The Issue The issue in this case is whether Respondent used its "best efforts" to obtain and maintain adequate insurance to protect its property in accordance with Subsection 719.104(3), Florida Statutes (2008),1 as alleged in the Notice to Show Cause; and, if so, what penalty, if any, should be imposed.
Findings Of Fact Respondent, Waterfront Park Corporation, is a non-profit Delaware corporation, organized in 1956, registered as a foreign for-profit corporation, and doing business in the State of Florida. The Association is subject to the regulatory jurisdiction of Petitioner, Department of Business of Business and Professional Regulation, Division of Florida Land Sales, Condominiums, and Mobile Homes. The Association is responsible for operating the common elements of the Waterfront Park Corporation Co-operative Apartment ("Cooperative"). The Cooperative is located in St. Petersburg, Florida, about one block from Tampa Bay and consists of three buildings with a total of 35 residential units. The Cooperative's governing documents include the Waterfront Park Corporation Co-operative Apartment Perpetual Use and Equity Contract ("Equity Contract"), the Association's By-Laws, and its Articles of Incorporation. Section 6(3) of the Equity Contract provides that "[t]he Cooperative agrees that, to the limit of its resources, it will . . . adequately insure all of the property of the Cooperative against fire, storm, tornado and public liability." Article 8 of the Association's Articles of Incorporation provides that "[t]he management of the affairs of the corporation shall be conducted by its Board of Directors ["Board"] in accordance with the requirements of its By-Laws." Paragraph 51 of the Association's By-Laws provides, in part, the following: "The Board of Directors shall, from time to time, fix and determine the sum or sums necessary and adequate for the continued ownership and operation of the project. They shall determine the amounts required for capital items . . ., and for operating items such as taxes, insurance, repairs, betterments and operating expenses." Prior to April 15, 2006, the Association maintained casualty insurance through Allstate Insurance Company ("Allstate") over its property, including windstorm, general liability, and fire coverage for the three buildings. Sometime prior to January 17, 2006, the Association was notified that Allstate was canceling the Association's casualty policy, effective April 15, 2006. At the Association's meeting on January 17, 2006, members were advised that Allstate, who handled the "building insurance," had canceled its policy. Following this announcement, there was a discussion regarding: (1) the impact on members if the Association did not or could not secure insurance; (2) the possibility of the Association's being self-insured; and (3) cost and possibility of the Association's obtaining insurance. During the January 17, 2006, meeting, the president and treasurer of the Board, Robert Kendrick, advised Association members that, at the present time, the only company that might insure the Association was Citizens Insurance Company ("Citizens"), the State's insurer of last resort. Mr. Kendrick further advised the members that if insurance were obtained through Citizens, the premiums would be at least two to three times what the Association paid in 2005. Sometime prior to the January 17, 2006, meeting, Mr. Kendrick received information about the cost of obtaining insurance through Citizens. This information was provided to him by telephone from the agency that had provided the Association's Allstate coverage. Although Mr. Kendrick received the Citizen's quote by telephone and wrote it down, he did not include it in the Association's proposed 2006 budget. Mr. Kendrick's reason for not including the premium cost for coverage by Citizens was that he had not received a written quote. The budget presented at the January 17, 2006, annual meeting had been prepared before the Association was notified that its Allstate policy was being canceled. Therefore, the amount of insurance premium budgeted for 2006 was similar to the Allstate insurance premium. At the January 17, 2006, annual meeting, the vote to approve the budget, with an insurance premium budgeted similar to the Allstate premium, was unanimous. On or about March 30, 2006, an insurance agent or broker with Insurance Technologies Corporation provided the Association with a written quote for coverage through Citizens. The quote offered the following coverage through Citizens: property damage, including windstorm, at the limit of $3.5 million for the three buildings with a $2,500 general deductible and a five percent windstorm deductible for an annual premium of $17,773. The cost of the annual premium cost for property damage insurance, including windstorm, was significantly higher than the amount budgeted for the year. Therefore, no insurance was purchased for the period after April 15, 2006, when Allstate's coverage expired. Mr. Kendrick did not include the Citizen's premium quote in the proposed 2007 Association budget or any property coverage other than $2,500 for general liability and directors' and officers' coverage. Mr. Kendrick determined to not include other insurance coverage because of the cost of additional coverage.5 Since Allstate canceled its policy, the Association has not purchased any alternative coverage. The coverage limit for the Association's property under the Allstate policy that was canceled, effective April 15, 2006, was for an amount less than $3.5 million. However, the price quotes for the alternative coverage for the Association's property was based on $3.5 million. In or about December 2007, about one year and nine months after Allstate canceled the Association's casualty policy, the Association's Board solicited casualty policy quotes from brokers, Tampa Bay Insurance and its successor, MSM Insurance. The broker provided the Association with a quote from Century Surety and another one from Lloyd's of London. Mr. Kendrick's understanding was that the broker he contacted would go out into the market and get the best quote available. In fact, the cover letters from the broker on both the Century Surety quote and the Lloyd of London's quote stated, "I assure you that I have tried every angle to get you the best possible pricing available." In accordance with the foregoing, Mr. Kendrick reasonably relied on the broker to provide the Board with the lowest price for casualty insurance, including windstorm coverage. The Century Surety December 12, 2007, "property" quote, which excluded coverage for wind/hail and theft, was $11,964.61. The Lloyd's of London January 21, 2008,6 quote was $37,441.39 for "Commercial [Property] Wind" coverage. The amount quoted by Lloyd's of London was more than six times the amount of the Allstate premium for similar coverage and approximately double the Citizens premium quote from the prior year. When Mr. Kendrick received the quotes from Century Surety ($11,964.61) and Lloyd's of London ($37,441.39), he believed that the two policy amounts were to be added together for a combined premium of almost $50,000. However, at hearing, Mr. Kendrick admitted that his belief may have been incorrect and that the quote from Lloyd's of London may have been a revised premium for all coverage. At the Association's 2008 annual meeting, four proposed budgets were presented to the members to vote on. Proposed Budget 1 for 2008 reflected $2,000 as being the total premium for all forms of insurance for 2008. The source of this estimate is unknown. The total cost of Proposed Budget 1 for 2008 was $61,400.00. Proposed Budget 2 reflected a cost of $22,000 for "insurance" and, also listed as a separate line item, $42,000 for "security." Although Proposed Budget 2 did not specify, the $42,000 included not only the cost of a security guard, but also other significant line item increases, including the estimated $22,000 for insurance coverage. The total cost of Proposed Budget 2 for 2008 was $119,400. According to Mr. Kendrick, the proposed 2008 budgets were prepared in late 2007 and before he received the above- referenced quotes from Tampa Bay Insurance and MSM. Therefore, the $22,000 for insurance coverage, including windstorm coverage, was merely an estimated cost. The source from which that estimate was obtained is unclear. Proposed Budget 1 was approved by the members on an 11 to three vote, with five abstentions. In October 2009, Mr. Kendrick, acting on behalf of the Board, obtained another quote for casualty insurance, including windstorm coverage, from MSM. The quote provided by MSM and dated October 28, 2008, was for $59,972.39 and was from the carrier, Lloyd's of London. The quote was itemized as follows: annual premium of $56,000; (2) taxes and fees of $3,722.39; and (3) the agency fee of $250. At the Association's 2009 annual general meeting, two proposed budgets were presented on which the shareholders could vote. Of the numerous line items, there are only three differences between Proposed Budget 1 and Proposed Budget 2. Proposed Budget 1 reflected $2,000 for insurance, $4,000 for security, and $3,600 for administrative purposes, while Proposed Budget 2 included a significant increase in each of those line items. Proposed Budget 2 reflected $60,000 for insurance, $40,000 for security, and $6,000 for administrative purposes. Based on the foregoing, Proposed Budget 2, which totaled $157,500, exceeded Proposed Budget 1, which totaled $61,100, by $96,400. The two proposed budgets for 2009 appeared on the same sheet and included a "note" regarding the impact of each of the two budgets on the members' ownership fees. According to the "note," Proposed Budget 1 would result in no change in the members' maintenance fees, and Proposed Budget 2 would result in a 260 percent increase in members' maintenance fees. On January 20, 2009, during the Association's annual meeting, the members approved Proposed Budget 1, described in paragraph 31 and which totaled $61,100. That budget, which included no casualty insurance, was approved by a 12-to-one vote of the members. The votes of two shareholders were not counted, because no proper proxies from them had been received as of the meeting date. Except as noted above, no other efforts to obtain windstorm coverage were undertaken by Mr. Kendrick on behalf of the Board. At all times relevant to this proceeding, the Association did not have sufficient funds to purchase casualty insurance. Moreover, the majority of the owners of the units were unwilling and/or unable to pay additional assessment. On April 14, 2009, about two months after the action in this case was filed, the Board purchased a broad form casualty policy which covered damage to the Association's property, excluding windstorm. The policy was purchased from Chubb Insurance Company for an annual premium of $6,222.88. Prior to filing its Notice to Show Cause, the Division provided the Association with an opportunity to provide proof of its intent to comply with Subsection 719.104(3), Florida Statutes. The Division also gave the Association several reasonable extensions of time in which to provide proof of its intent to comply with the above-referenced provision.7
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner, Department of Business and Professional Regulation, Division of Florida Land Sales, Condominiums and Mobile Homes, enter a final order: (1) finding that Respondent, Waterfront Park Corporation, did not violate Subsection 793.104(3), Florida Statutes; and (2) rescinding the Notice to Show Cause. DONE AND ENTERED this 30th day of October, 2009, in Tallahassee, Leon County, Florida. S CAROLYN S. HOLIFIELD Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 30th day of October, 2009.
Findings Of Fact Introduction At all times relevant hereto, respondent, Florence Mounts Williams (Williams or respondent), was licensed as an insurance agent by petitioner, Department of Insurance and Treasurer (Department or petitioner). When the events herein occurred, Williams was an officer and director of Mr. Auto Insurance of Okeechobee, Inc. (Mr. Auto), an incorporated general lines insurance agency located in Okeechobee, Florida. She was also an officer and director of Florida Insurance Agency, Inc. (FIA), an insurance agency doing business in the same city. Respondent sold insurance to the public through both businesses. Williams is charged with violating the Florida Insurance Code while dealing with nine customers during the period between 1984 and 1986. These business transactions were made either through Mr. Auto or FIA, and, with certain exceptions, generally relate to Williams accepting a premium for a policy and then failing to procure a policy for the customer, or falling to refund the premium after the customer cancelled the policy. Some of these customers eventually filed complaints with the Department, and after an investigation was conducted, the administrative complaint, as amended, was issued. That prompted this proceeding. The State of the Industry and Williams in 1984-86 Before discussing the specific charges, it is appropriate to describe the industry conditions and practices as they existed in 1984-86. These were established without contradiction by expert witness Beverly. It is within this broad framework that Williams operated when the transactions in question occurred. The expert's bottom line conclusion, after reviewing the nine customers' files, was that no impropriety had occurred. The agent-customer interface normally begins when a customer visits an insurance agent to purchase a policy. The agent will generally get a rate quotation by telephone from a managing general agent (MGA) who brokers policies on behalf of various insurance companies. An MGA may more accurately be described as a branch office of the insurance company under contract. If the rate quoted by the MGA to the agent is acceptable to a customer, the agent has the applicant complete an application and pay the quoted premium, or at least make a down payment on the same. The application and premium are then forwarded by the agent to the MGA for risk review to determine if the applicant meets underwriting requirements. At the same time, the agent will issue a binder to the customer which evidences temporary coverage until the application is accepted or rejected by the insurance company. In the event coverage is later declined, industry practice dictates that the agent obtain coverage with another company as soon as possible since the agent has the responsibility to maintain coverage on a customer. However, what constitutes a reasonable period of time to do so was not disclosed. In obtaining new coverage, the agent need not have the customer execute a new application since the validity of the original application is not affected. The customer should, however, be notified at the earliest convenient time that coverage is with a different company. In some cases, a customer may choose to finance his premium through a premium finance company. If he does, the finance company pays the entire premium to the MGA or insurer when application is made, and the customer pays the amount owed (plus a finance charge) to the finance company through installment payments over an agreed period of time. If for some reason an application is not accepted by the insurer, it is the responsibility of the MGA or insurer to so notify the premium finance company and return the money. The finance company must then refund any money paid by the insured. When the events herein occurred, it was established through expert testimony that the Florida insurance marketplace was in a "chaotic" condition and could be described as a "zoo." During this time, a small agent such as Williams might find herself doing business with as many as fifteen different MGAs, each with a different set of rules. Thus, it was common for an agent to be confused as to her binding authority with a particular MGA and whether the proper amount of coverage was obtained. Moreover, because of the chaotic marketplace, it became increasingly difficult to find companies who would write coverage on certain types of policies. It was further established that in 1984-1986 the MGAs were "overflowed with work" thereby causing delays of up to "months" for an agent to learn from an MGA if the risk had been accepted and a policy issued. Applications and checks were also lost or misplaced by the MGA and carrier during this time period. Consequently, the agent would think that coverage had been obtained, and so advise the customer, but would later learn that the application had been rejected, or the company had no record of one ever being filed. There were also lengthy delays in MGAs and insurance companies returning unearned premiums to the agent for repayment to the customers. According to industry practice, once a refund is received by an agent, checks to customers would typically be issued only once a month. In Williams' case, she made refunds on the twenty-fifth day of each month. A further prohibition on an agent is that a refund can be paid to a customer only after the agent receives the refund check from the insurance company or MGA. In other words, refunds from an agent's own funds are prohibited. As a result of this confusion, the number of occasions when an agent was cited for an error or omission (E&O) went up "astronomically." Indeed, industry statistics tell us that one in six insurance agents has a claim filed against his E&O policy for failure to provide coverage as promised. For this reason, no reasonable agent, including Williams, would do business without an E&O policy. When the policies in question were sold, Williams had approximately 4,000 active and inactive files in her office. Her office help was mainly persons with no prior training in insurance, and who only stayed on the job for a matter of weeks or months. Consequently, there was some confusion and disarray in her two offices. Even so, Williams was responsible for the conduct of her employees. At the same time, however, it was not unreasonable for Williams to assume that, due to the overload of work on the MOAs, an agent could expect no action on an application to be taken by an MGA or carrier for many months, and that applications and checks might be misplaced or lost. Count I This count involves an allegation that Williams violated nine sections of the Insurance Code in conjunction with the sale of a boat insurance policy to David and Margaret Copeland on September 19, 1984. The evidence reflects that Margaret Copeland applied for insurance on her boat with Mr. Auto on or about September 19, 1984. Copeland had previously been turned down for insurance by several other local agents. After Williams received a telephonic quote of $168 per year from an MGA, and relayed this advice to Copeland, Copeland gave a $30 check as a down payment on her policy. The remaining premium was paid by two partial payments made on October 6 and November 7, 1984, respectively. Copeland was issued a binder to evidence her insurance coverage, and a receipt for the $30 down payment. The binder indicated that Barnett Bank was the loss payee and that coverage was with "Professional." In actuality, "Professional" was Professional Underwriters Insurance Agency, Inc. (Professional), an MOA in Altamonte Springs for various insurance companies doing business in the state. According to Williams, the application and check were forwarded to Professional shortly after the application was executed. Because the boat was being financed with Barnett Bank, and the lender required evidence of insurance, Copeland instructed Mr. Auto to furnish a copy of the policy to the bank. A copy of the binder was furnished by Williams to the bank on November 19, 1984, and again on December 7, 1984. However, after Margaret Copeland did not receive a copy of a policy, she contacted Mr. Auto on several occasions to obtain a copy but was given "excuses" why one had not been issued. At this point Williams simply believed Professional was "dragging its feet" since past experience had taught her Professional typically took three to four months to forward a copy of the policy. Nonetheless, in response to Copeland's requests, Williams wrote Professional on December 3, 1984, asking that it "please check on the (Copelands') boat policy which was written 9-19-84" because the lienholder needed a copy. Professional did not respond to Williams' request. After no policy was received, Margaret Copeland contacted Professional's office in Altamonte Springs by telephone and learned no policy had been issued by that firm. The Copelands then requested Mr. Auto to cancel their policy on March 12, 1985, and demanded a full refund of their premium. After having the Copelands execute a notice of cancellation, the same was forwarded by Williams to Professional with a note reading "Karen, check this out and see what is happening," together with a copy of her previous request that Professional check on the whereabouts of the policy. Again, Professional did not respond to this inquiry. Williams then telephoned Professional and spoke to its office manager seeking advice on the amount of refund due the Copelands. She was told to make a proration. On May 19, 1985, Williams offered David Copeland a partial refund ($89) of his premium but he declined. This amount of refund was based on Williams' belief that coverage existed from September 18, 1984, when she received a quotation, until March 12, 1985, or for approximately six months, and $59 represented the remaining unearned premium. Given the climate of the industry at that time, it was reasonable for Williams to make such an assumption. After Copeland declined her offer, Williams wrote Professional seeking further assistance and stating that "Insured was in here today, wanted his refund. I tried to prorate it and give it to him." Again, Williams received no formal reply from the MGA. To date, a policy has not been produced. Williams eventually refunded the entire premium to the Copelands in February 1987. Through testimony from a Professional representative, it was established that Williams had no binding authority with Professional except on homeowners and dwelling fire policies. On all others, including the type the Copelands desired, it was necessary for the agent to first telephone Professional and receive a "telephone bind" from a Professional representative. In a letter to petitioner dated August 7, 1985, Professional acknowledged that there was "a possibility this risk may have been quoted," but it could find no record of an application having been filed or verification of coverage bound through a binder number or cashed check. It did acknowledge receiving the Copelands' request to cancel their policy in March 1985. If a binder had been authorized, it would have been recorded in a binder book with a number assigned to that binder unless the company lost the policy or otherwise inadvertently failed to record this information. The representative also confirmed that Professional routinely brokered this type of policy in 1984, and that it binds several thousand policies per year. Given this volume of work, the representative acknowledged it was possible that Williams or an employee of her firm may have been given a telephone quote for the Copeland policy, or that the application could have been misplaced. C. Count III On June 19, 1985, William C. Norton, a retired railroad conductor, went to Mr. Auto to purchase an insurance policy for two automobiles. After being quoted an annual premium of $315 by an MGA (Jergen & Roberts), Williams gave this advice to Norton who then gave her a check in that amount. Norton was given a receipt and a binder to evidence his coverage. The binder reflected Norton's application had been placed with "Foremost," which is Foremost Insurance Company (Foremost) in Grand Rapids, Michigan. Williams forwarded the application to the MGA but it was later returned unbound because of several traffic violations by Norton. She then "shopped" the application around and was able to procure a policy from Orion Insurance Company (Orion) through Standard Underwriters, an MGA, at an estimated cost of $528.70 instead of the previously quoted rate of $315 per year. It should be noted that during this period of time, Norton was covered through binders executed by Williams. After Williams paid the amount ($528.70) due the MGA, a policy number (PA-102390) was issued. However, through "neglect" Williams never billed Norton for the difference between the originally quoted premium and the $528. After Orion reviewed Norton's driving record, it increased the annual premium to $622. When Williams received a bill for $622 per year, she sent Norton a notice on October 24, 1985, requesting an additional $144. 2/ When he refused, the policy was cancelled by the company for nonpayment in February 1986. By this time, Norton had gone to another company to obtain coverage. He had also requested from Williams a copy of his policy on four or five occasions but one was never produced. Norton also demanded a full refund of his money even though he had been covered by binders and a policy from June 1985 until February 1986, and was not entitled to a refund. When Williams refused, Norton filed an action in small claims court in February 1986, and won an uncontested judgment for $315. Williams stated she did not contest the matter because of several stressful events then occurring (e.g., a divorce and an employee theft) and the expense of hiring legal counsel. Mobile Home Division of Florida (MHD) is an MGA in Fort Lauderdale that reviews applications for automobile insurance with Foremost (and others), and determines if the applicant meets Foremost's underwriting requirements. It is one of five MGAs in the State representing Foremost. A representative of MHD reviewed his firm's records, and found no evidence of having received the Norton application. However, this was not surprising since Williams had not used MHD to obtain Norton's policy. Count VI Terryl J. Wisener is a college student with numerous traffic violations on his record. Because of this, he was forced to obtain automobile insurance through the Florida Joint Underwriters Association (FJUA), a small group of companies who write policies for high risk drivers such as Wisener. Insurance agents are "assigned" to one of the companies writing policies, even though they are not a regular agent of that company. Allstate Insurance Company (Allstate) happened to be a servicing carrier for FJUA in 1986, and Williams accordingly filed FJUA applications with that carrier when seeking insurance for high-risk customers. Under then existing rules, Williams could temporarily "bind" Allstate by writing a binder on a policy, but approval of the application and issuance of permanent coverage rested with Allstate. Until the application was rejected by Allstate, the driver was insured through the binder. During this same time period, it was "commonplace" for an FJUA carrier to return an application because of an "insignificant error" to avoid having to write a policy on a high-risk customer. On December 30, 1985, Wisener purchased a six-month automobile insurance policy through Williams. When the policy was due to expire on June 30, 1986, he returned seeking a renewal. Williams attempted to place the liability coverage with Allstate and the physical damage coverage through "Coastal," an MGA for Adriatic Insurance Company. She was quoted premiums of $996.70 and $814.70, respectively, for the two policies. After accepting a down payment of $552 from Wisener, she issued a binder and mailed the application to Allstate and Coastal with drafts for the entire premiums due. Because Wisener's Chevrolet Camaro was an eight-cylinder automobile, Coastal rejected the application in October 1986. Williams then attempted to replace the physical damage coverage with Allstate in November 1986. By virtue of Williams' binding authority, Wisener had coverage with Allstate until it rejected his application. The application, along with about fifty or sixty others, was eventually rejected by Allstate on February 27, 1987, because of a lack of "information." Until this occurred, Williams properly assumed that Wisener was covered and that Allstate was reviewing his application. In the meantime, and apparently without advising Williams, Wisener decided in October 1986 to purchase a policy through his parents' Allstate insurance agent in Port St. Lucie. He did so because he "believed" he had no insurance. However, he never made inquiry with Williams to confirm or deny this, or asked for a refund of his money. A representative of Allstate searched his firm's records and could find no evidence that a policy was ever written for Wisener through Williams. The company does acknowledge that it received Wisener's application and that it eventually returned the same "unbound" almost four months later. It gave no explanation for the delay. Although Wisener had not received a refund as of the time of hearing, this responsibility rests with Allstate (and not Williams) since it has never refunded to Williams the money paid by her for Wisener's policy. Count VII This count concerns a mobile home insurance policy purchased by Samuel and Mary Jo Moore in June 1985 from FIA. On June 25, 1985, Mary Jo Moore made application to renew her insurance policy on the mobile home. The policy had been in force for some ten years. Moore paid Williams $118 by check which was deposited and cashed by Williams. A check for $23 was also paid at a later date due to a premium increase. Williams issued Moore a binder evidencing coverage with Mobile Home Insurance Association (MHIA), an MGA in Gainesville, Florida. Shortly afterward, Williams learned from the MGA that the Moores' previous carrier, American Pioneer, had gone bankrupt and that there was a limited market for the Moores' application. Williams thereafter forwarded the application to another MGA, Jerger & Sons, Inc. (Jerger), in early August 1985. Temporary coverage was eventually issued by Jerger on August 23, 1985. However, the application was deemed to be incomplete because information regarding the number of spaces in the Moores' trailer park was lacking. This was not surprising since the Moores lived on private property and not in a trailer park. The application was returned to Williams with a reminder that unless the missing information was submitted to Jerger by September 6, 1985, coverage would be terminated. When no information was filed by that date, Jerger cancelled its coverage and returned the unbound policy on September 12, 1985. The Moores were not notified of this lapse in coverage. By allowing the coverage to lapse, and not notifying the Moores, Williams was negligent in her duties as an agent. After Jerger returned the application to Williams in late August 1985, Williams attempted to get the Moores to furnish photographs of the trailer site, and to sign the new application. Because both worked at jobs during business hours, Williams claimed she was unable to reach them prior to September 6, 1985. Williams continued her efforts to place the insurance and eventually filed the application with Foremost in March 1986. Although Williams concedes a lapse in coverage did occur, there is no evidence that this was an intentional or debilitate act on her part. After having the application returned twice, coverage was finally obtained for $201 in July 1986, or almost a year after the Moores first approached her concerning a renewal of their policy. This policy is effective through July 1987. Williams paid out of her own funds the difference between the original premium ($141) and the $201. In view of the original premium being applied to the 1986-87 premium, the Moores are not due a refund. On October 31, 1985, a tornado struck in the Okeechobee area causing damage to the Moores' trailer. The Moores contacted respondent who, at her own expense, had an adjuster from Vero Beach survey the damage in November. The adjuster learned no coverage was in force. The Moores then contacted respondent who, for some reason, had Jerger search for a policy. As might be expected, none was found, and Jerger would not agree to cover the loss. Williams instructed the Copelands to proceed against her E&O carrier for payment of their claim. At the time of final hearing, the claim had not yet been resolved. Count VIII On or about February 19, 1986, William A. McClellan, a retiree, purchased an automobile insurance policy from FIA. He paid $201 by check to Williams and received from her a receipt and binder evidencing coverage with "AIB" (Associated Insurance Brokers), the MGA for Balboa Insurance Company in Newport Beach, California. After the application was forwarded to AIB, it was initially returned because the agency check was drawn on insufficient funds. Thereafter, the check was made good (with no lapse in coverage) and Williams subsequently received a bill from Balboa for $247, or $46 more than she had previously quoted McClellan. When McClellan was presented the bill for an additional premium on May 1, 1986, McClellan told Williams to cancel his policy and to refund the unearned premium. She relayed this request to AIB and coverage was cancelled effective June 13, 1986. Thereafter, McClellan visited Williams' office at least seven or eight times seeking his refund, but was always told it was still being processed. This was a correct representation by Williams since AIB was less than diligent in processing a refund check. McClellan also filed a complaint with petitioner. Upon inquiry by petitioner, Williams advised the Department that McClellan would be paid as soon as AIB issued her a check. On or about July 29, 1986, AIB finally cut a check in the amount of $91.22 payable to Williams, and eventually issued a second check in the amount of $25.38 on October 1, 1986. The delay in issuing the checks was attributable to AIB and not Williams. After Williams received the first check, she offered McClellan a partial refund of $91.22 but he declined the offer. On October 10, 1986, or the day after Williams received the second check by mail, a representative of AIB flew by private plane to Okeechobee and obtained $133 in cash from Williams, who by then had received the second check from AIB. 3/ The representative paid McClellan the same day. Count IX On or about March 16, 1985, Luther B. Starnes purchased an insurance policy for his two automobiles from Mr. Auto for which he paid $473 by four installments over the next few months. After Williams received a telephone bind, Starnes was issued a binder evidencing insurance with a company called "Integrity." He also received a "Florida Vehicle Identification Card" evidencing PIP and liability coverage on his vehicles. In this case, Williams placed the coverage by telephone with AIB, the MGA for Integrity, which authorized her to temporarily bind the coverage. The application and check were thereafter sent by Williams to the MGA. After not receiving a policy by the fall of 1985, Starnes telephoned a district office of Integrity and learned his name was not on its computer. However, he did not contact Williams after that, or ask for a refund of his premium. Despite the accusation that Williams had no basis to believe that a policy had ever been issued by Integrity, an AIB representative confirmed at hearing that Starnes' application and premium had been received by AIB, and that AIB had issued a policy number covering Starnes. Indeed, respondent's exhibit 10 reflects that Integrity cashed the check, and simultaneously placed a sticker on the check which read "Integrity Insurance Co. Private Passenger Auto 100-FAB- 0206809." This indicated that AIB had assigned a policy number on behalf of Integrity and that Starnes' coverage was in effect. Indeed, Williams properly relied upon her cancelled check in believing that Starnes was insured. Moreover, it was appropriate for Starnes to pay for this coverage until Integrity formally rejected his application. Although Starnes never received a copy of a policy, the responsibility to issue one rested upon MGA or Integrity, but not Williams. Count X On or about July 11, 1986, David and Carolyn Douglas purchased an insurance policy for two trucks owned by David. The policy cost $1300 per year and Carolyn paid Williams this amount by check. A binder was given to Carolyn reflecting coverage through Dana Roerig and Associates (Roerig), an MGA in St. Petersburg for Canal Insurance Company (Canal). Under the MGA's then existing policy, it was necessary for Williams to forward the application to Roerig and request a rate quotation. After receipt of the application Roerig would normally telephone the agent, quote a rate, and then bind if the rate was acceptable. In this case, the quoted rate was unsatisfactory, and Roerig returned the application unbound on August 10, 1986. Williams then attempted to place the coverage through an MGA in Lakeland (E&S Agency). However, Williams was quoted a rate on September 25 which she knew was too expensive. After obtaining the second excessive quote, Williams immediately bound coverage with Allstate and forwarded the Douglas application to that carrier with an agency check on September 25, 1986. Because Allstate accepted only money orders or cashiers checks, and the application was undated, the application and check were returned by Allstate to Williams on October 7. Williams then sent Allstate a dated application and a money order in the amount of $1500, or $200 more than the original Douglas policy required. Although Allstate did not formally issue a policy, it assigned the Douglas application a policy number on December 15, 1986, and simultaneously issued a refund check for $121 to Douglas, since the policy cost $1,179 and not $1,300 as had been originally quoted to Carolyn Douglas. Therefore, at that point the coverage remained in effect. On December 23 Allstate issued another refund check to Douglas in the amount of $776 and advised it was cancelling coverage effective February 6, 1987. Allstate later returned the remainder of the $1,300 owed David and Carolyn Douglas. Therefore, even though they had coverage for some six months through various binders and the policy itself, the Douglases paid no premium. Although Carolyn Douglas made several attempts to obtain a copy of the policy, Williams could not produce one since the two MGAs and Allstate had held the application almost continuously for six months. It is noted that Allstate has never repaid Williams the $1500 sent by her with the Douglas application in October, 1986. Count XI Francis Carr is a locktender on Lake Okeechobee whose duties require him to open and close the locks. The job is subject to bids, and all bidders must have evidence of general liability insurance. Desiring to submit a bid, Carr purchased a one-year general liability policy from Mr. Auto on September 20, 1985, and paid Williams $540.75 for the coverage. Carr received a copy of a policy from Scottsdale Insurance Company (Scottsdale) on a later date. On April 15, 1986, Carr asked that his policy be cancelled. This was done the next day. Carr was due a $181 refund as unearned premium. Through no fault of Williams, the refund check was not issued by Scottsdale until October 21, 1986, or some six months later. Williams later endorsed the check without recourse to a local dress shop. In July 1986, Carr again bid on the locktender job, and, through his wife, made application on July 7 for a new policy so that he could submit a bid. Although the annual premium had now increased to approximately $1,500 per year, Mrs. Carr paid only a $215 down payment. Under this type of policy, Carr was responsible for thirty-five percent of the entire year's premium even if he cancelled the policy after one day. Therefore, the policy had a minimum cost of $525 regardless of its term. Because he had not paid this minimum amount, Williams applied Carr's $181 refund check from the prior year to the minimum amount owed. This was consistent with the industry practice of agents applying credit refunds to new policies of this nature. She also paid $85 from her own funds in early October 1986 to meet the thirty-five percent threshold amount. By then, however, Carr had instructed another employee to cancel his policy since his bid had not been accepted. When he didn't get a refund from the prior year, Carr filed a complaint with petitioner. However, Carr is not entitled to a refund from either year since he still owes Williams $85 for the 1986-87 policy, even after the 1985-86 refund is applied to the second policy. I. Count XII Frank I. Henry and Margaret J. Henry (no relation) lived together in a rented mobile home in 1984. Margaret purchased a policy on the mobile home contents from Mr. Auto in July 1984. She paid Williams a $40 premium, and then made three payments of $47.28 each to Envoy Finance Corporation (Envoy), a Deerfield Beach finance company which financed the balance of the amount owed. Margaret received a binder from Williams reflecting coverage with Mobile Homes Division (MHD), an MGA in Fort Lauderdale Envoy submitted a check for $118.50 to MHD on July 16, 1984, reflecting full payment for the policy. After forwarding the application to MHD, Williams assumed Henry had coverage through American Fidelity Company (AFC), a company which later went out of business that fall. According to MHD, however, the application should have been returned to Williams a few days after it was received because it had no insurance company writing those types of policies. Williams denied receiving the application, and MHD had no record of the application being returned. Williams' version is corroborated by the fact that MHD never advised Envoy that the policy had been returned, something MHD should have done if coverage was rejected. Moreover, MHD has never refunded the $118.50 paid by Envoy in July 1984. According to uncontradicted expert testimony, it is the responsibility of the MGA or carrier to advise the finance company of a coverage denial, and to make a refund to the finance company, which then makes a refund to the customer. Therefore, MHD or AFC, but not Williams, is at fault for not refunding Henry's money. Around April 20, 1985, Frank's mobile home was damaged by a fire. His claim was rejected by MHD since it had no record of coverage. Prior to this time, no request for a copy of the policy had been made by Henry, and Williams properly assumed that Henry's coverage was in effect. Williams has since notified her E&O carrier of a possible liability. As of the time of hearing, Henry's claim was still unpaid and he has not received a refund of his premium from MHD, AFC or Envoy.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that respondent be found guilty of a single violation of Subsection 626.621(6), Florida Statutes (1985), and that all other charges be dismissed. Respondent should be given a reprimand for this violation. DONE AND ORDERED this 29th day of May 1987, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904)488-9675 Filed with the Clerk of the Division of Administrative Hearings this 29th day of May 1987.
The Issue In this disciplinary proceeding, the issues relate to whether Respondent, a licensed insurance agent, violated various provisions of the Insurance Code in connection with his handling of insurance business for three clients, as Petitioner charged in an Administrative Complaint issued in October 2001.
Findings Of Fact Mitchell is a Florida-licensed life, health, and general lines insurance agent subject to the regulatory jurisdiction of the Department. At all times relevant hereto, Mitchell was engaged in the business of insurance, which he transacted through his corporate agency, M.G.M. Insurance Agency II, Inc., also known as Mitchell’s Financial Group, Inc.1 Chiverton (Count I)2 In May 1996, in connection with the purchase of a house, David Chiverton (“Chiverton”) turned to Mitchell’s agency for assistance in obtaining homeowner’s insurance. Mitchell placed the risk with Lloyd’s London, a surplus lines carrier, which issued Policy No. HMO3 012935 (“Policy #1”).3 Policy #1 covered the period from June 29, 1996 to June 29, 1997. Policy #1, in its entirety, is not in evidence——only the declarations page. Thus, the policy provisions are not available for review, and neither are the numerous endorsements referenced in the declarations. While it is undisputed that the main body of Policy #1 was a standard “HO-3” form, that form is not in evidence either. Consequently, looking solely at the record evidence, the undersigned cannot be certain as to what perils, exactly, were covered, not covered, and excluded from coverage under Policy #1. The declarations page advises that Policy #1 afforded several coverages, including, relevantly, $75,000 worth of coverage for the “dwelling” and a separate coverage for “other structures” in the amount of $7,500. Each of these coverages was subject to a separate deductible of $500. The total annual premium for Policy #1 was $1,085.70. Chiverton made a claim under Policy #1 soon after it was issued, for a loss resulting from water damage caused by a ruptured pipe that was located in the ceiling of the dwelling.4 The insurer paid this claim, the amount of which the evidence fails to show. Thereafter, on June 29, 1997, Policy #1 expired according to its terms and was not renewed. The evidence fails to establish an orderly sequence of ensuing events. It is clear, however, that, pursuant to Florida’s surplus lines law, Underwriters at Lloyd’s issued Chiverton a homeowner’s policy, numbered 97HO1956 (“Policy #2”), effective for the period from September 15, 1997 to September 15, 1998. Policy #2 was an “HO-8” policy, which covers fewer risks than does the HO-3 form. Therefore, Policy #2 differed from Policy #1 in several material respects, although the two policies shared certain features as well. For example, the limit of liability for coverage on the dwelling remained the same——$75,000——but was reduced to $1,000 for the other structures. On the other hand, the coverage limit for personal property was increased by $5,000, to $30,000; so, too, was the personal liability coverage ceiling raised, substantially, from $25,000 to $100,000. The loss deductible was $500 (the same as Policy #1) except that losses caused by windstorm or hail were subject to a larger deductible of 10% of the applicable coverage limit.5 The total annual premium for Policy #2 was $731.75, which saved Chiverton about $354 as compared to Policy #1. The Department contends that Policy #2 was inferior to Policy #1, affording less coverage and a higher deductible. The record does not contain a complete copy of Policy #2; in evidence instead is a Certificate of Insurance that is equivalent to a declarations page. Thus, it is impossible to determine, from a review of the instant record, whether Policy #2 was substandard or of poor quality in relation to Policy #1. On the premise of Policy #2’s purported inferiority (which was not convincingly proved), the Department argues that Mitchell acted against Chiverton’s best interests by obtaining Policy #2 rather than a policy similar to Policy #1. Chiverton testified that he would not have agreed to purchase Policy #2 had he known that the deductible (for windstorm and hail) was much higher and the coverage (he and the Department argue) more limited. However, the Department’s and Chiverton’s contentions ignore the advantages of Policy #2 (e.g. higher coverage limits for some coverages, lower premium), which a reasonable person might well have found attractive at the time the policy was written. At bottom, the problem with the Department’s position——and Chiverton’s testimony about what he would or would not have done——is that it constitutes Monday morning quarterbacking made with knowledge of losses that occurred during the coverage period of Policy #2. Chiverton made two claims under Policy #2, and both were denied. The first claim was for damages to the dwelling and the other structures that were caused by a windstorm on February 2, 1998. The evidence is sketchy as to what, exactly, happened on that date, and there is no persuasive proof regarding the actual cost of the repairs (or even if any were made). The adjuster’s report states that the dwelling sustained damages in the amount of $283.42 from a leaking roof and that the other structures suffered roof damage that would cost an estimated $1,636.57 to repair. The adjuster concluded that the loss to the dwelling fell within the $500 deductible and hence could not be paid. He concluded similarly that the loss to the other structures was within the 10% windstorm deductible and thus not payable either. The Department contends that this entire loss would have been covered under Policy #1. It is impossible adequately to evaluate this contention because, as explained above, neither Policy #1 nor Policy #2 is in evidence in its entirety. However, based on the adjuster’s figures, it appears that much of this claim would not have been paid under Policy #1. The damages to the dwelling ($283.42) fell under Policy #1’s $500 deductible; therefore, Lloyd’s London presumably would not have paid that portion of the claim. The roof damage to the other structures might have been covered under Policy #1,6 but the carrier would have subtracted the $500 deductible applicable to the “other structures” coverage, resulting in a payable claim of $1,136.57. The second claim, which Chiverton made in March 1998, sought reimbursement for a loss resulting from water damage caused by a ruptured water heater. This claim was denied on the ground that the loss was not covered. The Department’s contention that this claim would have been covered under Policy #1 is not proved. Without the entire policy to review, it is impossible to find that Policy #1 would, in fact, have covered this type of loss. In sum, the Department has failed to prove, even by a preponderance of evidence, that Policy #2 was not in Chiverton’s best interests; that Policy #2 caused injury or loss to the public; or that in obtaining such coverage for Chiverton Mitchell manifested a lack of competence or knowledge. Indeed, based on the extremely limited evidence in the record, it is as likely as not that, at the inception of coverage, Policy #2 was a better deal for Chiverton, on the whole, than Policy #1 had been. There is also reason to believe that, given Chiverton’s claims experience, a standard HO-3 homeowner’s policy with a small, $500 deductible on the windstorm coverage simply could not have been obtained for him. Apart from the above, the Department has charged that Mitchell forged Chiverton’s signature on the application for Policy #2. The evidence on this point is at best inconclusive—— and not nearly clear and convincing. The proof consists primarily of Chiverton’s testimony that the signature on the application is not his.7 Chiverton also testified that he never authorized anyone to sign this application on his behalf. There is no persuasive, much less clear and convincing, evidence that Mitchell personally “forged” Chiverton’s signature on the application. Further, it is highly unlikely that the application was signed by someone who intended to defraud or otherwise injure Chiverton. The undersigned is not clearly convinced that the person who signed the application for Chiverton (assuming it was not Chiverton) did so without either express or implied authorization, for the following reasons. First, as mentioned, Chiverton made two claims under Policy #2, in February and March 1998, respectively. There is nothing in the record which suggests that for the first five or six months of this policy’s life, Chiverton was dissatisfied with the coverage afforded thereunder. He seems not to have had any problems with Policy #2 until his claims were denied. Granted, the denial of these claims might have been his first notice of any potential problems with the policy, but even so, there is no contemporaneous evidence that Chiverton believed he had been effectively defrauded by the submission of a sham application. Second, Chiverton acquiesced in the renewal of Policy #2. It is undisputed that Underwriters of Lloyd’s issued a renewal policy, numbered 98HO1956 (“Policy #3”), that was (as far as the record shows) identical to Policy #2 in terms of coverage and limitations. Policy #3 was in effect from September 15, 1998 to September 15, 1999. There can be no doubt that, by the time Policy #2 was renewed, Chiverton possessed actual knowledge that some provisions of this policy, e.g. the 10% windstorm deductible, were less desirable than some provisions of Policy #1 (and, conversely, that some aspects of Policy #2, e.g. the price, were more desirable). Yet, there is no persuasive evidence that Chiverton objected to the renewal of Policy #2, which undermines the contentions that Policy #2 was the product of a fraudulent application and that Chiverton would never knowingly have purchased such coverage. Finally, Chiverton made at least two claims under Policy #3. On the first of these, submitted in December 1998, the carrier paid Chiverton $526.55 for a burglary loss. The second claim, which stemmed from another broken pipe, was denied in or around January 1999. There is no persuasive evidence that Chiverton contemporaneously expressed any dissatisfaction with Policy #3.8 Because Chiverton made claims and accepted benefits under Policy #3——a policy that he knew was not identical to Policy #1 and was, in fact, the renewal of Policy #2——the undersigned has determined that Chiverton either authorized the submission of the application that he supposedly did not sign or, alternatively, ratified the submission of that application. In any event, the signature on the application was not shown, clearly and convincingly, to have been forged by Mitchell. Rodriguez (Counts II-IV) In mid-1998, Aramis Cabrera and Nelys Rodriguez (collectively “Rodriguez”) agreed to purchase a house. At the closing of this transaction on June 29, 1998, Universal American Mortgage Company (“UAMC”), which was Rodriguez’s mortgagee, tendered $454 to Mitchell, who was Rodriguez’s insurance agent, as payment in full for one year’s premium on a homeowner’s policy insuring the property against windstorm and other hazards. Mitchell’s office accepted the premium payment and produced an instrument entitled “Evidence of Property Insurance” as proof that FRPCJUA had issued Rodriguez a homeowner’s policy covering the property for the period from May 29, 1998 to May 29, 1999. Consequently, Rodriguez and UAMC reasonably believed that such coverage was in force. In fact, however, FRPCJUA had not issued a policy; Rodriguez was without homeowner’s insurance.9 A year later, when the time came to renew the non- existent homeowner’s policy, Mitchell’s office delivered an insurance binder to UAMC showing that for the period from May 29, 1999 to May 29, 2000, the Florida Windstorm Underwriting Association (“FWUA”) would carry Rodriguez’s windstorm insurance and that United Property and Casualty Company (“UPC”) would cover the other hazards. According to the binder, the premium for the windstorm coverage was $446 and for the other hazards, $585. On May 26, 1999, UAMC sent Mitchell’s agency two checks—— one for each premium——totaling $1,031. Thereafter, UAMC increased Rodriguez’s monthly mortgage payment to account for this steep increase in the cost of insurance. Rodriguez complained, both to UAMC and to Mitchell’s office, but to no avail. Meanwhile, unbeknownst to either Rodriguez or UAMC, Rodriguez’s property was still not insured. The binder notwithstanding, neither UPC nor FWUA had actually issued a policy.10 Months later, in October 1999, Mitchell’s office submitted an application to Fortune Insurance Company (“Fortune”) on Rodriguez’s behalf for dwelling fire insurance. In a letter to Rodriguez dated December 29, 1999, Fortune rejected the application, explaining that it had ceased writing new business in Dade County prior to the application date. At some point, too, Mitchell’s office applied to FWUA for windstorm insurance on Rodriguez’s property and tendered $416 in payment of the premium. Evidently there was some problem with this application, however, for FWUA returned the entire $416 payment, sending Mitchell’s agency a check in that amount dated December 20, 1999. Mitchell’s office then resubmitted Rodriguez’s application, together with $416, and this time FWUA accepted the risk, issuing a declarations page on March 1, 2000, that evidenced windstorm coverage on Rodriguez’s home from January 12, 2000 to January 12, 2001. At the same time, FWUA sent Mitchell’s agency a check for $122 because FWUA had been overpaid: the actual premium for the windstorm policy was only $294. When UAMC received FWUA’s declarations page in March 2000 showing that Rodriguez’s windstorm coverage had commenced on January 12, 2000, the lender became concerned, knowing that Mitchell’s office had been sent a check for $466 ten months earlier to pay for an FWUA policy that was supposed to have taken effect on May 29, 1999. UAMC immediately demanded that Mitchell provide verifiable evidence of continuous coverage on the Rodriguez property, from the date the loan closed in June 1998 to the present. Mitchell could not comply. Instead, he refunded the money that UAMC had paid his agency for Rodriguez’s insurance. To that end, Mitchell sent UAMC checks dated March 2, 2000, and March 15, 2000, in the amounts of $416 and $1,069, respectively, which equaled the total amount ($1,485) that UAMC had tendered to his agency.11 On March 16, 2000, Mitchell delivered yet another check, in the amount of $122, to UAMC. Thus, UAMC received from Mitchell $122 in excess of the amounts it had paid his agency for insurance——and Mitchell wound up paying, out of his own pocket, for Rodriguez’s windstorm policy for the one- year period beginning on January 12, 2000. Whether the product of incompetence, negligence, or intentional wrongdoing, serious acts of misconduct were carried out in Mitchell’s name and under Mitchell’s license. It is appalling that from May 28, 1998 until January 12, 2000, Rodriguez had no windstorm insurance and, until at least March 2000 (and probably later——the evidence is unclear) no insurance for other hazards either, despite having paid for such coverage and having been assured that it was in place. At hearing, Mitchell did not deny that problems had occurred in connection with Rodriguez’s insurance matters, and he accepted responsibility for them as the licensed agent in charge of his office. But, by way of exculpation, Mitchell blamed a former employee for having mishandled Rodriguez’s business, and he disclaimed personal knowledge of, or involvement in, the transgressions associated therewith. The evidence does not dispute or negate this hypothesis. Indeed, no persuasive direct evidence clearly shows that Mitchell himself specifically intended to violate any particular statutory or rule provision in connection with the Rodriguez account. Likewise, there is no persuasive direct evidence that Mitchell personally intended to defraud Rodriguez (or UAMC), or that he personally, willfully misappropriated funds belonging to another. In short, the evidence adduced at trial does not convince the undersigned that Mitchell personally committed, caused, condoned, or knew about the misconduct. Whether Mitchell should have known of these misdeeds is a closer question. Making the issue difficult is that the Department presented no evidence of (or argument concerning) the minimum standards of conduct that insurance agents must meet in the exercise of due care. Thus, there is no direct proof that Mitchell negligently supervised his employees, which breach of duty would make him personally culpable for their wrongdoing. Lacking direct evidence, the undersigned has carefully considered whether to infer, based on the nature of the violations or other circumstantial evidence in the record, that Mitchell should have known of the misconduct that occurred in his office. Such an inference would not be outlandish. After all, documents issued in Mitchell’s name falsely assured Rodriguez and UAMC that coverage was in place when in fact it was not. And, profiting from such misrepresentations, Mitchell’s office accepted payments from UAMC (made on Rodriguez’s behalf) for insurance that did not exist. One wonders: Wouldn’t Mitchell have discovered these problems if he had reasonably supervised his employees and made a reasonable review of the files? Before answering “yes,” consider that the Department made no attempt——and hence failed——to prove that the apparent misconduct of Mitchell’s employees was so flagrant, persistent, or practiced that a prudent person could not possibly have missed it. Similarly, there is no evidence concerning the volume of Mitchell’s insurance business, and thus the record does not permit a reliable conclusion to be drawn as to whether these were relatively isolated, easily overlooked lapses——or glaring problems that could not reasonably have been missed.12 Nor did the Department present persuasive evidence that Mitchell completely failed to supervise his employees.13 Absent such evidence, it is debatable whether an inference of constructive knowledge is legally permissible here. Even if an inference leading to the ultimate factual determination that Mitchell fostered, condoned, or negligently overlooked the misconduct of his employees were permissible, however, such an inference would be a relatively weak one. Ultimately, therefore, while it is tempting, given the gravity of the misconduct, simply to pronounce that Mitchell should have known of the problems that plagued Rodriguez, such a finding would rest too much on the undersigned’s personal opinion and not enough on either persuasive direct or compelling circumstantial evidence of negligent supervision. At bottom, the evidence does not clearly convince the undersigned that Mitchell should have known of the deceptive practices that occurred in his office in connection with the Rodriguez account. Mitchell, therefore, is not guilty of the charges brought in Counts II and III of the Administrative Complaint.14 As for the charge brought in Count IV, wherein the Department accused Mitchell of having submitted an application to Fortune after he had been informed by the insurer that risks in Dade County would no longer be accepted, the only proof of this alleged fact is a letter from Fortune to Rodriguez dated December 29, 1999, which is plainly hearsay and as such cannot be relied upon by the trier. Even if credited, this document would not constitute clear and convincing proof of the charge. Thus, Count IV fails for want of adequate evidence. Kidd (Count V) Jean Kidd (“Kidd”) was a client of Mitchell’s whose homeowner’s insurance had been placed with American Colonial Insurance Company (“American Colonial”) through Mitchell’s agency. Kidd’s initial policy covered the period from November 7, 1998 to November 7, 1999. Before Kidd’s policy was due to expire, American Colonial’s managing general agent, which is identified in the record only as “MHD,” sent a renewal offer to Kidd and to Mitchell. The renewal offer comprised two pages, but only the first page is in evidence. The second page——which, according to page 1, contained “important Coverage and Premium Information”—— is not in the record. Apparently, the insured’s acceptance of the renewal offer was to be manifested by paying the premium. For reasons that the evidence does not explain, Kidd failed to respond to the renewal offer, and her policy with American Colonial lapsed on November 7, 1999, for nonpayment. The evidence does not establish whether Mitchell knew that Kidd’s policy had lapsed. It is not clear, either, whether Mitchell should have known about Kidd’s failure to pay, because while her policy was in force, Kidd had been making payments to a premium finance company, not to Mitchell.15 Some time later——the evidence is unclear——Kidd contacted Mitchell to inquire about renewing or reinstating her policy. Mitchell informed Kidd that she needed to make a “down payment” of $282 to reinstate the policy, and on April 20, 2000, Mitchell personally collected Kidd’s check, payable to Mitchell’s insurance agency, in that amount. The evidence is in conflict as to Mitchell’s handling of this money. Mitchell testified that on April 21, 2000, he mailed $282 to American Colonial’s managing general agent on Kidd’s behalf, and there is a document in evidence corroborating this fact. The Department did not directly dispute or negate Mitchell’s testimony. On the other hand, it is clear that American Colonial did not receive these funds, which arguably casts some doubt on Mitchell’s account. Providing a plausible resolution of the conflict is that around this time, American Colonial was in the process of transferring its business from MHD to a new managing general agent, MacNeill Group. Although there is no direct evidence, the inference that MHD lost, misplaced, or mishandled Mitchell’s $282 check in the shuffle of the transition is sufficiently reasonable that the undersigned is unable to find, without hesitancy, that Mitchell willfully misappropriated Kidd’s money, as the Department has charged. It is not clear what, if anything, Mitchell did to follow up on the down payment and follow through with the reinstatement of Kidd’s policy. Since American Colonial did not issue a policy in or around April 2000, a reasonable observer might surmise that Mitchell dropped the ball. The obstacle to making a finding to that effect, however, is the complete absence of evidence in the record establishing the applicable minimum standards of conduct against which Mitchell’s performance can be judged. While the undersigned holds the personal view that a reasonably diligent insurance agent should at least keep track of the progress of his client’s insurance application and promptly inform his client of the insurer’s acceptance or rejection of the risk, the undersigned does not make the rules, set the standards, or decide cases based on his personal preferences. As for what happened next, the evidence is incomplete. In July 2000, Kidd suffered a loss from water damage caused by a leaky pipe under her kitchen sink. She contacted Mitchell’s office and, on July 24, 2000, was sent a two-page fax consisting of a cover sheet and page 1 of American Colonial’s renewal offer, which had lapsed in November 1999. According to Kidd, Mitchell’s “then secretary” sent this fax, at Kidd’s request, so that Kidd could file a claim.16 Kidd understood the renewal offer to be evidence of coverage. The Department contends that Mitchell fraudulently and dishonestly passed off American Colonial’s renewal offer as proof of insurance. Nothing in the July 24, 2000, fax, however, characterizes the renewal offer as such. More important, the evidence demonstrates that Sharon Montgomery——not Mitchell——sent the fax, and there is no persuasive direct or compelling circumstantial evidence that Mitchell knew or should have known that these pages were transmitted, much less the reason for the communication. In sum, the undersigned is not convinced that Mitchell personally misrepresented to Kidd the existence of an insurance policy; that he condoned such deception; or that he negligently permitted this to occur. In October 2000, Kidd’s roof was damaged in a storm, and she contacted Mitchell about making a claim. Mitchell was personally involved in this claim, although it is not clear that he or his agency submitted paperwork to American Colonial or otherwise put the carrier on notice. Rather, it appears that Mitchell advised Kidd to make a claim with the Federal Emergency Management Agency, and he may have assisted her in doing so. Dissatisfied with the service that Mitchell’s agency was providing, Kidd eventually filed her claims directly with American Colonial in late October or November 2000. Upon investigation, the carrier determined that Kidd’s original policy had lapsed in November 1999 for nonpayment of premium. However, in late December 2000, American Colonial decided to honor Kidd’s claims anyway, issuing her a policy effective retroactively, as of April 20, 2000 (the date she had tendered $282 to Mitchell for a down payment), on the condition that she promptly pay a balance of $1,418 in premium. By letter dated December 20, 2000, American Colonial rescinded Mitchell’s authority to act on its behalf and demanded that he pay $282 towards the premium for Kidd’s policy. On December 22, 2000, Mitchell sent American Colonial a check for that amount. Although the evidence is spotty, it is clear that as of October 2000, when he became personally involved in handling a claim for Kidd, Mitchell should have known that Kidd was without coverage, and he probably should have taken affirmative steps immediately to correct the problem. The Department, however, did not charge Mitchell with misconduct relating to his apparent failure to do something to protect Kidd at this late date, focusing instead on alleged violations (misappropriation of funds, misrepresentation of coverage) that were not clearly and convincingly proved. Moreover, the Department did not offer any evidence as to the minimum standards of conduct in these circumstances. Thus, while the undersigned believes that Mitchell should have done something, he can only speculate as to what Mitchell should have done. Similarly, Mitchell’s handling of Kidd’s second claim (for roof damage) seems to have been woefully inadequate, but, again, Mitchell was not charged with any violations relating to claims administration per se, and in any event there is no evidence concerning the applicable standards of conduct in this regard. Consequently, the undersigned is compelled to make the ultimate factual determination that the Department has failed to prove, clearly and convincingly, the truth of the charges brought against Mitchell in connection with Kidd.17
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department enter a final order finding Mitchell not guilty of the charges brought against him in the Amended Complaint. DONE AND ENTERED this 18th day of November, 2002, in Tallahassee, Leon County, Florida. JOHN G. VAN LANINGHAM 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 18th day of November, 2002.
The Issue The issue in this case is whether Respondent committed the offenses alleged by the Department of Financial Services in the Administrative Complaint dated May 27, 2009, and, if so, what penalty should be imposed.
Findings Of Fact Petitioner, the Department of Financial Services ("Petitioner" or "the Department") has regulatory responsibility for Chapter 626, Florida Statutes (2009), the insurance licensing procedures law. Respondent, Eileen P. Suarez ("Respondent" or "Suarez"), is a licensed general lines agent transacting in property and casualty insurance, under license number E129078. She operated and was the agent in charge of the Suarez Insurance Agency, Inc. ("Agency"), in Hialeah, Florida. The Agency held a valid state license from 7/21/2006 to 7/27/2009. The Department filed a three-count Administrative Complaint against Respondent alleging that she violated various provisions of Chapter 626, Florida Statutes. COUNT I John Vila is the president of Vila Home Group, Inc., a trucking company that is in the business of hauling sand, soil, and gravel. In April 2005, he purchased a dump truck and, at the suggestion of the dealer, contacted Suarez for insurance. Suarez sold Vila two insurance policies, for the period April 29, 2005 to April 29, 2006, one with AequiCap Insurance Company ("AequiCap") and the other with the Underwriters at Lloyds, London ("Lloyds"). The AequiCap Policy was a commercial liability insurance policy. The Lloyds Policy was a commercial automobile physical damage insurance policy. In March 2006, Vila gave Suarez a check in the amount of $10,876.41, made payable to the Agency to renew the AequiCap and Lloyds policies, for the period April 29, 2006 to April 29, 2007. The AequiCap policy quote was approximately $5,350.00. The Lloyds policy quote was approximately $5,500.00. The check was deposited in the Agency's trust account, but the Lloyds policy was allowed to expire on April 29, 2006, and was not renewed until October 26, 2006, creating a six-month gap in commercial automobile physical damage insurance coverage for Vila. When it was renewed, the Lloyds Policy cost $5,712.03. Vila's AequiCap policy expired on April 29, 2006, and was not renewed because Suarez failed to pay MAI Risk Management, AequiCap's managing general agent. The funds were not returned to Vila. While the March 2006 quotes were pending, the registered driver of the truck, Andres Vila, was involved in an accident and was at fault for hitting a wire. Rather than risk an increase in the pending insurance quotes, Vila paid Bellsouth $2,390.36 in damages. COUNT II On or about October 26, 2006, Suarez provided Vila a Certificate of Liability showing that the truck was insured with AequiCap, under policy number TC012695, and with Lloyds, under policy number R641440/0251, for the period April 29, 2006 to April 29, 2007. Vila was not insured under AequiCap policy number TC012695 from April 29, 2006 to April 29, 2007. The Certificate of Liability was a false document that Suarez created on her computer, printed, and gave to Vila. COUNT III Shelly, Middlebrooks & O'Leary, Inc. ("Shelly Middlebrooks") is a licensed insurance agency, located in Jacksonville, that acts as a general agent for multiple insurance companies. Suarez collected insufficient funds to include the premiums that were intended to be forwarded to Shelley Middlebrooks for policies to insure the following trucking companies: All Nations Logistics, LLC (Policy Number 486865); Jose Veiga, d/b/a JJ Freightways (Policy Number 486885); Gary Castle/Diamond Mine (Policy Number 74APN338354); and Nics Oil, Inc. (Policy Number 74APN401617). For each of the four companies, she requested and received binders for insurance from Shelly Middlebrooks, followed by invoices for the premiums that were to have been paid within ten days of the date the invoices were received. In each instance, Suarez did not pay Shelly Middlebrooks, which cancelled the policies for non-payment of the premium. It also obtained a default judgment in the Circuit Court in and for Duval County, Florida, that requires Suarez to pay it the outstanding balances due for the four policies and a $25 insufficient funds check fee, for a total of $8,335.60, which she has been unable to pay. Instead of paying for insurance, Suarez used most of the funds she collected to pay for various other corporate expenses for the same trucking companies, including state and federal government filings for intrastate or interstate travel that were prerequisites to their becoming insurable. Suarez expected to collect the additional funds needed for insurance later, but the clients, the owners of the trucking companies, did not pay her. Suarez admits that she failed her clients in 2006, after her father's death in February 2006. She realized the Vila errors and tried to correct them in October. The Agency is now closed. Suarez's husband has been unemployed for over a year, and their home is in foreclosure. She is receiving social security disability payments and has insufficient funds to file for bankruptcy.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered by the Department of Financial Services: Finding Respondent guilty of violating Subsections 626.611(7), (8) and (10); Subsection 626.561(1); and Subsections 626.621(2) and (6), Florida Statutes, as charged in Count I of the Administrative Complaint; Finding Respondent guilty of violating Subsections 626.611(7) and (8); Subsection 626.621(6); and Subsection 626.9541 (1)(e)1., Florida Statutes, as charged in Count II of the Administrative Complaint; Finding Respondent guilty of violating Subsections 626.611(7), (8) and (10); Subsection 626.561(1); and Subsections 626.621(2) and (6), Florida Statutes, as charged in Count III of the Amended Complaint; Revoking Respondent's licenses and appointments issued or granted under or pursuant to the Florida Insurance Code; Ordering Respondent to make restitution to John Vila in the amount of $5,164.38; and Ordering Respondent to make restitution to Shelly Middlebrooks & O'Leary in the amount of $8,335.60. DONE AND ENTERED this 16th day of February, 2010, in Tallahassee, Leon County, Florida. S ELEANOR M. HUNTER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 16th day of February, 2010.
The Issue In this proceeding, pursuant to Section 120.56(4), Florida Statutes, Petitioner United Property & Casualty Insurance Company ("United") challenges several alleged "statements" of Respondent Department of Insurance (the "Department"), which United alleges are rules as defined in Section 120.52(15), Florida Statutes, that have not been adopted properly and therefore violate Section 120.54(1)(a), Florida Statutes. The statements at issue arise from the Department's interpretation and implementation of statutes that authorize insurers such as United to recoup reimbursement premiums paid to the Florida Hurricane Catastrophe Fund (the "CAT Fund"). United seeks a final order: (1) declaring that some or all of the above alleged statements, in whole or in part, violate Section 120.54(1)(a), Florida Statutes; (2) directing that the Department immediately stop relying on any illegal unadopted rule as a basis for agency action; and (3) awarding reasonable attorneys' fees and costs pursuant to Section 120.595(4)(a), Florida Statutes.
Findings Of Fact The evidence presented at final hearing established the facts that follow. The Parties United is a Florida domiciled property and casualty insurance company that received its Certificate of Authority to write homeowners and dwelling fire insurance in this state on April 2, 1999. As an insurer transacting business in this state, United operates within and subject to the regulatory jurisdiction of the Department, which is the executive branch agency responsible for administering and enforcing the Florida Insurance Code. Rates and Premiums United is required by law to establish rates for the lines of insurance it writes in this state. See Section 627.062, Florida Statutes. A "rate" is "the unit charge by which the measure of exposure or the amount of insurance specified in a policy of insurance or covered thereunder is multiplied to determine the premium." Section 627.041(1), Florida Statutes. The term "premium" means "the consideration paid or to be paid to an insurer for the issuance and delivery of any binder or policy of insurance." Section 627.041(2), Florida Statutes. Thus, simply put, the rate times the amount of coverage equals the cost of insurance, which may then be adjusted further to calculate the total premium to be charged a particular policyholder — by applicable discounts, credits, or surcharges included in the insurer's approved rating plan. See, e.g., Section 627.062(2)(d), (e)4, Florida Statutes. Rates and rating plans must be approved by the Department. See Section 627.062, Florida Statutes. The Department's duty is to disapprove rates that are "excessive, inadequate, or unfairly discriminatory." Id. An appropriate and adequate rate "is supposed to pay all the [insurer's costs]," T-222, and afford the insurer "a reasonable rate of return on [the] classes of insurance written [by that insurer] in this state." Section 627.062(2)(a), Florida Statutes. United's Initial Rate Filings and Take-Out Plan On March 3, 1999, United made two initial rate filings with the Department, one for homeowners insurance and the other for dwelling fire. As United explained in its cover letters to the Department, each line of business constituted a proposed "Take Out Program," meaning that United planned to remove homeowners and dwelling fire policies from the Florida Residential Property and Casualty Joint Underwriting Association ("FRPCJUA"). 5/ United also advised the Department that each Manual of Rates and Rules that it was filing was "basically that of the FRPCJUA with some modification to remove extraneous provisions and change names." The parties sometimes have called this type of rate filing a "me too" filing, a descriptive appellation that quickly, if colloquially, conveys the idea that the insurer is taking advantage of the FRPCJUA's already approved rates. On March 3, 1999, the Department's Bureau of Property and Casualty Forms and Rates accepted United's initial homeowners and dwelling fire insurance rates for use. Later, United's rates were approved with an effective date of April 19, 1999. On April 2, 1999, pursuant to a Consent Order with the Department which approved United's take-out plan, United removed approximately 11,500 policies from the FRPCJUA. Each of the policies that United removed from the FRPCJUA is a "covered policy" as defined in Section 215.555(2)(c), Florida Statutes. Consequently, United was required, as is every insurer that writes covered policies in this state, to enter into a "reimbursement contract" with the State Board of Administration, the agency that directs and controls the CAT Fund. Section 215.555(4), Florida Statutes. The CAT Fund and Reimbursement Premiums The legislature created the CAT Fund in November 1993 during a special session that was "called due to a potential crisis in the insurance industry in the aftermath of Hurricane Andrew." 6/ The CAT Fund's purpose was and remains to provide "a stable and ongoing source of reimbursement to insurers for a portion of their catastrophic hurricane losses." Section 215.555(1)(e), Florida Statutes. In consideration for the right to reimbursement from the CAT Fund in the event of a hurricane catastrophe, insurers are required, under their reimbursement contracts, annually to pay into the fund a reimbursement premium. Id.; see also Section 215.555(5), Florida Statutes. Recoupment of Reimbursement Premiums In 1995, the legislature passed a law allowing insurers to recoup reimbursement premiums paid into the CAT Fund. See Chapter 95-276, Laws of Florida. Effective June 14, 1995, this new law, codified as Section 627.062(5), Florida Statutes (Supp. 1996), provided: With respect to a rate filing involving coverage of the type for which the insurer is required to pay a reimbursement premium to the Florida Hurricane Catastrophe Fund, the insurer may recoup the actual amount of reimbursement premium by including in the insurer's rate filing an allowance for the reimbursement premium charged by the Florida Hurricane Catastrophe Fund. In the filing, the insurer must adjust its rates to remove that portion of the rates attributable to catastrophe losses expected to be covered by the Florida Hurricane Catastrophe Fund. In determining what portion of a rate is attributable to catastrophes covered by the Florida Hurricane Catastrophe Fund, the projected recovery from the fund shall be calculated according to the formula specified in s. 215.555(4)(c). During its next regular session, in 1996, the legislature enacted Chapter 96-194, Laws of Florida, which amended Section 627.062(5), Florida Statutes, effective January 1, 1997, to read: With respect to a rate filing involving coverage of the type for which the insurer is required to pay a reimbursement premium to the Florida Hurricane Catastrophe Fund, the insurer may fully recoup in its property insurance premiums any reimbursement premiums paid to the Florida Hurricane Catastrophe Fund, together with reasonable costs of other reinsurance, but may not recoup reinsurance costs that duplicate coverage provided by the Florida Hurricane Catastrophe Fund. Section 627.062(5), Florida Statutes (1997). This version of the section remains in effect today. In 1997, the legislature created yet another new statute addressing the subject of CAT Fund reimbursement premiums. See Chapter 97-55, Laws of Florida. Taking effect on May 9, 1997, Section 672.0629(10), Florida Statutes, provides: A property insurance rate filing that includes any adjustments related to premiums paid to the Florida Hurricane Catastrophe Fund must include a complete calculation of the insurer's catastrophe load, and the information in the filing may not be limited solely to recovery of moneys paid to the fund. The Department's Interpretation and Implementation of the Recoupment Statutes Douglas Hazeltine, an actuary employed by the Department, is the principal regulator regarding recoupment of CAT Fund reimbursement premiums. In that capacity, he is, and at all material times has been, responsible for interpreting and applying Sections 627.062(5) and 627.0629(10), Florida Statutes. Although he denied having a policy-making role at the Department, Mr. Hazeltine testified that his interpretation and application of these particular statutes consistently has been approved by his superiors, with whom (as well as with other colleagues) he has discussed these matters. Accordingly, great weight has been given to Mr. Hazeltine's testimony as an accurate expression of the Department's positions on the meaning and operation of Sections 627.062(5) and 627.0629(10), Florida Statutes (hereafter, collectively, the "Recoupment Statutes"). 7/ The Department takes the view that insurers may pass along the CAT Fund reimbursement premiums to their own policyholders in one of two ways. The first method — which, according to Mr. Hazeltine, is employed by most insurance companies — is to prospectively load the base rates with a CAT Fund Factor (that is, a factor attributable to catastrophic hurricane losses expected to be covered by the CAT Fund, see endnote 3). In the Department's eyes this is simply normal rate-making procedure; the exposure covered by the CAT Fund is built into the insurer's base rates, just as other risks are, as if the insurer itself (rather than the CAT Fund) would pay the portion of any catastrophic hurricane losses expected to be covered by the CAT Fund. The Department does not consider the Recoupment Statutes to either govern or proscribe the accepted practice of prospectively loading base rates with a CAT Fund Factor. The other method is to set base rates that are net of expected recoveries from the CAT Fund (i.e. are not loaded with a CAT Fund Factor) and thereafter to impose a recoupment charge on policyholders to recover for CAT Fund reimbursement premiums paid in the previous year. A recoupment charge is retrospective, in that the insurer is collecting funds to reimburse itself for an expense that it already has paid. As Mr. Hazeltine put it, "recouping refers to something that happened in the past." Transcript of Final Hearing ("T-") 152. That is the "essence of a recoupment." T-220. The term "Recoupment Surcharge" will be used hereafter to refer to a retrospective recoupment charge. The Department considers these two methods of making policyholders pay the CAT Fund reimbursement premiums to be mutually exclusive, in the sense that an insurer must elect to use one method or the other. Thus, according to the Department, an insurer may either prospectively load its base rates to collect in advance for reimbursement premiums that will be paid in the future, or impose a Recoupment Surcharge to recover for the reimbursement premiums after paying them, but it cannot include a CAT Fund Factor in its base rates one year (e.g. 1999) and then impose a Recoupment Surcharge the next (e.g. 2000), else the policyholders would pay twice for the same CAT Fund coverage. The Department's position logically dictates that if an insurer which has been prospectively loading its base rates with a CAT Fund Factor decides to switch to the recoupment method, it must experience a transitional year during which its base rates are reduced by the CAT Fund Factor (because it will recoup the transitional year's reimbursement premiums in the next year) and in which no Recoupment Surcharge is imposed (because the prior year's reimbursement premiums were collected prospectively in the prior year's base rates). 8/ This would have a negative effect on the insurer's cash flow during the transitional year, in relation to the preceding year, which may be one reason why "most companies don't recoup" — although that was not the explanation offered by Mr. Hazeltine. T. 172 (attributing insurers' preference for prospective loading to fact that CAT Fund is "cheap reinsurance"). 9/ The Department's interpretation and application of the Recoupment Statutes is informed by a presumption that every insurer's base rates are prospectively loaded with a CAT Fund Factor unless and until: (a) the insurer makes a recoupment filing pursuant to Section 627.0629(10), Florida Statutes, which demonstrates to the Department that the CAT Fund Factor has been stripped from its base rates, and (b) the Department approves the insurer's recoupment filing, allowing the insurer to impose a Recoupment Surcharge. This presumption is based on the premise that an insurer's rates on file, having already been approved, are adequate and "fully loaded in the Department's opinion." T-223-24; see also T-153, and 170 (Hazeltine: "Whenever a company makes an initial filing, we assume that the rates that are approved -- the Department, we believe the rates that they are charging are fully loaded for all costs and they would remain that way, fully loaded for all costs, until they made a filing to change in some way."). The presumption that an insurer which is not recouping must be prospectively collecting for reimbursement premiums with CAT Fund Factor-loaded base rates is irrebuttable and hence conclusive, as Mr. Hazeltine explained: THE COURT: Can the insurance company overcome that presumption? I mean, if evidence or information is presented, can the insurance company demonstrate inadequacy of its rates by showing, for example, that it isn't -- that it is not prospectively recovering for the CAT Fund premium? THE WITNESS: Well, no, because they have to be. They have to be because there's [sic: should be "they're"] not recouping. So the definition of their rate is that it's prospectively loaded. They somehow have to show -- to recoup, they would have to show that they have an inadequate rate otherwise, and that is why the CAT factor calculation is necessary because they have to show that, without this additional money, they have an inadequate rate. THE COURT: Could they show -- I mean, could they show inadequacy of the rate by demonstrating that there is no catastrophe load in their rate and therefore they're not collecting prospectively? THE WITNESS: No, because the only way there could not be a catastrophe load in their rate is if they had started recouping, if they had already started recouping. Otherwise, it's there, it's implicitly there. T-224-25. 10/ The Department's presumption leads it to the conclusion that any insurer which elects to begin recouping must first adjust its base rates to remove the CAT Fund Factor that is conclusively presumed to be in those rates. T-172 (Hazeltine: Insurers "can come in and recoup, that's allowed, but they have to adjust their base rates."). 11/ Consequently, the Department construes Section 627.0629(10), Florida Statutes which operates on rate filings that include "any adjustments related to" reimbursement premiums 12/ — as controlling for all first-time recoupment filings. 13/ While the Department interprets Section 627.0629(10), Florida Statutes, to be applicable to all insurers making their first recoupment filings, it also considers the statute to be applicable only to first-time filers. Mr. Hazeltine drew the distinction between first-time and repeat filers: Q Now, you just made reference to a filing like United's for a first-time [recoupment] filing. Is there different information required for a company like United that's a first-time company filing for recoupment as versus some other type of company? A Right. Once the filing has been made and the catastrophe factor has been submitted and the indicated rate has been shown in the filing, any subsequent filings we would just simply need to know that a prior filing had been made so that, if they were going to change the recoupment surcharge from say eight to nine percent, if we knew that they made a prior filing, then we would know that they had adjusted their bases rates, so there wouldn't need to be the laying out of the catastrophe factor. T-149; see also T-225 (Hazeltine: "[W]e get filings in where [insurers] are already recouping, and in that situation we know, when they've filed to change their recoupment, that their base rates are net of the coverage of the CAT Fund. We know that because we handled that in a previous filing."). Thus, in the Department's view as expressed by Mr. Hazeltine, Section 627.0629(10) does not apply to an insurer that seeks to adjust a previously approved Recoupment Surcharge because the Department's approval of the insurer's initial recoupment filing signifies that the CAT Fund Factor was removed from the insurer's base rates, which accordingly need not be adjusted again. 14/ The parties agree (or at least United does not dispute) that an insurer wanting to recoup reimbursement premiums must make a filing with the Department. Both parties refer to the necessary filing as a "recoupment filing." They part company, however, on whether a recoupment filing is a "rate filing." The Department says that a recoupment filing is "a type of rate filing." T-165. United says it is not. This particular dispute is not so much about labels as it is about whether the procedural and substantive requirements that rate filings entail should attach to recoupment filings as well. The Department's position that a recoupment filing is a rate filing matters because it leads to the conclusion that the Department is empowered, pursuant to Section 627.062(2)(b), Florida Statutes, to review a recoupment/rate filing to determine if the overall rate (including the Recoupment Surcharge) is excessive, inadequate, or unfairly discriminatory. This in turn means that the Department can disapprove a recoupment filing for failure to provide sufficient "justification" in support of a proposed Recoupment Surcharge, viewed in the context of the insurer's total rate. See T-169. In addition, if recoupment filings are rate filings as the Department maintains, then the procedural and informational requirements of Rule 4-170.014, Florida Administrative Code (governing all homeowners insurance rate filings), and Rule 4-170.0141, Florida Administrative Code (governing dwelling fire insurance rate filings), might apply to them as well. Indeed, on the premise that recoupment filings are rate filings, the Department believes that all of its requirements for recoupment filings are covered by existing statutes and rules. T-253. However, neither of the Recoupment Statutes, nor any other exiting statute or rule, clearly and unambiguously sets forth a requirement that, in order to exercise its right to fully recoup, an insurer must submit a filing — whether it be called a “rate filing,” “recoupment filing,” or something else — that fully complies with the statutes and rules governing rate filings generally. At bottom, the Department's position that recoupment filings are rate filings is an interpretation of the Recoupment Statutes that can be used, and is being used, as a bootstrap to impose filing requirements that are not specifically stated in either Section 627.062(5) or Section 627.0629(10), Florida Statutes. Moreover, the Department does not require recoupment filings to comply with all of the procedures controlling rate filings generally. As Mr. Hazeltine explained: "A retroactive recoupment is a fairly -- is a less involved filing in a sense because the base rate filing may go through a lot of justification for territorial rates or there may be a lot more detail in a base rate filing." T-172 (Emphasis added). Mr. Hazeltine further described the fundamental data indispensable to a first-time recoupment filing as follows: I think what's really needed is what Mr. Stuart said. In making a recoupment filing, you need simply to show the amount of a factor, which you get by dividing the premium into the -- into the amount to be recouped. That gave him the percentage to load the rate, and you need to show your catastrophe load or the calculation of your rate so that the policyholder doesn't wind up paying twice, because if you included it in your base rates and also as a recoupment, then the policyholder would be paying for the coverage of the Catastrophe Fund twice, both in the base rate and also in the factor. * * * . . . Like I said, all you really need to know and all you -- is the projected premium. You need to know how to compute -- how the company's going to compute its factors, and you need some justification or analysis showing the catastrophe load and the total indicated rate. T-136, 142. The truly essential requirements for an insurer's subsequent recoupment filings are fewer still, as previously discussed, because "there wouldn't need to be the laying out of the catastrophe factor." T-149. There are "many types" of rate filings, said Mr. Hazeltine, and the information required to be supplied depends on the type of filing involved. T-165. The Department's statement that recoupment filings are rate filings does not, in itself, inform would-be filers which of the requirements for rate filings generally must be followed — nor do the statutes or any promulgated rules. The Proposed Rule In 1996, the Department developed a proposed rule concerning the recoupment of reimbursement premiums. Initially published on July 26, 1996, in Volume 22, Number 30 of the Florida Administrative Weekly, page 4243, Proposed Rule 4-170.016 (the “Proposed Rule”) was designed to “provide a streamlined rate revision process for the approval of requests for rates which recoup payments to the Florida Hurricane Catastrophe Fund (FHCF) . . . .” Petitioner’s Exhibit 6. The summary description of the Proposed Rule explained that it provided “specified procedures for submitting rate filings to recoup payments made to the FHCF . . . , adopt[ed] forms by reference and provide[d] limitations on amounts recoverable in a given year.” Id. It is interesting to note that the Proposed Rule appeared in the Florida Law Weekly about two months after the legislature had amended Section 627.062(5), Florida Statutes, but some six months before that amendment would take effect. Thus, at the time the Proposed Rule was published, the law allowed an insurer to recoup the “actual amount of reimbursement premium” by making a rate filing which “adjust[ed] its rates to remove that portion of the rates attributable to catastrophe losses expected to be covered by the” CAT Fund. See Section 627.062(5), Florida Statutes (Supp. 1996). Come January 1, 1997, however, Section 627.062(5) would no longer contain the language just quoted; rather, insurers would be entitled to “fully recoup” any CAT Fund reimbursement premiums they had paid without being subject to an express requirement that base rates be adjusted concomitantly. See Section 627.062(5), Florida Statutes (1997). Perhaps to close this potential loophole, the Proposed Rule incorporated the “lame duck” statutory requirement that base rates be reduced in conjunction with a recoupment filing: “If an insurer chooses to apply a recoupment charge, the insurer’s next rate filing must exclude the portion of the rates attributable to catastrophic losses expected to be covered by the FHCF or must cease collecting and charge [sic ?] rates to cover expected losses.” Petitioner’s Exhibit 7 (Proposed Rule as amended by notice published November 15, 1996, in Volume 22, Number 46, Florida Administrative Weekly, page 6658). The Proposed Rule also contained a subsection on filing requirements which read: Filing Requirements. An insurer seeking approval of an FHCF reimbursement premium recoupment charge must submit three (3) copies of the following: Recoupment of FHCS Reimbursement Premium Worksheet, Form D14-1197(10/96) which is hereby incorporated by reference plus any supporting documentation for varying the charge by territory or class; final manual page(s) which include the recoupment factor and an explanation of how it will be applied; documentation of the FHCF reimbursement premium paid by the insurer; proposed declarations page; and copies of Forms D14-1102, D14-1103, and D14-1104 as incorporated in 4-170.014, or dwelling Forms D14-1193, D14-01194 and D14-1195, as incorporated in 4-170.0141. Petitioner’s Exhibit 7. The Proposed Rule was challenged in a Section 120.56(2), Florida Statutes, proceeding. The Department withdrew the Proposed Rule on February 21, 1997, apparently before the entry of a final order in the challenge (and after the present version of Section 627.062(5) took effect on January 1, 1997). Since then, the Department has not formally adopted, nor has it attempted to adopt through rulemaking, any rules that implement the Recoupment Statutes or otherwise specifically govern recoupment filings. The Memorandum and Worksheet The Proposed Rule may have been gone, but its provisions were not forgotten. On July 29, 1997, J. Steven Roddenberry, then the Bureau Chief of the Bureau of Property and Casualty Forms and Rates, issued a Memorandum and attached worksheet to “all insurance companies authorized to write property and casualty insurance in the State of Florida.” Petitioner’s Exhibit 8. The subjects of this Memorandum were “procedures for the filing of 1996 Florida Hurricane Catastrophe Fund recoupment; [and] filing deadline for 1995 Florida Hurricane Catastrophe Fund recoupment.” Id. Mr. Roddenberry testified that the purpose of this Memorandum was to provide guidance to insurers on how to make recoupment filings for CAT Fund premiums paid in 1996 and to notify them that recoupment filings for 1995 reimbursement premiums needed to be made by September 1, 1997. The July 29, 1997, Memorandum was sent to the approximately 400 insurers writing property and casualty insurance in this state at the time. United did not exist in 1997 and therefore was not an original recipient of the Memorandum. The timing of the Memorandum in relation to statutory developments is interesting. As of July 29, 1997, Section 627.0629(10), Florida Statutes, was a brand new law, having taken effect only a couple months earlier on May 9, 1997. Section 627.0629(10), with its reference to CAT Fund premium- related “adjustments” in a “rate filing,” faintly echoes language that was deleted from former Section 627.062(5), Florida Statutes, (“In the [rate] filing the insurer must adjust its rates to remove that portion . . . attributable to” CAT Fund coverage) (emphasis added). But Section 627.0629(10) does not expressly state, as did both former Section 627.062(5) and the Department’s withdrawn Proposed Rule, that an insurer electing to recoup must adjust its rates to remove the portion attributable to catastrophic losses expected to be covered by the CAT Fund. The Memorandum memorialized the Department’s interpretation of the Recoupment Statutes as requiring recouping insurers to reduce their base rates to make them net of expected CAT Fund recoveries. It stated: As in the past, an insurer may choose to either prospectively make rates sufficient to cover the costs of the FHCF assessment, while accounting for coverage provided by it, or impose a recoupment charge to recover the assessment payments made to the FHCF. If an insurer chooses to impose a recoupment charge, the insurer must exclude from its base rate calculation the expected recoveries covered by the FHCF. An insurer may not recoup 1996 premiums paid unless it has made, or concurrently makes, a base rate filing, the calculation of which excludes recoveries from the FHCF. Petitioner’s Exhibit 8 (emphasis added). The statutory interpretation reflected in the underlined sentence from the July 29, 1997, Memorandum remains current and continues to be followed by the Department. The Memorandum also enumerated certain filing requirements which bore a striking resemblance to the ones that the withdrawn Proposed Rule would have prescribed. It stated: An insurer intending to recoup the 1996 FHCF premiums paid in 1996 must file three copies of the following for each year being recouped: Recoupment of FHCF Reimbursement Premium Charge Worksheet (please see attached); Final manual page(s) which include the recoupment factor and an explanation of how it will be applied; Documentation of the FHCF reimbursement premium paid by the insurer for 1996; Proposed declaration page; A rate filing (if appropriate) containing actuarial support that shows the calculation of the catastrophe load; and Copies of homeowner forms: D14-1102, D14-1103, and D14-1104, as incorporated in 4-170.014, Florida Administrative Code, or dwelling forms D14-1193, D14-01194 and D14- 1195, as incorporated in 4-170.0141, Florida Administrative Code. The Recoupment of FHCF Reimbursement Premium Charge Worksheet (“Worksheet”), which was the subject of the Memorandum’s filing requirement lettered a, is substantially similar to the proposed Form D14-1197 that was the subject of the withdrawn Proposed Rule’s filing requirement lettered a. The filing requirements lettered b, c, and d, respectively, in the Memorandum and in the withdrawn Proposed Rule are substantially identical to one another. The filing requirement lettered f in the Memorandum is substantially identical to the one lettered e in the Proposed Rule. 15/ In short, the Memorandum listed the same five filing requirements that the Proposed Rule had spelled out and added a sixth, lettered e, which incorporated a new obligation imposed by the recently enacted Section 627.0629(10), Florida Statutes. Although written three and a half years ago for particular purposes that have passed into history, the July 29, 1997, Memorandum nevertheless sets forth the procedural and informational requirements for recoupment filings that the Department continues to enforce to this day, as Mr. Roddenberry testified: THE COURT: . . . Mr. Roddenberry, about the memorandum, July 29, 1997, memorandum, does that memorandum set forth what currently are the pieces of information required by the Department when a company submits a retro –- or a recoupment filing? THE WITNESS: If I may, when you say currently, do you mean like today? THE COURT: Like today. THE WITNESS: Yes, sir, I believe, if this information was submitted, it would be considered a complete file. I’m afraid that, if some of this was missing, that it would not be considered a complete file. * * * THE COURT: And they would need to make a complete filing in order to be subject to approval –- if the filing were incomplete, the request would be denied? THE WITNESS: Yes, sir, because if it’s incomplete, it probably doesn’t even get past the person that not literally opens the mail –- there’s two or three steps in there –- but the person that makes the assignments to the actuaries, they go through it, and if the filing is incomplete, if it doesn’t have what the statute and the rules require, then they send it back to the company. We do that now. The Inspector General told us we had to do that. T-250-52. The Worksheet form that must be submitted to comply with the Memorandum’s first-listed filing requirement (lettered a) contains 15 numbered lines of requested information, as follows: Year FHCF Assessment Paid Line(s) of Business: Prior Year’s FHCF Premium Paid $ Prior Year’s Carry-Forward? No / Yes –- If Yes, State Amount $ 5 (3) Plus (4) $ 6 Prior Year’s Florida Direct Written Premium Excluding Ex-Wind Policies $ 7 Ratio (3) / (6) x 100 8 Forecast (One Year’s) Direct Written Premium Excluding Ex-Wind Policies $ 9 Ratio (5) / (8) x 100 % Ratio (7) Plus 5% % Formula Recoupment Surcharge Lesser of (9) or (10) % Selected Surcharge Factor Effective Date AVERAGE IMPACT ON POLICYHOLDERS / / Average Premium at Current Rate Levels $ (11) Multiplied by (14) $ Petitioner’s Exhibit 8 (footnotes omitted). Mr. Roddenberry testified that the Worksheet per se is no longer required, but “the information that is requested on that form would have to be provided either in that format or some other format . . . .” T-253. Mr. Hazeltine asserted that certain items on the Worksheet are no longer required. According to Mr. Hazeltine, the items numbered 7, 10, and 11 all pertained to a limitation on amounts recoverable in a given year that was part of the Proposed Rule and which has since been abandoned; therefore, the information requested in these items is no longer required. Similarly, the information relating to the average impact on policyholders sought in the items numbered 14 and 15 is no longer required, according to Mr. Hazeltine. Line items 4 and 5 are not applicable to first-time filers such as United but might be required of repeat recoupment filers. As for item number 6, Mr. Hazeltine equivocated somewhat: on the one hand he said it was not a required item; on the other he stated that it was necessary to know last year’s premium, but “you could just figure it out if you wanted to.” T-144. And finally, Mr. Hazeltine testified that item number 9 was not necessary — although the information sought in number 9 is simply another way of expressing the Recoupment Surcharge required in number 12. 16/ While Mr. Roddenberry’s testimony contradicted Mr. Hazeltine’s in that he stated all of the information sought in the Worksheet is still required to be submitted, whereas Mr. Hazeltine dismissed many items as unnecessary, the conflict between the two is not as great as it seems at first blush. The items relating to the since-discarded limitation (numbers 7, 10, and 11) and policyholder impact (14 and 15) are essentially irrelevant to the determination of an insurer’s Recoupment Surcharge. The information sought in the remaining line items (with the possible exceptions of numbers 6 and 9, which are either irrelevant or cumulative questions) is fundamental and must be provided. What is clear is this: The Department continues to require that insurers submit all of the relevant information requested in the Worksheet, either on that form itself or in some other format. United's Recoupment Filings Under substantially identical cover letters to the Commissioner of Insurance dated June 5, 2000, United attempted, with regard to its homeowners and dwelling fire programs, respectively, to file for "recoupment of the Florida Hurricane Catastrophe Fund premiums for the period of June 1, 1999 through May 30, 2000 applicable to [United's] 'Take-out' of 'FRPCJUA assumption' business." United informed the Department that it would apply surcharges of 1.168 and 1.2803, respectively, to all homeowners and dwelling fire policies renewed on or after September 1, 2000. In addition to a cover letter, each of United's June 5, 2000, submissions consisted of a completed form entitled "Recoupment of The Florida Hurricane Catastrophe Fund Reimbursement Premium Charge Worksheet,” which was substantially similar to (and contained the same 15 line items as) the Department's Worksheet, together with an "Explanatory Memorandum" that provided additional information on items 1-4, 6, and 8. 17/ On June 13, 2000, The Department returned United's recoupment filings without action for failure to include pages 1 and 2 of Form D14-582 (a transmittal sheet and checklist, respectively), and a return envelope, as required by Rule 4-170.013, Florida Administrative Code, which provides procedures applicable to all rate, rule, underwriting guidelines, and form filings for property and casualty insurance. United re-submitted its recoupment filings, together with the requested information, on June 20, 2000. Mr. Hazeltine acknowledged the Department's receipt of these "recent rate filing[s]" by letter dated June 27. 2000. On August 4, 2000, Mr. Hazeltine notified United that the following additional information was required to complete United's recoupment filings: (1) documentation supporting the amounts intended to be recouped; (2) an explanation as to how those amounts were allocated to line of insurance and program; (3) documentation supporting an explanation as to how United intended to adjust the catastrophe provision in its base rates; and (4) the HRCS diskette for homeowners and the DRCS diskette for dwelling. United responded with a letter from its president, Mr. Stuart, dated August 21, 2000. Included with Mr. Stuart's letter were documents substantiating the fact that United had paid about $1.68 million in reimbursement premiums for 1999 and showing an allocation of this premium expense between homeowners and dwelling. Apparently attempting to satisfy the Department's request for an explanation as to how United intended to adjust the catastrophe provision in its base rates, Mr. Stuart wrote: My understanding is that [United's consultant] Mr. Trafton was advised by Steve Roddenberry, via telephone, that United would have to base the ["me-too" takeout] filing upon the 7/97 FRPCJUA filing rather than use the 1998 filing which included the JUA recoupment within the base rates. Therefore, our ["me-too" takeout] filing has the identical base rates, as does the 7/97 FRPCJUA filing. This appeared logical since United would not incur a FHCF premium charge until late in 1999 for the June 1, 1999 FHCF period. Joint Exhibit 1. Translation: United did not intend to adjust its base rates because it believed those rates were not loaded to account for the CAT Fund reimbursement premiums. Finally, Mr. Stuart informed Mr. Hazeltine that United was "preparing the diskettes as referenced in your letter of August 4th and should provide these within the next two weeks." Id. After receiving Mr. Stuart's letter, Mr. Hazeltine attempted to contact Mr. Stuart, who was on vacation and therefore unavailable, and then reached a consultant for United named Terry Godbold, whom he advised that the Department would disapprove United's recoupment filings unless the requested diskettes were received, as well as information on the adjustment of United's catastrophe load. United, however, submitted no further information. As a result, by letter dated September 7, 2000, the Department notified United of its intent to disapprove United's recoupment filings on the ground that United had failed to justify its proposed rates or rate changes. The Department found United's filings to be deficient in the following areas: The rates originally filed were not excessive, inadequate, or unfairly discriminatory. No information, or supporting data, has been supplied in support of this filing to justify changing those rates. Section 627.062(5), Florida Statutes, provides that insurers may recoup reimbursement premiums paid to the Florida Hurricane Catastrophe Fund. However, Section 627.0629(10), Florida Statutes, requires a complete calculation of the insurer's catastrophe load and that the information in the filing not be limited solely to recovery of reimbursement premiums paid to the fund. This filing contains information relating solely to the recovery of moneys paid to the fund. The lack of information provided has been discussed thoroughly with the company during the course of this filing. The HPCS [sic] and DRCS diskettes have not been provided as requested. Joint Exhibit 1. At hearing, Mr. Hazeltine testified that United's failure to provide the diskettes, by itself, (probably) would not have resulted in the disapproval of United's filings. T-189. Are United's Base Rates Net of Expected CAT Fund Recoveries? The question whether United’s base rates are net of recoveries expected from the CAT Fund in the event of a hurricane catastrophe, as the Department has presumed, lies at the heart of United’s claim to be entitled to recoup reimbursement premiums previously paid. It is, therefore, a key question that must be answered in Case No. 00-4212, the Section 120.57 proceeding brought by United to obtain a determination of its substantial interests in recouping premiums paid to the CAT Fund. However, because the merits of United’s claim for recoupment are not directly at issue in this proceeding to challenge alleged unadopted rules, 18/ the dispute regarding the composition of United’s base rates need not be resolved here, except insofar as may be necessary to decide the Department’s attack on United’s standing. The Department contends that United lacks standing to maintain this action because it has not been injured by operation of the alleged unadopted rules, even assuming for argument’s sake that the alleged agency statements are rules by definition, which the Department denies. This argument will be addressed in the legal conclusions below. For the moment, it is sufficient to note that the Department’s position fails to persuade if, as United contends, United’s base rates in fact are not prospectively loaded with a CAT Fund Factor. If United is correct about the composition of its base rates, then it has suffered a substantial injury-in-fact as a result of the Department’s irrebuttable presumption that, unless an insurer is already recouping, its base rates are prospectively loaded. The Department’s standing argument thus implicates, at least to a limited extent, the merits of United’s claim to be entitled to recoup fully the reimbursement premiums it has paid. In view of the need to address this issue without foreclosing or encroaching upon the parties’ respective rights to a full hearing on the merits of United's alleged injury in the appropriate forum, the findings of fact herein on this particular subject are expressly limited so as not to reach beyond the standing issue at hand. Except as specifically decided here, the question whether United’s base rates are prospectively loaded with a CAT Fund Factor is left for, and will need to be litigated fully in, Case No. 4212, which is the proper vehicle for its ultimate resolution on the merits. That said, there is and can be no dispute that United's base rates, as established in its initial rate filings, include a Recoupment Surcharge — of zero. The Premium Calculation Worksheet that United submitted for its homeowners rate filing, in the section dealing with "mandatory additional charges," expressly provides that the CAT Fund Recoupment Surcharge shall be "0." Petitioner’s Exhibit 1. So, too, does the Premium Calculation Worksheet for United's dwelling fire rate filing. Respondent's Exhibit 1. 19/ In his March 3, 1999, cover letter to the Commissioner of Insurance regarding United's homeowners rate filing, United's consultant Mr. Trafton pointed this fact out, explaining: "This [premium calculation] worksheet has been revised to remove, for now, any Assessments for FHCF . . . ." Respondent's Exhibit 1. Mr. Trafton made a similar comment in his cover letter of the same date regarding United's dwelling fire rate filing. Respondent’s Exhibit 1. That United's initial rate filings set a Recoupment Surcharge of zero is consistent with its position that its base rates are not prospectively loaded with a CAT Fund Factor. At the time United made these rate filings, after all, it had paid zero in reimbursement premiums and had nothing to recoup; thus, zero was the most accurate (indeed the only true) number to submit in connection with a Recoupment Surcharge calculation. For that reason, United's representation, in its initial base rate filings, that the amounts to be recouped initially equaled zero cannot be considered the equivalent of a declination of the right to use the recoupment method of recovering CAT Fund premiums. At a minimum, United's filing can reasonably be interpreted as having left the door open to adjusting the stated surcharge of zero to a positive number after reimbursement premiums had been paid, when there would be something to recoup. While not establishing the fact directly, this does raise an inference that United's rates are net of expected CAT Fund recoveries. 20/ This inference was supported by other evidence. Mr. Stuart testified that United had removed the "recoupment charge" from its initial rate filings at the direction of the Department, on the ground that United had not yet paid any reimbursement premiums to the CAT Fund. He also stated that at the time of United's initial rate filings, the company believed that reimbursement for CAT Fund premiums would be achieved on a retrospective basis, using a surcharge to base rates. It was Mr. Stuart's understanding that United's base rates did not include a "CAT Fund recoupment." T-67. Mr. Trafton testified that Mr. Roddenberry had told him in late 1998 that United could not use the "catastrophe protection surcharge that was in the 1998 FRPC JUA rates." T-86. To Mr. Trafton, this meant that United was required to use the FRPCJUA's 1997 base rates because "it goes without saying, if . . . you can't use the catastrophe protection surcharge, you're not using the '98 rates, you're using the '97 rates." T-86. Mr. Trafton testified that as far as he could recall, United's base rates did not "include any credit or factors for expected premiums to be paid to the Catastrophe Fund." T-94. The testimony of Mr. Stuart and Mr. Trafton on the issue of whether United's base rates are prospectively loaded was not rebutted by the Department at hearing (perhaps because the Department conclusively presumes that United's rates are prospectively loaded). But at the same time, their testimony did not directly answer the question whether the 1997 FRPCJUA rates that United adopted were prospectively loaded — a proposition that does not follow necessarily from the premise (which is undisputed) that United's Recoupment Surcharge, as filed, was zero. 21/ Mr. Trafton in particular left the impression that the FRPCJUA's 1997 rates were net of expected CAT Fund recoveries, but he did not say so unambiguously. The conclusion can be deduced from his testimony, but not without difficulty. When Mr. Trafton said that United could not use the "catastrophe protection surcharge" that was "in" the 1998 rates, he might have been referring to a charge that was "built into" (i.e. prospectively loaded in) those rates. 22/ If so, then Mr. Trafton appears to have said (by making it clear that he and the Department perceived a material difference between the two years) that the 1997 rates were not prospectively loaded. (This raises the interesting possibility, not addressed in this record, that the FRPCJUA needed to impose a Recoupment Surcharge in 1998 to recover the past year's reimbursement premiums at the same time it was prospectively loading its base rates to recover in advance for the reimbursement premiums yet to be paid. See endnote 9.) If, on the other hand, Mr. Trafton meant that the FRPCJUA's 1998 rates included a "catastrophe protection surcharge" in addition to the base rates (as a retrospective means of collecting for reimbursement premiums paid), then the implication would be that the 1997 rates were net of expected CAT Fund recoveries, because otherwise the FRPCJUA's recoupment in 1998 would amount to a double recovery. But if this were the case, it is not clear why United could not have used the FRPCJUA's 1998 base rates, which presumably would have been net of expected CAT Fund recoveries, too — unless in 1998 the FRPCJUA were recouping for 1997 reimbursement premiums and also collecting prospectively for 1999 reimbursement premiums, in transition from the recoupment method to the prospective method of recovery. If the assumption is made for argument's sake that the FRPCJUA's 1997 rates were prospectively loaded (from which would follow the conclusion that United's “me-too” rates are prospectively loaded), then it becomes difficult to make sense of Mr. Trafton's and Mr. Stuart's testimony. In that event, the FRPCJUA's 1998 rates could not have included a Recoupment Surcharge (or at least not a full one, see endnote 8). The 1998 rates would have been either net of expected CAT Fund recoveries (in transition from the prospective method to the recoupment method) or prospectively loaded as in 1997. Consequently, the 1997 base rates would have been, respectively, either higher or approximately the same as the 1998 base rates. Not only would either possibility seem to leave no plausible reason for the Department to have directed United to use the 1997 base rates, but also these scenarios contradict the testimony of both Mr. Stuart and Mr. Trafton, each of whom suggested that the 1997 base rates were less generous than the rates in effect in 1998. In sum, the present record establishes that, more likely than not, the FRPCJUA's 1997 base rates were, and therefore United's base rates are, net of expected CAT Fund recoveries. In other words, United's rates are probably not prospectively loaded with a CAT Fund Factor, contrary to the Department's presumption. As explained above, however, the resolution of this case does not demand that a definitive finding of fact be made on this issue. It is enough, for now, to find that United has proved by a preponderance of evidence a reasonable likelihood that, given the opportunity (which it will have in Case No. 00-4212), it can successfully demonstrate that its rates are not prospectively loaded. No more than that is being found at this time. Whether United will succeed on the merits of its claim to be entitled to recoup reimbursement premiums paid to the CAT Fund remains to be seen; nothing decided here is intended to pre-determine the outcome of Case No. 00-4212.
