02-002112RU Primerica Life Insurance Company vs. Department Of Insurance Status: Closed DOAH Final Order on Tuesday, July 30, 2002.

Summary: Agency statements were not generally applicable; thus not "Rules." Also, rulemaking was not feasible.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

PRIMERICA LIFE INSURANCE COMPANY, )

)

Petitioner, )

)

vs. ) Case No. 02 - 21 12RU

)

DEPARTMENT OF INSURANCE, )

)

Respondent. )

___________________________________)

FINAL ORDER

Pursuant to notice, a final hearing was conducted i n this

case on June 24, 2002, in Tallahassee, Florida, before

Administrative Law Judge Michael M. Parrish of 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 32308

For Respondent: Dennis K. Threadgill, Esquire

John L. Swyers, Esquire

Department of Insurance

Division of Legal Services

200 East Gaines Street, Sixth Floor

Tallahassee, Florida 32399 - 0333

STATEMENT OF THE ISSUE

This is a proceeding pursuant to Section 120.56(4), Florida

Statutes, in which the Petitioner, Primerica Life Insurance

Company ("Primerica" or "Petitioner"), seeks a determination

that five statements contained in letters issued by the

Department of Insurance ("Department" or "Respond ent") are

violations of Section 120.54(1)(a), Florida Statutes.

PRELIMINARY STATEMENT

Petitioner filed a Petition challenging Agency Statements

Defined as Rules on May 20, 2002. At the final hearing,

Petitioner presented the deposition testimony of two w itnesses,

Richard A. Robleto and Jim Walker, which were marked as

Petitioner's Exhibits 8 and 9, respectively. Petitioner also

introduced seven other exhibits into evidence. Respondent

presented the testimony of James Walker and Richard A. Robleto.

Resp ondent did not introduce any exhibits.

The transcript of the final hearing was filed on June 27,

2002. The parties were ordered to file post - hearing submissions

no more than 10 days after the filing of the transcript.

Proposed Final Orders submitted by t he parties have been

considered in the preparation of this Final Order.

FINDINGS OF FACT

1. On or about March 21, 2002, Primerica filed four

policies of life insurance with the Department for review and

approval. Life insurance policies must be approved by the

Department before an insurance company can sell the policies in

the State of Florida. Each of the four policies contained an

identical arbitration provision.

2. On or about May 1, 2002, the Department disapproved

each of the policies described above in four disapproval

letters. In all material matters, the four disapproval letters

were identical. Specifically, each of the disapproval letters

gave identical reasons for the disapproval of the subject

policies of life insurance. Those reasons re ad as follows, in

pertinent part: 1

1. The arbitration provision violates

Section 627.411, F.S. The provision is too

broad as it relates to the parties entitled

to request arbitration. The provision not

only permits Primerica Life, the issuer of

the te rm policy, to invoke arbitration, but

also Primerica Financial Services, Inc.

and/or their respective corporate parents,

subsidiaries, affiliates, predecessors,

assignees, employees, agents, independent

contractors, directors and officers. In

order to be acceptable, the provisions must

be restricted to Primerica Life and only

those parties directly involved with the

sale of the policy.

2. The arbitration provision violates

Section 627.411, F.S. The provision is too

broad as it relates to the issues whi ch can

be the subject of arbitration. The

provision not only relates to matters

relating to the application, but to any

past, present or future sales relating to

insurance between the parties, any fraud,

misrepresentation or any matter arising from

common law or any federal or state statute,

including consumer protection laws or even

the arbitration clause itself. The clause

should be restricted to the sale of the

policy or some provision of the policy.

3. The arbitration provision violates

Section 627 .428, F.S. Under that statute,

if the court renders a finding in favor of

the insured or beneficiary, the award of

attorney's fees is mandatory. In a large

percentage of arbitration awards, the

finding of the arbitrators favors neither

party, but is midd le ground. In those

situations, the arbitrators would not

necessarily be obligated to award attorney's

fees as the court is under the

aforementioned statute.

4. The arbitration provision is

inconsistent with the incontestability

provision of the policy and Section 627.455,

F.S., in that they both make the policy

incontestable after the policy has been in

force for two years during the lifetime of

the insured. The arbitration provision has

no time limitation.

* * *

6. The arbitration provision vi olates

Section 627.411, F.S. The provision

requires the arbitrator to decide any

dispute in accordance with applicable law.

It would be impossible for the arbitrator to

apply applicable law, unless that individual

was knowledgeable of Florida law. It is

doubtful that every arbitrator eligible to

serve in that capacity is learned in Florida

law. (Emphasis in original.)

3. The five paragraphs quoted immediately above are the

five agency statements that are challenged in this case. The

reasons set forth in the five paragraphs quoted above have never

been previously used by the Department as a basis for

disapproval of a life insurance policy.

4. On or about February 22, 2002, Primerica had filed an

earlier policy of life insurance with the Department for review

and approval. The policy filed in February contained an

arbitration provision that was identical to the arbitration

provision in the four policies filed on March 21, 2002. By a

so - called "clarification" letter dated February 26, 2002, the

Departm ent advised Primerica that the policy filed on

February 22, 2002, had the following deficiencies:

1. The arbitration clause in this policy

is not acceptable. Companies may use

arbitration provisions in life and health

contracts but they must be volunta ry per

Section 682.02, F.S. Please modify the

arbitration clause accordingly or remove it

from the policy.

5. And after considering Primerica's response to the

language quoted above, by means of a letter dated March 22,

2002, the Department disapproved Primerica's February filing for

the following reason: 2

The arbitration provisions contained in

the captioned application do not comply with

the Florida Insurance Code in that Section

627.413(1)(f), Florida Statutes requires

that conditions pertaining to the insurance

shall be specified in the policy. Your

filing includes such provisions in the

application, not the policy. Therefore, an

application containing such provisions

cannot be approved. According to the legal

sources reviewed by the Department, the

purpose of a life insurance application is

to provide the company with sufficient

information to underwrite or consider a

specific individual for life insurance.

Provisions of the application, which serve

other than an underwriting purpose, must be

de leted. Since it is the company's intent

to make the arbitration provisions

applicable to all policyholders, those

provisions should be made general provisions

of the policy.

6. Very few life insurance policies containing an

arbitration provision have be en filed with the Department. The

Department has no policy as to the approval or disapproval of

such life insurance policies. Each such life insurance policy

is analyzed on a case - by - case basis.

7. Due to the limited number of policies containing an

arb itration provision that are submitted to the Department for

review, the Department does not have enough information to

publish proposed rules on the subject of arbitration provisions

in life insurance policies. The Department is presently

investigating th e development of such a rule. 3

8. The binding arbitration provisions in the policies

filed on March 21, 2002, contained some unusual provisions.

Those provisions were referred to the Department's Legal

Services Division to determine if they complied with the Florida

Insurance Code.

CONCLUSIONS OF LAW

9. The Division of Administrative Hearings has

jurisdiction over the parties to and the subject matter of this

proceeding. Sections 120.56 and 120.57, Florida Statutes.

10. With certain exceptions that ar e not pertinent to the

issues in this case, Section 120.52(a)(15), Florida Statutes,

defines the term "rule" as follows:

(15) "Rule" means each agency statement

of general applicability that implements,

interprets, or prescribes law or policy or

describ es the procedure or practice

requirements of an agency and includes any

form which imposes any requirement or

solicits any information not specifically

required by statute or by an existing rule.

The term also includes the amendment or

repeal of a rule.

11. Section 120.54(1)(a), Florida Statutes, reads as

follows in pertinent part:

(1) GENERAL PROVISIONS APPLICABLE TO ALL

RULES OTHER THAN EMERGENCY RULES. --

(a) Rulemaking is not a matter of agency

discretion. Each agency statement defined

as a rule by s. 120.52 shall be adopted by

the rulemaking procedure provided by this

section as soon as feasible and practicable.

1. Rulemaking shall be presumed feasible

unless the agency proves that:

a. The agency has not had sufficient time

to acquire the knowledge and experience

reasonably necessary to address a statement

by rulemaking;

b. Related matters are not sufficiently

resolved to enable the agency to address a

statement by rulemaking; or

c. The agency is currently using the

rulemaking procedu re expeditiously and in

good faith to adopt rules which address the

statement.

2. Rulemaking shall be presumed

practicable to the extent necessary to

provide fair notice to affected persons of

relevant agency procedures and applicable

principles, crite ria, or standards for

agency decisions unless the agency proves

that:

a. Detail or precision in the

establishment of principles, criteria, or

standards for agency decisions is not

reasonable under the circumstances; or

b. The particular questions ad dressed are

of such a narrow scope that more specific

resolution of the matter is impractical

outside of an adjudication to determine the

substantial interests of a party based on

individual circumstances.

12. And Section 120.56(4), Florida Statutes, pro vides, in

pertinent part, that:

(4) CHALLENGING AGENCY STATEMENTS DEFINED

AS RULES; SPECIAL PROVISIONS. --

(a) Any person substantially affected by

an agency statement may seek an

administrative determination that the

statement violates s. 120.54(1)(a). The

petition shall include the text of the

statement or a description of the statement

and shall state with particularity facts

sufficient to show that the statement

constitutes a rule under s. 120.52 and that

the agency has not adopted the statement by

the rulemaking procedure provided by s.

120.54.

(b) The administrative law judge may

extend the hearing date beyond 30 days after

assignment of the case for good cause. If a

hearing is held and the petitioner proves

the allegations of the petition, the agency

shall have the burden of proving that

rulemaking is not feasible and practicable

under s. 120.54(1)(a).

(c) The administrative law judge may

determine whether all or part of a statement

violates s. 120.54(1)(a). The decision of

the administrati ve law judge shall

constitute a final order. The division

shall transmit a copy of the final order to

the Department of State and the committee.

The Department of State shall publish notice

of the final order in the first available

issue of the Florida A dministrative Weekly.

(d) When an administrative law judge

enters a final order that all or part of an

agency statement violates s. 120.54(1)(a),

the agency shall immediately discontinue all

reliance upon the statement or any

substantially similar state ment as a basis

for agency action.

(e) Prior to entry of a final order that

all or part of an agency statement violates

s. 120.54(1)(a), if an agency publishes,

pursuant to s. 120.54(3)(a), proposed rules

which address the statement and proceeds

expedit iously and in good faith to adopt

rules which address the statement, the

agency shall be permitted to rely upon the

statement or a substantially similar

statement as a basis for agency action if

the statement meets the requirements of s.

120.57(1)(e). If an agency fails to adopt

rules which address the statement within 180

days after publishing proposed rules, for

purposes of this subsection, a presumption

is created that the agency is not acting

expeditiously and in good faith to adopt

rules. If the agen cy's proposed rules are

challenged pursuant to subsection (2), the

180 - day period for adoption of rules is

tolled until a final order is entered in

that proceeding.

(f) All proceedings to determine a

violation of s. 120.54(1)(a) shall be

brought pursuan t to this subsection. A

proceeding pursuant to this subsection may

be consolidated with a proceeding under any

other section of this chapter. Nothing in

this paragraph shall be construed to prevent

a party whose substantial interests have

been determined by an agency action from

bringing a proceeding pursuant to s.

120.57(1)(e).

13. As noted in The Environmental Trust v. State of

Florida, Department of Environmental Protection , 714 So. 2d 493

(Fla. 1st DCA 1998), at page 498:

An agency statement that is the equivalent

of a rule must be adopted in the rulemaking

process. See , e.g. , Christo v. State

Department of Banking and Fin. , 649 So. 2d

318 (Fla. 1st DCA 1995); Florida League of

Cities v. Administration Comm'n , 586 So. 2d

397 (Fla. 1st DCA 1991). This requirement

carried forward in section 120.54(1),

Florida Statutes (Supp. 1996), prevents an

administrative agency from relying on

general policies that are not tested in the

rulemaking process, but it does not apply to

every kind of statement an age ncy may make.

Rulemaking is required only for an agency

statement that is the equivalent of a rule,

which is defined in section 120.52(15),

Florida Statutes (1996), as a statement of

"general applicability."

An agency statement explaining how an

existin g rule of general applicability will

be applied in a particular set of facts is

not itself a rule. If that were true, the

agency would be forced to adopt a rule for

every possible variation on a theme, and

private entities could continuously attack

the go vernment for its failure to have a

rule that precisely addresses the facts at

issue. Instead these matters are left for

the adjudication process under section

120.57, Florida Statutes.

14. The Department's first defense to the challenge in

this case is that the statements at issue here do not meet the

definition of a rule because they are not statements of "general

applicability." On the facts in this case, the Department's

argument appears to be well - taken. The reasoning in each of the

challenged stat ements has never been previously applied to

another applicant. See Legal Club of America Corporation, f/k/a

And Justice for All, Inc., d/b/a Legal Club of America v.

Department of Insurance , 1999 WL 1286508 (DOAH FO, July 13,

1999). Specifically, when th is same Petitioner filed an earlier

policy containing an arbitration provision identical to the ones

at issue here, the earlier policy was disapproved for different

reasons. Further, the facts in this case demonstrate that the

Department has not yet devel oped any policy of general

applicability to address the issue of arbitration provisions in

life insurance policies.

15. The Department also defends against the challenge in

this case on the ground that rulemaking is not feasible at this

time. The facts d emonstrate that issues regarding the inclusion

of arbitration provisions in life insurance policies are rather

rare and infrequent. Due to this infrequency, the Department

"has not had sufficient time to acquire the knowledge and

experience reasonably nec essary to address a statement by

rulemaking." Section 120.54(1)(a)1a, Florida Statutes.

Accordingly, rulemaking is not feasible at this time.

CONCLUSION

In view of all of the foregoing, it is ORDERED:

That the petition in this case is hereby dismissed an d all

relief sought by the Petitioner is hereby denied.

DONE AND ORDERED this 30th day of July, 2002, in

Tallahassee, Leon County, Florida.

___________________________________

MICHAEL M. PARRISH

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Ta llahassee, 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 July, 2002.

ENDNOTES

1/ The disapproval letters contained six reasons for

disapproval. Only five of those reasons are at issue here. See

Petitioner's Exhibit 2 .

2/ Although the arbitration provisions were identical, the

reasons for disapproval given on March 22, 2002, are obviously

different from the reasons for disapproval given on May 1, 2002.

3/ The Department presented very lit tle evidence about its

rulemaking efforts in this regard. This dearth of evidence

supports an inference that the Department has not accomplished

very much in its rulemaking. In any event, the Department's

rulemaking efforts are insufficient for it to rea p the benefits

of Section 120.56(4)(e), Florida Statutes.

COPIES FURNISHED:

Frank J. Santry, Esquire

Granger, Santry & Heath, P.A.

2833 Remington Green Circle

Post Office Box 14129

Tallahassee, Florida 32308

Dennis K. Threadgill, Esquire

John L. Swyer s, Esquire

Department of Insurance

Division of Legal Services

200 East Gaines Street, Sixth Floor

Tallahassee, Florida 32399 - 0333

Honorable Tom Gallagher

State Treasurer/Insurance Commissioner

Department of Insurance

The Capitol, Plaza Level 02

Tallahass ee, Florida 32399 - 0300

Mark Casteel, General Counsel

Department of Insurance

The Capitol, Lower Level 26

Tallahassee, Florida 32399 - 0307

Carroll Webb

Executive Director and General Counsel

Joint Administrative Procedures Committee

Holland Building, Roo m 120

Tallahassee, Florida 32399 - 1300

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 R ules

of Appellate Procedure. Such proceedings are commenced by

filing the original notice of appeal with the Clerk of the

Division of Administrative Hearings and a copy, accompanied by

filing fees prescribed by law, with the District Court of

Appeal, Firs t 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.