11-005827RU Guarantee Trust Life Insurance Company vs. Financial Services Commission And Office Of Insurance Regulation Status: Closed DOAH Final Order on Friday, March 16, 2012.

Summary: Administrative Complaint alleging that facts constitute a facial violation of a statute is not a statement of agency policy and does not constitute an unadopted rule; the Petition is dismissed.

Case No. 11-5827RU

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

GUARANTEE TRUST LIFE )

INSURANCE COMPANY, FINAL ORDER )

)

Petitioner, )

vs. )

)

FINANCIAL SERVICES )

COMMISSION AND OFFICE )

OF INSURANCE REGULATION, )

)

Respondents. )

)

)

On December 12, 2011, a duly-noticed hearing was held in

Tallahassee, Florida, before F. Scott Boyd, an Administrative Law

Judge assigned by the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Cynthia Tunnicliff, Esquire

Brian A. Newman, Esquire

Pennington, Moore, Wilkinson

Bell and Dunbar, P.A.

215 South Monroe Street, Second Floor

Post Office Box 10095

Tallahassee, Florida 32302-2095

For Respondent: Stephen H. Thomas, Jr., Esquire

Kenneth Tinkham, Esquire

Office of Insurance Regulation

200 East Gaines Street

Tallahassee, Florida 32399-4206

STATEMENT OF THE ISSUE

Whether the Amended Notice and Order to Show Cause issued in

DOAH Case Number 11-1150, with which this unadopted rule challenge

is now consolidated, contains an agency statement that comes

within the definition of a rule but has not been adopted through

rulemaking procedures, in violation of section 120.54(1)(a),

Florida Statutes, and if so, whether costs and attorney’s fees

should be awarded.

PRELIMINARY STATEMENT

On January 12, 2011, the Office of Insurance Regulation

(Office) filed an Administrative Complaint against Guarantee Trust

Life Insurance Company (GTL) alleging violations of various

provisions of the Florida Insurance Code, directing GTL to cease

and desist, and ordering GTL to show cause as to why its

certificate of authority should not be suspended or revoked and

why penalties should not be imposed. GTL requested an

administrative hearing and the matter was referred to the Division

of Administrative Hearings on March 3, 2011. The case was

assigned Case Number 11-1150 and assigned to Administrative Law

Judge Lawrence P. Stevenson. On August 30, 2011, the case was

transferred to the undersigned.

The Office filed a Motion for Protective Order on August 30,

2011, seeking to have any discovery as to the penalties being

sought by the Office barred because discussions as to the

penalties to be sought were conducted between representatives of

the Office and its legal counsel. The Motion for Protective Order

was denied, on the ground that it was overly broad, as only

communications from counsel to client or client to counsel are

privileged, and upon representations from GTL that the privilege

would be respected in further discovery.

The Office filed an Unopposed Motion to Amend Notice and

Order to Show Cause on September 1, 2011, which was granted.

Earlier counts alleging failure of GTL to offer converted policies

were amended to allege that GTL issued the termination letter

without offering conversion policies, as discussed further below,

and new counts were added alleging that the termination letter

sent out to covered persons was misrepresentative, deceptive, or

misleading.

On November 2, 2011, the Office filed a Motion to Compel

Discovery seeking the names and contact information for all

persons covered under the group policy that had been issued by GTL

to Consumer Benefits Association of America. The Motion to Compel

was denied as not being reasonably calculated to lead to the

discovery of evidence relevant to the amended charges of issuing

the termination letter without offering conversion policies or

issuing a termination letter that was misrepresentative, deceptive

or misleading.

On November 15, 2011, GTL filed a Petition to Challenge

Unadopted Rule against the Financial Services Commission and the

Office of Insurance Regulation alleging that the Amended Notice

and Order to Show Cause contained a policy statement of general

applicability, which was assigned Case Number 11-5827RU. GTL’s

Motion to Consolidate was granted on December 7, 2011.

At hearing, Joint Exhibits J-1 through J-5 and J-7, J-8, and

J-10 were admitted. Two pages of Exhibit J-9 were excluded as

being beyond the scope of the agreement between the parties to

admit communications regarding the market investigation, and on

grounds of relevancy, but the remainder of Exhibit J-9 was

admitted. The Office presented the testimony of Mr. Gary

Edenfield for the Office and Mr. Allan Heindl of GTL, and offered

Office Exhibit O-1, which was admitted over objection that it was

unduly repetitious, and O-2, which was admitted without objection.

Exhibit O-3 was late-filed by agreement, and was admitted without

objection. GTL presented testimony from Mr. Heindl and offered

two exhibits, G-2 and G-3, which were admitted without objection.

The Transcript was filed on January 12, 2012. After GTL’s

Unopposed Motion to Extend the Deadline to Submit Proposed

Recommended and Final Orders was granted, proposed orders were

timely submitted by both parties on February 17, 2012, and were

considered. The Recommended Order for the Administrative

Complaint and this Order were issued concurrently.

FINDINGS OF FACT

1. The Financial Services Commission has responsibility over

rules implementing provisions of the Florida Insurance Code

conferring duties upon the Commission or its subunits.

2. The Office of Insurance Regulation (the Office) is a

subunit of the Financial Services Commission responsible for

enforcing the provisions of the Florida Insurance Code with

respect to licensees of the Office.

3. Guarantee Trust Life Insurance Company (GTL) is a foreign

insurer, domiciled in Illinois, which holds a certificate of

authority to transact business as a life and health insurer in

Florida. GTL offers insurance products nationwide, except for New

York, including Medicare long-term care, supplemental, cancer,

college student, accident, and sickness policies.

4. GTL is subject to the jurisdiction of the Office under

the Florida Insurance Code, including fines and disciplinary

actions. It is substantially affected by the Office’s action and

is entitled to a hearing to determine if the Administrative

Complaint filed against it constitutes an unadopted rule.

5. On or about May 5, 2010, GTL sent a Termination

Letter to at least 216 Florida residents (Members) covered

under an out-of-state group major medical policy (Policy), as

well as to about 70 Florida residents who held individual

policies offered by GTL. 1/ The Termination Letter advised

that major medical coverage would not be renewed and that GTL

would no longer be offering major medical type coverage.

6. On January 12, 2011, the Office served GTL with a Notice

and Order to Show Cause alleging that GTL had violated the Florida

Insurance Code by continuing to non-renew policies and failing to

offer converted policies.

7. A conversion policy is a form of replacement insurance

coverage for which certificate holders in a group policy may be

eligible when their coverage under a group policy is terminated.

8. On January 28, 2011, GTL filed a Petition for

Administrative Hearing with the Office. It amended that Petition

on February 1, 2011, still maintaining that it was not required to

offer conversion policies.

9. On September 2, 2011, an Order was issued granting the

Office’s Unopposed Motion to Amend Notice and Order to Show Cause.

Counts I and II of the earlier complaint were amended. The

earlier complaint had charged in these counts that “Guarantee

Trust violated the Florida Insurance Code by failing to offer

converted policies as required by Section 627.6675, Florida

violated the Florida Insurance Code by issuing the Termination

Letter without offering converted policies required by the Florida

Insurance Code and Section 627.6675, Florida Statutes.”

10. On November 15, 2011, GTL filed a Petition to Challenge

Unadopted Rule. The Petition was served on the Office more than

30 days before it was filed with the Division of Administrative

Hearings, as stipulated at hearing.

11. The Financial Services Commission has not adopted the

statement that it was a violation of provisions of the Florida

Insurance Code for GTL to “issue a termination letter without

offering converted policies as required by Section 627.6675,” or

any similar statement, by rulemaking procedures.

CONCLUSIONS OF LAW

12. The Division of Administrative Hearings has jurisdiction

over the parties and subject matter in this proceeding pursuant to

sections 120.56(4), 120.569 and 120.57(1), Florida Statutes

(2011). 2/

13. Sections 20.121(3)(c) and 624.308(1), Florida Statutes,

grant rulemaking authority to the members of the Financial

Services Commission as agency head to implement provisions of law

conferring duties upon the Commission or its subunits. Under

sections 20.121(3)(a)1. and 624.307, the Office is a subunit of

the Commission responsible for enforcing the provisions of the

Florida Insurance Code and implementing rules that have been

adopted by the Commission with respect to licensees of the Office.

14. GTL is a “person” within the meaning of section

626.9511, Florida Statutes, and is subject to the jurisdiction and

regulation of the Office pursuant to the Florida Insurance Code.

15. An agency statement that comes within the definition of

a rule must be adopted according to rulemaking procedures. Envtl.

Trust, Inc. v. Dep’t of Envtl. Prot. , 714 So. 2d 493 (Fla. 1st DCA

1998); Christo v. Dep’t of Banking & Fin. , 649 So. 2d 318 (Fla.

1st DCA 1995). Section 120.54(1)(a) provides in relevant part:

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.

16. Subsection 120.56(4) provides that a person

substantially affected by an agency statement that comes within

the definition of a rule, but which has not been adopted by

rulemaking procedures, may challenge that statement.

17. In order to prove that it has standing, GTL must show

that 1) the agency statement of policy will result in a real or

immediate injury in fact; and 2) the alleged interest is within

the zone of interest to be protected or regulated. Jacoby v. Fla.

Bd. of Medicine , 917 So. 2d 358, 360 (Fla. 1st DCA 2005).

18. GTL has standing to bring this proceeding pursuant to

paragraph 120.56(4)(a). The statement at issue appeared in the

Amended Notice and Order to Show Cause directed at GTL by the

Office pursuant to its regulatory authority. GTL could suffer

suspension or revocation of its certificate of authority or the

imposition of fines.

19. Under subsection 120.56(4), a Petitioner has the

burden to prove that the statement constitutes a rule and

that the agency has not adopted the statement by rulemaking

procedures. S.W. Fla. Water Mgmt. Dist. v. Charlotte Co. ,

774 So. 2d 903, 908 (Fla. 2d DCA 2001). Under section

120.56(4)(b), the burden to prove that rulemaking is not

feasible or not practicable then falls upon the agency.

20. The Financial Services Commission has not adopted the

statement contained in Counts I and II, or any similar statement,

by rulemaking procedures, as it stipulated. The issue here, then,

is whether or not the statement constitutes a rule.

21. Subsection 120.52(16) defines "rule" in relevant part 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

specifically required by statute or by an

existing rule.

22. An agency statement is “generally applicable” if it is

intended by its own effect to create rights, or to require

compliance, or otherwise have the direct and consistent effect of

law. Coventry First, LLC v. Office of Ins. Reg.

, 38 So. 3d 200

(Fla. 1st DCA 2010)(quoting McDonald v. Dep’t of Banking & Fin. ,

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

23. The language “Guarantee Trust violated the Florida

Insurance Code by issuing the Termination Letter without offering

converted policies required by the Florida Insurance Code and

Section 627.6675, Florida Statutes” asserts that the alleged facts

constitute a facial violation of a statute by GTL.

24. Whether or not the Office is able to prove that GTL

in fact issued the Termination Letter without offering

converted policies, and if so, that this is a violation of

the statute 3/ has no bearing on whether or not the language

in Counts I and II constitutes an unadopted rule.

25. The language used in Counts I and II does not contain

construed as a statement of the Office intended to have its own

direct and consistent effect. The language instead simply

attempts to apply a policy statement enacted into law by the

Florida Legislature to a set of facts in the context of a specific

adjudication. An Administrative Complaint alleging a facial

violation of a statute or existing rule is not a statement of

agency policy that constitutes an unadopted rule. United Wis.

Life Ins. Co. v. Fla. Dep't of Ins. , 831 So. 2d 239, 240 (Fla. 1st

DCA 2002) . The language of section 120.57(1)(e), which provides

that the prohibition on basing agency action on an unadopted rule

“does not preclude application of adopted rules and applicable

provisions of law to the facts,” is in harmony.

26. GTL proved that the Financial Services Commission has

not adopted the statement pursuant to rulemaking procedures, but

failed to prove that the statement meets the definition of a rule.

27. Paragraph 120.595(4)(a) provides for the award of

reasonable costs and reasonable attorney’s fees only upon a

determination that all or part of an agency statement violates

paragraph 120.54(1)(a). No unadopted rule was found in this case.

FINAL ORDER

Upon consideration of the above findings of fact and

conclusions of law, it is

ORDERED:

That Guarantee Trust Life Insurance Company’s Petition to

Challenge Unadopted Rule is dismissed.

DONE AND ORDERED this 16th day of March, 2012, in

Tallahassee, Leon County, Florida.

S

F. SCOTT BOYD

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 16th day of March, 2012.

ENDNOTES

1/ Many facts leading up to, and following, the Letter of

Termination are set forth in detail in the Recommended Order.

They were not deemed relevant to this Order and so are not

reiterated here, but for purposes of appeal, are hereby

incorporated and made a part of this Order by reference.

2/ All references to statutes and rules are to the versions in

effect in 2011, the time the statement alleged to be an unadopted

rule was issued as part of the Amended Notice and Order to Show

Cause, except as otherwise indicated.

3/ As discussed in detail in the Recommended Order entered in

this consolidated case, GTL contends that its failure to notify

Members of their conversion rights does not violate section

627.6675, because the only notification required by that statute

is the notification contained in the Policy itself. The Office

contends that section 627.6675 requires GTL to offer a conversion

policy and that the Termination Letter illegally revoked this

offer, in violation of the statute. No matter how these legal

issues are resolved, they concern only the legal requirements of

COPIES FURNISHED :

Cynthia S. Tunnicliff, Esquire

Pennington, Moore, Wilkinson,

Bell and Dunbar, P.A.

215 South Monroe Street, Second Floor

Post Office Box 10095

Tallahassee, Florida 32302-2095

[e-mail]

Stephen H. Thomas, Jr., Esquire

Kenneth Tinkham, Esquire

Office of Insurance Regulation

200 East Gaines Street

Tallahassee, Florida 32399-4206

Liz Cloud, Program Administrator

Administrative Code

Department of State

R. A. Gray Building, Suite 101

Tallahassee, Florida 32399

Ken Plante, Coordinator

Joint Administrative Procedures Committee

Room 680, Pepper Building

111 West Madison Street

Tallahassee, Florida 32399-1400

Governor Rick Scott

State of Florida

The Capitol, Plaza Level 05

Tallahassee, Florida 32399-0001

Jeff Atwater, Chief Financial Officer

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399-0300

Pam Bondi, Attorney General

Department of Legal Affairs

Office of the Attorney General

The Capitol, Plaza Level 01

Tallahassee, Florida 32399-1050

Adam Putnam, Commissioner

Department of Agriculture

and Consumer Services

The Capitol, Plaza Level 10

Tallahassee, Florida 32399-0810

Kevin M. McCarty, Commissioner

Office of Insurance Regulation

200 East Gaines Street

Tallahassee, Florida 32399-0305

Belinda Miller, General Counsel

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 Administrative 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

Administrative Appeal must be filed within 30 days of rendition of

the order to be reviewed.