09-003944RU Coventry First, Llc vs. Office Of Insurance Regulation And Financial Services Commission Status: Closed DOAH Final Order on Friday, November 13, 2009.

Summary: Petitioner did not show that Respondents' engagement letters and training manuals were unpromulgated rules.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

COVENTRY FIRST, LLC, )

)

Petitioner, )

)

vs. ) Case No. 09-3944RU

)

OFFICE OF INSURANCE REGULATION )

and FINANCIAL SERVICES )

COMMISSION, )

)

Respondents. )

)

FINAL ORDER

A final hearing was conducted in this case on September 28,

2009, in Tallahassee, Florida, before Suzanne F. Hood,

Administrative Law Judge with the Division of Administrative

Hearings.

APPEARANCES

For Petitioner: William E. Williams, Esquire

Amy Schrader, Esquire

GrayRobinson, P.A.

301 South Bronough Street, Suite 600

Tallahassee, Florida 32301

Frank J. Santry, Esquire

Frank Santry, P.L.

2533 Noble Drive

Post Office Box 16337

Tallahassee, Florida 32317-6337

For Respondents: Susan Dawson, Esquire

Sharlee Hobbs Edwards, Esquire

Mohammad Sherif, Esquire

Office of Insurance Regulation

200 East Gaines Street

Tallahassee, Florida 32399-4206

STATEMENT OF THE ISSUE

The issue is whether the guidelines set forth in the

Specialty Product Administration Field Examination Policy

Procedures (SPA Field Exam Policy), Viatical Settlement Provider

Examination Manual (VSP Manual), Viatical Settlement Provider

Examination Procedures (VSP Exam Procedures), and notice-of-

examination letters constitute agency statements defined as rules

but not adopted as such, in violation of Section 120.54, Florida

Statutes.

PRELIMINARY STATEMENT

Petitioner Coventry First, LLC (Petitioner) filed its

Petition Seeking Administrative Determination of the Invalidity

of Agency Statements Defined as Rules ("Petition") on July 22,

2009. The Petition alleged that Respondents Office of Insurance

Regulation (OIR) and Financial Services Commission (Commission)

(herein after referred to collectively as Respondents) have

developed and apply certain documents in conducting examinations

of viatical settlement providers (VSPs). According to the

Petition, Respondents' use of the documents includes the

requirement that VSPs, licensed but not domiciled in Florida,

provide information and documentation regarding viatical

settlement contracts that are neither effectuated in Florida nor

involve Florida residents. Petitioner asserts that the use of

the documents amounts to a rule under Section 120.52(16), Florida

Statutes, which must be adopted pursuant to Section 120.54,

Florida Statutes.

A Notice of Hearing and Order of Pre-hearing Instructions

dated July 24, 2009, scheduled this matter for hearing on

August 21, 2009.

On July 28, 2009, Petitioner filed an Agreed Motion for

Rescheduling of Final Hearing. An Order dated July 28, 2009,

granted the motion and rescheduled the hearing for August 24,

2009.

On August 12, 2009, Petitioner filed another Agreed Motion

for Rescheduling of Final Hearing. An Order dated August 12,

2009, granted the motion and rescheduled the hearing for

September 28, 2009.

On September 22, 2009, Petitioner filed an unopposed motion

to amend the Petition. An Order dated September 23, 2009,

granted the motion.

On September 23, 2009, Respondents filed a Unilateral Pre-

hearing Stipulation. On September 24, 2009, Petitioner filed a

Unilateral Pre-hearing Stipulation.

On September 24, 2009, Respondents filed a Motion for

Summary Final Order and Amended Unilateral Pre-hearing

Stipulation. When the hearing commenced, the undersigned

reserved ruling on the motion, directing the parties to address

the issues raised therein in post-hearing proposed orders. The

motion is hereby denied for reasons set forth in the Conclusions

of Law below.

Petitioner presented the testimony of one witness.

Petitioner's Exhibits P1-P8, P10-P33, and P35-38 were accepted as

evidence.

Respondents presented the testimony of two witnesses.

Respondents' Exhibits R1-R11 were accepted as evidence.

The Court Reporter filed the transcript of the proceedings

with the Division of Administrative Hearings on October 2, 2009.

The parties filed Proposed Final Orders on October 19, 2009.

Unless otherwise indicated, all references are to the 2009

Florida Statutes.

FINDINGS OF FACT

1. OIR has the statutory duty to enforce the provisions of

the Florida Insurance Code, to investigate any violation of the

Florida Insurance Code, and to regulate insurance activity in

Florida, including the licensure, examination, and monitoring of

insurers and other risk-bearing entities such as VSPs. See

§ 624.307, Fla. Stat.

2. Petitioner is a foreign corporation, licensed to do

business in Florida as a VSP. See § 626.9911(12), Fla. Stat.

Therefore, it is subject to OIR's regulation.

3. Section 626.9911(10), Florida Statutes, defines a

viatical settlement contract as follows in pertinent part:

(10) "Viatical settlement contract" means a

written agreement entered into between a

viatical settlement provider, or its related

provider trust, and a viator. The viatical

settlement contract includes an agreement to

transfer ownership or change the beneficiary

designation of a life insurance policy at a

later date, regardless of the date that

compensation is paid to the viator. The

agreement must establish the terms under

which the viatical settlement provider will

pay compensation or anything of value, which

compensation or value is less than the

expected death benefit of the insurance

policy or certificate, in return for the

viator's assignment, transfer, sale, devise,

or bequest of the death benefit or ownership

of all or a portion of the insurance policy

or certificate of insurance to the viatical

settlement provider.

4. Section 626.9922, Florida Statutes, provides OIR

explicit authority to examine any books and records, without

limitation to Florida-only files, of Florida-licensed VSPs.

Section 626.9922, Florida Statutes, states as follows in

pertinent part:

(1) The office or department may examine the

business and affairs of any of its respective

licensees or applicants for a license. The

office or department may order any such

licensee or applicant to produce any records,

books, files, advertising and solicitation

materials, or other information and may take

statements under oath to determine whether

the licensee or applicant is in violation of

the law or is acting contrary to the public

interest. The expenses incurred in

conducting any examination or investigation

must be paid by the licensee or applicant.

Examination and investigations must be

conducted as provided in chapter 624, and

licensees are subject to all applicable

provisions of the insurance code.

5. Section 626.9925, Florida Statutes, states as follows:

Rules.--The commission may adopt rules

to administer this act, including rules

establishing standards for evaluating

advertising by licensees; rules providing for

the collection of data, for disclosures to

viators, for the registration of life

expectancy providers; and rules defining

terms used in this act and prescribing

recordkeeping requirements relating to

executed viatical settlement contracts.

6. Florida law specifically addresses viatical settlement

contracts entered into between a VSP domiciled in Florida and a

non-Florida resident in Section 626.99245, Florida Statutes, as

follows:

(1) A viatical settlement provider who from

this state enters into a viatical settlement

contract with a viator who is a resident of

another state that has enacted statutes or

adopted regulations governing viatical

settlement contracts shall be governed in the

effectuation of the viatical settlement

contract by the statutes and regulations of

the viator's state of residence. If the

state in which the viator is a resident has

not enacted statutes or regulations governing

viatical settlement agreements, the provider

shall give the viator notice that neither

Florida nor his or her state regulates the

transaction upon which he or she is entering.

For transactions in those states, however,

the viatical settlement provider is to

maintain all records required as if the

transactions were executed in Florida. The

forms used in those states need not be

approved by the office.

There is no similar statute that specifically requires a non-

domestic VSP, such as Petitioner, to produce records for OIR's

review on transactions with viators who are not Florida

residents.

7. Nevertheless, OIR reviews out-of-state transactions of

licensed VSPs, domestic and non-domestic, to verify compliance

with Section 626.99275(1)(d), Florida Statutes, which states as

follows:

(1) It is unlawful for any person:

* * *

(d) To knowingly or intentionally facilitate

the change of state of residency of a viator

to avoid the provisions of this chapter.

Except as provided in Section 626.99275(1)(d), Florida Statutes,

OIR does not apply Florida law to a foreign VSP's non-Florida

transactions.

8. OIR's examiners spend significantly less time reviewing

non-Florida transactions, than Florida transactions. The

examiners only review non-Florida transactions to determine

whether the non-Florida transaction is actually a Florida

transaction. Florida transactions, on the other hand, are put

through a rigorous review process to ensure compliance with

Florida law.

9. There have been instances during an examination of a VSP

whereby OIR has discovered a file represented as a Florida file

that was actually a non-Florida file. OIR also has discovered

instances whereby a file represented to be from another state was

later revealed to be a Florida transaction.

10. Alan Buerger, Petitioner's founder, Chief Executive

Officer, and Treasurer, provided testimony during deposition and

final hearing. During deposition, Mr. Buerger testified there

have been instances where Petitioner has misplaced or mislabeled

a viator’s state of residence.

11. Section 624.316(1)(c), Florida Statutes, governing

examination of insurers, gives the Commission discretion to adopt

a specified rule as follows:

(c) The office shall examine each insurer

according to the accounting procedures

designed to fulfill the requirements of

generally accepted insurance accounting

principles and practices and good internal

control and in keeping with generally

accepted accounting forms, accounts, records,

methods, and practices relating to insurers.

To facilitate uniformity in examination, the

commission may adopt, by rule, the Market

Conduct Examiners Handbook and the Financial

Condition Examiners Handbook of the National

Association of Insurance Commissioners, 2002,

and may adopt subsequent amendments thereto,

if the examination methodology remains

substantially consistent.

The Commission has not exercised its discretion to adopt the NAIC

Market Conduct Examiner's Handbook (currently known as the

"Market Regulation Handbook") or any other rule relating to

procedures or methodologies for market conduct examinations

carried out pursuant to Chapter 624, Florida Statutes.

12. Petitioner alleges that the following documents contain

statements that should be adopted by a rule: (1) SPA Field Exam

Policy, (2) VSP Manual, and (3) VSP Exam Procedures. OIR's

examiners receive these documents from their supervisors as

guidelines to use in the examination of VSPs.

13. The SPA Field Exam Policy is an internal management

memorandum that is a flexible guide used to train examiners. The

document does not directly or indirectly require a VSP to comply

with any statement contained therein or take any action, and it

is not a procedure that is important to the public. It is only

directed to OIR's field examiners.

14. The SPA Field Exam Policy includes the following policy

statement: "Statement of Policy: Field examination shall be

conducted in a professional manner in accordance with statutes

governing Specialty Insurers."

15. The SPA Field Exam Policy also states as follows:

"Purpose or Objective: To establish policies and procedures

governing the travel and conduct of the examinations and the

review, issuance and distribution of reports of examinations."

Its overall objective "is to verify compliance with the specific

statutory requirements governing the type of entity under

examination."

16. OIR gives the SPA Field Exam Policy to new and existing

examiners to tell them how to conduct an examination. The SPA

Field Exam Policy includes the following procedures:

(a) scheduling of examination; (b) scope and objective of

examination; (c) conduct of examination; (d) working paper

standards; (e) draft reports of examination; (f) exit

conferences; (g) review and issuance of reports of examination;

(h) corrective action plans; and (i) travel and administrative

matters.

17. According to the SPA Field Exam Policy, an examiner is

required to perform an examination using the standard audit

program in effect at the start of the examination unless

instructed otherwise. The policy states that the scope of the

examination is to correspond to that contained in the engagement

letter.

18. The VSP Manual is an internal management memorandum

that is directed to OIR's examiners. It is a training tool and

guideline for examiners that are conducting examinations of VSPs.

The manual includes an outline of items to look for during the

examinations. The outline tracks the language in the statute.

19. One purpose of the VSP Manual is to ensure that

examiners go through all sections of the statute that relate to

VSPs and to make sure they test OIR's issues of concern. The VSP

Manual states that "[i]n conducting examinations of VSPs, the

examiner will use the current audit program ( see Attachment A)

and follow the guidance offered in this manual."

20. According to the VSP Manual, examiners should review a

list of all in-force policies and select a sample of completed

settlement contracts. The sample of in-force contract includes

Florida and non-Florida contracts.

21. The VSP Manual directs examiners to review the selected

policies to verify compliance with twelve bullet points. The

twelve bullet points apply only to Florida policies. Out-of-

state policies are reviewed only to determine whether there is a

violation of Section 626.99275, Florida Statutes.

22. The examiner may deviate from the guidelines in the VSP

Manual without receiving approval from management. The VSP

Manual does not confer any requirements upon a VSP. It does not

establish a procedure that could be used to impose a penalty on a

licensed VSP.

23. The VSP Exam Procedures is an internal management

memoranda used as a flexible guide to the examiners on how to

conduct an examination in accordance with the statutes. It

assists the examiners in determining what steps to perform while

doing an examination. However, the examiners are allowed to

deviate from the document. The information in the document

tracks the language of the statutes.

24. OIR's VSP Exam Procedures is the "current audit

program" referenced in the SPA Field Exam Policy and the VSP

Manual. The first page of the VSP Exam Procedures sets forth the

following objectives:

Ensure examinations are conducted in

accordance with established policies and

procedures (examination procedure step

1),

Gain an understanding of the company's

operations (steps 2,3 and 5),

Verify the viatical settlement provider

("VSP") is complying with the provisions

of Chapter 626, Part X, Florida

Statutes, and in accordance with the

terms of its viatical settlement

agreements (steps 4 and 6 through 12),

Ensure the company is keeping the Office

informed of developments that are of

interest to it (steps 4 and 6), and

Prepare a Report of Examination

available to the public (step 15).

25. In step 8, examiners are instructed to select and

review a sample of in-force policies for compliance with twelve

bullet points. The twelve-point review would apply only to

Florida policies.

26. The VSP Exam Procedures does not direct Petitioner or

any other VSP to take any sort of action. It is directed

exclusively to OIR's examiners. It does not establish a

procedure that could be used to impose a penalty on a VSP.

27. During deposition and final hearing, Mr. Buerger was

asked how Petitioner was substantially affected by the OIR’s

internal management memoranda. Mr. Buerger testified that the

requirement to prepare documents and data on a nationwide—rather

than Florida-only basis—had a substantial affect on Petitioner.

However, Mr. Buerger could not identify any of Petitioner's

private interests that are affected by the SPA Field Exam Policy,

the VSP Manual, and the VSP Exam Procedures. Mr. Buerger had not

read any of the three documents that Petitioner claims constitute

unpromulgated rules.

28. OIR provides courtesy letters to VSPs prior to

examinations. OIR uses the engagement letters to advise VSPs

about upcoming triennial or market conduct/target examinations

and to notify them that an examiner will expect to review all of

the company's books and records.

29. Notification of upcoming examinations is not required

by statute. The engagement letters do not place any requirements

upon VSPs.

30. As early as March 15, 2004, engagement letters have

contained requests for certain records. However, requests for

information in letters may vary on a case-by-case basis depending

on a VSP’s licensure history and business practices.

31. Currently, OIR's financial examiner/analyst supervisor,

Janice Davis, drafts the letters. Ms. Davis has prepared the

letters using the same format since 2007, but an insurance

examiner could draft a letter without supervisory approval. The

drafter of the courtesy letters can change the letters at any

time without approval from upper management and without internal

ramifications from the Office.

32. Ms. Davis's letters request VSPs to have the following

records available:

Copy of latest audited financial

statement, if any.

Copy of most recent unaudited financial

statements.

Chart of accounts.

Bank statements along with receipt and

disbursement journals for all bank

accounts for the past 24 months.

Documentation supporting ownership

interest in the company, together with

the complete corporate record book,

minutes, corporate resolutions or

similar documentation of organizational

meeting and resolutions.

Copies of all licenses obtained by the

company and status of any pending

applications for licensure.

Copies of all approved forms,

disclosures, and contracts, as well as

advertising, sales and investment

literature.

Copies of all contracts or agreement

between the company and all persons

(including other entities and investors)

related to the conduct of business.

Listing of all broker and agent

commissions paid during exam scope.

All contracts with viators, in which the

company participated, in primary or

secondary market, whether as provider,

broker, originator, agent or purchaser.

Database of all policies reviewed or

considered for purchase.

Insured tracking records and files.

Premium payment records and files.

All viator files, including but not

limited to: applications, offers,

contracts or agreements, insurance

policies, medical records, etc.

All complaint and litigation files (and

any resolutions thereto.

Because VSPs must pay all expenses associated with examinations,

advance listing of the specific records that need to be available

facilitates examinations.

33. The letters do not require VSPs to provide

documentation in a database or spreadsheet in Excel format. It

is an option provided to the company. Ms. Davis' letter to

Petitioner dated August 14, 2008, states as follows in relevant

part:

Additionally, to facilitate an

expeditious review of the files, please

provide the examiner with a database or

spreadsheet file in Excel format including,

but not limited to, the following

documentation . . . .

1) Please provide the following

information on all policies purchased, to

date :

a. contract identifier

b. viator name

c. viator State of residence

d. insured name

e. insured State of residence

f. settlement amount

g. original viatical settlement

provider

h. broker(s)

i. broker commission(s)

j. date of contract

k. date of closing

l. insurer name

m. policy number

n. policy issue date

o. type of coverage (individual,

group, term, whole life, etc.)

p. death benefit

q. life expectancy

r. projected maturity date

s. original premium escrow and

current escrow balance

t. current status (active vs. matured,

sole vs. available)

u. date of death (if applicable)

v. date death claim filed (if

applicable (Emphasis in original).

2) If the licensee is responsible for

the payment of premiums, please provide a

listing (include: unique viator identifier,

insurer, policy number, policy face value,

frequency of payment, next payment due date

and amount due) for all policies purchased

since inception for which premiums are due

during the next 12 months.

34. The engagement letters make it clear that OIR expects

VSPs to provide information as required by Section 626.9922,

Florida Statutes. In giving OIR authority to examine all books

and records, the statute does not differentiate between in-state

and out-of-state records.

35. If a VSP does not produce documents as requested in the

courtesy letters, OIR could take disciplinary action against its

license. To date, OIR has not taken any such action against a

company for not providing the requested documentation. If the

company does not provide a database or Excel spreadsheet, OIR

will create a database for the documentation by going though

paper files at the VSP's expense.

36. During deposition, Mr. Buerger, Petitioner's corporate

representative, was asked if Petitioner preferred not to have a

letter that provided notice of an upcoming examination and

whether Petitioner would prefer an examiner show up to conduct an

examination without prior notice. Mr. Buerger responded: “If we

are going to have an exam, we’d like to know when somebody’s

coming.”

37. OIR has a pending examination of Petitioner's books and

records. OIR expects Petitioner to produce documentation and

information listed in the engagement letter, including

information relating to out-of-state settlement transactions. In

the course of an examination that took place in 2005, OIR advised

Petitioner that its license would be suspended summarily under an

emergency order if it failed to provide out-of-state information.

38. The requirement to produce in-state and out-of-state

records creates a financial burden for Petitioner because the

majority of Petitioner's records involve out-of-state

transactions. For example, in 2005, Petitioner had approximately

1,760 policies nationwide in the three-year period covered by the

examination. Only 13 percent of these policies involved Florida

residents. OIR billed Petitioner approximately $33,000 for the

examination.

39. Petitioner incurred other expenses associated with the

2005 examination such as the following: (a) legal expenses;

(b) internal costs for software engineering, accounting and

contract services to prepare the database; and (c) substantial

time for staff to coordinate information from various departments

to prepare the nationwide information. Petitioner's staff spent

six to seven hours of time for each of the approximately 517

hours that OIR billed for the 2005 examination. Finally, the

request for out-of-state documents required Petitioner to spend a

substantial amount of time and resources to ensure the security

of personal financial and health information of viators.

40. OIR currently has issued a second notice of triennial

examination to Petitioner. The August 14, 2008, engagement

letter requires Petitioner to provide documents and information

for its policies on a nationwide basis. For the period covered

by the second triennial examination, Petitioner has approximately

4,500 to 4,600 policies. Thus, Petitioner expects a substantial

increase in the cost of complying with OIR's document review and

data requests from the costs it incurred in 2005.

CONCLUSIONS OF LAW

41. The Division of Administrative Hearings has

jurisdiction of the subject matter and the parties to this

proceeding. See §§ 120.569 and 120.57(1), Fla. Stat.

42. Section 120.56(4)(a), Florida Statutes, states in

pertinent part, that “[a]ny person substantially affected by an

agency statement may seek an administrative determination that

the statement violates s. 120.54(1)(a).” A person or entity

demonstrates it is "substantially affected" by demonstrating

that: (a) it will suffer an injury in fact of sufficient

immediacy to entitle it to a formal administrative proceeding;

and (b) the substantial injury is of a type or nature that the

proceeding is designed to protect. See Ameristeel v. Clark ,

691 So. 2d 473 (Fla. 1997).

43. In this case, Petitioner has standing to challenge the

documents at issue as unpromulgated rules because it is subject

to examinations that: (a) include a review of documents and

information listed in the engagement letters; and (b) are

conducted pursuant to guidelines set forth in the manuals. OIR's

examination of out-of state viatical settlement contracts, in

addition to Florida transactions, requires Petitioner to expend a

substantial amount of time and other resources.

44. Petitioner has the burden of establishing by a

preponderance of the evidence that the challenged agency

statements constitute unpromulgated rules. See Bravo Basic

Material Co., Inc. v. Dep't of Transp. , 602 So. 2d 632 (Fla. 2nd

DCA 1992); Fla. Dep't of Transp. v. J.W.C. Co. , 396 So. 2d 778

(Fla. 1st DCA 1981).

45. Petitioner alleges that the following agency statements

are rules, as defined by Section 120.52(16), Florida Statutes:

(1) SPA Field Exam Policy, (2) VSP Manual, (3) VSP Exam

Procedures, and (4) courtesy letters provided to the VSPs prior

to an examination.

46. Section 120.52(16), Florida Statutes, defines a rule as

follows in pertinent part:

(16) "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 specifically

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 procedure important

to the public and which have no application

outside the agency issuing the memorandum.

47. An agency statement is invalid only if it falls within

the definition of a rule. See Dep’t of Revenue v. Novoa ,

745 So. 2d 378 (Fla. 1st DCA 1999).

48. Statements of general applicability, as referred to in

Section 120.52(16), Florida Statutes, are statements that are

intended by their own effect to create rights or require

compliance, or otherwise have the direct and consistent effect of

law. McDonald v. Dep’t of Banking and Finance , 346 So. 2d 569,

581 (Fla. 1st DCA 1977).

49. In Dep’t of Revenue v. Vanjaria Enterprises, Inc. ,

675 So. 2d 252, 255 (Fla. 5th DCA 1996), the court held that the

Department of Revenue’s training manual used for the tax

assessment procedure was a statement of general applicability

because it was the sole guide for the auditors and was not

applied on a case-by-case basis. In Vanjaria , the auditors had

no discretion to act outside of the procedure.

50. Unlike Vanjaria , OIR's SPA Field Exam Policy, VSP

Manual, VSP Exam Procedures, and courtesy letters are not

mandatory guides for examiners to use in conducting examinations.

The examiners have discretion to deviate from the documents.

OIR’s examiners rely solely on the statutes in requesting and

requiring a licensed VSP to provide all books and records without

limiting it to Florida transactions.

51. The manuals are applied on a case-by-case basis,

depending on the licensed VSP being examined. The examiners are

free to adjust the audit program guidelines based on the

circumstances of the VSP. There may be companies that do not

engage in business outside of Florida, so there would be no need

to request that non-Florida files be available for review.

52. In determining whether an agency statement is an

unpromulgated rule, the effect of the statement must be taken

into consideration. See Vanjaria , 675 So. 2d at 255. An agency

statement that requires compliance, creates certain rights while

adversely affecting others, or otherwise has the direct and

consistent effect of law, is a rule. Id.

53. In Dep’t of Highway Safety and Motor Vehicles v.

Schluter , 705 So.2d 81, 82 (Fla. 1st DCA 1997), the court held

that certain policies concerning officer discipline were not

agency statements of general applicability because each was to

apply only under certain circumstances and did not have the

consistent effect of law.

54. In Agency for Health Care Administration v. Custom

Mobility, Inc. , 995 So. 2d 984 (Fla. 1st DCA 2008), the court

held that a formula used to calculate overpayment to Medicaid

providers was not a statement of general applicability because it

only applied to some of the service providers being audited, and

thus, did not have the consistent effect of law. The court found

that the formula did not create any rights or adversely affect

others because it did not itself establish that the service

provider owed money. Id. at 987. Additionally, the court held

that the formula was not a rule because it did not set forth a

categoric requirement of specific criteria with which to comply.

Id .

55. Like Schluter and Custom Mobility, Inc. , OIR's manuals

and letters are not statements of general applicability and do

not have the consistent effect of law. They do not create or

adversely affect any rights. A VSP is not afforded any

additional rights or burdened by any further obligations as a

direct or immediate consequence of the documents.

56. The manuals do not have a direct or external effect on

any VSP. They are simply internal documents given to examiners

to teach them what the statutes require in conducting an

examination of a licensed VSP. The courtesy letters are given to

the licensed VSPs to notify them of the examinations and to

advise them about records that OIR may want to review in regard

to that specific company.

57. In Gary M. Piccirillo and Douglas L. Adams v. Dep't of

Corrections , Case No. 83-1652 (DOAH April 17, 1984), the Division

of Administrative Hearings considered whether portions of the

Union Correctional Institution Operating Procedures 82-69

constituted unpromulgated rules. The document contained

operating procedures relating to the confinement of inmates. Id.

In finding that portions of the statements were not rules, the

Administrative Law Judge held that, “where agency statements that

have not been adopted as rules simply track the language of

either a statute or a validly adopted rule, it is unnecessary

that they be adopted pursuant to the requirements of Section

120.54, Florida Statutes.” Id.

58. Here as in the Piccirillo case, OIR's manuals and

letters track the language in Section 626.9922, Florida Statutes,

which provides OIR with authority to order licensed VSPs to

"produce any records, books, files, advertising and solicitation

materials or other information . . . ."

59. OIR's SPA Field Exam Policy, VSP Manual, and VSP Exam

Procedures do not constitute statements of “general

applicability,” but rather fall under the classification of

“internal management memoranda,” an exception to the definition

of a rule. See § 120.52(16)(a), Fla. Stat. They are intended

solely for the training of the OIR's examiners on how to conduct

an examination of VSPs. The documents do not affect the private

interest of VSPs.

60. In Dep’t of Revenue v. Novoa , 745 So.2d 378, 381 (Fla.

1st DCA 1999) , the court held that a policy prohibiting employees

from preparing tax returns for private parties during non-working

hours fell within the internal management memorandum exception to

the definition of a rule. Id. at 379. According to the Novoa

court, the policy only applied to employees and did not impair

any private interests established by law. Id. at 391. Moreover,

the court found that members of the general public have no

arguable interest in the restrictions an administrative agency

imposes on its own employees. Id. Since the policy only applied

to the employees, no person or firm outside the agency could

possible by affected by it. Id. Therefore, the policy did not

have an affect outside the agency. Id.

61. Similar to the appellees in Novoa , Petitioner has

failed to show what its private interests are and how those

private interests are affected by OIR’s internal management

memoranda. During deposition and final hearing, Mr. Buerger was

unable to articulate how the memoranda affected Petitioner other

than increasing the cost of the examination. An increase in

examination costs is not a legal right protected by Section

120.52(16)(a), Florida Statutes. Hence, Petitioner has not

established that the internal management memoranda affect a

protected legal right.

62. In Cirrincione v. Dep’t of Agriculture and Consumer

Services , Case No. 05-0145RU (DOAH January 3, 2006), the

Administrative Law Judge rejected claims that the practices and

procedures that the agency utilized in investigating possible

statutory violations are agency statements. The Administrative

Law Judge held that the practices and procedures used by the

agency during an investigation fell under the internal management

memoranda exception to the definition of a rule. Id. The

opinion states as follows in relevant part:

22. The procedure that the Department

utilizes in investigating possible

violations, reviewing the investigation

files, drafting administrative complaints,

and reviewing draft administrative complaints

are followed for all disciplinary actions.

This procedure falls under the internal

memoranda exception to the definition of a

rule. The procedure has no application

outside the Department. It does not affect

the private interests of persons who are

subject to disciplinary action. At first

blush, it would appear that because the

investigatory process could end in a penalty

being imposed upon the person being

investigated that the procedure would affect

the private interests of a person. However,

a person who is subject to discipline by the

Department has no statutory right in having

the disciplinary case investigated in a

certain manner, in having certain persons

review the file before the final

determination is made to take disciplinary

action, or in having the administrative

complaint drafted or reviewed in a certain

manner. The ultimate decision to take the

disciplinary action is made by the Division

Director or Assistant Division Director and

not by lower echelon staff.

23. The investigatory process is not a

procedure that is important to the public.

Section 482.061, Florida Statutes, provides

that the Department shall appoint inspectors

to do inspections and perform investigative

work. If the inspectors find a violation,

they are required to report it to the

Department. The process that the Department

utilizes in reviewing the report and

subsequent investigative file, preparing an

administrative complaint based on the

investigative file, and reviewing the

administrative complaint for quality control

prior to the actual determination to take

disciplinary action is of no more importance

to the public than what steps an agency uses

in preparing and reviewing other types of

documents that are sent out by the agency.

Id.

63. OIR's internal management memoranda are utilized during

the examination of VSPs. Following the opinion in Cirrincione ,

OIR's internal management memoranda fall under the internal

management memoranda exception to the definition of a rule.

Further, Petitioner does not have a statutory right in having an

examination conducted in a certain manner.

64. OIR’s internal management memoranda and courtesy

letters are not rules within the definition of Section

120.52(16), Florida Statutes. They are not subject to the

requirements set forth in Section 120.54(1), Florida Statutes.

65. By motion, Respondents seek reasonable costs and

attorneys' fees pursuant to Section 120.595(4)(d), Florida

Statutes, which states as follows:

(d) If the agency prevails in the

proceedings, the appellate court or

administrative law judge shall award

reasonable costs and attorney's fees against

a party if the appellate court or

administrative law judge determines that the

party participated in the proceedings for an

improper purpose as defined in paragraph

(1)(e) or that the party or the party's

attorney knew or should have known that a

claim was not supported by the material facts

necessary to establish the claim or would not

be supported by the application of then-

existing law to those material facts.

Under the circumstances of this case, Respondent's motion is

denied.

ORDER

Based upon the foregoing Findings of Fact and Conclusions of

Law, it is

ORDERED that the Petition, as amended, is dismissed, and it

is further

ORDERED that Respondents are not entitled to recover costs

and attorneys’ fees.

DONE AND ORDERED this 13th day of November, 2009, in

Tallahassee, Leon County, Florida.

S

SUZANNE F. HOOD

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone]

Fax Filing [phone]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 13th day of November, 2009

COPIES FURNISHED :

Susan Dawson, Esquire

Sharlee Hobbs Edwards, Esquire

Mohammad Sherif, Esquire

Office of Insurance Regulation

200 East Gaines Street

Tallahassee, Florida 32399-0333

Frank J. Santry, Esquire

Frank Santry, P.L.

2533 Noble Drive

Post Office Box 16337

Tallahassee, Florida 32317-6337

William E. Williams, Esquire

Gray Robinson, P.A.

301 South Bronough Street, Suite 600

Tallahassee, Florida 32301

Liz Cloud, Program Administrator

Administrative Code

Department of State

R.A. Gray Building, Suite 101

Tallahassee, Florida 32399

F. Scott Boyd, Executive Director

and General Counsel

Joint Administrative Proceedings Committee

120 Holland Building

Tallahassee, Florida 32399-1300

Steve Parton, General Counsel

Office of Insurance Regulation

Financial Services Commission

200 East Gaines Street

Tallahassee, Florida 32399-0305

Commissioner Kevin McCarty

Office of Insurance Regulation

200 East Gaines Street

Tallahassee, Florida 32399-0305

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 one copy of

a Notice of Appeal with the agency clerk of the Division of

Administrative Hearings and a second 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.