04-004490RP The Florida Insurance Council, Inc. vs. Department Of Financial Services, Office Of Insurance Regulation And Financial Services Commission Status: Closed DOAH Final Order on Thursday, August 11, 2005.

Summary: The Florida Insurance Commission is the agency head for purposes of rulemaking and must at a minimum approve the language of a proposed rule before a Notice of Proposed Rule is published.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

THE FLORIDA INSURANCE COUNCIL, )

INC., )

)

Petitioner, )

)

vs. ) Case No. 04 - 4490RP

)

DEPARTMENT OF FINANCIAL )

SERVICES, OFFICE OF INSURANCE )

REGULATION AND FINANCIAL )

SERVICES COMMISSION, )

)

Respondent. )

)

SUMMARY FINAL ORDER

Both Petitioner and Respondent filed separate Motions For

Summary Final Order on April 15, 2005 and May 17, 2005, based on

different grounds, but relying on essentially the same facts.

Both parties filed responses to the other party’s motion and

presented oral argument on the motions. Based on the review of

the file, the arguments of counsel and relevant statutory and

case law , this matter is appropriate for summary dis position.

APPEARANCES

For Petitioner: Cynthia S. Tunnicliff, Esquire

Brian A. Newman, Esquire

Pennington, Moore, Wilkinson,

Bell & Dunbar, P.A.

215 South Monroe Street, Second Floor

Post Office Box 10095

Tallahassee, Florida 32302 - 2095

For Respondent: James H. Harris, Esquire

Jamie Metz, Esquire

Department of Financial Service s

Office of Insurance Regulation

200 East Gaines Street

612 Larson Building, Room 645A - 5

Tallahassee, Florida 32399

STATEMENT OF THE ISSUE

Whether proposed Rules 69O - 175.003, 69O - 170.005 - 007, 69O -

170.013, 69O - 170.0135. 69O - 170.014, 69O - 170.0141, 69O - 170.0142,

and 69O - 170.0155 are valid exercises of delegated rulemaking

authority.

PRELIMINARY STATEMENT

On November 12, 2004 , in Volume 30, Number 46, of the

Florida Admini strative Weekly, the Office of Insurance

Regulation (OIR) through the Department of Financial Services

(Department), published two Notices of proposed rulemaking for

proposed Rules 69O - 175.003, 69O - 170.005 - 007, 69O - 170.013, 69O -

170.0135. 69O - 170.014, 69O - 1 70.0141, 69O - 170.0142, and 69O -

170.0155. The proposed Rules variously deal with filing

procedures for a variety of insurance rates. Thereafter,

Petitioner, The Florida Insurance Council (FIC), Inc., filed a

Petition challenging the proposed Rules as an i nvalid exercise

of delegated legislative authority.

On January 14, 2005, in Volume 31, Number 2, of the Florida

Administrative Weekly, OIR through the Department published two

Notices of Change to proposed Rules 69O - 175.003, 69O - 170.005 -

007, 69O - 170.013, 6 9O - 170.0135. 69O - 170.014, 69O - 170.0141, 69O -

170.0142, and 69O - 170.0155. Thereafter, on March 2, 2005,

Petitioner filed an amended Petition challenging the validity of

the proposed Rules.

Finally, o n April 15, 2005, in Volume 31, Number 15, of the

Florida Administrative Weekly, OIR through the Department

published two Notices of Change to proposed Rules 69O - 175.003,

69O - 170.005 - 007, 69O - 170.013, 69O - 170.0135. 69O - 170.014, 69O -

170.0141, 69O - 170.0142, and 69O - 170.0155.

Both parties have engaged in extensive d iscovery and have

filed relevant responses to discovery and depositions.

Additionally, both parties have offered oral arguments in

support of their Motions f or Summary Final Order.

FINDINGS OF FACT

1. Section 20.05, Florida Stat ute s, addresses the

stru cture and powers of the Department. Section 20.05 provides

as follows, in pertinent part:

20.05 Heads of departments; powers and

duties. --

(1) Each head of a department, except

as otherwise provided by law, must:

* * *

(b) Have autho rity, . . ., to execute

any of the powers, duties, and functions

vested in the department or in any

administrative unit thereof through

administrative units . . . designated by

the head of the department, . . . unless the

head of the department is explici tly

required by law to perform the same without

delegation.

* * *

(e) Subject to the requirements of

chapter 120, exercise existing authority to

adopt rules pursuant and limited to the

powers, duties, and functions transferred to

the department.

2. The Financial Services Commission (Commission) was

created within the Department pursuant to Section 20.121,

Fl orida Stat ute s. However, the Commission is not “subject to

control, supervision or direction by the Department of Financial

Services in a ny manner.” § 20.121(3) , Fla. Stat . The

Commission is composed of the Governor and Cabinet , who

collectively serve as the agency head of the Commission. Action

by the Commission can only be taken by majority vote “consisting

of at least three affirmativ e votes.” Id.

3 . OIR is a structural unit of the Financial Services

Commission. Section 20.121(3) states in relevant part, as

follows:

( a) Structure. — The major structural unit of

the commission is the office. Each office

shall be headed by a director . The

following offices are established:

1 . The Office of Insurance Regulation, which

shall be responsible for all activities

concerning insurers and other risk - bearing

entities . . .

* * * *

(b) Organization. -- The commission shall

establish by rule any additional

organizational structure of the offices. It

is the intent of the legislature to provide

the commission with the flexibility to

organize the offices in any manner they

determine appropriate to promote both

efficiency and accountability .

(c) Powers. — Commission members shall serve

as the agency head for purposes of

rulemaking . . . by the commission and all

subunits of the commission. . . .

(emphasis supplied)

4. Clearly, under the Department’s, the Commission’s and

the OIR’s org anizational structure s , only the Commission may

promulgate rules for both itself and OIR. The Department does

not have rulemaking authority over areas that have been given to

the Commission. On the other hand, nothing in the statute

prohibits OIR, as dir ected by the Commission, to perform steps ,

preliminary to proposing a rule , that often occur in the rule

development process prior to the actual Notice of proposed

rulemaking. See also § 120.54, Fla. Stat. To that end, the

Commission, b y non - rule policy, has delegated authority to OIR

to engage in rulemaking activities on behalf of the Commission.

However, this delegation is not limited to rule development

activities that occur prior to the Notice of proposed Rules, but

authorizes publication of the Noti ce prior to approval by the

Commission of any proposed language or policy statement.

5. As indicated, the Notices for the proposed Rules were

published in the Florida Law Weekly in November 2004, with

various changes made thereafter. The p roposed R u les were

published as OIR rules. Disturbingly and misleadingly, all the

Notices for the proposed Rules state that the agency head

approved the R ule that is the subject of the Notice on

September 3, 2004 or November 2, 2004. However, none of the

p roposed R ules were approved by the Commission, the agency head,

prior to their publication as a proposed rule in the Florida

Administrative Weekly.

6. The specific agency authority listed in the Notices for

promulgating the proposed Rules was Section 624.308(1), Fl orida

Stat ute s. Section 624.308(1) grants the Department of Financial

Services (Department) and the Financial Services Commission

(Commission) the general authori ty to adopt rules, pursuant to

Sections 120.536(1) and 120.54 in order to implement laws th at

confer duties upon them. The statute does not confer the

authority on the Office of Insurance Regulation (OIR) to adopt

rules. See § 624.05, Fla. Stat. The statutes that confer a

specific grant of rulemaking authority over the areas of the

laws imple mented in the proposed R ules are Sections 627.0651 and

627.331, Fl orida Stat ute s. These two statutes confer specific

rulemaking authority over certain areas of insurance ratemaking

only to the Commission ; s pecific rulemaking authority is not

granted to th e Department or to OIR. Other than rulemaking

authority, the various duties assigned in the laws implemented

by proposed R ules are given to OIR.

CONCLUSIONS OF LAW

7. The Division of Administrative Hearings has

jurisdiction over the subject matter of and the parties to this

proceeding. § 120.57(1), Fla. Stat.

8. The Administrative Procedures Act specifically requires

the “agency head” to approve all proposed rules prior to

publication in the Florida Administrative Weekly. Section

120.54, Flori da Statutes, provides, in material part:

(3) Adoption procedures.

(a) Notices. —

1. Prior to the adoption, amendment, or

repeal of any rule other than an

emergency rule, an agency, upon

approval of the agency head , shall give

notice of its intended action, setting

for th a short, plain explanation of the

purpose and effect of the proposed

action; the full text of the proposed

rule or amendment and a summary

thereof; a reference to the section or

subsection of the Florida Statutes or

the Laws of Florida being implemented ,

interpreted, or made specific.

(Emphasis supplied)

9. Section 120.54(3)(a)(1) specifically uses the term

“agency head” and requires “approval of the agency head” to

notice the intended action in the Florida Administrative Weekly.

Subsection (3) is de nominated “Notices” and refers to the

procedural requirements for noticing rules, including what the

notice should contain and when and where it must be published.

This is the notice which must be given in order that affected

persons may request a hearing to challenge the proposed official

policy of the agency.

10. Other subsections of S ection 120.54 pertain to the

conduct of the hearing. See § 120.54(3)(c) , Fla. Stat . None of

these other sections use the term “agency head , ” but rather

refer to the “age ncy . ” For example, “the agency” shall schedule

a public hearing and give affected persons an opportunity to

present evidence and argument. § 120.54(3)(c)(1) , Fla. Stat .

Such evidence and argument shall be considered by "the agency."

Id. The "agency" s hall file the rule with the Secretary of

State. § 120.54(3)(e). The only reference to "agency head , " as

well as the only requirement for rulemaking that must be

performed by the agency head , is the approval of the proposed

rule prior to notice in the Flo rida Administrative Weekly.

11. The legislative use of different terms in different

portions of the same statute is evidence that different meanings

were intended. State v. Bradford , 787 So. 2d 811 (Fla. 2001);

See also Russello v. United States , 464 U. S. 16, 104 S. Ct. 296

(1983)("[w]here Congress includes particular language in one

section of a statute but omits it in another section of the same

Act, it is generally presumed that Congress acts intentionally

and purposely in the disparate inclusion or e xclusion"); and

Dept. of Revenue v. Central Dade Malpractice Trust Fund , 673 So.

2d 899 (Fla. 1st DCA 1996)("the legislative intent may be

discerned from the Legislature's election to use different words

to convey different meanings within a statute"). Th e use of the

term “agency head” in Section 120.54 clearly demonstrates that

approval of the language or policy of the proposed rule or rules

is required since the Notice must contain the rule’s proposed

language.

12. Reading Sections 20.05(1)(b), 20.05(1) (e),

20.121(3)(c), 120.54(3), 624.308(1), 627.0651 and 627.331 ,

Fl orida Stat utes , together makes clear that only the Commission

is the agency head for purposes of rulemaking under Sections

120.536(1) and 120.54, Fl orida Stat ute s, of the Administrative

Proc edures Act , when implementing Sections 624.308, 627.0651 and

627.331, Fl orida Stat utes , and the other various s ections of the

insurance code involved in these rules. Therefore, OIR does not

have the authority to promulgate rules under Chapter 120,

Fl orida Stat ute s. One purpose of the process of rulemaking

under Chapter 120 is to afford an affected person the

opportunity to challenge a proposed rule, approved by an agency

head, in a disinterested forum before the after - notice time

period expires and the ru le becomes law. Because the Commission

is the agency head for purposes of rulemaking, the Commission,

at a minimum, must approve the language of any proposed rule,

prior to its being noticed as a proposed rule as set forth in

Section 120.54(3)(a), Fl orid a Stat ute s. Without such approval,

the proposed rule does not represent any official statement of

potential agency policy.

13. In this case, the process used by OIR does not obtain

the approval of the Commission, its agency head, until after the

Notic e has been published. Without such approval, there is no

official statement of potential policy from the agency. In

short, the process used currently by the Commission and OIR

forecloses the opportunity for an affected person to challenge a

proposed offi cial policy of an agency prior to such policy

having the effect of law , because the agency head does not

approve the language of the proposed rule until after the Notice

is published. This process also forces an affected person to

litigate language which has not been approved by the agency head

and, as occurred in this case, face potential motions to dismiss

or motions for summary disposition for lack of ripeness based on

the fact the Commission has not approved the language of the

proposed rules.

14. As indicated, the above - referenced statutes do not

prevent the Commission from giving Respondent instructions to

assist in the development of a rule, but the Commission must

review and approve the content of a proposed rule before

providing notice of its adop tion. A general delegation of

authority to OIR, through an agenda item, to independently

develop and give notice of adoption of proposed rules is

insufficient since it is each statement of potential policy that

must be approved. See § 120.54(3) , Fla. Sta t . Of necessity,

such approval is specific to each policy, or the agency head

will not know what its lower divisions are doing or what its

statements of potential policy are.

15. The Legislature expressly made a decision to require

the Commission to cons ider and approve proposed rules before a

notice of intended agency action is published. It is not

placing form over substance to require the Commission, as agency

head, to comply with these non - delegable rulemaking procedures.

Therefore, the agency has m aterially failed to follow the

applicable rulemaking procedures set forth in Chapter 120 , in

violation of Section 120.52(8)(a), Fl orida Stat ute s, and the

proposed R ule is invalid because the proposed R ules were noticed

for adoption without being approved b y the Commission. See also

AIU, et al. v. Dept. of Financial Services, et al . Case No. 04 -

1540RP (The Commission must review and approve the content of a

proposed rule prior to the Notice being published in the Florida

Administrative Weekly).

DONE AND O RDERED this 1 1 th day of August , 2005 , in

Tallahassee, Leon County, Florida.

S

DIANE CLEAVINGER

Administrative Law Judge

Division 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 1 th day of August , 2005 .

COPIES FURNISHED :

James H. Harris, Esquire

Jamie Metz, Esquire

De partment of Financial Services

Office of Insurance Regulation

200 East Gaines Street

612 Larson Building, Room 645A - 5

Tallahassee, Florida 32399

Cynthia S. Tunnicliff, Esquire

Brian A. Newman, Esquire

Pennington, Moore, Wilkinson,

Bell & Dunbar, P.A .

215 South Monroe Street, Second Floor

Post Office Box 10095

Tallahassee, Florida 32302 - 2095

Raquel Rodriguez, General Counsel

Office of the Governor

The Capitol, Suite 209

Tallahassee, Florida 32399 - 1001

Patricia Gleason, General Counsel

Department of Legal Affairs

The Capitol, Plaza Level 01

Tallahassee, Florida 32399 - 1050

Honorable Tom Gallagher

Chief Financial Officer

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399 - 0300

Carlos G. Muniz, General Counsel

D epartment of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399 - 0300

Honorable Charles H. Bronson

Commissioner of Agriculture

Department of Agriculture and

Consumer Services

The Capitol, Plaza Level 10

Tallahassee, Florida 32399 - 0810

Richard Ditschler, General Counsel

Department of Agriculture and

Consumer Services

The Capitol, Plaza Level 10

Tallahassee, Florida 32399 - 0810

THE NOTICE OF RIGHT TO JUDICIAL REVIEW

A party who is adversely affected by this Final Order is

entitled to judicial review pursuant to Section 120.68, Florida

Statutes. Review proceedings are governed by the Florida Rules

of Appellate Procedure. Such proceedings are commenced by

filing the original Notice of Appeal with the agency Clerk of

the Div ision of Administrative Hearings and a copy, accompanied

by filing fees prescribed by law, with the District Court of

Appeal, First District, or with the District Court of Appeal in

the Appellate District where the party resides. The notice of

appeal must be filed within 30 days of rendition of the order to

be reviewed .