State, Dept. of Ins. v. Insurance Services Office, VV-367

• Decision Date: 03 May 1983
• Docket Number: No. VV-367,VV-367
• Citation: 434 So.2d 908
• Parties: STATE of Florida, DEPARTMENT OF INSURANCE, and Bill Gunter as Insurance Commissioner and Treasurer of the State of Florida, Appellants, v. INSURANCE SERVICES OFFICE, Lumbermen's Mutual Casualty Company, United States Fidelity and Guaranty Company, Government Employees Insurance Company, Allstate Insurance Company, State Farm Mutual Automobile Insurance Company, and Nationwide Mutual Fire Insurance Company, Appellees.
• Court: Florida District Court of Appeals

Page 908

434 So.2d 908

STATE of Florida, DEPARTMENT OF INSURANCE, and Bill Gunter as Insurance Commissioner and Treasurer of the State of Florida, Appellants, v. INSURANCE SERVICES OFFICE, Lumbermen's Mutual Casualty Company, United States Fidelity and Guaranty Company Government Employees Insurance Company, Allstate Insurance Company, State Farm Mutual Automobile Insurance Company, and Nationwide Mutual Fire Insurance Company, Appellees.

No. VV-367.

District Court of Appeal of Florida First District.

May 3, 1983.

Rehearing Denied July 6, 1983.

Allan J. Katz and Patrick F. Maroney, Tallahassee, for appellants.

Dean Bunch, Ervin, Varn, Jacobs, Odom & Kitchen, Tallahassee, for appellee Ins. Services Office.

John M. McNatt, Jr., Vincent J. Rio, III, J. Stephen O'Hara, Jr., Mathews, Osborne, Ehrlich, McNatt, Gobelman & Cobb, Jacksonville, for appellee State Farm Mut. Auto. Ins. Co.

W. Donald Cox, Fowler, White, Gillen, Boggs, Villareal & Banker, Tampa, for appellee Nationwide Mut. Fire Ins. Co.

Richard C. McFarlain and William B. Wiley, McFarlain, Bobo, Sternstein, Wiley & Cassedy, Tallahassee, for appellee Allstate Ins. Co. and Government Employees Ins. Co.

LARRY G. SMITH, Judge.

The Department appeals the final order of a hearing officer of the Division of Administrative Hearings, in a rule challenge proceeding, declaring its Rule 4-43.03 ¹ to be an invalid exercise of delegated legislative authority. Section 120.56(1), Florida Statutes (1979). The Department also appeals the hearing officer's determination that the statement of economic impact prepared by the Department was not an explicit statement delineating the short and long-term economic consequences of the rule, thus invalidating the rule. Rule 120.54(2)(c), Florida Statutes (1979). The majority adopts the findings, reasoning and conclusions of the hearing officer on the first point and approves the result. A majority disapproves the hearing officer's ruling on the second point.

In January, 1978, Dade County petitioned the Department to adopt two rules, one prohibiting the continued use of age, ² sex, marital status, and scholastic achievement as automobile insurance rating factors and the other prohibiting the use of arbitrary territorial boundaries as a factor. After a study, the Department promulgated two rules, Rule 4-43.03 and Rule 443.04, Florida Administrative Code. Only Rule 4-43.03 is involved in this appeal. ³

The insurance companies (whose premium rates are formulated using sex, marital status or scholastic achievement, or some combination thereof) challenged the validity of the rule on the following grounds: (1) the rule extends, modifies, conflicts with or enlarges upon the requirements of the Florida Insurance Code and thus exceeds the Department's rule-making authority; (2) the economic impact statement prepared by the Department in promulgation of the rule is inadequate; (3) the rule is arbitrary and capricious; and (4) the Department did not comply with the procedural requirements of Chapter 120, Florida Statutes. Because the hearing officer determined the first two grounds were dispositive of this controversy, his order does not deal with the last two grounds.

Upon examination of the statutes relied upon by the Department as specific authority for Rule 4-43.03, ⁴ we have concluded, as did the hearing officer, that these statutes do not authorize the prohibition of the use of sex, marital status, and scholastic achievement as rating factors. The first statute cited in the rule, Section 624.308(1), Florida Statutes (1979), is simply a general grant of authority to the Department to adopt reasonable rules necessary for the implementation of the Insurance Code with the further proviso that such rules as are promulgated by the Department may not extend, modify, or conflict with any law of this state or reasonable implications thereof. As the hearing officer aptly noted, this is nothing more than a statement of what has always been the common law of the state. Department of Labor and Employment Security, Division of Labor v. Florida Homebuilders Assn., 417 So.2d 746 (Fla. 1st DCA 1982); State, Department of Health and Rehabilitative Services v. McTigue, 387 So.2d 454 (Fla. 1st DCA 1980); Dept. of Health and Rehabilitative Services v. Florida Psychiatric Society, 382 So.2d 1280 (Fla. 1st DCA 1980); Seitz v. Duval County School Board, 366 So.2d 119, 121 (Fla. 1st DCA 1979); State, Department of Transportation v. Pan American Construction Co., 338 So.2d 1291, 1293 (Fla. 1st DCA 1976); DeThorne v. Beck, 280 So.2d 448, 449 (Fla. 4th DCA 1973); and Florida Growers Coop Transport v. Department of Revenue, 273 So.2d 142, 144 (Fla. 1st DCA 1973).

The next statute cited in the rule provides more guidance. Section 626.9611, Florida Statutes (1979), provides in part that in promulgating rules identifying specific practices which are prohibited by Section 626.9541, Florida Statutes (1979) (which defines unfair methods of competition and unfair or deceptive acts or practices and is part of the Unfair Insurance Trade Practices Act) the Department may not enact a rule which shall enlarge upon or extend the provisions of Section 626.9541.

At the heart of this controversy is section 626.9541(15)(h), Florida Statutes (1979), one of the laws being implemented by Rule 4-43.03, which provides as follows:

(h) No insurer shall, with respect to premiums charged for automobile insurance, unfairly discriminate solely on the basis of age, sex, marital status, or scholastic achievement.

In enacting this statute the legislature obviously intended to permit discrimination based on sex, marital status, and scholastic achievement so long as this discrimination is not unfair or based solely on these factors. Yet the Department, by promulgating Rule 4-43.03, imposed a total prohibition against the use of sex, marital status or scholastic achievement in the formulation of premiums or rate classifications. The legislative history of Section 626.9541(15)(h) irrefutably shows that the legislature expressly considered, but rejected, provisions which would prohibit the use of these factors as unfairly discriminatory. ⁵ This provides strong evidence that the legislature did not intend, by enactment of Section 626.9541(15)(h), to completely prohibit the use of these factors. This history provides strong support for the hearing officer's determination that the Department's contrary construction of the statute in Rule 4-43.03 is unauthorized. Mayo v. American Agricultural Chemical Company, 101 Fla. 279, 133 So. 885 (1931). As the Supreme Court stated in State ex rel. Finlayson v. Amos, 76 Fla. 26, 79 So. 433 (1918):

There is no authority for a department of the government charged with the execution of a law, to restore a provision which the legislature strikes from the act when in progress of its passage. Whatever the legislature does within its constitutional authority, no other department of the government may change, modify, alter, or amend.

Thus we agree with the hearing officer's determination that Rule 4-43.03 extends, modifies and conflicts with Section 626.9541(15)(h) and is therefore invalid under Section 120.54(2)(c).

Nevertheless, the Department urges that the rule does not conflict with the statute because the use of sex, marital status, and scholastic achievement in the formulation of premium rates necessarily unfairly discriminates solely on the basis of those criteria. Hence, the Department contends that in promulgating Rule 4-43.03, it implemented Section 627.031(1)(a), Florida Statutes (1979), which provides that it is the purpose of the Insurance Code to "... promote the public welfare by regulating insurance rates ... to the end that they shall not be ... unfairly discriminatory...." The Department also maintains that it implemented Section 627.062(1), Florida Statutes (1979), which provides: "The rates for all classes of insurance to which the provisions of this part are applicable shall not be ... unfairly discriminatory."

"Unfairly discriminatory" is not defined in the Code. However, Section 627.0651, Florida Statutes (1979) (also implemented, according to the Department, in its promulgation of Rule 4-43.03), provides several standards to be applied by the Department in making a determination as to whether a rate is unfairly discriminatory. In particular, Section 627.0651(6) provides:

(6) One rate shall be deemed unfairly discriminatory in relation to another in the same class if it clearly fails to reflect equitably the difference in expected losses and expenses. (emphasis supplied)

It is the Department's contention that "unfairly discriminatory" and "equitably" are not technical terms of art and should be given their common ordinary meaning. ⁶ Giving these words their common ordinary meaning, the Department urges, a rating factor will be deemed unfairly discriminatory and inequitable unless it has a causal connection to expected losses. Thus the Department reasons that since sex, marital status and scholastic achievement have no direct or indirect causal connection to a person's driving habits they are necessarily unfairly discriminatory and inequitable rating factors. The Department further reasons that these rating factors are always unfairly discriminatory because their use results in the misclassification of a large number of individuals who share the distinguishing feature of the group (e.g. male sex) but do not share the "average" driving characteristics of the group. ⁷

On the other hand, the insurance companies contend that "unfairly discriminatory" and "equitable" are technical words, with a particular meaning in the insurance industry, and that Section 626.9541(15)(h) must be construed with this meaning in mind. United States v. Cuomo, 525 F.2d 1285, 1291 (5th Cir.1976). Reading Section 627.0651(6) in pari materia with the other standards contained in Section 627.0651(3) through (8), the insurance companies urge that the...