STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF INSURANCE )

AND TREASURER, )

)

Petitioner, )

)

vs. ) CASE NO. 89-5981

) THE ADMINISTRATORS CORPORATION ) and CHARLES N. ZALIS, )

)

Respondents. )

)

RECOMMENDED ORDER

Pursuant to Notice, this cause was heard by Linda M. Rigot, the assigned Hearing Officer of the Division of Administrative Hearings, on May 14, 1990, in Fort Lauderdale, Florida.

APPEARANCES

For Petitioner: Peter D. Ostreich, Esquire

Office of Treasurer and Department of Insurance

412 Larson Building

Tallahassee, Florida 32399-0300

For Respondents: Jerome H. Shevin, Esquire

Wallace, Engels, Pertnoy, Martin, & Solowsky, P.A.

CenTrust Financial Center, 21st Floor

100 Southeast 2nd Street Miami, Florida 33131

and

William M. Furlow, Esquire

Katz, Kutter, Haigler, Alderman, Davis, Marks & Rutledge, P.A.

Post Office Box 1877 Tallahassee, Florida 32302-1877

STATEMENT OF THE ISSUE

Whether Respondents violated various provisions of the Florida Insurance Code, and, if so, what disciplinary action should be taken against them, if any.

PRELIMINARY STATEMENT

Petitioner filed an Order to Show Cause on October 5, 1989, seeking to take disciplinary action against the certificate of authority issued to Respondent The Administrators Corporation and the insurance licenses issued to Respondent Charles N. Zalis. Respondents timely requested a formal hearing.

H. John Kummer, Jr.; Charles A. Malloy, III; Donald Lee Nettles, and Charles Robert Norris testified on behalf of Petitioner. Charles N. Zalis testified on behalf of Respondents. Additionally, Petitioner's Exhibits numbered 1-11 and Respondents' Exhibit numbered 1 were admitted in evidence.

Both Petitioner and Respondents submitted post-hearing proposed findings of fact. A ruling on each proposed finding of fact can be found in the Appendix to this Recommended Order.

FINDINGS OF FACT

1. At all times material hereto, Respondent The Administrators Corporation (hereinafter "TAC") has been an authorized administrator, and Respondent Charles

   N. Zalis (hereinafter "Zalis") has been licensed or eligible for licensure as a life insurance agent, a life and health insurance agent, and a legal expense insurance sales representative in the State of Florida. Zalis is the chief executive officer of TAC.

   
   

2. TAC is not licensed in Florida as an insurer.

   
   

3. An authorized administrator in Florida may engage in the solicitation, negotiation, transaction and/or sale of insurance in Florida if such activity takes place pursuant to an agreement between the authorized administrator and an authorized insurer.

   
   

4. Life and Health Insurance Company of America (hereinafter "Life & Health"), which is not a party to this administrative proceeding, is an authorized insurer in Florida.

   
   

5. On April 13, 1988, TAC entered into a contract with Life & Health to market and service group health insurance. The term of that contract was for four years and one month.

   
   

6. Life & Health attempted to terminate its Administrator Agreement with TAC by letter dated March 16, 1989, effective immediately. The date on which the responsibilities under that Administrator Agreement terminated, if ever, is an issue in dispute between Life & Health and TAC. The Department takes no position on that issue. That issue is the subject of a civil lawsuit filed in Broward County, between Life & Health and TAC, which is currently being litigated.

   
   

7. Although Life & Health's original position was that the contract between it and TAC terminated as of March 16, 1989, that position apparently changed because Life & Health continued paying claims up to July 1, 1989.

   
   

8. TAC's position was that Life & Health's responsibilities under that contract did not terminate until September 26, 1989, when George Washington, an authorized group health insurance carrier in Florida, agreed to assume the risk for the block of business retroactive to July 1, 1989.

   
   

9. TAC could have obtained a replacement carrier earlier than September 26, 1989, if the Department had advised TAC and Zalis as to the procedure involved to allow Summit Homes, an authorized property and casualty insurer, to broaden the scope of its certificate of authority to include group health insurance. The simple procedure could have been accomplished in as little as 24 to 48 hours.

10. A group health insurance carrier remains on the risk to its policyholders until there has been a valid cancellation or termination of that coverage. In the pending Circuit Court litigation between Life & Health and TAC, the validity of the termination or cancellation and the date of same are ultimate issues in that law suit and have not yet been determined by the Court.

    
    

11. On March 27, 1989, Life & Health sent a letter to agents informing them of its termination of its relationship with TAC and that it would not accept any new business written after March 16, 1989. The evidence in this cause, however, indicates that Life & Health did continue to accept new business after that date.

    
    

12. The Department became aware of the dispute between Life & Health and TAC on June 8, 1989. The Department knew as of July 12, 1989, that TAC was continuing to write business on Life & Health "paper."

    
    

13. At some point after the attempted March 16, 1989, termination of the contract by Life & Health, TAC and Life & Health informally agreed to a July 1, 1989, date after which Life & Health would no longer be responsible for any claims and TAC would have a replacement insurer in place to take over the block of business. That agreement was based upon TAC and Life & Health each agreeing to cooperate with each other and to take certain actions to facilitate the transfer of the book of business.

    
    

14. Both the Department and the Circuit Court were aware of the informal agreement whereby Life & Health agreed to remain on the risk for the block of business at least through July 1, 1989, and Zalis and TAC would issue no further policies on Life & Health "paper" and would not remain involved in the processing or payment of claims after July 1, 1989.

    
    

15. Prior to July 12, 1989, those matters required to take place in connection with the July 1, 1989, "cutoff" date had not been accomplished, and Zalis and TAC continued writing new business on Life & Health "paper" believing that Life & Health was still legally responsible.

    
    

16. Zalis informed the Department's investigator on July 12, 1989, that he was writing and that he intended to continue to write new business on Life & Health "paper." No evidence was presented to show that the Department notified Zalis or TAC that they could not do so, and the Department took no action to stop that activity. Additionally, Life & Health took no action to enjoin TAC or Zalis from writing new business on Life & Health "paper." The evidence does suggest that Life & Health may have continued to accept the benefits and liabilities.

    
    

17. The premiums for policies written by TAC on Life & Health "paper" after July 1, 1989, were not forwarded to Life & Health; rather, they were retained by TAC in a trust account. Zalis and TAC offered to deposit those monies with the Circuit Court in which the litigation between TAC and Life & Health was pending or to transmit those monies to the Department to insure that the monies would be available for the payment of claims. Pursuant to an agreement with the Department, the monies representing those premium payments were transmitted to the Department

    
    

18. On September 26, 1989, George Washington Insurance Company, an authorized health insurance company in the State of Florida, agreed to take over the block of business from Life & Health, retroactive to July 1, 1989. Life &

    Health, however, had not yet signed the assumption agreement to transfer its responsibility to George Washington Insurance Company as of the time of the final hearing in this cause.

    
    

19. TAC and Zalis did not place any Florida insurance business with any companies not authorized to do business in Florida.

    
    

20. Respondent Zalis has been in the insurance business for 26 years and enjoys a good reputation for honesty and integrity. Zalis and TAC have never had prior administrative action taken against them.

    
    

21. As of the date of the final hearing in this matter, there had been no Circuit Court determination of the effectiveness or ineffectiveness of Life & Health's termination of the Administrators Agreement nor of the date of that termination, if any.

    
    

    CONCLUSIONS OF LAW

    
    

22. The Division of Administrative Hearings has jurisdiction over the subject matter and the parties hereto. Section 120.57(1), Florida Statutes.

    
    

23. In a license disciplinary case, the burden is upon the agency to prove the violations charged by clear and convincing evidence. The Department may suspend or revoke the certificate of authority of an administrator under the provisions of Section 626.891, Florida Statutes, for violations set forth within that statute. Similarly, the Department may take disciplinary action against the license of an insurance agent under the provisions of Sections 626.611 and 626.621, Florida Statutes, for violations set forth in those statutes.

    
    

24. The essential factual allegations set forth in the Order to Show Cause are that the Respondents acted as insurers without being so licensed when they continued writing new insurance policies on behalf of Life & Health after the contract between TAC and Life & Health had terminated and prior to George Washington Insurance Company assuming the block of business on September 26, 1989; and that the Respondents placed Florida policyholders with insurance companies which were not properly authorized to write life and health insurance in Florida.

    
    

25. The second allegation -- that Respondents placed Florida policyholders with insurance companies not authorized in Florida -- has not been proven. A Department investigator testified that Zalis told him that Zalis and TAC were doing that, and Zalis has denied making such a statement. Further, the Department has found no documentation that such has been done although the Department's employees were given access to TAC's computer.

    
    

26. The first allegation cannot be established without a showing that the contract between Life & Health and TAC was, in fact, terminated. By its own admission, however, the Department does not take a position on that issue. The dispositive question of when the contract was terminated, if ever, is properly before the Circuit Court in Broward County and is not, as recognized by the stipulation of the parties, a proper issue in this proceeding. The parties have stipulated that, prior to March 16, 1989, there was a valid contract between Life & Health and TAC for TAC to sell and administer a program of group health insurance. Life & Health sought to terminate that contract on March 16, 1989. The evidence is clear that Life & Health subsequently agreed that it was on the risk at least through July 1, 1989, and the fact that Life & Health appears to have paid claims up to July 1, 1989, some three and a half months later than the

    original purported termination, clearly demonstrates that there is a legitimate question of whether the contract was actually terminated prior to that time.

    Even though George Washington Insurance Company agreed on September 26, 1989, to assume the risk for the block of business retroactive to July 1, 1989, Life & Health has not yet signed that assumption agreement thereby relieving itself of any responsibility. There is some evidence in this record to suggest that Life & Health may have continued to act as though the contract were still in effect after July 1, 1989. Finally, without the Circuit Court determination as to the effectiveness of Life & Health's attempted termination of the contract and the date, if any, on which such termination became effective, it cannot be concluded that there was no contract in effect between TAC and Life & Health between the dates of July 1, 1989, and September 26, 1989, the time period involved in this proceeding. At no time has an order been entered by the Circuit Court or by the Department prohibiting TAC and Zalis from continuing to write new policies and collect premiums after July 1, 1989, and Life & Health has taken no action to prohibit Zalis and TAC from continuing to do so.

    
    

27. In order for the Department to prove that TAC was acting as an unauthorized insurer, it would have to prove that the contract between Life & Health and TAC had in fact been terminated during the July 1 through September 26, 1989, time frame. By the Department's failure to take a position on that issue, the Department has not met its burden of proof. It is noteworthy that the Department was admittedly placed on notice on July 12, 1989, that TAC was continuing and intended to continue to write business on Life & Health "paper," and yet the Department failed to notify TAC that it was in violation of the Insurance Code for doing so and failed to take any action to stop that practice. It was therefore reasonable for TAC and Zalis to believe that such activity on their part was acceptable to the Department since the Department knew such activity was taking place pursuant to its continuing involvement in the dispute between Life & Health and TAC.

    
    

28. The thrust of the Department's argument in this case is that when TAC and Zalis sued Life & Health in the Circuit Court in Broward County, they included in their complaint one count for anticipatory breach of contract. Under that theory, TAC and Zalis would be treating the contract as terminated due to Life & Health's notice to them that Life & Health was terminating the

    contract and, therefore, would no longer be performing pursuant to the contract. The Department's theory is without merit. The count for anticipatory breach of contract is only one of the counts in the complaint filed, and the Department presented no evidence to show the current status of the pleadings between the parties involved in that litigation and offered no explanation for why it would choose to rely only on the count for anticipatory breach of contract and not the other counts, such as the count for injunctive relief. Second, by complaining against Respondents in this cause only for the time period between July 1 and September 26, 1989, the Department appears to take the position that the March 16, 1989, termination letter was not effective and that some informal agreement among the parties to the Circuit Court litigation extended the term of the contract to July 1, 1989. Yet, the Department offered no evidence that there had not been a subsequent agreement by the parties extending the term of the contract even further. Third, the Department offered no evidence as to the reason why Life & Health has failed to sign the assumption agreement allowing George Washington Insurance Company to assume the block of business retroactive to July 1, 1989, and as to how that failure affects the termination date of the Administrator Agreement between Life & Health and TAC.

29. The legal conclusions contained in the Order to Show Cause are set forth in seven subparagraphs designated (a) through (g). Subparagraph (a) alleges that TAC has transacted insurance in this state without complying with the applicable provisions of the Florida Insurance Code and cites Section 624.10, Florida Statutes. Section 624.10, Florida Statutes, simply contains a definition for the word "transact." No further provisions of the Insurance Code are incorporated in that section, and no allegation or argument is made as to how Respondent TAC might have violated the definition of the word "transact."

    
    

30. Subparagraph (b) alleges that TAC transacted insurance in Florida without being an authorized insurer and refers to Section 624.401(1), Florida Statutes. According to the agreement of the parties, an authorized administrator can transact insurance in this state if done pursuant to a contract with a properly authorized insurance company, and Life & Health was a properly authorized insurance company. For some period of time, there was a valid contract between Life & Health and TAC which allowed TAC to legally transact insurance on Life & Health's behalf in this state. In order for the Department to show a violation as alleged in subparagraph (b), it would have had to prove that the contract between Life & Health and TAC was not in effect during the July 1 through September 26, 1989, time period. The Department has failed in that proof. Even if the Department had proven that the contract was terminated, the statutory subsection cited in subparagraph (b), just like the statutory section cited in subparagraph (a), is not a disciplinary provision; therefore, action cannot be taken against TAC for the reasons stated in subparagraph (b) unless those allegations were included by reference in a subparagraph charging a violation of Section 626.891, Florida Statutes, which is the statutory authority for disciplinary action against administrators. The Order to Show Cause filed herein fails to do that.

    
    

31. Subparagraph (c) reiterates that TAC engaged in the business of insurance without a proper license, and further that both TAC and Zalis engaged in trade practices which are unfair methods of competition or unfair or deceptive acts or practices involving the business of insurance, which are prohibited. The statutory provision cited is Section 626.9521, Florida Statutes. The first charge in subparagraph (c) is subject to the same infirmities as subparagraph (b) described above. The second charge in subparagraph (c) is a legal conclusion which appears to be based upon the factual allegations that TAC and Zalis operated as insurers without being so licensed. In other words, acting as an insurer without being licensed is the trade practice which is an unfair method of competition. Again, if TAC as an authorized administrator were transacting insurance business pursuant to a contract with an authorized insurer, such action, as agreed by the parties, would have been legal. The Department did not attempt, and therefore failed, to prove the termination of that contract, and it cannot be concluded that TAC's transaction of insurance was unlawful. Further, the statutory section cited in subparagraph (c) is not a disciplinary provision; therefore, disciplinary action cannot be taken against either Respondent, even if the charge in subparagraph

    (c) had been proven, unless subparagraph (c) were included by reference in another paragraph which cited one of the disciplinary provisions of the Insurance Code. The Order to Show Cause does not do so.

    
    

32. Subparagraph (d) alleges that TAC was acting as an administrator for an insurer without a valid administrator agreement and cites Section 626.882(1), Florida Statutes. The parties agree that for some time period there was a valid administrator agreement between TAC and Life & Health. It has not been proven that the agreement was ever invalidated. Even if such proof had been made, however, since Section 626.882(1), Florida Statutes, is not a disciplinary

    section, action could not be taken against TAC for the violation charged in subparagraph (d) unless that charge were included by reference in another subparagraph which cited one of the statutory disciplinary provisions. The Order to Show Cause does not do so.

    
    

33. Subparagraph (e) charges that TAC has employed such methods or practices in the conduct of its business so as to render its further transaction of business in this state hazardous or injurious to insured persons or the public and cites Section 626.891(1)(b), Florida Statutes. Although this is a charge for which disciplinary action could be taken against an administrator for its violation, there were no factual allegations contained in the Order to Show Cause alleging business practices which will be hazardous or injurious. Even if those factual allegations had been contained in the Order to Show Cause, the evidence presented at the hearing was insufficient to prove by clear and convincing evidence any harm or potential harm to insured persons or the public. Therefore, it cannot be concluded that TAC violated the Insurance Code as charged in subparagraph (e).

    
    

34. Subparagraph (f) is similar to subparagraph (e) but alleges that the business practices of TAC pose an imminent threat to the public. The statutory subsection cited is 626.891(3)(d), Florida Statutes. There was no evidence presented to show any imminent threat to the public. To the contrary, it was established that the particular block of business concerned is now insured by an authorized insurance company that contracted with TAC to obtain that business. Additionally, even if an imminent threat had been proven, the cited subsection only deals with emergency suspensions. No emergency suspension is involved in this case. Accordingly, it cannot be concluded that TAC violated the Insurance Code as charged in subparagraph (f).

    
    

35. Subparagraph (g) charges that TAC and Zalis represented unauthorized insurers to Florida residents and cites Section 626.901(1), Florida Statutes.

If by this charge, the Department means that TAC and Zalis represented TAC which was the unauthorized insurer, the Department has failed to prove that TAC acted as an insurer. If the Department means by this charge that TAC and Zalis represented other unauthorized insurers, the Department has failed to prove this charge. Further, the cited statutory section is not a disciplinary provision, and, therefore, cannot be the basis for disciplinary action unless incorporated into another subparagraph which alleges a violation of Sections 626.891, 626.611, or 626.621, Florida Statutes.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered finding Respondents not guilty of

the allegations contained in the Order to Show Cause and dismissing the Order to Show Cause filed against them.

DONE and ENTERED this 9th day of July, 1990, at Tallahassee, Florida.

LINDA M. RIGOT, 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 9th day of July, 1990.

APPENDIX TO RECOMMENDED ORDER DOAH CASE NO. 89-5981

1. Petitioner's proposed findings of fact numbered 1-3, 6-9, 14-17, 20, 21, and 25-27 have been adopted either in substance or verbatim in this Recommended Order.

2. Petitioner's proposed findings of fact numbered 4 and 5 have been rejected as not constituting findings of fact but rather as constituting conclusions of law or argument of counsel.

3. Petitioner's proposed findings of fact numbered 10, 11, 13, and 22 have been rejected as being unnecessary for determination of the issues in this cause.

4. Petitioner's proposed findings of fact numbered 12 and 19 have been rejected as being irrelevant to the issues under consideration in this cause.

5. Petitioner's proposed findings of fact numbered 18, 23, and 24 have been rejected as not being supported by the weight of the evidence in this cause.

6. Respondents' proposed findings of fact numbered 1-17 have been adopted either verbatim or in substance in this Recommended Order.

COPIES FURNISHED:

Peter D. Ostreich, Esquire Office of Treasurer and

Department of Insurance

412 Larson Building

Tallahassee, Florida 32399-0300

Jerome H. Shevin, Esquire Wallace, Engels, Pertnoy,

Martin, & Solowsky, P.A. CenTrust Financial Center 21st Floor

100 Southeast 2nd Street Miami, Florida 33131

William M. Furlow, Esquire

Katz, Kutter, Haigler, Alderman, Davis, Marks & Rutledge, P.A.

Post Office Box 1877 Tallahassee, Florida 32302-1877

Tom Gallagher

State Treasurer and Insurance Commissioner

The Capitol, Plaza Level Tallahassee, Florida 32399-0300

Don Dowdell, General Counsel Department of Insurance and Treasurer The Capitol, Plaza Level

Tallahassee, Florida 32399-0300

Docket for Case No: 89-005981

Orders for Case No: 89-005981