State, Dept. of Ins. v. Great Northern Insured Annuity Corp.
| Decision Date | 21 August 1995 |
| Docket Number | 93-2740 and 93-2751,Nos. 93-2698,s. 93-2698 |
| Citation | 667 So.2d 796 |
| Parties | 20 Fla. L. Weekly D1928 STATE, DEPARTMENT OF INSURANCE; and Florida Association of Insurance Agents, et al., Appellants/Cross-Appellees, v. GREAT NORTHERN INSURED ANNUITY CORPORATION, et al., Appellees/Cross-Appellants. |
| Court | Florida District Court of Appeals |
An appeal and cross-appeal from an order of the Division of Administrative Hearings.
David J. Busch and Thomas D. Valentine, Tallahassee, for Department of Insurance.
Kenneth R. Hart & Steven P. Seymoe of Macfarlane Ausley Ferguson & McMullen, Tallahassee, for Fla. Association of Insurance Agents.
J. Robert McClure, Jr. and F. Townsend Hawkes, of Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A., Tallahassee, for Florida Association of Life Underwriters.
J. Thomas Cardwell and Virginia B. Townes, of Akerman, Senterfitt & Eidson, Orlando, for Florida Bankers Association and First Union Mortgage Corporation.
Robert J. Winicki and Jeffrey S. York, of Mahoney Adams & Criser, P.A., Jacksonville, for Barnett Banks Trust Company, N.A.
Alan Harrison Brents and David A. Yon, of Katz, Kutter, Haigler, Alderman, Marks & Bryant, P.A., Tallahassee, for Marketing One, Inc., Liberty Securities Corporation, and Compulife.
Bruce Culpepper and Robert S. Cohen, of Pennington, Haben, Wilkinson, Culpepper, Dunlap, Dunbar, Richmond & French, Tallahassee, for James Mitchell & Company.
Chrys D. Lemon and James T. McIntyre, The McNair Law Firm, Washington, DC, for Association of Banks in Insurance, Inc.
Robert L. Shevin and Jeff C. Schneider, of Strook & Strook & Lavan, Miami, for Great Northern Insured Annuity Corporation.
In this appeal and cross-appeal of an order of the Division of Administrative Hearings (DOAH) ruling on the validity of portions of the Department of Insurance (DOI) proposed rule chapter 4-223, Florida Administrative Code, five issues have been raised. We affirm on all issues.
Appellants DOI, the Florida Association of Insurance Agents (FAIA), and the Florida Association of Life Underwriters (FALU) contend that the DOAH hearing officer erred in finding that annuities are not insurance and in concluding that the annuity exemption of section 626.988(8), Florida Statutes (1991), had been triggered so as to exempt the sale of annuities from the scope of the proposed rules. They also assert that she erred in finding proposed rule 223.011(4)(c), prohibiting financial institutions and financial institution agencies from acting as third party administrators (TPAs) unless they were engaged in such activities as of April 2, 1974, to be an invalid regulation. The cross-appellants argue that the hearing officer erred in applying the "highly deferential reasonable basis standard" and in finding that the prohibitions or restrictions of relationships and activities contained in rules 4-223.003, 4-223.004, and 4-223.005 are rationally related to the language and/or intent of section 626.988. They contend that rules 4-223.006 through 4-223.009, which restrict advertising and endorsements of insurance products by financial institutions, violate the United States Constitution's prohibition of restrictions on commercial speech, contrary to the hearing officer's determination. Finally, they argue that rule 4-223.009, which prohibits commission sharing or association, is not supported by any of the statutes the rule chapter was intended to implement. 1
Section 626.988(2), Florida Statutes, prohibits licensed insurance agents or solicitors "associated with, under contract with, retained by, owned or controlled by, to any degree, directly or indirectly, or employed by, a financial institution" from engaging in "insurance agency activities" as "an employee, officer, director, agent or associate of a financial institution agency," with these terms defined in subsection 626.988(1). Subsections (5) and (7) provide for "grandfathering" of financial institution agencies and agents and solicitors who were engaged in insurance activities controlled by the statute as of April 2, 1974. Subsection (8) provides an exception for the sale of annuities by Florida chartered financial institutions through a licensed resident agent in compliance with the Florida Insurance Code, in the event that federal law permits federal banks to sell such annuities.
In the early 1980's, insurance companies began to market annuities in the lobbies or public access areas of financial institutions. In 1986, letters from DOI in response to inquiries outlined requirements that leased space and insurance sales literature be physically or visually separated from the functions of the financial institution and that there be no common employees. As a result of the incipient policy created by these letters, DOI proposed rules implementing section 626.988, which were withdrawn before adoption but were used thereafter as guidelines. In 1991, in anticipation of the rule-making mandate of section 120.535, DOI reviewed its guidelines and in January 1992, published proposed rules substantially similar to the guidelines, implementing section 626.988 and other insurance statutes aimed at preventing coercion, unfair trade practices, and undue concentration of financial resources. This proposed rule chapter 4-223 was withdrawn to correct perceived inadequacies in the economic impact statement (EIS), then was presented at a workshop, and was republished in June 1992. FALU and others challenged the June 1992 version, and a public hearing was held. In October 1992, DOI published a notice of change that materially altered rules 4-223.003, 4-223.004, and 4-223.005 to provide a definition for "associated" and "associate" and to prohibit insurance agents from occupying space virtually anywhere within the confines of a financial institution, but to allow restricted occupancy of space owned by the financial institution or in close proximity thereto.
The rule challenges by insurance companies, annuities marketing companies, financial institutions, and trade associations were consolidated; FAIA and the Department of Banking and Finance (DBF) intervened. On December 4, 1992, a partial summary final order was entered which determined that section 626.988(8) gives DOI the authority "to regulate the annuity products included in the definition of 'life insurance' in section 624.602(1), F.S., and to regulate the agents who sell the products, but permits those agents a relationship with financial institutions otherwise prohibited by section 626.988(2), F.S." Additional amendments were published in December 1992, acknowledging or tracking the statutory exceptions. An extensive formal hearing was held before the DOAH hearing officer in December 1992. During the hearing, DOI proposed a final change clarifying that the rules do not apply to credit life and disability insurance and credit unemployment insurance, as a result of which some of the challengers voluntarily withdrew their petitions.
In her final order, the hearing officer found that the October 1992 proposed rule amendments arose from DOI's determination that current leasing arrangements "established a strong connection between the bank and the agent, in effect wrapping the insurance program in the bank's colors and presenting it as another bank product" and from DOI's anticipation of difficulty in enforcing its rules as originally published. She found that prohibiting the sale of annuities on bank premises "would have a devastating effect on companies engaged in that activity" and that banks would also be affected, "as they recognize a substantial benefit of providing their customers the convenience of an in-house service." She found that while annuities are defined in section 364.602(1) as life insurance, they "are generally considered investments for future security rather than a cushion against loss," and that this fact was recognized by the Office of the Comptroller of the Currency (OCC) in a March 1990 letter stating that national banks are authorized to sell annuities, a conclusion upheld by the U.S. District Court's opinion in VALIC, 2 which she noted was at that time pending on appeal before the U.S. Court of Appeals for the Fifth Circuit.
The hearing officer applied the "highly deferential reasonable basis standard" of Florida League of Cities, Inc. v. Department of Environmental Regulation, 603 So.2d 1363 (Fla. 1st DCA 1992), and section 120.52(8) in determining whether the proposed rules constitute an invalid exercise of delegated legislative authority, also citing Department of Corrections v. Hargrove, 615 So.2d 199 (Fla. 1st DCA 1993). She noted that section 626.988 "was recently unsuccessfully challenged on vagueness, equal protection, due process, unlawful delegation of legislative authority, and federal preemption grounds" in Glendale Federal Savings & Loan Association v. Department of Insurance, 587 So.2d 534 (Fla. 1st DCA 1991), rev. den., 599 So.2d 656 (Fla.1992), which identified the legitimate state goals behind the statute as being "[c]oncerns regarding financial institutions' entry into insurance activities, including the prevention of coercion, unfair trade practices, and undue concentration of resources." She found that these are the goals that DOI seeks to achieve through its proposed rules and that other statutes, including parts of chapters 624, 626, and 627 relating to the same goals, "form a crucial basis for the rules as well." She concluded that rule 4-223.001 is rationally related to the enabling legislation, and that the clarifying amendment to rule 4-223.002 "effectively removes the sale of annuities from the scope of the rules and therefore from the rules' proscriptions." She concluded that the definition of "associated" and "associate" in rule 4-223.003(2) "is vague and incomprehensible" and that it "offends any rational interpretation of section 626.988, F.S. and is thoroughly useless as a standard for the agency's...
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...379, [subsections] 2 and 3 (emphasis added). (25) Id. (26) See, e.g., State, Dept. of Insurance v. Great Northern Insured Annuity Corp., 667 So. 2d 796 (Fla. 1st D.C.A. 1995); Fairfield Communities v. Florida Land & Water Adjudicatory Commission, 522 So. 2d 1012 (Fla. 1st D.C.A. 1988); ......