STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF INSURANCE )

)

Petitioner, )

)

vs. ) CASE NO. 77-1063

)

WILLIAM J. HARTNETT, SR. )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, an administrative hearing was held before Diane D. Tremor, Hearing Officer with the Division of Administrative Hearings, on November 14, 15, 16 and 17, 1978, in Room 103 of the Collins Building, Tallahassee, Florida. The issue for determination at the hearing was whether the respondent's various insurance licenses should be revoked, suspended or otherwise disciplined for the reasons set forth in the "notice and order to show cause," as amended. Pursuant to an agreement between the parties and approval by the undersigned Hearing Officer, proposed orders were not submitted by counsel until May 24, 1979.

APPEARANCES

For Petitioner: S. Strom Maxwell, Esquire

Department of Insurance Suite 428-A, Larson Building Tallahassee, Florida 32301

For Respondent: Robert J. Kelly, Esquire

Rogers, Towers, Bailey, Jones and Gay Post Office Box 1872

Tallahassee, Florida 32302 INTRODUCTION

By a "notice and order to show caused" dated February 24, 1977, as amended on February 29, 1979, respondent was charged with numerous violations of Chapter 626, Florida Statutes, in six different counts. Counts II and III were dismissed. In very general terms, Count I charges that respondent submitted to the Department two quarterly financial statements of Southern American Fire Insurance Company (hereinafter referred to as Southern American) which listed as admitted assets agents' balances which were over 90 days old from agencies owned, controlled or directed by respondent. Count IV charges that a $13,218.90 check owed and paid to Southern American was never deposited in the Southern American account. Count V concerns a $16,600.00 check for reinsurance to be placed with Cotton Belt Insurance Company. Count VI charges that payments owed by North Star Agency of Hollywood to Southern American were paid to respondent but were never credited or deposited to the account of Southern American.

Subsequent to the hearing in this cause, the parties submitted their final, closing statements in writing, along with their proposed findings of fact and proposed orders. To the extent that the proposed findings are not incorporated in this recommended order, they are rejected as being either not supported by competent, substantial evidence or as being conclusions of law as opposed to findings of fact.

FINDINGS OF FACT

Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found:

1. At all times relevant to this proceeding, respondent William J. Hartnett, Sr. was licensed as an ordinary life including disability, general lines, surplus lines and disability insurance agent. He has been in the insurance business since 1942 and was first licensed in 1947.

   
   

2. Respondent originally organized the Southern American Fire Insurance Company. For the first year or so, he was its sole employee on a nonsalary basis and was nonsalaried for the first ten years of the company's operation. From 1965 on, respondent did not hold a 220 lines license with Southern American, as he did with other insurance entities. Respondent did not sign policies as agent for Southern American. With Southern American, respondent acted as a general agent and was authorized by the board of directors to receive a five percent override commission on the total volume of business.

   
   

3. On or about October 27, 1975, a seizure order was entered by the Circuit Court of Leon County which directed the Florida Department of Insurance to take over the business and financial affairs of Southern American. This company has since gone into liquidation pursuant to Chapter 631, Florida Statutes.

   
   

4. The Southern American March 31 and June 30, 1975, quarterly statements were prepared by Mr. R.L. Huard, the then assistant treasurer of Southern American, were signed by the respondent, and were filed with the Department of Insurance. The work papers for those statements had been approved by the respondent. Mr. Huard had been instructed by respondent when he was first hired in 1972 not to show on the quarterly statements the over 90-day old balances because they would all be "cleaned up" at the end of the year. Such balances had, in fact, been paid at the end of each of the two years that Mr. Huard was with the company up until the time the Department took over in 1975. It was the respondent's testimony that had the seizure order not been entered, the agencies' lines of credit would still have been open and that all balances could have been collected through September of 1975.

   
   

5. The March 31, 1975, and June 30, 1975, quarterly statements of Southern American filed with the Department of Insurance reflected a substantial amount of agents' balances that at the time of reporting were over 90 days old. The elimination of such balances from those two statements would have left Southern American impaired under usual insurance accounting practices as reflected in the Florida Statutes. The over-90 day old agents' balances were due from agencies in which respondent had an interest as an officer, director or stockholder.

   
   

6. In 1969, various officials of the Department of Insurance had discussions with the respondent regarding agents' balances which were over ninety days old.

7. On or about December 28, 1973, respondent did deposit the proceeds of certain reinsurance treaties in the amount of $13,218.98 into the account of Southern American. This findings is determined from the testimony of respondent and from a copy of the check and a deposit slip received into evidence as Exhibit M. The deposit slip illustrates that the $13,218.96 check was one of two checks comprising a total deposit of $30,857.12.

   
   

8. As a result of information made available to the parties shortly before the hearing, it was stipulated that there never was a direct reinsurance treaty between Southern American and Cottonbelt Insurance Company. It was further stipulated that Southern American did submit single risk policies on a facultative basis through General Aviation Insurance Brokers for Southern American to D.O. Howell and Company, Ltd., in London, England, which in turn placed policies so submitted with Cottonbelt through other brokers. The Department offered no other evidence concerning the checks amounting to

   $16,600.00 referred to in Count V.

   
   

9. As noted above, respondent was authorized by the board of directors to receive as general agent for Southern American a five percent override on all premiums. He was also authorized to receive an annual salary and certain bonuses. For the years 1974 and 1975, respondent did not receive his total annual salaries. The total premium written in Southern American through North Star Insurance Agency from 1968 through 1975 was approximately $700,000.00.

   
   

10. Monies owed Southern American by North Star were paid by checks made payable to the respondent, as agent. In his capacity as general agent of Southern American, respondent did receive funds in the approximate amount of

    $45,000.00 from subagent North Star in payment of premiums due Southern American on policies of insurance issued by Southern American through North Star. Such funds were not deposited into the account of Southern American by respondent, but were instead retained by respondent as an offset against commissions end salary due him from Southern American. This occurred in 1975. When the seizure order was entered in October of 1975, the monies due Southern American from North Star were carried on the books of Southern American as accounts receivable.

    
    

    CONCLUSIONS OF LAW

    
    

11. Respondent was originally charged with six specific counts involving violations of Chanter 626 of the Florida Statutes. The Department dismissed Counts II and III and offered insufficient evidence concerning Count V. The allegations contained in Count IV were refuted by evidence illustrating that the

    $13,218.96 check was deposited to the Southern American account as one of two checks totalling $30,857.12. Count I, involving the two quarterly statements, and Count VI, involving the respondent's retention of money paid by North Star, remain.

    
    

12. The evidence illustrates that the quarterly reports of March 31, 1975, and June 30, 1975, filed with the Department by respondent, contained a substantial amount of agents' balances that at the time of reporting were over ninety days old. Had such balances been correctly omitted, the statements would have revealed that Southern American was impaired under usual insurance accounting practices. Section 625.012, Florida Statutes, prohibits the listing of agents' balances of over ninety days as an admitted asset on a company's financial statement. Respondent had previously been warned of this practice back in 1969. By filing false quarterly statements with the Department, the Department was unable to ascertain the impaired condition of Southern American.

    This constitutes a violation of the Insurance Code and is thus grounds for discipline under F.S. s626.621(2).

    
    

13. As to Count VI, the evidence illustrates that the North Star Agency owed Southern American certain monies, that North Star paid certain monies to respondent, as agent, and that respondent did not credit these funds to the account of Southern American, hut retained some $45,000.00 for his own use. While respondent did present evidence that he was entitled to some money -- commissions and salaries -- from Southern American, the payments from North Star did not belong solely to the respondent. If anything these payments (made closely to the time of the seizure order) should have been credited to the Southern American account and then withdrawn as a payment to a creditor of Southern American. Section 626.611(10) makes the misappropriation, conversion or unlawful withholding of monies belonging to insurers, insured, beneficiaries or others received in the course of business under the license a grounds for the compulsory suspension or revocation of the agent's license.

    
    

14. The respondent argues that he cannot be disciplined for his conduct because ss626.611 and 626.621, Florida Statutes, apply only to the conduct of insurance business by a licensed insurance agent in his dealings with the company to which he is licensed. Since respondent is not a licensed agent with Southern American, the argument continues, he cannot be disciplined for his activities with respect to this company. The undersigned rejects such a contention. These sections both refer to the licenses of agents and the permits of service representatives and supervising and managing general agents. The evidence illustrates that respondent acted as a general agent of Southern American and that the majority of his time was devoted to managing that company. Respondent also held numerous other licenses from the Department. To hold that respondent is immune from disciplinary action by the Department merely because he does not hold a specific license for his activities with Southern American would defeat the purpose and intent of the regulatory statutes.

    
    

15. Finally, respondent contends that the Department may not require the quarterly reports to be in the same form as the annual statements. The undersigned has considered this contention and finds it to be without merit. The Insurance Code defines the term "asset," and agents' balances over three months old are not to be included. It appears to be the intent of the Legislature that this definition would be applicable to any statement required by the Department for a determination the financial condition of an insurer.

    
    

16. In conclusion, the Department has adequately demonstrated that respondent is guilty of filing false quarterly statements with the Department and withholding monies belonging to Southern American for his own use. While such offenses are very serious in nature, it should also be taken into consideration that the respondent has been licensed for over thirty years and there was no evidence adduced at the hearing that any person or entity was harmed by the respondent's unlawful activities or that the respondent had been charged or disciplined for any prior offenses.

RECOMMENDATION

Based upon the findings of fact and conclusions of law recited above, it is RECOMMENDED that the licenses of respondent to engage in the business of insurance be suspended for a period of six (6) months.

Respectfully submitted and entered this 10th day of July, 1979, in Tallahassee, Florida.

COPIES FURNISHED:

Honorable William Gunter State Treasurer and Insurance

Commissioner The Capitol

Tallahassee, Florida 32301

S. Strom Maxwell, Esquire Department of Insurance Suite 428-A, Larson Building Tallahassee, Florida 32301

Robert J. Kelly, Esquire Rogers, Towers, Bailey, Jones

and Gay

Post Office Box 1872 Tallahassee, Florida 32302

DIANE D. TREMOR

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 10th day of July, 1979.

Docket for Case No: 77-001063

Orders for Case No: 77-001063