9 Fla. L. Weekly Supp. 535a

Insurance — Windstorm — Rates — Arbitration — Constitutionality — Delegation of insurance rate determinations to arbitration panels is not unconstitutional — Separation of powers — Where arbitrators are not members of judicial or executive branches, their activities do not constitute an encroachment on legislative powers by another branch — Due process — Challenged statutes do not deprive plaintiffs of due process of law where the procedures for premium rate determinations, including provision for arbitration as an alternative to Chapter 120 proceedings, are rationally related to assisting the economic viability of property insurers, and plaintiffs have not shown that they have a constitutionally protected right which overrides compelling state interest in maintaining viable and orderly private sector market for property insurance in state — No merit to claim that statute provides statutory due process by requiring a hearing if a rate filing based on computer data exceeds 25% where Florida Windstorm Underwriting Association held hearings during development of the filing, meetings of the actuarial committee were publicly noticed, and arbitration hearing was open to public — Fact that Association’s plan of operation provides that association’s rates shall be those approved by the Department of Insurance does not render statute providing for arbitration invalid where section 627.062(6)(a) states that department and insurer must treat arbitrator’s decision as final and, therefore, arbitration resulted in department approval as matter of law — Summary judgment granted in favor of defendants

DR. PAUL ZIMMERMAN, DR. JOHN W. URIBE, JOHN LIVOTI, HELEN ESTERLINE, DON REINHARD, JOHNATHAN D. NITKIN, ANGELA DALEY and EDNA BUCHANAN, on behalf of themselves and all other persons similarly situated, Plaintiffs, and LEONARD ELIAS, Miami-Dade County Consumer Advocate, Intervenor, vs. FLORIDA WINDSTORM UNDERWRITING ASSOCIATION, STATE OF FLORIDA DEPARTMENT OF INSURANCE, and the HONORABLE TOM GALLAGHER, in his capacity as Insurance Commissioner, Defendants. Circuit Court, 2nd Second Judicial Circuit in and for Leon County. Case No. 2001 CA 000006. June 14, 2002. Nikki Ann Clark, Judge. Counsel: John Radey, David Yon, and Elizabeth McArthur, Katz, Kutter, Alderman, Bryant & Yon, P.A., Tallahassee. M. Stephen Turner and David K. Miller, Broad & Cassel, Tallahassee. Steven H. Parton, Florida Department of Insurance, Division of Legal Services, Tallahassee.

Affirmed in part, REVERSED in part. 29 Fla. L. Weekly D971b

FINAL SUMMARY JUDGMENT AND DECLARATION

THIS CAUSE came before the court upon the plaintiffs’ amended motion for summary judgment and the defendants’ motion for summary judgment. The plaintiffs and intervenor seek a summary declaration by this court that sections 627.062(6) and 627.351(2)(b)5.b., Florida Statutes, are improper delegations of legislative power to a private panel of arbitrators, in violation of the constitutional restrictions on delegations of power, requirements of separation of powers and due process. Additionally, the plaintiffs and intervenor seek a declaration that the arbitration award is ultra vires under the Florida Windstorm Underwriting Association’s Plan of Operation and Articles of Agreement. Conversely, the defendants seek summary judgment and a declaration that the challenged statutes and actions of the defendants do not violate the Florida Constitution.¹

The plaintiffs argue that the challenged provisions unconstitutionally allow arbitration of the setting of insurance rates by non-government officials without provision for public hearing. The plaintiffs seek a declaration to this effect, a refund of the premiums paid during the time the increased rates were in effect, and an order enjoining future arbitration of windstorm insurance rates.

The defendants assert that the statutes do not constitute an invalid delegation of regulatory authority to private persons, an unconstitutional delegation of legislative authority to another branch of government, or an unconstitutional deprivation of policyholders’ due process rights. In addition, the defendants assert that the arbitrators’ award was not an ultra vires act by the Association.

This case is ripe for summary judgment. The parties agree to the material facts as follows. The Florida Windstorm Underwriters Association (“FWUA”) is a residual insurer created by statute and compelled to provide property insurance for wind damage, such as hurricanes, to property owners who are unable to obtain such coverage in the voluntary insurance market. Property owners with mortgages on their real property are generally required to carry homeowners insurance by their mortgage lenders. However, there is no law requiring homeowners to carry such insurance or legally penalizing homeowners for failing to obtain such insurance. Windstorm damage insurance is not available in Florida coastal areas from the voluntary market, due at least in part to hurricanes and windstorms occurring in the past decade which have each resulted in massive insurance claims.

In April, 1999, the FWUA requested approval from the Department of Insurance for substantial rate increases for its insurance premiums. When the Department did not approve the proposed increases, the FWUA used sections 627.062(6) and 627.351(2)(b)5.b., Florida Statutes, to obtain private arbitration of its rates. Pursuant to the statutes, the arbitration procedures are an alternative to administrative action under Chapter 120, Florida Statutes. On February 3, 2000, the arbitration panel rendered its decision, which resulted in substantial premium increases (on the order of 30% per year for 3 successive years) to the plaintiffs. The Department of Insurance then sought an order from this court vacating the arbitration decision, in Case Number 2000 CA 000345. This court declined to do so because an arbitration award may only be vacated on statutorily specified grounds pursuant to Section 682.13, Florida Statutes. Errors of judgment as to the law or facts are not sufficient bases to vacate. The First District Court of Appeal affirmed without opinion in Department of Insurance v. Florida Windstorm Underwriting Ass’n., 802 So.2d 1153 (Fla. 1st DCA 2001). This lawsuit by the plaintiffs followed.

The defendants are entitled to summary judgment as a matter of law on all four counts of the second amended complaint. As to count I, the plaintiffs have failed to prove an unconstitutional delegation of legislative authority to private persons. There is no constitutional requirement that insurance rate determinations be made by either the Legislature or the Department of Insurance. There is no constitutional requirement that insurance rates be regulated at all. Rather, the Department has been charged by the Legislature to regulate certain insurance matters as an exercise of the general police powers of the State. The plaintiffs do not rely on a particular constitutional provision applicable to insurance regulation. The delegation of the rate-determining powers to the arbitrators is limited by sections 682.06 through 682.10, Florida Statutes, and is subject to review to the limited extent provided for in sections 682.13 and 682.14. The standards to be applied by the arbitration board are specified in section 627.062(2), Florida Statutes, and so the delegation of the police power to determine certain rates is not without standards. There is simply no constitutional provision in Florida which prohibits the delegation of insurance rate determinations to arbitration panels as provided in sections 627.062(6) and 627.351(3)(b)5.b.

Considering Count II, the court finds no separation of powers violation in the challenged statutes. The arbitrators are not members of the judicial or executive branches of government and thus their activities do not constitute an encroachment on the Legislature’s powers by another branch.²

The defendants are entitled to summary judgment on Count III because the challenged statutes do not deny the plaintiffs’ due process of law. It is well settled that statutes are presumed to be constitutional and courts must construe them in harmony with the constitution if it is reasonable to do so. Florida Dept. of Education v. Glasser, 622 So.2d 944 (Fla. 1993). The plaintiffs must meet a heavy burden of proof to establish the invalidity of the statutes here. The due process clause is implicated only when the plaintiffs have shown that a constitutionally protected right is infringed by the language of the enactment. State v. Butler, 587 So.2d 1391 (Fla. 3d DCA 1991), rev. den., 599 So.2d 1278 (Fla. 1992); McKinney v. Pate, 20 F.3d 1550 (11th Cir. 1994) (“fundamental rights” protected by due process clause are those implicit in concept of ordered liberty).

The right to prospective property insurance rates is not a fundamentally protected right implicit in the concept of ordered liberty. Even if the plaintiffs had shown a constitutionally protected property interest in their property insurance premium rates, such rights are subject to reasonably necessary enactments promoting the health, safety, and general welfare. See, Golden v. McCarty, 337 So.2d 338 (Fla. 1976). Economic bargaining powers of consumers are curtailed to some degree in every industry subject to state regulation. While the right to contract and to use one’s property freely are fundamental rights guaranteed by the constitution, “the degree of such guaranties must be determined in the light of social and economic conditions that prevail at the time the guaranty is proposed to be exercised.” Palm Beach Mobile Homes, Inc. v. Strong, 300 So.2d 881, 884 (Fla. 1974). Statutes may permissibly infringe upon even constitutionally protected property rights if “the statute bears a reasonable relation to a permissible legislative objective and is not discriminatory, arbitrary, or oppressive.” Lasky v. State Farm Ins. Co., 296 So.2d 9, 15 (Fla. 1974). Clearly, the procedures for premium rate determinations, including the provision for arbitration as an alternative to Chapter 120 proceedings, are rationally related to assisting the economic viability of property insurers. The plaintiffs have not shown that they have a constitutionally protected property right to participate in premium rate determinations which overrides the “compelling state interest in maintaining a viable and orderly private sector market for property insurance in this state.” §215.555(1), Fla. Stat.

Similarly, the plaintiffs cannot prevail on the basis that Section 627.0629(7), Florida Statutes provides them “statutory due process” by requiring a hearing if a rate filing based on computer data exceeds 25 per cent. The defendant Association held several public hearings during the development of the filing and the meetings of the actuarial committee were noticed in general circulation newspapers. The arbitration hearing itself was also open to the public. Under the circumstances, section 627.0629(7) does not render sections 627.062(6) and 627.351(3)(b)5.b. violative of any constitutional provision, including due process.

Finally, the defendants are entitled to judgment as a matter of law on Count IV. The fact that the FWUA Plan of Operation provides that the Association’s rates shall be “those approved for use by the Association by the Department” does not render the statutes allowing for arbitration invalid, nor render the arbitrators’ award void. Section 627.062(6)(a) expressly states that “the department and the insurer must treat the decision of the arbitrators as the final approval of a rate filing.” Accordingly, the arbitration resulted in Department approval as a matter of law. The Plan of Operation does not constitute a waiver of the FWUA’s ability to demand arbitration under the statutes at issue.

In light of the foregoing, it is hereby ORDERED, ADJUDGED, and DECLARED that:

(1) Although the right to contract and the right to use property are fundamental constitutional rights, the plaintiffs do not have a constitutionally protected property right in the regulation of windstorm property insurance premium rates;

(2) The arbitration provisions of sections 627.062(6)(a) and 627.351(2), Florida Statutes, do not unconstitutionally delegate legislative authority to private persons, violate the separation of powers doctrine, or deprive the plaintiffs of due process of law;

(3) The plaintiffs do not have rights pursuant to the FWUA’s Plan of Operation or section 627.0629(7), Florida Statutes, which are violated by sections 627.062(6)(a) and 627.351(2), Florida Statutes or which render those statutes unconstitutional or otherwise invalid.

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¹The challenged provisions provide in pertinent part:

627.062 Rate standards. —

(1) The rates for all classes of insurance to which the provisions of this part are applicable shall not be excessive, inadequate, or unfairly discriminatory.

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(6)(a) After any action with respect to a rate filing that constitutes agency action for purposes of the Administrative Procedures Act, an insurer may, in lieu of demanding a hearing under s.120.57, require arbitration of the rate filing. Arbitration shall be conducted by a board of arbitrators consisting of an arbitrator selected by the department, and arbitrator selected by the insurer, and an arbitrator selected jointly by the other two arbitrators. . . . The department and the insurer must treat the decision of the arbitrators as the final approval of a rate filing. . . .

(b) Arbitration under this subsection shall be conducted pursuant to the procedures specified in ss. 682.06-682.10. Either party may apply to the circuit court to vacate or modify the decision pursuant to s. 682.13 or 682.14. The department shall adopt rules for arbitration under this subsection, which rules may not be inconsistent with the arbitration rules of the American Arbitration Association as of January 1, 1996.

627.351 Insurance risk apportionment plans. —

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(2) WINDSTORM INSURANCE RISK APPORTIONMENT. —

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(b) The department shall require all insurers holding a certificate of authority to transact property insurance on a direct basis in this state . . . to provide windstorm coverage to applicants from areas determined to be eligible pursuant to section (c) who in good faith are entitled to, but are unable to procure, such coverage through ordinary means; or it shall adopt a reasonable plan or plans for the equitable apportionment or sharing among such insurers of windstorm coverage, which may include the formation of an association for this purpose. . . .

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5.B. The association may require arbitration of a rate filing under s. 627. 062 (6). It is the intent of the Legislature that the rates for coverage provided by the association be actuarially sound and not competitive with approved rates charged in the admitted voluntary market such that the association functions as a residual market mechanism to provide insurance only when the insurance cannot be procured in the voluntary market. . . .

²Article II, section 3 of the Florida Constitution provides:

Branches of government. — The powers of the state government shall be divided into legislative, executive and judicial branches. No person belonging to one branch shall exercise any powers appertaining to either of the other branches unless expressly provided herein.

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