09-000385RP Institutional Life Services (Florida), Llc, And David Matthew Janecek vs. Financial Service Commission And Office Of Insurance Regulation Status: Closed DOAH Final Order on Monday, March 30, 2009.

Summary: The proposed rule prohibiting viatical settlement providers from transacting with affiliated brokers is invalid under Section 120.52(8)(b) and (c), Florida Statutes.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

INSTITUTIONAL LIFE SERVICES )

(FLORIDA), LLC, AND DAVID )

MATTHEW JANECEK, )

)

Petitioners, )

)

vs. ) Case No. 09-0385RP

)

FINANCIAL SERVICE COMMISSION )

AND OFFICE OF INSURANCE )

REGULATION, )

)

Respondents. )

)

FINAL ORDER

A duly-noticed final hearing was held in this case by

Administrative Law Judge T. Kent Wetherell, II, on February 19,

2009, in Tallahassee, Florida.

APPEARANCES

For Petitioners: Brian A. Newman, Esquire

Steven M. Malono, Esquire

Pennington, Moore, Wilkinson,

Bell & Dunbar, P.A.

215 South Monroe Street, Second Floor

Post Office Box 10095

Tallahassee, Florida 32302-2095

For Respondents: S. Marc Herskovitz, Esquire

Office of Insurance Regulation

612 Larson Building

Tallahassee, Florida 32399-4206

STATEMENT OF THE ISSUE

The issue is whether Proposed Rule 69O-204.040 is an invalid exercise of delegated legislative authority.

PRELIMINARY STATEMENT

On January 23, 2009, Petitioners filed a Petition to

Determine the Invalidity of a Proposed Rule with the Division of

Administrative Hearings (DOAH). The petition alleged that

invalid exercise of delegated legislative authority. The case

was initially assigned to Administrative Law Judge Suzanne F.

Hood, but it was subsequently transferred to the undersigned.

The final hearing was scheduled for and held on

February 19, 2009, in compliance with the expedited timeframes

in Section 120.56, Florida Statutes. 1 / At the hearing,

Petitioners presented the testimony of Eleanor Kitzman, Stancil

Barton, Jr., and Robert Prentiss, and the deposition testimony

of Matthew Janecek, and Respondents presented the testimony of

Mr. Prentiss and the deposition testimony of Mr. Prentiss and

Ms. Kitzman. Exhibits P-1 through P-8, R2 through R6, and R9

through R11, were received into evidence. 2 / Official recognition

was taken of the Viatical Settlement Act codified in Part X of

Chapter 626, Florida Statutes.

The Transcript of the final hearing was filed with DOAH on

March 5, 2009. The parties were given ten days from that date

to file proposed final orders (PFOs). The PFOs were timely

filed and have been given due consideration.

On March 23, 2009, Petitioners filed a Motion to Reopen

Case. Respondents filed a response to the motion on that same

date. The response states that Respondents oppose reopening the

case, but that they have no objection to the undersigned “taking

judicial recognition or otherwise acknowledging the licensing

status of Petitioner, Institutional Life Services (Florida) LLC

. . . as a viatical settlement provider.” The request to reopen

the case is denied, but based upon the documents attached to

Petitioners’ motion, official recognition is taken of the fact

that on March 20, 2009, the Office of Insurance Regulation (OIR)

approved the application for licensure filed by Institutional

ILS-Florida is now a licensed viatical settlement provider, No.

09-800257957.

FINDINGS OF FACT

1. The Viatical Settlement Act codified in Part X of

Chapter 626, Florida Statutes, is one of several statutes that

provide for the regulation of viatical settlements in Florida.

2. A viatical settlement is the sale of a life insurance

policy by its owner on the secondary market. 3 / The parties

involved in the transaction are the viator, the viatical

settlement broker, the viatical settlement provider, and the

investor who purchases the policy.

3. The viator is the owner of the policy being sold. The

viator is typically, but not always, the insured under the

policy.

4. The viatical settlement broker is the person who

solicits bids and negotiates the sale of the policy on behalf of

the viator. In order to perform the services of a viatical

settlement broker in Florida, a person must be a licensed life

insurance agent, self-appoint him/herself with the Department of

Financial Services (DFS), and pay the applicable fees to DFS.

5. The viatical settlement provider is the intermediary

between the viatical settlement broker and the investor who

purchases the policy. The viatical settlement provider presents

the policy to potential investors; conveys the investors’ bids

to the viatical settlement broker; and, after a bid is accepted

by the viator, performs the administrative functions necessary

to complete the transaction.

6. Viatical settlement providers are licensed and

regulated by OIR. Viatical settlement brokers are licensed and

regulated by DFS, not OIR.

7. Petitioner ILS-Florida is a Delaware limited liability

company owned by NFP Life Services, LLC (45.5 percent), Genworth

Institutional Life Services, Inc. (45.5 percent), and GS Re

Holdings, Inc. (nine percent).

8. NFP Life Services, LLC, is a wholly-owned subsidiary of

National Financial Partners Corporation (NFP).

9. NFP Brokerage Agency is also a wholly-owned subsidiary

of NFP. NFP Brokerage Agency employs licensed viatical

settlement brokers in a number of states, including Florida.

10. The viatical settlement brokers working for NFP

Brokerage Agency are considered to be “affiliated brokers” of

ILS-Florida by virtue of NFP’s ownership interest in both

companies.

11. ILS-Florida was formed on September 8, 2008,

“specifically for the purpose of doing business as a viatical

settlement provider . . . in the State of Florida.”

12. On or about October 29, 2008, ILS-Florida submitted to

OIR an application for licensure as a viatical settlement

provider. The application was still “pending” as of the date of

the final hearing, but on March 20, 2009, OIR approved the

application, and ILS-Florida is now a licensed viatical

settlement provider, No. 09-800257957.

13. ILS-Florida’s parent companies have another subsidiary

as a viatical settlement provider in a number of states.

14. ILS-Florida intends to use a similar business plan in

Florida that its sister company uses in the states where it is

licensed. The business plan contemplates using only brokers

working for NFP Brokerage Agency for at least the first year of

operation, although it is possible that ILS-Florida may use both

affiliated and non-affiliated brokers from the outset.

15. ILS-Florida wants to be able to use brokers working

for NFP Brokerage Agency because it considers them to be

higher standard of compliance than is generally seen . . . in

the industry.” Also, because NFP Brokerage Agency already has a

number of brokers involved in the viatical settlement business

in Florida, its brokers represent a significant source of

potential business for ILS-Florida.

16. The proposed rule will more likely than not preclude

ILS-Florida from using affiliated brokers working for NFP

Brokerage Agency because NFP has significant ownership interests

in both companies.

17. Petitioner David Matthew Janecek is a resident of

Texas. He works for a brokerage in Texas that is owned by NFP

Brokerage Agency.

18. Mr. Janecek is licensed in Florida as a non-resident

life insurance agent. His license, No. P161957, was issued on

September 9, 2008.

19. Mr. Janecek is not, and never has been, a licensed

viatical settlement broker in any state. He has not self-

appointed himself as a viatical settlement broker with DFS, and

he has no present intention of acting as a viatical settlement

broker in Florida. 4 /

20. Respondent Financial Services Commission (Commission)

is the agency head responsible for the promulgation of the

proposed rule. The Commission, which is comprised of the

Governor and Cabinet, was created within DFS, but it is not

subject to the control of DFS and it is effectively a separate

agency from DFS.

21. Respondent OIR is an office under the Commission. OIR

developed the proposed rule and will be responsible for

implementing the rule.

22. Respondents published the proposed rule in the Florida

Administrative Weekly ( FAW ) on September 26, 2008. A notice of

change to the proposed rule was published in the FAW on

December 24, 2008.

23. The parties stipulated that Respondents met all

applicable rulemaking publication and notice requirements, and

that the petition challenging the proposed rule was timely

filed.

24. The proposed rule is titled “Prohibited Practices and

Conflicts of Interest,” and states:

With respect to any viatical settlement

contract or insurance policy, no viatical

settlement provider knowingly may enter into

a viatical settlement contract with a

viator, if, in connection with such viatical

settlement contract, anything of value will

be paid to a viatical settlement broker that

is controlling, controlled by, or under

common control with such viatical settlement

provider, financing entity or related

provider trust that is involved in such

viatical settlement contract.

25. The “specific authority” listed in the FAW notice for

the proposed rule is Section 626.9925, Florida Statutes.

26. That statute authorizes the Commission to:

adopt rules to administer this act ,

including rules establishing standards for

evaluating advertising by licensees; rules

providing for the collection of data, for

disclosures to viators, for the reporting of

life expectancies, and for the registration

of life expectancy providers; and rules

defining terms used in this act and

prescribing recordkeeping requirements

relating to executed viatical settlement

contracts. (Emphasis supplied).

27. The only language in the statute that Respondents are

relying on as authorization for the proposed rule is the

underlined language.

28. The FAW notice states that the “law implemented” by

the proposed rule is Sections 626.9911(9), 626.9916(1), and

626.9916(5), Florida Statutes.

29. Section 626.9911(9), Florida Statutes, defines

“viatical settlement broker” for purposes of the Viatical

Settlement Act.

30. The definition includes the following language, which

is also contained in Section 626.9916(5), Florida Statutes:

Notwithstanding the manner in which the

viatical settlement broker is compensated, a

viatical settlement broker is deemed to

represent only the viator and owes a

fiduciary duty to the viator to act

according to the viator's instructions and

in the best interest of the viator.

31. Section 626.9916(1), Florida Statutes, prohibits any

person other than a licensed life agent from performing the

functions of a viatical settlement broker.

32. The text of the proposed rule was derived almost

verbatim from Section 12.B. of the Viatical Settlements Model

Act developed by the National Association of Insurance

Commissioners (NAIC).

33. The “model acts” developed by NAIC are intended to be

used by state legislatures in drafting statutes. NAIC also

develops “model regulations” that are intended to be used by

state regulatory agencies in drafting rules to implement the

statutes.

34. The proposed rule prohibits a viatical settlement

provider from entering into a viatical settlement contract

involving a viatical settlement broker over which the provider

has direct or indirect control.

35. The determination as to whether the viatical

settlement provider has control over a viatical settlement

broker will be made on a case-by-case basis applying the

definition of “control” contained in Proposed Rule 69O-

204.020(1).

36. According to OIR, the proposed rule is intended to

protect the viator by preventing the viatical settlement

provider from using its control over the viatical settlement

broker to induce or encourage the broker to breach his or her

fiduciary duty to the viator.

37. It is undisputed that Florida law does not currently

prohibit the practice prescribed by the proposed rule so long as

the broker satisfies his or her fiduciary duty to the viator.

38. The proposed rule will prohibit transactions between

affiliated viatical settlement providers and brokers,

irrespective of whether the broker’s fiduciary duty to the

viator has been breached. For example, if a broker recommends

that a viator accept a bid for the policy from an affiliated

provider that was not the highest bid, such action would

constitute both a breach of the broker’s fiduciary duty and a

violation of the proposed rule; however, if the bid from the

affiliated broker was the highest bid for the policy, the

broker’s recommendation to accept the bid would not constitute a

violation of the broker’s fiduciary duty, but it would violate

the proposed rule.

39. During the rulemaking process, OIR staff considered

adding language to the proposed rule that would have allowed

affiliated providers and brokers to enter into viatical

settlement contracts so long as certain disclosure requirements

and other safeguards were met. The record does not reflect why

this language was not included in the proposed rule published in

the FAW , although it can be inferred from the e-mails received

into evidence on this issue that OIR and/or the Commission did

not feel compelled to add the language suggested by staff.

CONCLUSIONS OF LAW

40. DOAH has jurisdiction over the parties to and subject

matter of this proceeding pursuant to Section 120.56(2), Florida

Statutes.

41. Petitioners have the burden to prove their standing to

challenge the proposed rule. See Dept. of Health & Rehab.

Servs. v. Alice P. , 367 So. 2d 1045, 1052 (Fla. 1st DCA 1979)

(“The burden is . . . upon the challenger, when standing is

resisted, to prove standing.”).

42. To have standing, Petitioners must prove that they are

“substantially affected” by the proposed rule, meaning that the

application of the rule will result in a real and sufficient

immediate injury in fact to Petitioners and that the interest

affected is within the zone of interest to be protected or

regulated by the proposed rule and the statute being

implemented. See § 120.56(1)(a), Fla. Stat.; Board of Medicine

v. Fla. Academy of Cosmetic Surgery, Inc. , 808 So. 2d 243, 250

(Fla. 1st DCA 2002).

43. ILS-Florida has standing because it will be directly

regulated by the proposed rule. See Fla. League of Cities, Inc.

v. Dept. of Environmental Reg. , 603 So. 2d 1363, 1367 (Fla. 1st

DCA 1992) (“It is not necessary for the League to elaborate how

each member would be personally affected by the proposed rule,

because a substantial portion of the League's members will be

regulated by the rule.”) (emphasis in original); Coalition of

Mental Health Professions v. Dept. of Professional Reg. , 546 So.

2d 27, 28 (Fla. 1st DCA 1989) (“The fact that appellant's

members will be regulated by the proposed rules is alone

sufficient to establish that their substantial interests will be

affected and there is no need for further factual elaboration of

how each member will be personally affected.”). Also, the more

persuasive evidence establishes that ILS-Florida will be

substantially affected by the proposed rule in that the likely

effect of the rule will be to preclude ILS-Florida from using

affiliated brokers working for NFP Brokerage Agency, which,

among other things, will deny ILS-Florida access to a

potentially significant source of business in Florida.

44. The fact that ILS-Florida was at the time of the final

hearing a license applicant, rather than a licensed viatical

settlement provider does not undermine its standing. See , e.g. ,

Jacoby v. Bd. of Medicine , 917 So. 2d 358, 360 (Fla. 1st DCA

2005) (potential future license applicant has standing to

challenge agency rule that will affect his ability to work in

Florida); Professional Firefighters of Fla., Inc. v. Dept. of

Health & Rehab. Servs. , 396 So. 2d 1194, 1195 (Fla. 1st DCA

1981) (“The APA permits prospective challenges to agency

rulemaking and does not require that an affected party comply

with the rule at his peril in order to obtain standing to

challenge the rule.”).

45. Likewise, the fact that Mr. Janecek is not a licensed

viatical settlement provider (or an applicant for such a

license) does not necessarily preclude him from having standing

to challenge the proposed rule because the rule also affects the

interests of viatical settlement brokers by limiting the

providers with whom they can transact business. See Board of

Medicine , 808 So. 2d at 251 (“A challenger to a rule may be

‘substantially affected’ by a rule, and thus, have standing to

challenge it, even where the rule or promulgating statute does

not regulate the challenger's profession per se.”); Ward v. Bd.

of Trustees of the Internal Improvement Trust Fund , 651 So. 2d

1236, 1237 (Fla. 4th DCA 1995) (engineer had standing to

challenge a proposed environmental permitting rule that did not

directly regulate him but that would encroach on his engineering

practice).

46. The fact that Mr. Janecek is a licensed life agent is

not enough to give him standing. A life agent may only perform

the functions of a viatical settlement broker by appointing

himself or herself as such and by paying the applicable fees.

See § 626.9916(2), Fla. Stat. Mr. Janecek has done neither of

these things, and, therefore, the determination as to his

standing turns on his intentions concerning licensure as a

viatical settlement broker.

47. On this issue, the more persuasive evidence

establishes that Mr. Janecek does not have any present intention

to act as a viatical settlement broker in Florida. As a result,

the impact of the proposed rule on Mr. Janecek is speculative,

rather than immediate, and he, therefore, lacks standing to

challenge the proposed rule. See generally Dept. of Offender

Rehab. v. Jerry , 353 So. 2d 1230 (Fla. 1st DCA 1978); Alice P. ,

supra .

48. On the merits, Petitioners have the burden of going

forward with respect to their objections to the proposed rule,

but Respondents have the ultimate burden to prove by a

preponderance of the evidence that the proposed rule is not an

invalid exercise of delegated legislative authority as to the

objections raised. See § 120.56(2)(a), Fla. Stat.; Southwest

Fla. Water Mgmt Dist. v. Charlotte County , 774 So. 2d 903, 908

(Fla. 2d DCA 2001); St. Johns River Water Mgmt. Dist. v.

Consolidated-Tomoka Land Co. , 717 So. 2d 72, 76-77 (Fla. 1st DCA

1998), superseded on other grounds by Ch. 99-379, Laws of Fla.

49. The proposed rule is not presumed to be valid or

invalid. See § 120.56(2)(c), Fla. Stat.

50. Petitioners contend that the proposed rule is an

invalid exercise of delegated legislative authority under

paragraphs (b), (c), (d), (e), and (f) 5 / of Section 120.52(8),

Florida Statutes. The undersigned agrees that the proposed rule

is invalid under paragraphs (b) and (c), as discussed below.

51. A proposed rule is invalid under Section 120.52(8)(b),

Florida Statutes, if the agency “exceeded its grant of

rulemaking authority.”

52. “Rulemaking authority” is the statutory language that

explicitly authorizes or requires an agency to adopt, develop,

establish, or otherwise create the proposed rule. See

§ 120.52(17), Fla. Stat. The purported rulemaking authority for

the proposed rule must be listed in the rulemaking notice

published in the FAW . See §§ 120.52(8)(b), 120.54(3)(a)1., Fla.

Stat.

53. Section 120.52(8)(b), Florida Statutes, “pertains to

the adequacy of the grant of rulemaking authority.” See

Consolidated-Tomoka , 717 So. 2d at 81. In essence, it prohibits

an agency from adopting rules on a subject that the Legislature

has not given the agency specific statutory authority to

regulate.

54. Statutory language granting rulemaking authority is to

be construed to extend no further than implementing or

interpreting the specific powers and duties conferred by the

enabling statute, and an agency may only adopt rules that

implement or interpret the specific powers and duties granted by

the enabling statute. See §§ 120.52(8), 120.536(1), Fla. Stat.

An agency does not have the authority to implement statutory

provisions setting forth general legislative intent or policy.

Id.

55. As stated in Southwest Florida Water Management

District v. Save the Manatee Club, Inc. , 773 So. 2d 594 (Fla.

1st DCA 2000):

the authority for an administrative rule is

not a matter of degree. The question is

whether the statute contains a specific

grant of legislative authority for the rule,

not whether the grant of authority is

specific enough . Either the enabling

statute authorizes the rule at issue or it

does not. [T]his question is one that must

be determined on a case-by-case basis.

Id. at 599 (emphasis in original).

56. Similarly, in Board of Trustees of the Internal

Improvement Trust Fund v. Day Cruise Association, Inc. , 794 So.

2d 696 (Fla. 1st DCA 2001), the court explained that:

agencies have rulemaking authority only

where the Legislature has enacted a specific

statute, and authorized the agency to

implement it, and then only if the rule

implements or interprets specific powers or

duties, as opposed to improvising in an area

that can be said to fall only generally

within some class of powers or duties the

Legislature has conferred on the agency .

Id. at 700 (emphasis supplied).

57. The general authority provided to the Commission in

Section 626.9925, Florida Statutes, to “adopt rules to

administer [the Viatical Settlement Act]” is insufficient to

meet the requirements of Sections 120.52(8)(b) and 120.536(1),

Florida Statutes. See Dept. of Highway Safety & Motor Vehicles

v. JM Autos, Inc. , 977 So. 2d 733, 734 (Fla. 1st DCA 2008)

(affirming final order invalidating an agency rule based upon

similarly non-specific statutory language). Accord Life Ins.

Settlement Ass’n v. Office of Ins. Regulation , Case No. 08-

is a ‘grant of rulemaking authority’ within the meaning of

Subsection 120.52(8)(b), the Commission's authority to adopt

such rules is limited to implementing the particular disclosure

requirements contained elsewhere in the Act.”).

58. Nothing else in Section 626.9925, Florida Statutes --

including the authority to “adopt rules . . . defining terms

used in [the Viatical Settlement Act]” -- specifically

authorizes Respondents to adopt rules governing the relationship

between viatical settlement providers and brokers. Therefore,

the proposed rule exceeds the grant of rulemaking authority in

Section 626.9925, Florida Statutes.

59. On this point, it is noteworthy that the model act

from which the language of the proposed rule was derived

contained specific authority to adopt rules “governing the

relationship and responsibilities of both insurers and viatical

settlement providers, viatical settlement brokers and viatical

settlement investment agents during the viatication of a life

insurance policy or certificate.” See Exhibit R-11, at page

697-38, § 17.E. The Viatical Settlement Act codified in Part X

of Chapter 626, Florida Statutes, does not contain this language

or anything similar to it.

60. The proposed rule also exceeds Respondents’ rulemaking

authority because it seeks to prohibit practices that are

currently allowed by Florida law, which is something that only

the Legislature can do in the first instance. See B.H. v.

State , 645 So. 2d 987 (Fla. 1994) (separation of powers doctrine

prohibits the delegation of authority to an agency to “say what

the law is” because such fundamental policy decisions must be

made by the Legislature). And cf. Day Cruise Ass’n , 794 So. 2d

at 705-06 (Browning, J., concurring) (explaining that the

agency’s authority to regulate certain activities did not

include the authority to prohibit otherwise lawful activities).

61. A rule is invalid under Section 120.52(8)(c), Florida

Statutes, if it “enlarges, modifies, or contravenes the specific

provision of law implemented.”

62. The “law implemented” is the language of the enabling

statute being carried out or interpreted by an agency through

rulemaking. See § 120.52(9), Fla. Stat. The law purportedly

being implemented by the proposed rule must be listed in the

rulemaking notice published in the FAW . See §§ 120.52(8)(c),

120.54(3)(a)1., Fla. Stat.

63. Section 120.52(8)(c), Florida Statutes, “relates to

the limitations imposed by the grant of rulemaking authority.”

See Consolidated-Tomoka , 717 So. 2d at 81. In essence, it

prohibits an agency from adopting rules that go beyond --

the statute being implemented.

64. The statutes purportedly being implemented by the

proposed rule impose a fiduciary duty on viatical settlement

brokers ; the statutes do not impose any requirements or

restrictions on viatical settlement providers . See §§

626.9911(9), 626.9916(5), Fla. Stat. The proposed rule modifies

and enlarges these statutes by prohibiting viatical settlement

providers from engaging in viatical settlement transactions with

certain brokers, even if the transaction would not violate the

broker’s fiduciary duty.

65. A proposed rule is invalid under Section 120.52(8)(d),

Florida Statutes, if it is “vague, fails to establish adequate

standards for agency decisions, or vests unbridled discretion in

the agency.”

66. A rule is vague if it “requires performance of an act

in terms that are so vague that men of common intelligence must

guess at its meaning." Southwest Fla. Water Management Dist. ,

774 So. 2d at 915. See also Cole Vision Corp. v. Dept. of

Business & Professional Reg. , 688 So. 2d 404 (Fla. 1st DCA

1997).

67. The proposed rule is not vague. The operative terms -

- “controlling, controlled by, or under common control” -- are

sufficiently clear and provide adequate guidance to those

regulated by the rule as to the type of transactions that are

prohibited. Indeed, the term “control” is specifically defined

in Proposed Rule 69O-204.020(1).

68. The proposed rule does not fail to establish adequate

standards for agency decisions or vest unbridled discretion in

the agency. The determination as to whether a viatical

settlement broker is controlled by or under common control with

the viatical settlement provider is necessarily a fact-based

determination, and the definition of “control” in Proposed Rule

69O-204.020(1) provides sufficient standards for that

determination to be made and reviewed. Cf. Environmental Trust

v. Dept. of Environmental Protection , 714 So. 2d 493, 498 (Fla.

1st DCA 1998) (recognizing that rules cannot possibly address

every possible factual situation and that the application of a

rule to a particular set of facts is a matter best left to the

adjudication process under Section 120.57, Florida Statutes).

69. A rule is invalid under Section 120.52(8)(e), Florida

Statutes, if it is “arbitrary or capricious.”

70. “A rule is arbitrary if it is not supported by logic

or the necessary facts; a rule is capricious if it is adopted

Fla. Stat. See also Board of Medicine , 808 So. 2d at 255; Board

of Clinical Laboratory Personnel v. Fla. Ass’n of Blood Banks ,

721 So. 2d 317, 318 (Fla. 1st DCA 1998); Agrico Chemical Co. v.

Dept. of Environmental Reg. , 365 So. 2d 759, 763 (Fla. 1st DCA

1979).

71. The proposed rule is not arbitrary or capricious

simply because it has the effect of prohibiting transactions

between affiliated providers and brokers in circumstances where

the broker has satisfied his or her fiduciary duty to the

viator. Section 120.52(8) (e) , Florida Statutes, does not

preclude an agency from “over-regulating” to address a real or

perceived problem that the agency has authority to address

through rulemaking. Rather, it is Section 120.52(8) (f) , Florida

Statutes, that effectively precludes an agency from imposing

more extensive and more costly regulatory restrictions than are

necessary to accomplish its objectives.

72. Thus, the mere fact that the proposed rule will

preclude transactions that would not constitute a breach of the

viatical settlement broker’s fiduciary duty does not make the

rule irrational or illogical. Indeed, it is not at all

unreasonable for Respondents to be concerned that a viatical

settlement broker who is directly or indirectly subject to the

control of the provider might have a greater possibility of

being influenced to breach his or her fiduciary duty to the

viator. The increased possibility that a broker might breach

his or her fiduciary duty based upon the affiliation with the

provider is what the proposed rule was intended to prohibit, and

is a legitimate and sufficient rationale to prohibit all

transactions between affiliated brokers and providers.

73. Therefore, the proposed rule is not invalid under

Section 120.52(8)(e), Florida Statutes.

74. A rule is invalid under Section 120.52(8)(f), Florida

Statutes, if it “imposes regulatory costs on the regulated

person, county, or city which could be reduced by the adoption

of less costly alternatives that substantially accomplish the

statutory objectives.”

75. A rule cannot be declared invalid under Section

120.52(8)(f), Florida Statutes, unless a good faith written

proposal for a lower cost regulatory alternative to the proposed

rule is submitted to the agency in accordance with Section

120.541(1)(a), Florida Statutes. See § 120.541(1)(c), Fla.

Stat.

76. There is no evidence that Petitioners or anyone else

submitted such a proposal to Respondents, and as a result, the

proposed rule cannot be declared invalid under Section

120.52(8)(f), Florida Statutes.

ORDER

Based upon the foregoing Findings of Fact and Conclusions

of Law, it is

ORDERED that Proposed Rule 690-204.040 is an invalid

exercise of delegated legislative authority.

DONE AND ORDERED this 30th day of March, 2009, in

Tallahassee, Leon County, Florida.

S

T. KENT WETHERELL, II

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone]

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 30th day of March, 2009.

ENDNOTES

1 / All statutory references are to the 2008 version of the

Florida Statutes.

2 / Exhibit R5, Mr. Prentiss’ deposition, was received subject to

Respondents designating those portions of the deposition that

are not duplicative of Mr. Prentiss’ testimony at the final

hearing. See Transcript, at 142-46; § 120.569(2)(g), Fla. Stat.

No designation was filed by Respondents, and neither party cited

to Mr. Prentiss’ deposition in their PFO. Therefore, Exhibit R5

has not been considered.

3 / Technically, in the viatical settlement industry, the term

“viatical settlement” refers to the sale of a life insurance

policy insuring a person who is expected to live less than two

years after the sale, whereas the term “life settlement” refers

to the sale of a life insurance policy insuring a person who is

expected to live more than two years after the sale. This

distinction is not reflected in the Viatical Settlement Act; the

definition of “viatical settlement contract” in Section

626.9911(10), Florida Statutes, broadly encompasses both types

of transactions.

4 / See Exhibit P-7, at 15, 16. Mr. Janecek testified that his

plans could change, but that testimony was equivocal and not

persuasive. For example, when asked by his attorney whether his

intent to act as a viatical settlement broker in Florida “ would

. . . change” if ILS-Florida was licensed in Florida as a

viatical settlement provider, he testified only that “it could

at that time.” Id. at 22 (emphasis supplied).

5 / The petition did not allege that the proposed rule was

invalid under Section 120.52(8)(f), Florida Statutes, but that

paragraph was referenced by Petitioners in the Joint Pre-hearing

Stipulation and at the final hearing. Petitioners did not

mention Section 120.52(8)(f), Florida Statutes, in their PFO

and, therefore, are deemed to have abandoned this issue to the

extent it may have been tried by consent. Nevertheless, in an

abundance of caution, the proposed rule’s validity under Section

120.52(8)(f), Florida Statutes, is addressed in this Final

Order.

COPIES FURNISHED :

Brian A. Newman, Esquire

Pennington, Moore, Wilkinson,

Bell & Dunbar, P.A.

215 South Monroe Street, Second Floor

Post Office Box 10095

Tallahassee, Florida 32302-2095

Steven H. Parton, General Counsel

Office of Insurance Regulation

Financial Services Commission

200 East Gaines Street

Tallahassee, Florida 32399-4206

S. Marc Herskovitz, Esquire

Office of Insurance Regulation

Legal Services Office

200 East Gaines Street

Tallahassee, Florida 32399-0333

Kevin M. McCarty, Commissioner

Office of Insurance Regulation

200 East Gaines Street

Tallahassee, Florida 32399-0305

Honorable Alex Sink

Chief Financial Officer

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399-0300

Benjamin Diamond, General Counsel

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399-0300

F. Scott Boyd, Esquire

Executive Director and General Counsel

Joint Administrative Procedure Committee

120 Holland Building

Tallahassee, Florida 32399-1300

Liz Cloud, Program Administrator

Administrative Code

Department of State

R.A. Gray Building, Suite 101

Tallahassee, Florida 32399

NOTICE OF RIGHT TO JUDICIAL REVIEW

A party who is adversely affected by this Final Order is

entitled to judicial review pursuant to Section 120.68, Florida

Statutes. Review proceedings are governed by the Florida Rules

of Appellate Procedure. Such proceedings are commenced by

filing one copy of a Notice of Appeal with the agency clerk of

the Division of Administrative Hearings and a second copy,

accompanied by filing fees prescribed by law, with the District

Court of Appeal, First District, or with the District Court of

Appeal in the appellate district where the party resides. The

Notice of Appeal must be filed within 30 days of rendition of

the order to be reviewed.