01-003015 John Deere Insurance Company vs. Department Of Insurance Status: Closed Recommended Order on Tuesday, October 30, 2001.

Summary: Petitioner maintained it could combine its commercial property and liability insurance with its workers` compensation and employer`s liability insurance when calculating excess profits. Only workers` comp and employer`s may be combined.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

JOHN DEERE INSURANCE COMPANY, )

)

Petitioner, )

)

vs. ) Case No. 01 - 3015

)

DEPARTMENT OF INSURANCE, )

)

Respondent. )

)

RECOMMENDED ORDER

Notice was provided, and a formal hearing was held on

October 2, 2001, in Tallahassee, Florida, and conducted by

Harry L. Hooper, Administrative Law Judge with the Division of

Administrative Hearings.

APPEARANCES

For Petitioner: Frank J. Santry, Esquire

Granger, Santry & Heath, P.A.

2833 Remington Green Circle

Post Office Box 14129

Tallahassee, Florida 32317

For Respondent: Elenita Gomez, Esquire

Richard M. Ellis, Esquire

Department of Insurance

Division of Legal Services

200 East Gaines Street

612 Larson Building

Tallahassee, Florid a 32399 - 0333

STATEMENT OF THE ISSUE

Whether Petitioner realized unlawful excess profits, and if

so, in what amount.

PRELIMINARY STATEMENT

Petitioner John Deere Insurance Company is now known as

Sentry Select Insurance Company (Sentry). Duri ng all times

pertinent Sentry was licensed by the Department of Insurance and

held a Certificate of Authority to do business in the State of

Florida as a foreign property and casualty insurer. Petitioner

received a Notice of Excessive Profits from the Dep artment on or

about January 12, 1999, finding on a preliminary basis, that

excess profits had been realized in the amount of $191,094.00

for workers' compensation business covering calendar/accident

years 1994, 1995, and 1996.

In a letter dated Januar y 29, 1999, Sentry requested an

informal hearing and reserved the right to request a formal

hearing. On July 24, 2001, Sentry filed its Petition for Formal

Administrative Proceeding. A hearing was set for October 2,

2001. On August 17, 2001, Sentry file d a Motion to Stay,

asserting that Sentry wished to have the facial

constitutionality of the operative statute, Section 627.215,

Florida Statutes, determined through a declaratory judgment

action in circuit court. In an order dated August 31, 2001,

that m otion was denied.

The question of whether or not a statute is

unconstitutional facially, or in its operation, is not something

which can be determined in an administrative hearing.

Therefore, the statute which is the genesis of this dispute,

Section 627.215, Florida Statutes, is considered for purposes of

this action to be constitutional.

At the hearing Sentry offered four exhibits which were

received into evidence. One of the exhibits was the deposition

testimony of Patricia Ferguson, the sta tistical manager for

Sentry Insurance Group. The Department presented the testimony

of James Watford and offered four exhibits which were admitted

into evidence.

A transcript was filed on October 15, 2001. Both parties

timely submitted Proposed Re commended Orders which were

considered in the preparation of this Recommended Order.

FINDINGS OF FACT

1. Sentry is currently licensed and holds a Certificate of

Authority to do business in the State of Florida as a foreign

property and casualty insur er, and was so licensed at all times

material. Sentry Select Insurance Company was known as John

Deere Insurance Company until it was purchased by Sentry

Insurance Group in October of 1999.

2. On or about June 24, 1998, Sentry submitted Form D14 - 15

to the Department as required by Section 627.215, Florida

Statutes. Form D14 - 15 is also known as Reporting Form F. The

form provides insurance company data which is used by the

Department to calculate workers' compensation excess profits.

3. The D epartment did calculate the excess profits in the

case of Sentry and on January 6, 1999, filed a Notice of

Excessive Profits finding that Sentry had realized excess

profits in the amount of $191,094.00 for calendar/accident years

1994 - 1996.

4. In re sponse to the Notice of Excessive Profits, Sentry

provided to the Department, on or about May 26, 1999, commercial

property and casualty experience data on a Form DI4 - 358. This

was not a certified submission, nor was any evidence submitted

which indicated that it should have been certified. Sentry

asserted that this data could be used to offset the excess

profits determined by the Department.

5. Patricia Ferguson authenticated and made competent the

commercial property and casualty experience data s ubmitted by

Sentry in May of 1999. The raw data presented is a business

record of the company and therefore is admitted as an exception

to the hearsay rule.

6. Ms. Ferguson asserted that if the commercial property

and casualty experience data was combined with the workers'

compensation experience, Sentry would not have realized excess

profits in the years 1994, 1995, and 1996. However, the

material provided, including a completed Form DI4 - 358, is

insufficient to permit the Department to make that

determination.

7. The excess profits statute, Section 627.215, Florida

Statutes, was originally enacted into law in 1979. This statute

only addressed excess profits in the case of workers'

compensation insurance and employer's liability insurance fo r

business written in Florida. In 1988, the Florida Legislature

added commercial property and commercial casualty insurance

written in Florida to the excess profits law and provided for a

combination of these types of insurance in the case of insurers

who wrote these types of coverage.

8. Because the calculation of excess profits requires

information from three years' experience, the statute was

drafted so that only workers' compensation and employer's

liability insurance was considered until 1991. Thereafter the

different lines were to be combined. During the three - year

period leading to 1991, data was reported, but no excess profits

were required to be calculated.

9. Between 1991 and 1997, companies reported their profit

or loss underwritin g experience for the latest three

calendar/accident years valued at the end of the following year.

Reports to the Department were due prior to the first day of

July. For example, if the calendar accident years were 1994,

1995, and 1996, the profit or loss underwriting experience would

be valued on December 31, 1997, and reported to the Department

on Form F prior to July 1, 1998. Form F must be certified by a

corporate officer.

10. Excess profit has been realized if an insurer's

underwriting gain exc eeds the anticipated underwriting profit

from the insurer's rate filings plus a five percent earned

premium which the insurer may retain. Stated another way, if an

insurer's profit is greater than that anticipated in its rate

filing plus five percent then that amount is deemed excess

profit.

11. The Form F submitted by Sentry on June 24, 1998, was

certified by the Assistant Secretary of Sentry as being a full

and true statement.

12. The Department correctly determined the amount of

excess profi t to be $191,094.00. This is the amount which must

be returned to Sentry's premium payers as a cash payment or

credit toward future premiums.

13. The Department correctly declined to consider the

commercial property and casualty experience submitted by Sentry,

on May 26, 1999, on Form DI4 - 358, because the Department

believed it could not consider that data in light of a change in

the law made in 1995 which was effective January 1, 1997.

CONCLUSIONS OF LAW

14. The Division of Administrativ e Hearings has

jurisdiction over the parties and the subject matter of this

proceeding pursuant to Section 120.57(1), Florida Statutes.

15. The burden of proof is on the party asserting the

affirmative of an issue before an administrative tribunal,

F lorida Department of Transportation v. J.W.C. Company, Inc. ,

396 So. 2d 778 (Fla. 1st DCA 1981). Therefore, the Department

had the burden of proving by a preponderance of the evidence

that Sentry experienced excess profits.

16. Prior to January 1, 1 997, Section 627.215, Florida

Statutes, permitted the combination of workers' compensation

insurance, employer's liability insurance, commercial property

insurance, and commercial casualty insurance, when reporting

data to the Department, and when the Depa rtment calculated

excess profits.

17. Section 15 of Chapter 95 - 276, Laws of Florida, became

law on June 14, 1995. It amended Section 627.215, Florida

Statutes, by adding Section 14, which stated as follows:

The application of this law to commercia l

property and commercial casualty insurance

ceases on January 1, 1997. The Department

of Insurance shall, no later than October 1,

1995, provide a report on this law to the

President of the Senate and the Speaker of

the House of Representatives, which re port

includes a history of the excess profits law

and a year - by - year listing of excess profits

returned to policyholders as refunds or

credits.

18. Subsequently, the rule which addressed excess profits

in connection with commercial property and comm ercial casualty

insurance, Rule 4 - 171.007, Florida Administrative Code, was

repealed. The effective date of the repeal was November 8,

2000.

19. Rule 4 - 189.007, Florida Administrative Code, is

entitled, "Insurer Experience Reporting -- Excessive Profi ts,

Workers' Compensation Insurance." This rule addresses workers'

compensation and employer's liability insurance. It does not

mention commercial property and commercial casualty insurance.

20. Rule 4 - 189.007, Florida Administrative Code, is the

ru le which governs the assessment of excess profits in the case

of Sentry.

21. Section 627.215(14), Florida Statutes, takes

commercial property and commercial casualty insurance out of the

excess profits equation because it states that the application

of the law to commercial property and commercial casualty

insurance ceased on January 1, 1997. The reports by Sentry

encompassed the years 1994, 1995, and 1996, and underwriting

profits or losses were valued on December 31, 1997. The

application of the l aw, meaning the determination as to the

existence of excess profits, occurred subsequent to Sentry's

reporting date, which by law was prior to July 1, 1998.

22. Because July 1, 1998, the date the law was applied, is

after January 1, 1997, the date taking commercial property and

commercial casualty insurance out of the statute, it would be

unlawful for the Department to consider commercial property and

commercial casualty insurance underwriting profits or losses in

the calculation of workers' compens ation excess profits.

RECOMMENDATION

Based upon the Findings of Fact and Conclusions of Law, it

is

RECOMMENDED:

That a final order be entered which finds that Sentry

realized $191,094.00 in excess profits for workers' compensation

business covering calendar/accident years 1994, 1995, and 1996.

DONE AND ENTERED this 30th day of October, 2001, in

Tallahassee, Leon County, Florida.

___________________________________

HARRY L. HOOPER

Administrative Law Judge

Division of Administrative Hearings

The De Soto 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 30th day of October, 2001.

COPIE S FURNISHED :

Elenita Gomez, Esquire

Richard M. Ellis, Esquire

Department of Insurance

Division of Legal Services

200 East Gaines Street

612 Larson Building

Tallahassee, Florida 32399 - 0333

Frank J. Santry, Esquire

Granger, Santry & Heath, P.A.

2833 Rem ington Green Circle

Post Office Box 14129

Tallahassee, Florida 32317

Honorable Tom Gallagher

State Treasurer/Insurance Commissioner

Department of Insurance

The Capitol, Plaza Level 02

Tallahassee, Florida 32399 - 0300

Mark Casteel, General Counsel

Depart ment of Insurance

The Capitol, Lower Level 26

Tallahassee, Florida 32399 - 0307

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recommended Order. Any exceptions

to this Recommended Order should be filed with the agency that

will issue the Final Order in this case.