93-005242RP Florida Surplus Lines Association, Inc. vs. Department Of Revenue Status: Closed DOAH Final Order on Monday, January 10, 1994.

Summary: Rule implementing a surcharge by Department of Revenue not deemed to be an invalid rule.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

FLORIDA SURPLUS LINES )

ASSOCIATION, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 93-5242RP

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

______________________________)

FINAL ORDER

Pursuant to notice, the above matter was heard before the Division of

Administrative Hearings by its duly designated Hearing Officer, Donald R.

Alexander, on October 14, 1993, in Tallahassee, Florida.

APPEARANCES

For Petitioner: Steven M. Malono, Esquire

Wendy Russell Weiner, Esquire

Post Office Box 11127

Tallahassee, Florida 32302

For Respondent: James F. McAuley, Esquire

Lisa M. Raleigh, Esquire

Department of Legal Affairs

The Capitol, Tax Section

Tallahassee, Florida 32399-1050

STATEMENT OF THE ISSUE

The issue is whether proposed rule 12B-8.0012 constitutes an invalid

exercise of delegated legislative authority.

PRELIMINARY STATEMENT

This matter began on September 10, 1993, when petitioner, Florida Surplus

Lines Association, Inc., filed a petition for determination of invalidity of

proposed rule wherein it contended that proposed rule 12B-8.0012 was an invalid

exercise of delegated legislative authority. More specifically, petitioner

contended that respondent, Department of Revenue (DOR), failed to follow the

rulemaking procedures in a material respect, and the proposed rule enlarged,

modified and contravened the provisions of the enabling statute, was arbitrary

and capricious, and exceeded the agency's grant of rulemaking authority. After

being reviewed for legal sufficiency, the petition was assigned to the

undersigned hearing officer on September 17, 1993.

By notice of hearing dated September 21, 1993, the final hearing was

scheduled on October 15, 1993, in Tallahassee, Florida. At respondent's

request, the matter was rescheduled to October 14, 1993, at the same location.

At final hearing, respondent presented the testimony of James E. Silvey, a

DOR tax law specialist. Also, the parties stipulated into evidence petitioner's

exhibits 1-3 and respondent's exhibits 1-9. In addition, they filed a

stipulation of facts.

The transcript of hearing was filed on October 26, 1993. Proposed findings

of fact and conclusions of law were filed by the parties on November 29, 1993.

A ruling on each proposed finding has been made in the Appendix attached to this

Final Order. Finally, a notice of supplemental authority was filed by

respondent on December 8, 1993.

FINDINGS OF FACT

Based upon all of the evidence, including the stipulation of facts, the

following findings of fact are determined:

1. Petitioner, Florida Surplus Lines Association, Inc. (Association), is a

Florida nonprofit corporation organized and maintained for the benefit of its

members who include surplus lines agents and insurers and others who place

surplus lines insurance. Petitioner's members are licensed or regulated by the

Department of Insurance pursuant to Part VIII of Chapter 626, Florida Statutes.

The parties have stipulated that petitioner has standing to bring this action on

behalf of its members.

2. Surplus lines insurance is a specialty line of insurance written for

certain types of risks that authorized insurance carriers (those holding a

certificate of authority) will not or cannot cover. It constitutes a limited,

out-of-state insurance market that supplements the "authorized" in-state

insurance market. Thus, when Florida residents cannot obtain coverage from

authorized Florida insurers, they may seek insurance from out-of-state insurers

(not authorized to do business in the state) who "export" the coverage to

Florida surplus lines insurers who then handle the placement of the insurance.

Under this statutory scheme, petitioner's members are not authorized insurers

who hold certificates of authority but rather they are made "eligible" by the

Department of Insurance to receive exported business. They do, however,

countersign surplus lines policies covering Florida risks.

3. On April 29, 1993, Chapter 93-128, Laws of Florida, became effective.

The new law was the result of the extensive damage caused by Hurricane Andrew,

which struck the southeastern coast of Florida in late August 1992. Section 2

of the law created an emergency management, preparedness, and assistance trust

fund to be administered by the Department of Community Affairs and funded by the

imposition of an annual surcharge of $2.00 on "every homeowner's, mobile

homeowner's, tenant homeowner's, and condominium unit owner's policy" and $4.00

on "every commerical fire, commercial multiple peril, and business owner's

property insurance policy" issued on or after May 1, 1993. Therefore, the new

law applied to all residential and commercial casualty policies issued on or

after May 1, 1993. Petitioner's members offer policies that fall within these

broad categories. The same section required the surcharge to be paid by the

policyholder and collected and remitted by the insurer. Since petitioner's

members are engaged in the business of offering insurance policies, and they

countersign property insurance policies, they are "insurers" as that word is

commonly used and understood. Finally, section 2 has been codified as Section

252.372, Florida Statutes (1993).

4. Section 2 of chapter 93-128 provided further that respondent,

Department of Revenue (DOR), "shall collect, administer, audit, and enforce the

surcharge pursuant to section 624.5092, Florida Statutes." This meant that DOR

would utilize the procedures outlined in section 624.5092 for administering and

collecting the newly-imposed tax. That statute prescribes the manner in which

taxes should be paid to and collected by DOR. To implement this new

responsibility, on August 20, 1993, DOR published notice in the Florida

Administrative Weekly of its intent to adopt new rule 12B-8.0012. The proposed

rule, which is quite lengthy in text, reads as follows:

12BN-8.0012 Insurance Policy Surcharge: Rate

and Computation.

(1) Every insurer, including surplus lines

and surplus lines agents, must collect a

surcharge of $2 and $4 from the policyholders

of certain types of property insurance issued

or renewed on or after May 1, 1993. The

proceeds will be deposited into the Emergency

Management, Preparedness, and Assistance

Trust Fund.

(2) The $2 surcharge applies to each

residential dwelling fire policy,

homeowner's, mobile homeowner's, tenant

homeowner's, condominium unit owner's, and

any other type of insurance coverage on

residential property, issued or renewed on or

after May 1, 1993.

(3) The $4 surcharge applies to each

commercial fire, commercial multiple peril,

and business owner's property insurance

policy issued or renewed on or after May 1,

1993, including marine policies if the

coverage includes real property.

(4) The surcharge does not apply to policies

on tangible personal property, except

multiple peril type policies on residential

or commercial property and mobile homes.

(5) For purposes of this rule, the date of

issue or renewal shall be the effective date

of the policy.

(6) The surcharge applies to all policies

issued or renewed even if they are

subsequently cancelled. However, if the

policy is cancelled back to the effective

date, the surcharge shall not apply.

(7) The surcharge must be collected by the

insurer from the policyholder and must be

remitted in the same manner as the insurance

premium tax to the Department of Revenue on

Form DR-907, Insurance Premium Tax Quarterly

Return, and on Form DR-908, Insurance Premium

Tax Return.

(8) The surcharge on surplus lines policies

must be remitted by the surplus lines agents,

unless the surplus lines insurer collects and

remits the surcharge, and must be remitted on

Form DR-907 and Form DR-908. The surcharge

is required to be remitted by the surplus

lines agent for only the surplus lines

policies. The authorized insurer is required

to collect and remit the surcharge for all

other policies. The $250 quarterly and

annual filing fees do not apply to either the

surplus lines agent or the surplus lines

insurer.

(9) The insurance premium tax on surplus

lines will continue to be remitted to the

Department of Insurance as required.

(10) The surcharge is required to be remitted

on the required return for the calendar

quarter the policy is issued or renewed

without regard to the collection of the

surcharge from the policyholders.

(11) The insurer is responsible for

collecting the surcharge and may cancel the

policy for nonpayment of the surcharge.

(12) The first installment on the surcharge

was due June 15, 1993, for May and June with

the subsequent installment due on October 15

for the calendar quarter ending September 30.

A separate line denoting the surcharge is

provided on the revised Form DR-907 and the

revised Form DR-908, annual return, which is

due by March 1.

(13) The estimated payment must be based on

at least 90 percent of the actual number of

policies subject to the surcharge to avoid

penalty and interest as provided in s.

624.5092, F.S.

(14) Penalty and interest may be compromised

as provided in s. 213.21, F.S.

(15) The surcharge is not considered to be a

part of the premium charge, and is therefore

not subject to the insurance premium tax.

(16) The surcharge is imposed on the policy-

holder and will not be considered for

retaliatory tax purposes whether or not the

surcharge is collected from the policyholder.

The text of the notice identified Subsection 213.06(1), Florida Statutes, and

Chapter 93-128, Laws of Florida, as the specific authority for adopting the rule

and Section 624.5092, Florida Statutes, and Chapter 93-128, Laws of Florida, as

the laws being implemented. Finally, the notice summarized the new rule as one

which "provid(ed) guidance for computing and remitting the $2 and $4 surcharge,"

and further stated its adoption was "needed to conform the rule to the 1992 and

1993 statutory revisions."

5. Of significance to this controversy are all or parts of sections (1)

and (8) of the proposed rule which expressly provide that the surcharge is

applicable to surplus lines policies. Petitioner generally contends that

surplus lines policies were not specifically referred to in either chapter 93-

128 or section 624.5092 and thus the surcharge was not intended to apply to that

type of transaction. For this reason, among others, it argues that the proposed

rule goes beyond the terms of the enabling statutes.

6. In 1989, Chapter 89-167, Laws of Florida, created Section 624.5092,

Florida Statutes, which transferred the responsibility for the administration

and collection of all taxes enumerated in subsection 624.5092(3) from the

Department of Insurance to DOR. That subsection identifies Sections 624.5091,

624.4425, 624.475, 624.509-624.515, 627.356, 627.357, 629.5011, 637.406,

651.027, and 440.57, Florida Statutes, as the taxing statutes which DOR is

obligated to administer. Omitted from this subsection are Section 626.932,

Florida Statutes, which imposes a premium receipts tax on surplus lines

insurance transactions, and Section 626.933, Florida Statutes, which sets forth

the procedure for collecting that tax. Therefore, surplus lines insurance

transactions are not identified as being subject to the administration

procedures in subsection 624.5092(3).

7. The parties have stipulated that under section 624.5092 DOR is

authorized to administer, collect and enforce insurance taxes prior to 1989 on

all open years for all insurers subject to Section 624.509, Florida Statutes.

They have also stipulated that DOR has the authority to assess surcharges and

tax for all insurers that are subject to Sections 624.509 and 624.5091, Florida

Statutes. These two statutes pertain to the payment of a premium tax and

retaliatory tax, respectively, by insurers holding a certificate of authority.

Surplus lines insurers do not possess such authorization.

8. Neither chapter 89-167 nor chapter 93-128 amended sections 626.932 or

626.933. As noted earlier, those sections impose a surplus lines tax and the

manner for collecting the same, respectively. Also, they did not amend

subsection 624.5092(3) to include any tax imposed by Part VIII of chapter 626,

the state surplus lines act.

9. Section 4 of chapter 93-128 amended subsection 624.5092(1) by adding

the underscored language below:

(1) The Department of Revenue shall

administer, audit and enforce the assessment

and collection of those taxes to which this

section is applicable. The Department of

Insurance is authorized to share information

with the Department of Revenue as necessary

to verify premium tax or other tax liability

arising under such taxes and credits which

may apply thereto.

10. Besides the substantive contentions, petitioner also contends the

rule's economic impact statement (EIS) is inadequate because DOR did not

consider the rule's impact on small businesses. In making that assessment, DOR

utilized the provisions of Subsection 120.54(2)(a)1.-5., Florida Statutes, and

found the impact on small businesses to be minimal, that is, affected persons

need only file a two page form on a quarterly basis reflecting the number of

surplus lines policies issued or renewed during the preceding quarter. Given

these minimal statutory requirements, DOR could not consolidate or simplify the

reporting requirements, exempt small businesses, establish less stringent

schedules, establish alternative performance standards, or create less stringent

reporting requirements. Finally, copies of the proposed rule were sent to the

minority business sections of the Department of Commerce and Department of

Management Services, and DOR did not receive any reply or comment from those

agencies.

11. DOR did not receive a request for an economic impact statement from

any affected person. Also, it received no information regarding any economic

impact on any businesses affected by the proposed rule or on the size of

businesses affected by the proposed rule prior to the initiation of this

proceeding.

12. Although some of petitioner's members qualify as small businesses as

that term is defined within Section 288.703, Florida Statutes, and petitioner

advised DOR of its position regarding the invalidity of the proposed surcharge,

there is nothing of record to indicate that petitioner, or any of its members

individually, specifically requested preparation of an EIS or provided

information sufficient to make DOR aware of specific concerns regarding the

economic impact of the proposed rule.

CONCLUSIONS OF LAW

13. The Division of Administrative Hearings has jurisdiction over the

subject matter and the parties hereto pursuant to Subsections 120.54(4) and

120.57(1), Florida Statutes.

14. Subsection 120.52(8), Florida Statutes, defines an invalid exercise of

delegated legislative authority as follows:

(8) "Invalid exercise of delegated

legislative authority" means action which

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 or

more of the following apply:

(a) The agency has materially failed to

follow the applicable rulemaking procedures

set forth in s. 120.54;

(b) The agency has exceeded its grant of

rulemaking authority, citation to which is

required by s. 120.54(7);

(c) The rule enlarges, modifies, or

contravenes the specific provisions of law

implemented, citation to which is required by

s. 120.54(7);

(d) The rule is vague, fails to establish

adequate standards for agency decisions, or

vests unbridled discretion in the agency; or

(e) The rule is arbitrary or capricious.

Petitioner contends that the proposed rule violates paragraphs (a), (b), (c) and

(e) of the foregoing statute. As to each of these contentions, petitioner bears

the burden of proving by a preponderance of the evidence that such infirmities

exist. Finally, it contends that the rule is unconstitutional under the due

process clause of the United States Constitution. These arguments will be

considered separately below.

15. Petitioner first contends that DOR has violated paragraph 120.52(8)(a)

by failing to comply with Subsection 120.54(2)(a), Florida Statutes, which

mandates that prior to the adoption of any rule, the agency shall consider the

impact of the proposed action on small businesses. Before a person has standing

to make such a claim, however, it is incumbent on the challenging party to

"request preparation of an economic impact statement" or "provide the agency

with information sufficient to make the agency aware of specific concerns

regarding the economic impact of the proposed rule." Subsection 120.54(2)(d),

F. S. (1993). Here, neither requirement was met. This being so, the contention

must necessarily fail. Assuming arguendo that petitioner has standing to

complain that the EIS is deficient, the statute imposing the tax falls equally

upon large and small businesses, and DOR was without authority to exempt small

businesses from the tax or provide for less stringent reporting requirements for

one segment of the affected insurers. See, e. g., Family Arcade Alliance v.

Department of Revenue, 14 F.A.L.R. 1417, 1431 (DOAH, March 17, 1992).

Therefore, no special accommodation could be made for petitioner's small

business members.

16. Petitioner next contends that DOR has violated paragraph 120.52(8)(b)

by exceeding its grant of rulemaking authority. To have violated this statute,

the proposed rule would have to go beyond the terms of the statutes cited by DOR

as its authority to engage in rulemaking. In this respect, the proposed rule

cites subsection 213.06(1) and chapter 93-128 (now codified in part as s.

252.372, F. S.) as the specific authority for its adoption. The former statute

authorizes DOR to adopt such rules as may be necessary to "carry out the intent

and purposes of . . . revenue laws administered by the department" while chapter

93-128 imposes an annual surcharge on all casualty policies, requires the

insurer to "collect the surcharge and remit it to (DOR)," and authorizes DOR to

"collect, administer, audit, and enforce the surcharge pursuant to section

624.5092, Florida Statutes." Since the taxing statute (s. 252.372) authorizes

DOR to collect the surcharge from all insurers, without limitation, and to use

the procedures prescribed in section 624.5092 for doing so, the proposed rule

simply carries out this legislative duty. Therefore, it cannot be said that DOR

has exceeded its grant of rulemaking authority as proscribed by paragraph

120.52(8)(b).

17. Petitioner next contends that the rule is invalid because it

impermissibly enlarges, modifies or contravenes section 624.5092. Here, DOR has

cited section 624.5092 and chapter 93-128 as the specific laws implemented. For

the reasons given in the preceding paragraph, it must be concluded that the rule

does not contravene the specific provisions of law being implemented. In so

ruling, the undersigned has determined that chapter 93-128 is the taxing

statute, and not section 624.5092. That is to say, chapter 93-128 imposes the

tax and provides that the administration and enforcement of the tax shall be

accomplished using the procedures outlined in section 624.5092. Thus, contrary

to petitioner's assertion, chapter 93-128 is the controlling statute for

resolving this dispute. Since chapter 93-128 expressly provides that the

surcharge shall be applicable to all residential and commercial casualty

transactions, without any limitation whatsoever, the proposed rule does not

contravene the law being implemented. While admittedly it would have been

helpful in terms of clarity for the legislature to have amended subsection

624.5092(3) to add new section 252.472 or existing section 626.932 to the list

of taxing statutes contained therein, this omission has no significance since

the authority to levy and enforce the surcharge is found in chapter 93-128, and

not section 624.5092.

18. Petitioner also contends that the rule is arbitrary and capricious

within the meaning of paragraph 120.52(8)(e). To be arbitrary, the proposed

rule would not be supported by fact or logic. The rule would be capricious if

it was proposed for adoption without thought or reason. Dravo Basic Materials

Co., Inc. v. State, Department of Transportation, 602 So.2d 632 (Fla. 2nd DCA

1992). Here, the rule cannot be said to lack the necessary factual predicate or

logic given the clear statutory authority for adopting the same. Likewise, the

agency has obviously sought to promulgate the rule with thought and reason.

This being so, the proposed rule does not contravene paragraph 120.52(8)(e).

19. Finally, in determining that the proposed rule is a valid exercise of

delegated authority, the undersigned has rejected petitioner's contention that

because its members do not hold certificates of authority from the Department of

Insurance, they cannot be considered "insurers" within the meaning of the taxing

statute. The word "insurer" is defined in Section 624.03, Florida Statutes, as

"every person engaged . . . in the business of entering into contracts of

insurance." Since petitioner's members offer surplus lines insurance policies

to members of the public, and they countersign property insurance policies

covering Florida risks, one must logically conclude that they are insurers as

that term is defined by statute. Cf. Continental Janitorial Corporation v.

Nationwide Underwriters, Inc., 368 So.2d 112, 113 (Fla. 4th DCA 1979). The fact

that they do not hold certificates of authority is immaterial to this

determination. The remaining contentions, including a claim that the proposed

rule is unconstitutional, are deemed to be without merit.

Based on the foregoing Findings of Fact and Conclusions of Law, it is

ORDERED that the petition for determination of invalidity of proposed rule

12B-8.0012 be DENIED.

DONE AND ENTERED this 10th day of January, 1994, in Tallahassee, Florida.

___________________________________

DONALD R. ALEXANDER

Hearing Officer

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, FL 32399-1550

[phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 10th day of January, 1994.

APPENDIX TO FINAL ORDER, CASE NO. 93-5242RP

Petitioner:

1. Partially accepted in finding of fact 1.

2. Partially accepted in finding of fact 2.

3. Partially accepted in finding of fact 4.

4. Partially accepted in finding of fact 1.

5. Partially accepted in finding of fact 6.

6. Partially accepted in finding of fact 7.

7. Partially accepted in finding of fact 8.

8. Partially accepted in finding of fact 7.

9. Partially accepted in finding of fact 9.

10-11. Partially accepted in finding of fact 8.

12-14. Partially accepted in finding of fact 12.

15. Partially accepted in finding of fact 10.

Respondent:

1. Covered in preliminary statement.

2. Partially accepted in finding of fact 1.

3. Covered in preliminary statement.

4. Partially accepted in finding of fact 4.

5. Partially accepted in finding of fact 3.

6. Partially accepted in finding of fact 4.

7. Covered in preliminary statement.

8. Rejected as being unnecessary.

9. Covered in preliminary statement.

10. Partially accepted in finding of fact 1.

11. Partially accepted in finding of fact 6.

12. Partially accepted in finding of fact 7.

13. Partially accepted in finding of fact 8.

14. Partially accepted in finding of fact 7.

15. Partially accepted in finding of fact 2.

16-21. Partially accepted in finding of fact 10.

Note - Where a proposed finding of fact has been partially accepted, the

remainder has been rejected as being irrelevant, unnecessary, cumulative, not

supported by the evidence, or a conclusion of law.

COPIES FURNISHED:

Steven M. Malono, Esquire

P. O. Box 11127

Tallahassee, Florida 32302

Lisa M. Raleigh, Esquire

Department of Legal Affairs

The Capitol, Tax Section

Tallahassee, Florida 32399-1050

Carroll Webb, Executive Director

Joint Administrative Procedures Committee

Holland Building, Room 120

Tallahassee, FL 32399-1300

Liz Cloud, Chief

Bureau of Administrative Code

The Elliott Building

Tallahassee, FL 32399-0250

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 Administative 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.

=================================================================

DISTRICT COURT ORDER DISMISSING APPEAL

=================================================================

DISTRICT COURT OF APPEAL, FIRST DISTRICT

Tallahassee, Florida 32399

Telephone No. [phone]

April 8, 1994

CASE NO: 94-00475

L.T. CASE NO. 93-5242RP

Florida Surplus Lines v. State of Florida,

Association Department of Revenue

------------------------------------------------------------

Appellant(s), Appellee(s).

BY ORDER OF THE COURT:

Appeal dismissed pursuant to Rule 9.350(b), Fla.R.App.P.

I HEREBY CERTIFY that the foregoing is (a true copy of) the original court

order.

JON S. WHEELER, CLERK

By:____________________________

Deputy Clerk

Copies:

Steven M. Malono

Douglas A. Mang

Lisa M. Raleigh

James F. McAuley

Deanna Hartford