Florida Appeals Court Quashes Order Requiring Insurance Commissioner to Testify

April 10, 2015

Authors: James M. Kloss, Nicholas D. Freeman

On March 13, 2015, in Florida Office of Insurance Regulation v. Florida Department of Financial Services, Florida’s First District Court of Appeals quashed the trial court’s order compelling the deposition of the Florida Insurance Commissioner. The court found that even if the party seeking the discovery had exhausted all discovery tools in an attempt to obtain the desired information, the testimony sought was either unnecessary or available from other sources. The court also ruled that compelling the commissioner to testify regarding his opinions on hypothetical receivership decisions would violate the separation of powers doctrine.

Underlying Facts
The action was filed by the Florida Department of Financial Services (DFS), acting as receiver for three insurance companies, against a major financial services firm (the Firm). The complaint alleged that the Firm was negligent in preparing inaccurate financial statements for the insurance companies, which were filed with the Florida Office of Insurance Regulation (OIR) in 2005. DFS argued that had the statements been prepared accurately, the insurance companies would have been taken into receivership in 2005 instead of 2006, and that harm was done to the companies because of the delay.

Lower Court Decision
The Firm made attempts to subpoena the commissioner and DFS made attempts to add him to its trial witness list. OIR successfully challenged those attempts by asserting that the information could be gained through sources other than the commissioner. At trial, DFS argued that neither party should be allowed to mention the commissioner’s failure to testify. However, the trial court reasoned that since the heart of the case was the argument that the commissioner would have referred the companies for receivership in 2005, it could not prevent the Firm from arguing that DFS had failed to meet its burden. The Firm then stated that it did not object to DFS adding the commissioner as a witness if the Firm could depose him.

DFS added the commissioner to the witness list and the Firm subpoenaed him for deposition. OIR filed a motion to quash the subpoena and for a protective order precluding the commissioner from being added to the DFS witness list, which the trial court denied. The trial court found that the deposition testimony indicated that an insurance company cannot be referred to DFS for receivership without approval of the commissioner and that the information sought was not available from other sources.

The OIR filed a petition for a writ of certiorari challenging the discovery order requiring the commissioner to appear for a deposition.

Appeals Court Opinion
The appeals court overruled the trial court, emphasizing the hypothetical nature of the proposed deposition. The court noted that before requiring the head of a state agency to testify, a trial court must find that (1) the party seeking the testimony exhausted all discovery tools in an attempt to obtain the information sought and (2) the testimony sought is necessary and unavailable from other witnesses.

The court held that the respondents met the first prong of the test but failed to meet the second. The court explained that in determining whether the second prong has been satisfied, one must look at the crux of the cause of action. In the instant case, DFS had to demonstrate that OIR would have recommended the insurance companies into receivership in 2005 if they had been provided with accurate financial information from the Firm. The testimony sought would be based on hypothetical facts equally available to all parties. In other words, the information would simply be the “opinion” of the commissioner based on those hypothetical facts, and not pertinent facts to which only the commissioner is privy. Since the commissioner never received the financial information in 2005, he did not have the opportunity to fully evaluate that information through the collaborative process. The pertinent facts, however, could be obtained through other witnesses.

Moreover, the court found that compelling the questioning of agency heads regarding discretionary decisions they may have made while carrying out their duties raises serious separation-of-powers concerns. One issue is that the agency head is being questioned about hypothetical discretionary decisions based on an incomplete evaluation process that may relate to future decisions of the agency. Another issue is that subjecting agency heads to questions concerning what they might have decided in collaboration with others would preclude them from being able to reasonably exercise their statutory duties. Further, the precedent would not be limited to insurance company solvency, but could concern any party seeking damages by challenging a permitting decision that was allegedly based on incomplete information.

The outcome in Florida Office is hardly surprising. The court expressed understandable concern over the widespread ramifications of allowing the depositions of agency heads in virtually every rule-challenge proceeding. Such a precedent would also create a significant deterrent to qualified candidates seeking a public service office. Other states, most notably California (e.g., Westly v. Superior Court, 125 Cal. App. 4th 907 (2004)), have also found the depositions of agency heads to be off limits. Generally, throughout the country, agency heads are not required to testify by deposition or at a hearing unless (1) the agency head had personal knowledge of information relevant to the case, (2) the testimony is essential to prevent prejudice and (3) the information cannot be obtained through other witnesses or documents. The Florida Office opinion suggests that had one or more of these three factors been present, the result might well have been different.

In addition, two interesting questions are raised in footnotes in the court’s decision. First, what would have happened if the commissioner’s status as agency head had been challenged? Second, under Florida law, do the rationale and public policy considerations that favor shielding governmental agency heads from having to offer testimony apply with equal force in the corporate context? The Florida Office court explicitly left these questions unanswered. Doubtless, they will be the subject of future Florida decisions.

Wilson Elser will continue to monitor and report on decisions in this important area.

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