Opinion ID: 1954741
Heading Depth: 1
Heading Rank: 3

Heading: Dade County Consumer Advocates' Office

Text: In Dade County, the Consumers Advocate's Office (Consumer Advocate) filed a complaint against the Department of Insurance alleging that certain anti-rebate statutes prevented price competition with respect to insurance agents' commissions, thereby depriving consumers of their property without due process in violation of article I, section 9 of the Florida Constitution. [13] The Department of Insurance argued that the anti-rebate statutes guaranteed insurer solvency and prevented discrimination against insureds in the same actuarial class. The Department and various amici further argued that the antirebate statutes advanced the economic protection of Florida consumers by establishing uniform rates; that, in the absence of these laws, similarly situated consumers would pay different prices for the same policy; that consumers' efforts to compare prices would be thwarted; that consumers would focus on the size of the rebate rather than the quality of insurance; that premiums would increase as a result of pressure by agents for larger commissions so as to offer large rebates; and that many policies would lapse because consumers would replace their policies each year with new policies by different agents offering larger rebates, resulting in higher administrative costs. The trial court found the challenged statutes to be a valid exercise of police power and regulatory authority to protect the public from discrimination. The district court reversed, concluding that it was unable to find a legitimate state interest justifying the continued existence of the anti-rebate statutes. Dade County Consumer Advocate's Office v. Department of Ins., 457 So.2d 495, 497 (Fla. 1st DCA 1984). On review, this Court affirmed, finding that the anti-rebate statutes at issue unconstitutionally interfered with a citizen's property rights by unnecessarily limiting the bargaining power of the consuming public. See Dade County, 492 So.2d at 1033. In so concluding, this Court looked to case law from this Court and from the United States Supreme Court striking legislation curtailing the economic bargaining power of the public. We are concerned with the narrow issue of whether a statute that prohibits an insurance agent from reducing the amount of the commission he or she will earn from selling the insurance is valid. Historically, this Court has carefully reviewed laws that curtail the economic bargaining power of the public. In fact, this Court was one of the first to hold unconstitutional a fair trade act that allowed a manufacturer to establish a minimum retail price for which the retailer could sell a product to the consumer. See Liquor Store v. Continental Distilling Corp., 40 So.2d 371 (Fla.1949). We found that such legislation is not within the scope of the state's police power and noted that [c]onstitutional law never sanctions the granting of sovereign power to one group of citizens to be exercised against another unless the general welfare is served. Id. at 374 (emphasis in original). We concluded that the act was arbitrary, unreasonable, and violated the right to own and enjoy property. In Larson v. Lesser, 106 So.2d 188 (Fla.1958), we struck down as unconstitutional a statute that prohibited a public adjuster who represents insureds from soliciting business on the ground that the restraint imposed was not rationally related to the public's welfare. In Stadnik v. Shell's City, Inc., 140 So.2d 871 (Fla.1962), this Court held invalid a pharmacy board rule that prohibited the advertisement of the name or price of prescription drugs on the basis that it was an attempt to prohibit price competition which had no reasonable relation to public safety, health, morals or general welfare. In Florida Board of Pharmacy v. Webb's City, Inc., 219 So.2d 681 (Fla.1969), we held invalid a statute which prohibited retail drug establishments from using the media to promote the use or sale of prescription drugs. In recent years, the United States Supreme Court also has struck down governmental statutes or regulations that restrict the competitive pricing of consumer services. While recognizing that states have broad power to establish standards for licensing practitioners and regulating the practice of professions within their boundaries, the Court, in Goldfarb v. Virginia State Bar, 421 U.S. 773, 95 S.Ct. 2004, 44 L.Ed.2d 572 (1975), determined that a minimum fee schedule for attorneys enforced through the prospect of professional discipline by the state bar association and the state supreme court violated the Sherman Anti-Trust Act. In Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748, 96 S.Ct. 1817, 48 L.Ed.2d 346 (1976), the Court held unconstitutional, on first and fourteenth amendment grounds, that part of a statute declaring it unprofessional for a pharmacist to advertise prices for prescription drugs. In Bates v. State Bar of Arizona, 433 U.S. 350, 97 S.Ct. 2691, 53 L.Ed.2d 810 (1977), the Court held that a disciplinary rule prohibiting attorneys from advertising the cost of their services violated the first amendment. Dade County, 492 So.2d at 1034. We next considered whether the anti-rebate statutes were rationally related to the State's interest in promoting the public's health, safety and welfare. In concluding that they were not, we reasoned: From our review of the record, we find no identifiable relationship between the anti-rebate statutes and a legitimate state purpose in safeguarding the public health, safety or general welfare. Insurance agents' commissions do not affect the net insurance premium and are unrelated to the actuarial soundness of insurance policies. The other arguments presented by the Department of Insurance in support of the statutes' constitutionality have been properly responded to by the district court in its opinion. Many of these arguments have been previously unsuccessfully made to uphold statutes or regulations limiting consumers' bargaining power for other services. Id. at 1035. [14] Appellants contend that the reasoning of Dade County does not apply to the statutes at issue herein because the underwriting services provided by title insurance agents directly affect the solvency of the title insurers and the soundness of the title insurance policy. Appellants argue that unlike general insurance agents, title insurance agents are primarily responsible for researching, detecting, and eliminating any defects in title that would affect the title insurance ultimately issued. Because the services provided by the title agent directly affect the risk of liability to the title insurer, the functions of the title insurance agent are essential to the maintenance of solvency and soundness of the title insurer and, therefore, are directly related to the public interest. Appellants argue that such relationship was lacking in Dade County and hence was the reason for the anti-rebate statutes being held unconstitutional in that case. [15] We find appellants' arguments to be unpersuasive. First, it is unclear that the fact the title insurance agents play a greater role in effectuating policies has any bearing on the industry's solvency. We note that the Legislature expressly attempted to reduce the risk of insurer insolvency in its 1992 amendments to the insurance code. During the 1992 legislation, the Legislature rewrote several provisions of the Insurance Code to address growing concerns within the title insurance industry, one of which was insurer solvency. As noted by the parties to this appeal, a group of title insurers and agents commissioned a study on the current situation concerning the title insurance industry in Florida. See 1992 Final Bill Analysis, supra at 33. The study found that in the late 1980s, title insurers lost money each year by providing title information to title insurance agents at an amount below the cost to prepare such documents. See id. at 34. Similarly, title insurance agents suffered a loss each year due to closing costs. The study found that the costs to an agent in a closing exceed the commission the agent will receive on the risk premium. Id. However, competitive pressures often prevent title insurance agents from charging additional fees for closings, resulting in agents' performing closings at a loss. See id. Apparently, both title insurers and title insurance agents were forced to operate at a loss due to the highly competitive nature of the industry. In an effort to alleviate these problems, the Legislature divided the total premium for title insurance policies into two components: (1) related title services, which covered closing costs and (2) risk premium, which was an amount intended to cover the risk assumed by the title insurer. See §§ 627.7711, .782, Fla. Stat. (Supp.1992). Under the newly structured law, the title insurer must receive no less than thirty percent of the risk premium. See id. § 627.782(1). This means, therefore, that title insurance agents, on the other hand, would be entitled to the remaining seventy percent of the risk premium. Title agents could also collect a fee for related title services, as long as the fee for such services did not fall below the cost for providing such services. See id. § 627.7711(1); Fla. Admin. Code r. 4-186.003(13)(a) (At least actual cost must be charged for related title services in addition to the adopted risk premium.). [16] Nowhere in the legislative history to the 1992 amendments, however, does the Legislature discuss the anti-rebating provisions as a further means of ensuring the solvency of the title insurance industry. Indeed, the legislative history to the 1992 amendments does not address the rebate statutes other than to note their continued existence. However, since the Legislature has guaranteed thirty percent of the risk premium to title insurers for the sole purpose of ensuring industry solvency, appellants' argument that a rebate of the agent 's share of the risk premium would adversely impact the insurer's solvency appears unavailing. [17] We also reject appellants' second ground for distinguishing Dade County on the basis of the relationship between the title agent's performance and the resulting soundness of the insurance policy. Appellants contend that if title agents are allowed to negotiate the amount of premium they collect, they will be forced to cut corners in order to remain competitive with other title agents, thereby jeopardizing the quality and level of skill necessary to perform the underwriting services. However, a similar quality-of-service-based argument was rejected by the First District Court of Appeal in Dade County Consumer Advocate's Office v. Department of Insurance, 457 So.2d 495 (Fla. 1st DCA 1984), aff'd, 492 So.2d 1032 (Fla.1986), wherein it stated: Perhaps the department's and amicis' strongest argument is that the agent who is permitted to rebate will do so at the expense of his customers, in that they will not be provided with the quality of information regarding the best type of insurance suited to their needs because the agent, having negotiated his commission, will not spend the requisite time counseling his clients. Accordingly, the argument goes, the public must be protected from low-cost, low-quality service, and the statutes banning rebating therefore advance a legitimate public interest. We recognize that this argument is not without merit but we are not convinced that it validates the exercise of the police powers of the state. Indeed, the Supreme Court was faced with a similar argument in Virginia Pharmacy Board v. Virginia [Citizens] Consumer Council, 425 U.S. 748, 96 S.Ct. 1817, 48 L.Ed.2d 346 (1976), in support of a Virginia statute prohibiting druggists from advertising the prices of their drugs, which had urged the public needed to be protected from the evils of advertising because the low-cost, lowquality pharmacist would attract too many unwitting customers and thereby drive the professional druggist out of business, resulting in the destruction of the traditional pharmacist-customer relationship. The Court, however, rejected the argument, stating: There is, of course, an alternative to this highly paternalistic approach. That alternative is to assume that this information is not in itself harmful, that people will perceive their own best interests if only they are well enough informed, and that the best means to that end is to open the channels of communication rather than to close them. If they are truly open, nothing prevents the professional pharmacist from marketing his own assertedly superior product, and contrasting it with that of the low-cost, high-volume prescription drug retailer. But the choice among these alternative approaches is not ours to make or the Virginia General Assembly's. It is precisely this kind of choice, between the dangers of suppressing information, and the dangers of its misuse if it is freely available, that the First Amendment makes for us. Virginia is free to require whatever professional standards it wishes of its pharmacists; it may subsidize them or protect them from competition in other ways. Cf. Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943). But it may not do so by keeping the public in ignorance of the entirely lawful terms that competing pharmacists are offering. In this sense, the justifications Virginia has offered for suppressing the flow of prescription drug price information, far from persuading us that the flow is not protected by the First Amendment, have reinforced our view that it is. 425 U.S. at 770, 96 S.Ct. at 1829. Similarly, we believe that the choice opted for by the Florida legislature does not come within the confines of the due process clause. The dangers of the misuse of information to the consumer by the unscrupulous or indifferent agent may exist, but the possibilities of such abuse cannot serve to suppress bargaining or information which might otherwise lead to an informed choice. Indeed, competitive forces at work in the marketplace should generally serve to protect consumers against unfairly discriminatory prices, provided that there is adequate disclosure available to make consumers aware of alternative sources and prices of insurance. Dade County Consumer Advocate's Office, 457 So.2d at 497-98 (footnote omitted). The same reasoning utilized by the First District would appear to apply here. Obviously, the quality of title agents' underwriting is a valid concern of the Legislature, which justifies the enactment of means of regulating the agents' performance for the betterment of the industry. However, the Legislature may not impose quality control regulations in a manner that harms the public and violates a citizen's property rights to freely negotiate the cost of services from a provider. While the possibility exists that some agents may sacrifice the level of care they place in underwriting title insurance policies, the regulatory laws intended to curb such practices should not outweigh the public's right to effective bargaining power. We note, for example, that attorneys who perform title services appear to be expressly exempted from the anti-rebate provisions in section 626.9541 with regard to legal fees, see, e.g., § 626.9541(1)(h)3.a. (providing that nothing herein contained shall preclude an abatement in an attorney's fee charged for services rendered incident to the issuance of [title] insurance), and from the licensing and appointment requirements in chapter 626 relating to title insurance agents, see, e.g., § 626.8417(4)(a), Fla. Stat. (1997) (Title insurers or attorneys duly admitted to practice law in this state ... are exempt from the provisions of this chapter with regard to title insurance licensing and appointment requirements.). In this case, we also fail to see how a competitive pricing structure for obtaining title insurance would negatively affect the soundness of the resulting policy. As noted above, the net premium is divided into two components: related title services, which covers closing costs, and the risk premium, which covers the risk assumed by the title insurer. The right to negotiate for a voluntary rebate sought by Butler would only come from the agent's share of the risk premium and would not affect the portion of the premium guaranteed to the insurer or the cost for related title services. According to the rule set by the Department of Insurance, the related title services are charged separately and cannot be reduced to an amount below the cost of performing such services. See Fla. Admin. Code r. 4-186.003(13)(a). Thus, under the statutory scheme title agents will be compensated for the services they provide and will not be forced to compromise the quality of their work if rebates from the risk premium are offered to the consuming public. More importantly, appellants do not explain how a blanket prohibition against title insurance agents' negotiating their portion of the risk premium with their customers promotes a public interest. Rather, even appellant's arguments in support of the anti-rebate statutes are geared more toward maintaining a sound private market for title insurers than with benefitting the public at large. As in Dade County, we must be concerned with whether the challenged statutes are related to a public purpose. After considering the arguments presented by both parties in this case, and as we did in Dade County, we find that the anti-rebate statutes do infringe upon a citizen's property rights and unconstitutionally restrict a citizen's rights to freely bargain for services. To uphold such regulatory laws, there must be some reasonable relationship to a public benefit. See Dade County. While we acknowledge the Legislature's interest in protecting title insurers and agents against insolvency, such purpose is not furthered by the antirebate statutes presented herein. As noted throughout this opinion, the Legislature has taken great strides in protecting the industry's solvency and the soundness of the insurance policies through means other than the anti-rebate statutes. One such means is the statutory mandate that title insurers receive thirty percent of the risk premium to ensure continued solvency. The anti-rebate statutes, on the other hand, do not achieve the Legislature's avowed purposes and instead simply deprive the consuming public of a choice in the price of products or services, the choice of which is the cornerstone of a competitive, free-market economy. Indeed, it is the consumer's economic liberty that concerned this Court in Dade County. Other than pointing to differences in job performance, appellants have failed to demonstrate how the anti-rebate statutes at issue in this case differ materially to the anti-rebate statutes at issue in Dade County with regard to such statutes' impact on the economic bargaining power of the public. Accordingly, we are unable to distinguish Dade County from the circumstances presented in this case. For these reasons, we declare the anti-rebate statutes, as they relate to a title agent's ability to negotiate a portion of his or her share of the risk premium, to be unconstitutional.