STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF INSURANCE )

AND TREASURER, )

)

Petitioner, )

)

vs. ) Case Number 89-4903

)

GLORIA ANN ELLWOOD, )

)

Respondent. )

)

RECOMMENDED ORDER

This case was heard pursuant to notice on December 7, 1989, in Pensacola, Florida, by Stephen F. Dean, assigned Hearing Officer of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Roy Schmidt

Office of the Treasurer Department of Insurance

412 Larson Building

Tallahassee, Florida 32399-0300

For Respondent: Fletcher Fleming, Esq.

Shell, Fleming, Davis & Menge Seventh Floor, Seville Tower

P.O. Box 1831

Pensacola, Florida 32595 STATEMENT OF THE ISSUES

Whether the Respondent committed the acts alleged in the Administrative Complaint in violation of Chapter 626, Florida Statutes; and whether the Respondent's actions under the circumstances constitute a violation of Chapter 626, Florida Statutes.

PRELIMINARY STATEMENT

This case was heard on December 7, 1989. The transcript was filed on January 26, 1989. The Petitioner filed its proposed findings on February 6, 1989, and the Respondent filed her proposed findings on February 7, 1989. The proposed findings were read and considered. Appendix A states in detail which findings were adopted and which were rejected and why.

FINDINGS OF FACT

1. Respondent, Gloria Ann Ellwood, is currently licensed and eligible for licensure in the State of Florida as a general lines agent.

   
   

2. Ellwood purchased in January 1985 from Pasqualey "Pat" Caliguiri what they both believed to be were shares in two franchises to operate a nonstandard automobile insurance business, Cash Register Auto Insurance of Escambia County and Cash Register Auto Insurance of Okaloosa County. Ellwood paid Caliguiri

   $10,000 as a down payment and financed $35,000 for 500 of 1,000 shares in the Escambia County agency and approximately $25,000 for 500 of 1,000 shares in the Okaloosa County agency. Ellwood paid Caliguiri approximately one-half the amount financed before the events occurred which are the basis for this case.

   
   

3. These two franchises Caliguiri had purchased in 1983, along with another franchise, for nonstandard auto insurance sales offices from Lloyd Register for $5,000 apiece, as evidenced by 500 shares of 1,000 shares common stock in each of the three corporations. Through this purchase, Caliguiri received a reduction in the amount of commission paid on the franchise and the ability to realize a profit from his efforts in building the business. He executed a consulting agreement with Register and had to sign an employment contract with the various corporations. Register provided accounting and similar services, and Caliguiri had to repay to Register all capital expenditures made on the agencies.

   
   

4. Register was present at the closing of the sale between Caliguiri and Ellwood. Register was silent at the closing between Ellwood and Caliguiri regarding Ellwood's rights. He was aware of the transfer of Caliguiri's stock to Ellwood for valuable consideration. After the transfer, Ellwood executed a consulting agreement with Register and signed an employment contract with the two corporations which she had purchased. Ellwood was entitled to $500 per week salary from `the corporation.

   
   

5. In the case of both Caliguiri and Ellwood, when receipts from the business were low, Register suggested that they take some lesser sum as a salary payment than what they were entitled to under their employment contract. Register demanded payment of all moneys due to Register, although he did extend the time for payment for Caliguiri at one point when business was particularly bad.

   
   

6. Both Caliguiri and Ellwood thought that they owned the stores which they had purchased. Ellwood served as general manager, president and director of Cash Register Auto Insurance of Escambia County at all times material to the complaint. Cash Register of Escambia was a Florida corporation engaged in the operation of a nonstandard insurance agency at all times material to the complaint.

   
   

7. During 1985 and 1986, Ellwood paid for rent, improvements to property, telephone service, and similar business expenses from her personal account when there insufficient funds in the operating account to cover these expenditures. The total of these loans to the corporation was $14,930.37. Ellwood was charged by Register for the annual state corporate filings with the State of Florida.

   
   

8. The Escambia agency had two checking accounts; one for payroll and the other for bills and refunds. The latter account was called the operating account into which deposits and premiums were deposited. Checks for insurance companies, insureds, beneficiaries and all business expenses, except salary,

   were written on this account. Ellwood wrote or caused to be written all checks for the agency from both accounts.

   
   

9. Starting in January 1987 and continuing to June 1988, Ellwood wrote a series of 14 checks on the operating account to fictitious payees which were designated as refund checks to insureds; however, the payees had never paid a deposit to the company. Between January 1987 and July 1988, Ellwood endorsed and cashed these checks keeping $1,897.44. Ellwood described these checks as repayment of the money which she had advanced to the business.

   
   

10. Ellwood explained that she wrote these checks to fictitious payees to prevent questions from Register's accountant and from fear Register would want commissions from non-franchise agencies which she owned.

    
    

11. During all times material to this complaint, Register provided accounting services as part of his consulting agreement. Register or his accountant was aware that checks had not been drawn on the operating account for payment of rent, advertising, and telephone services and he knew the agency was still in business at the same locale. Register or his accountant was aware of the checks for refunds which ran from $21.89 to $398.99, no two of which were for the same amount. These checks do not appear on their face to be refunds for special high risk automobile insurance although they are annotated as such. Register suggested and was aware that Ellwood and Caliguiri took less salary than they were entitled to take under their employment contracts.

    
    

12. Although money received from a client or company for a client or beneficiary is held in a fiduciary capacity, the operating account is not an escrow account and agents are not required to maintain deposits in an escrow account pending transfer of the premiums to an insurer. No evidence was received that Ellwood impaired these accounts by issuing these checks to fictitious clients and cashing them.

    
    

13. Ellwood did not question her ownership of the business until late summer 1988 when Register advised Brian Fisher, a potential buyer, that Fisher would not have the rights of ownership if he purchased Ellwood's shares of stock because she held only common stock and control of the corporation was vested in those persons holding preferred stock all of which was owned by Register and his wife.

    
    

    CONCLUSIONS OF LAW

    
    

14. The Division of Administrative Hearings has jurisdiction over the parties and the subject matter, and this order is entered pursuant to Section 120.57, Florida Statutes.

    
    

15. The Respondent is charged with violation of Section 626.561(1); Section 626.611(4),(7),(8),(9),(10),(13); and Section 626.621(2), Florida Statutes.

    
    

16. Section 626.621(2), supra, provides that violation of the insurance code or any other law applicable to the insurance business is grounds for discipline of a licensee.

    
    

17. Section 626.561(1), supra, provides that all premiums received by an agent in transactions under his license shall be trust funds and the licensee in the regular course of business shall account for and pay the same to the insurer, insured, or other person entitled thereto.

18. Section 626.611, supra, provides that the Department of Insurance shall discipline any licensee who:

    
    

    (4) uses his license to circumvent any of the requirements or prohibitions of the insurance code;

    1. demonstrates a lack of fitness of trustworthiness to engage in the insurance business;

    2. Demonstrates a lack of reasonable knowledge and technical competence to engage transactions authorized under the licensee's license or permit;

    3. engages in fraudulent or dishonest practices in the conduct of business under his license or permit;

    4. misappropriates, converts, or unlawfully withholds moneys belonging to insurers, insureds, beneficiaries, or others received in the conduct of business under his license or permit;

    (13) willfully violates or fails to comply with any proper order or rule of the Department of Insurance, or willful violation of any provision of the Insurance Code.

    
    

19. The factual key to the application of all of these statutes in this case is whether Ellwood was entitled to moneys from the operating account.

    There were only two business accounts: operating and payroll, and neither of them was an "escrow" account. The operating account was the proper account upon which to write checks in payment for rent, telephone, and advertising. When Ellwood paid these bills with her own funds, she advanced money to the corporation and this account. It would be appropriate to write the checks repaying these loans from the operating account.

    
    

20. There is no controversy that Ellwood was general manager, president, and a director of the corporation, or that she was clearly authorized to write checks on the operating and the payroll account. The evidence demonstrates that Register represented to Caliguiri that Caliguiri was buying a franchise from Register which Caliguiri would own and manage. Caliguiri made similar representations to Ellwood in Register's presence which Register did not correct. Ellwood paid significant amounts of money to Caliguiri, who had paid good and valuable consideration to Register, for what he and Ellwood thought were franchises which they owned.

    
    

21. During the period of her operation under the consulting agreement and employment contract, Register treated Ellwood as an owner. She paid for the business's annual corporate filings; she paid the corporation's rent, advertising, and for other capital improvements; and she wrote her own salary check and was encouraged by Register to leave her salary in the business. Register let Ellwood pay bills for the corporation for bills he knew or should have known were not paid from corporate funds. Caliguiri testified that he was treated in the same way and believed that he owned the businesses.

    
    

22. The true nature of the business relationship was not clarified or explained until Brian Fisher, a potential buyer from Ellwood, talked with Register in late summer 1988. Until that time, Ellwood was not on notice that she was anything other than owner and operator of Cash Register Auto Insurance of Escambia County.

    
    

23. The facts show Ellwood was entitled to repayment of the loans to the corporation from corporate profits notwithstanding the terms and conditions of the employment contract. At the time she wrote the checks, Ellwood thought she had the authority to make the determination when and from account she could

    repay the loans she had made to herself. There is no evidence that writing these checks jeopardized any other deposits in the account or that anyone had a prior, superior claim to the funds than Ellwood.

    
    

24. By writing checks to fictitious clients, marking them refund checks and cashing them herself, Ellwood did not violate Section 626.611(4),(8),(9),or(10), supra because:

    
    

    1. Ellwood did not use her license to circumvent any of the requirements or prohibitions of the insurance code contrary to subparagraph (4), above;

    2. Ellwood did not demonstrate a lack of reasonable knowledge or technical competency contrary to subparagraph (8), above;

    3. Ellwood's acts were not shown to be dishonest or fraudulent contrary to subparagraph (9), above, because she showed she was entitled to the money as repayment of a loan and was entitled to write checks on the accounts and Petitioner did not show that her actions impaired another's rights to the money in the operating account; and

    4. Ellwood's acts were not shown to be conversion, misappropriation, or unlawful withholding of monies received in the conduct of business under her license contrary to subparagraph (10), above, because of the reasons stated in the preceding paragraph.

    
    

25. Subparagraph (7) makes a demonstrated lack of fitness or trustworthiness to engage in the business of insurance a violation of the insurance code. Lack of fitness addresses good moral character. Making checks payable to fictitious payees and keeping the money would reflect adversely on Ellwood's good morale character and fitness if it were proved that she acted intentionally to deprive another of that to which he or she was entitled. However, the facts show Ellwood had a legitimate claim to the money she took; she had the authority to write checks on the account; she had management authority; there is no evidence

    that Ellwood's acts impaired the deposits; and there is no evidence that Ellwood was not entitled to the money.

    
    

26. Ellwood's statement that she made the checks out as refunds of premiums to clients to avoid conflict with Register is not fraud or misrepresentation unless it is demonstrated Ellwood took something to which she was not entitled, exercised authority she was not authorized to exercise, or impaired someone else's deposits by her acts. None of these circumstances was demonstrated. Ellwood did not violate Section 626.611, supra. Consequently, she did not violate sections 626.561(1); 626.621(2); or 626.611(13), supra.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is recommended that the charges be dismissed against the Respondent

DONE AND ORDERED this 7th day of March, 1990, in Tallahassee, Leon County, Florida.

STEPHEN F. DEAN

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 7th day of March, 1990.

APPENDIX A TO RECOMMENDED ORDER 89-4903

The following is a list of the proposed findings which were adopted and those which were rejected and why.

Petitioner's Proposed Findings:

Paragraph 1 Adopted.

Paragraph 2 Adopted.

Paragraph 3 Adopted, but reworded & renumbered.

Paragraph 4 Adopted, but reworded & renumbered.

Paragraph 5 Rejected as contrary to the facts.

Paragraph 6 Rejected as contrary to the facts.

Paragraph 7 Respondent admitted she used the money for another agency; however, that does not establish that taking the money was fraudulent.

Paragraph 8 Rejected as contrary to the facts. Respondent's Proposed Findings:

COPIES FURNISHED:

Mr. Tom Gallagher State Treasurer and

Insurance Commissioner Department of Insurance and

Treasurer

The Capitol, Plaza Level Tallahassee, FL 32399-0300

Don Dowdell, Esq.

General Counsel

Department of Insurance and Treasurer

The Capitol, Plaza Level Tallahassee, FL 32399-0300

Roy Schmidt, Esq. Office of the Treasurer Department of Insurance

and Treasurer

412 Larson Building Tallahassee, FL 32399-0300

Fletcher Fleming, Esq.

Shell, Fleming, Davis & Merige Seventh Floor, Seville Tower

P.O. Box 1831 Pensacola, FL 32595

Docket for Case No: 89-004903

Orders for Case No: 89-004903