UE and her lack of involvement in the Guzman/Saez transaction. On July 2, 2013, Azcue contacted de la Paz to invite her to come to DFS' office and review the investigative file. This meeting was not mandatory. According to de la Paz's credible testimony, she asked to bring her attorney and was told she could not. De la Paz declined to attend the meeting. On August 26, 2013, after negotiations with de la Paz were unsuccessful, DFS filed a one-count Administrative Complaint against de la Paz, alleging that on May 6, 2009, Guzman and Saez purchased a policy for watercraft insurance from MDLPA. De la Paz was charged with a violation of section 626.611, "Knowingly aiding, assisting, procuring, advising, or abetting any person in violation of or to violate a provision of the insurance code or any order or rule of the department, commission, or office." De la Paz was also charged with a violation of section 626.734, which provides that any general lines agent who is an officer, director, or stockholder of an incorporated general lines insurance agency shall remain personally and fully liable and accountable for any wrongful acts, misconduct, or violations of any provision of the code committed by such licensee by any person under his or her direct supervision and control while acting on behalf of the corporation. A final hearing on the Administrative Complaint was held on December 4, 2013, and January 7, 2014. A Recommended Order was entered by the undersigned on March 28, 2014, which found that DFS failed to prove, by clear and convincing evidence, that de la Paz knowingly aided, assisted, procured, advised, or abetted two UEs when Chiullan sold what was purported to be watercraft insurance in the spring of 2009 to Saez and Guzman. DFS admits that de la Paz is a "small business party" and was a "prevailing party" for purposes of the Florida Equal Access to Justice Act, section 57.111. There is no dispute that de la Paz's attorney's fees for defending the underlying action in the amount of $29,700.00 and costs in the amount of $1,265.39 are reasonable. De la Paz's additional cost for the final hearing Transcript in the amount of $831.75 is also reasonable.
The Issue The issues presented herein are whether or not the Respondents' licenses and eligibility for licensure as insurance agents should be revoked or lesser penalties should be imposed based on allegations set forth more particularly hereinafter in detail and as set forth in the Administrative Complaints filed herein.
Findings Of Fact (Peter Baranowsky, Jr.-Case No. 83-181) At times relevant herein, Respondent, Peter Baranowsky, Jr., was licensed as a general lines insurance agent by the Respondent, Florida Department of Insurance. (Petitioner's Exhibit 3) At times pertinent to the allegations contained in the Administrative Complaint, Respondent, Baranowsky, was the general lines agent of record for Okeechobee Insurance Agency located at 1874 Okeechobee Boulevard, West Palm Beach, Florida. (Petitioner's Exhibit 4) In addition to Respondent Baranowsky, unlicensed sales persons were employed at this agency to take insurance applications and perform related clerical duties. In dealing with the public in the business of insurance, unlicensed sales people were acting under Respondent Baranowsky's license and were under his supervision and control. Insurance applications originating at the agency located at 1874 Okeechobee Boulevard, West Palm Beach, Florida, bear the name of Respondent, Peter Baranowsky, Jr. as agent. Respondent stipulated that witnesses Sandra Frye, Scott Sheer, Deborah Jo Grams, Frances Lemont, Susan Maccarone (Adel), Micaela Estevez (Shorrock), Stephen B. Atkinson, Robert Rigdon, and Georgelyn Hazen all purchased auto insurance at the Okeechobee Insurance Agency - said insurance being purchased under Respondent Baranowsky's general lines license. Sandra Frye went to the Okeechobee Insurance Agency at 1874 Okeechobee Boulevard, West Palm Beach, Florida in January, 1982, to purchase full coverage insurance for her 1979 Chevrolet Blazer vehicle. She was interested in purchasing insurance coverage to satisfy the requirements of Ford Motor Credit Company, the company that had loaned funds to finance her vehicle. Ms. Frye did not want to nor did she request to purchase accidental death and disability (AD & D) insurance coverage. Mrs. Frye was sold an AD & D insurance policy with Fortune Life Insurance Company and was charged a premium of $100 for this coverage without her knowledge. (Petitioner's Exhibit 2 and Composite Exhibit 6) Scott Sheer went to the Okeechobee Insurance Agency on October 12, 1981 for the purpose of purchasing minimum liability and personal injury protection (PIP) automobile insurance. In addition to the coverage requested by Sheer, he was sold an AD & D policy and was charged a premium of $100 for the AD & D coverage. (Petitioner's Composite Exhibit 14) When Mr. Sheer became aware that the AD & D coverage was included in the insurance transaction, he informed the sales person who waited on him that he did not desire to purchase AD & D coverage because he had a considerable amount of such insurance through the company that he worked for. Mr. Sheer was informed that the AD & D coverage was free or at no extra charge. Mr. Sheer filed a complaint with the Insurance Commissioner's office relative to his insurance purchase from the Okeechobee Insurance Agency. (Petitioner's Exhibit 14) Deborah Jo Grams went to the Okeechobee Insurance Agency on Okeechobee Boulevard on October 27, 1981 for the purchase of automobile insurance desiring to purchase only the minimum insurance required by law. Ms. Grams was sold an AD & D coverage policy without her knowledge and was charged the premium of $100 for the AD & D coverage by Okeechobee Insurance Agency. An examination of the exhibits introduced herein reveal and further corroborates the fact that the Respondent charged Ms. Grams a $100 premium for the AD & D coverage without her knowledge and/or consent. (Petitioner's Composite Exhibit 16) Frances Lamont went to the Okeechobee Insurance Agency on Okeechobee Boulevard on December 16, 1981 for the purpose of buying the minimum liability and PIP coverage as required by Florida law. Ms. Lamont was sold PIP and liability auto insurance coverage and was further sold an AD & D policy with a premium of $100 charged by Respondent for the AD & D coverage. An examination of the agency file introduced herein reveals that the Respondent sold Ms. Lament an AD & D policy. (Petitioner's Exhibit 12) Susan Adel Bass, a/k/a Susan Maccarone, went to the Okeechobee Insurance Agency on November 24, 1981 to purchase full coverage automobile insurance. Ms. Adel was quoted a premium of $553 for the full coverage automobile insurance. Ms. Adel was told that inasmuch as she had only had a Florida drivers' license for one year, there would be a $20 additional premium and another $80 premium based on the fact that she had a high performance car. In actuality, the $100 charge was the premium for the AD & D coverage Ms. Adel was sold without her knowledge and against her will. In this regard, Ms. Adel noted that on the insurance receipt given when she made a $293 downpayment, whereas only $193 was noted as the amount of her downpayment. Ms. Adel was offered the explanation respecting the $20 additional fee for the fact that she was a new licensee in Florida and the additional premium charge for the high performance vehicle which she was insuring. (Petitioner's Composite Exhibit 7) The explanation was not true. Micaela Estevez (Shorrock) went to the Okeechobee Insurance Agency on May 9, 1889 for the purpose of purchasing automobile insurance. Ms. Estevez asked to buy PIP insurance. When she was told that due to the fact that her car was being financed, it was necessary for her to purchase full coverage. Ms. Estevez was quoted a premium of $571. Ms. Estevez was sold both an automobile club membership and AD & D coverage and was charged premiums of $45 and $75 respectively for such coverage. Ms. Estevez was unaware that there was an extra charge for the AD & D coverage and the motorclub membership, and did not desire to purchase either the AD & D coverage or membership in the motorclub. Karen Muscato went to the Okeechobee Insurance Agency on July 7, 1981 for the purpose of purchasing automobile Insurance. Ms. Muscato told the sales person at Okeechobee Insurance Agency that she wanted the minimum coverage to keep her 1967 Dodge automobile on the road. Ms. Muscato was charged a premium of $100 for a one year membership with the American Touring Association which included an AD & D benefit package. An examination of the agency file introduced herein corroborates the fact that Ms. Muscato was charged a $100 premium for the American Touring Association membership which included the AD & D insurance coverage. Ms. Muscato also made subsequent visits to the Okeechobee Insurance Agency on October 23, 1981 and April 1, 1982 and, on each occasion, she was charged a $100 premium for an AD & D policy from Reliance Standard Life Insurance Company (1981) and from Fortune Life Insurance Company (1982) for the AD & D coverage. (Petitioner's Exhibit 22) Ms. Muscato neither requested nor did she desire to purchase AD & D coverage. (Testimony of Ms. Muscato) Stephen B. Atkinson purchased auto insurance from the Okeechobee Insurance Agency on Okeechobee Boulevard during the years 1979, 1980 and 1981. Mr. Atkinson only wanted to purchase the minimum insurance which would enable him to purchase a license plate for his vehicle. During 1980, Mr. Atkinson paid Okeechobee Insurance Agency a $90 premium for a membership in the Congressional Motor Club and $100 during 1981 for either a motorclub membership and/or an AD & D coverage policy. The evidence herein is unrefuted that the Respondent requested only PIP or "tag insurance" only. Mr. Atkinson purchased the additional coverage for the motorclub membership or the AD & D policy without his knowledge and/or consent. He was unaware of these purchases until he was contacted by a representative from the Insurance Commissioner's Office. (Petitioner's Composite Exhibit 24) Robert Rigdon went to Okeechobee Insurance Agency on October 31, 1981 for the specific purpose of purchasing PIP automobile insurance. This purpose was specifically communicated to the staff person at Okeechobee Insurance and despite this specific request, Robert Rigdon was sold an AD & D policy and charged a premium of $100 to purchase the AD & D coverage. Robert Rigdon was unaware that he was purchasing this coverage and would not have paid the separate $100 premium for the AD & D coverage. (Petitioner's Composite Exhibit 13) Georgelyn T. Hazen went to Okeechobee Insurance Agency on December 18 for the specific purpose of purchasing only that insurance required by the State to operate a vehicle. Despite a specific request by Ms. Hazen, she was sold a policy with an AD & D coverage and was charged a premium of $50 for the AD & D coverage. Ms. Hazen would not have knowingly purchased AD & D coverage because she had plenty of life insurance. (Petitioner's Composite Exhibit 9) Gail Colella worked as an unlicensed sales person at the Okeechobee Insurance Agency on Okeechobee Boulevard during the period April through October, 1981. She worked under the supervision of general lines agent, Peter Baranowsky, Jr. While working for Okeechobee Insurance Agency, she waited on customers; sold them automobile insurance including liability, comprehensive, collision and PIP. She also sold accidental death and dismemberment insurance policies. When an individual came to the Okeechobee Insurance Agency and requested a quote for the PIP insurance or the minimum insurance required by Florida law, Ms. Colella, following office procedures, would give a combined quote including the premium for both PIP and AD & D coverages. The specific charge for the AD & D coverage would not be broken out in the quote, however it was added to the quote for the PIP coverage. THE RESPONDENT'S POSITION Peter Baranowsky, Jr. has been a general lines agent with Okeechobee Insurance Agency in excess of three years. Nonlicensed employees of Okeechobee Insurance Agency worked under the auspices of the Respondent's license and were subject to his supervision and control. Respondent Baranowsky instructed agents on the manner of selling insurance including the preparation of a summary sheet advising employees of coverages. Baranowsky provides general supervision for employees who are not licensed and has instructed such employees to read verbatim from the coverage summary sheet prepared by the Okeechobee Insurance Agency. For his efforts, Respondent Baranowsky receives a salary and a commission based on the AD & D policies sold through Okeechobee Insurance Agency. Factual Conclusions From the foregoing facts, it is herein concluded that each of the above-referred witnesses who testified at the hearing herein went to the Okeechobee Insurance Agency to purchase specific types of coverages and requested quotes thereon. In each instance, the customers were given quotes for not only the requested coverage but also for either accidental death and dismemberment coverage and/or membership fees for enrollment in a motorclub. In each of the transactions, the customers relied on the staff at Okeechobee Insurance Agency in the preparation of the quotes and they were not advised that they were being sold additional coverages which they had neither requested and for a substantial fee for such coverages. The manner in which these additional coverages were sold to unsuspecting customers evinces a model of deception. This method of operation continued over a period of approximately three years from 1979 through 1982 and reflects an extended scheme whereby the above- referred customers were misled and deceived as to the actual costs of the automobile insurance they sought to purchase.
Recommendation Based on the foregoing findings of fact, factual conclusions and conclusions of law, it is hereby RECOMMENDED That the Respondents', Peter Baranowsky, Jr., license as an insurance agent in the State of Florida he REVOKED.
