05-002091RU Dr. Paul Zimmerman, Dr. John W. Uribe, John Livoti, Jonathan D. Nitkin, Angela Daley, Helen Esterline And Edna Buchanan vs. Department Of Financial Services, Office Of Insurance Regulation Status: Closed DOAH Final Order on Wednesday, August 24, 2005.

Summary: An alleged unadopted rule of an agency which no longer exists (the Department of Insurance) is not subject to challenge in a Section 120.56(4), Florida Statutes, proceeding.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DR. PAUL ZIMMERMAN, DR. JOHN W. )

URIBE, JOHN LIVOTI, JONATHAN D. )

NITKIN, ANGELA DALEY, HELEN )

ESTERLINE, AND EDNA BUCHANAN, )

)

Petitioners, )

)

vs. ) Case No. 05 - 2091RU

)

DEPARTMENT OF FINANCIAL )

SERVICES, OFFICE OF INSURANCE )

REGULATION, )

)

Respondent. )

__________________________________)

SUMMARY FINAL ORDER OF DISMISSAL

On June 9, 2005, Petitione rs filed with the Division of

Administrative Hearings (DOAH) a petition (Petition)

challenging, pursuant to Section 120.56(4), Florida Statutes, an

alleged "unadopted rule (non - rule policy)" of the Department of

Insurance, Respondent's predecessor. In the ir Petition,

Petitioners made the following assertions concerning the

"factual background" which gave rise to their challenge:

- "Petitioners are residents of coastal areas of the state

where voluntary windstorm insurance is not available" and they

theref ore "must purchase windstorm coverage from the state

residual insurer . . . .";

- "Prior to July 1, 2002, this 'residual' windstorm

coverage was provided by [the] Florida Windstorm Underwriting

Association (FWUA), an association of private insurers

estab lished pursuant to former Fla. Stat. § 627.351(2)";

- As a result of the enactment of Chapter 2002 - 240, Laws

of Florida, the Citizen's Property Insurance Corporation (CPIC),

"a quasi public corporation governed by appointees of the State

Chief Financial Officer . . . succeeded to FWUA's operations,

contracts, premiums, and assets, and [it] is responsible for

FWUA's obligations . . . .";

- Not being able to "choose another insurer" because of

the "monopoly" position FWUA held, "Petitioners paid FWUA the

premiums charged for windstorm coverage in 2000 - 2002";

- The premiums Petitioners paid reflected rate increases

resulting from an April 30, 1999, rate filing by FWUA seeking

"to increase premium rates by a statewide average of 96% above

its existing rate s" (and by "as much as 300 to 400%" in

southeast Florida, where Petitioners' property was located);

- "The FWUA filing for rate increases was based on data

from computer models," and, therefore, given the size of the

requested increase, "the filing requi red a noticed public

hearing" pursuant to Section 627.0629, Florida Statutes, 1 and

Florida Administrative Code Rule 4 - 166.051 (of the Department of

Insurance) 2 ;

- "Although a noticed public hearing was required on this

rate filing, the Department [of Ins urance] never provided any

public notice or conducted any public hearing on the filing";

- "On July 16, 1999, the Department [of Insurance] issued

a notice of intent to disapprove FWUA's proposed rate filing,

citing many reasons for disapproval";

- "Th e Department [of Insurance]'s letter allowed FWUA to

contest the disapproval, either by filing a timely petition for

formal administrative proceedings, with a right to judicial

review, or by electing private arbitrators, whose ruling would

be deemed final and binding on the Department . . . ." 3 ;

- "On July 19, 1999, FWUA chose private arbitration to

decide its filing for increased rates";

- "On February 3, 2000, the private arbitration panel, by

a 2 - 1 vote, issued a decision approving FWUA's entire rate

filing, and providing a schedule to phase - in the increased

rates";

- "The arbitration was not a noticed public

hearing . . . .";

- "Petitioners have challenged FWUA's increased rates [in

court] as (1) a violation of the statutes and rules requiring a

noticed public hearing on rate increases, and (2) a violation of

constitutional prohibitions against delegating state regulatory

power to private persons," and "[t]hus far, the courts have

required administrative remedies to be exhausted before court

act ion can proceed";

- In a deposition that he gave in a lawsuit Petitioners

had filed against FWUA and the Department of Insurance, Steven

Rodenberry, the then Deputy Director of the Division of Insurer

Services for the Department of Insurance, stated: "B ased on my

experience, the Department [of Insurance] does not typically

hold a public hearing [on a rate filing] where grounds for

denial have been identified."

According to the Petition, Mr. Rodenberry's deposition

"testimony [a copy of which was appende d to the Petition], as

well as [the Department's of Insurance's] court filings opposing

a public hearing, evidence a statement that the Department [of

Insurance] exempted FWUA's [1999] rate filing from the required

noticed public hearing, under a non - rule policy that statutory

and rule requirements for a noticed public hearing [on a rate

filing] would not apply if the Department [of Insurance]

preliminarily intended to deny the rate increase, even though

the rate increase was ultimately approved by arbitrat ion and

charged." It is this "non - rule policy" that Petitioners seek,

in this proceeding, to have "declar[ed] . . . invalid for

failure to comply with rulemaking procedures."

During a telephone conference held on June 13, 2005, in

which the undersigned, counsel for Petitioners, and counsel for

Respondent participated, the parties agreed to waive the

requirement (of Section 120.56, Florida Statutes) that the final

hearing on the Petition be scheduled within 30 days of the date

of the Order of Assignment. Thereafter, on June 14, 2005, the

undersigned issued a Notice of Hearing advising the parties that

the hearing would be held on September 8, 2005.

On July 20, 2005, Respondent filed a Motion for Summary

Final Order. In its motion, Respondent argued that , "since

there are no genuine issues of material fact to be determined by

the Administrative Law Judge, the matter must be dismissed" on

the grounds that "the Petitioners lack standing to maintain this

action" and "the alleged agency statement is not a 'ru le'"

subject to challenge in a Section 120.56(4) proceeding.

On July 29, 2005, Petitioners filed a Motion for Summary

Final Order and Opposition to OIR's Motion for Summary Final

Order (Petitioners' Motion for Summary Final Order). In their

motion, Peti tioners agreed with Respondent that "[t]he material

facts [in this case] are not in dispute," but took issue with

Respondent's claims that the "alleged agency statement" they are

challenging in this case is not a "rule" and that they lack

standing to chall enge this statement in this proceeding. In

addition, they contended that this "unadopted policy is contrary

to the statute and modifies an existing rule."

Oral argument on the parties' Motions for Summary Final

Order was heard by telephone conference ca ll on August 8, 2005,

during which the parties, through counsel, indicated that,

pursuant to the undersigned's request, they would attempt to

enter into a stipulation of facts or agree to a stipulated

record for use in the instant case.

On August 15, 2005, Petitioners filed a Motion to Compel

Discovery, advising that "a stipulation appears unlikely" and

requesting an order compelling Respondent "to produce a

designated witness for deposition and to produce records of

public notice of public hearings [on rat e filings]." On

August 16, 2005, Respondent filed a response opposing

Petitioners' Motion to Compel Discovery.

Oral argument on Petitioners' Motion to Compel Discovery

was heard by telephone conference call on August 18, 2005.

On August 22, 2005, Petitio ners filed a Notice of

Supplemental Authority.

Having carefully considered the matters of record in the

instant case, and arguments orally made by the parties, the

undersigned concludes that there are no disputed issues of

material fact that need to be res olved and that this case may be

disposed of based on the documents filed by the parties,

supplemented by their oral argument. The final hearing in this

case, presently scheduled for September 8, 2005, is, therefore,

hereby cancelled.

In this case, Petitio ners are challenging an alleged policy

statement made by Respondent's predecessor, the Department of

Insurance, that they contend constitutes a "rule," within the

meaning of Section 120.52(15), Florida Statutes, which provides

as follows"

"Rule" means each agency statement of

general applicability that implements,

interprets, or prescribes law or policy or

describes the procedure or practice

requirements of an agency and includes any

form which imposes any requirement or

solicits any information not specifi cally

required by statute or by an existing rule.

The term also includes the amendment or

repeal of a rule. The term does not

include:

(a) Internal management memoranda which do

not affect either the private interests of

any person or any plan or proce dure

important to the public and which have no

application outside the agency issuing the

memorandum.

(b) Legal memoranda or opinions issued to

an agency by the Attorney General or agency

legal opinions prior to their use in

connection with an agency act ion.

(c) The preparation or modification of:

1. Agency budgets.

2. Statements, memoranda, or instructions

to state agencies issued by the Chief

Financial Officer or Comptroller as chief

fiscal officer of the state and relating or

pertaining to claims for payment submitted

by state agencies to the Chief Financial

Officer or Comptroller.

3. Contractual provisions reached as a

result of collective bargaining.

4. Memoranda issued by the Executive Office

of the Governor relating to information

resource s management.

It is Petitioners' position that this policy statement made

by the Department of Insurance was not, but should have been,

adopted in accordance with the rulemaking procedures set forth

in Section 120.54(1)(a), Florida Statutes, which provide s as

follows:

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 presume d 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 procedure expeditiously and in

good faith to adopt rules which address the

statement.

2. Rulemaking shall be presumed practicable

to the extent necessary to provi de fair

notice to affected persons of relevant

agency procedures and applicable principles,

criteria, or standards for agency decisions

unless the agency proves that:

a. Detail or precision in the establishment

of principles, criteria, or standards for

a gency decisions is not reasonable under the

circumstances; or

b. The particular questions addressed 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.

"Section 120.54(1)(a) expresses the Legislature's intent that

agencies adopt a statement that is the equivalent of a rule as a

rule through the rulemaking process whenever possible." Osceola

Fish Farmers Associ ation, Inc. v. Division of Administrative

Hearings , 830 So. 2d 932, 934 (Fla. 4th DCA 2002).

Petitioners are seeking relief herein pursuant to Section

120.56(4), Florida Statutes, which is entitled, "CHALLENGING

AGENCY STATEMENTS DEFINED AS RULES; SPECIAL PROVISIONS," and

provides as follows:

(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 administrativ e 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 administrative 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 Administrative Weekly.

(d) When an administrative law judge enters

a fin al 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 statement as a basis

for agency action.

(e)1. If, prior to a final hearing to

determine whether all or part of any agency

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

agency publishes, pursuant to s.

120.54(3)(a), proposed rules that address

the statement, then for purposes of this

section, a presumption is created that the

agency is act ing expeditiously and in good

faith to adopt rules that address the

statement, and 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).[ 4 ]

2. If, prior to the final hearing to

determine whether all or part of an agency

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

agency publishes a notice of rule

development which addresses the statement

pursuant to s. 120.54(2), or certifies that

su ch a notice has been transmitted to the

Florida Administrative Weekly for

publication, then such publication shall

constitute good cause for the granting of a

stay of the proceedings and a continuance of

the final hearing for 30 days. If the

agency publis hes proposed rules within this

30 - day period or any extension of that

period granted by an administrative law

judge upon showing of good cause, then the

administrative law judge shall place the

case in abeyance pending the outcome of

rulemaking and any pro ceedings involving

challenges to proposed rules pursuant to

subsection (2).

3. If, following the commencement of the

final hearing and prior to entry of a final

order that all or part of an agency

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

agency publishes, pursuant to s.

120.54(3)(a), proposed rules that address

the statement and proceeds expeditiously and

in good faith to adopt rules that 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).

4. If an agency fails to adopt rules that

address the statement within 180 days after

publishing proposed rules, for purposes of

this subsection, a presumption is creat ed

that the agency is not acting expeditiously

and in good faith to adopt rules. If the

agency'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 .

5. If the proposed rules addressing the

challenged statement are determined to be an

invalid exercise of delegated legislative

authority as defined in s. 120.52(8)(b) - (f),

the agency must immediately discontinue

reliance on the statement and any

substa ntially similar statement until the

rules addressing the subject are properly

adopted.

(f) All proceedings to determine a

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

brought pursuant to this subsection. A

proceeding pursuant to this subsection may

be consolid ated 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).

" When section 120.54(1)(a) is read together with section

120.56(4), it becomes clear that the purpose of a section

120.56(4) proceeding is to force or require agencies into the

rule adoption process. It provides them with incentives to

promulgate rules thr ough the formal rulemaking process."

Osceola Fish Farmers Association, Inc , 830 So. 2d at 934. The

statute is forward - looking in its approach. It is designed to

prevent future agency action based on statements not adopted in

accordance with required rul emaking procedures, not to provide a

remedy for agency action (based on such statements) that has

already been taken and become final.

An agency statement constituting a rule may be challenged

pursuant to Section 120.56(4), Florida Statutes, only on the

g round that "the agency has not adopted the statement by the

rulemaking procedure provided by s. 120.54." See Southwest

Florida Water Management District v. Charlotte County , 774 So.

2d 903, 908 - 09 (Fla. 2d DCA 2001)("The basis for a challenge to

an agency statement under this section [Section 120.56(4),

Florida Statutes] is that the agency statement constitutes a

rule as defined by section 120.52(15), Florida Statutes (Supp.

1996), but that it has not been adopted by the rule - making

procedure mandated by s ection 120.54. In the present case, the

challenges to the existing and proposed agency statement on the

grounds that they represent an invalid delegation of legislative

authority are distinct from a section 120.56(4) challenge that

the agency statements a re functioning as unpromulgated rules.");

Florida Association of Medical Equipment Services v. Agency for

Health Care Administration , DOAH Case No. 02 - 1314RU, slip op. at

6 (Fla. DOAH October 25, 2002)(Order on Motions for Summary

Final Order)("[I]n a Sect ion 120.56(4) proceeding which has not

been consolidated with a proceeding pursuant to Section

120.57(1)(e), the issue whether a rule - by - definition is

substantively invalid for reasons set forth in Section

120.52(8)(b) - (g), Florida Statutes, should not be reached. That

being so, the ultimate issues in this case are whether the

alleged agency statements are rules - by - definition and, if so,

whether their existence violates Section 120.54(1)(a)."); and

Johnson v. Agency for Health Care Administration , DOAH Cas e No.

98 - 3419RU, 1999 WL 1483785 *6 (Fla. DOAH May 18, 1999)(Final

Order of Dismissal)("It is apparent from a reading of subsection

(4) of Section 120.56, Florida Statutes, that the only issue to

be decided by the administrative law judge in a proceeding

b rought under this subsection is 'whether all or part of [the

agency] statement [in question] violates s. 120.54(1)(a),'

Florida Statutes, . . . .").

"If the administrative law judge rules in favor of the

challenger on this issue [and declares the statement to be in

violation of Section 120.54(1)(a), Florida Statutes], the agency

can no longer rely upon the statement as a basis for agency

action and the challenger is entitled to reasonable costs and

attorney's fees under section 120.595(4)," Florida Statutes . 5

Osceola Fish Farmers Association, Inc , 830 So. 2d at 934. No

other relief is available in a Section 120.56(4) proceeding.

Not everyone may bring a challenge under Section 120.56(4),

Florida Statutes. Only those persons "substantially affected"

have s tanding to institute such a challenge.

As was stated in Columbia Hospital Corporation of South

Broward v. Department of Health , DOAH Case No. 02 - 0400RU, slip

op. at 18 - 19 (Fla. DOAH April 11, 2002)(Final Order):

31. To meet the "substantially affected"

test of Section 120.56(4), Florida Statutes,

[would - be challengers] must demonstrate

that, as a consequence of the statement

alleged to be a rule not promulgated, it

will suffer injury in fact and that the

injury is within the zone of interest to be

regula ted or protected. See Lanoue v.

Florida Department of Law Enforcement , 751

So. 2d 94 (Fla. 1st DCA 2000) in which the

court applies the "substantially affected"

test for standing to challenge an existing

or proposed rule under Section 120.56(1)(a),

Florid a Statutes. . . .

32. Injury in fact must be both real and

immediate. Lanoue , above. To satisfy the

sufficiently real and immediate injury in

fact element of the "substantially affected"

test, the injury cannot not be based on pure

speculation or conje cture. Ward v. Board of

Trustees of the Internal Improvement Trust

Fund , 651 So. 2d 1236, 1237 (Fla. 4th DCA

1995), cited with approval in Lanoue , above,

at 96, 97.

Standing to initiate a Section 120.56(4) proceeding will not be

found in the absence of a showing of a direct causal connection

between the injury alleged and the agency's continued reliance

on the challenged statement.

Persons seeking to challenge an agency statement pursuant

to Section 120.56(4), Florida Statutes, must not only "meet the

[st atute's] 'substantially affected' test," they must also plead

and establish specific "facts sufficient to show that the

[challenged] 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."

Not every agency statement is a "rule under s. 120.52."

Only agency "statements of general applicability, i.e., those

statements which are intended by their own effect to create

rights, or to require compliance, or otherwise to hav e the

direct and consistent effect of law," constitute "rules," as

defined in Section 120.52(15), Florida Statutes. Department of

Highway Safety and Motor Vehicles v. Schluter , 705 So. 2d 81, 82

(Fla. 1st DCA 1997); and McDonald v. Department of Banking a nd

Finance , 346 So. 2d 569, 581 (Fla. 1st DCA 1977).

The agency statement that Petitioners are seeking to

challenge in the instant Section 120.56(4) proceeding is a

statement, not of Respondent, but of the Department of

Insurance, an agency which no longe r exists (as a result of the

repeal of Section 20.13, Florida Statutes, the statutory

provision which created it). 6 Inasmuch as it is a statement of

an agency that has been abolished (and that is therefore

incapable of taking any agency action), the state ment is one

having no "applicability," rather than one of "general

applicability" subject to challenge in a Section 120.56(4)

proceeding (the purpose of which, as noted above, is " to force

or require agencies into the rule adoption process" with respect

to statements of "generality applicability"). Osceola Fish

Farmers Association, Inc , 830 So. 2d at 934.

Petitioners have not alleged in their Petition that

Respondent has a " non - rule policy," as they claim the Department

of Insurance had, of dispensing wi th a "noticed public hearing"

on a Section 627.0629(7)/ Florida Administrative Code Rule 69O -

166.051 - type rate filing when it determines, based on the face

of the filing, to deny the requested rate increase. Even if

Petitioners had made such a claim, howev er, they would not have

standing to pursue it in this Section 120.56(4) proceeding

because they could not show that, as policyholders, they would

be "substantially affected" by such a "non - rule policy."

As explained in Florida Administrative Code Rule 69 O -

166.051, the purpose of having a "noticed public hearing" on a

"significant rate increase" is to require the insurer to

present, and to enable Respondent to receive, "information

necessary to determine whether the increase renders the rates

excessive, in adequate, or unfairly discriminatory." If

Respondent were to determine, without the benefit of such a

"noticed public hearing," that a rate increase sought by an

insurer "render[ed] the [insurer's] rates excessive, inadequate,

or unfairly discriminatory" and, based on this determination,

were to deny the requested increase, the policyholders whose

rates the insurer wanted to increase would not suffer, as a

result of there not having been a "noticed public hearing," any

"injury in fact" to an interest falli ng within the zone of

interests intended to be protected by the "noticed public

hearing" requirement, since the outcome of the examination

process, under this scenario, would be in their favor.

Cf. M. Z. v. State , 747 So. 2d 978, 980 (Fla. 1st DCA 1999)( "In

this case, while appellant may have initially been charged as an

adult, the proceedings against him became, for all intents and

purposes, juvenile proceedings once the trial court elected to

treat him as a juvenile for purposes of disposition. Appella nt

emerged from these proceedings without an adult conviction or

sentence. He, therefore, cannot show that his rights were

actually adversely affected by the state initially charging him

as an adult. "); and Bodenstab v. Department of Professional

Regulati on, Board of Medicine , 648 So. 2d 742, 743 (Fla. 1st DCA

1994)(" In the instant case, Dr. Bodenstab was granted licensure,

and we reject the suggestion that he was adversely affected by

such action."). If anyone could complain about Respondent's

denying a rate increase without holding a "noticed public

hearing" it would be the insurer, who, if the hearing had been

held, would have had the opportunity to attempt to persuade

Respondent to change its mind and to grant, rather than deny,

the requested increase.

It is true that Section 627.062(6), Florida Statutes,

provides that, after Respondent has denied a non - medical

malpractice rate filing, the insurer may "require arbitration of

the rate filing," and the outcome of the arbitration process (by

which Responde nt is bound) may be the approval of the rate

increase that Respondent had previously disapproved. 7

Petitioners suggest, in their Motion for Summary Final Order,

that policyholders who would have to pay the increased rate (as

Petitioners did as FWUA policy holders after the arbitration

panel approved FWUA's 1999 rate filing) would "suffer[] real

injury." Having to pay increased insurance rates pursuant to an

arbitral award in favor of an insurer whose rate filing had been

summarily denied by Respondent woul d certainly constitute an

"injury" to policyholders, but it would not be one that could

reasonably be said to be directly and immediately attributable

to Respondent's not having conducted a pre - denial, "noticed

public hearing." 8 Such an "injury" therefore would be

insufficient to confer standing on these policyholders to

challenge, pursuant to Section 120.56(4), Florida Statutes, any

"no - pre - denial, noticed public hearing" policy Respondent might

have.

In view of the foregoing, the Petition must be, an d hereby

is, dismissed.

DONE AND ORDERED this 2 4th day of August, 2005, in

Tallahassee, Leon County, Florida.

S

___________________________________

STUART M. LERNER

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 2 4th day of August, 2005.

ENDNOTES

1 / Section 627.0629, Florida Statutes, is entitled, "Residential

property insurance; rate filings." In 1999 (and until June 1,

2005, the effective date of Chapter 2005 - 111, Laws of Florida),

Subsection (7) of the statute, provided as f ollows:

Any rate filing that is based in whole or

part on data from a computer model may not

exceed 25 percent unless there is a public

hearing.

This subsection now reads as follows:

Any rate filing that is based in whole or

part on data from a compute r model may not

exceed 15 percent unless there is a public

hearing.

2 / Florida Administrative Code Rule 4 - 166.051 provided as

follows:

(1) Purpose. Substantial rate increases by

insurers adversely affects the welfare of

the insurance consuming public of the State

of Florida. The Department is authorized to

conduct investigations of insurance matters

as it deems proper to determine whether any

person has violated any provision of the

Florida Insurance Code and to secure

information useful in the lawful

administration of the Insurance Code. The

Department is further authorized to examine

each insurer as often as warranted for the

protection of the policyholders and the

public interest of this State. The

Department has determined that the

significant in crease of rates fundamentally

affects the rights of policyholders and the

public interest of this State. The

Department has determined further that in

order to protect the public and to ensure

compliance with the Insurance Code, and in

the administration of the Code, the public

welfare requires an examination of insurers

which significantly increase rates in this

State. These examinations will be conducted

in an open forum, in the form of public

hearings.

(2) Scope. This rule applies to

residential and habitational, personal and

commercial property insurance in the State

of Florida (hereinafter, "residential

property insurance"). This rule shall not

be construed to limit the Department's

authority or ability to conduct any

examination authorized by Sec tion 624.316,

F.S.

(3) Public Hearings.

(a) Significant Rate Increases. The

Department will hold a public hearing on any

rate filing where the percentage of rate

increase is 25% or more and the aggregate

amount of such rate increase is $2,000,000

or m ore, or a rate increase of 50% or more.

(b) Procedure.

1. The time and place of the public hearing

will be noticed by order of the Department.

2. The public hearing shall be for the

purpose of gathering information and

evidence, and is not subject to the

procedures of Chapter 120, F.S. Each

insurer shall bear its own costs, including

any attorney's fees, which may be associated

with this examination and with its

attendance at the public hearing.

Specifically, the public hearing will

provide the De partment with, and the insurer

shall be prepared to present, information

necessary to determine whether the increase

renders the rates excessive, inadequate, or

unfairly discriminatory.

Effective January 7, 2003, this Department of Insurance rule was

tran sferred to Respondent pursuant to Section 20.121(4), Florida

Statutes, which provided (as it still does today) as follows:

Effective January 7, 2003, the rules of the

Department of Banking and Finance and of the

Department of Insurance that were in effect

on January 6, 2003, shall become rules of

the Department of Financial Services or the

Financial Services Commission as is

appropriate to the corresponding regulatory

or constitutional function and shall remain

in effect until specifically amended or

repea led in the manner provided by law.

This transferred rule, which has been renumbered Florida

Administrative Code Rule 69O - 166.051, has remained in effect

substantively unchanged since the transfer.

3 / Section 627.062(6), Florida Statutes, then provided ( as it

still does today, with the exception of the references to the

Department of Insurance) as follows

(a) After any action with respect to a rate

filing that constitutes agency action for

purposes of the Administrative Procedure

Act, an insurer may, in lieu of demanding a

hearing under s. 120.57, require arbitration

of the rate filing. Arbitration shall be

conducted by a board of arbitrators

consisting of an arbitrator selected by the

department, an arbitrator selected by the

insurer, and an arbitrator selected jointly

by the other two arbitrators. Each

arbitrator must be certified by the American

Arbitration Association. A decision is

valid only upon the affirmative vote of at

least two of the arbitrators. No arbitrator

may be an employee of any ins urance

regulator or regulatory body or of any

insurer, regardless of whether or not the

employing insurer does business in this

state. The [D]epartment [of Insurance] and

the insurer must treat the decision of the

arbitrators as the final approval of a ra te

filing. Costs of arbitration shall be paid

by the insurer.

(b) Arbitration under this subsection shall

be conducted pursuant to the procedures

specified in ss. 682.06 - 682.10. Either

party may apply to the circuit court to

vacate or modify the decisi on pursuant to s.

682.13 or s. 682.14. The [D]epartment [of

Insurance] shall adopt rules for arbitration

under this subsection, which rules may not

be inconsistent with the arbitration rules

of the American Arbitration Association as

of January 1, 1996.

(c) Upon initiation of the arbitration

process, the insurer waives all rights to

challenge the action of the [D]epartment [of

Insurance] under the Administrative

Procedure Act or any other provision of law;

however, such rights are restored to the

insurer if the arbitrators fail to render a

decision within 90 days after initiation of

the arbitration process.

4 / Section 120.57(1)(e), Florida Statutes, provides as follows:

(e) 1. Any agency action that determines

the substantial interests of a party an d

that is based on an unadopted rule is

subject to de novo review by an

administrative law judge.

2. The agency action shall not be presumed

valid or invalid. The agency must

demonstrate that the unadopted rule:

a. Is within the powers, functions, and

duties delegated by the Legislature or, if

the agency is operating pursuant to

authority derived from the State

Constitution, is within that authority;

b. Does not enlarge, modify, or contravene

the specific provisions of law implemented;

c. Is not va gue, establishes adequate

standards for agency decisions, or does not

vest unbridled discretion in the agency;

d. Is not arbitrary or capricious. A rule

is arbitrary if it is not supported by logic

or the necessary facts; a rule is capricious

if it is a dopted without thought or reason

or is irrational;

e. Is not being applied to the

substantially affected party without due

notice; and

f. Does not impose excessive regulatory

costs on the regulated person, county, or

city.

3. The recommended and fina l orders in any

proceeding shall be governed by the

provisions of paragraphs (k) and (l), except

that the administrative law judge's

determination regarding the unadopted rule

shall not be rejected by the agency unless

the agency first determines from a re view of

the complete record, and states with

particularity in the order, that such

determination is clearly erroneous or does

not comply with essential requirements of

law. In any proceeding for review under s.

120.68, if the court finds that the agency's

rejection of the determination regarding the

unadopted rule does not comport with the

provisions of this subparagraph, the agency

action shall be set aside and the court

shall award to the prevailing party the

reasonable costs and a reasonable attorney's

fee for the initial proceeding and the

proceeding for review.

5 / Section 120.595(4), Florida Statutes, provides as follows:

CHALLENGES TO AGENCY ACTION PURSUANT TO

SECTION 120.56(4). --

(a) Upon entry of a final order that all or

part of an agency sta tement violates s.

120.54(1)(a), the administrative law judge

shall award reasonable costs and reasonable

attorney's fees to the petitioner, unless

the agency demonstrates that the statement

is required by the Federal Government to

implement or retain a de legated or approved

program or to meet a condition to receipt of

federal funds.

(b) Notwithstanding the provisions of

chapter 284, an award shall be paid from the

budget entity of the secretary, executive

director, or equivalent administrative

officer o f the agency, and the agency shall

not be entitled to payment of an award or

reimbursement for payment of an award under

any provision of law.

6 / While the Legislature provided, in Section 20.121(4), Florida

Statutes, that "rules . . . of the Department of Insurance that

were in effect [that is, those rules that the Department had

adopted in accordance with required rulemaking procedures and

not repealed, and which had not been invalidated] on January 6,

2003, [would] become rules of [Respondent]" and wo uld remain so

"until specifically amended or repealed in the manner provided

by law," the Legislature did not breathe life into those

statements of "general applicability" of the Department of

Insurance that, as of January 6, 2003, had not been adopted in

accordance with required rulemaking procedures (and therefore

were invalid and unenforceable). See Jenkins v. State , 855 So.

2d 1219, 1224 (Fla. 1st DCA 2003) (" Pursuant to section

120.54(3), Florida Statutes (1999), prior to the adoption of a

rule the age ncy must comply with certain requirements such as

providing notice, holding hearings to allow input from

interested parties and the public, filing, and publication.

Failure to comply with these requirements renders an action or

policy an unpromulgated rul e or an invalid exercise of delegated

legislative authority."); Department of Revenue v. Vanjaria

Enterprises, Inc. , 675 So. 2d 252, 255 (Fla. 5th DCA 1996)("An

unpromulgated rule constitutes an invalid exercise of delegated

legislative authority and, ther efore, is unenforceable."); and

State, Board of Optometry v. Florida Society of Ophthalmology ,

538 So. 2d 878, 888 (Fla. 1st DCA 1988)(" We affirm the ruling

that the application form constitutes an unpromulgated rule and

is therefore invalid.").

7 / Th is arbitration option may not be available to all insurers.

See, e.g., Zimmerman v. Florida Windstorm Underwriting

Association , 873 So. 2d 411, 413 - 15 (Fla. 1st DCA

2004)("[Appellants] share with the Department [of Insurance] the

view, which we today embr ace, that the Department has never

given its approval of the rate hike, and that FWUA's resort to

arbitration as a means of raising rates was a 'material

error . . . made by the insurer.' § 627.062(2)(g), Fla. Stat.

(2003). . . . Under FWUA's Plan of Op eration, insurance rate

increases proposed by FWUA require approval by the Department of

Insurance. Even after the Legislature amended the Insurance

Code to provide that FWUA 'may require arbitration of a rate

filing under s. 627.062(6),' ch. 97 - 55, § 5, at 332, Laws of

Fla. (codified at § 627.351(2)(b)(5)(b), Fla. Stat. (1997)), the

Department of Insurance, while revising FWUA's Plan of Operation

in other respects, left intact provisions calling for rates

'approved by the Department' and for rate increase s only 'upon

approval of the Department.' Fla. Admin Code Ann. R. 4J - 1.001

(2001). FWUA's resort to Section 627.062(6), Florida Statutes

(1997), after the Department of Insurance disapproved the

request for rate increases FWUA filed on April 30, 1999, wa s not

authorized, therefore, because FWUA's Plan of Operation required

departmental approval or assent, not an arbitration award. . . .

The statutory amendment permitting rate arbitration was

permissive, not mandatory, and did not alter FWUA's Plan of

Ope ration. . . . While, once the statute was amended, FWUA

could have amended its Plan of Operation and the Department of

Insurance could have amended its rule to allow FWUA to elect

rate arbitration, the Plan and rule were never amended to confer

such autho rity.").

8 / Respondent's conducting a pre - denial, "noticed public

hearing" does not in any way prevent an insurer from

"requir[ing] arbitration" and obtaining (through arbitration)

approval of a requested rate increase. It is sheer speculation

to argue that having such a hearing would affect the outcome of

the arbitral process in a manner adverse to the insurer and

favorable to policyholders.

COPIES FURNISHED:

David K. Miller, Esquire

M. Stephen Turner, Esquire

Broad and Cassel

215 South Monroe Street, Suite 400

P.O. Drawer 11300

Tallahassee, Florida 32302

S. Marc Herskovitz, Esquire

Office of Insurance Regulation

612 Lars on Building

Tallahassee, Florida 32399 - 0333

Kevin M. McCarty, Commissioner

Office of Insurance Regulation

200 East Gaines Street

Tallahassee, Florida 32399 - 0305

Steve Partin, General Counsel

Office of Insurance Regulation

200 East Gaines Street

Tallaha ssee, Florida 32399 - 0305

Scott Boyd, Executive Director

and General Counsel

Administrative Procedures Committee

Holland Building, Room 120

Tallahassee, Florida 32399 - 1300

Liz Cloud, Program Administrator

Administrative Code

Department of State

R. A. Gray Building, Suite 101

Tallahassee, Florida 32399

NOTICE OF RIGHT TO JUDICIAL REVIEW

A party who is adversely affected by this Summary Final Order of

Dismissal is entitled to judicial review pursuant to Section

120.68, Florida Statutes. Review proc eedings 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 Division 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.