FFVA Insurance Disputes Florida Office of Insurance Regulation’s Scope of Authority Under Excessive Profits Law

A hearing before the Florida Division of Administrative Hearings (“DOAH”) has been scheduled for November 12, 2009 to determine the extent of the Florida Office of Insurance Regulation’s (“OIR’s”) authority under section 627.215, F.S., which authorizes the OIR to order the return of “excessive profits” to policyholders as cash refunds or credits by workers’ compensation, employer’s liability, commercial property, and commercial casualty insurers. 

On August 5, 2009, FFVA Mutual Insurance Company (“FFVA”) petitioned for an administrative hearing before DOAH regarding an OIR Notice of Intent to issue an Order that would require the return of excessive profits.  In its Notice of Intent, the OIR had found that FFVA realized an excessive profit of $6,310,596.00 for the applicable time period.  FFVA’s petition also challenged the OIR’s authority with regard to the computation of excessive profits. 

FFVA’s petitions alleged that section 627.215, F.S., does not authorize the OIR to substitute its own information and calculations in an insurer’s excessive profits reporting forms.  FFVA argued that section 627.215 does not provide the OIR with a process to review forms filed by an insurer group, nor does it stipulate any criteria for the alteration, challenge, or rejection of the forms.  FFVA further argued that section 627.215 does not define “administrative and selling expenses” that should be deducted from earnings to determine whether an excessive profit has been earned. 

Workers’ compensation, employer’s liability, commercial property, and commercial casualty insurers are required to file data with the OIR regarding their (1) calendar-year earned premium; (2) accident-year incurred losses and loss adjustment expenses; (3) administrative and selling expenses; and (4) policyholder dividends.  (See § 627.215, Fla. Stat. (2009)). 

An excessive profit has been realized if the net aggregate underwriting gain is greater than the net aggregate anticipated underwriting profit plus five percent earned premiums for the three most recent calendar years for which the data is to be filed.  An insurer’s underwriting gain or loss is computed by subtracting “[t]he sum of the accident-year incurred losses and loss adjustment expenses as of December 31 of the year, developed to an ultimate basis, plus the administrative and selling expenses incurred in the calendar year, plus policyholder dividends applicable to the calendar year, . . . from the calendar-year earned premium.”  If an insurer is determined to have realized an excessive profit, then the OIR has the authority to order the return of those profits.  Section 627.215 does not appear to provide for a review, approval, or rejection process by the OIR. 

Colodny Fass will continue to monitor the status of the FFVA case.  Should you have any questions or comments, please contact our office.

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