09-000386RP Life Insurance Settlement Association vs. Financial Service Commission And Office Of Insurance Regulation Status: Closed Settled and/or Dismissed prior to entry of RO/FO on Tuesday, August 24, 2010.

Summary: Proposed Florida Administrative Rule 69O-204.030(1) is invalid and contrary to Sections 120.52(8)(b) and 120.52(8)(c), Florida Statutes.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

LIFE INSURANCE SETTLEMENT )

ASSOCIATION, )

)

Petitioner, )

)

vs. ) Case No. 09-0386RP

)

FINANCIAL SERVICE COMMISSION AND OFFICE OF INSURANCE )

REGULATION, )

)

)

Respondents. )

)

SUMMARY FINAL ORDER

This matter came on before the Honorable Suzanne Hood,

Administrative Law Judge with the Division of Administrative

Hearings, for disposition through summary final proceedings by

written submissions.

APPEARANCES

For Petitioner: Wes Strickland, Esquire

James A. McKee, Esquire

Foley & Lardner, LLP

106 E. College Avenue, Suite 900

Tallahassee, Florida 32301

For Respondents: S. Marc Herskovitz, Esquire

Office of Insurance Regulation

Legal Services Office

612 Larson Building

200 East Gaines Street

Tallahassee, Florida 32399-0333

STATEMENT OF THE ISSUES

The issues are whether Petitioner has standing to bring

this action, and if so, whether portions of proposed Florida

Administrative Code Rule 69O-204.030(1)(a), are an invalid

exercise of delegated legislative authority in violation of

Sections 120.52(8) and 120.56, Florida Statutes (2008).

PRELIMINARY STATEMENT

On January 23, 2009, Petitioner Life Insurance Settlement

Association (Petitioner) filed its Petition for Determination of

the Invalidity of a Proposed Rule with the Division of

Administrative Hearings. On January 27, 2009, a Notice of

Hearing was issued scheduling this matter for hearing on

February 20, 2009.

Believing the issues had been sufficiently limited, the

parties filed a Joint Motion to Proceed via Written Submissions

and a Joint Stipulation on February 18, 2009.

An Order dated February 24, 2009, granted the Joint Motion

to Proceed via Written Submissions. The Order required proposed

summary final orders from the parties no later than March 31,

2009.

On March 31, 2009, Petitioner and Respondents Office of

Insurance Regulation (OIR) and Financial Services Commission (the

Commission) (collectively referred to as Respondents) timely

filed their proposed orders, together with the following Joint

Exhibits: (a) Respondents' file for the proposed rule;

(b) Petitioner's Interrogatories and Respondents' responses;

(c) Respondents' Interrogatories and Petitioner's responses;

(d) Petitioner's Request for Admissions and Respondents'

responses; and (e) Respondents' Request for Admissions and

Petitioner's responses.

Petitioner also submitted the following three exhibits that

are accepted as evidence over objection: (a) 2008 Legislative

Issues Form; (b) OIR's Response to Objections to Rules 69O-

204.010, .020, .030, .040, and .050 (the Viatical Rule); and

(c) OIR's Draft Legislation - January 16, 2009, at 4:00 p.m.

FINDINGS OF FACT

1. OIR is an agency of the State of Florida, created within

the Commission in accordance with Section 20.121(3)(a)1., Florida

Statutes (2008). OIR is responsible for the administration of

laws concerning insurers and other risk-bearing entities,

including, but not limited to, viatical settlements.

2. The Insurance Commissioner is head of OIR except for

rulemaking purposes. Pursuant to Sections 20.121(1)(c) and

624.308(1), Florida Statutes (2008), the agency head for

rulemaking is the Commission.

3. Petitioner is a trade association that represents 12 of

the 13 Florida-licensed viatical settlement providers. As an

established trade association in the life settlement industry,

Petitioner participates in legislative and regulatory matters in

all 50 states. Petitioner is comprised of over 160 member

companies nationwide.

4. Florida's Viatical Settlement Act, Part X, Chapter 626, Florida Statutes (2008) (the Act), involves the regulation of

viatical settlement providers. The Act regulates both viatical

settlements and life settlements. Both types of transactions

involve the sale of ownership interest in life insurance

policies.

5. A viatical settlement relates to the sale of the ownership interest in a life insurance policy by a person who is

expected to live for less than two years. A life settlement

involves the sale of the ownership interest in a life insurance

policy by a person who is expected to live for longer than two

years after the date of sale. Viatical and life settlements are

regulated in essentially the same manner. Both are included in

the definition of "viatical settlement contract."

See

§ 626.9911(10), Fla. Stat. (2008).

6. In a viatical settlement transaction, the "viatical

settlement provider" is the purchaser of the ownership interest

in a life insurance policy, including the right to receive the

policy proceeds upon the death of the insured. See

an insurance policy who sells the ownership interest in the

policy. See § 626.9911(14), Fla. Stat. (2008). The "viatical

settlement broker" is the agent of the viator. See

§ 626.9911(9), Fla. Stat. (2008). The broker owes a fiduciary

duty to obtain the best price for the insurance policy and

typically, solicits bids from multiple viatical settlement

providers on behalf of the viator. Id.

7. This controversy involves a challenge to proposed

Florida Administrative Code Rule 690-204.030(1)(a), (the proposed

rule) which states as follows:

69O-204.030, Forms Incorporated by

Reference.

(a) Form OIR-A3-1288, Viatical

Settlement Provider Annual Report (REV

11/08).

* * *

Specific Authority 626.9925 FS. Law

Implemented 626.9912(2), 626.9912(3),

626.9913(2), 626.9921(3), 626.9921(4) and

626.9928, FS. History-New

8. Petitioner specifically objects to Schedules B and C

attached to Form OIR-A3-1288. Schedule B requests the following

information on policies purchased for the most recent five years,

beginning with the current reporting year: (a) total number of

policies purchased (quantity); (b) total gross amount paid for

policies purchased (dollars); and (c) total face value of

policies purchased (dollars). The information is not limited to

policies purchased in Florida.

9. Schedule C requests information relating to a summary of

a licensed provider's business in every state, territory or

geographical area. The information sought in Schedule C includes

the following: (a) whether the provider is licensed/registered

in the state; (b) the total number of policies purchased;

(c) total gross amount paid for policies purchased; (d) total

commissions/compensation paid for policies purchased; and

(e) total face value of policies purchased.

10. Respondent also challenges the portion of Form OIR-A3-

1288 (Rev 11/08) that requires providers to annually file

supporting documentation demonstrating any change to the

provider's "method of operation as described in [the provider's]

most recent plan of operations filed with OIR." The form

requests this information in Interrogatory 1.(d) attached to the

Annual Report.

11. The challenged portions of the Annual Report, incorporated by reference in the proposed rule, require viatical

settlement providers to disclose detailed information regarding

their nationwide and international business activities. The

information, in a publicly available form, involves transactions

not subject to Florida regulation.

12. On September 26, 2008, a Notice of Proposed Rulemaking relative to the Viatical Rule was published in Volume 34, Number

39,

Florida Administrative Weekly . The notice indicated that a

public hearing would be held on October 29, 2008.

13. On October 29, 2008, as indicated in the Notice of

Proposed Rulemaking, a public hearing was held. Written comments

from the industry were received both prior to and immediately

after the public hearing.

14. Based upon comments from the Joint Administrative

Procedures Committee (JAPC) dated October 22, 2008, a Notice of

Correction was filed in Volume 34, Number 46, Administrative Law

Weekly , on November 14, 2008. The notice reflected that the

agency head for rulemaking was the Commission.

15. On December 24, 2008, a Notice of Change was published

in Volume 34, Number 52, Florida Administrative Weekly . The

notice was based upon comments from JAPC, as well as comments at

the October 29, 2008, public hearing.

16. On January 13, 2009, the hearing for final adoption of

proposed Florida Administrative Code Rules 69O-204.010, .020,

.030, .040 and .050, was held before the Commission. Following

some discussion, the Commission approved the proposed rules for

final adoption.

17. The Commission met all applicable rulemaking

publication and notice requirements, as set forth in Chapter 120,

Florida Statutes (2008). Petitioner does not challenge the

proposed rule pursuant to Section 120.52(8)(a), Florida Statutes

(2008).

18. Petitioner does not challenge the proposed rule as

imposing excessive regulatory costs, pursuant to Section

120.52(8)(f), Florida Statutes (2008).

19. The proposed rule imposes requirements on Florida

licensed viatical settlement providers. Those requirements do

not appear significantly different than those required in a

number of other states.

20. Florida licensed viatical settlement providers would be

subject to administrative penalties if they did not comply with

the proposed rule. See § 626.9913(2), Fla. Stat. (2008).

CONCLUSIONS OF LAW

21. The Division of Administrative Hearings has jurisdic-

tion of the subject matter and the parties to this proceeding

pursuant to Sections 120.56(1)(a), 120.569, and 120.57(1),

Florida Statutes (2008).

22. In order to be “substantially affected” in accordance

with Section 120.56(1), Florida Statutes, an entity must

demonstrate that: (1) it will suffer an injury in fact of

sufficient immediacy to entitle it to a formal administrative

proceeding; and (2) the substantial injury is of a type or nature

that the proceeding is designed to protect. Ameristeel v. Clark ,

691 So. 2d 473 (Fla. 1997). The first prong of the test deals

with the degree of injury, and the second prong with the nature

of the injury. Accardi v. Department of Environmental

Protection , 824 So.2d 992 (Fla. 4th DCA 2002); Agrico Chemical

Company v. Department of Environmental Protection , 406 So. 2d 478

(Fla. 2d DCA 1981).

23. Petitioner has standing to challenge the proposed rule

because the proposed rule impacts its members by requiring them

to turn over sensitive business information in a public format.

Additionally, all of Petitioner's licensed Florida members will

be subject to administrative penalties if they do not comply with

the proposed rule.

24. Petitioner has the burden of going forward with the

evidence and establishing a basis for the objections raised. As

the Court stated in Southwest Florida Water Management District

v. Charlotte County , 774 So. 2d 903, 908 (Fla. 2d DCA 2001): “A

party challenging a proposed rule has the burden of establishing

a factual basis for the objections to the rule, and then the

agency has the ultimate burden of persuasion to show that the

proposed rule is a valid exercise of delegated legislative

authority.” See § 120.56(1), Fla. Stat. (2008); Environmental

Trust v. State, Department of Environmental Protection , 714 So.

2d 493 (Fla. 1st DCA 1998).

25. Petitioner argues that the proposed rule constitutes an

invalid exercise of delegated legislative authority pursuant to

Section 120.52(8), Florida Statutes (2008), which states as

follows in relevant part:

(8) "Invalid exercise of delegated

legislative authority" means action that goes

beyond the powers, functions, and duties

delegated by the Legislature. A proposed or

existing rule is an invalid exercise of

delegated legislative authority if any one of

the following applies:

* * *

(b) The agency has exceeded its grant of rulemaking authority, citation to which is

required by s. 120.54(3)(a)1.;

(c) The rule enlarges, modifies, or

contravenes the specific provisions of law

implemented, citation to which is required by

s. 120.54(3)(a)(1.;

(d) The rule is vague, fails to establish adequate standards for agency

decision, or vest unbridled discretion in the

agency;

(e) The rule is arbitrary or

capricious. A rule is arbitrary if it is not

supported by logic or the necessary facts; a

rule is capricious if it is adopted without

thought or reason or is irrational. . . .

* * *

A grant of rulemaking authority is necessary but not sufficient to allow an agency to

adopt a rule; a specific law to be

implemented is also required. An agency may

adopt only rules that implement or interpret

the specific powers and duties granted by the

enabling statute. No agency shall have

authority to adopt a rule only because it is

reasonably related to the purpose of the

enabling legislation and is not arbitrary and

capricious or is within the agency’s class of

powers and duties, nor shall an agency have

the authority to implement statutory

provisions setting forth general legislative

intent or policy. Statutory language granting

rulemaking authority or generally describing

the powers and functions of an agency shall

be construed to extend no further than

implementing or interpreting the specific

powers and duties conferred by the enabling

statute.

26. Respondents assert that specific authority for the rule

is provided by Section 626.9925, Florida Statutes (2008), which

states as follows:

The commission may adopt rules to administer

this act, including rules establishing

standards for evaluating advertising by

licensees; rules providing for the collection

of data , for disclosures to viators, for the

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 laws identified as being implemented by the

626.9921(4), and 626.9928, Florida Statutes (2008). Sections

626.9921(3) and 626.9921(4), Florida Statutes (2008) relate to

proposed Florida Administrative Code Rule 69O-204.030(1)(b) and

are not at issue here. Section 626.9928, Florida Statutes (2008)

was erroneously cited and is not relevant here.

28. Respondents claim that Schedules B and C, as well as the interrogatory in question, implement Sections 626.9912(3) and

626.9913(2), Florida Statutes (2008). Section 626.9912(3),

Florida Statutes (2008), states as follows:

(3) In the application, the applicant

must provide all of the following:

(a) The applicant's full name, age, residence address, and business address, and

all occupations engaged in by the applicant

during the 5 years preceding the date of the

application.

(b) A copy of the applicant's basic organization documents, if any, including the

articles of incorporation, articles of

association, partnership agreement, trust

agreement, or other similar documents,

together with all amendments to such

documents.

(c) Copies of all bylaws, rules, regulations or similar documents regulating

the conduct of the applicant's internal

affairs.

(d) A list showing the name, business and residence addresses, and official

position of each individual who is

responsible for conduct of the applicant's

affairs, including, but not limited to, any

member of the applicant's board of directors,

board of trustees, executive committee, or

other governing board or committee and any

other person or entity owning or having the

right to acquire 10 percent or more of the

voting securities of the applicant.

(d) With respect to each individual identified under paragraph (d):

1. A sworn biographical statement on forms adopted by the commission and supplied

by the office.

2. A set of fingerprints on forms

prescribed by the commission, certified by a

law enforcement officer, and accompanied by

the fingerprinting fee specified in s.

624.501.

3. Authority for release of information relating to the investigation of the

individual's background.

(f) All applications, viatical

settlement contract forms, escrow forms, and

other related forms proposed to be used by

the applicant.

(g) A general description of the method the viatical settlement provider will use in

determining life expectancies, including a

description of the applicant's intended

receipt of life expectancies, the applicant's

intended use of life expectancy providers,

and the written plan or plans of policies and

procedures used to determine life

expectancies.

(h) Such other information as the commission or office deems necessary to

determine that the applicant and the

individuals identified under paragraph (d)

are competent and trustworthy and can

lawfully and successfully act as a viatical

settlement provider.

29. Section 626.9913(2), Florida Statutes (2008), provides:

(2) Annually, on or before March 1, the viatical settlement provider licensee shall

file a statement containing information the

commission requires and shall pay to the

office a license fee in the amount of $500.

After December 31, 2007, the annual statement

shall include an annual audited financial

statement of the viatical settlement provider

prepared in accordance with generally

accepted accounting principles by an

independent certified public accountant

covering a 12-month period ending on a day

falling during the last 6 months of the

preceding calendar year. If the audited

financial statement has not been completed,

however, the licensee shall include in its

annual statement an unaudited financial

statement for the preceding calendar year and

an affidavit from an officer of the licensee

stating that the audit has not been

completed. In this event, the licensee shall

submit the audited statement on or before

June 1. The annual statement, due on or

before March 1 each year, shall also provide

the office with a report of all life

expectancy providers who have provided life

expectancies directly or indirectly to the

viatical settlement provider for use in

connection with a viatical settlement

contract or a viatical settlement investment.

A viatical settlement provider shall include

in all statements filed with the office all

information requested by the office regarding

a related provider trust established by the

viatical settlement provider. The office may

require more frequent reporting. Failure to

timely file the annual statement or the

audited financial statement or to timely pay

the license fee is grounds for immediate

suspension of the license. The commission

may by rule require all or part of the

statements or filings required under this

section to be submitted by electronic means

in a computer-readable form compatible with

the electronic data format specified by the

commission.

30. In this instance, Petitioner has established a basis

for its objections to the proposed rule on two grounds. First,

Petitioner has shown that Respondent Commission has exceeded its

grant of rule making authority. See § 120.52(8)(b), Fla. Stat.

(2008). Nothing in Section 626.9925, Florida Statutes (2008),

provides Respondent with specific authority to require licensed

viatical settlement providers to include the information sought

in Schedules B and C or in Interrogatory 1.(d) in their annual

reports.

31. Section 626.9925, Florida Statutes (2008), gives

Respondents specific authority to adopt "rules for the collection

of data." It does not provide specific authority for Respondents

to collect data regarding transactions not even subject to

Florida regulation.

32. The second reason for upholding Petitioner's objections

is that the proposed rule enlarges the specific provisions of law

implemented. See § 120.52(8)(c), Fla. Stat. (2008).

33. Under Section 626.9912(3), Florida Statutes (2008),

Respondents have the opportunity to request additional

information from an applicant. That section is not applicable to

licensees who are required to file an annual report containing

the information set forth in Section 626.9913(2), Florida

Statutes (2008).

34. Section 626.9913(2), Florida Statutes (2008), states

that licensees must file annual statements "containing

information the commission requires . . ." The statute then

proceeds to specify the information that must be included in the

annual statements.

35. Without question, Respondents have some discretion in

determining the contents of the annual statement. However,

Respondents' discretion is limited to such information as is

required to implement other requirements of the Act. See Life

Insurance Settlement Association v. Office of Insurance

Regulation , Case No. 08-1645RP (DOAH, September 12, 2008).

Respondents' discretion in this case does not extend to the

information sought in Schedules B and C and Interrogatory 1.(d).

36. Respondents have a responsibility under Section

626.9914, Florida Statutes (2008), to take action against a

viatical settlement provider who, among other things, engages in

fraudulent or dishonest practices or is shown to be untrustworthy

or incompetent. Examination and investigations are specifically

authorized by Section 626.9922, Florida Statutes (2008). These

statutes may serve as a vehicle for Respondent to gather the

information sought under the proposed rule but they are not cited

as laws implemented.

37. As to Section 120.52(8)(d), Florida Statutes (2008),

Respondent correctly argues that the proposed rule is not vague.

Schedules B and C and Interrogatory 1.(d) require very specific

information that is set forth plainly.

38. Likewise, the language of the proposed rule does not

fail to establish adequate standards for agency decisions or vest

unbridled discretion in the agency. The problem with the

proposed rule is that Respondents have erroneously assumed they

have statutory authority to require the annual report to include

any information/data that they determine should be collected.

39. Finally, Section 120.52(8)(e), Florida Statutes, states

that a proposed rule is an invalid exercise of delegated

legislative authority if it is “arbitrary or capricious.” An

arbitrary decision is one unsupported by facts or logic. A

capricious action is one taken irrationally, without thought or

reason. See Board of Clinical Laboratory Personnel v. Florida

Association of Blood Banks , 721 So. 2d 317 (Fla. 1st DCA 1998).

In this instance, it cannot be said that the proposed rule is not

supported by facts and logic or the result of irrational thought.

40. The authority for an administrative rule is not a

matter of degree. Either the enabling statutes provide

authorization for a proposed rule, or they do not. Southwest

Florida Water Management District v. Save the Manatee Club, Inc. ,

773 So. 2d 594 (Fla. 1st DCA 2000): “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 .”

Id . at 599 (emphasis in original). Here, Respondents have not

met their ultimate burden of persuasion to show that the proposed

rule is a valid exercise of delegated legislative authority.

41. Petitioner has requested an award pursuant to Section

120.595(2), Florida Statutes (2008), which provides as follows:

(2) If the appellate court or

administrative law judge declares a rule or

portion of a rule invalid pursuant to s.

120.56 (2), a judgment or order shall be

rendered against the agency for reasonable

costs and reasonable attorney's fees, unless

the agency demonstrates that its actions were

substantially justified or special

circumstances exist which would make the

award unjust. An agency's actions are

"substantially justified" if there was a

reasonable basis in law and fact at the time

the actions were taken by the agency. If the

agency prevails in the proceedings, the

appellate court or administrative law judge

shall award reasonable costs and reasonable

attorney's fees against a party if the

appellate court or administrative law judge

determines that a party participated in the

proceedings for an improper purpose as

defined by paragraph (1)(e). No award of

attorney's fees as provided by this

subsection shall exceed $50,000.

42. The "substantially justified" standard, a standard also

found in Section 57.111, Florida Statutes (2008), falls somewhere

between the "no justiciable issue" standard found in Section

57.105, Florida Statutes (2008), and an automatic award of costs

and fees to the prevailing party such as found in Section

120.56(4), Florida Statutes (2008). Helmy v. Department of

Business and Professional Regulation , 707 So. 2d 366 (Fla. 1st

DCA 1998).

43. In determining whether Respondent had a reasonable

basis in law and fact, Respondents must have a solid though not

necessarily correct basis in fact and law for the position it

took in proposing the rule. Fish v. Department of Health, Board

of Dentistry , 825 So. 2d 421, 423 (Fla. 4th DCA 2002)(quoting

McDonald v. Schweiker , 726 F.2d 311, 316 (7th Cir. 1983)).

44. In this case, the specific grant of rule authority

found in Section 626.9925, Florida Statutes (2008), provided a

reasonable basis in law and fact for the position Respondents

took in proposing the rule and defending its validity. Thus,

Petitioners’ request for attorney’s fees and costs pursuant to

Section 120.595(2), Florida Statutes, must be denied.

ORDER

Based on the foregoing Findings of Fact and Conclusions of

Law, it is

ORDERED that proposed Florida Administrative Code Rule 69O-

204.030(1)(a) is an invalid exercise of delegated legislative

authority to the extent that Form OIR-A3-1288 requires disclosure

of information on Schedules B and C and Interrogatory 1.(d).

DONE AND ORDERED this 7th day of May, 2009, in Tallahassee,

Leon County, Florida.

S

SUZANNE F. HOOD

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 7th day of May, 2009.

COPIES FURNISHED :

Steven H. Parton, General Counsel

Office of Insurance Regulation

Financial Services Commission

200 East Gaines Street

Tallahassee, Florida 32399-4206

Wes Strickland, Esquire

James A. McKee, Esquire

Foley & Lardner LLP

106 East College Avenue, Suite 900

Tallahassee, Florida 32301

S. Marc Herskovitz, Esquire

Office of Insurance Regulation

Legal Services Office

612 Larsen Building

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 32399-0307

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.