FSLSO News Release :: 11/4/2003a

The Department of Financial Services and the Office of Insurance Regulation sought a Motion For Relief From Judgment, a temporary grant of stay from the U.S. District’s Court’s ruling relative to the licensure of nonresident surplus lines insurance agents. An agreement was entered October 30th, delaying this portion of the Judgment until July 1, 200 4.

Florida’s Chief Financial Officer, Tom Gallagher, responded to a letter of recommendation by the FSLSO's Executive Director, Gary D. Pullen, regarding the U.S. District Court's ruling.

In Gallagher's response to FSLSO, he shared many of the concerns raised by the FSLSO, citing that the state’s revenues and consumers must be protected and that it was not his preference to allow nonresident surplus lines agents to be less qualified than resident surplus lines agents. Gallagher noted that legislation will be required, and these issues will be addressed in the 2004 regular session.

IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF FLORIDA
TALLAHASSEE DIVISION

COUNCIL OF INSURANCE AGENTS &
BROKERS
     Plaintiff,
v.

TOM GALLAGHER, in his official
capacity as Commissioner of Insurance
for the State of Florida
     Defendant, 		CASE NO. 4:02cv208-RH

MOTION FOR RELIEF FROM JUDGMENT

Pursuant to Fed.R.Civ.R. 60(b)(6), Defendant moves the Court to grant temporary relief from compliance with the Order and Judgment in this matter with regard only to the injunction against denying a nonresident insurance agent a license as a nonresident surplus lines insurance agent pursuant to Section 626.927, Florida Statutes. Defendant moves that the effective date of this portion of the Judgment be delayed until July 1, 2004, and in support thereof does state:

  1. The Parties have entered into a Joint Agreement regarding this Motion. The conclusion of the Agreement states that the interests of justice should be granted by the court." The Agreement is attached as Exhibit 1.
  2. The Defendant interprets the Judgment as requiring the Defendant to approve qualified nonresident insurance agents as nonresident surplus lines insurance agents in Florida, effective September 30, 2003, the date of entry of the Order and Judgment.
  3. The Order of the Court recognizes that "Agents must have sufficient knowledge and expertise, both with respect to Florida law and with respect to the insurance products they place." Without specific statutory authority for the Defendant to regulate nonresident surplus lines agents, the Defendant believes that immediate implementation will create unusual or exceptional circumstances and in the interests of substantial justice, partial relief from the Judgment is warranted.
  4. The Defendant believes that immediate implementation will create an undue burden on the Defendant and on the Florida Surplus Lines Service Office (hereinafter "FSLSO"), may jeopardize collection by the State of surplus lines premium taxes, may jeopardize collection by the State of assessments that may be; levied against surplus lines policyholders by Citizens Property Insurance Corporation, and may be detrimental to Florida consumers unless the Florida Legislature is given the opportunity to address the impact of the Court's ruling on this matter through appropriate legislation.
  5. Motions under Fed.R.Civ.P. 60(b) are directed to the sound discretion of the district court. Griffin v. Swim Tech CoEp., 722 F.2d 677, 680 (11th Cir.1984). Fed. R. Civ. P. 60(b) should be liberally construed in order to do substantial justice. What is meant by this general statement is that, although the desideraturn of finality is an important goal, the justice function of the courts demands that it must yield, in appropriate circumstances, to the equities of the particular case in order that the judgment might reflect the true merits of the cause. Seven Elves, Inc. v. Eskenazi, 635 F.2d 396, (5th Cir. OLD, 198 1). Circumstances that may militate in favor of granting such a motion include lack of prejudice to nonmoving party and prompt filing of the Rule 60(b) motion after actual notice of the entry of judgment. Harnish v. Manatee County, 783 F.2d 1535 (11" Cir. 1986). Rule 60(b) relief is appropriate when "unusual" or "exceptional" circumstances are created by a combination of factors. Fidelity & Deposit Company of Maryland v. USA-RORM Hail Pool, 523 F.2d 744 (5" Cir, 1975) cert. denied, 425 U.S. 950, 96 S. Ct. 1725, 48 L. Ed. 2d 194 (1976). Other factors, relevant to this Motion, which should inform the district courts consideration of a motion under Fed. R. Civ. P. 60(b) include: that the Rule 60(b) motion is not to be used as a substitute for appeal; that the rule should be liberally construed in order to achieve substantial justice; and that the motion was made within a reasonable time. Seven Elves, Inc. v. Eskenazi, 635 F.2d 396 (5th Cir. OLD, 19 8 1). The Defendant is filing this motion within 30 days of the Judgment, the Motion does not seek to overturn any finding of fact or conclusion of law that should be raised only as the basis for an appeal, the slight delay on one issue in the Judgment does not substantially prejudice the Plaintiff since the nature of the issue (that nonresidents may be licensed as surplus lines insurance agents in Florida) is not an emergency and the unusual and exceptionl circumstances of implementing the Order without statutory authority of the Defendant to carry out the State's interest in protecting tax revenues and protecting consumers provide sufficient justification for the Court to use its discretion under the Rule to grant this Motion.
  6. The surplus lines insurance market differs significantly from the standard insurance market in which insurance companies are "authorized" to do business in Florida and do so through general lines insurance agents. Section 624.04(l), Florida Statutes, provides that: "No person shall act as an insurer, and no insurer or its agents, attorneys, subscribers, or representatives shall directly or indirectly transact insurance, in this state except as authorized by a subsisting certificate of authority issued to the insurer by the office, except as to such transactions as are expressly otherwise provided for in this code."
  7. The Defendant has substantial authority over authorized insurers. To become authorized, an insurer must file a detailed application, subject their officers and directors to scrutiny by the Office of Insurance Regulation and prove their financial viability. See section 624.413, Florida Statutes. Authorized insurers are required to deposit securities with the Department. See section 624.411, Florida Statutes. They are restricted in the amount of premium volume they may write in Florida. See section 624.4095, Florida Statutes. They are required to file annual reports on the growth of their premium volume in Florida. See section 624.4243, Florida Statutes. Authorized insurers are required to file, and have approved, all of their rates and policy forms (see sections 627.062 and 627.410, Florida Statutes), and are subject to periodic financial examination and market conduct examination by the Department's Office of Insurance Regulation. See sections 624.316 and 624.3161, Florida Statutes.
  8. Surplus lines insurance is an exception to the requirement that insurers must be authorized in order to do business in Florida. Section 626.913, Florida Statutes, sets forth the legislative intent behind the creation of a surplus lines marketplace in Florida. "It is declared that the purposes of the Surplus Lines Law are to provide orderly access for the insuring public of this state to insurers not authorized to transact insurance in this state, through only qualified, licensed, and supervised surplus lines Agents resident in this state, for insurance coverages and to the extent thereof not procurable from authorized insurers; to protect such authorized insurers, who under the laws of this state must meet certain standards as to policy forms and rates, from unwarranted competition by unauthorized insurers who, in the absence of this law, would not be subject to similar requirements; and for other purposes as set forth in this Surplus Lines Law." Thus, the surplus lines law allows limited access to Florida residents by insurance companies that are not licensed under a certificate of authority to do business in Florida.
  9. The Defendant has little authority over surplus lines insurers. Surplus lines insurers are not required to meet the same district requirements that authorized insurers must meet. They are exempt from Florida's "Rating Law" therefore are not required to file their rates or have them approved. See 627.201(2)(e), Florida Statutes. They are not required to file their policy forms or have them approved in Florida because they are not "authorized" insurers. See 627.410, Florida Statutes. Surplus lines' insurers are unauthorized insurers who may become "eligible" to do business in Florida, on a surplus lines basis only. Eligibility requirements are primarily that the insurer be authorized in another state and that the insurer maintains a certain amount of surplus funds. See section 626.918, Florida Statutes. Surplus lines insurers may write coverage for Florida risks only when the risk is unable to procure coverage from an authorized insurer. See sections 626.915 and 626.916, Florida Statutes. The lack of scrutiny of surplus lines insurers is evident by the following statement in Section 626.918(4), Florida Statutes: "This section shall not be deemed to cast upon the office any duty or responsibility to determine the actual financial condition or claims practices of any unauthorized insurer; and the status of eligibility, if granted by the office, shall indicate only that the insurer appears to be sound financially and to have satisfactory claims practices and that the office has no credible evidence to the contrary." The "office"is the Office of Insurance Regulation and is part of the Department of Financial Services.
  10. Surplus lines insurers are also exempt from participation in the Florida Insurance Guaranty Association (FIGA). See section 631.52(13), Florida Statutes. The purpose of FIGA is to protect claimants and policyholders against financial loss due to the insolvency of an insurer. See section 631.51 (1), Florida Statutes. Thus, the State of Florida has little, if any, ability to obtain reimbursement for Florida residents when their claims go unpaid or they lose the premium they have paid due to the insolvency of a surplus lines insurer.
  11. Since Florida residents do not have the protections of FIGA when insured through surplus lines insurers, Florida law requires surplus lines policies to contain a warning statement: "THIS INSURANCE IS ISSUED PURSUANT TO THE FLORIDA SURPLUS LINES LAW. PERSONS INSURED BY SURPLUS LINES CARRIERS DO NOT HAVE THE PROTECTION OF THE FLORIDA INSURANCE GUARANTY ACT TO THE EXTENT OF ANY RIGHT OF RECOVERY FOR THE OBLIGATION OF AN INSOLVENT UNLICENSED INSURER."
  12. Another major difference between authorized and surplus lines insurance is that surplus lines insurance agents play a significantly greater role in the business of surplus lines insurance. Most importantly, these agents are responsible for the collection and payment of premium taxes on surplus lines insurance to the Florida Surplus Lines Service Office (which in turn remits collected taxes to the State). See section 626.932, Florida Statutes. General lines agents are not responsible for the collection of premium taxes from authorized insurers. Surplus lines agents are also responsible for collecting assessments that may be levied upon surplus lines policyholders by Citizens Property Insurance Corporation. See section 627.351(6)(b)3.c. and d., Florida Statutes. This corporation was created by the Florida Legislature to provide property insurance coverage in Florida when property owners are unable to obtain coverage from insurance companies due to the risk of hurricane losses. Assessments may be levied on authorized insurers and surplus lines policyholders if the Corporation has insufficient funds to pay claims. The State has a substantial interest in assuring that all taxes and assessments by collected and paid by surplus lines agents. The ability of the Department and the FSLSO to do so in the face of possibly dealing with surplus lines agents located throughout the country will be compromised without additional statutory procedures.
  13. Additional evidence of the differences between authorized insurance and surplus lines insurance was demonstrated by the Florida Legislature's creation of the Florida Surplus Lines Service Office (FSLSO), a nonprofit association, in 1997, to regulated surplus lines insurance. See 97-196, Laws of Florida. The Department in turn regulates the FSLSO. The Legislature declared that the "underlying purposes" of this office are to "protect consumers" and to "protect the revenues of this state." See section 626.921(1), Florida Statutes. Surplus lines agents are required to report to and file with the Office a copy of or information on each surplus lines insurance policy. See 626.921(2), Florida Statutes. The FSLSO receives, records and reviews all surplus lines policies and documents. It collects and remits surplus lines premium taxes to the Department. It also collects a service fee from surplus lines agents. See section 626.921(3), Florida Statutes. In 2002, the FSLSO collected in excess of $93 million from premium tax and almost $6 million from service fees.
  14. The Defendant believes that the uniqueness of the surplus lines insurance market and the Florida Legislature's numerous pronouncements regarding the state's need to protect revenue and protect consumers in relation to the surplus lines insurance market necessitates that the Florida Legislature be given the opportunity to examine the potential adverse impact on the State if nonresidents are licensed as surplus lines agents under current laws that do not address these issues.
  15. The Defendant is unsure as to whether it has statutory authority to license nonresident surplus lines agents and unsure as to what qualifications a nonresident would have to meet in order to be licensed. Is the Defendant required to license anyone who has a resident surplus lines license in another states? May we require an applicant to take an examination if they've already passed an examination in their home state? What if the home state has an inferior examination that requires less knowledge of surplus lines insurance than the Florida examination? Or may Florida require passage of this state's examination only if the home state does not require passage of an examination? Dealing with these and related procedural and regulatory issues in the vacuum of a statutory scheme will place an undue burden on the Defendant and it's regulatory subsidiary, the FSLSO, and could lead to mistakes to the detriment of the Florida Legislature's goals of protecting consumers and protecting state revenues in relation to surplus lines insurance.
  16. The Defendant will study and examine these issues in more detail and will bring this matter to the attention of the Florida Legislature prior to and during the Regular Session of the 2004 Florida Legislature which convenes for a 60 day period beginning on March 2, 2004. Any legislative proposals by the Defendant would be made with due consideration of the Court's Order that Section 626.927, Florida Statutes, is unconstitutional to the extent that it denies to Florida licensed nonresident agents the same rights and privileges that it affords to Florida licensed resident agents.

CONCLUSION

Immediate implementation of the Court's Order that the Defendant license nonresidents as surplus lines agents may harm the State of Florida's interests in protecting tax revenues and protecting consumers who may purchase surplus lines insurance through nonresident surplus lines agents. Accordingly, for the reasons set forth above, the Defendant moves for relief from the Judgment in this matter with regard only to the injunction against denying a nonresident insurance agent a license as a nonresident surplus lines insurance agent pursuant to Section 626.927, Florida Statutes. Defendant moves that the effective date of this portion of the Judgment be delayed until July 1, 2004.

Respectfully submitted,

David J. Busch
Senior Attorney
Florida Department of Financial Services
(Formerly known as the Florida Department of Insurance)
Florida Bar No. 140945
200 E. Gaines Street, Room 612
Tallahassee, Florida 32399-0333
(850) 413-4146 (850) 488-0697 (fax)

George Waas
Senior Assistant Attorney General
Florida Bar No. 12996
PL 01 The, Capitol
Tallahassee, Florida 32399-1050
(850) 414-3662 (850) 488-4872 (fax)

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that a true and correct copy of the foregoing has been furnished by facsimile copy and by U.S. Mail to Scott A. Sinder and Christy Hallam DeSanctis, COLLIER SHANNON SCOTT, PLLC, 3050 K Street, NW, Washington, D.C. 20007, this 30th day of October, 2003.


David J. Busch