04-002384 Commercial Carrier Corporation vs. Department Of Financial Services, Division Of Workers' Compensation Status: Closed Recommended Order on Wednesday, June 1, 2005.

Summary: Petitioner failed to prove that it has the financial strength to ensure timely payment of workers` compensation benfits. Petitioner failed to maintain a net worth of at least $1 million. Recommend additional security to maintain self-insurance status.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

COMMERCIAL CARRIER CORPORATION, )

)

Petitioner, )

)

vs. ) Case No. 04 - 2384

)

DEPARTMENT OF FINANCIAL )

SERVICES, DIVISION OF WORKERS' )

COMPENSATION, )

)

Respondent. )

)

RECOMMENDED ORDER

A formal hearing was held before Daniel M. Kilbride,

Administrative Law Judge of the Division of Administrative

Hearings , in Tallahassee , Florida, on March 29 and 30, 2005.

APPEARANCES

For Petitioner: Timothy L. Newhall, Esquire

Rayford Taylor, Esquire

Stiles, Taylor & Grace, P.A.

Post Office Box 1140

Tallahassee, Florida 323 0 2 - 1140

For Respondent: Harry O. Thomas, Esquire

Toni A. Funaro, Esquire

Radey, Thomas, Yon & Clark, P.A .

301 South Bronough Street, Suite 200

Post Office Box 10967

Tallahassee, Florida 3230 2

STATEMENT OF THE ISSUES

Whether Commercial Carrier Corporation ( Petitioner ), has

the financial strength necessary to ensure the timely payment of

all current and future workers' compensation claims in the State

of Florida ;

Whether Petitioner has maintained a net worth of at least

$1 million during the period 1999 to 2004 ; and

Whether Petitioner shall post an additional qualifying

security deposit t o remain qualified to self - insure and the

amount of the additional security deposit to be posted.

PRELIMINARY STATEMENT

On October 28, 2002, the Department of Financial Services

(Respondent) 1/ issued an Order that required Petitioner to

provide a certifi ed actuarial report and simultaneously post a

security deposit equal to no less than 150 percent of the

actuarially determined workers’ compensation loss reserves.

Petitioner disputed this finding and requested a formal

administrative hearing on November 13, 2002. At the request of

Petitioner, this matter was abated by Respondent , and this

matter was not referred to the Divi sion of Administrative

Hearings (DOAH) until July 9, 2004 . The parties filed a formal

Pre - Hearing Stipulation on March 22, 2005, and the matter was

heard on March 29 and 30, 2005.

Prior to the h e aring, Petitioner filed its Motion to

Determine Order and Burden of Proof. Petitioner argued that

while it was listed as Petitioner, the ultimate burden of proof

rested with Respondent and th at Respondent ’s burden was to

prevail by clear and convincing evidence. This Administrative

Law Judge ruled that Petitioner had the burden of proof at the

hearing and that its applicable burden was by a preponderance of

the evidence.

In addition, Petitio ner asserted that the actions of The

Florida Self - Insurance Guaranty Association (FSIGA) and

Respondent were taken under an unconstitutional delegation of

legislative authority and constituted an unlawful infringement

on executive branch authority. Since DOAH is without authority

to rule on the constitutionality of a statute, Communications

Workers v. City of Gainesville , 697 So. 2d 167 (Fla. 1 st DCA

1997), those issues are not addressed in this Order, but are

preserved.

At the hearing, the parties stipul ated to 15 joint

exhibits, which were admitted into evidence as Joint Exhibits 1

through 15. Petitioner presented live testimony of two expert

witnesses, Robert Fox, C.P.A. ; and Lawrence Hirsh, C.P.A. ; and

one fact witness, Thomas Lowe. Fox was tendered as an expert in

accounting and financial matters. Hirsh was tendered as an

expert in financial matters, including the valuation of

companies and the financial strength of companies. Petitioner

had 1 3 exhibits marked for identification ; nine of those

exhi bits, Petitioner’s Exhibits 1 through 8 and 11, were

admitted into evidence. Petitioner presented the deposition

testimony of Stacey Keith, which was received into evidence as

Petitioner’s Exhibit 11.

Respondent presented the testimony of two expert witn esses,

Brian Gee, C.P.A. ; and Ashwinpaul C. Sondhi, Ph.D. ; and one fact

witness, Cynthia Shaw. Gee was tendered as an expert in

accounting and financial analysis. Dr. Sondhi was tendered as

an expert in the field of financial analysis, with special

empha sis in the analysis of financial statements and accounting

standards. Respondent had 1 1 exhibits marked for

identification ; nine of those exhibits, Respondent ’s Exhibits 1

through 9 , were admitted into evidence.

A Transcript of the proceeding was prepare d and was filed

with DOAH on April 15, 2005. Petitioner and Respondent filed

their Proposed Recommended Order s on May 2, 2005. Both

proposals have been given careful consideration in the

preparation of this Recommended Order.

On January 28, 2005, Respon dent filed a Motion to Compel

the Production of Documents and requested attorney ’s fees

associated with the motion. On February 2, 2005, there was a

hearing on the motion to compel and request for attorney’s fees.

The motion to compel was granted; howeve r, ruling was reserved

on the request for attorney’s fees. Upon consideration of the

motion, supporting documentation, the letter from Timothy

Newhall regarding Respondent ’s request for attorney’s fees, and

the argument of the parties, it is n ow determine d that the

request for attorney’s fees is hereby denied .

FINDINGS OF FACT

Upon careful consideration, it is found and determined as

follows:

1. Petitioner, Commercial Carrier Corporation , is a

privately - owned trucking company headquartered in Auburndale,

Florida, which has been in business for over 50 years.

Petitioner is one of five operating subsidiaries of Comcar

Industries, Inc. (Comcar), whose primary business is truckload

transportation of general and specialized commodities in the

continental Unit ed States. Comcar routinely prepares

consolidated financial statements reflecting the operations of

all five subsidiary companies. Although Petitioner is the

nominal Petitioner, Comcar is the de facto Petitioner in this

proceeding. All of Comcar’s subsi diaries operate as self -

insured in Florida. Petitioner has been self - insured for

workers’ compensation in Florida since January 1, 1973.

2. Pursuant to Florida law, Respondent has jurisdiction

over Petitioner as a self - insured employer for purposes of

workers’ compensation.

3. Under Florida law, the general requirement is that

employers must obtain and maintain workers’ compensation

insurance coverage. The exception of this general requirement

is found in Subsection 440.38(1)(b), Florida Statutes (20 04),

whereby an employer can seek to qualify to self - insure by

" furnishing satisfactory proof to the Florida Self - Insurers

Guaranty Association, Inc., . . . that it has the financial

strength necessary to ensure the timely payment of all current

and future claims[.] "

4. FSIGA is a not - for - profit corporation established by

Section 440.385, Florida Statutes (2004), to guarantee payment

of the covered workers’ compensation claims by employees of

self - insurers that become insolvent. Other than governmental

en tities and public utilities, all self - insurers, including

Petitioner, must be members of FSIGA. FSIGA pays the covered

claims of current and former insolvent self - insurer members to

the extent an insolvent self - insurer’s security deposit is

insufficient. An insolvency fund is established and managed by

FSIGA for the purpose of meeting the obligations of insolvent

members after exhaustion of any security deposit. The

insolvency fund is funded by assessments from members of FSIGA.

Accordingly, FSIGA and a ll of its members share an interest in

ensuring adherence to the legislative standard that only

financially strong employers are granted the privilege to self -

insure.

5. To maintain self - insurer status, an employer must

submit annual financial statements no later than four months

following the end of the self - insured’s fiscal year and furnish

satisfactory proof to FSIGA that it has the financial strength

necessary to ensure timely payment of all current and future

claims.

6. The financial statements that must be submitted to

FSIGA for financial analysis must be prepared in accordance with

the United States Generally Accepted Accounting Principles

(GAAP). GAAP - prepared financial statements must show, at all

times, a net worth of $1 million. The requiremen ts of

furnishing proof of the requisite financial strength and

maintaining a net worth of at least $1 million , as shown on the

employer’s financial statements, are continuing annual

requirements to become and remain qualified to self - insure , and

those requ irements are applied equally to applicants and current

members.

7. FSIGA is required to review the financial strength of

its current members. It makes recommendations to Respondent

regarding the members’ continuing qualification to self - insure

and the am ount of security deposit that should be required of

each member. If FSIGA determines that a current member does not

have the financial strength necessary to ensure the timely

payment of all current and estimated future claims, it may

recommend that Respon dent require an increase in the member’s

security deposit.

8. FSIGA operates under a statutorily - approved plan of

operations. FSIGA’s plan of operation provides that its

executive director has the responsibility to make FSIGA’s

recommendations to Respond ent . FSIGA’s recommendations are

based upon a review of the financial information collected from

member employers. It may include recommendations regarding the

appropriate security deposit amount necessary for a self - insured

employer to demonstrate that it has the financial strength to

ensure timely payment of all current and future claims.

9. Respondent is required to accept FSIGA’s

recommendations unless it finds, by clear and convincing

evidence, that the recommendations are erroneous.

2002 Financial Review of Petitioner

10. Petitioner is currently a member of FSIGA and has

posted a qualifying security deposit of $2,500,000.00.

1 1 . On October 2, 2002, Brian D. Gee, C.P.A., who is now

FSIGA’s executive director, completed a review of Petitioner’s

au dited financial statements for 1999, 2000, and 2001. Gee was

FSIGA's financial analyst , responsibl e for conducting financial

reviews and developing information for FSIGA's executive

director , to determine the financial strength of self - insured

members and make recommendations to Respondent. Gee’s review of

Petitioner’s financial statement consisted of an assessment of

Petitioner’s liquidity, profitability, degree of leverage,

liabilities compared to net worth, and cash flow generated by

operations. He al so reviewed the financial statements to

determine if Petitioner was maintaining a net worth of at least

$1 million. Gee concluded that Petitioner did not have the

financial strength necessary to ensure the timely payment of

current and estimated future wo rkers’ compensation claims.

1 2 . On October 8, 2002, FSIGA's executive director

forwarded a letter to the Division of Workers’ Compensation,

Department of Insurance (now Respondent ). He recommended to

Respondent that Petitioner be ordered to increase its security

deposit to 150 percent of actuarially determined loss reserves.

1 3 . FSIGA ’s recommendations were reviewed by Cynthia Shaw,

assistant general counsel for the Division of Workers’

Compensation. Shaw drafted a letter for signature by Mark

Casteel, General Counsel for Respondent , which adopted FSIGA' s

recommendations. Casteel signed that letter dated October 28,

2002, without revision or discussion.

1 4 . Shaw , an attorney, has no financial background or

expertise. Shaw did not perform any addition al financial

analysis. Additionally, since Respondent did not have a CPA

firm under contract, FSIGA’s recommendation was not reviewed by

anyone with financial background before being transmitted to

Petitioner.

1 5 . Petitioner responded to the October 28, 2 002,

directive from Respondent by filing a petition requesting a

formal administrative hearing.

1 6 . Petitioner failed to file financial statements with

FSIGA within four months following the end of its 2000 and 2001

fiscal years. Petitioner’s failure to t imely file financial

reports for 2000 and 2001 was due to the fact that it was in

default on certain loan covenants and was engaged in

negotiations with its lenders. In 1999 and 2000, Petitioner

incurred additional long - term debt to finance the purchase o f a

new fleet of trucks. Petitioner’s creditors had exercised their

right for accelerated payment of the outstanding loan balances,

which by the end of 2001, was approximately $205 million. In

2001 and 2002, Petitioner entered into negotiations with its

creditors to amend and restate its loan agreements.

1 7 . In 2002, Petitioner implemented a business plan

calling for the sale of non - core assets, reduction of long - term

debt, and transition from purchasing to leasing truck tractors.

1 8 . In July 2002, Petiti oner entered into amended and

restated loan agreements with its creditors. In order to secure

the amended and restated loan agreement s , Petitioner was

required to pay increased interest, pledge substantially all of

its property to secure the loans, pay th e lenders $3.3 million,

provide certain lenders with warrants to acquire an equity

interest in Petitioner under certain conditions and agree to

restrictions on how it could use cash generated by its

operations and asset sales .

19 . Petitioner timely made al l principal and interest

payments due pursuant to the restated credit agreement and

maintained compliance with all required financial ratios and

standards. Furthermore, Petitioner continued to timely pay all

claims for current and estimated future claims under its

workers’ compensation system.

2 0 . Following execution of the amended and restated loan

agreements, Petitioner’s auditors prepared the financial

statement s of 2001, which Petitioner then filed with FSIGA.

S eparate audited financial statement s for 2000 w ere never filed

with FSIGA, although prior - year financial results were shown

(without footnote s ) on the audited 2001 financial statement s .

2 1 . With respect to liquidity, Petitioner’s financial

statements showed a current ratio (current assets divide d by

current liabilities) of 1.41 at December 28, 2001. It did not

disclose that Petitioner had any available funds under its

revolving credit line as of December 28, 2001. Although

Petitioner’s current ratio was acceptable, further analysis

raised serio us concern regarding Petitioner’s financial

strength.

2 2 . With respect to Petitioner’s capital structure, the

financial statement review showed that Petitioner’s total

liabilities - to - book - equity ratio deteriorated from 4.91 at

December 1999 to 30.46 at Dec ember 28, 2001. This deterioration

reasonably raised concern because Petitioner became much more

heavily leveraged from 1999 to 2001, relying much more heavily

on debt to fund its operations. FSIGA concluded, Petitioner’s

financial statement showed a " ve ry weak capital structure. "

2 3 . The impact of the increasing reliance on debt was

marked by the end of 2001, when the financial statements showed

that Petitioner was in default of its debt covenants at

December 28, 2001. To address its defaults, Petitione r entered

into an agreement to restructure its debt by which the creditors

waived the defaults in return for imposing additional

restrictions on Petitioner as described in paragraph 20 above.

2 4 . Although Petitioner maintained a net worth of $11.1

million at the end of 2001, Petitioner’s net worth at the end of

2001 was significantly lower than its net worth of $74.8 million

at the end of 2000. In addition , the financial statement review

showed that Petitioner had incurred net losses of $24.2 million,

$39. 5 million, and $5.7 million for the years 2001, 2000, and

1999, respectively. These losses were substantial and raised

significant concerns about Petitioner’s financial strength.

2 5 . The 2002 financial review of Petitioner also showed a

substantial declin e in Petitioner’s cash flow from operations,

from positive $32.6 million for 1999 to negative $2.1 million

for 2001 . This meant that in 2001, Petitioner was spending more

cash in its operating activities than it was collecting.

2 6 . At the time FSIGA mad e its recommendation to

Respondent , neither FSIGA nor Respondent had current information

from Petitioner regarding the amount of Petitioner’s net

outstanding liability for workers’ compensation claims in

Florida . This is because Petitioner failed to file the

Form SI - 20 report that had been due on August 31, 2002. From

October 2002 until December 14, 2004, FSIGA and Respondent did

not have accurate information in regard to the amount of

Petitioner’s outstanding liability for workers’ compensation

claims in Florida , because Petitioner did not file its required

Forms SI - 17 and SI - 20 reports or provide an actuarial study.

2 7 . At the final hearing, Petitioner did not present

evidence disputing the reasonableness of FSIGA ’s 2002 assessment

of Petitioner’s financ ial statements or of FSIGA’s conclusions

based thereon regarding Petitioner’s lack of financial strength

in 2002.

2 8 . Based on FSIGA’s analysis of Petitioner’s 2001

financial statement s and the financial statements for the two

preceding years, FSIGA reason ably concluded that Petitioner had

not demonstrated that it had the financial strength to ensure

payment of current and future workers’ compensation claims.

Based on the information then available to it, FSIGA made the

correct recommendation to Respondent . There was no clear and

convincing evidence available to Respondent that demonstrates

FSIGA's recommendation was erroneous, instead, the available

evidence supports FSIGA’s recommendation. Accordingly,

Respondent’s direction to Petitioner to provide an actuarial

report and post additional security was reasonable and

appropriate.

Continuing Financial Review of Petitioner After 2002 .

29 . In November 2002, Petitioner challenged Respondent ’s

determination and requested a formal administrative hearing.

Peti tioner requested that Respondent hold the petition in

abeyance. The request was granted , and the petition was not

filed with DOAH until July 9, 2004. During this period,

Respondent re - examined Petitioner’s financial strength.

3 0 . Following its business plan, on January 16, 2004,

Petitioner refinanced its debt. While there was conflicting

testimony regarding whether the actual interest on the

refinanced debt was lower than on the debt it replaced, it was

undisputed that $30 million of the refinanced debt was carrying

an interest rate of 19 percent. This is a higher rate than the

nine - percent and 11 - percent interest applicable to the earlier

debt. It is undisputed that substantially all of Petitioner’s

property is pledged to secure the 2004 refinanced in debtedness,

and there continues to be restrictions on Petitioner’s use of

cash generated by its operations. However, the 19 - percent

interest on a portion of the January 2004 refinancing has now

caused Petitioner to go into the lending market to attempt to

refinance its debt once again. Nevertheless, the refinancing of

its long - term debt has reduced its financing costs.

3 1 . Since Respondent’s 2002 request that Petitioner

provide an actuarial report and post an additional security

deposit, FSIGA has review ed Petitioner’s audited financial

statements for the years ended December 27, 2002, and

December 26, 2003, as well as Petitioner’s unaudited financial

statements for the year ended December 31, 2004.

3 2 . The financial information received from Petitioner

since the 2002 review has not resulted in FSIGA changing its

2002 recommendations. Petitioner’s 2002, 2003, and 2004

financial statements revealed that Petitioner’s net worth had

fallen below the required $1 million in each of those three

years.

3 3 . The 2002 and 2003 financial statements also show that

Petitioner continued to experience net losses. Petitioner

sustained a net loss of $12.1 million for the year ended

December 27, 2002, and a net loss of $9.9 million for the year

ended December 26, 2003. P etitioner’s cash flow statement shows

a $4.8 million decrease in cash in 2002 and a $2 million

decrease in cash in 2003.

3 4 . Petitioner’s 2004 unaudited financial statement s

indicate net income of $4.1 million for 2004. However, because

the 2004 financia l statement s are unaudited, whether adjustments

may be necessary following the audit are unknown at this time.

F inancial statement s prepared without footnotes are not prepared

in accordance with GAAP. Even if the unaudited results are

confirmed in audite d financial statement s , 2004 would be the

first year that Petitioner has recognized net income since 1998,

following a five - year string of annual losses totaling $90

million.

Petitioner’s Financial Status Evidenced at Final

Hearing

3 5 . At the final heari ng, to demonstrate that it had the

financial strength necessary to ensure the timely payment of

current and future workers’ compensation claims, Petitioner

presented testimony of its expert witness, Lawrence Hirsh,

C.P.A. He pos ited that Petitioner's fina ncial strength should

be measured by determining its ability to generate cash flow

through a calculation of its earnings before interest, taxes,

depreciation and amortization (EBITDA). EBITDA is a measure

commonly used by financial institutions to evaluat e the ability

of a company to generate cash flows and in determining whether

to extend credit or to make investments. Petitioner’s lenders

evaluated its EBITDA before deciding to refinance its credit

facility in 2002 and to refinance its long - term debt in 2004.

3 6 . However, EBITDA is not a calculation provided for

under GAAP. GAAP provides a method for determining cash flows

and that method is used in preparing the portion of a GAAP -

compliant financial statement called the " Statement of Cash

Flows. "

3 7 . Evidence presented by Respondent demonstrated that

EBITDA has many limitations and is not a good proxy for cash

flow. Application of EBITDA to Petitioner’s known financial

performance in the past consistently overstate s Petitioner’s

ability to generate cash flow from operations. In every year

from 1999 through 2003, Petitioner’s cash flow from operations,

as shown on Petitioner’s cash flow statement that was prepared

in accordance with GAAP, was significantly lower than the amount

calculated for EBITDA by Hirsh:

P etitioner 's Cash Flow From Operations as

Year Shown on GAAP - Compliant Cash Flow Statement EBITDA

1999 $32.6 million $61.1 million

2000 $344,000 $21.2 million

2001 ($2.1 million) $40.3 million

2002 $11.9 million $54.8 million

2003 $1 2.3 million $42.3 million

3 8 . Petitioner's unaudited 2004 cash flow statement showed

$18.1 million in cash flow from operations. This is

significantly lower than the $52.9 million in EBITDA calculated

for 2004.

39 . Similarly, each year from 1999 to 200 3, Hirsh's

EBITDA's calculation grossly exceeds Petitioner 's net loss as

shown on its financial statements that were prepared in

accordance with GAAP:

Petitioner's Cash Flow From Operations as

Year Shown on GAAP - Compliant Cash Flow Statement EBITDA

1999 (5.7 million) $61.1 million

2000 ($39.5 million) $21.2 million

2001 ($24.2 million) $40.3 million

2002 ($12.1 million) $54.8 million

2003 ($9.9 million) $42.3 million

4 0 . EBITDA is also misleading because it includes gain

from the sale of asse ts. To the extent that Petitioner is

selling its operating assets, such as trucks, Petitioner will

have to expend cash to replace the assets, either by lease or

purchase. To the extent that Petitioner is selling non - core

assets, such as its unused real p roperty, Petitioner cannot

continue this practice indefinitely. Petitioner will soon run

out of assets to sell. Therefore, cash generated from the sale

of operating assets and non - core assets should not be considered

in determining Petitioner's ability t o generate cash from

operating activities.

4 1 . Petitioner sought to bolster its evidence of its

financial strength through testimony that it had received a

credit rating in November 2003 from Standard & Poor's of B - plus.

However, a B - rating is not an inv estment grade rating. It means

that while a company currently has the capacity to meet its debt

obligations, adverse business, financial , or economic conditions

likely will impair the obligor's capacity or willingness to meet

its financial commitment on t he obligations in the future. In

addition, Petitioner received a lower credit rating of B - 3 from

Moody's Investment Services. A B - 3 rating from Moody's

Investment Services is equivalent to a B minus rating from

Standard & Poor's. The Standard & Poor's a nd Moody's credit

ratings do not effectively demonstrate that Petitioner has the

financial strength necessary to ensure the payment of current

and future workers' compensation claims.

4 2 . Respondent 's expert witness , Dr. Sondhi , disputed

Petitioner's calc ulation of its EBITDA inter est coverage ratio

because Petitioner's calculation was based on interest paid as

opposed to interest expense, and it failed to adjust for

non - recurring items. Petitioner's interest expense is greater

than the interest paid part ly because Petitioner's loan

agreement provides that a portion of the interest payments will

accrue monthly with payment s deferred until the final prepayment

date or other principal payment milestone dates. Petitioner's

calculation of the EBITDA interest coverage ratio was not

performed in accordance with Standard & Poor's formula for

determining the EBITDA interest coverage ratio. Even if the

calculation of EBITDA interest coverage ratio was an appropriate

measure of Petitioner's financial strength, the formula used by

Petitioner to calculate the ratio overstates the results and

shows greater financial strength than would be shown if the

Standard & Poor's formula had been used.

4 3 . For the reasons noted above, Petitioner's EBITDA

calculations are rejecte d as an inappropriate, overstated method

to assess whether a company has the financial strength necessary

to ensure the payment of current and future workers'

compensation claims.

4 4 . Petitioner also argued that it had the required

financial strength beca use it has paid all workers' compensation

claims to - date and because, at the end of 2004, it had a cash

balance of $26.6 million in the bank.

4 5 . The ability to currently pay workers' compensation

claims does not demonstrate the financial strength to ensu re the

payment of workers' compensation claims in the future. Current

capacity to pay is only part of the statutory standard, which is

a risk - based standard requiring a company to ensure payment into

the future because of the long period of time that work ers'

compensation claim payments continue.

4 6 . Likewise, having cash in the bank in the amount of

$26.6 million at the end of 2004 , does not demonstrate the

required financial strength. Current cash balance is not an

indicator, by itself, of financial st rength to ensure payment in

the future. Given Petitioner's extensive operating expenses,

$26.6 million represents a very small amount of operating

expenses.

4 7 . Petitioner’s consolidated balance sheets list its

assets at historical or book cost, the cost at which those

assets were purchased, and not at their current fair market

value. Petitioner argues that adjusting the book values of

assets to current market value would provide the most accurate

assessment of Petitioner's net worth.

4 8 . To demonstra te that it has maintained a net worth of

$1 million, Petitioner presented testimony that when determining

net worth, the fair market value of its assets should be

considered in place of the book value of its assets that is

reflected on its balance sheet. However, GA A P does not permit

the value of assets to be shown at fair market value and

instead , requires that assets be shown at book value.

49 . Even if GAAP permitted the use of fair market value of

assets to be used on a balance sheet, Petitioner did no t offer

any admissible evidence to prove the current fair market value

of its assets for 2002, 2003, and 2004. Consequently, it cannot

be determined whether the use of the current fair market value

of assets would result in Petitioner's financial statemen ts

showing a net worth at all times of at least $1 million.

5 0 . Respondent has interpreted the term "net worth," as it

is used in Florida Administrative Code Rule 69L - 5.106, to mean

the total assets of a company as reflected on the balance sheet ,

minus th e total liabilities of the company as reflected on the

balance sheet. Respondent 's interpretation of the term "net

worth" is a reasonable interpretation, consistent with the

interpretation given to the term by accountants and financial

analysts. The more credible expert testimony is that net worth

appears on the balance sheet as stockholders' or shareholders'

equity.

5 1 . Based on the above interpretation of Florida

Administrative Code Rule 69L - 5.106, for each year from 2002

through 2004, Petitioner has failed to maintain a net worth of

at least $1 million. The preponderance of evidence demonstrates

Petitioner's net worth was negative $976,000, and negative $10.8

million for the years ended December 27, 2002, and December 26,

2003, respectively. In addi tion, Petitioner's unaudited

financial statements for 2004 show that Petitioner maintained a

negative net worth of $6.7 million as of December 31, 2004.

5 2 . Although Petitioner's financial condition has

strengthened significantly from year end 2001 to yea r end 2004,

based on the evidence, Petitioner does not now have the

financial strength necessary to ensure payment of current and

future workers' compensation claims , nor has Petitioner

maintained a net worth of at least $1 million. Therefore, an

addition al security deposit is required for Petitioner to remain

qualified as a self - insurer.

5 3 . In May 2002, Thomas Lowe was employed by Petitioner as

its vice - president in charge of Risk Management. Lowe

instituted a number of risk management practices which have

significantly reduced the number and costs of Petitioner's

workers' compensation claims.

5 4 . In 2001, Petitioner's workers' compensation claims

were adjusted by three separate third - party administrators

(TPAs), resulting in three overlapping data bas es of claims

information. Petitioner was unable to reconcile this

overlapping claims information and , consequently , was unable to

accurately determine the amount of its workers' compensation

reserves for 2001.

5 5 . As a result of its inability to determin e its workers'

compensation reserves in 2001, Petitioner did not submit the

required SI - 17 and SI - 20 forms to FSIGA in 2002 and 2003.

Petitioner informed FSIGA of the difficulty it was having in

reconciling its claims data for 2001 and paid the required

p enalties for its inability to timely submit F orms SI - 17 and

SI - 20 in 2002 and 2003. Failure to submit these forms did not

affect Petitioner's ability to make timely payments of all

current and estimated future workers' compensation claims.

5 6 . In 2004, P etitioner submitted F orms SI - 17 to FSIGA

reflecting incurred workers' compensation losses for calendar

years 2002 and 2003. On December 14, 2004, Petitioner submitted

Form SI - 20 to FSIGA, reflecting that the present value of its

estimated loss reserves wa s $6,894,776.00.

5 7 . Anthony Gripps, Sr., an independent actuary who is a

member of the American Academy of Actuaries, reviewed

Petitioner's workers' compensation claims data pursuant to

Respondent 's October 28, 2002, directive. Grippa issued two

reports , one dated December 1, 2004, and the other dated

December 15, 2004. Grippa concluded that the present value of

Petitioner's workers' compensation loss reserves as of

September 30, 2004, was $6,831,175.00.

5 8 . The parties stipulated to Grippa's finding t hat the

amount of Petitioner's workers' compensation loss reserves as of

September 20, 2004, was $6,831,175.00.

59 . Petitioner's financial statements for 2004 had not

been audited as of the final hearing, but were received into

evidence in unaudited form. There was no evidence presented

that Petitioner's 2004 financial statements do not accurately

represent its financial performance in 2004 and its financial

condition as of December 31, 2004. Florida Administrative Code

Rule 69L - 5.101(4) does not require Petitioner to submit audited

financial statements as it has been self - insured since prior to

January 1, 1997. Petitioner timely supplied Respondent with

unaudited financial statements at least annually as required by

Florida Administrative Code Rule 69L - 5.101(4).

6 0 . Petitioner currently has a qualified security deposit

of $2,500,000 .00 de pos it ed with FSIGA.

6 1 . In 2002, FSIGA recommended that in light of

Petitioner's "significant net losses and very weak capital

structure," Petitioner's security deposi t should be increased to

150 percent of the actuarially determined loss reserve s . Upon

consideration of all of Petitioner's financial statements from

1999 through 2004, FSIGA 's recommendation should be followed.

6 2 . Petitioner's actuarially determined lo ss reserves for

all current and estimated future workers' compensation claims

are $6,831,175.00.

6 3 . One hundred and fifty percent of the actuarially

determined loss reserves of $6,831,175 equals $10,246,762.50.

6 4 . Petitioner presented no evidence of a different amount

of security deposit increase that would be sufficient assuming

one were to find that Petitioner lacks the financial strength to

ensure payment of future workers' compensation claims or that

Petitioner has failed to maintain a net worth of at least $1

million.

CONCLUSIONS OF LAW

6 5. The Division of Administrative Hearings has

jurisdiction ove r the parties and subject matter of this cause

pursuant to Section 120.569 and Subsection 120.57(1), Florida

Statutes (2004).

6 6 . Respondent has juri sdiction over Petitioner as a self -

insured employer for purposes of workers' compensation pursuant

to Sections 440.38 and 440.385, Florida Statutes (2004).

6 7 . The statutory framework for this proceeding is

established in Sections 440.38 and 440.285, Flor ida Statutes

(2004). The statutory provisions are elaborated on in

implementing rules set forth in Florida Administrative Code

Chapter 69L - 5.

6 8 . Section 440.02, Florida Statutes (2004), reads in

pertinent part:

Definitions. --

* * *

(12) "Departme nt" means the Department of

Financial Services; the term does not

include the Financial Services Commission or

any office of the commission.

* * *

(14) "Division" means the Division of

Workers' Compensation of the Department of

Financial Services .

* * *

(24) "Self - insurer" means:

(a) Any employer who has secured payment

of compensation pursuant to s. 440.38 (1)(b)

or (6) as an individual self - insurer; . . . .

69 . Subsection 440.38(1)(b), Florida Statutes (2004),

reads as follows:

(1) Every employer shall secure the

payment of compensation under this chapter:

* * *

(b) By furnishing satisfactory proof to

the Florida Self - Insurers Guaranty

Association, Incorporated, created in s.

440.385, that it has the financial strength

necess ary to ensure timely payment of all

current and future claims individually and

on behalf of its subsidiary and affiliated

companies with employees in this state and

receiving an authorization from the

department to pay such compensation

directly. The asso ciation shall review the

financial strength of applicants for

membership, current members, and former

members and make recommendations to the

department regarding their qualifications to

self - insure in accordance with this section

and ss. 440.385 and 440.3 86 . The department

shall act in accordance with the

recommendations unless it finds by clear and

convincing evidence that the recommendations

are erroneous.

7 0 . Subsection 440.385(1)(a), Florida Statutes (2004),

reads as follows:

(1) CREATION OF ASS OCIATION. --

(a) There is created a nonprofit

corporation to be known as the "Florida

Self - Insurers Guaranty Association,

Incorporated," hereinafter referred to as

"the association." Upon incorporation of

the association, all individual self -

insurers as defined in ss. 440.02(24)(a) and

440.38(1)(b), other than individual self -

insurers which are public utilities or

governmental entities, shall be members of

the association as a condition of their

authority to individually self - insure in

this state. The association shall perform

its functions under a plan of operation as

established and approved under subsection

(5) and shall exercise its powers and duties

through a board of directors as established

under subsection (2). The association shall

have those powers granted or permitted

corporations not for profit, as provided in

chapter 617. The activities of the

association shall be subject to review by

the department. The department shall have

oversight responsibility as set forth in

this section. The as sociation is

specifically authorized to enter into

agreements with this state to perform

specified services. . . .

7 1 . Subsection 440.385(3), Florida Statutes (2004), reads

in pertinent part:

(3) POWERS AND DUTIES. --

(a) Upon creation of the Inso lvency Fund

pursuant to the provisions of subsection

(4), the association is obligated for

payment of compensation under this chapter

to insolvent members' employees resulting

from incidents and injuries existing prior

to the member becoming an insolvent m ember

and from incidents and injuries occurring

within 30 days after the member has become

an insolvent member, provided the incidents

giving rise to claims for compensation under

this chapter occur during the year in which

such insolvent member is a membe r of the

guaranty fund and was assessable pursuant to

the plan of operation, and provided the

employee makes timely claim for such

payments according to procedures set forth

by a court of competent jurisdiction over

the delinquency or bankruptcy proceeding s of

the insolvent member. Such obligation

includes only that amount due the injured

worker or workers of the insolvent member

under this chapter. In no event is the

association obligated to a claimant in an

amount in excess of the obligation of the

inso lvent member. The association shall be

deemed the insolvent employer for purposes

of this chapter to the extent of its

obligation on the covered claims and, to

such extent, shall have all rights, duties,

and obligations of the insolvent employer as

if the employer had not become insolvent.

However, in no event shall the association

be liable for any penalties or interest.

(b) The association may:

* * *

7. Collect and review financial

information from employers and make

recommendations to the de partment regarding

the appropriate security deposit and

reinsurance amounts necessary for an

employer to demonstrate that it has the

financial strength necessary to ensure the

timely payment of all current and future

claims. The association may audit and

examine an employer to verify the financial

strength of its current and former members.

If the association determines that a current

or former self - insured employer does not

have the financial strength necessary to

ensure the timely payment of all current and

estimated future claims, the association may

recommend to the department that the

department:

a. Revoke the employer's self - insurance

privilege.

b. Require the employer to provide a

certified opinion of an independent actuary

who is a member of the American Academy of

Actuaries as to the actuarial present value

of the employer's estimated current and

future compensation payments, using a

4 - percent discount rate.

c. Require an increase in the employer's

security deposit in an amount deter mined by

the association to be necessary to ensure

payment of compensation claims. The

department shall act on such recommendations

as provided in paragraph (6)(a). . . .

7 2 . Subsection 440.385(6)(a), Florida Statutes (2004),

reads as follows:

(6) POWERS AND DUTIES OF DEPARTMENT. -- The

department shall:

(a) Review recommendations of the

association concerning whether current or

former self - insured employers or members of

the association have the financial strength

necessary to ensure the timely payment of

all current and estimated future claims. If

the association determines an employer does

not have the financial strength necessary to

ensure the timely payment of all current and

future claims and recommends action pursuant

to paragraph (3)(b), the department shall

take such action as necessary to order the

employer to comply with the recommendation,

unless the department finds by clear and

convincing evidence that the recommendation

is erroneous.

7 3 . Florida Administrative Code Rule 69L - 5.101 reads as

follows:

69L - 5.101 Definitions.

* * *

(4) "Financial Statement" – A report

including the balance sheet, statement of

operations, statement of cash flows,

statement of changes in capital, and

appropriate footnotes for the most recent

fisca l year. The financial statements shall

be prepared in accordance with United States

Generally Accepted Accounting Principles as

set forth in GAAP Interpretation and

Application of Generally Accepted Accounting

Principles 1996 which is hereby incorporated

by reference into Rule Chapter 69L - 5, F.A.C.

Applicants approved subsequent to January 1,

1997 shall submit financial statements which

are audited in accordance with Generally

Accepted Auditing Standards. . . .

7 4 . Florida Administrative Code Rule 69L - 5.102(2) reads in

pertinent part:

(2) All other individual employers not

eligible under section (1) shall qualify for

self - insurance under Section 440.38(1)(b),

Florida Statutes, and must meet the

following minimum requirements:

(a) Have and mainta in a minimum net worth

of $1,000,000 U.S.

* * *

(d) Have the financial strength to ensure

the payment of current and estimated future

compensation claims when due, as determined

through review of their financial statement

or summary by the division. . . .

7 5 . Florida Administrative Code Rule 69L - 5.105 reads in

pertinent part:

General Requirements.

(1) Employers approved for self - insurance

privilege in accordance with Section 440.38,

Florida Statutes, and these rules will be

continuous unless an d until voluntarily

withdrawn or revoked.

(2) A review of all self - insurance

programs will be made periodically.

Deterioration in the financial strength as

indicated in the financial statements or

summaries which may affect their strength to

pay curren t and estimated future claims when

due or significant increases in losses

detected as a result of such reviews, shall

result in changes to the prior requirements

to continue to be self - insured. . . .

7 6 . Florida Administrative Code Rule 69L - 5.106 reads i n

pertinent part:

Financial Statement or Financial Summary.

Failure to provide the following

information in the name of the self - insurer

when due shall be cause for revocation of

privilege:

(1) Financial statement shall show, at

all times, a net w orth of at least

$1,000,000 . . . The financial statement

or financial summary must demonstrate the

self - insurer has the financial strength to

ensure the payment of all current and

estimated future compensation claims when

due, as determined by the divis ion. The

statements and summaries must be submitted

not later than four (4) months following the

end of the self - insured employer’s fiscal

year.

* * *

(3) All separate legal entities which are

included in the self - insurer’s privilege

shall submit fin ancial statements in

accordance with this rule. Separate

financial statements shall be submitted for

each entity unless consolidated or combined

financial statements are submitted.

* * *

(5) The division shall require additional

financial information if it determines,

based upon the self - insurer’s financial

statement or financial summary, that there

has been or may be a significant change in

the self - insurer's financial condition

compared to the most recent financial

statement.

(6) The division sh all conduct an overall

evaluation of the self - insurer’s financial

condition to determine if the self - insurer

has the financial strength necessary to

ensure the payment of all current and

estimated future compensation benefits when

due. Failure to maintain such financial

strength shall constitute good cause for:

(a) Revocation of the self - insurance

privilege,

(b) Increasing The security deposit,

(c) Requirement for quarterly financial

filing, or

(d) A combination thereof. . . .

7 7 . As refe renced throughout Sections 440.38 and 440.385,

Florida Statutes (2004), the Legislature has determined that

self - insuring workers' compensation benefits is a privilege.

See , e.g. , §§ 440.38(1)(b)3 and 440.385(1)(b), Fla. Stat.

(200 4 ) . To demonstrate enti tlement to retain that privilege, a

self - insurer has a continuing obligation to annually demonstrate

that it has the required financial strength to self - insure.

§ 440.38(1)(b), Fla. Stat. (2004); Fla . Admin . Code

R . 69L - 5.105.

7 8 . The statutory scheme es tablishes that Petitioner in

this case is asserting the affirmative of the issue, i.e., that

it has the financial strength necessary to ensure the payment of

current and future workers' compensation claims. As such, the

burden of proof is on Petitioner to establish, by a

preponderance of the evidence, that it has the financial

strength to ensure the timely payment of all current and future

workers' compensation claims and that its financial statements

show that it has maintained the requisite net worth. S ee

§ 120.57(1)(j), Fla. Stat. (2004) (" Findings of fact shall be

based upon a preponderance of the evidence, except in penal or

licensure disciplinary proceedings or except as other wise

provided by statute, and shall be based exclusively on the

evidence of record and on matters officially recognized.");

Department of Transportation v. J.W.C. Co., Inc. , 396 So. 2d

778, 788 (Fla. 1st DCA 1981) ("the burden of proof, apart from

statute, is on the party asserting the affirmative of an

issue."); See also this Ad ministrative Law Judge 's Order dated

March 24, 2005. However, even if the burden of proof was on

Respondent in this case, the result would not change.

Petitioner Does N ot Have the Financial Strength to

Ensure the Future Payment of I ts Workers' Compensatio n

Claims

79 . FSIGA is established by Section 440.385, Florida

Statutes (2004), and is an organization that provides a

guarantee for workers' compensation benefits for companies that

are self - insured. § 440.385, Fla. Stat. (2004). A self - insurer

must an nually provide financial statements to FSIGA which

demonstrate : (1) that the self - insurer has the financial

strength necessary to ensure timely payment of all current and

future workers' compensation claims , individually and on behalf

of its subsidiary an d affiliated companies , with employees in

Florida; and (2) that the self - insurer has maintained , at all

times , a net worth of at least $1 million. § 440.38(1)(b), Fla.

Stat. (2004); Fla . Admin . Code R . 69L - 5.106(1).

8 0 . Financial statement must be submit ted no later than

four months following the end of the self - insured's fiscal year.

See Fla. Admin. Code R. 69L - 5.106(1). Petitioner failed to

timely file its 2000 and 2001 financial statements with FSIGA.

Petitioner's difficulties with obtaining accurat e workers'

compensation benefits payouts did not relieve Petitioner from

its obligation to timely file its financial statements.

8 1 . A financial statement is a report including the

balance sheet, statement of operations, statement of cash flows,

statement of changes in capital, and appropriate footnotes for

the most recent fiscal year. See Fla. Admin. Code R.

69L - 5.101(4). The financial statements must be prepared in

accordance with GAAP. See Fla. Admin. Code R. 69L - 5.101(4).

8 2 . FSIGA, acting through its executive director, reviews

the financial strength of applicants for membership, current

members, and former members alike and makes recommendations to

Respondent regarding self - insurers' qualifications to self -

insure. §§ 440.38(1)(b) and 440.385(3)( b)7., Fla. Stat. (2004).

8 3 . FSIGA may recommend that Respondent require a self -

insurer to deposit a qualifying security deposit to insure the

payment of workers' compensation claims. §§ 440.38(1)(b)1. and

440.385(3)(b)7.c., Fla. Stat. (2004). If a self - insurer does

maintain the requirements to self - insure, FSIGA may recommend an

increase in security deposit , instead of revocation of

authorization to self - insure, in an amount equal to 1.5 times

the value certified in the latest actuarial opinion or in su ch

other amount deemed necessary to ensure payment of compensation

claims. §§ 440.38(1)(b)2. and 440.385(3)(b)7.c., Fla. Stat.

(2004).

8 4 . There is no requirement in the statute creating FSIGA

that its executive director must receive board approval befo re

issuing his recommendations to Respondent .

8 5 . Respondent is required by law to accept FSIGA's

recommendations unless it finds by clear and convincing evidence

that the recommendations are erroneous. § 440.38(1)(b), Fla.

Stat. (2004).

8 6 . The evidenc e established that FSIGA performed a

thorough review and analysis of the financial information

submitted by Petitioner in 2002 in order to determine

Petitioner's financial strength. The documents relied upon by

FSIGA in making its initial determination an d recommendation to

Respondent in October 2002 were the audited financial statements

of Petitioner for the three years ended December 28, 2001, which

were prepared in accordance with GAAP.

8 7 . Following the initiation of this proceeding, the

evidence also established that FSIGA reviewed and analyzed

Petitioner's audited financial statements for the years ended

December 27, 2002, and December 26, 2003, as well as

Petitioner's unaudited financial statement for the year ended

December 31, 2004. FSIGA's revie w of the 2002, 2003, and 2004

financial statements did not alter FSIGA's opinion regarding

Petitioner's lack of financial strength. With the exception of

the unaudited 2004 financial statement, the later financial

statements reviewed by FSIGA were prepare d in accordance with

GAAP.

8 8 . At final hearing, Petitioner argued that it had the

financial strength necessary to ensure payment of current and

future workers' compensation payments not based on an assessment

of GAAP - compliant financial statement s . Inst ead, its expert

testimony used EBITDA calculations that purport to show a much

greater ability to generate cash, through operations than a

GAAP - prepared cash flow statement. This and other assertions by

Petitioner regarding its financial strength are unco nvincing.

Financial health to be a self - insurer is more appropriately

assessed on the basis of GAAP - compliant financial statements.

See N.C.M. of Collier County v. Department of Financial

Services , Case No. 03 - 2886 (DOAH February 26, 2004), adopted in

to to , (F inal Order April 26, 2004 ) .

89 . The preponderance of the evidence pertaining to the

financial condition of Petitioner from 1999 to the present

demonstrates that Petitioner was in 2000, and is today, a

financially troubled corporation. Although Peti tioner has been

able to meet its current financial obligations, in part because

of a series of renegotiations with its creditors, Petitioner

does not currently have the financial strength to ensure that it

can meet its financial obligations, including its workers'

compensation claim payments, in the future.

9 0 . Petitioner has failed to prove by a preponderance of

the evidence that it has the financial strength necessary to

ensure the timely payment of all current and future workers'

compensation claims.

9 1 . In order to secure the payment of workers'

compensation for Petitioner's injured employees, now and in the

future, as required by Subsection 440.38(1), Florida Statutes

(2004), it is necessary that Petitioner substantially increase

its security deposit.

Petitioner H as Not Maintained a Minimum Net Worth of

at Least $1 Million

9 2 . Florida Administrative Code Rule 69L - 5.106(1), which

sets forth criteria for the retention of self - insurer status,

states that the self - insurer's "[f]inancial statement shall s how

at all times a net worth of at least $1,000,000."

9 3 . A "financial statement" is a "report including the

balance sheet, statement of operations, statement of cash flows,

statement of changes in capital, and appropriate footnotes for

the most recent fi scal year," prepared in accordance with GAAP .

See Fla. Admin. Code R. 69L - 5.101(4).

9 4 . GAAP requirements do not permit valuation of property,

plant, and equipment at appraisal, market, or fair values.

9 5 . The term "net worth," when used in the rules

pe rtaining to workers' compensation self - insurers, has

consistently, over many years, been construed to mean

shareholders' equity (i.e., assets minus liabilities). See ,

e.g. , Department of Labor and Employment Security v. Deauville

Hotel , Case No. 80 - 0344 ( DOAH August 15, 1980), adopted in toto ,

( Final Order September 5, 1980 ) (workers' compensation self -

insurer case, interpreting predecessor Florida Administrative

Code Rule 38F - 5.10: "[t]he owner's equity or net worth is

computed by subtracting total liabi lities from total assets."

Recommended Order, paragraph 3).

9 6 . In N.C.M. of Collier County v. Department of Financial

Services , supra , N.C.M. challenged the Department's denial of

its application for workers' compensation self - insurer status.

The Depar tment, in its F inal O rder, stated its concern in regard

to a company in low net worth:

[A] company with equity that is relatively

low in comparison to its exposure might,

over time, owe its injured workers as much

as, or more than, the equity in the comp any.

This situation increases the risk for

injured workers and the Guaranty

Association. Therefore, the consideration

of N.C.M.'s net worth, taken in context with

its workers' compensation exposure, assists

in the overall analysis in determining

whether a company has the financial strength

to ensure payment of current and estimated

future claims.

Final Order at 3, paragraph 3. This interchangeable use of the

terms "net worth" and "equity" shows that in the workers'

compensation self - insur er context, "ne t worth" means

"shareholders' equity" as reflected on the self - insurer's

financial statement. The testimony at hearing confirms what

these cases demonstrate that Respondent and its predecessor

agency have consistently interpreted "net worth" to mean

unadj usted shareholder equity as shown on the financial

statement.

9 7 . An agency's interpretation of its own rule is entitled

to deference, unless the interpretation is clearly erroneous.

Pan American World Airways, Inc. v. Florida Public Services

Commission , 427 So. 2d 716, 719 (Fla. 1983); Miles v. Florida

A&M University , 813 So. 2d 242, 245 (Fla. 1st DCA 2002).

9 8 . At the final hearing, Petitioner argued that net worth

should be interpreted to mean fair market value of total assets ,

minus total liabilities .

99. It is a "fundamental principle of statutory

construction (and, indeed, of lan guage itself) that the meaning

of a word cannot be determined in isolation, but must be drawn

from the context in which it is used." Textron Lycoming

Reciprocating Engine Division, Avco Corp. v. United Auto,

Aerospace & Agriculture Implement Workers of American

International Union , 523 U.S. 653, 657 (1998).

10 0 . Florida Administrative Code Rule 69L - 5.106(1) states

that the "[f]inancial statement shall show, at all times, a net

worth of at least $1,000,000." Thus, for purposes of Florida

Administrative Code Rule 69L - 5.106(1), net worth must be

determined from the financial statement. The only place that a

company's net worth is reflected on its "financial statement,"

as d efined in Florida Administrative Code Rule 69L - 5.101(4), is

on the balance sheet as stockholder's equity.

10 1 . This tribunal can only apply Petitioner's definition

of net worth if Respondent 's interpretation is clearly

erroneous. Pan American World Airw ays , 427 So. 2d at 719;

Miles , 813 So. 2d at 245. Respondent 's interpretation is not

clearly erroneous because under GAAP, a company does not make

adjustments on its financial statement for appraised values of

property, plant, and equipment. Respondent 's interpretation is

the only reasonable interpretation of its rule.

10 2 . Further, in its Proposed Recommended Order,

Petitioner, for the first time, seeks to challenge the validity

of Florida Administrative Code Rule s 69L - 5.102(2)(a) and

69L - 5.106(1), whi ch require s an applicant and an existing

self - insurer to maintain a net worth of at least $1 million.

This is improper. Although Subsection 120.56(3)(a), Florida

Statutes (2004), permits a challenge to an existing rule at any

time, Petitioner cannot coll aterally attack the rule in this

proceeding ; and, also, Petitioner has failed to follow the

procedures to initiate a rule challenge, as set forth in

Subsection 120.56(1), (3)(a), Florida Statutes (2004).

Cf. State Department of Health and Rehabilitative S ervices v.

Ba r r , 359 So. 2d 503 (Fla. 1st DCA 1978). See also State

Department of Health and Rehabilitative Services v. Professional

Firefighters of Florida, Inc. , 366 So. 2d 1276 (Fla. 1st DCA

1979).

10 3 . Petitioner has not maintained a net worth of

$1 million at all times. Because Petitioner does not meet the

requirements imposed on self - insurers, Petitioner must increase

its security deposit to an amount of $1.5 times the actuarially

determined loss reserves. This will help to ensure that its

injure d workers' compensation claims will be paid now and in the

future.

10 4 . Petitioner must post an additional security deposit

in the amount of $7,746,762.50, which is (1.5 x $6,831,175) less

the $2,500,000 Petitioner currently has posted with FSIGA.

RECO MMENDATION

Based on the foregoing Findings of Facts and Conclusions of

Law, it is

RECOMMENDED that

(1) The chief financial officer issue a final order

determining that: (i) Petitioner does not have the financial

strength to ensure the timely payment of all current and future

workers' compensation claims ; and (ii) Petitioner has failed to

maintain a net worth of at least $1 million; and

(2) Because Petitioner has failed to meet the requirements

to continue self - insuring, the final order should requi re

Petitioner to post an additional security deposit in the amount

of $7,746,762.50.

DONE AND ENT ERED this 1st day of June , 2005 , in

Tallahassee, Leon County, Florida.

S

DANIEL M. KILBRIDE

Administrative Law Judge

Divisio n of Administrative Hearings

The DeSoto 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 1 st day of June , 2005 .

ENDNOTE

1/ From July 1, 2002, until January 7, 2003, the Divi sion of

Workers' Compensation was a division of the Department of

Insurance ; effective January 7, 2003, the Division of Worker's

Compensation became a division of the ne wly - formed Department of

Financial Services. Throughout this Recommended Order,

Respondent will constitute a reference to the Department of

Financial Services, although the predecessor agency actually

sent the Order to Petitioner in October 2002.

C OPIES FURNISHED :

Cynthia A. Shaw, Esquire

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32399 - 4229

Timothy L. Newhall, Esquire

Rayford Taylor, Esquire

Stiles, Taylor & Grace, P.A.

Post Office Box 1140

Tallahassee, Florida 32302 - 1140

Harry O. Thomas, Esquire

Toni A. Funaro, Esquire

Radey, Thomas, Yon & Clark, P.A.

301 South Bronough Street, Suite 200

Post Office Box 10967

Tallahassee, Florida 32302

Honorable Tom Gallagher

Chief Financial Officer

Department of Financial S ervices

The Capitol, Plaza Level 11

Tallahassee, Florida 32399 - 0300

Carlos G. Mu ñ iz, General Counsel

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399 - 0300

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have th e 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.