12-003604F Secure Enterprises, Llc vs. Office Of Insurance Regulation And Financial Services Commission Status: Closed DOAH Final Order on Wednesday, January 16, 2013.

Summary: No fees and costs against agency because its adoption of successfully challenged rule (i.e., form) was substantially justified, as it was reasonable in law and fact.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SECURE ENTERPRISES, LLC , )

)

Petitioner , )

)

vs. ) Case No. 1 2 - 3604F

)

OFFICE OF INSURANCE REGULATION )

AND FINANCIAL SERVICES )

COMMISSION , )

)

Respondent s . )

)

FINAL ORDER

On December 10, 2012, Robert E. Meale, Administrative Law

Judge of the Division of Administrative Hearings conducted the

final hearing in Tallahassee, Florida.

APPEARANCES

For Petitioner: Amy W. Schrader , Esquire

Perry Ian Cone , Esquire

GrayRobinson, P.A.

301 South Bronough Street, Suite 600

Post Office Box 11189

Tallahassee, Florida 32302 - 3189

For Respondents: Bruce Culpepper , Esquire

Stephen H. Thom as , Jr., Esquire

Office of Insurance Regulation

200 East Gaines Street

Tallahassee, Florida 32399 - 4206

STATEMENT OF THE ISSUE

The issue is whether Petitioner is enti tled to

reimbursement of its attorneys' fees and costs under section

120.595(3), Florida Statutes , from its successful prosecution of

a rule challenge in DOAH Case No. 12 - 1944RX .

PRELIMINARY STATEMENT

On November 5, 2012, Petitioner filed a Motion for Awar d of

Attorney's Fees, under section 120.595(3), Florida Statutes.

The request arises out of Petitioner's challenge to existing

rules, and the undersigned's issuance, on October 19, 2012, of a

Final Order in DOAH Case No. 12 - 1944RX invalidating certain of

these rules (Final Order).

By joint stipulation filed December 5, 2012, the parties

identified the issues to be tried in this case as whether

Respondents had a reasonable basis in law and a reasonable basis

in fact to adopt the rules that were invalidate d in the Final

Order.

The court reporter filed the transcript of the final

hearing on January 2, 2013. On January 14, 2013, Petitioner

filed a proposed final order and Respondents filed a memorandum

of law.

FINDINGS OF FACT

1. In DOAH Case No. 12 - 1944R X, Petitioner challenged

Florida Administrative Code R ules 69O - 170.017 and 69O - 170.0155

and incorporated forms OIR - B1 - 1699 (Form 1699) and OIR - B1 - 1655

(Form 1655). These rules generally relate to fixtures and

construction techniqu es that mitigate wind los s and earn

homeowners a discount on the wind portion of their homeowners'

insurance premium.

2. The most important of these rule s, Form 1699 consists

of two matrices: one matrix provides discounts for mitigative

fixtures and construction techniques app lied to existing

residential construction ( i.e., predating the 2001 Florida

Building Code) , and the other matrix provides discounts for

mitigative fixtures and construction techniques applied to new

residential construction ( i.e., subject to the 2001 Flori da

Building Code or any of its successors ). The Final Order

invalidates the matrix applicable to existing residential

construction, but not the matrix applicable to new residential

construction. The Final Order concludes that the omission from

Form 1699 of discounts for increased wind resistivity for doors

modifies and contravenes the law implemented and is arbitrary.

The Final Order finds other omissions from Form 1699 -- i.e.,

discounts for increased wind resistivities for windows and

increased impact re sistivities for doors -- but these findings

served the purpose of partly justifying the invalidation of the

entire form for the omission of a single set of discounts

substantially affecting Petitioner -- i.e., the discounts for

increased wind resistivities for doors. (Findings as to the

interdependency of all of the discounts provided the remaining

justification for invalidating the entire form for the omission

of a single set of discounts.)

3. Form 1655 advises homeowners of the availability of

discounts app licable to the wind portion of their homeowners'

insurance premium s for various mitigative fixtures and

construction techniques. The Final Order invalidates Form 1655

in its entirety. The main reason is that Form 1655 fails to

notify homeowners about the availability of discounts for

fixtures and construction techniques that increase the wind

resistivity of windows and doors . An additional reason is that

Form 1655 mentions shutters as the sole fixture to increase the

impact resistivity of windows and doo rs, misleadingly implying

that shutters are the sole fixture or construction technique for

increasing the impact resistivity of windows and doors.

4. Rule 69O - 170.017 incorporates by reference Form 1699.

The Final Order denied Petitioner's request to i nvalidate r ule

69O - 170.017 because the rule incorporate s the still - valid,

existing - co nstruction matrix in Form 1699 .

5. Rule 69O - 170.0155 incorporates by reference several

forms. The Final Order invalidates only r ule 69O - 170.0155(k),

which is the subsect ion that incorporates Form 1655.

6. Petitioner commenced its rule challenge to obtain a

wind - premium discount for homeowners who purchased and installed

its bracing system on their existing , nonglazed garage doors in

order to increase the ir wind resistivi ty. The thrust of

Petitioner's challenge was thus to the omission from Form 1699

of any discounts for fixtures and construction techniques that

increase the wind resistivity of doors. Obviously, the

shortcomings of Form 1655 -- and its adopting rule, r ule

69O - 170.0155(k) -- were almost entirely derived from this omission

from Form 1699. Respondents' liability for attorneys' fees and

costs thus requires consideration on ly of its adoption of Form

1699 without any discounts for fixtures and construction

techniq ues that increase the wind resistivity of doors.

7. As noted in the Final Order, the establishment of

discounts for all mitigative fixtures and construction

techniques is a complicated process. The actuarial expertise

necessary to complete this task resi des in Respondent Office of

Insurance Regulation (OIR) , but is itself dependent on

engineering expertise that is not found within either

respondent, or at least was not in 2006 when Form 1699 was

adopted.

8. The engineering work underlying Form 1699 featu red

computer modeling, among other things, to project the salient

features of storms that may be expected to strike various parts

of Florida over thousands of years; as for impact resistivity,

to project the trajectories and momentum of missiles that will

be launched by these storms; to place in the path of these

storms and missiles various forms of residential construction

with relevant combinations of mitigative fixtures and

construction techniques covering several factors, including the

protection of win dows and doors from impacts and the protection

of windows and doors from wind (without regard to impacts); to

project the damage states that will result from these modeled

storms upon individual hypothesized residential buildings; and

to project the econom ic losses -- with particular emphasis on

insured losses -- that will result from these damages.

9. The relevant timeframe for this case begins with

Hurricane Andrew in 1992. As the Final Order describes, the

Florida legislature and other federal and state agencies and

organizations reacted swiftly and comprehensively to this storm

and the catastrophic damage and loss that it caused. FEMA

quickly published its analysis of, among other things, the

relationship between construction and storm damage. In 2001,

the legislature adopted the Florida Building Code (FBC) , which

required, among other things, new construction to meet wind

loads specified in the code, based on projected wind speeds in

different regions of Florida.

10. Almost at the same time that the 2 001 FBC went into

effect , in March 2002, Applied Research Associates, Inc.,

published the Development of Loss Relativities for Wind

Resistive Features of Residential Structures (2002 ARA Report).

Procured by the Florida Department of Community Affairs, wh ich,

at the time, had considerable responsibilities in the adoption

of the 2001 FBC, the 2002 ARA Report was a groundbreaking

achievement in modeling the effects , in terms of reduced damage

and loss, from various forms of mitigative fixtures and

constructi on techniques , alone and in almost countless

combinations .

11. For present purposes, the focal point of the 2002 ARA

Report were tables of loss relativities, which provided factors

by which to calculate how different combinations of mitigative

fixtures and construction techniques reduced wind losses.

Taking these data, OIR's actuaries issued in January 2003 an

informational memorandum and a precursor to Form 1699, which

suggested premium discounts to be used by homeowners' insurers

when filing insurance rates. ( Then and now, i nsurers are

permitted to use other data sources in setting their rates, but

all but two of them use the suggested discounts in Form 1699.)

12. In August 2004, Hurricane Charley struck Florida. A

design wind event, like Hurrican e Andrew, the timing of Charley ,

after the adoption of the 2001 FBC, proved the effectiveness of

the 2001 FBC in requiring fixtures and construction techniques

that demonstrably mitigated wind damage and loss. In 2006,

respondents issued Form 1699 in its present form, eliminating a

dampening factor that they had included in the precursor form

three years earlier. (To allow insurers to adapt to the new

rate - setting environment, respondents had halved the discounts

in the precursor form.)

13. The 2002 AR A Report claims to adhere to the statutory

mandate contained in section 627.0629(1), to determine discounts

for fixtures or construction techniques that "enhance roof

strength, roof covering performance, roof - to - wall strength,

wall - to - floor - to - foundation s trength, opening protection, and

window, door, and skylight strength." For reasons explained in

the Final Order, "opening protection" is limited to the impact

resistivity of windows and doors, and the "strength" of windows

and doors (skylights being treat ed as window s ) is limited to

their wind resistivity. Unfortunately, the 2002 ARA Report

collapsed opening protection and the strength of windows and

doors into one category -- opening protection -- so ARA never

developed loss relativities for fixtures and con struction

techniques that increased the wind resistivities of doors or,

for that matter, windows.

14. As noted above, respondents were entirely dependent on

the work of ARA due to its specialized knowledge of the FBC and,

more generally, its expertise i n engineering and computer

modeling . ARA, not respondents, possessed this highly

specialized knowledge, which was necessary to generate the loss

relativities, on which respondents, in turn, could rely to

generate the legislatively mandated premium discoun ts. The

omission of loss relativities for th e strength of windows and

doors -- as a standalone category or within the category of

opening protection -- is not apparent in the richly detailed 2002

ARA Report . The above - described facts -- coupled with the time -

p ressured nature of the task assigned to respondents -- provide

the reasonable basis in fact for the adoption of the portion of

Form 1699 that has been invalidated.

15. The factual justification for the adoption of the

portion of Form 1699 that has been in validated is greater than

any legal justification that respondents may claim. The statute

truly is a model of clarity -- and succinctness. Reduced to its

plainest terms, the statute calls for discounts for six

categories of mitigative fixtures and construc tion techniques,

and ARA and respondents addressed only five.

16. However, some legal justification exists for the

adoption of the portion of Form 1699 that has been invalidated.

First, the legal mandate of section 627.0629(1) does not exist

in a vacuu m; it operates in the complex facts of engineers,

computer programmers, and actuaries whose work is necessary to

lend meaning to the statutory mandate. To this extent,

respondents find some legal justification for the same reason

that they find ample fact ual justification for the adoption of

the portion of Form 1699 that has been invalidated.

17. Second, the legislature itself missed a clear, early

opportunity to remind respondents of their failure -- obvious,

perhaps, only in hindsight -- to address the omit ted sixth factor

enumerated in section 627.0629(1). The precursor of Form 1699

likewise omitted discounts for fixtures and construction

techniques that increased the wind resistivities of doors and

windows. When, in 200 6, the legislature ma ndated the ado ption

of full discounts, without any dampening, it easily could have

forcibly reminded respondents that they -- and their contractor --

had missed one of the six statutory discounts. The subtlety of

respondents' legal error seems to have eluded the legislatur e,

as well.

18. Third, even in hindsight, the legal underpinning of

the invalidation of the existing - construction matrix of Form

1699 is sometimes elusive, given the temptation to join ARA and

respondents in analyzing wind resistivities under the factor o f

opening protection. As disclosed at the hearing, the

Administrative Law Judge spent a considerable amount of time, in

preparing the Final Order, misanalyzing respondents' treatment

of the wind resistivities of doors from the perspective of

opening prote ction. Repeated, close readings of section

627.0629(1), in the context of the complex materials presented

in the 2002 ARA Report, eventually revealed the now - clear legal

principle that the omitted sixth statutory factor -- the strength

of windows and doors - - applied to wind resistivity (and opening

protection was restricted to impact resistivity). And

Petitioner itself joined in exactly the same misanalysis , both

in its pleading and proof at the hearing in the rule challenge.

Seeming to yield once more to t his misanalysis, even in the fee

hearing , Petitioner cross - examined OIR's lone witness with an

emphasis on respondents' flawed decision , as described in the

Final Order, to omit a discount for doors under opening

protection .

CONCLUSIONS OF LAW

19 . DOAH has jurisdiction of the subject matter.

§ 120.569(3), Fla. Stat.

20 . Section 120.569(3) provides:

If the appellate court or administrative law

judge declares a rule or portion of a rule

invalid pursuant to s. 120.56(3) or (5), a

judgment or order shall b e rendered against

the agency for reasonable costs and

reasonable attorneyÓs fees, unless the

agency demonstrates that its actions were

substantially justified or special

circumstances exist which would make the

award unjust. An agencyÓs actions are

Ðsubs tantially justifiedÑ if there was a

reasonable basis in law and fact at the time

the actions were taken by the agency.

21 . Because the Administrative Law Judge has invalidated

the existing - construction matrix in Form 1699 pursuant to

section 120.56(3), P etitioner is entitled to its reasonable

attorneys' fees and costs, unless respondents prove that their

actions were "substantially justified." (Respondents have not

claimed the existence of "special circumstances.")

22 . The statute provides that the acti ons taken by the

agency -- here the adoption of Form 1699 in 2006 -- must be

evaluated to determine if respondents can prove that there was a

"reasonable basis in law and fact" for the adoption of the form.

The "reasonable basis" standard lies somewhere betwe en correct

and frivolous. Agency for Health Care Admin . v. MVP Health,

Inc. , 74 So. 3d 1141, 1143 - 44 (Fla. 1st DCA 2011) (construing

identical language in § 57.111). In attempting to narrow the

analytic framework, the MVP Health opinion adds:

The close st approximation is that if a state

agency can present an argument for its

action "'that could satisfy a reasonable

person[,]'" then that action should be

considered "substantially justified." Helmy

[v. Dep't of Bus. & Pro'al Reg.] , 707 So. 2d

[366] at 36 8, quoting Pierce v. Underwood ,

487 U.S. 55 2, 565, 108 S. Ct. 2541, 101

L. Ed. 2d 490 (1998).

23 . Clearly, the 2002 ARA Report provides a reasonable

basis in fact to adopt Form 1699 in 2006. This situation is

similar to an agency's justifiable reliance on an expert's

opinion. Even if other expert opinions disagree, a lone

expert's opinion can provide an agency with a reasonable basis

for commencing a disciplinary prosecution against a licensee.

Dep't of Health v. Thomas , 890 S o. 2d 400, 401 (Fla. 1s t DCA

2004) (construing § 57.111).

24 . The question is closer as to whether respondents had a

reasonable basis in law to adopt Form 1699 in 2006. C ase law

does not go to great lengths differentiating between reasonable

bases in fact and in law , so the first justification described

in p aragraph 16 -- the extent to which complicated facts

complicate a clearly drafted law -- has some traction . The second

and third justifications in p aragraphs 17 and 18 are supportive

of the first justification , although, perh aps due to a still -

stinging recollection of his long, false start in drafting the

Final Order, the Administrative Law Judge more easily finds

legal justification for respondents' confusion in 2006, despite

the clear mandates of section 627.0629(1).

25. Petitioner is not entitled to fees and costs because

respondents have proved that their adoption, in 2006, of the

invalidated matrix of Form 1699 was reasonable in fact and law.

ORDER

Based on the foregoing, it is

ORDERED that Petitioner's request for atto rneys' fees and

costs is denied.

DONE AND ORDERED this 16th day of January , 2013 , in

Tallahassee, Leon County, Florida.

S

ROBERT E. MEALE

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 16th day of January , 2013 .

COPIES FURNISHED:

Perry Ian Cone, Esq uire

Amy W. Schrader, Esquire

GrayRobinson

Suite 1000

301 South Bronough Street

Tallahassee, Florida 32301

Bruce Culpepper, Esquire

Stephen H. Thomas, Jr., Esquire

Office of Insurance Regulation

200 East Gaines Street

Tallahassee, Florida 32399 - 4206

Kevin M. McCarty , Commissioner

Office of Insurance Regulation

200 East Gaines Street

Tallahassee, Florida 32399 - 4206

Bruce Kuhse, General Counsel

Department of Financial Services

200 East Gaines Street, Suite 526

Tallahassee, Florida 32399 - 4206

NOTICE OF RIGHT TO JUDICIAL REVIEW

A party who is adversely affected by this Final Order is

entitled to judicial review pursuant to section 120.68, Florida

Statutes. Review proceedings are governed by the Florida Rules

of Appellate Procedure. Such proceedings are commenced by

filing the original notice of administrative appeal with the

agency clerk of the Division of Administrative Hearings within

30 days of rendition of the order to be reviewed, and a copy of

the notice, accompanied by any filing fees prescrib ed by law,

with the clerk of the District Court of Appeal in the appellate

district where the agency maintains its headquarters or where a

party resides or as otherwise provided by law.