FPCA Homeowners Division: Florida Division of Administrative Hearings Invalidates Rule and Certain Forms Relating to Windstorm Mitigation Discounts

Dear FPCA Homeowners Division Members:

In a Final Order issued on October 19, 2012 in Secure Enterprises, LLC v. Office of Insurance Regulation, DOAH Case No. 12-1944RX, the Florida Division of Administrative Hearings found that certain regulations relating to windstorm mitigation discounts are invalid.   The Florida Office of Insurance Regulation (“OIR”) has 30 days from the date the Final Order was issued to appeal the order.  We have had preliminary discussions with OIR  regarding this matter and they are aware of the impact that the Final Order would have on the industry.  Accordingly, we expect OIR to appeal the Final Order. 

We will continue to monitor this case very closely and keep you apprised of any developments.  Please see additional information regarding the Final Order below:

In Secure Enterprises, LLC v. Office of Insurance Regulation, the Administrative Law Judge (“ALJ”) held that OIR’s adoption of Rules 69O-170.017 and 69O-170.0155, Florida Administrative Code, which incorporated Form OIR-B1-1655 (Notice of Premium Discounts for Hurricane Mitigation) and Form OIR-B1-1699 (Windstorm Mitigation Discounts; Single Family Residences) constituted an invalid exercise of delegated legislative authority.

The invalidated Rule and forms are attached for review.

Section 627.0629(1), Florida Statutes requires homeowners’ insurers to provide windstorm mitigation discounts to insureds who install or implement fixtures and construction techniques that meet Florida Building Code (“FBC”) minimum requirements.  The law requires the OIR to determine windstorm discounts that insurers may use in their rate filing.  Accordingly, the OIR adopted Form OIR-B1-1699 (“Form 1699”) to establish actuarially reasonable windstorm mitigation discounts that insurers are required to provide to their policyholders.

The first page of Form 1699 addresses homes built prior to the 2001 FBC.  The second page applies to new construction that was built pursuant to the requirements of the 2001 FBC. The second page of Form 1699 is not affected by this Final Order.

Additionally, pursuant to section 627.711, F.S., the OIR adopted Form OIR-B1-1655 (“Form 1655”) that insurers are required to provide to their policyholders as notice of the fixtures or construction techniques that would qualify for a windstorm mitigation discount.

Secure Enterprises, LLC, the Petitioner in the case, manufactures and distributes the Secure Door® residential garage door bracing system.  In the Final Order, the ALI found that the Secure Door®  bracing system strengthens weak garage doors if installed onto a non-glazed garage door and meets the requirements of the 2001 FBC for wind resistivity.  

However, the ALJ also determined that Form 1699 does not provide a windstorm mitigation discount for the installation of a garage door bracing system like the Secure Door® bracing system, because the Form only recognizes enhancements that impact resistivity (relating to impact by wind-borne debris), not wind resistivity (relating to wind pressure).  Generally, doors have been known to fail mostly from wind pressure, not wind-borne debris, whereas windows fail due to impact by wind-borne debris more often than wind pressure. 

The Petitioner alleged that Form 1699 unlawfully failed to provide a discount for FBC-compliant garage doors.  The Petitioner also alleged that Form 1655 did not provide policyholders with notice of discounts for non-glazed garage doors that reduce the amount of loss in a windstorm.  

In his Final Order, the ALJ found that Form 1699 fails to identify discounts for fixtures and construction techniques that increase the wind resistivity of doors, windows and skylights.  As a result, the ALJ ordered that:

1.  The first page of Form 1699 that addresses mitigation discounts for existing pre-2001 construction is invalid.  However, the second page of Form 1699 relating to new construction is still valid.

2.  The request to invalidate Rule 69O-170.017, F.A.C. is denied.  The portion of this Rule that incorporates Form 1699 by reference is still valid, because the second page pertaining to new construction is unaffected by this Final Order.

3.  Form 1655 is invalid. Further, it is misleading to homeowners in that it suggests the only form of impact resistivity eligible for a discount is shutters.  The Form does not adequately notify insureds that they can obtain a discount for fixtures and construction techniques that enhance the strength of doors, windows and skylights.

4.  Accordingly, Rule 69O-170.0155(k), which incorporated Form 1655 is invalidated.

The OIR has the right to request the District Court of Appeal to review this Final Order, and has until November 18, 2012 to request an appellate review.  As of October 31, 2012, the OIR has not filed a Notice of Appeal.

Pursuant to section 627.0627, F.S., insurers should utilize actuarially reasonable discounts, credits, or appropriate reductions for homes built prior to the 2001 FBC, which have fixtures and construction techniques that enhance roof strength, roof covering performance, roof-to-wall strength, wall-to-floor-to-foundation strength, opening protection, and window, door, and skylight strength.  Credits, discounts, or other rate differentials, or appropriate reductions calculated by insurers must meet FBC minimum requirements and be included in the insurer’s rate filing.

In view of this Final Order and depending upon the ultimate outcome of any appeal that may be filed by the OIR, significant issues will exist with regard to insurer compliance with these statutory requirements.

Should you have any questions or comments, please contact Katie Webb (kwebb@cftlaw.com).