STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF INSURANCE AND ) TREASURER, )

)

Petitioner, )

)

vs. ) CASE NO. 94-0562

)

ARNOLD IRWIN SKOLLER, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to Notice, this cause was heard by Linda M. Rigot, the assigned Hearing Officer of the Division of Administrative Hearings, on July 25, 1994, in Tallahassee, Florida.

APPEARANCES

For Petitioner: Richard W. Thornburg, Esquire

Division of Legal Services

Department of Insurance and Treasurer

412 Larson Building

Tallahassee, Florida 32399-0300

For Respondent: Edward W. Dougherty, Jr., Esquire

315 South Calhoun Street, Suite 500 Tallahassee, Florida 32301

STATEMENT OF THE ISSUE

The issue presented is whether Respondent is guilty of the allegations contained in the Amended Administrative Complaint filed against him, and, if so, what disciplinary action should be taken against him, if any.

PRELIMINARY STATEMENT

Petitioner filed an Administrative Complaint against Respondent, alleging that he had violated various statutes regulating his conduct as a surplus lines insurance agent, and Respondent timely requested a formal hearing regarding the allegations contained in that document. This cause was thereafter transferred to the Division of Administrative Hearings to conduct the formal proceeding.

The Department was subsequently granted leave to file an Amended Administrative Complaint.

At the final hearing, Petitioner presented the testimony of Rachel Porter, Andrew Lamont Wynn, Jacque Folk, and Chris Weldon. The Respondent testified on his own behalf. Additionally, Petitioner's exhibits numbered 1-18 and Respondent's exhibits 1-4 were admitted in evidence.

At the commencement of the final hearing the parties stipulated that the Department's demand for payment of additional surplus lines premium tax by Respondent had not taken into account credits due to Respondent from the Department as a result of policy cancellations and refunds. Calculating the amount of tax owed by Respondent to the Department and the amount of credit due from the Department to Respondent had created a massive accounting problem since approximately 20,000 policies were involved. The parties stipulated, therefore, to keep the record open at the conclusion of the evidentiary hearing in order that the parties could compute the amounts involved and agree, if possible, as to the amount of tax still owed by Respondent, if any. The parties could then either re-convene the hearing to present additional evidence or stipulate to the amounts in question and close the record. By Stipulation filed November 9, 1994, and by Addendum to Stipulation filed December 5, 1994, the parties stipulated as to the amount of taxes due for each quarter, the amount of credit due to Respondent, the number of days the taxes remained outstanding, and the per diem interest rate.

Both parties also filed proposed findings of fact in the form of proposed recommended orders. A ruling on each specific proposed finding of fact can be found in the Appendix to this Recommended Order.

FINDINGS OF FACT

1. At all times material hereto, Respondent has been licensed as a surplus lines insurance agent and as a general lines insurance agent. He has been in the insurance business since approximately 1978 and has never had either of his licenses suspended or revoked and has never been fined by the Department.

   
   

2. Respondent owned and operated an insurance agency, National Property and Casualty Underwriters (hereinafter "NPCU"). From 1989 through June of 1993, Respondent, through NPCU, acted as the surplus lines insurance agent for Usher Insurance Co. with respect to the sale of private and commercial auto physical damage insurance. The policies were sold to the public through producing agents, and NPCU dealt with the producing agents. NPCU placed more than 20,000 Usher policies during that time period.

   
   

3. Surplus lines agents sell insurance from companies which are not licensed in the State of Florida. These companies are referred to as surplus or unauthorized carriers. They are not required to meet the strict requirements of domestic insurers. However, there are certain limitations and regulations on the sale of surplus lines insurance placed by surplus lines agents, including the collection and payment of a surplus lines premium tax and verification that the insured needs surplus lines insurance.

   
   

4. Usher was not authorized to do business in the State of Florida. From August 11, 1988, through December 13, 1993, it was, however, an eligible surplus lines insurer. On that latter date, Usher was place into receivership.

   
   

5. In 1986, prior to Respondent's involvement in the Usher program, his partner in another insurance agency obtained an opinion letter from the Department outlining the legality of collecting an additional $75 inspection fee from the insured. Respondent was aware of the contents of that letter and the parameters under which such a fee could be collected.

   
   

6. During the first half of 1990, NPCU collected a $75 inspection fee from each insured in its Usher program. In June of 1990 the Department questioned the $75 inspection fee, and Respondent answered the Department's correspondence

   by advising the Department that in his efforts to comply with all requirements, he would cease collecting the separate inspection fee as of June 1, 1990.

   Respondent ceased collecting that fee for the remainder of 1990.

   
   

7. Usher subsequently authorized the additional $75 fee as a company fee and authorized Respondent to begin charging that fee so long as it appeared on the policy. Respondent charged that fee which was reflected on each policy during 1991 and through August of 1992. If Usher declined to accept the risk for any application for insurance, the $75 fee was returned to the insured. Similarly, if a policy was cancelled, the $75 fee or a portion thereof was returned to the insured.

   
   

8. Respondent was aware of the requirement to collect surplus lines premium tax, and he did collect that tax from the insureds on the surplus lines premium paid by them. He did not, however, collect surplus lines premium tax on the $75 fee, and he did not pay the surplus lines premium tax on that fee. The total amount of tax on the $75 fee which Respondent did not collect and did not pay to the Department was $37,794. Although the charging of the fees was clearly reflected on the invoices and declaration pages for the policies, the fees were not reflected on the surplus lines tax reports Respondent filed for the first and second quarters of 1990, each quarter of 1991, and each of the first three quarters of 1992.

   
   

9. At first, Respondent deposited all moneys into NPCU's bank account and then remitted to Usher the portion of the moneys due to Usher and remitted to the Department the moneys due the Department for surplus lines premium taxes. However, in November or December of 1992, NPCU began depositing premiums paid, including the premium tax collected from the insured, directly into Usher's bank account, and Usher returned the premium tax to NPCU for payment. In the third quarter of 1993 the premium tax which had been sent directly to Usher was not transmitted by Usher to Respondent for payment to the Department. Thus, Respondent did not collect the premium tax for that period since it was collected by Usher instead. Respondent, therefore, filed the required surplus lines premium tax report but did not pay the tax due at that time since he did not have it.

   
   

10. To date, Respondent has failed to remit to the Department the surplus lines premium tax due on the $75 fees he collected during the first and second quarter of 1990, each quarter in 1991, and each of the first three quarters of 1992. The surplus lines tax is due at the end of the first month following the end of each quarter.

    
    

11. By May 4, 1994, Respondent had accrued a surplus lines tax credit in the amount of $18,938. After deducting the tax due for the third quarter of 1993 from the credit, Respondent would have been entitled to a net return of approximately $10,297 if the tax had been collected and paid on the $75 fees. Applying the net return to the $37,794 tax on the inspection fee results in a net tax due of $27,498.

    
    

12. A standard examination or audit of a surplus lines agent by the Department includes a review to determine whether the agent is properly paying surplus lines tax and a review to determine whether the agent is in compliance with the statutory due diligence verification requirements. Typically, 100-200 files are randomly pulled and examined at these audits, but 200-300 files would be pulled for review at Respondent's agency because NPCU was a large agency. Proper reporting and payment of surplus lines tax is determined by examining invoices, determining the amount of tax due based upon the invoices, and

    reconciling the amount determined to be due with the amount of the tax reported. Compliance with due diligence verification requirements is determined by checking the randomly-pulled files for evidence that the producing agent had used due diligence to place the insured with an authorized carrier before placing the risk in the surplus market.

    
    

13. During the time that Respondent was placing insurance through the Usher program, the Department had a policy of auditing a surplus lines agent at least every two years. However, in the four years that Respondent acted as a surplus lines agent for the Usher program, the Department audited NPCU ten to twelve times. Each time the Department pulled and reviewed 200-300 files along with the company's surplus lines tax reports. The files which were reviewed during these examinations contained invoices showing the $75 fee. As a result of all of those audits, the Department never advised Respondent that he was responsible for collecting and paying surplus lines premium tax on the $75 fee, and the Department never sent Respondent a bill for unpaid taxes on those fees.

    
    

14. In the winter of 1993, after Usher had been placed in receivership, three Department employees were given a list of approximately 200 files to examine and obtain copies of certain documents, including motor vehicle reports, applications, declaration pages, proofs of loss, and other documents relating to claims. In response to questions during that examination, Respondent advised them that when there was no affidavit of due diligence submitted with an application, his procedure was to notify the agent that it had not been submitted.

    
    

15. The three Department employees examined, pulled, and copied the relevant documents in a "mass production." They removed from the files and copied only the documents they were looking for and did not copy the entire files. Two people removed documents and one copied them. The documents were removed from the file, handed to the person making copies, and were then re- filed. A "double check" of the files was performed at the time the files were pulled; that is, they checked twice at the time they pulled the documents from the files to make sure that they had pulled all of the specified documents. No separate review was conducted to insure that documents were not missed or located elsewhere. This examination produced approximately fifteen pounds of documents which were then mailed by the Department employees to the Department of Insurance. Upon returning to Tallahassee, one of those employees opened the box of documents and reviewed about 145 files of the 200 files pulled. He then placed the documents in the Department's filing room.

    
    

16. Ten sets of documents removed from the files were later taken from the filing room. Nine of these ten partial files contain a due diligence affidavit with the signature of the producing agent certifying that Florida law regarding due diligence had been complied with by that agent. The statutory deficiency with regard to these nine affidavits is that they do not contain the required detailed information. The due diligence affidavit in the other partial file had been left blank and was not signed by the producing agent.

    
    

17. Producing agents sometimes provided the detailed information for the due diligence affidavit on a computer print-out provided with the affidavit. Four of the nine executed affidavits have a statement in the affidavit which refers to the existence of computer print-outs regarding declination of the risk. Whether computer print-outs existed for the nine affidavits which did not contain the required detailed information is unknown since a different section of the Department removed those files from Respondent's possession in conjunction with Usher's receivership.

18. Respondent did fail to properly verify due diligence with respect to the one partial file pulled by the Department wherein the due diligence affidavit had been left blank. The same cannot be said for the other nine partial files since the Department does not require that the detailed information be provided in a certain location but simply requires that the detailed information be provided. Out of the over 20,000 policies written and the hundreds of files reviewed by the Department in the ten to twelve audits it conducted of Respondent's files over the four years in question, the absence of the affidavit in one file and the absence of the detailed information in a certain location in the other nine files represents scant evidence that Respondent routinely failed to verify the due diligence requirement. NPCU began with twelve employees and by 1991 had forty employees processing applications. A question as to due diligence information in ten files represents a rather low error rate and does not demonstrate dishonest or intentional conduct or lack of competency.

    
    

19. Similarly, Respondent's failure to collect and pay the premium tax on the $75 fee did not result from intentional dishonest or untrustworthy conduct and does not demonstrate that Respondent lacked the competence to be a surplus lines agent.

    
    

20. Likewise, his delay in payment of the third quarter 1993 premium tax did not result from a willful violation of the law, dishonest or untrustworthy conduct, or lack of competence. He failed to pay that surplus premium tax on a timely basis because Usher did not remit the tax to him. The tax, in the amount of $8,623 was due October 31, 1993. Respondent paid $3,545 on January 31, 1994, and the balance on May 4, 1994. He is responsible, however, for interest on the delayed payment in the amount of $307.

    
    

    CONCLUSIONS OF LAW

    
    

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

    
    

22. The Amended Administrative Complaint filed in this cause is thirty- seven pages long and contains twenty-two counts. At the final hearing the Department voluntarily dismissed its allegation that Respondent violated Section 626.916(1)(b), Florida Statutes, specifically set forth in Count XII and implicated by reference in Counts XIII through XXI. Further, the Department offered no evidence with regard to Count XXII of the Amended Administrative Complaint and concedes in its proposed recommended order that that Count should be dismissed.

    
    

23. Counts I through X concern Respondent's failure to collect, report, and pay the surplus lines premium tax on the $75 fee, with each Count covering a single quarter commencing with January 1, 1990. Since Counts III and IV concern the quarters from July 1, 1990, through December 31, 1990, and the parties have stipulated that Respondent did not collect the $75 fee during those two quarters, Counts III and IV of the Amended Administrative Complaint must be dismissed.

    
    

24. As to Counts I, II, and V-X it is uncontroverted that Respondent violated Section 626.932, Florida Statutes, by failing to collect and pay the surplus lines premium tax on the $75 fee as alleged, and that violation is not disputed. What is disputed is the Department's allegation that Respondent

    willfully used his license to circumvent the Insurance Code [Section 626.611(4), Florida Statutes]; has demonstrated a lack of fitness or trustworthiness to engage in the business of insurance [Section 626.611(7)]; demonstrated a lack of reasonably adequate knowledge and technical competence [Section 626.611(8)]; engaged in fraudulent or dishonest practices [Section 626.611(9)]; willfully violated the Insurance Code [Section 626.611(13)]; intentionally violated the Insurance Code [Section 626.621(2)]; intentionally failed to pay the tax [Section 626.935(1)(e)]; willfully violated the surplus lines law [Section 626.935(1)(i)]; and willfully violated Section 626.621 [Section 626.935(2)].

    These Counts also charge Respondent with violating Section 626.935(3), Florida Statutes, but that Section sets forth procedures for the Department to follow and is not a statutory provision that any licensee can be charged with violating. The Department has failed to prove that Respondent is guilty of violating the disputed statutory provisions in these Counts.

    
    

25. The evidence reveals that Respondent did understand the requirements of the surplus lines premium tax in that he charged, collected, reported, and paid the surplus lines premium tax as required by law. What he did not understand was that the $75 fee was to be considered part of the premium and taxed. Over the years Respondent had correspondence and conversations with the Department regarding the legality of the fee. Respondent also testified that there had been "meetings" or "hearings" between him and the Department regarding his charging of the fee and that based upon the opinion letters Respondent had from the Department's attorneys, the Department had always decided that his charging the fee was acceptable. It is apparent that the focus of both parties was on the legality of the fee and not on the taxable nature of it. During the time period in question, Respondent was repeatedly audited by Department employees from fiscal specialists to special investigators. He provided them with his files which showed the charging of the fee and with his tax reports which showed that he was not charging tax on that fee. Department employee after Department employee reviewed those records and concluded that Respondent was in compliance with the law. Respondent simply cannot be found to have willfully violated the statutes alleged by the Department when it is clear that the Department employees themselves charged with determining compliance did not understand that Respondent was violating the statutory provisions alleged. No evidence was offered that Respondent knowingly and willfully committed the violation, and the Department's allegation that Respondent should have known when its own employees did not is not persuasive.

    
    

26. Had there been any evidence that the Department had advised Respondent that he needed to collect the tax on the $75 fee or that the Department had advised Respondent that he was paying an insufficient amount of premium taxes, then Respondent could be found to have willfully violated the statutes. The only evidence offered regarding Respondent's non-payment, however, is that of Respondent that, based upon his understanding of the Department's correspondence, if he had a separate agreement with the insured for the payment of the fee, it was not considered premium. Respondent's belief appears to have been reasonable, although it was wrong, and, therefore, a conclusion that the failure to collect the tax was willful, untrustworthy, or demonstrated a lack of competence is not justified. In short, the Department has not offered the quality of evidence necessary to show that Respondent knowingly violated the statutory provisions alleged, which were disputed.

    
    

27. Section 626.936(2) provides that a surplus lines agent who neglects to pay the taxes required may be fined up to $500 per day for each day the failure continues, beginning the day after the tax was due. Accordingly, the assessment of a penalty is discretionary. Had Respondent failed to pay surplus lines taxes

    he collected on the premiums or had Respondent knowingly failed to pay the taxes on the $75 fee, the payment of a penalty would be appropriate. Under the circumstances of this case, however, it is not appropriate that Respondent be assessed a penalty.

    
    

28. Section 626.936(2), Florida Statutes, also provides that the agent shall pay interest on the amount of any delinquent tax due at the rate of 9 percent per year, compounded annually, beginning the day the amount becomes delinquent. The parties have stipulated that no interest is due prior to April 8, 1992, the effective date of the statute requiring that interest be paid. The parties do not agree on whether as a matter of law the 9 percent interest should be applied to balances outstanding on the effective date of the amendment, April 8, 1992. In their November 9, 1994, Stipulation the parties agree that if 9 percent interest should be applied to balances outstanding on April 8, 1992, the total interest due on November 1, 1994, was $8,527 and $2.10 per day should be added to the interest for every day after November 1, 1994, that the taxes remain unpaid. The parties further stipulated that if the 9 percent interest should only be applied to balances which accrued on or after April 8, 1992, the total interest due on November 1, 1994, was $3,246 and $.80 per day should be added to the interest for every day after November 1, 1994, until such time as the taxes are paid.

    
    

29. The Department argues pursuant to case law that the amount of interest on a fixed debt will change as the statutory rate of interest changes and Respondent owes interest on the balance outstanding on April 8, 1992. The Respondent argues that interest can only attach to debts which accrue after the effective date of the requirement that interest be paid since laws cannot be applied retrospectively in the absence of clear legislative intent. Both arguments have merit. The apparent problem, however, is that under the Department's reasoning an agent is required to pay interest on the amount of tax charged on premiums (including the $75 fee now known to be part of the premium) as of the end of each quarter when the tax is due. Yet, it will be later determined in a subsequent quarter how much credit the agent is entitled to against that tax liability for premiums (and fees) which were refunded to the insured and are, therefore, not taxable. In this case, for example, the Department did not determine Respondent's long-pending claim for credit until May 4, 1994, at which time it began applying his credit toward his tax liability commencing with the first quarter of 1990. It cannot be assumed that the legislature intended that interest be charged on a debt that was not fixed and which accrued two years before the effective date of the statute providing that interest would be charged on the amount of delinquent taxes due. Certainly, payment of a tax cannot become delinquent prior to the time it has been determined what tax is due. Accordingly, the Department's interpretation of the statute would constitute an unauthorized retroactive application of the statute, and Respondent's argument that the interest should only be applied to balances accruing after the effective date of the statute is more persuasive. Thus, the total interest due on November 1, 1994, is $3,246, and $.80 per day interest should be added to that amount for every day after November 1, 1994, until such time as Respondent pays the taxes.

    
    

30. Count XI of the Amended Administrative Complaint alleges that during the third quarter of 1993 Respondent collected surplus lines premium tax from insureds in the amount of $8,623.02 and reported the collections in his report for the third quarter of 1993. However, he failed to forward those collected funds in accordance with Section 626.932(2), Florida Statutes. This was the quarter during which Respondent was depositing premiums received from insureds directly into Usher's bank account and Usher failed to send the premium tax to

    NPCU for payment to the Department. Respondent timely filed his quarterly report for the amount of taxes due but did not remit the tax to the Department at that time since he did not have it in his possession to transmit. Credits due to Respondent from the Department partially extinguished that liability effective January 31, 1994, and the balance effective May 4, 1994. Respondent's delay in paying the tax at the end of the third quarter of 1993 as alleged in Count XI of the Amended Administrative Complaint constitutes a violation of Section 626.932(2), Florida Statutes. The parties have stipulated that Respondent should be assessed interest on that debt in the amount of $307.

    
    

31. That Count also includes a general allegation that Respondent's violation of Section 626.932(2), Florida Statutes, constitutes a violation of the string of statutory citations outlined above. Those citations, however, require a knowing and willful intent to violate those statutory prohibitions and such willful conduct is not found in this case. The method of transmitting the taxes collected between Usher and Respondent had worked in the past, and Respondent had no knowledge that Usher would not continue to timely remit the taxes collected to him so that he could pay them to the Department. His delay in payment of the taxes for that quarter does not evidence a defect in character or competence. The better practice, as Respondent came to learn, was for him to have retained the premium tax separate from the premium remitted to Usher's bank account. Within a few months, when the Department applied credits due Respondent against that tax liability, the liability was extinguished. There is no reasonable basis for imposing an additional penalty on Respondent for the delay in transmitting those taxes to the Department.

    
    

32. Counts XII-XXI of the Amended Administrative Complaint concern the ten partial files retrieved from Respondent's office by the Department. In each of those Counts the Department alleges that Respondent failed to comply with the requirements of Section 626.916, Florida Statutes, and Rule 4J-5.003, Florida Administrative Code, by failing to verify that a due diligent effort had been made by the producing agents to place the risk with an authorized insurer by requiring a properly documented affidavit of diligent effort from the producing agents. Each Count also contains allegations that because of Respondent's failure to require the proper affidavit, the insured was improperly placed in the surplus lines market rather than obtaining insurance through authorized insurers, that each insured's claim had not been paid, and that Respondent was personally liable for any loss suffered by the insured. The Department offered no evidence as to those additional factual allegations. Summarily, the Department offered no evidence that each of those ten insureds was able to obtain insurance from an authorized carrier, that the insured was not qualified for placement in the surplus lines market, or that there was any loss suffered by any of those insureds.

    
    

33. As to Count XIX, the Count involving the application of Michael Adams wherein the due diligence affidavit of the application had been left blank and unsigned by the producing agent, Respondent has violated Section 626.916, Florida Statutes.

    
    

34. As to the other nine Counts, wherein Respondent failed to obtain proper detail on the due diligence affidavits which were signed by the producing agents, the Department has failed to establish its allegations by clear and convincing evidence. All that the Department proved by the required evidentiary standard is that the Department copied portions of the files related to those nine applications and the partial files did not include the detailed information required but only included the certification that due diligence had been performed. Several of those affidavits referred to computer print-out sheets,

    and Respondent's uncontroverted testimony is that producing agents sometimes provided the detailed information required in the form of computer print-outs. Although the Department employees did not see any computer print-outs for those nine files, there is no evidence that they asked to see them. The Department was required to prove that there were no computer print-outs containing the required information, not simply that the Department did not see them when it reviewed the partial files obtained. The Department offered no evidence that due diligence had not been performed and that the required information had not been provided to Respondent at the time that the applications for insurance were approved.

    
    

35. Counts XII-XXI also contain the general allegation that Respondent violated the string of statutory cites set forth above in wrongfully placing these insureds in the surplus lines market. The Department offered no evidence that Respondent knowingly or willfully violated those statutes by acting in a dishonest or untrustworthy manner or that Respondent demonstrated a lack of fitness and competency. The small number of files involved compared to the large volume of policies written by Respondent does not demonstrate that Respondent failed to have in place a reasonable program for verifying that due diligence efforts had been made by the producing agents.

    
    

36. As to the appropriate penalty to be assessed against Respondent for the violations proven by the Department, the Department argues extensively in favor of heavy penalties pursuant to the Department's Penalty Guidelines for Insurance Representatives found in Chapter 4-231, Florida Administrative Code. Rule 4-231.020 specifically states that that Chapter does not apply to surplus lines agents.

    
    

37. It has already been concluded in this Recommended Order that no penalty should be assessed against Respondent for his failure to collect tax on the $75 fee under the circumstances of this case and on his delay in remitting taxes to the Department for the third quarter of 1993 although he timely filed his report. As to Respondent's failure to acquire a properly executed due diligence affidavit with respect to the one application where the affidavit portion was left blank and unsigned, the Department has not recommended a specific penalty. The Respondent in his proposed recommended order has suggested a fine of $1,000. That recommendation is appropriate.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is, RECOMMENDED that a Final Order be entered:

1. Finding Respondent guilty of violating Counts I, II, V-X, XI, and XIX;

   
   

2. Dismissing Counts III, IV, XII-XVIII, XX, XXI and XXII of the Amended Administrative Complaint filed in this cause;

   
   

3. Requiring Respondent to pay within thirty days of entry of the Final Order in this cause the amount of $27,498 for the tax he failed to collect, plus interest in the amount of $3,246 and additional interest at the rate of $.80 per day for every day after November 1, 1994, until that amount is paid;

   
   

4. Requiring Respondent to pay the amount of $307 in interest for the delayed payment of taxes for the third quarter of 1993;

5. Requiring Respondent to pay a fine in the amount of $1,000 for violating Count XIX with respect to the application of Michael Adams; and

   
   

6. Providing that if Respondent fails to pay the tax, interest, and penalty provided for in this Recommendation within thirty days after entry of the Final Order in this cause his surplus lines license be suspended until the tax is paid.

DONE and ENTERED this 19th day of January, 1995, 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 19th day of January, 1995.

APPENDIX TO RECOMMENDED ORDER

1. Petitioner's proposed findings of fact numbered 1-8, 10-17, 38, and 40 have been adopted either verbatim or in substance in this Recommended Order.

2. Petitioner's proposed findings of fact numbered 18-37 and 39 have been rejected as being subordinate to the issues remaining in this cause.

3. Petitioner's proposed findings of fact numbered 41 and 42 have been rejected as not being supported by the weight of the evidence in this cause.

4. Petitioner's proposed finding of fact numbered 9 has been rejected as not constituting a finding of fact but rather as constituting a conclusion of law.

5. Respondent's proposed findings of fact numbered 1-14 contained in the

section of his proposed recommended order entitled Summary Conclusions of Fact have been adopted either verbatim or in substance in this Recommended Order as have been all of the unnumbered paragraphs contained in the section entitled Initial Conclusions of Fact.

COPIES FURNISHED:

John R. Dunphy, Esquire Division of Legal Services

Department of Insurance and Treasurer

412 Larson Building

Tallahassee, Florida 32399-0300

Edward W. Dougherty, Jr., Esquire

315 South Calhoun Street Suite 500

Tallahassee, Florida 32301

Bill O'Neal, General Counsel Department of Insurance

The Capitol, PL-11

Tallahassee, Florida 32399-0300

Bill Nelson

State Treasurer and Insurance Commissioner The Capitol Plaza Level

Tallahassee, Florida 32399-0300

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.

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AGENCY FINAL ORDER

=================================================================

OFFICE OF THE TREASURER DEPARTMENT OF INSURANCE

IN THE MATTER OF: DOAH CASE NO. 94-562

ARNOLD IRWIN SKOLLER CASE NO: 93-L-119RWT

/

FINAL ORDER

THIS CAUSE came on before the undersigned, Treasurer of the State of Florida, acting in his capacity as Insurance Commissioner, for consideration and final agency action. On November 19, 1993, the Florida Department of Insurance [hereinafter "Department"] filed an Administrative Complaint against ARNOLD IRWIN SKOLLER [hereinafter sometimes referred to as "Respondent"], a Florida license surplus lines and general lines insurance agent. The multi-count Administrative Complaint charged the Respondent with numerous violations of the Florida Surplus Lines Law (Sections 626.913 - 626.937, Florida Statutes).

The Respondent timely filed a petition for a formal administrative hearing pursuant to Section 120.57(1), Florida Statutes. On March 23, 1994, the Department filed a twenty two (22) count Amended Administrative Complaint against the Respondent, alleging further violations of the Florida Surplus Lines Law. On July 25, 1994, a formal hearing was held in Tallahassee, Florida, before the Honorable Linda Rigot, Division of Administrative Hearings. The Parties both filed Proposed Recommended Orders and on January 19,1995, the Hearing Officer filed a Recommended Order. Counsel for the Petitioner timely filed exceptions to the Recommended Order which are addressed below.

1. PETITIONERS EXCEPTIONS TO FINDINGS OF FACT

   
   

   Paragraph 1 of the Petitioner's exceptions to the Findings of Fact argues the findings in paragraph 17 of the Hearing Officers' Findings of Fact do not reflect the evidence and testimony submitted at the Final Hearing. In particular, at issue is whether the Respondent completed the statutorily and administratively required "due diligence affidavit" for each Florida insurance risk he placed with a surplus lines carrier. 1/

   
   

   Counts eleven (11) through twenty (20) of the Department's Amended Administrative Complaint allege that the Respondent feed to properly execute and/or secure the statutorily required affidavits of due diligence when placing an insurance risk with a surplus lines insurer. The Hearing Officer concluded that the existence or nonexistence of the completed affidavits was not certain in nine (9) of the ten (10) files, and therefore refused to conclude they were not completed. Nine of the ten affidavits contained within the Department's Amended Complaint, although technically incomplete by Department standards, were properly signed by the producing agent. Department testimony supports the proposition that the requisite information, since not contained on the affidavit, did not exist. The Respondent claims the required information was in the insurance file and was completed before exporting the particular risk to the surplus lines carrier, but that the Department failed to copy that information during its' investigation. The Department did not produce clear and convincing evidence that this information was not in the file. Based upon such, the Department's exception to the finding of fact in paragraph 17 is hereby REJECTED.

   
   

   Paragraph 2 of the Petitioner's Exceptions excepts to paragraph 18 of the Recommended Order. In particular, the Petitioner excepts to the finding by the Hearing Officer in paragraph 33 (Count XIX that the Respondent failed to properly verify due diligence on one insurance file only. For the reasons stated above in response to the exception to the Finding of Fact in paragraph 17, the Departments' exception to the Finding of Fact in paragraph 18 is REJECTED.

   
   

   Paragraph 3 of the Petitioner's Exceptions excepts to paragraph 19 of the Recommended Order. In particular, the Petitioner states that the Finding of Fact stating the violations alleged by the Department did not result from intentional, dishonest, or untrustworthy conduct, is a conclusion of law and not a finding of fact. The finding of whether a particular act was intentional or not is indeed a conclusion of law and not one of fact. However, the Petitioner does not challenge the actual finding but, rather its form. For this reason, the Hearing Officer's Finding of Fact in paragraph 19 of the Recommended Order shall be considered a Conclusion of Law in this Final Order.

   
   

2. PETITIONER'S EXCEPTIONS TO CONCLUSIONS OF LAW

   
   

   Paragraph 4 of the Petitioner's Exceptions excepts to paragraph 29 of the Recommended Order. In particular, the Petitioner excepts to the finding by the Hearing Officer that any outstanding liability for surplus lines premium tax could not be determined until subsequent tax credits become known, and that the outstanding interest for assessed for unpaid liabilities shall be at the new interest rate reflected in the 1992 amendment to the Surplus Lines Law.

   Additionally, the Hearing Officer concluded that any penalties and interest assessed on the outstanding tax liability could not be determined prior to a determination of what tax is outstanding when subsequent credits are calculated.

   This rationale is faulty since any determination of premium tax due is based solely upon the premium accepted in a particular quarter, an amount that is fixed and easily ascertainable. Any credits or adjustments to the amount of premium tax occurred subsequent to the fixing of the quarterly tax liability. Statutory and administrative procedures exist whereby the total outstanding surplus lines tax liability can be adjusted to reflect any tax credits that may have become realized after the fixing of tax liability. The calculation of total surplus lines tax liability including any credits is easily made when utilizing hindsight. However, hindsight can not change the fact that the Respondent accepted a specified amount of insurance premium upon which tax liability affixes. That liability for unpaid taxes, pursuant to the Surplus Lines Law is to be taxed at the statutory rate, which effective April 8, 1992, was 9 percent. The parties specifically stipulated that if the 9 percent interest rate should apply, only those unpaid tax balances which existed after April 8, 1992 are to be taxed at the 9 percent rate. The Respondent argued that outstanding tax liabilities which arose prior to April 8, 1992, should be taxed at the prior rate. Pursuant to case law and the Department's interpretation, the interest rate change is to be applied to all outstanding liabilities that existed on the effective date of the statutory amendment. Therefore, and pursuant to a stipulation executed between the parties, the total interest due on November 1,1994 is $8,527 and $2.10 per day, for every day alter November 1, 1994. As such, the Hearing Officer's recommendation in paragraph 29 of the Conclusions of Law is hereby REJECTED, and the Respondent shall pay $8,527 as interest for outstanding balances through November 1, 1994, and $2. 10 per day for each day after November 1, 1994 until all liability is extinguished.

   
   

   Paragraph 5 of the Petitioner's Exceptions excepts to paragraph 31 of the Recommended Order. In particular, the Petitioner excepts to the conclusion that "[w]ithin a few months, when the Department applied credits due Respondent against that tax liability, the liability was extinguished". Paragraph 31 of the Hearing Officer's Recommended Order solely refers to Count XI of the Amended Administrative Complaint or particularly, the surplus lines tax liability for the third quarter of 1993. The Parties had previously stipulated that $307 interest for the late payment of surplus lines tax liability was the only amount outstanding from the third quarter of 1993. Based upon that stipulation, the exception to Hearing Officer's Conclusion of Law in paragraph 31 of the Recommended Order is REJECTED.

   
   

   Paragraph 6 of the Petitioner's Exceptions excepts to paragraph 34 of the Recommended Order. In particular, the Petitioner excepts to the conclusion that is based upon the earlier excepted Findings of Fact in paragraph seventeen (17) and eighteen (18). The exceptions to these findings were specifically rejected earlier in this Final Order and thus it is proper that any exception to the legal conclusion based upon these findings also be rejected. Therefore, the Department's exception to the Conclusion of Law in paragraph 34 of the Hearing Officer's Recommended Order that 1,the Department offered no evidence that due diligence had not been preformed" with respect to nine (9) of the ten (10) counts is hereby REJECTED.

   
   

3. PETITIONER'S EXCEPTION TO THE HEARING OFFICER'S RECOMMENDATION

   
   

   The Petitioner has also submitted an exception to the Recommendation offered by the Hearing Officer. In particular, the Petitioner excepts to the Recommendation that is based upon the earlier excepted Findings of Fact and Conclusions of Law which have been rejected. Since the Hearing Officer's

   recommendation was based upon Conclusion of Law that have been rejected, the Recommendation is also hereby REJECTED in part and ACCEPTED in part.

   
   

   Upon careful consideration of the Recommended Order and the Exceptions filed by the Respondent, and being otherwise advised in the premises, it is hereby ORDERED:

   
   

   1. The Findings of Fact, as recited by the Hearing Officer, are adopted within this Final Order as the Department's Findings of Fact.

      
      

   2. The Conclusions of Law of the Hearing Officer, with the exception of those Conclusions rejected by this Final Order are adopted as the Department's Conclusions of Law.

      
      

   3. The Respondent, as found by the Hearing Officer, is hereby found guilty and to have committed the violations as alleged in Counts I, II, V-X, XI, and XIX.

      
      

   4. Counts III, IV, XII-XVIII, XX, XXI, and XXII, are hereby dismissed pursuant to the Hearing Officers Recommended Order and as adopted by this Final Order.

      
      

   5. Respondent shall pay within thirty (30) days of entry of this Final Order $27,498 for the surplus lines premium tax Mr. Skoller failed to collect, plus the amount of $8,527 and $2. 10 per day from November 1, 1994, as interest on the unpaid taxes.

      
      

   6. Respondent, as recommended by the Hearing Officer and adopted by this Final Order, shall pay within thirty (30) days of entry of this Final Order $307 as interest for the delayed payment of surplus lines premium tax for the third quarter of 1993.

      
      

   7. Mr. Skoller, as recommended by the Respondent and adopted by the Hearing Officer, was to pay one thousand dollars ($1,000) as an administrative penalty in this matter for his failure to complete the "due diligence affidavit" as alleged in Count XIX of the Amended Administrative Complaint. Section 626.935, Florida Statutes specifically directs that "the Department shall suspend, revoke, or refuse to renew the license of a surplus lines agent and all other licenses held by the licensee" for any violation of the Surplus Lines Law and the failure to pay tax on surplus lines premiums. Sections 626.935(1)(e) and 626.935(1)(i), Florida Statutes. As such, the one thousand dollar ($1,000) administrative penalty recommended by the Hearing Officer is REJECTED as improper in consideration of the above mandatory suspension, revocation, or non- renewal.

Based upon the findings of guilt by the Hearing Officer for violating Counts I, II, V-X, XI and XIX, of the Departments' Amended Administrative Complaint, including statutory violations of Sections 626.932 and 626.916, Florida Statutes, all insurance agent licenses presently held by the Respondent, including his surplus lines insurance agents license shall be suspended for a period of one year pursuant to the mandatory provisions of Section 626.935, Florida Statutes. Said suspension shall become effective ten (10) days after issuance of this Final Order and is justified by the findings of guilt by the Hearing Officer. Pursuant to sections 626.112 and 626.915, Florida Statutes, Respondent shall not engage or attempt or profess to engage in any transaction or business for which any insurance agents license or appointment is required under the Insurance Code, including surplus lines.

Pursuant to Section 626.641(1), Florida Statutes a license, appointment, or eligibility which has been suspended shall not be reinstated except upon request for such reinstatement; but the Department shall not grant such reinstatement if it finds that the circumstance or circumstances for which the license, appointment, or eligibility was suspended still exist or are likely to recur.

9. Should Mr. Skoller fail to pay those surplus lines taxes, interest, and penalties within the time frames delineated herein, such delay shall be added to the total time period for which the Respondent's surplus lines insurance agents license is to be suspended.

Any party to these proceedings adversely affected by this Order is entitled to seek review of this Order pursuant to Section 120.68, Florida Statutes, and Rule 9.110, Florida Rules of Appellate Procedure. Review proceedings must be instituted by filing of a Notice of Appeal with the General Counsel, acting as the agency clerk, at 612 Larson Building, Tallahassee, Florida 32399-0300, and a copy of the same and the filing fee with the appropriate District Court of Appeal within thirty (30) days of the rendition of this Order.

DONE and ORDERED this 9th day of May, 1995.

BILL NELSON,

Treasurer and Insurance Commissioner

ENDNOTE

1/ Prior to August 1, 1994, the relevant Administrative Rule did not mandate the manner or form in which the required information was presented in the "due diligence affidavit". Effective August 1, 1994, subsequent to the insurance transactions presented in the Department's Amended Administrative Complaint, the underlying Administrative Rule adopted a specific formatted affidavit to be completed for surplus lines transactions.

Copies furnished to:

Linda M. Rigot, Hearing Officer Division of Administrative Hearings 1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

Edward W. Dougherty, Esquire Attorney for Arnold Irwin Skoller 1501 Park Avenue East Tallahassee, Florida 32301

John R. Dunphy, Esquire

Florida Department of Insurance Division of Legal Services

612 Larson Building

Tallahassee, Florida 32399-0300

Docket for Case No: 94-000562

Orders for Case No: 94-000562