The Issue Whether Petitioners' proposed rates are justified pursuant to the requirements of Section 627.062, Florida Statutes, or whether the Department of Financial Services, Office of Insurance Regulation (OIR) was correct in denying the requested rate increases.
Findings Of Fact The Hartford companies are property and casualty insurers transacting insurance in the State of Florida pursuant to valid certificates of authority and the Florida Insurance Code. Two types of personal lines insurance filings submitted by Hartford to the OIR are at issue in this proceeding: two filings for homeowners insurance (Case Nos. 07-5185 and 07-5186) and two filings for dwelling fire insurance (Case Nos. 07-5187 and 07- 5188). Hartford's substantial interests are affected by the notices disapproving the filings in this case. Homeowners insurance includes coverage for a variety of perils in and around a home, is usually purchased by a homeowner, and covers both the structure and the contents of a home. Dwelling/fire insurance is usually purchased by the owners of properties that are leased or rented to others, and provides coverage for the structure only. Both types of insurance cover damage caused by hurricanes. The New Legislation and its Requirements In a special session held in January 2007, the Florida Legislature enacted changes to the Florida Hurricane Catastrophe Fund (CAT Fund), as reflected in Chapter 2007-1, Laws of Florida. The special session was precipitated by a perceived crisis regarding the cost and availability of homeowners insurance after the 2004 and 2005 hurricane seasons. As a result of the substantial number of claims incurred after multiple severe hurricanes each of these years, changes in the insurance marketplace resulted in some insurance companies withdrawing from the Florida market, others non-renewing policies, one company becoming insolvent, and the cost for reinsurance available to all insurers rising dramatically. One of the primary features of the legislation was an expansion of the CAT Fund. The CAT Fund was established in 1993 after Hurricane Andrew to provide reinsurance to insurers for property insurance written in Florida at a price significantly less than the private market. The CAT Fund is a non-profit entity and is tax exempt. Prior to the enactment of Chapter 2007-1, the CAT Fund had an industry-wide capacity of approximately $16 million. The purpose of the changes enacted by the Legislature was to reduce the cost of reinsurance and thereby reduce the cost of property insurance in the state. As a result of Chapter 2007-1, the industry-wide capacity of the CAT Fund was increased to $28 billion, and insurers were given an opportunity to purchase an additional layer of reinsurance, referred to as the TICL layer (temporary increase in coverage limit), from the CAT Fund. Section 3 of Chapter 2007-1 required insurers to submit a filing to the OIR for policies written after June 1, 2007, that took into account a "presumed factor" calculated by OIR and that purported to reflect savings created by the law. The new law delegated to the OIR the duty to specify by Order the date such filings, referred to as "presumed factor filings" had to be made. On February 19, 2007, the OIR issued Order No. 89321-07. The Order required insurers to make a filing by March 15, 2007, which either adopted presumed factors published by the OIR or used the presumed factors and reflected a rate decrease taking the presumed factors into account. The presumed factors were the amounts the OIR calculated as the average savings created by Chapter 2007-1, and insurers were required to reduce their rates by an amount equal to the impact of the presumed factors. The OIR published the presumed factors on March 1, 2007. In its March 15, 2007, filings, Hartford adopted the presumed factors published by OIR. As a result, Hartford reduced its rates, effective June 1, 2007, on the products at issue in these filings by the following percentages: Case No. 07-5185 homeowners product: 17.7% Case No. 07-5186 homeowners product: 21.9% Case No. 07-5187 dwelling/fire product: 8.7% Case No. 07-5188 dwelling/fire product: 6.2% The Order also required that insurers submit a "True-Up Filing" pursuant to Section 627.026(2)(a)1., Florida Statutes. The filing was to be a complete rate filing that included the company's actual reinsurance costs and programs. Hartford's filings at issue in these proceedings are its True-Up Filings. The True-Up Filings Hartford submitted its True-Up filings June 15, 2007. The rate filings were certified as required by Section 627.062(9), Florida Statutes. The filings were amended August 8, 2007. Hartford's True Up Filings, as amended, request the following increases in rates over those reflected in the March 15, 2007, presumed factor filings: Case No. 07-5185 homeowners product: 22.0% Case No. 07-5186 homeowners product: 31.6% Case No. 07-5187 dwelling and fire product: 69.0% Case No. 07-5188 dwelling and fire product: 35.9% The net effects of Hartford's proposed rate filings result in the following increases over the rates in place before the Presumed Factor Filings: Case No. 07-5185 homeowners product: .4% Case No. 07-5186 homeowners product: 2.8% Case No. 07-5187 dwelling/fire product: 54.3% Case No. 07-5188 dwelling/fire product: 27.5% Case Nos. 07-5185 and 07-5186 (homeowners) affect approximately 92,000 insurance policies. Case Nos. 07-5187 and 07-5188 (dwelling/fire) affect approximately 2,550 policies. A public hearing was conducted on the filings August 16, 2007. Representatives from Hartford were not notified prior to the public hearing what concerns the OIR might have with the filings. Following the hearing, on August 20, 2007, Petitioners provided by letter and supporting documentation additional information related to the filings in an effort to address questions raised at the public hearing. The OIR did not issue clarification letters to Hartford concerning any of the information provided or any deficiencies in the filings before issuing its Notices of Intent to Disapprove the True-Up Filings. All four filings were reviewed on behalf of the OIR by Allan Schwartz. Mr. Schwartz reviewed only the True-Up Filings and did not review any previous filings submitted by Hartford with respect to the four product lines. On September 10, 2007, the OIR issued Notices of Intent to Disapprove each of the filings at issue in this case. The reasons give for disapproving the two homeowners filings are identical and are as follows: Having reviewed the information submitted, the Office finds that this filing does not provide sufficient documentation or justification to demonstrate that the proposed rate(s) comply with the standards of the appropriate statute(s) and rules(s) including demonstrating that the proposed rates are not excessive, inadequate, or unfairly discriminatory. The deficiencies include but are not limited to: The premium trends are too low and are not reflective of the historical pattern of premium trends. The loss trends are too high and are not reflective of the historical pattern of loss trends. The loss trends are based on an unexplained and undocumented method using "modeled" frequency and severity as opposed to actual frequency and severity. The loss trends are excessive and inconsistent compared to other sources of loss trends such as Fast Track data. The catastrophe hurricane losses, ALAE and ULAE amounts are excessive and not supported. The catastrophe non-hurricane losses, ALAE and ULAE amounts are excessive and not supported. The particular time period from 1992 to 2006 used to calculate these values has not been justified. There has been no explanation of why the extraordinarily high reported losses for 1992 and 1993 should be expected to occur in the future. The underwriting profit and contingency factors are excessive and not supported. Various components underlying the calculation of the underwriting profit and contingency factors, including but not limited to the return on surplus, premium to surplus ratio, investment income and tax rate are not supported or justified. The underwriting expenses and other expenses are excessive and not supported. The non-FHCF reinsurance costs are excessive and not supported. The FHCF reinsurance costs are excessive and not supported. The fact that no new business is being written has not been taken into account. No explanation has been provided as too [sic] Hartford believes it is reasonable to return such a low percentage of premium in the form of loss payments to policyholders. For example, for the building policy forms, only about 40% of the premium requested by Hartford is expected to be returned to policyholders in the form of loss payments. As a result of the deficiencies set forth above, the Office finds that the proposed rate(s) are not justified, and must be deemed excessive and therefore, the Office intends to disapprove the above-referenced filing. The Notices of Intent to Disapprove the two dwelling/fire filings each list nine deficiencies. Seven of the nine (numbers 1-6 and 8) are the same as deficiencies listed for the homeowners filings. The remaining deficiencies named for Case No. 07-5187 are as follows: 7. The credibility standard and credibility value are not supported. 9. No explanation has been provided as too (sic) why Hartford believes it needs such a large rate increase currently, when the cumulative rate change implemented by Hartford for this program from 2001 to 2006 was an increase of only about 10%. The deficiencies listed for Case No. 07-5188 are the same as those listed for Case No. 07-5187, with the exception that with respect to deficiency number 9, the rate change implemented for the program in Case No. 07-5188 from 2001 to 2006 was a decrease of about -3%. Documentation Required for the Filings Florida's regulatory framework, consistent with most states, requires that insurance rates not be inadequate, excessive, or unfairly discriminatory. In making a determination concerning whether a proposed rate complies with this standard, the OIR is charged with considering certain enumerated factors in accordance with generally accepted and reasonable actuarial techniques. Chapter 2007-1 also amended Section 627.062, Florida Statutes, to add a certification requirement. The amendment requires the chief executive officer or chief financial officer and chief actuary of a property insurer to certify under oath that they have reviewed the rate filing; that to their knowledge, the rate filing does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which the statements were made, not misleading; that based on their knowledge, the information in the filing fairly presents the basis of the rate filing for the period presented; and that the rate filing reflects all premium savings reasonably expected to result from legislative enactments and are in accordance with generally accepted and reasonable actuarial techniques. § 627.062(9)(a), Fla. Stat. (2007). Actuarial Standards of Practice 9 and 41 govern documentation by an actuary. Relevant sections of Standard of Practice 9 provide: Extent of documentation - . . . Appropriate records, worksheets, and other documentation of the actuary's work should be maintained by the actuary and retained for a reasonable length of time. Documentation should be sufficient for another actuary practicing in the same field to evaluate the work. The documentation should describe clearly the sources of data, material assumptions, and methods. Any material changes in sources of data, assumptions, or methods from the last analysis should be documented. The actuary should explain the reason(s) for and describe the impact of the changes. Prevention of misuse - . . . The actuary should take reasonable steps to ensure that an actuarial work product is presented fairly, that the presentation as a whole is clear in its actuarial aspects, and that the actuary is identified as the source of the actuarial aspects, and that the actuary is available to answer questions.. . . . * * * 5.5 Availability of documentation- Documentation should be available to the actuary's client or employer, and it should be made available to other persons when the client or employer so requests, assuming appropriate compensation, and provided such availability is not otherwise improper. . . . In determining the appropriate level of documentation for the proposed rate filings, Petitioner relied on its communications with OIR, as well as its understanding of what has been required in the past. This reliance is reasonable and is consistent with both the statutory and rule provisions governing the filings. Use of the RMS Catastrophic Loss Projection Model In order to estimate future losses in a rate filing, an insurer must estimate catastrophic and non-catastrophic losses. Hartford's projected catastrophic losses in the filings are based upon information provided from the Risk Management Solutions (RMS) catastrophic loss projection model, version 5.1a. Hartford's actuaries rely on this model, consistent with the standards governing actuarial practice, and their reliance is reasonable. Catastrophe loss projection models may be used in the preparation of insurance filings, if they have been considered by and accepted by the Florida Commission on Hurricane Loss Projection Methodology (the Hurricane Commission). The Hurricane Commission determined that the RMS model, version 5.1a was acceptable for projecting hurricane loss costs for personal residential rate filings on May 17, 2006. In addition to approval by the Hurricane Commission, use of the model is appropriate "only if the office and the consumer advocate appointed pursuant to s. 627.0613 have access to all of the assumptions and factors that were used in developing the actuarial methods, principles, standards, models, or output ranges, and are not precluded from disclosing such information in a rate proceeding." §627.0628(3)(c), Fla. Stat. Both the Consumer Advocate and a staff person from the OIR are members of the Hurricane Commission. In that context, both have the ability to make on-site visits to the modeling companies, and to ask any questions they choose regarding the models. Both OIR's representative and the Consumer Advocate participated in the meetings and had the same opportunity as other commissioners to ask any question they wished about RMS 5.1a. The Hurricane Commission members, including the Consumer Advocate, clearly have access to the information identified in Section 627.0628(3)(c). However, there are restrictions on the Hurricane Commission members' ability to share the information received regarding trade secrets disclosed by the modeling companies. For that reason, the Commission's deliberations are not, standing alone, sufficient to determine that the Office of Insurance Regulation has access. In this case, credible evidence was submitted to show that RMS officials met with staff from the Office in July and October 2006 to discuss the model. RMS offered to provide any of its trade secret information to the OIR, subject to a non- disclosure agreement to protect its dissemination to competitors. RMS also opened an office in Tallahassee and invited OIR staff to examine any parts of the model they wished. In addition, both RMS and Hartford have answered extensive questionnaires prepared by OIR regarding the RMS model, and Hartford has offered to assist OIR in gathering any additional information it requires. Most of the questions posed by OIR involve the same areas reviewed by the Commission. RMS' representative also testified at hearing that RMS would not object to disclosure of the assumptions during the hearing itself if necessary. Finally, OIR Exhibit 1 is the Florida Hurricane Catastrophe Fund 2007 Ratemaking Formula Report. The Executive Summary from the report explains how rates were recommended for the Florida Hurricane Catastrophic Fund (CAT Fund) for the 2007- 2008 contract year. The report stated that the RMS model, as well as three other models accepted by the Hurricane Commission, were used for determining expected aggregate losses to the CAT Fund reinsurance layer. Three models, including the RMS model, were also used for analysis of detailed allocation to type of business, territory, construction and deductible, as well as special coverage questions. The models were compared in detail and given equal weight. The report notes that these three models were also used in 1999-2006 ratemaking. The report is prepared by Paragon Strategic Solutions, Inc., an independent consultant selected by the State Board of Administration, in accordance with Section 215.555(5), Florida Statutes. While OIR did not prepare the report, they show no hesitation in accepting and relying on the report and the modeled information it contains in these proceedings. Indeed, one of OIR's criticisms is Hartford's failure to use the report with respect to CAT Fund loss recovery estimates. Based upon the evidence presented at hearing, it is found that the OIR and Consumer Advocate were provided access to the factors and assumptions used in the RMS model, as contemplated by Section 627.0628. The Alleged Deficiencies in the Homeowners Filings1/ A rate is an estimate of the expected value of future costs. It provides for all costs associated with the transfer of risk. A rate is reasonable and not excessive, inadequate or unfairly discriminatory if it is an actuarially sound estimate of the expected value of all future costs associated with an individual risk transfer. In preparing a filing, an actuary identifies the time period that its proposed rates are expected to be in effect. Because ratemaking is prospective, it involves determining the financial value of future contingent events. For the rate filings in question, actuaries for Hartford developed their rate indications by first considering trended premium, which reflects changes in premium revenue based on a variety of factors, including construction costs and the value of the buildings insured. Trended premium is the best estimate of the premium revenue that will be collected if the current rates remain in effect for the time period the filing is expected to be in place. Expenses associated with writing and servicing the business, the reinsurance costs to support the business and an allowance for profit are subtracted from the trended premium. The remainder is what would be available to pay losses. This approach to ratemaking, which is used by Hartford, is a standard actuarial approach to present the information for a rate indication. As part of the process, expected claims and the cost to service and settle those claims is also projected. These calculations show the amount of money that would be available to pay claims if no changes are made in the rates and how much increased premium is necessary to cover claims. The additional amount of premium reflects not only claims payments but also taxes, licenses and fees that are tied to the amount of premium. The first deficiency identified by OIR is that "the premium trends are too low and are not reflective of the historical pattern of premium trends." In determining the premium trend in each filing, Hartford used data from the previous five years and fit an exponential trend to the historical pattern, which is a standard actuarial technique. Hartford also looked at the factors affecting the more recent years, which were higher. For example, the peak in premium trend in 2006 was a result of the cost increases driven by the 2004 and 2005 hurricanes, and the peak in demand for labor and construction supplies not matched by supply. Costs were coming down going into 2007, and Hartford believed that 2006 was out of pattern from what they could anticipate seeing in the future. The premium trends reflected in Hartford's filings are reasonable, reflective of historical patterns, and based on standard actuarial techniques. The second identified deficiency with respect to the homeowner filings was that the loss trends are too high and are not reflective of the historical pattern of loss trends. A loss trend reflects the amount an insurance company expects the cost of claims to change. It consists of a frequency trend, which is the number of claims the insurance company expects to receive, and a severity trend, which is the average cost per claim. The loss trend compares historical data used in the filing with the future time period when the new rates are expected to be in effect. Hartford's loss trends were estimated using a generalized linear model, projecting frequency and severity separately. The model was based on 20 quarters of historical information. The more credible testimony presented indicates that the loss trends were actuarially appropriate. The third identified deficiency is that the loss trends are based on an unexplained and undocumented method using "modeled" frequency and severity as opposed to actual frequency and severity. As noted above, the generalized linear model uses actual, historical data. Sufficient documentation was provided in the filing, coupled with Hartford's August 20, 2007, letter. The method used to determine loss trends is reasonable and is consistent with standard actuarial practice. The fourth identified deficiency is that loss trends are excessive and inconsistent compared to other sources of loss trends, such as Fast Track data. Saying that the loss trends are excessive is a reiteration of the claim that they are too high, already addressed with respect to deficiency number two. Fast Track data is data provided by the Insurance Services Office. It uses unaudited information and is prepared on a "quick turnaround" basis. Fast Track data is based on paid claims rather than incurred claims data, and upon a broad number of companies with different claims settlement practices. Because it relies on paid claims, there is a time lag in the information provided. Hartford did not rely on Fast Track data, but instead relied upon its own data for calculating loss trends. Given the volume of business involved, Hartford had enough data to rely on for projecting future losses. Moreover, Respondents point to no statutory or rule requirement to use Fast Track data. The filings are not deficient on this basis. The fifth identified deficiency in the Notice of Intent to Disapprove is that catastrophe hurricane losses, ALAE and ULAE amounts are excessive and not supported. ALAE stands for "allocated loss adjustment expenses," and represents the costs the company incurs to settle a claim and that can be attributed to that particular claim, such as legal bills, court costs, experts and engineering reports. By contrast, ULAE stands for "unallocated loss adjustment expense" and represents the remainder of claims settlement costs that cannot be linked to a specific claim, such as office space, salaries and general overhead. Part of the OIR's objection with respect to this deficiency relates to the use of the RMS model. As stated above at paragraphs 25-33, the use of the RMS model is reasonable. With respect to ALAE, Hartford analyzed both nationwide data (4.4%) and Florida data (4.8%) and selected an ALAE load between the two (4.6%). This choice benefits Florida policyholders. It is reasonable to select between the national and Florida historical figures, given the amount of actual hurricane data available during the period used. With respect to ULAE, the factors used were based upon directions received from Ken Ritzenthaler, an actuary with OIR, in a previous filing. The prior discussions with Mr. Ritzenthaler are referenced in the exhibits to the filing. The more credible evidence demonstrates that the ALAE and ULAE expenses with respect to catastrophic hurricane losses are sufficiently documented in Hartford's filings and are based on reasonable actuarial judgment. The sixth identified deficiency is that the catastrophe non-hurricane losses, ALAE and ULAE amounts are excessive and not supported. According to OIR, the particular time period from 1992 to 2006 used to calculate these values has not been justified, and there has been no explanation of why the extraordinarily high reported losses for 1992 and 1993 should be expected to occur in the future. OIR's complaint with respect to non-hurricane losses is based upon the number of years of data included. While the RMS model was used for hurricane losses, there is no model for non- hurricane losses, so Hartford used its historical data. This becomes important because in both 1992 and 1993, there were unusual storms that caused significant losses. Hartford's data begins with 1992 and goes through 2006, which means approximately fifteen years worth of data is used. Hartford's explanation for choosing that time period is that hurricane models were first used in 1992, and it was at that time that non-hurricane losses had to be separated from hurricane losses. Thus, it was the first year that Hartford had the data in the right form and sufficient detail to use in a rate filing. Petitioners have submitted rate filings in the past that begin non-hurricane, ALAE and ULAE losses with 1992, increasing the number of years included in the data with each filing. Prior filings using this data have been approved by OIR. It is preferable to use thirty years of experience for this calculation. However, there was no testimony that such a time-frame is actuarially or statutorily required, and OIR's suggestion that these two high-loss years should be ignored is not based upon any identified actuarial standard. Hartford attempted to mitigate the effect of the severe losses in 1992 and 1993 by capping the losses for those years, as opposed to relying on the actual losses.2/ The methodology used by Hartford was reasonable and appropriate. No other basis was identified by the OIR to support this stated deficiency. The seventh identified deficiency is that the underwriting profit and contingency factors are excessive and not supported. The underwriting profit factor is the amount of income, expressed as a percentage of premium, that an insurance company needs from premium in excess of losses, settlement costs and other expenses in order to generate a fair rate of return on its capital necessary to support its Florida exposures for the applicable line of business. Hartford's proposed underwriting profit factor for its largest homeowners filing is 15.3%. Section 627.062(2)(b), Florida Statutes, contemplates the allowance of a reasonable rate of return, commensurate with the risk to which the insurance company exposes its capital and surplus. Section 627.062(2)(b)4., Florida Statutes, authorizes the adoption of rules to specify the manner in which insurers shall calculate investment income attributable to classes of insurance written in Florida, and the manner in which investment income shall be used in the calculation of insurance rates. The subsection specifically indicates that the manner in which investment income shall be used in the calculation of insurance rates shall contemplate allowances for an underwriting profit factor. Florida Administrative Code Rule 69O-170.003 is entitled "Calculation of Investment Income," and the stated purpose of this rule is as follows: (1) The purpose of this rule is to specify the manner in which insurers shall calculate investment income attributable to insurance policies in Florida and the manner in which such investment income is used in the calculation of insurance rates by the development of an underwriting profit and contingency factor compatible with a reasonable rate of return. (Emphasis supplied). Mr. Schwartz relied on the contents of this rule in determining that the underwriting profit factor in Hartford's filings was too high, in that Florida Administrative Code Rule 69O-170.003(6)(a) and (7) specifies that: (6)(a) . . . An underwriting profit and contingency factor greater than the quantity 5% is prima facie evidence of an excessive expected rate of return and unacceptable, unless supporting evidence is presented demonstrating that an underwriting profit and contingency factor included in the filing that is greater than this quantity is necessary for the insurer to earn a reasonable rate of return. In such case, the criteria presented as determined by criteria in subsection (7) shall be used by the Office of Insurance Regulation in evaluating this supporting evidence. * * * An underwriting profit and contingency factor calculated in accordance with this rule is considered to be compatible with a reasonable expected rate of return on net worth. If a determination must be made as to whether an expected rate of return is reasonable, the following criteria shall be used in that determination. An expected rate of return for Florida business is to be considered reasonable if, when sustained by the insurer for its business during the period for which the rates under scrutiny are in effect, it neither threatens the insurer's solvency nor makes the insurer more attractive to policyholders or investors from a corporate financial perspective than the same insurer would be had this rule not been implemented, all other variables being equal; or Alternatively, the expected rate of return for Florida business is to be considered reasonable if it is commensurate with the rate of return anticipated for other industries having corresponding risk and it is sufficient to assure confidence in the financial integrity of the insurer so as to maintain its credit and, if a stock insurer, to attract capital, or if a mutual or reciprocal insurer, to accumulate surplus reasonably necessary to support growth in Florida premium volume reasonably expected during the time the rates under scrutiny are in effect. Mr. Schwartz also testified that the last published underwriting profit and contingency factor published by OIR was 3.7%, well below what is identified in Hartford's filings. Hartford counters that reliance on the rule is a misapplication of the rule (with no explanation why), is inconsistent with OIR's treatment of the profit factors in their previous filings, and ignores the language of Section 627.062(2)(b)11., Florida Statutes. No evidence was presented to show whether the expected rate of return threatens Hartford's solvency or makes them more attractive to policyholders or investors from a corporate financial perspective than they would have been if Rule 69O- 170.003 was not implemented. Likewise, it was not demonstrated that the expected rate of return for Florida business is commensurate with the rate of return for other industries having corresponding risk and is necessary to assure confidence in the financial integrity of the insurer in order to maintain its credit and to attract capital. While the position taken by OIR with respect to Hartford's filings may be inconsistent with the position taken in past filings, that cannot be determined on this record. The prior filings, and the communications Hartford had with OIR with regard to those filings, are not included in the exhibits in this case. There is no way to determine whether Petitioners chose to present evidence in the context of prior filings consistent with the criteria in Rule 69O-170.003, or whether OIR approved the underwriting profit and contingency factor despite Rule 69O- 170.003. Having an underwriting profit factor that is considered excessive will result in a higher rate indication. Therefore, it is found that the seventh identified deficiency in the Notices of Intent to Disapprove for the homeowners filings and the second identified deficiency in the Notices of Intent to Disapprove for the dwelling/fire filings is sustained. The eighth identified deficiency is that various components underlying the calculation of the underwriting profit and contingency factors, including but not limited to the return on surplus, premium to surplus ratio, investment income and tax rate are not supported or justified. Return on surplus is the total net income that would result from the underwriting income and the investment income contributions relative to the amount of capital that is exposed. Surplus is necessary in addition to income expected from premium, to insure that claims will be paid should losses in a particular year exceed premium and income earned on premium. Hartford's expected return on surplus in these filings is 15%. The return on surplus is clearly tied to the underwriting profit factor, although the percentages are not necessarily the same. It follows, however, that if the underwriting income and contingency factor is excessive, then the return on surplus may also be too high. Hartford has not demonstrated that the return on surplus can stand, independent of a finding that the underwriting profit and contingency factor is excessive. Premium-to-surplus ratio is a measure of the number of dollars of premium Hartford writes relative to the amount of surplus that is supporting that exposure. Hartford's premium-to- surplus ratio in the AARP homeowners filing is 1.08, which means that if Hartford wrote $108 of premium, it would allocate $100 of surplus to support that premium.3/ The premium-to-surplus ratio is reasonable, given the amount of risk associated with homeowners insurance in Florida. The OIR's position regarding investment income and tax rates are related. The criticism is that the filing used a low- risk investment rate based on a LIBOR (London Interbank Offering Rate), which is a standard in the investment community for risk- free or low-risk yield calculations. The filing also used a full 35% income tax rate applied to the yield. Evidence was presented to show that, if the actual portfolio numbers and corresponding lower tax rate were used in the filings, the rate after taxes would be the same. The problem, however, is that Section 627.062(2)(b)4., Florida Statutes, requires the OIR to consider investment income reasonably expected by the insurer, "consistent with the insurer's investment practices," which assumes actual practices. While the evidence at hearing regarding Hartford's investments using its actual portfolio yield may result in a similar bottom line, the assumptions used in the filing are not based on Petitioner's actual investment practices. As a result, the tax rate identified in the filing is also not the actual tax rate that has been paid by Hartford. The greater weight of the evidence indicates the data used is not consistent with the requirements of Section 627.062(2)(b)4., Florida Statutes. Therefore, the eighth deficiency is sustained to the extent that the filing does not adequately support the return on surplus, investment income and tax rate. The ninth identified deficiency is that the underwriting expenses and other expenses are excessive and not supported. Hartford used the most recent three years of actual expense data, analyzed them and made expense selections based on actuarial judgment. The use of the three-year time frame was both reasonable and consistent with common ratemaking practices. Likewise, the commission rates reflected in the agency filings are also reasonable. The tenth identified deficiency is that the non-FHCF (or private) reinsurance costs are excessive and not supported. The criticism regarding private reinsurance purchases is three- fold: 1) that Hartford paid too much for their reinsurance coverage; 2) that Hartford purchases their reinsurance coverage on a nationwide basis as opposed to purchasing coverage for Florida only; and 3) that the percentage of the reinsurance coverage allocated to Florida is too high. Hartford buys private reinsurance in order to write business in areas that are exposed to catastrophes. It buys reinsurance from approximately 40 different reinsurers in a competitive, arm's-length process and does not buy reinsurance from corporate affiliates. Hartford used the "net cost" of insurance in its filings, an approach that is appropriate and consistent with standard actuarial practices. Hartford also used the RMS model to estimate the expected reinsurance recoveries, which are subtracted from the premium costs. Hartford buys private catastrophic reinsurance on a nationwide basis to protect against losses from hurricanes, earthquakes and terrorism, and allocates a portion of those costs to Florida. Testimony was presented, and is accepted as credible, that attempting to purchase reinsurance from private vendors for Florida alone would not be cost-effective. The cost of reinsurance, excluding a layer of reinsurance that covers only the Northeast region of the country and is not reflected in calculating costs for Florida, is approximately $113 million. Hartford retains the first $250 million in catastrophe risk for any single event, which means losses from an event must exceed that amount before the company recovers from any reinsurer. In 2006, Hartford raised its retention of losses from $175 million to $250 million in an effort to reduce the cost of reinsurance. Hartford purchases reinsurance in "layers," which cover losses based on the amount of total losses Hartford incurs in various events. Hartford allocates approximately 65% of the private reinsurance costs (excluding the Northeast layer) to Florida in the AARP homeowners filing. Only 6-7% of Hartford's homeowners policies are written in Florida. The amount Hartford paid for reinsurance from private vendors is reasonable, given the market climate in which the insurance was purchased. Hartford has demonstrated that the process by which the reinsurance was purchased resulted in a price that was clearly the result of an arms-length transaction with the aim of securing the best price possible. Likewise, the determination to purchase reinsurance on a nationwide basis as opposed to a state-by-state program allows Hartford to purchase reinsurance at a better rate, and is more cost-effective. Purchasing reinsurance in this manner, and then allocating an appropriate percentage to Florida, is a reasonable approach. With respect to the allocation of a percentage of reinsurance cost to Florida, OIR argues that, given that Florida represents only 6-7% of Hartford's homeowner insurance business, allocation of 65% of the reinsurance costs to Florida is per se unreasonable. However, the more logical approach is to examine what percentage of the overall catastrophic loss is attributable to Florida, and allocate reinsurance costs accordingly. After carefully examining both the testimony of all of the witnesses and the exhibits presented in this case, the undersigned cannot conclude that the allocation of 65% of the private reinsurance costs is reasonable, and will not result in an excessive rate.4/ The eleventh identified deficiency is that the FHCF (or CAT Fund) reinsurance costs are excessive and not supported. Hartford purchases both the traditional layer of CAT Fund coverage, which is addressed in a separate filing and not reflected in these filings, and the TICL layer made available pursuant to Chapter 2007-1, Laws of Florida. Hartford removed the costs of its previously purchased private reinsurance that overlapped with the TICL layer and those costs are not reflected in these filings and have not been passed on to Florida policyholders. In estimating the amount of premium Hartford would pay for the TICL coverage, it relied on information provided by Paragon, a consulting firm that calculates the rates for the CAT Fund. As noted in finding of fact number 31, the RMS model, along with three other models accepted by the Hurricane Commission, were used by Paragon for determining expected aggregate losses to the CAT Fund reinsurance layer, clearly a crucial factor in determining the rate for the CAT fund. Hartford did not use the loss recoveries calculated by Paragon, but instead estimated the total amount of premium it would pay for the TICL coverage and subtracted the expected loss recoveries based on the RMS model alone. The expected loss recoveries under the RMS model standing alone were 60% of the loss recovery estimate calculated by Paragon when using all four models. Hartford claimed that its use of the RMS model was necessary for consistency. However, it pointed to no actuarial standard that would support its position with respect to this particular issue. Moreover, given that the premium used as calculated by Paragon used all four models, it is actually inconsistent to use one number which was determined based on all four models (the Paragon-based premium estimate) for one half of this particular calculation and then subtract another number using only one model for the other half (the loss recoveries rate) in order to determine the net premium. To do so fails to take into account the unique nature of the CAT fund, in terms of its low expenses and tax-exempt status. Accordingly, it is found that the CAT-Fund reinsurance costs for the TICL layer are excessive. The twelfth identified deficiency is that Hartford did not consider in the filing that no new business is being written. OIR's explanation of this asserted deficiency is that the costs associated with writing new business are generally higher than that associated with writing renewals. Therefore, according to OIR, failure to make adjustments to their historical experience to reflect the current mix of business, means that the costs included in the filing would be excessive. Hartford began restricting the writing of new business for these filings in 2002. Ultimately, no new business for the AARP program was written after November 2006 and no new business was written for the agency program after June 2006. Credible evidence was presented to demonstrate that a very low percentage of new business has been written over the period of time used for demonstrating Hartford's historical losses. As a result, the effect of no longer writing new business is already reflected in the data used to determine expenses. No additional adjustment in the filing was necessary in this regard. The thirteenth identified deficiency is that no explanation has been provided as to why Hartford believes it is reasonable to return such a low percentage of premium in the form of loss payments to policyholders. For example, for the building policy forms, OIR states that only about 40% of the premium requested by Hartford is expected to be returned to policyholders in the form of loss payments. OIR pointed to no actuarial standard that would require a specific explanation regarding how much of the premium should be returned to policyholders. Nor was any statutory or rule reference supplied to support the contention that such an explanation was required. Finally, the more credible evidence presented indicates that the correct percentage is 44%. In any event, this criticism is not a basis for finding a deficiency in the filing. Alleged Deficiencies in the Dwelling/Fire Filings The seventh deficiency identified in the dwelling/fire filings, not reflected in the homeowner filings, is that the credibility standard and credibility values are not supported. Credibility is the concept of identifying how much weight to put on a particular set of information relative to other potential information. Credibility value is determined by applying the "square root rule" to the credibility value, a commonly used actuarial approach to credibility. Hartford used the credibility standard of 40,000 earned house years in these filings. This credibility standard has been the standard within the industry for personal property filings for over forty years and has been used in prior filings submitted to OIR. Mr. Schwartz testified that his criticism with respect to the credibility standard and credibility values is that Hartford did not explain why they used that particular standard. However, Florida Administrative Code Rule 69O-170.0135 discusses those items that must be included in the Actuarial Memorandum for a filing. With respect to credibility standards and values, Rule 69O-170.0135(2)(e)5., provides that the basis need only be explained when the standard has changed from the previous filing. Given that no change has been made in these filings with respect to the credibility standard, this criticism is not a valid basis for issuing a Notice of Intent to Disapprove. The ninth deficiency in the Notice relating to the dwelling/fire filing in Case No. 07-5187 provides: "No explanation has been provided as too (sic) why Hartford believes it needs such a large rate increase currently, when the cumulative rate change implemented by Hartford for this program from 2001 to 2006 was an increase of only about 10%." With respect to Case No. 07-5188, the deficiency is essentially the same, except the cumulative rate change identified for the same period of time is a decrease of about -3%. Testimony established that the dwelling/fire rate increases were larger than those identified for the homeowners filings because Hartford did not seek rate increases for these lines for several years. The decision not to seek increases was not based on the adequacy of current rates. Rather, the decision was based on an internal determination that, based on the relatively small number of policies involved in these two filings, the amount of increased premium reflected in a rate increase was not sufficient to incur the costs associated with preparing the filings. Mr. Schwartz pointed to no authority, either in statute, rule, or Actuarial Standard, that requires the explanation he desired. He acknowledged that he understood the basis of how Hartford reached the rate increase they are requesting. The failure to provide the explanation Mr. Schwartz was seeking is not a valid basis for a Notice of Intent to Disapprove.
Recommendation Upon consideration of the facts found and conclusions of law reached, it is RECOMMENDED: That a final order be entered that disapproves the rate filings in Case Nos. 07-5185 and 07-5186 based upon the deficiencies numbered 7,8,10 and 11 in the Notices of Intent to Disapprove, and that disapproves the rate filings in Case Nos. 07-5187 and 07-5188 based on the deficiencies numbered 2,3,5 and in the Notices of Intent to Disapprove. DONE AND ENTERED this 28th day of March 2008, in Tallahassee, Leon County, Florida. S LISA SHEARER NELSON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 28th day of March, 2008.
The Issue The issue in this case is whether the Florida Real Estate Commission should discipline the Respondent, Mounir Albert El Beyrouty, on charges that he failed to deliver rental proceeds, was dishonest in his dealings regarding the rental property, failed to escrow rental deposits and proceeds, and failed to properly reconcile his escrow account.
Findings Of Fact The Respondent, Mounir Albert El Beyrouty, is licensed as a real estate broker in Florida, having been issued license no. BK 596936. He is the qualifying broker for Intermab, Inc., d/b/a Byblos Beach Realty. Acting through the real estate brokerage he qualified, Intermab, Inc., the Respondent orally agreed with Virginia Covington to manage apartment Unit 1-E, Redington Tower 3, located at 17940 Gulf Boulevard in Redington Shores, Florida. Initially, Covington, who is a federal district judge, was the personal representative and sole beneficiary of her mother's estate, which owned the unit; after probate, Judge Covington became the owner of the unit. The Respondent and Judge Covington agreed orally that the Respondent would try to lease the apartment on an annual basis at a lease rate of $850 per month, less a 15 percent commission to the Respondent. Although the Respondent was unable to secure such a lease, he intentionally misled Judge Covington to think there was such a lease and, in January 2008, began paying her $722.50 per month by check drawn on his brokerage operating account. He did this because he wanted her to think highly of his abilities as a real estate broker in the hopes that she would retain him to list the property when she decided to sell. Not long after he began sending monthly checks, the Respondent told Judge Covington that a leak in the kitchen sink should be repaired and a stained mattress should be replaced. He got her permission, took care of both items, and was reimbursed. However, he perceived that Judge Covington did not want to put additional money into the apartment unnecessarily and decided to avoid these kinds of conversations and dealings with her. Instead, he began to expend his own funds to maintain and upgrade the property as he saw fit without telling her. The Respondent secured a paying tenant for the apartment for six weeks during February and March 2008. He collected a $500 security deposit and $5,250 in rent, all of which he deposited in the brokerage operating account. He did not tell Judge Covington about the seasonal renter. Instead, he kept paying her $722.50 per month and continued to lead her to believe there was an annual lease for $850 a month. When the seasonal renter left, the Respondent continued to pay Judge Covington $722.50 per month. In April 2008, the Respondent allowed friends to stay in Judge Covington's apartment free of charge and without paying a security deposit. He did not tell Judge Covington, rationalizing that he was paying her the $722.50 per month she thought was her share of the annual lease payments. The Respondent secured a paying tenant for the apartment for January, February, and March 2009. He collected a $500 security deposit and $9,000 in rent, all of which he deposited in the brokerage operating account. He did not tell Judge Covington about the seasonal renter. Instead, he kept paying her $722.50 per month and continued to lead her to believe there was an annual lease for $850 a month. When the seasonal renter left, the Respondent continued to pay Judge Covington $722.50 per month. The Respondent secured a paying tenant for the apartment for January, February and March 2010. He collected a $500 security deposit and $9,000 in rent, all of which he deposited in the brokerage operating account. He did not tell Judge Covington about the seasonal renter. Instead, he kept paying her $722.50 per month and continued to lead her to believe there was an annual lease for $850 a month. When the seasonal renter left, the Respondent continued to pay Judge Covington $722.50 per month. In July 2010, the Respondent was able to lease the apartment for a year at a monthly rent of $1,300. He also collected a $1,000 security deposit. He deposited this money in the brokerage operating account. He did not tell Judge Covington about the seasonal renter. Instead, he kept paying her $722.50 per month and continued to lead her to believe there was an annual lease for $850 a month. In November 2010, Judge Covington told the Respondent to tell the tenant she wanted to increase the annual lease rate to $935 a month. The Respondent continued to lead her to believe there was an annual lease for $850 a month and told her that he would advise the supposed tenant of the rent increase. Instead, he kept collecting $1,300 a month from the tenant and began paying Judge Covington $794.75 a month (the $935, less a 15 percent commission). He did not tell her there actually was an annual lease for $1,300 a month. The $1,300 annual lease was not renewed in July 2011. The Respondent continued to pay Judge Covington $794.75 a month and to lead her to believe there was an annual lease for $935 a month. In about June 2011, Judge Covington decided to sell her apartment. As the Respondent hoped and planned, she listed it with his brokerage. Judge Covington asked the Respondent to notify the supposed annual tenant, who she believed had been living in the apartment since December 2007, to make sure the tenant would be agreeable to a month-to-month lease during their efforts to sell. The Respondent continued to lead Judge Covington to believe there was such an annual tenant and assured her that he would be able to convince the tenant to cooperate with her plan to sell. From August 29 through October 5, 2011, the Respondent allowed friends to stay in Judge Covington's apartment free of charge and without paying a security deposit. He did not tell Judge Covington, rationalizing that he was paying her the $794.75 per month she thought was her share of the annual lease payments. In November and December 2011, the Respondent rented Judge Covington's apartment to the sister of the court clerk for $850 a month without requiring a security deposit. He did not tell Judge Covington about this rental. The Respondent secured paying tenants for the apartment for February, March and April 2012. He collected a $500 security deposit and $9,000 in rent, all of which he deposited in the brokerage operating account. He did not tell Judge Covington about the seasonal renter. Instead, he kept paying her $794.75 a month and led her to believe there was an annual lease for $935 a month. Despite several price reductions, the Respondent was unable to sell the apartment, and Judge Covington decided to switch selling brokers. In February 2012, she signed a listing agreement with another real estate broker. Later in February 2012, a real estate salesperson showed Judge Covington's apartment to a prospective purchaser. Upon questioning, an older woman told the salesperson that they were paying $3,000 a month in rent. The Respondent told the salesperson to disregard the information because the woman was not thinking straight, or words to that effect, because her husband had been ill. He also told her that the woman's son was actually paying the rent. The salesperson related this information to Judge Covington and also told her that she noticed that the residents were not the same people she happened to see in the apartment on one occasion in February 2012. Upon receiving this information, Judge Covington became suspicious that the Respondent had been dishonest and misleading her. She contacted the State Attorney's Office and the Division regarding the process for filing a complaint against the Respondent. She also arranged for a meeting with the Respondent. When she met with the Respondent, she brought a forensic accountant to review the Respondent's records. The Respondent told them he was sorry that Judge Covington was upset with him, but that he did not owe her any money--to the contrary, that she owed him money. However, he told them he was being audited by the Division and was unable to provide supporting documentation. At the final hearing, the Respondent provided a ledger to support his position that all the rent he collected belonged to him alone because Judge Covington owed him money throughout his dealings with her due to his payments to her, regardless whether her apartment was rented, and the money he spent to maintain and improve the apartment. (This was an after-the-fact justification for his failure to deposit any security deposits or rental payments into his escrow account when, in fact, he did not do so because he did not know it was required.) There is reason to believe that the ledger is not entirely accurate. For example, the Respondent omitted rent collected from at least one occupant of the apartment. It also does not account for the times the Respondent allowed friends and relatives to stay there free of charge, essentially acting as if he owned the apartment. Although the Respondent's testimony regarding the money he paid to maintain and improve the apartment is accepted, his failure to timely apprise Judge Covington regarding those expenditures makes it difficult to be certain about it. Finally, even accepting the ledger at face value, it shows that there were times when the Respondent owed Judge Covington, and not vice-versa. The Division attempted to make a case that the Respondent intended to and attempted to steal rental proceeds. It is unlikely that the Respondent actually targeted a federal judge to victimize in that way. It is more likely that the Respondent was attempting to impress Judge Covington with his skill and expertise as a real estate broker and, ultimately, to be rewarded with the listing on the property when it was sold. In so doing, the Respondent flagrantly violated several laws and rules regarding his professional responsibilities as a licensed Florida real estate broker. Respondent has been a licensed real estate broker for many years and depends on his license to make a living to support himself and his family. He has no prior disciplinary record. However, it has become known in this case that, over the years, he consistently has failed to use his escrow account for rental deposits and proceeds because he did not know it was required.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Florida Real Estate Commission enter a final order: finding the Respondent guilty as charged; fining him $2,000; suspending his license for one year; and placing him on probation for a suitable period of time and upon suitable conditions. DONE AND ENTERED this 5th day of August, 2013, in Tallahassee, Leon County, Florida. S J. LAWRENCE JOHNSTON 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 5th day of August, 2013.
The Issue The issue for consideration herein is whether the Respondent's licenses and eligibility for licensure in the insurance field as a life insurance agent, (216); life and health insurance agent, (218); and solicitor for property, surety and miscellaneous lines, (420), should be disciplined because of the misconduct outlined in the Administrative Complaint filed herein.
Findings Of Fact At all times pertinent to the allegations herein, the Petitioner, Department of Insurance, was the state agency responsible for the regulation of the insurance industry in Florida. This included the licensing of insurance agents and solicitors. At the same time, the Respondent, Tim Calvin Olk, was licensed or eligible for licensure in this state as a life and health agent, a life insurance agent, and a solicitor for property, surety, and miscellaneous lines. He is currently eligible for licensure and appointment in this state in the same capacities. On or about November 10, 1988, Respondent contacted Gulf Coast Water & Waste, Inc., in Engelwood, Florida, and sold that company workers' compensation insurance coverage to be effective that date. He received a check for $1,000.00 payable to Brokerage Central as a premium for the coverage from Kyle James and Barbara Griffith, which, on November 14, 1988, he endorsed "Brokerage Central" and deposited into the Brokerage Central account at First American Bank. At that time, Respondent maintained an account with First American in the name of Brokerage Central which he used for his own funds. After making the deposit to the Brokerage Central account, Respondent failed to submit either the premium funds paid to him or a policy application on behalf of Gulf Coast Water & Waste, Inc. to his agency, Key Agency, Inc.. Instead, he used the $1,000.00 for his personal purposes. Since Gulf Coast Water & Waste, Inc. had been informed by the Respondent that effective November 10, 1988, the day of the application, it had worker's compensation coverage, the company thereafter utilized its employees in work activities under the mistaken belief they were covered. In reality they were not and they remained uncovered until Mr. James, at some date subsequent to November 10, 1988, actually procured the coverage from Key Agency, Inc.. On or about December 15, 1988, Respondent contacted Michael Piscopo, owner of Dante's Ristorante in Venice, Florida, with a view toward selling him business insurance to be effective that date, for one year through December 15, 1989. He collected a premium check for $3,000.00 payable to Key Agency to pay for this coverage, and on or about December 19, 1988, endorsed that check with the name, "Key Agency", and cashed it, receiving the $3,000.00 in cash. At the time, Mr. Olk represented Key Agency, Inc. as a solicitor for property, surety, and miscellaneous lines, having been hired on August 6, 1985. His relationship with Key Agency continued until December 19, 1988 but at no time included authority to convert agency funds to his own use. Notwithstanding the fact he had secured both a policy application and the $3,000.00 premium check from Mr. Piscopo for Dante's, Respondent failed to turn over either the check or the application to the agency, thereby leaving Mr. Piscopo without the coverage he had purchased. Instead of transferring the funds to his agency as he was required to do, Mr. Olk converted the money to his own use, attempting to conceal his actions by the issuing and reissuing of cashier's checks to various parties. On or about January 28, 1989, Joanna Pappas allegedly was injured while a patron in Dante's Ristorante. When the claim was processed through Key Agency, Inc., Mr. Piscopo first learned that he had no insurance coverage notwithstanding his submittal of an application and payment of the premium to the Respondent. As a result of Respondent's actions, Mr. Piscopo was without insurance coverage for the Pappas incident. It wasn't until on or about February 14, 1989 that Respondent attempted to obtain insurance coverage for Dante's Ristorante through Italiano Insurance Services, Inc., with whom he began employment as a solicitor for property, surety and miscellaneous lines on January 4, 1989. To pay for the coverage he sought for Dante's, Mr. Olk issued his personal check to Italiano. On this personal check, Respondent indicated that Dante's had paid him the $3,000.00 for the premium in cash, when in reality the premium payment was made by Mr. Piscopo by check. The check issued by Mr. Olk on his own account to Italiano to pay for the Piscopo coverage was subsequently dishonored by the bank because of insufficient funds in the account to cover it. On or about February 24, 1989, while employed as a solicitor for Italiano Insurance Services, Inc., Respondent sold group health insurance to Karen and Steven King of Symbiotic Systems Corporation of Engelwood, Florida, to be effective on or about March 1, 1989, for which he received a check for $1,420.40. Approximately two days later, on February 26, 1989, Respondent submitted both the premium check and the insurance application to Creative Planning Insurance Agency, an entity with which he was not authorized to deal directly. Some three days later, the agency returned the application to the Respondent without issuing a binder, with instructions to obtain additional information from the applicant. He did not do so right away, however, and it was not until April 1, 1989, that Respondent secured the proposed coverage. From March 1, 1989 to April 1, 1989, Symbiotic Systems Corporation employees did not have the coverage for which their employers had paid. During that period, the company did not know it was not covered. Evidence introduced at the hearing indicates that the Respondent improperly advised Symbiotic that its employees would be covered as of March 1, 1989, and did not mention to the company thereafter that from March 1 to April 1, 1989, the coverage was not in force. In addition to this failure, Respondent also improperly advised the company that its monthly premium would be $1,420.40, when in reality, the premium for the coverage applied for was $1,737.85.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that a Final Order be entered in this case revoking all licenses and eligibility for licensure and appointment in the insurance industry in this state held by the Respondent herein, Tim Calvin Olk, a/k/a Timothy Calvin Olk. RECOMMENDED this 18th day of March, 1991, in Tallahassee, Florida. ARNOLD H. POLLOCK, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 18th day of March, 1991. COPIES FURNISHED: Gordon Thomas Nicol, Esquire Department of Insurance 412 Larson Building Tallahassee, Florida 32399-0300 Michael P. Sampson, Esquire Holland & Knight, P.A. 92 Lake Wire Drive P.O. Box 32092 Lakeland, Florida 33802 Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Bill O'Neill General Counsel Department of Insurance The Capitol, Plaza Level Tallahassee, Florida 32399-0300
The Issue The issue is whether Respondent was an employee engaged in the construction industry and required to obtain workers' compensation insurance while working on the roof of the Myakka Animal Clinic and, if so, what penalty should be imposed.
Findings Of Fact On August 24, 1998, Petitioner's investigator observed Respondent working on the roof of the Myakka Animal Clinic in Venice, Florida. At the time, Respondent was regularly employed by Paradise Roofing, Inc., where he had an exemption from workers' compensation insurance coverage. He has never previously been guilty of a violation of the workers' compensation laws. The contract price was $800. However, the evidence is conflicting as to the identity of the party that entered into the contract with the Myakka Animal Clinic. The veterinarian testified that her understanding of the agreement was that Respondent was to do the work, but, if any problems arose, he was not alone, and she could go to Paradise Roofing, Inc., to ensure that the labor and materials were satisfactory. Although there are other indications in the record that Respondent may have been working on his own on this job, there is sufficient conflict in the evidence that Petitioner has failed to prove that Respondent was doing the job as a self- employed person, rather than an exempt employee of Paradise Roofing, Inc. Respondent's understanding of the contractual relationship carries less weight than the veterinarian's understanding of this relationship.
Recommendation It is RECOMMENDED that the Division of Workers' Compensation enter a final order dismissing the Notice and Penalty Assessment Order and any related stop work order. DONE AND ENTERED this 2nd day of April, 1999, in Tallahassee, Leon County, Florida. ROBERT E. MEALE 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 2nd day of April, 1999. COPIES FURNISHED: Edward A. Dion, General Counsel Department of Labor and Employment Security 307 Hartman Building 2012 Capital Circle, Southeast Tallahassee, Florida 32399-2152 Mary Hooks, Secretary Department of Labor and Employment Security 303 Hartman Building 2012 Capital Circle, Southeast Tallahassee, Florida 32399-2152 Louise T. Sadler, Senior Attorney Department of Labor and Employment Security 307 Hartman Building 2012 Capital Circle, Southeast Tallahassee, Florida 32399-2152 Eric Kristiansen 3750 Aba Lane North Port, Florida 34287
The Issue The issue in this case is whether Respondent, Margaret Louise Herget, committed the offenses alleged in an Amended Administrative Complaint issued by Petitioner, the Department of Financial Services, on December 9, 2005, and, if so, what penalty should be imposed.
Findings Of Fact The Parties. Petitioner, the Department of Financial Services (hereinafter referred to as the "Department"), is the agency of the State of Florida charged with the responsibility for, among other things, the investigation and prosecution of complaints against individuals licensed to conduct insurance business in Florida. Ch. 626, Fla. Stat.1 Respondent Margaret Louise Herget was, at the times relevant, licensed in Florida as a general lines (property and casualty) insurance agent. Ms. Herget's license number is A117083. At the times relevant to this matter, the Department has had jurisdiction over Ms. Herget's insurance licenses and appointments. At the times relevant to this matter, Ms. Herget was the president and a director of A & M Insurance, Inc. (hereinafter referred to as "A&M"). A&M was incorporated in 1991 and has been operating as an insurance agency in Broward County, Florida. At the times relevant to this matter, A&M had a business bank account with Bank Atlantic of Ft. Lauderdale. Ms. Herget has been an authorized signatory on the account since 1998. At the times relevant to this matter, Ms. Herget maintained a contractual relationship with Citizens Insurance Company (hereinafter referred to as "Citizens"), an insurer. Pursuant to this contractual relationship, all applications and premiums for Citizens's products received by Ms. Herget were to be submitted to Citizens within five business days. Albert Herget. Albert Herget,2 Ms. Herget's husband until their marriage was dissolved in September 2003, also maintained a contractual relationship with Citizens. Mr. Herget, who was licensed as a general lines agent by the Department, was appointed by Citizens to write Citizens' property and casualty insurance. Mr. and Ms. Herget were both authorized signatories on A&M's bank account from 1998 until June 2003. Ms. Herget continued as the sole authorized signatory on the account after June 2003. Mr. Herget was also an officer of A&M until October 6, 2003, when he resigned. A&M was named after "Albert" & "Margaret" Herget. The evidence failed to prove that Mr. Herget was under the direct supervision and control of Ms. Herget. The evidence also failed to prove that Ms. Herget knew or should have known of any act by Mr. Herget in violation of Chapter 626, Florida Statutes. Count I: The Camp Transaction. In June 2002 Michael Camp and Rosemary Mackay-Camp went to A&M to purchase hazard, windstorm, and flood insurance. The Camps met with and discussed their needs with Mr. Herget. On or about June 11, 2002, the Camps paid $2,273.97 by check number 365 made out to "A & M Insurance" for "Flood, Wind & Home Insurance." The premium for the windstorm insurance amounted to $1,026.00. The check was given to Mr. Herget and was deposited in A&M's bank account on or about June 12, 2002. On or about June 11, 2002, the Camps were given a document titled "Evidence of Property Insurance," which indicated that they had purchased insurance on their home for the period June 14, 2002, through June 14, 2003. The windstorm insurance was to be issued by Citizens. Initials purporting to be those of Ms. Herget and a stamp of Ms. Herget's name and insurance license number appear in a box on the Evidence of Property Insurance form titled "Authorized Representative." Ms. Herget testified credibly that the initials were not placed there by her.3 There is also a notation, "Paid in Full Ck # 365" and "Albert," written in Mr. Herget's handwriting on the Evidence of Property of Insurance form. Mr. Herget also gave the Camps the note evidencing the receipt of their payment. The Camps, merchant marines, left the country after paying for the insurance they desired on their home and did not return until sometime in 2003. Upon their return they inquired about why their windstorm insurance had not been renewed and discovered that they had never been issued the windstorm insurance coverage they had paid A&M for in 2002. The Camps attempted several times to contact Ms. Herget by telephone. Their attempts were unsuccessful. They wrote a letter of inquiry to Ms. Herget on October 29, 2003. Ms. Herget did not respond to their inquiry. Having received no response to their inquiry of October 29, 2003, Mr. Camp wrote to Ms. Herget on or about December 5, 2003, and demanded that she either provide proof of the windstorm policy the Camps had paid for or refund the premium paid therefor. By letter dated December 11, 2003, Ms. Herget informed Mr. Camp of the following: We have determined that your policy was submitted to Citizen's (Formerly FWUA) and was never issued due to a request for additional information which was not received. Ultimately the application and funds were returned to our agency. Enclosed please find our agency check for 1026.00 representing total refund of premium paid. Please advise if we can be of further assistance. Enclosed with the letter was a full refund of the premium which the Camps had paid for the windstorm insurance they never received. The Camps accepted the refund. While the hazard and flood insurance purchased by the Camps had been placed by A&M, the windstorm insurance had not been placed, as acknowledged by Ms. Herget in her letter of December 11, 2003. A&M's bank records indicate that a check for the windstorm insurance in the amount of $1,026.00 was written to Citizens on or about June 14, 2002, but that the check had never been cashed. Although this explanation appears contrary to the explanation given by Ms. Herget to the Camps in her letter of December 11, 2003, neither explanation was refuted by the Department. More importantly, regardless of why the windstorm insurance purchased by the Camps was not obtained by A&M, the weight of the evidence suggests that the fault lies not with Ms. Herget, but with Mr. Herget, who actually dealt with the Camps. The evidence also proved that it was not until sometime in late 2003 that Ms. Herget learned of the error and, upon investigating the matter, ultimately refunded in-full the amount paid by the Camps. The evidence failed to prove that any demand was made by Citizens for the premium for windstorm paid by the Camps or that she willfully withheld their premium. Count II: The Cipully Transaction. Carol Cipully began purchasing homeowner's insurance from A&M in 1999. In July 2003 Ms. Cipully refinanced her home. She believed that her homeowner's insurance would continue after the refinancing with her current insurance carrier, Citizens, through A&M. First American Title Insurance Company (hereinafter referred to as "First American") handled the closing of the refinancing. First American was responsible for issuing a check to A&M after closing in payment for the homeowner's insurance policy. Closing took place July 23, 2003. By check dated July 30, 2003, First American paid $1,658.00 to A&M for Ms. Cipully's insurance coverage.4 Of this amount, $1,435.00 was for hazard insurance with Citizens and $223.00 was for flood insurance from Omaha Property and Casualty Insurance Company (hereinafter referred to as "Omaha Insurance"). The check was received and deposited in the bank account of A&M on August 4, 2003. An Evidence of Property Insurance form was issued by A&M for Ms. Cipully's insurance on or about July 25, 2003. The form was initialed by Ms. Herget. A month or so after the closing, a water leak, which had caused property damage, was discovered in Ms. Cipully's home. When she attempted to contact her homeowner's insurer she ultimately discovered that the premium payment made by First American had not been remitted to Citizens or Omaha Insurance by A&M and, therefore, she had no homeowner's insurance. Ms. Cipully contacted Ms. Herget by telephone and was assured by Ms. Herget that she had insurance.5 Ms. Cipully's daughter, Tina Cipully, attempted to resolve the problem with Ms. Herget on behalf of her mother. In response to Tina Cipully's inquiries, Ms. Herget, rather than look into the matter herself, informed Tina Cipully that proof need to be provided to her by or on behalf of Ms. Cipully that would prove that a premium check had been sent to A&M from First American. Tina Cipully attempted to comply with Ms. Herget's request, contacting First American. An employee of First American faxed a copy of the cancelled check for $1,658.00 to Tina Cipully.6 A copy of the Evidence of Property Insurance dated July 25, 2003, from A&M was also faxed by First American to Tina Cipully. Tina Cipully sent a copy of the check she received from First American to Ms. Herget. She also sent a copy of a HUD-1 statement. When she later spoke to Ms. Herget, however, Ms. Herget told her she could not read the documents. The evidence failed to prove that Ms. Herget received a legible copy of the check. The copy of the HUD-1 form, while not totally legible, did evidence that $1,658.00 was to be withheld for payment of insurance premiums. Despite the fact that the check in the amount shown on the HUD-1 statement had been deposited in A&M's bank account, Ms. Herget continued to insist that Ms. Cipully prove her entitlement to redress. Had she made any effort, Ms. Herget should have discovered that a check in the amount of $1,658.00 had been deposited in A&M's bank account on August 4, 2003. Three and a-half months after having received the First American check, Citizens, after verifying that First American had paid for hazard insurance on behalf of Ms. Cipully, contacted Ms. Herget and requested payment of Ms. Cipully's insurance premium. Six months after being notified by Citizens, Ms. Herget paid Citizens the $1,435.00 insurance premium A&M had received in August 2003. The payment was made by check dated May 28, 2004. Ms. Herget did not explain why it took six months after being notified that Ms. Cipully had indeed paid her insurance premium to pay Citizens. Omaha Insurance had not been paid the $223.00 premium received by A&M in August 2003 at the time of the final hearing of this matter. Ms. Herget failed to explain why. Count IV: The Parker Transaction. On March 20, 2004, Elric Parker, who previously purchased homeowner's insurance from Citizens through A&M, went to A&M to renew his policy. He gave Ms. Herget a check dated March 20, 2004, for $1,064.00 in payment of six months of coverage.7 Ms. Herget gave Mr. Parker a receipt dated March 20, 2004, for the payment. The check was endorsed by Ms. Herget and deposited into the banking account of A&M on or about March 22, 2004. After waiting approximately three months for the arrival of a renewal policy which Ms. Herget told Mr. Parker he would receive, Mr. Parker became concerned and decided to contact A&M. He was repeatedly assured, at least on one occasion by Ms. Herget, that the renewal policy would be received. Mr. Parker subsequently contacted representatives of Citizens directly and was informed by letter dated January 8, 2005, that his insurance with Citizens had been cancelled in April 2004 for non-payment of the $1,064.00 premium Mr. Parker had paid to A&M. Rather than attempt to resolve the problem with Ms. Herget and A&M, Mr. Parker continued to deal directly with Citizens. After providing proof to Citizens of his payment of the premium to A&M, Citizens offered to issue a new policy effective April 2004 upon payment by Mr. Parker of the second six-month premium or, in the alternative, to apply his payment in March 2004 to a new policy for 2005. Mr. Parker opted to have his payment applied toward the issuance of a new policy providing coverage in 2005. This meant that he had no coverage for most of 2004 and part of 2005. Citizens notified Ms. Herget that the payment she had received from Mr. Parker should be remitted to Citizens. Ms. Herget investigated the matter and, when she confirmed that she had received his payment, paid Citizens $1,064.00 on or about February 10, 2005. Ms. Herget and A&M failed to remit Mr. Parker's insurance premium payment received in March 2004 until payment was made to Citizens in February 2005. That payment was made only after inquires from Mr. Parker and, ultimately, Citizens. While Ms. Herget speculated that Mr. Parker's file was misfiled and not properly processed, the failure to remit Mr. Parker's premium payment for almost a year was not explained by either party. The evidence failed to prove, however, that Ms. Herget failed to remit the premium to Citizens willfully or that she failed to remit the premium once it was determined that A&M had failed to so and demand was made by Citizens.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered by the Department finding that Margaret L. Herget violated the provision of Chapter 626, Florida Statutes (2003), described, supra, and suspending her license for six months. DONE AND ENTERED this 29th day of June, 2006, in Tallahassee, Leon County, Florida. S LARRY J. SARTIN Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 29th day of June, 2006.
The Issue This case involves an Administrative Complaint filed by the petitioner, State of Florida, Office of Treasurer/Insurance Commissioner, against James H. Bowling and Premium Budget Service, Inc., Respondents. The action is brought under the authority of Chapters 626 and 627, Florida Statutes. The petitioner is attempting to take disciplinary action against the licenses of the Respondents pertaining to their performance in insurance business transactions conducted in the State of Florida. Originally, the Administrative Complaint contained eight counts. At the commencement of the hearing, Count IV of the Administrative Complaint was dismissed. The remaining Counts I through VII accuse Respondent Bowling with a series of substantive violations related to his business transactions with individual customers with whom be allegedly was involved in the selling of insurance in the State of Florida. Specifically, Respondent Bowling is charged with: Receiving premiums or other funds belonging to insurers or others in transactions under his license which were trust funds received by him in a fiduciary capacity, which funds he failed to account for or pay to the insurer, insured or other persons entitled thereto in violation of Subsection 626.561(1), Florida Statutes. Willfully, under his license, circumventing the prohibitions of the Insurance Code, in violating of Sub section 626.611(4), Florida Statutes. Demonstrating a lack of fitness or trustworthiness to engage in the business of insurance, in violation of Subsection 626.611 (7), Florida Statutes. Demonstrating a lack of reasonable and adequate knowledge and technical competence to engage in the transactions authorized by the license or permit, in violation of Subsection 626.611(8), Florida Statutes. Engaging in fraudulent or dishonest practices in violation of Subsection 626.611(9), Florida Statutes. Misappropriating, converting or unlawfully withholding moneys belonging to insurers, insureds, beneficiaries or others received in the conduct of his business pursuant to license, in violation of Subsection 626.6II(10), Florida Statutes. In connection with the purported violation set forth in the aforementioned issue a., willfully violating an order, rule or regulation of the Insurance Department, or willfully violating provisions of the Insurance Code, contrary to Subsection 626.611(13), Florida Statutes. In connection with the purported violation set forth in the aforementioned issue a, violating provisions of the Insurance Code by an act contrary to Subsection 626.621(2), Florida Statutes. The Respondent, James H. Bowling, is accused through Count VIII of a violation of all those provisions set out in the accusations found in the statements a. through h. set out herein, related to remaining Counts I through VII and is an accusation that encompasses the cumulative effect of the violations in remaining Counts I through VII. If the Respondent, James H Bowling, is found to be guilty of the offenses set out in the Administrative Complaint, it is the petitioner's intention to revoke his license and eligibility for future licenses and/or to refuse the issuance of additional licenses as an insurance agent, or to impose as many lesser penalties as may be proper under the provisions of Sections 626.611, 626.621 and 626.681, Florida Statutes, and the Florida Insurance Code. Count VIII, related to the Respondent, Premium Budget Service, Inc., seeks to suspend or revoke its license as a premium finance company, and the basis for such action is premised upon the evidential facts alleged in remaining Counts I through VII and under authority of Subsection 627.832(1)(c), Florida Statutes.
Findings Of Fact THIS CAUSE comes on for consideration based upon the Administrative Complaint of petitioner, State of Florida, Office of Treasurer/ Insurance Commissioner, filed against James H. Bowling and Premium Budget Service, Inc., Respondents. The general details of the nature of the allegations may be found in the issues statement of this Recommended Order, and the particular allegations in each count will be discussed in the course of these findings of fact and the conclusions of law. The Petitioner, State of Florida, Office of Treasurer/Insurance Commissioner, is an agency of the State of Florida charged by statute with the duty to regulate the insurance industry in this state. The authority for such regulation, related to the case sub judice, is established in Chapters 626 and 627, Florida Statutes. The Respondent, James H. Bowling, is a licensed 2-20 insurance agent in the State of Florida, who holds such license with the permission of the Petitioner. Premium Budget Service, Inc., is licensed by the Petitioner pursuant to the provisions of Chapter 627, Florida Statutes. For the period January, 1975, to December, 1978, the Respondent, James H. Bowling, owned and operated as a licensed 2-20 insurance agent in the State of Florida, a company known as Atlas Insurance Agency, Inc. During that time, Bowling was the president of that corporation and was a 50 percent shareholder of its stock issue. Atlas had eight offices throughout Duva1 County, Florida, in which Bowling was transacting the business of the company. His specific function in connection with Atlas was that of the overall responsibility for the operation of Atlas insurance Agency, Inc., in managerial terms. In addition, Respondent Bowling served as the president of Premium Budget Service, Inc., during the period January, 1975, through December, 1978. This company was owned by Sandra R. Bowling, Respondent Bowling's wife. The business of Premium Budget Service, Inc., in the years in question was that of financing premium accounts to be paid by customers of Atlas Insurance Agency, Inc. to the company offering the insurance coverage. Under this arrangement, Premium Budget Service, Inc., financed the amount of the premium for insurance which was being handled by Atlas, and the customer agreed to pay back the amount of premium financed on an installment basis under terms and conditions of an installment contract. Some of the contracts which Premium Budget Service, Inc., had received from Atlas insurance Agency, Inc., for financing were subsequently assigned by Premium Budget to Devco Premium Finance Company. Devco, as a condition of the assignment, paid Premium Budget the amount of principal financed together with a transfer fee and was then reimbursed by the customer who made Installment payments of principal and interest to Devco on the amount of policy premium financed. This arrangement commenced in September, 1975, and was in operation during the pendency of some of the contracts which are at issue in this Administrative Complaint. The contracts which the Administrative Complaint focuses on were contracts involving customers through the Joint Underwriters Association program in Florida. The Joint Underwriters Association Is an organization made up of insurance companies who do business in the State of Florida in which members of the association have as their principal purpose the writing of insurance for high risk automobile drivers who operate automobiles in the State of Florida. Under this plan, Atlas insurance Agency, Inc., used United States Fidelity and Guaranty Company, hereinafter referred to as "U.S.F.&G.", as its servicing carrier in the time sequence relevant to this complaint. The first allegation in the Administrative Complaint concerns an insurance policy which Atlas sold to one Daniel Lashley. Lashley paid the full amount of the insurance premium by money order No. 1306407044 made out in the amount of $307. U.S.F.&G. issued policy No. 8-90-104607. This policy was issued after Atlas had mailed a down payment of $100 to U.S.F.&G. The check from Atlas was written on Bowling's signature. Lashley had paid the money order on April 4, 1977, and U.S.F.&G. had received the $100 deposit on April 28, 1977. The policy was mailed by U.S.F.&G. to Atlas on May 12, 1977, and the down payment check was deposited in the bank account of U.S.F.&G. on May 15, 1977. The effective date of the policy was April 8, 1977, to April 8, 1978. In addition, there was a premium billing requirement of $1.00 which Lashley paid on June 4, 1977. Apparently, this $1.00 payment was made to Atlas, because on November 23, 1977, a notice of termination was sent to Atlas and to David Lashley indicating an outstanding balance of $208. This notice was sent because U.S.F.&G. was unable to locate any payment other than the initial down payment of $100 which had been submitted with the application for policy; notwithstanding the fact that the total policy amount called for $308, which full amount should have been paid within thirty days of the date of issue of the policy. Final cancellation notice was mailed on December 21, 1977. This final cancellation notice was only forwarded to the agent, Atlas; however, on January 5, 1978, a notice was sent to Lashley indicating $103 earned premium due on the policy to keep the policy in effect until the end of the term. Lashley contacted the Florida Department of Insurance to determine why the policy had been cancelled and at that time he furnished proof of payment for the full amount of premium. An investigator with the Florida Department of Insurance contacted U.S.F. &G. who reinstated the policy on April 19, 1978, to be effective December 4, 1977. This reinstatement was made in spite of U.S.F.&G.'s records which showed no payment of the outstanding $208, nor contact from anyone connected with Atlas insurance Agency on the issue of why the policy had been cancelled. The Respondent, James H. Bowling, contended in the course of the hearing that a second check in connection with the Lashley premium had been forwarded to U.S.F.&G. on the Atlas account, check No. 19837, dated May 31, 1977. He also stated that his files indicated a notice of cancellation of November, 1977, to be effective December 4, 1977, but he took no action because a review of the file indicated that full payment had been received by U.S.F.&G., as evidenced by a memorandum from U.S.F.&G., indicating reinstatement and a note from an unnamed Atlas employee to the effect that the policy was to be reinstated, which led him to believe that someone in the Atlas office conferred with the U.S.F.&G. office and believed that the money on the second check of $208 had been found. Bowling's further explanation for the delayed payment of the balance of the policy was to the effect that normally on policies which were financed, only the initial installment was paid down and the balance paid at a later date, and he felt that one of his employees had treated the cash premium payment in Lashley's case in the same manner, by mistake. Testimony in the hearing established that certain checks forwarded to U.S.F. &G. had been mishandled, and those occurrences were happening around the time Lashley's's policy was purchased. Therefore, it has not been satisfactorily shown that the additional amount of $208 was not forwarded by a check dated May 31, 1977. Nonetheless, this does not excuse Atlas nor its managing agent, Bowling, from the necessity to forward all moneys received from Lashley on April 4, 1977, when it was received, and in one lump sum. Nor does It excuse the fact that even though Atlas knew of the cancellation in November/December of 1977, it left it to Lashley to take the initiative to rectify the problem, which was not accomplished until April, 1978; instead of immediately inquiring of U.S.F.&G. about the missing money when they were told of the problem. Accepting Bowling's representations that contacts were made with U.S.F.&G. on the subject of the Lashley account, it is apparent that those contacts took place after Lashley had set matters in motion. leading to the April, 1978, reinstatement. Count II of the Administrative Complaint involves a transaction between Atlas and a Bobby R. McGowan, Sr., to sell McGowan insurance policies. One of the policies was an automobile policy through U.S.F. &G. and a second was a personal effects policy through Parliament Insurance Company. The automobile policy was No. 8-90-056330 and the personal effects policy was No. PIM-18643. The premium on the automobile policy was $546 and the premium on the personal effects policy was $20. The terms of the policies ran from January 13, 1976, through January 13, 1977. There was a contract which McGowan entered into with Premium Budget Service, Inc. to finance the premiums due in the two policies. The total premium of both policies was $566, with a down payment of $198 from McGowan and an amount financed of $368. This contract was assigned to Devco Premium Finance Company in January, 1976. Devco paid for the assignment by having Respondent Bowling execute a sight draft which contained the amount due to Premium Budget on the McGowan account. This execution of the sight draft was on January 14, 1976, and it was honored by Devco on January 16, 1976. The proceeds pertaining to McGowan which were received by Premium Budget Service, Inc., were then transmitted by check to Atlas and Atlas at that point had the total premium amounts of $566. Atlas in turn forwarded $150 to U.S.F.&G by a check bearing Bowling's signature, which was deposited in the U.S.F.&G. account on June 2, 1976. In the interim, Devco requested a cancellation of U.S.F.&G.'s policy on McGowan and that request was made on March 10, 1976. The policy was cancelled and U.S.F. &G. returned $42 of unearned premiums to Devco. A notice of the cancellation was forwarded to Atlas and to McGowan. The reason for the cancellation action by Devco was related to McGowan's nonpayment on the installment contract to Devco. Devco claims to be short $361 in what should have been returned to them as unearned premiums. U.S.F. &G. did not forward that amount because they never received it from Atlas. Respondent, James H. Bowling, sent $366.63 to Devco on the McGowan account under check No. 18779 dated April 7, 1977, by his signature. Devco never received that amount and the cancelled check cannot be found, and Devco has never received its money. The reason for the delay in repaying Devco, according to the Respondent, was because he had an agreement with Devco in the person of their former owner, Doyle E. Varnes, to the effect that the premium money other than the necessary down payment would be held by Atlas, and if a policy was cancelled before it was issued, that the money other than the down payment would be sent by Atlas to Devco and not to U.S.F.&G.; otherwise, after issue the balance could go to the insurer. Varnes testified and did not acknowledge that agreement; additionally, any such agreement would be contrary to the requirement that the full amount of the premium be submitted by Atlas and, more importantly, Bowling's explanation about withholding moneys on this or any other case in which Devco paid Premium Budget for an assigned contract is not believable. Count III deals with a transaction in which Atlas sold Dorothy G. Morgan a policy from U.S.F.&G. This transpired in December, 1975. Dorothy G. Morgan made the down payment of $95, leaving an amount to be financed of $175 of the total premium of $270. This was an instance in which Premium Budget Service, Inc., assigned the contract to Devco under the same arrangement described in the transaction involving the customer, McGowan. On December 25, 1975, Bowling signed the draft for payment to Premium Budget. The term of the policy was December 15, 1975, to December 15, 1976, and the automobile insurance policy number was 8-90-49673. Atlas received the full amount of premium of $270, including the amount to be financed and paid $100 to U.S.F.&G. as a down payment deposited by U.S.F.&G. on May 20, 1976. After the down payment was mailed by a check drawn by Bowling on an Atlas bank account, Devco asked U.S.F.&G. to cancel the policy and a notice of cancellation was forwarded to Atlas and Morgan. This notice of cancellation, as all notices of cancellation involved in a transaction with U.S.F.&G. alluded to in this Administrative Complaint, contained a statement of the down payment amount and the outstanding premium amount. At that point of the notice of cancellation, U.S.F.&G. had not received the balance of the premium payments beyond the $100, the initial installment, and it did not return any moneys to Devco after the policy was cancelled because the amount of the earned premium was $109 which exceeded the amount of down payment by $9, leaving a negative balance. Devco was eventually paid the amount of money that it had outstanding, to-wit, the $170; by a check dated March 21, 1979, drawn on the account of The insurance Store, Inc. The draft on The Insurance Store, Inc., carries Respondent Bowling's signature and may be found as the Respondent's Exhibit No. 5 admitted into evidence. (Count IV had been dismissed prior to the hearing.) Count V involves the transaction between Atlas Insurance Agency, Inc., and one Willard I. Rader. This transaction involved the sale of an automobile policy through U.S.F.&G. with the premium amount of $370 which was subsequently adjusted to $428, policy No. 8-90-49616, and a personal effects policy through Parliament Insurance Company, No. PIM-232l3, with a premium of $20 produced by Atlas. The terms of the two policies were January 12, 1976, to January 12, 1977. The policies were assigned by Premium Budget Service, Inc., to Devco under the arrangement described above and on Bowling's signature to a draft dated January 14, 1976, which draft was honored by Devco on January 16, 1976. Premium Budget having received the proceeds from the assignment of the contract to Devco, paid Atlas moneys sufficient to leave Atlas with the full amount of the premium. In the beginning, the total premium for both policies was $390, with the down payment of $137, leaving $253 to be financed. Atlas forwarded $100 to U.S.F.&G.`s representative as a minimum down payment and U.S.F.&G. deposited that amount of money on June 21, 1976. U.S.F.&G. did not receive any further moneys from Atlas. Devco subsequently requested that the policy be cancelled and the policy was cancelled and Atlas and Radar were notified of the cancellation. U.S.F.&G. returned no money to Devco, in view of the fact that the earned premium was $177 and the amount of down payment was $100. On April 25, 1978, Atlas Insurance Agency, Inc., wrote a check under the signature of the Respondent, Bowling, in the amount of $270 which was paid to Devco. This $270 represented the balance of the premium down payment which should have been forwarded to U.S.F.&G. with the $100 down payment. The check may be found as the Respondent's Exhibit No. 6 admitted into evidence. Count VI involves the sale of an automobile policy by Atlas to Gerda M.Weidman. This policy was issued by U.S.F.&G. under No. 8-90-49695. The amount of premium was $184 which was later adjusted to the amount of $211. The term of the policy was from December 8, 1975, to December 8, 1976. The Weidman policy was financed to the extent of $120 of the original $184, the down payment being $64. The finance agreement was arranged by Premium Budget Service, Inc., who assigned the contract to Devco under terms described above. The sight draft was executed under Bowling's signature on December 9, 1975, and was honored by Devco, which assignment proceeds were transmitted through Premium Budget to Atlas, leaving Atlas with $184. Atlas transmitted $50 of that $184 as a down payment, instead of the proper amount of $184. This $50 amount was deposited by U.S.F.&G. on March 30, 1976. Devco had in February, 1976, requested the cancellation of the policy and the policy was cancelled with Atlas and Weidman being notified of the cancellation. U.S.F.&G. returned $9 of unearned premium to Devco. On April 25, 1978, a check was issued from Atlas Insurance Agency, Inc., to Devco in the amount of $134 under signature of James H. Bowling. This $134 represented the balance of the moneys due to Devco on the premium amount financed by Devco. The check in the amount of $134 may be found as Respondent's Exhibit No. 7 admitted into evidence. Count VII of the Administrative Complaint charges this Respondent, James H. Bowling, with violations connected with the sale of an automobile insurance policy by Atlas to one John K. Detmer. On May 5, 1977, John K. Detmer paid Atlas $210 as a down payment. An additional $428.08 was financed by Premium Budget Service, Inc., which amount reflected interest and other charges. The payment was for the purchase of a policy from U.S.F.&G., which issued policy No. 8-90-104724 effective May 8, 1977. The policy was issued after they received only $200 as a down payment, compared to the full amount of premium required, which would have been the $210 Detmer paid together with that portion of the $428.08 balance related to the premium. Detmer subsequently paid the entire amount required under the finance contract with Premium Budget Service, Inc. On November 21, 1977, U.S.F.&G. cancelled the policy after notifying Atlas and Detmer of the cancellation, in view of the fact that they had only received the $200 deposit and other moneys were due and owing on the premium. This policy has never been reinstated by U.S.F. &G. The Respondent claims that the additional amount of $399 was mailed to U.S.F.&G. under check No. 20512 from the account of Atlas drawn on July 13, 1977; however, U.S.F.&G. claims that they never received the additional payment. The Respondent's files indicate the cancellation notice and the effective date of that notice to be December 4, 1977, and a note that the policy was to be reinstated. There are no notes in the files with U.S.F.&G. of any conversation pertaining to the subject of reinstatement. Accepting the representation that the second check was forwarded on July 13, 1977; the Respondent, Bowling, as the managing agent of Atlas and Premium Budget, acted inappropriately in not forwarding the full amount of premium as one lump sum payment and in the task of following up the cancellation of the policy. Furthermore, even if it is assumed that there was some conversation between employees of Respondent Bowling's office and U.S.F.&G. and a note placed in the Atlas file to the effect that there would be reinstatement, there should have been a follow-up with Detmer to make certain that the policy had been reinstated, particularly since the cancelled check in the amount of $399 has never been returned and, had the policy been reinstated, it is reasonable to expect some notification memorandum would have been given such as was given in the Lashley matter. (Section 120.57, Florida Statutes, allows the parties to submit proposed findings of fact, conclusions of law and recommendations. The Respondents have availed themselves of that opportunity and those proposals have been reviewed prior to the rendition of this Recommended Order. To the extent that the proposals are not inconsistent with this Recommended Order, they have been taken into account and utilized in rendering the Recommended Order. To the extent that the proposals by the Respondents are inconsistent with this Recommended Order, they are hereby specifically rejected.)
Recommendation It is recommended that the license of the Respondent, James H. Bowling, to operate as a 2-20 insurance agent in the State of Florida be REVOKED. It is further recommended that the action against the license of Premium Budget Service, Inc., be DISMISSED DONE AND ENTERED this 6th day of August, 1979, in Tallahassee, Florida. CHARLES C. ADAMS Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: Patrick F. Maroney, Esquire Office of Treasurer/Insurance Commissioner 428-A Larson Building Tallahassee, Florida 32301 John London Arnold, Esquire 919 East Adams Street Jacksonville, Florida 32202 =================================================================
The Issue The issue for determination is whether Respondent used its best efforts to obtain and maintain adequate property insurance and whether adequate property insurance includes windstorm coverage.
Findings Of Fact The Carillon Association is a Florida not-for-profit corporation organized in 1966. Carillon Condominium consists of eight units. The units are owned by seven unit owners and controlled by the Carillon Association.3 Carillon Condominium is located in Miami Beach, Florida. During its existence of more than 40 years, Carillon Condominium has survived Florida's tropical storms, depressions, hurricanes, and other forms of wind and rain. At the time of the hearing, the Carillon Association was governed by a three-member board, consisting of a president, secretary, (who is also the legal counsel), and treasurer. Section XXVI of the Carillon Condominium's Declaration of Restrictions, Reservations, Covenants, Conditions and Easements (Declaration), titled "Casualty Insurance," provides in pertinent part: Purchase of Insurance: The association shall obtain fire and extended coverage insurance and vandalism and malicious mischief insurance insuring all of the insurable improvements within the condominium, together with such other insurance as the association deems necessary in and for the interest of the association, all unit owners, and their mortgagees, as their interests may appear, in a company, Triple A - best rating or better, in an amount which shall be equal to the maximum insurable replacement value as determined annually; and the premiums for such coverage and other expenses in connection with said insurance shall be assessed against the unit owners as part of the common expenses. * * * (4) Loss Less than "Very Substantial": Where a loss or damage occurs to more than one unit, or to the common elements, or to any unit or units, and the common elements, but said loss is less than "very substantial" (as hereinafter defined), it shall be obligatory upon the association and the unit owners to repair, restore and rebuild the damage caused by said loss. Where such loss or damage is less than "very substantial": * * * In the event the insurance proceeds are sufficient to pay for the cost of restoration and repair, or in the event the insurance proceeds are insufficient but additional funds are raised by special assessment within forty-five days after the casualty, so that sufficient funds are on hand to fully pay for such restoration and repair, then no mortgagee shall have the right to require the application of insurance proceeds to the payment of its loan; provided, however, that this provision may be waived by the Board of Directors in favor of any institutional first mortgages upon request thereof at any time. To the extent that any insurance proceeds are required to be paid over to such mortgagee, the unit owner shall be obliged to replenish the funds so paid over, and said unit owner and his unit shall be subject to special assessment for such sum. Notwithstanding the foregoing provision, any institutional mortgagee shall have the right to require payment to it, and apply against the mortgage, any insurance funds to the extent of its interest therein. The Carillon Condominium's By-Laws provides in pertinent part: Article II Directors * * * Section 5. Powers: The property and business of the corporation shall be managed by the Board of Directors, which may exercise all corporate powers not specifically prohibited by statute, the Certificate of Incorporation, or the Declaration to which these By-Laws are attached. The powers of the Board of Directors shall specifically include, but not be limited to, the following: To make and collect assessments and establish the time within which payment of same are due; To use and expend the assessments collected to maintain, care for and preserve the units and condominium property, except those portions thereof which are required to be maintained, cared for and preserved by the unit owners; * * * E. To insure and keep insured said condominium property in the manner set forth in the Declaration, against loss from fire and/or other casualty, and the unit owners against public liability, and to purchase such other insurance as the Board of Directors may deem advisable . . . . * * * Section 7. Meetings: * * * Special meetings shall be held whenever called by the direction of the President or a majority of the Board. The Secretary shall give notice of each special meeting either personally, by mail or telegram, at least three (3) days before the date of such meeting, but the directors may waive notice of the calling of the meeting; A majority of the Board shall be necessary and sufficient at all meetings to constitute a quorum for the transaction of business, and the act of the majority present at any meeting at which there is a quorum shall be the act of the Board. . . . * * * Article VII Finances * * * Section 3. Determination of Assessments A. The Board of Directors of the corporation shall fix and determine from time to time the sum or sums necessary and adequate for the common expense of the condominium property. Common expenses shall include expenses for the operation, maintenance, repair or replacement of the common elements . . . all insurance premiums and expenses relating thereto, including fire insurance, and any other expenses designated as common expense from time to time by the Board of Directors of the corporation. . . Funds for payment of common expenses shall be assessed against the unit owners in the proportions or percentages of sharing common expenses provided in the Declaration . . . Special assessments, should such be required by the Board of Directors, shall be levied and paid in the same manner as heretofore provided for regular assessments. . . . At all times material hereto, John Hillman was president of the Carillon Association. He has served as president for the past ten years. Additionally, he owns two units and has owned one of his two units for approximately 20 years. At all times material hereto, Lily Carico was treasurer of the Carillon Association. At all times material hereto, except from March 2010 forward, Peter Neofotistos was vice president of the Carillon Association. In March 2010, he resigned as vice president. At the end of each year for the past 20 years, the treasurer prepared a financial statement, i.e., an Annual Report, setting forth the annual budget based upon credits and debits, which was provided to each unit owner. The next year's budget was determined based upon the previous year's, resulting in essentially last year's budget becoming the next year's budget, and was financed by each of the owner's respective quarterly maintenance payments. For the past ten years, no annual budget meetings were noticed and held. Any extraordinary expenses for the past 20 years resulted in a special assessment to each unit owner, based upon each unit owner's ownership interest in the Carillon Condominium. For the past 20 years, the Carillon Association never charged or collected reserves for repair or replacement of items. Furthermore, for that same period of time, none of the unit owners requested a meeting to establish a reserve account. No evidence was presented as to whether, during the 20-year period or prior thereto, a majority of the unit owners voted to have no reserves. At all times material hereto, the Carillon Association purchased and maintained general premises liability coverage and all-risk coverage, including, but not limited to, fire, theft vandalism, vehicle, collapse, lightning, terrorism, and equipment breakdown coverage on the Carillon Condominium. The insurance premium for the all-risk policy in 2009 was $2,390.00 and in 2010 was $2,331.37. Sometime in 2006, Mr. Neofotistos suggested to Mr. Hillman the obtaining of insurance, covering wind and flood damage, by the Carillon Association in light of the recent hurricane activity. Mr. Hillman agreed in principle and that such insurance coverage might be something to explore. In 2006, unit owner Peter Neofotistos elected to use his one unit as collateral to secure a bank loan. He advised Mr. Hillman that his lender required a wind and flood insurance policy for the Carillon Condominium and that he (Mr. Neofotistos) acquired a master wind and flood insurance policy covering the Carillon Condominium at a cost of $3,740.00. Subsequently, Mr. Neofotistos made a demand for reimbursement of the $3,740.00. Mr. Hillman refused to reimburse Mr. Neofotistos mainly because the directors of the Carillon Association had not authorized and approved for Mr. Neofotistos to obtain the coverage for the Carillon Association. In 2009, unit owner Mario Sesma elected to use his one unit as collateral to secure a bank loan. The Carillon Association agrees that Mr. Sesma advised Mr. Hillman (a) that his lender was requiring a windstorm insurance policy for the loan; (b) that he (Mr. Sesma) was unable to pay for the windstorm insurance coverage; and (c) that the coverage would be considerably less if the Carillon Association had a master windstorm policy. Mr. Sesma advised Mr. Hillman further that the lender obtained a lender-placed flood insurance policy at a cost of $3,090.00 to Mr. Sesma. In April 2009, the roof at the Carillon Condominium required replacing due to leaks and age (ten years old). The unit owners were given notice of a special assessment in the amount of $15,285.70 for replacement of the roof. In 2009, Ms. Carico contacted the Carillon Association's long-time and current insurance agent for a quote on windstorm and hail insurance for the Carillon Association. She contacted the insurance agent upon learning of Mr. Sesma's request for the Carillon Association to obtain windstorm insurance. In September 2009, the insurance agent advised Carillon Association that one of the eligibility requirements for the insurance was an appraisal of the Carillon Condominium. Mr. Hillman requested the unit owners, who had forced-coverage by the lending institutions, to provide a copy of their appraisal in an effort to save money on the appraisal. The unit owners did not respond to his request. Additionally, in September 2009, the insurance agent provided a quote for the insurance coverage--the total estimated cost of the insurance was $4,012.00. However, he advised the Carillon Association that the estimate would fluctuate up or down depending upon the appraisal. The Carillon Association did not obtain an appraisal on the Carillon Condominium's common property. The Carillon Association's legal counsel, Jill Hillman, who was the daughter of Mr. Hillman and also a unit owner, advised the Carillon Association that windstorm insurance was not mandated by law. Ms. Carico conducted an informal poll of unit owners as to whether they wished the Carillon Association to purchase windstorm insurance for the Carillon Condominium. She did not want to purchase the insurance and was aware that Mr. Hillman and Ms. Hillman did not. Also, Ms. Carico asked two other unit owners, who indicated that they, too, did not want to purchase the insurance. As a result, five of the seven unit owners (also equating to six of the eight units), a majority, did not want to purchase windstorm insurance for the Carillon Condominium. After consultation with Ms. Hillman, acting as the Carillon Association's legal counsel, and the insurance agent, Mr. Hillman and Ms. Carico decided not to purchase the windstorm insurance quoted by the insurance agent. At all times material hereto, the Carillon Association did not have sufficient funds to purchase windstorm insurance. Moreover, the majority of the unit owners were unwilling to pay an assessment to purchase the windstorm insurance. The issue as to whether to purchase the windstorm policy quoted by the insurance agent or a windstorm policy from any other source was never brought to a formal board meeting as an agenda item at a duly called board of directors meeting or to a unit owner meeting. In or around June 2010, the water heater at Carillon Condominium required replacing on an emergency basis. The replacement cost was $5,200.00, which was funded with a special assessment upon all of the unit owners. Due to the immediacy of the situation, no board meeting and no unit owner's meeting was held; the replacement decision was made by the Carillon Association's president and treasurer. On or about July 29, 2010, Mr. Hillman sent a notice and the 2009 Annual Report to unit owners. The notice indicated, among other things, that three unit owners were in arrears, with two of the unit owners being Messrs. Neofotistos and Sesma. Mr. Neofotistos' arrearage was in the amount of $3,219.74, and Mr. Sesma's arrearage was in the amount of $2,586.40. Three board members of the Carillon Association own, cumulatively, four of the eight units. Only their units are free and clear of any mortgage.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Business and Professional Regulation, Division of Florida Condominiums, Timeshares and Mobile Homes enter a final order: Finding that Carillon Condominiums, Inc., did not violate section 718.111(11)(d), Florida Statutes (2009); and Rescinding the Notice to Show Cause. DONE AND ENTERED this 1st day of August, 2011, in Tallahassee, Leon County, Florida. S ERROL H. POWELL Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 1st day of August, 2011.
