The Issue The issues are whether Petitioner has standing to bring this action, and if so, whether portions of proposed Florida Administrative Code Rule 69O-204.030(1)(a), are an invalid exercise of delegated legislative authority in violation of Sections 120.52(8) and 120.56, Florida Statutes (2008).
Findings Of Fact OIR is an agency of the State of Florida, created within the Commission in accordance with Section 20.121(3)(a)1., Florida Statutes (2008). OIR is responsible for the administration of laws concerning insurers and other risk-bearing entities, including, but not limited to, viatical settlements. The Insurance Commissioner is head of OIR except for rulemaking purposes. Pursuant to Sections 20.121(1)(c) and 624.308(1), Florida Statutes (2008), the agency head for rulemaking is the Commission. Petitioner is a trade association that represents 12 of the 13 Florida-licensed viatical settlement providers. As an established trade association in the life settlement industry, Petitioner participates in legislative and regulatory matters in all 50 states. Petitioner is comprised of over 160 member companies nationwide. Florida's Viatical Settlement Act, Part X, Chapter 626, Florida Statutes (2008) (the Act), involves the regulation of viatical settlement providers. The Act regulates both viatical settlements and life settlements. Both types of transactions involve the sale of ownership interest in life insurance policies. A viatical settlement relates to the sale of the ownership interest in a life insurance policy by a person who is expected to live for less than two years. A life settlement involves the sale of the ownership interest in a life insurance policy by a person who is expected to live for longer than two years after the date of sale. Viatical and life settlements are regulated in essentially the same manner. Both are included in the definition of "viatical settlement contract." See § 626.9911(10), Fla. Stat. (2008). In a viatical settlement transaction, the "viatical settlement provider" is the purchaser of the ownership interest in a life insurance policy, including the right to receive the policy proceeds upon the death of the insured. See § 626.9911(12), Fla. Stat. (2008). The "viator" is the owner of an insurance policy who sells the ownership interest in the policy. See § 626.9911(14), Fla. Stat. (2008). The "viatical settlement broker" is the agent of the viator. See § 626.9911(9), Fla. Stat. (2008). The broker owes a fiduciary duty to obtain the best price for the insurance policy and typically, solicits bids from multiple viatical settlement providers on behalf of the viator. Id. This controversy involves a challenge to proposed Florida Administrative Code Rule 690-204.030(1)(a), (the proposed rule) which states as follows: 69O-204.030, Forms Incorporated by Reference. Form OIR-A3-1288, Viatical Settlement Provider Annual Report (REV 11/08). * * * Specific Authority 626.9925 FS. Law Implemented 626.9912(2), 626.9912(3), 626.9913(2), 626.9921(3), 626.9921(4) and 626.9928, FS. History-New Petitioner specifically objects to Schedules B and C attached to Form OIR-A3-1288. Schedule B requests the following information on policies purchased for the most recent five years, beginning with the current reporting year: (a) total number of policies purchased (quantity); (b) total gross amount paid for policies purchased (dollars); and (c) total face value of policies purchased (dollars). The information is not limited to policies purchased in Florida. Schedule C requests information relating to a summary of a licensed provider's business in every state, territory or geographical area. The information sought in Schedule C includes the following: (a) whether the provider is licensed/registered in the state; (b) the total number of policies purchased; (c) total gross amount paid for policies purchased; (d) total commissions/compensation paid for policies purchased; and total face value of policies purchased. Respondent also challenges the portion of Form OIR-A3- 1288 (Rev 11/08) that requires providers to annually file supporting documentation demonstrating any change to the provider's "method of operation as described in [the provider's] most recent plan of operations filed with OIR." The form requests this information in Interrogatory 1.(d) attached to the Annual Report. The challenged portions of the Annual Report, incorporated by reference in the proposed rule, require viatical settlement providers to disclose detailed information regarding their nationwide and international business activities. The information, in a publicly available form, involves transactions not subject to Florida regulation. On September 26, 2008, a Notice of Proposed Rulemaking relative to the Viatical Rule was published in Volume 34, Number 39, Florida Administrative Weekly. The notice indicated that a public hearing would be held on October 29, 2008. On October 29, 2008, as indicated in the Notice of Proposed Rulemaking, a public hearing was held. Written comments from the industry were received both prior to and immediately after the public hearing. Based upon comments from the Joint Administrative Procedures Committee (JAPC) dated October 22, 2008, a Notice of Correction was filed in Volume 34, Number 46, Administrative Law Weekly, on November 14, 2008. The notice reflected that the agency head for rulemaking was the Commission. On December 24, 2008, a Notice of Change was published in Volume 34, Number 52, Florida Administrative Weekly. The notice was based upon comments from JAPC, as well as comments at the October 29, 2008, public hearing. On January 13, 2009, the hearing for final adoption of proposed Florida Administrative Code Rules 69O-204.010, .020, .030, .040 and .050, was held before the Commission. Following some discussion, the Commission approved the proposed rules for final adoption. The Commission met all applicable rulemaking publication and notice requirements, as set forth in Chapter 120, Florida Statutes (2008). Petitioner does not challenge the proposed rule pursuant to Section 120.52(8)(a), Florida Statutes (2008). Petitioner does not challenge the proposed rule as imposing excessive regulatory costs, pursuant to Section 120.52(8)(f), Florida Statutes (2008). The proposed rule imposes requirements on Florida licensed viatical settlement providers. Those requirements do not appear significantly different than those required in a number of other states. Florida licensed viatical settlement providers would be subject to administrative penalties if they did not comply with the proposed rule. See § 626.9913(2), Fla. Stat. (2008).
The Issue The issue is whether the guidelines set forth in the Specialty Product Administration Field Examination Policy Procedures (SPA Field Exam Policy), Viatical Settlement Provider Examination Manual (VSP Manual), Viatical Settlement Provider Examination Procedures (VSP Exam Procedures), and notice-of- examination letters constitute agency statements defined as rules but not adopted as such, in violation of Section 120.54, Florida Statutes.
Findings Of Fact OIR has the statutory duty to enforce the provisions of the Florida Insurance Code, to investigate any violation of the Florida Insurance Code, and to regulate insurance activity in Florida, including the licensure, examination, and monitoring of insurers and other risk-bearing entities such as VSPs. See § 624.307, Fla. Stat. Petitioner is a foreign corporation, licensed to do business in Florida as a VSP. See § 626.9911(12), Fla. Stat. Therefore, it is subject to OIR's regulation. Section 626.9911(10), Florida Statutes, defines a viatical settlement contract as follows in pertinent part: (10) "Viatical settlement contract" means a written agreement entered into between a viatical settlement provider, or its related provider trust, and a viator. The viatical settlement contract includes an agreement to transfer ownership or change the beneficiary designation of a life insurance policy at a later date, regardless of the date that compensation is paid to the viator. The agreement must establish the terms under which the viatical settlement provider will pay compensation or anything of value, which compensation or value is less than the expected death benefit of the insurance policy or certificate, in return for the viator's assignment, transfer, sale, devise, or bequest of the death benefit or ownership of all or a portion of the insurance policy or certificate of insurance to the viatical settlement provider. Section 626.9922, Florida Statutes, provides OIR explicit authority to examine any books and records, without limitation to Florida-only files, of Florida-licensed VSPs. Section 626.9922, Florida Statutes, states as follows in pertinent part: The office or department may examine the business and affairs of any of its respective licensees or applicants for a license. The office or department may order any such licensee or applicant to produce any records, books, files, advertising and solicitation materials, or other information and may take statements under oath to determine whether the licensee or applicant is in violation of the law or is acting contrary to the public interest. The expenses incurred in conducting any examination or investigation must be paid by the licensee or applicant. Examination and investigations must be conducted as provided in chapter 624, and licensees are subject to all applicable provisions of the insurance code. Section 626.9925, Florida Statutes, states as follows: Rules.--The commission may adopt rules to administer this act, including rules establishing standards for evaluating advertising by licensees; rules providing for the collection of data, for disclosures to viators, for the registration of life expectancy providers; and rules defining terms used in this act and prescribing recordkeeping requirements relating to executed viatical settlement contracts. Florida law specifically addresses viatical settlement contracts entered into between a VSP domiciled in Florida and a non-Florida resident in Section 626.99245, Florida Statutes, as follows: A viatical settlement provider who from this state enters into a viatical settlement contract with a viator who is a resident of another state that has enacted statutes or adopted regulations governing viatical settlement contracts shall be governed in the effectuation of the viatical settlement contract by the statutes and regulations of the viator's state of residence. If the state in which the viator is a resident has not enacted statutes or regulations governing viatical settlement agreements, the provider shall give the viator notice that neither Florida nor his or her state regulates the transaction upon which he or she is entering. For transactions in those states, however, the viatical settlement provider is to maintain all records required as if the transactions were executed in Florida. The forms used in those states need not be approved by the office. There is no similar statute that specifically requires a non- domestic VSP, such as Petitioner, to produce records for OIR's review on transactions with viators who are not Florida residents. Nevertheless, OIR reviews out-of-state transactions of licensed VSPs, domestic and non-domestic, to verify compliance with Section 626.99275(1)(d), Florida Statutes, which states as follows: It is unlawful for any person: * * * (d) To knowingly or intentionally facilitate the change of state of residency of a viator to avoid the provisions of this chapter. Except as provided in Section 626.99275(1)(d), Florida Statutes, OIR does not apply Florida law to a foreign VSP's non-Florida transactions. OIR's examiners spend significantly less time reviewing non-Florida transactions, than Florida transactions. The examiners only review non-Florida transactions to determine whether the non-Florida transaction is actually a Florida transaction. Florida transactions, on the other hand, are put through a rigorous review process to ensure compliance with Florida law. There have been instances during an examination of a VSP whereby OIR has discovered a file represented as a Florida file that was actually a non-Florida file. OIR also has discovered instances whereby a file represented to be from another state was later revealed to be a Florida transaction. Alan Buerger, Petitioner's founder, Chief Executive Officer, and Treasurer, provided testimony during deposition and final hearing. During deposition, Mr. Buerger testified there have been instances where Petitioner has misplaced or mislabeled a viator’s state of residence. Section 624.316(1)(c), Florida Statutes, governing examination of insurers, gives the Commission discretion to adopt a specified rule as follows: (c) The office shall examine each insurer according to the accounting procedures designed to fulfill the requirements of generally accepted insurance accounting principles and practices and good internal control and in keeping with generally accepted accounting forms, accounts, records, methods, and practices relating to insurers. To facilitate uniformity in examination, the commission may adopt, by rule, the Market Conduct Examiners Handbook and the Financial Condition Examiners Handbook of the National Association of Insurance Commissioners, 2002, and may adopt subsequent amendments thereto, if the examination methodology remains substantially consistent. The Commission has not exercised its discretion to adopt the NAIC Market Conduct Examiner's Handbook (currently known as the "Market Regulation Handbook") or any other rule relating to procedures or methodologies for market conduct examinations carried out pursuant to Chapter 624, Florida Statutes. Petitioner alleges that the following documents contain statements that should be adopted by a rule: (1) SPA Field Exam Policy, (2) VSP Manual, and (3) VSP Exam Procedures. OIR's examiners receive these documents from their supervisors as guidelines to use in the examination of VSPs. The SPA Field Exam Policy is an internal management memorandum that is a flexible guide used to train examiners. The document does not directly or indirectly require a VSP to comply with any statement contained therein or take any action, and it is not a procedure that is important to the public. It is only directed to OIR's field examiners. The SPA Field Exam Policy includes the following policy statement: "Statement of Policy: Field examination shall be conducted in a professional manner in accordance with statutes governing Specialty Insurers." The SPA Field Exam Policy also states as follows: "Purpose or Objective: To establish policies and procedures governing the travel and conduct of the examinations and the review, issuance and distribution of reports of examinations." Its overall objective "is to verify compliance with the specific statutory requirements governing the type of entity under examination." OIR gives the SPA Field Exam Policy to new and existing examiners to tell them how to conduct an examination. The SPA Field Exam Policy includes the following procedures: (a) scheduling of examination; (b) scope and objective of examination; (c) conduct of examination; (d) working paper standards; (e) draft reports of examination; (f) exit conferences; (g) review and issuance of reports of examination; (h) corrective action plans; and (i) travel and administrative matters. According to the SPA Field Exam Policy, an examiner is required to perform an examination using the standard audit program in effect at the start of the examination unless instructed otherwise. The policy states that the scope of the examination is to correspond to that contained in the engagement letter. The VSP Manual is an internal management memorandum that is directed to OIR's examiners. It is a training tool and guideline for examiners that are conducting examinations of VSPs. The manual includes an outline of items to look for during the examinations. The outline tracks the language in the statute. One purpose of the VSP Manual is to ensure that examiners go through all sections of the statute that relate to VSPs and to make sure they test OIR's issues of concern. The VSP Manual states that "[i]n conducting examinations of VSPs, the examiner will use the current audit program (see Attachment A) and follow the guidance offered in this manual." According to the VSP Manual, examiners should review a list of all in-force policies and select a sample of completed settlement contracts. The sample of in-force contract includes Florida and non-Florida contracts. The VSP Manual directs examiners to review the selected policies to verify compliance with twelve bullet points. The twelve bullet points apply only to Florida policies. Out-of- state policies are reviewed only to determine whether there is a violation of Section 626.99275, Florida Statutes. The examiner may deviate from the guidelines in the VSP Manual without receiving approval from management. The VSP Manual does not confer any requirements upon a VSP. It does not establish a procedure that could be used to impose a penalty on a licensed VSP. The VSP Exam Procedures is an internal management memoranda used as a flexible guide to the examiners on how to conduct an examination in accordance with the statutes. It assists the examiners in determining what steps to perform while doing an examination. However, the examiners are allowed to deviate from the document. The information in the document tracks the language of the statutes. OIR's VSP Exam Procedures is the "current audit program" referenced in the SPA Field Exam Policy and the VSP Manual. The first page of the VSP Exam Procedures sets forth the following objectives: Ensure examinations are conducted in accordance with established policies and procedures (examination procedure step 1), Gain an understanding of the company's operations (steps 2,3 and 5), Verify the viatical settlement provider ("VSP") is complying with the provisions of Chapter 626, Part X, Florida Statutes, and in accordance with the terms of its viatical settlement agreements (steps 4 and 6 through 12), Ensure the company is keeping the Office informed of developments that are of interest to it (steps 4 and 6), and Prepare a Report of Examination available to the public (step 15). In step 8, examiners are instructed to select and review a sample of in-force policies for compliance with twelve bullet points. The twelve-point review would apply only to Florida policies. The VSP Exam Procedures does not direct Petitioner or any other VSP to take any sort of action. It is directed exclusively to OIR's examiners. It does not establish a procedure that could be used to impose a penalty on a VSP. During deposition and final hearing, Mr. Buerger was asked how Petitioner was substantially affected by the OIR’s internal management memoranda. Mr. Buerger testified that the requirement to prepare documents and data on a nationwide—rather than Florida-only basis—had a substantial affect on Petitioner. However, Mr. Buerger could not identify any of Petitioner's private interests that are affected by the SPA Field Exam Policy, the VSP Manual, and the VSP Exam Procedures. Mr. Buerger had not read any of the three documents that Petitioner claims constitute unpromulgated rules. OIR provides courtesy letters to VSPs prior to examinations. OIR uses the engagement letters to advise VSPs about upcoming triennial or market conduct/target examinations and to notify them that an examiner will expect to review all of the company's books and records. Notification of upcoming examinations is not required by statute. The engagement letters do not place any requirements upon VSPs. As early as March 15, 2004, engagement letters have contained requests for certain records. However, requests for information in letters may vary on a case-by-case basis depending on a VSP’s licensure history and business practices. Currently, OIR's financial examiner/analyst supervisor, Janice Davis, drafts the letters. Ms. Davis has prepared the letters using the same format since 2007, but an insurance examiner could draft a letter without supervisory approval. The drafter of the courtesy letters can change the letters at any time without approval from upper management and without internal ramifications from the Office. Ms. Davis's letters request VSPs to have the following records available: Copy of latest audited financial statement, if any. Copy of most recent unaudited financial statements. Chart of accounts. Bank statements along with receipt and disbursement journals for all bank accounts for the past 24 months. Documentation supporting ownership interest in the company, together with the complete corporate record book, minutes, corporate resolutions or similar documentation of organizational meeting and resolutions. Copies of all licenses obtained by the company and status of any pending applications for licensure. Copies of all approved forms, disclosures, and contracts, as well as advertising, sales and investment literature. Copies of all contracts or agreement between the company and all persons (including other entities and investors) related to the conduct of business. Listing of all broker and agent commissions paid during exam scope. All contracts with viators, in which the company participated, in primary or secondary market, whether as provider, broker, originator, agent or purchaser. Database of all policies reviewed or considered for purchase. Insured tracking records and files. Premium payment records and files. All viator files, including but not limited to: applications, offers, contracts or agreements, insurance policies, medical records, etc. All complaint and litigation files (and any resolutions thereto. Because VSPs must pay all expenses associated with examinations, advance listing of the specific records that need to be available facilitates examinations. The letters do not require VSPs to provide documentation in a database or spreadsheet in Excel format. It is an option provided to the company. Ms. Davis' letter to Petitioner dated August 14, 2008, states as follows in relevant part: Additionally, to facilitate an expeditious review of the files, please provide the examiner with a database or spreadsheet file in Excel format including, but not limited to, the following documentation . . . . Please provide the following information on all policies purchased, to date: contract identifier viator name viator State of residence insured name insured State of residence settlement amount original viatical settlement provider broker(s) broker commission(s) date of contract date of closing insurer name policy number policy issue date type of coverage (individual, group, term, whole life, etc.) death benefit life expectancy projected maturity date original premium escrow and current escrow balance current status (active vs. matured, sole vs. available) date of death (if applicable) date death claim filed (if applicable (Emphasis in original). If the licensee is responsible for the payment of premiums, please provide a listing (include: unique viator identifier, insurer, policy number, policy face value, frequency of payment, next payment due date and amount due) for all policies purchased since inception for which premiums are due during the next 12 months. The engagement letters make it clear that OIR expects VSPs to provide information as required by Section 626.9922, Florida Statutes. In giving OIR authority to examine all books and records, the statute does not differentiate between in-state and out-of-state records. If a VSP does not produce documents as requested in the courtesy letters, OIR could take disciplinary action against its license. To date, OIR has not taken any such action against a company for not providing the requested documentation. If the company does not provide a database or Excel spreadsheet, OIR will create a database for the documentation by going though paper files at the VSP's expense. During deposition, Mr. Buerger, Petitioner's corporate representative, was asked if Petitioner preferred not to have a letter that provided notice of an upcoming examination and whether Petitioner would prefer an examiner show up to conduct an examination without prior notice. Mr. Buerger responded: “If we are going to have an exam, we’d like to know when somebody’s coming.” OIR has a pending examination of Petitioner's books and records. OIR expects Petitioner to produce documentation and information listed in the engagement letter, including information relating to out-of-state settlement transactions. In the course of an examination that took place in 2005, OIR advised Petitioner that its license would be suspended summarily under an emergency order if it failed to provide out-of-state information. The requirement to produce in-state and out-of-state records creates a financial burden for Petitioner because the majority of Petitioner's records involve out-of-state transactions. For example, in 2005, Petitioner had approximately 1,760 policies nationwide in the three-year period covered by the examination. Only 13 percent of these policies involved Florida residents. OIR billed Petitioner approximately $33,000 for the examination. Petitioner incurred other expenses associated with the 2005 examination such as the following: (a) legal expenses; internal costs for software engineering, accounting and contract services to prepare the database; and (c) substantial time for staff to coordinate information from various departments to prepare the nationwide information. Petitioner's staff spent six to seven hours of time for each of the approximately 517 hours that OIR billed for the 2005 examination. Finally, the request for out-of-state documents required Petitioner to spend a substantial amount of time and resources to ensure the security of personal financial and health information of viators. OIR currently has issued a second notice of triennial examination to Petitioner. The August 14, 2008, engagement letter requires Petitioner to provide documents and information for its policies on a nationwide basis. For the period covered by the second triennial examination, Petitioner has approximately 4,500 to 4,600 policies. Thus, Petitioner expects a substantial increase in the cost of complying with OIR's document review and data requests from the costs it incurred in 2005.
Conclusions THE PARTIES resolved all disputed issues and executed a Settlement Agreement. The parties are directed to comply with the terms of the attached settlement agreement. Based on the foregoing, this file is CLOSED. DONE and ORDERED on this the day of --+-h+----"-''----,,,'f---' Tallahassee, Florida. 200_, m Agency for Health Care Administration 1 Filed July 7, 2009 1:05 PM Division of Administrative Hearings. A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO A JUDICIAL REVIEW WHICH SHALL BE INSTITUTED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF AHCA, AND A SECOND COPY ALONG WITH FILING FEE AS PRESCRIBED BYLAW, WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE AGENCY MAINTAINS ITS HEADQUARTERS OR WHERE A PARTY RESIDES. REVIEW PROCEEDINGS SHALL BE CONDUCTED IN ACCORDANCE WITH THE FLORIDA APPELLATE RULES. THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE ORDER TO BE REVIEWED. Copies furnished to: Karen Dexter, Esquire Agency for Health Care Administration (Laserfiche) Louise Jeroslow 6075 Sunset Drive, Suite 201 Miami, Florida 33143 (U.S. Mail) Claude B. Arrington Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 Ken Yon, Chief, Medicaid Program Integrity Fred Becknell, Medicaid Program Integrity Finance and Accounting CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true and correct copy of the foregoing has been furnished to the above named addressees by U.S. Mail on this the f ;t , 200.?' Richard Shoop, Esquire Agency Clerk State of Florida Agency for Health Care Administration 2727 Mahan Drive, Building #3 Tallahassee, Florida 32308-5403 (850) 922-5873
