Case Name: SERVICE INSURANCE COMPANY, et al., Appellants, v. The Honorable Lawton CHILES, et al., Appellees
Court: Florida District Court of Appeal
Jurisdiction: Florida
Decision Date: 1995-08-01
Citations: 660 So. 2d 734
Docket Number: No. 94-3111
Parties: SERVICE INSURANCE COMPANY, et al., Appellants, v. The Honorable Lawton CHILES, et al., Appellees.
Judges: LAWRENCE, J., concurs.
Reporter: Southern Reporter, Second Series
Volume: 660
Pages: 734–742

Head Matter:
SERVICE INSURANCE COMPANY, et al., Appellants, v. The Honorable Lawton CHILES, et al., Appellees.
No. 94-3111.
District Court of Appeal of Florida, First District.
Aug. 1, 1995.
Opinion Certifying Question Sept. 22, 1995.
Daniel C. Brown and Donna E. Blanton of Katz, Kutter, Haigler, Alderman, Marks & Bryant, P.A., Tallahassee, for appellants.
John K. Aurell, John Beranek, Kenneth P. Hart and Stephen C. Emmanuel of Macfar-lane, Ausley, Ferguson & McMullen, Tallahassee; Gerald B. Curington, Asst. Atty. Gen., Dept, of Legal Affairs, Tallahassee; Alan J. Leifer, Div. of Legal Services, Dept, of Ins., Tallahassee, for appellees.

Opinion:
WOLF, Judge.
Appellants challenge a final summary judgment upholding the validity of chapter 93-409, Laws of Florida (The Act). Appellants argue that The Act violates article III, section 19 of the Florida Constitution which governs the creation of trust funds by the state of Florida. We find that there was no violation of the constitutional provision, and affirm.
Appellants are insurance companies who sued in a multi-count complaint, challenging the constitutionality of the Hurricane Catastrophe Trust Fund created by chapter 93-409, Laws of Florida (codified at section 215.555, Florida Statutes (Supp.1994)). The appellees are Lawton Chiles, Gerald Lewis, and Tom Gallagher in their official capacities as the State Board of Administration (SBA).
The Legislature enacted chapter 93^09 in November of 1993, during a special session which was called due to a potential crisis in the insurance industry in the aftermath of Hurricane Andrew. This Act created the Florida Hurricane Catastrophe Fund which is funded by assessments on appellants and other insurers and is administered by the SBA. The Act also contains provisions which in pertinent part read,
(3) FLORIDA HURRICANE CATASTROPHE FUND CREATED. — There is created the Florida Hurricane Catastrophe Fund to be administered by the State Board of Administration. Moneys in the fund may not be expended, loaned, or appropriated except to pay obligations of the fund arising out of reimbursement contracts entered into under subsection (4), payment of debts including obligations arising out of revenue bonds issued under subsection (6), costs of the mitigation program under subsection (7), costs of procuring reinsurance, and costs of administration of the fund....

(5) REIMBURSEMENT PREMIUMS.— (d) All premiums paid to the fund under reimbursement contracts shall be treated as premium for approved reinsurance for all accounting and regulatory purposes.

(6) REVENUE BONDS.—
(a) Upon the occurrence of a hurricane and a determination that the moneys in the fund are or will be insufficient to pay reimbursement at the levels promised in the reimbursements contracts, the board shall enter into agreements with local governments for the issuance of revenue bonds for the benefit of the fund. The term of the bonds may not exceed 15 years. The board shall pledge all future revenues under subsection (5) and under paragraph (c), or a lesser portion of such revenues sufficient to raise moneys in an amount that will pay reimbursement at the levels promised in the reimbursement contracts, to the retirement of such bonds. The board may also enter into such agreements in the absence of a hurricane upon a determination that such action would maximize the ability of the fund to meet future obligations.
(b) The governing body of any county or municipality may issue bonds as defined in s. 125.013 or s. 166.101 from time to time to fund an assistance program, in conjunction with the Florida Hurricane Catastrophe Fund, for the purpose of meeting the reimbursement obligations of the fund. The issuance of such bonds is for the public purpose of ensuring that policyholders located within the county or municipality are able to recover under property insurance policies after a covered event. Revenue bonds may not be issued until validated pursuant to the provisions of chapter 75. The county or municipality shall enter into such contracts with the fund as are necessary to carry out this section. Any bonds issued under this section shall be payable from and secured by moneys received by the fund under subsection (5), and assigned and pledged to or on behalf of the county or municipality for the benefit of the holders of such bonds. The funds, credit, property, and taxing power of the state or of the county or municipality shall not be pledged for the payment of such bonds.
(c)If the board determines that the amount of revenue produced under subsection (5) is insufficient to fund revenue bonds to pay reimbursement at the levels promised in the reimbursement contracts, the board shall direct the Department of Insurance to levy an emergency assessment on each insurer writing property and casualty business in this state. Pursuant to the emergency assessment, each such insurer shall pay to the fund by July 1 of each year an amount equal to 2 percent of its gross direct written premium for the prior year from all property and casualty business in this state except for workers' compensation. The annual assessments under this paragraph shall continue until the revenue bonds issued with respect to which the assessment was imposed are retired. An insurer shall not at any time be subject to more than one assessment under this paragraph. Within 90 days after the assessment is levied under this paragraph, each insurer subject to the assessment shall make a rate filing for all coverages on which the assessment is based. If the filing reflects a rate change attributable entirely to the assessment, the filing shall consist of a certification so stating and shall be deemed approved when made, subject to the authority of the Department of Insurance to require actuarial justification as to the adequacy of any rate at any time.
(7) ADDITIONAL POWERS AND DUTIES.—
(a) The board may procure reinsurance from reinsurers approved under s. 624.610 for the purpose of maximizing the capacity of the fund.
(b) In addition to borrowing under subsection (6), the board may also borrow from any market sources at prevailing interest rates.

(10) VIOLATIONS. — Any violation of this section constitutes a violation of the Insurance Code.
The appellants filed a motion for summary judgment, and the appellees filed a cross-motion for summary judgment. Appellants argued that chapter 93-409 violated article III, section 19(f) of the Florida Constitution which states,
(f)(1) No trust fund of the State of Florida or other public body may be created by law without a three-fifths (%) vote of the membership of each house of the legislature in a separate bill for that purpose only.
The trial count found that the legislation was constitutional and granted SBA's cross-motion for summary judgment in pertinent part stating,
B.Chapter 93-409, Laws of Florida, is a law establishing a trust fund. Therefore, it must meet the separate bill requirement of Article III, Section 19(f)(1) of the Florida Constitution. Because it is a substantive law, Chapter 94-409 must also meet the one subject and matter properly connected therewith standard of Article III, Section 6 of the Florida Constitution.
C. Chapter 93^409 is not an appropriation bill. Therefore, Article III, Section 12 of the Florida Constitution does not apply.
D. Chapter 93-4090 is not a citizens' initiative amendment to the Florida Constitution. Therefore, Article XI, Section 3 of the Florida Constitution does not apply.
E. Chapter 93-409 complies with the requirements of Article III, Section 19(f) and Article III, Section 6 of the Florida Constitution.
Article III, section 19(f)(1) of the constitution dealing with the creation of trust funds became effective on November 4, 1992. The Legislature enacted section 216.3207 relating to creation of trust funds in 1992, and has subsequently amended the statute in 1993 and 1994. This section implements the constitutional provision and reads,
Trust funds; establishment; criteria. — A trust fund may be created by law only by the Legislature and only if passed by a three-fifths vote of the membership of each house in a separate bill for that purpose only. Except for trust funds being recreated by the Legislature, each trust fund must be created by statutory language that specifies at least the following:
(1) The name of the trust fund.
(2) The agency or branch of state government responsible for administering the trust fund.
(3) The requirements or purposes that the trust fund is established to meet.
(4) The sources of moneys to be credited to the trust fund or specific sources of receipts to be deposited in the trust fund.
A relatively contemporaneous construction of the constitution by the Legislature is strongly presumed to be correct. Brown v. Firestone, 382 So.2d 654 (Fla.1980); Smith v. Brantley, 400 So.2d 443 (Fla.1981). In enacting section 215.3207, the Legislature reasonably interpreted the constitutional provision to mean that items related to the purpose, administration, and funding should be included within a bill creating a trust fund. Matters relating to regulation and solvency of the fund clearly fall within the parameters of administration and funding.
The appellants argue that the bill creating the trust fund may only create the fond rather than also dealing with matters reasonably relating to the creation. This overly restrictive interpretation is unreasonable and flies in the face of the obvious intent of article III, section 19 of the constitution. The intent of this provision is to make it more difficult to create trust funds (three-fifths vote requirement), and to make such funds more accountable by subjecting them to the detailed planning and appropriation process created in subsections (a) through (h) of article III, section 19. A prohibition against including the details of purpose, administration, and funding of a trust fund from the bill creating the fund (required to be adopted by a three-fifths vote) would circumvent constitutional intent. That intent is to have heightened scrutiny prior to creating trust funds. If a skeletal bill was all that was allowed or required to create a trust fund, the details concerning purpose, administration, and funding would have to be adopted in a separate bill not subject to the three-fifths voting requirement. This clearly was not the intent of the constitutional provision.
All of the provisions of chapter 93-109 are related to the purpose, administration (including regulation), and funding (including ensuring solvency) of the trust fund.
The purpose of the Florida Hurricane Catastrophe Fund was set forth in section 1 of The Act:
(1) Findings and purpose. — The Legislature finds and declares as follows:
(a)There is a compelling state interest in maintaining a viable and orderly private sector market for property insurance in this state. To the extent that the private sector is unable to maintain a viable and orderly market for property insurance in this state, state actions to maintain such a viable and orderly market are valid and necessary exercises of the police power.
(b) As a result of unprecedented levels of catastrophic insured losses in recent years, and especially as a result of Hurricane Andrew, numerous insurers have determined that in order to protect their solvency, it is necessary for them to reduce their exposure to hurricane losses. Also as a result of these events, world reinsurance capacity has significantly contracted, increasing the pressure on insurers to reduce their catastrophic exposures.
(c) Mortgages require rehable property insurance, and the unavailability of rehable property insurance would therefore make most real estate transactions impossible. In addition, the pubhc health, safety, and welfare demand that structures damaged or destroyed in a catastrophe be repaired or reconstructed as soon as possible. Therefore, the inability of the private sector insurance and reinsurance markets to maintain sufficient capacity to enable residents of this state to obtain property insurance coverage in the private sector endangers the economy of the state and endangers the pubhc health, safety, and welfare. Accordingly, state action to correct for this inability of the private sector constitutes a vahd and necessary pubhc and governmental purpose.
(d) The insolvencies and financial impairments resulting from Hurricane Andrew demonstrate that many property insurers are unable to unwilling to maintain reserves, surplus, and reinsurance sufficient to enable the insurers to pay ah claims in full in the event of a catastrophe. State action is therefore necessary to protect the pubhc from an insurer's unwillingness or inability to maintain sufficient reserves, surplus, and reinsurance.
(e) A state program to provide reimbursement to insurers for a portion of their catastrophic hurricane losses will create additional insurance capacity sufficient to amehorate the current dangers to the state's economy and to the pubhc health, safety, and welfare.
(f) It is essential to the functioning of a state program to increase insurance capacity that revenues received be exempt from federal taxation. It is therefore the intent of the Legislature that this program be structured as a state trust fund under the direction and control of the State Board of Administration and operate exclusively for the purpose of protecting and advancing the state's interest in maintaining insurance capacity in this state.
The first provision challenged by appellants is that part of chapter 93-409 which created section 215.555(5)(d), which clarifies the status of payments by insurance companies and specifies that the moneys paid to the fund will be treated as moneys paid for approved reinsurance for accounting and regulatory purposes. Because the purpose of the CAT Fund is to provide the functional equivalent of reinsurance for insurance companies in the event of a catastrophic event, this provision directly relates to the purpose of The Act. This accounting mechanism directly affects the burden placed on the insurance companies required to make payments into the trust fund. The issue of the burden which will be placed on payors into a trust fund should and does have an affect on the legislative determination of the viability of creating a trust fund. Second, the companies attack the portion of The Act which creates section 215.555(6)(a) and (b), Florida Statutes. These subsections authorize local governments to issue revenue bonds "for the benefit of the fund" if the SBA finds it necessary because the moneys in the fund are insufficient to meet the fund's contractual obligations. Because the proceeds of these bonds provide a revenue source directly for the credit and benefit of the trust fund, which revenues will be deposited in the fund, they directly relate to funding and solvency of the trust fund.
The third challenged provision creates section 215.555(6)(c), Florida Statutes, which provides that if the SBA determines the amount of revenue produced under section 215.555(5) is insufficient to fund bonds to pay reimbursement to the insurance companies at the promised levels, then the SBA will authorize the Department of Insurance to levy an emergency assessment on each insurer writing property and casualty insurance business in the state. The proceeds of these assessments are to be deposited in the trust fund in order to enable the fund to meet debt service obligations with respect to bonds issued for the benefit of the fund. This provision also directly relates to the funding and solvency of the trust fund in emergency situations. Providing for how to deal with an emergency in the context of this emergency fund can hardly be considered extraneous to creation of the trust fund.
Last, the plaintiffs challenge section 4 which amends section 624.5091(3), Florida Statutes, to provide that reimbursement premiums and emergency assessments paid to the CAT Fund shall be excluded from the calculation of the retaliatory tax authorized by section 624.5091, Florida Statutes. This provision clarifies how, for tax purposes, to appropriately account for premiums paid to the fund. Resolving the question of whether fund premiums are subject to this tax is a policy decision of the Legislature. This section could have just as appropriately been included in the CAT Fund section itself, rather than as an amendment to section 624.5091.
In summary, all of the provisions challenged by appellants directly relate to the purpose, funding, administration, and regulation of the Hurricane Catastrophe Trust Fund. The Act is, therefore, not violative of article III, section 19 of the Florida Constitution. The decision of the circuit court is affirmed.
LAWRENCE, J., concurs.
WEBSTER, J., dissenting with written opinion.
. Contrary to assertions made by appellants, we do not read the final judgment as being a statement by the trial court that the same legal standard applies in determining compliance with article III, section 19(f)(1), and article III, section 6 of the constitution. We read this portion of the judgment to state only that the challenged statute complies with both provisions. We also disagree with the idea that an affirmance of the trial court requires that we adopt the same legal analysis for determining compliance with art. Ill, § 19(f) that has previously been adopted for determining compliance with art. Ill, § 6 of the Florida Constitution. Pursuant to art. Ill, § 6, the legislation may involve any subject which the Legislature determines will be the common thread that links various parts of a bill so as to not violate the one-subject provision. On the other hand, review pursuant to art. Ill, § 19(f) does not involve a search for a common thread, but must focus on creation of the trust fund and subjects directly connected therewith.