STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF INSURANCE AND ) TREASURER, )

)

Petitioner, )

)

vs. ) CASE NO. 94-809

)

EDWIN MORALES, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was conducted in this case on May 13, 1994 in Miami, Florida, before J. Stephen Menton, a duly designated Hearing Officer of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: James A. Bossart, Esquire

Department of Insurance 612 Larson Building

Tallahassee, Florida 32399-0333

For Respondent: Caridad Amores, Esquire

292 Westward Drive

Miami Springs, Florida 33166 STATEMENT OF THE ISSUE

The issue in this case is whether Respondent committed the violations of Chapter 626, Florida Statutes, which are alleged in the Administrative Complaint and, if so, the penalty that should be imposed.

PRELIMINARY STATEMENT

In a two count Administrative Complaint dated January 20, 1994, Petitioner, the Department of Insurance and Treasurer (the "Department") charged Respondent, Edwin Morales, with violating various provisions of the Florida Insurance Code, Chapter 626, Florida Statutes. The Administrative Complaint charges Respondent with violating Sections 626.611(7), (9), (10), and (13) and Sections 626.621(2), and (4), Florida Statutes. Count I of the Administrative Complaint charges Respondent with misappropriating, converting or otherwise mishandling premiums received in connection with approximately 73 applications for automobile insurance which were submitted to United States Underwriters, Inc. Count II charges Respondent with misappropriation, fraud, and/or dishonest conduct in connection with his handling of premium finance contracts entered into with Appco Premium Finance Company ("Appco"). Respondent denied the allegations of the Administrative Complaint and requested a formal hearing pursuant to Section

120.57(1), Florida Statutes. The case was referred to the Division of Administrative Hearings which noticed and conducted a hearing.

At the outset of the hearing, Respondent requested that no evidence be taken with respect to Count II of the Administrative Complaint since the issues involved in that case were being litigated in a pending civil law suit. After listening to argument from the parties, that request was denied.

At the hearing, the Department presented testimony of two witnesses: Richard Kahn, a vice president with Appco Finance Corporation; and Maria A. Ramos, the treasurer of United States Underwriters, Inc. The Department offered

21 exhibits into evidence, all of which were accepted. Respondent's relevancy objections to Petitioner's Exhibits 4, 5, 6, 10 and 20 were overruled. Respondent also objected to Petitioner's Exhibit 10 on the grounds that the transmittal form which purportedly accompanied the exhibit was not included with the exhibit. That objection was also overruled.

Respondent testified on his own behalf and offered two exhibits into evidence, both of which were accepted without objection.

A transcript of the proceedings has been filed. Both parties have submitted proposed findings of fact and conclusions of law. A ruling on each of the parties' proposed findings of fact is included in the Appendix to the Recommended Order.

FINDINGS OF FACT

Based upon the oral and documentary evidence adduced at the final hearing and the entire record in this proceeding, the following findings of fact are made:

1. At all times pertinent to this proceeding, Respondent was licensed by the Department as a life and health, and a general lines insurance agent (a 220 license).

   
   

2. Respondent was an officer and director of A Aardwolf Discount Corporation, a Florida corporation, and A Aachen of Miami, Inc., a Florida corporation. A Aardwolf was conducting business out of offices on Biscayne Boulevard in Miami, Florida. 1/ A Aachen of Miami, Inc. was operating on office on Alton Road, Miami Beach, Florida. While the evidence is not entirely clear, it appears that both corporations were doing business as Salem Discount Insurance Agency and/or Discount Insurance Agency.

   
   

3. Appco Premium Finance Company is licensed in the state of Florida to provide premium financing for insurance policies. Generally, premium finance companies work through an insurance agent. The agent collects a down payment from a customer who is unable or unwilling to pay in advance the full amount due on an insurance policy. A premium finance company such as Appco then finances the unpaid balance of the premium.

   
   

4. In a typical premium financing arrangement the down payment is 30 percent of the total premium amount and the agent's commission is 15 percent. The insurance agent collects the down payment, retains his 15 percent commission and forwards the remainder to the premium finance company along with an executed premium finance agreement. The agent contemporaneously forwards the insured's application for insurance to the insurance company along with a draft issued by

   him on behalf of the premium finance company for the total amount of the premium less his commission.

   
   

5. From approximately 1990 through late 1992, Respondent and his agencies utilized Appco to finance insurance premiums for many of their insureds.

   
   

6. In August of 1992, Respondent's agencies transmitted a number of premium finance contracts to Appco. There were at least three separate transmittals, each of which was accompanied by a check which represented the remainder of the down payments received from the customers after Respondent retained his commission. The evidence also established that Appco received a fourth check from Respondent's companies during the month of August. The evidence was insufficient to establish whether this fourth check was related to transmittals of premium finance contracts or some other business dealings. In any event, the four checks totaled $4,926.65. Appco attempted to deposit and negotiate the checks, however, all four checks were returned by the bank for insufficient funds.

   
   

7. Respondent was an authorized signatory on the Eagle Bank account on which the checks were drawn. At no time during 1992 were there sufficient funds in this account to pay the checks.

   
   

8. Appco honored the drafts issued by Respondent in connection with the premium finance contracts covered by the transmittals and none of the policies were cancelled after the checks from Respondent's agencies bounced.

   
   

9. Appco has sued Respondent and his business[es] seeking to recover the money which Appco contends is owed to it as a result of the transactions described above. Respondent has contested that law suit and denied that he or his companies owe any money to Appco. As of the date of the hearing in this matter, that civil litigation had not been resolved.

   
   

10. As is common in the industry, Appco had a policy of charging back unearned commissions to insurance agents when an insured defaulted on a premium finance contract. In other words, after a policy was cancelled because the insured failed to make the payments due under the premium finance contract, Appco would prorate the commission which had been retained by the agent to reflect the period during which the policy was in effect and charge-back to the agent the amount of the unearned commission.

    
    

11. Respondent contends that in August of 1992, he was involved in an ongoing dispute with Appco regarding Appco's charge-back of unearned commissions for insurance contracts that were purportedly cancelled before completion of the financing arrangement. Respondent says that he withheld payments to Appco pending resolution of his dispute as to the amount of the charge-backs. Respondent claims that an executive from Appco agreed that if checks were sent in with the transmittals for new contracts, they would be held without cashing until the dispute regarding the charge-back of unearned commissions was resolved.

    
    

12. There is no written evidence that Appco agreed that Respondent could withhold payment of the money due on new premium finance contracts until Respondent was satisfied with a resolution of the unearned commission charge- backs. In fact, there is no written evidence that Respondent was even asserting such a claim until it was raised as an affirmative defense in the lawsuit brought by Appco against Respondent and his agencies.

13. Respondent's assertion that he had a verbal agreement with Appco that is would not cash the checks is rejected as not credible. In any event, Respondent's dispute as to the amounts that Appco had charged back for cancelled policies did not relieve Respondent of his obligations to new customers. After deducting his commission, the down payments received by Respondent from his new customers were received by Respondent in trust to be used for the issuance of premium finance contracts for those customers. Respondent had no right to withhold sums collected on the new contracts in an attempt to resolve his dispute arising from old contracts. His actions unjustifiably placed his new customers at risk that their policies would be cancelled or never issued.

    
    

14. Respondent has refused the repeated demands made by Appco to make the checks good. Respondent has never provided an accounting for the funds he collected from the new customers.

    
    

15. United States Underwriters, Inc. of Miami ("United States Underwriters") is under contract with Security Insurance Company of Hartford ("Security") to manage and administer Security's automobile insurance policy program in Florida. United States Underwriters receives and processes applications from agents, appoints agents, underwrites and issues policies and performs all other administrative work concerning the policies.

    
    

16. In May of 1991, Respondent was appointed as an agent for United States Underwriters. That appointment was approved in the name of Salem Discount Insurance at 7943 Biscayne Boulevard. On April 23, 1992, Respondent obtained an appointment on behalf of Discount Insurance operating at 501 Alton Road in Miami Beach.

    
    

17. On or about June 23, 1992, United States Underwriters, as the administrator for Security, terminated Respondent's authority as an insurance agent to solicit and bind insurance coverages on behalf of Security. The termination letter provided that Respondent's authority to bind coverage for Security terminated effective as of June 24, 1992 and provided that "any and all applications bound prior to this termination date are to be submitted with the required payment of net premiums due to be received in our office by Thursday, July 2, 1992....United States Underwriters, Inc. will continue to service existing policies until their expiration upon receipt of endorsement or cancellation request from your office."

    
    

18. In response to the demand that he submit all coverages bound through his termination date, Respondent submitted approximately 73 applications (the "Applications") for automobile insurance to United States Underwriters on or about July 2, 1992. The Applications reflected that they had been received by Respondent through his offices at various times between March and June of 1992. The Applications were accompanied by two post-dated checks drawn on Respondent's Republic Bank business bank account in the amounts of $5,961 and $9,202.05. These checks represented the premium payments for the Applications.

    
    

19. United States Underwriters' agents are supposed to submit all applications for insurance together with the premium payment to the company within 7 days after receipt. Respondent has provided no explanation as to why these procedures were not followed in connection with the Applications referred to in paragraph 18 above.

    
    

20. United States Underwriters, as administrator for Security, issued the policies with Security as the insurer for all of the Applications. The binding dates on the Applications were honored even for those applications taken in

    March but not submitted until July, 1992. When the policies were issued, United States Underwriters remitted $15,163.11 to Security in payment of the policy premiums. This remittance was made before the checks from Respondent cleared.

    
    

21. The checks submitted by Respondent's agencies as payment for the premiums on the Applications were returned by the bank for insufficient funds. Respondent was an authorized signatory on the Republic Bank account on which the checks were drawn. At no time during June, July or August, 1992 were there sufficient funds in the account to pay the two checks. Respondent has refused the demands of United States Underwriters to replace the checks and/or to submit the premium payments for the policies.

    
    

22. After the checks from Respondent's agencies were returned and Respondent failed to respond to numerous demands for payment, United States Underwriters cancelled the insurance coverages for nonpayment of premiums on July 24, 1992 with a policy cancellation date effective as of August 3, 1992. At the time the policies were cancelled, United States Underwriters was given a credit by the insurance company for the unearned portion of the premiums. The premiums earned on the policies while they were in effect was approximately

    $5,123.21. In his post-hearing submittal, Respondent admitted an obligation to repay this sum. However, as of the date of the hearing in this matter, this earned portion of the policy premiums which United States Underwriters was required to pay to the insurance company had not been paid by Respondent.

    
    

23. Respondent has provided a confusing and unpersuasive justification for his involvement in the transmittal of the bad checks to United States Underwriters. Respondent contends that his business relationship with United States Underwriters had soured and he desired to transfer all of the business to a new insurance company. This desire on his part does not justify the issuance of bad checks. The money Respondent received from his customers was to be held in trust for the issuance of their policies. Respondent has not provided an accounting of what happened to this money.

    
    

24. Respondent also claims that some of the policies originated from offices in which he no longer had an ownership interest. Respondent contends that he was not the agent of record at the Alton Road office in Miami Beach, and, therefore, he has suggested that he can not be held accountable for the policies that were issued out of that office. The evidence established that Respondent was the only principal listed on the questionnaire submitted to United States Underwriters when the appointment for the Alton Road office was approved. Respondent has not provided any compelling evidence that his involvement with this office was terminated. In fact, the evidence established that the checks were sent to United States Underwriters at Respondent's direction and under his name. Furthermore, Respondent signed both of the checks that were returned for insufficient funds and his name appears as the brokering agent on many of the insurance applications.

    
    

25. After United States Underwriters cancelled the policies, Respondent obtained new policies for a number of the insureds through Fortune Insurance Company. Some of the customers also obtained refunds. No specific evidence was presented to establish the losses, if any, suffered by the customers. It does appear that some customers were without insurance for at least a few days.

    CONCLUSIONS OF LAW

    
    

26. The Division of Administrative Hearings has jurisdiction over the parties hereto and the subject matter of this proceeding pursuant to Section 120.57(1), Florida Statutes.

    
    

27. "Insurance is a business greatly affected by the public trust, and the holder of an agent's license stands in a fiduciary relationship to both the client and the insurance company." Natelson v. Department of Insurance, 454 So2d 31, 32 (Fla. 1st DCA 1984).

    
    

28. Petitioner is the state agency empowered to enforce the provisions of the Florida Insurance Code.

    
    

29. Petitioner has the burden to prove the violations alleged in the Administrative Complaint filed against Respondent by clear and convincing evidence. Ferris v. Turlington, 510 So2d 292 (Fla. 1987).

    
    

30. Petitioner is required to suspend or revoke the license of any agent who is found to have violated any of the provisions of Section 626.611, Florida Statutes. Petitioner has discretion to impose disciplinary action against any agent who is found to violate any of the provisions of Section 626.621, Florida Statutes.

    
    

31. The Administrative Complaint filed against Respondent contains two counts. Count I is based on the transactions between Respondent and his agencies with United States Underwriters. Count II is based on Respondent's dealings with Appco. Both counts allege violations of several different sections of the Florida Insurance Code. Specifically, both counts charge Respondent with violating subsections (7), (9), (10) and (13) of Section 626.611, Florida Statutes (1993). Those provisions require suspension or revocation whenever it is established that the agent is guilty of:

    
    

    (7) Demonstrated lack of fitness or trust- worthiness to engage in the business of insurance.

    * * *

    1. Fraudulent or dishonest practices in the conduct of business under the license or permit.

    2. Misappropriation, conversion, or unlawful withholding of monies belonging to insurers or insureds or beneficiaries or to others and received in conduct of business under the license.

    * * *

    (13) Willful failure to comply with, or willful violation of, any proper order or rule of the department or willful violation of any provision of this code.

    
    

32. Both counts of the Administrative Complaint also charge Respondent with violating Sections 626.621(2) and 626.621(4), Florida Statutes. Those provisions authorize, but do not require, the Department to "suspend, revoke, or refuse to renew or continue the license or appointment of any agent," whenever it is established that the licensee is guilty of:

    (2) Violation of any provision of this code

    or of any other law applicable to the business of insurance in the course of dealing under the license or permit.

    * * *

    (4) Failure or refusal, upon demand, to pay over to any insurer he represents or has represented any money coming into his hands belonging to the insurer.

    
    

33. The clear and convincing evidence in this case established that Respondent's submittal of bad checks to Appco and United States Underwriters as set forth in the Findings of Fact above constitute violations of the cited statutory provisions.

    
    

34. All premiums or other funds belonging to insurers or others received by a licensed insurance agent in transactions under his license are trust funds held by the licensee in a fiduciary capacity. Section 626.561(1), Florida Statutes (1993). Respondent has provided no accounting for the funds he received from customers that were due to be paid to Appco and United States Underwriters.

    
    

35. Respondent was a director, shareholder and resident agent for both of the insurance agencies involved in the transactions at issue. He obtained the appointments for those agencies. As a consequence, he is responsible for the wrongful acts, misconduct and/or violations committed by the employees acting on behalf of the corporations. See, Section 626.795 and 626.839, Florida Statutes. While Respondent contends that he sold his interest in one of the agencies prior to the incidences alleged in the Administrative Complaint, no persuasive evidence of such a sale was presented. In fact, the evidence established that all of the bad checks involved in both instances were issued at Respondent's direction and under his signature.

    
    

36. The penalty guidelines for violations of Section 626.611 and 626.621, Florida Statutes, are set forth in Rule 4-231, Florida Administrative Code. Rule 4-231.040 provides that the Department is authorized to find that multiple grounds exist under Section 626.611 and 626.621, Florida Statutes, for disciplinary action against a licensee based upon a single count in an administrative complaint. However, only the violations specifying the highest rated penalty will be considered in imposing a penalty for that count. In this case, the highest rated penalty for each count in the Administrative Complaint arises from the violations of Section 626.611(9) and (10), the rule establishes a penalty of suspension of a license for a period of nine (9) months for a violation of either section. 2/

    
    

37. Rule 4-231.160, Florida Administrative Code, sets forth the aggravating and mitigating factors to be utilized in assessing a penalty. Among the factors to be considered are the willfulness of the licensee's conduct, the degree of injury to the victim and whether timely restitution has been made. As noted above, no evidence was presented to conclusively establish any loss suffered by any insureds. The evidence presented in this case was insufficient to justify aggravation or mitigation of the penalties provided in the Rule.

    
    

38. Section 626.641, Florida Statutes, provides that "a license which has been suspended shall not be reinstated except upon request for such reinstatement. 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 exists or is likely to recur."

RECOMMENDATION

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

Morales, guilty of the violations alleged in Counts I and II of the

Administrative Complaint. As a penalty for the violations, Respondent's licenses and eligibility for licensure should be suspended for eighteen (18) months. As a condition to reinstatement of his insurance licenses, Respondent should be required to make satisfactory restitution to Appco Premium Finance Company and United States Underwriters pursuant to Section 626.641, Florida Statutes.

DONE and ENTERED this 20th day of October, 1994, at Tallahassee, Florida.

J. STEPHEN MENTON 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 20th day of October, 1994.

ENDNOTES

1/ The company apparently moved offices during the time period involved in this case. Both offices were located on Biscayne Boulevard.

2/ In lieu of a suspension, the Department is authorized to impose an administrative fine pursuant to Section 626.681, Florida Statutes, or probation pursuant to Section 626.691, Florida Statutes. The statutory language does not permit the Department to suspend a license and also impose a fine or place a licensee on probation.

APPENDIX TO RECOMMENDED ORDER

Both parties have submitted Proposed Recommended Orders. The following constitutes my rulings on the proposed findings of fact submitted by the parties.

Petitioner's proposed findings of fact

1. Adopted in substance in Findings of Fact 1.

2. Adopted in substance in Findings of Fact 2.

3. Adopted in substance in Findings of Fact 15.

3. [sic]Adopted in substance in Findings of Fact 17.

1. [sic]Adopted in substance in Findings of Fact 17.

2. Adopted in substance in Findings of Fact 18.

3. Adopted in substance in Findings of Fact 19.

4. Adopted in substance in Findings of Fact 20.

5. Adopted in substance in Findings of Fact 21.

6. Adopted in substance in Findings of Fact 21.

7. Rejected as unnecessary. The allegations regarding prior bad checks supposedly issued by Respondent were not included in the Administrative Complaint.

8. Adopted in substance in Findings of Fact 22.

9. Adopted in substance in Findings of Fact 21.

10. Adopted in substance in Findings of Fact 20 and 22.

11. Subordinate to Findings of Fact 22 and 23.

12. Adopted in substance in Findings of Fact 3-5.

13. Subordinate to Findings of Fact 6.

14. Subordinate to Findings of Fact 6, 13 and 14.

15. Adopted in substance in Findings of Fact 7.

16. Adopted in substance in Findings of Fact 14.

17. Subordinate to Findings of Fact 11-14.

18. Rejected as argumentative and subordinate to Findings of Fact 25.

Respondent's proposed findings of fact

1. Adopted in substance in Findings of Fact 1.

2. Subordinate to Findings of Fact 2 and 24.

3. Subordinate to Findings of Fact 2, 5 and 24.

4. Subordinate to Findings of Fact 11.

5. Rejected as contrary to the weight of the evidence and subordinate to Findings of Fact 11-13.

6. Subordinate to Findings of Fact 9-12.

7. Rejected as unnecessary and subordinate to Findings of Fact 23.

8. Subordinate to Findings of Fact 2 and 24.

9. Subordinate to Findings of Fact 23 and 24.

10. Subordinate to Findings of Fact 17 and 18.

11. Subordinate to Findings of Fact 25.

12. Rejected as unnecessary and subordinate to Findings of Fact 25. The evidence indicates that the transfer of the insurance policies did not take place until after the checks to United States Underwriters bounced.

13. Subordinate to Findings of Fact 22. The demand for the full amount of the premiums was made prior to the adjustment with the insurance company.

14. Subordinate to Findings of Fact 25.

15. Rejected as irrelevant and unnecessary.

16. Subordinate to Findings of Fact 25.

COPIES FURNISHED:

Caridad Amores, Esquire

292 Westward Drive

Miami Springs, Florida 33166

James A. Bossart, Esquire Division of Legal Services 612 Larson Building

Tallahassee, Florida 32399-0333

Bill O'Neil General Counsel

Department of Insurance and Treasurer The Capitol, PL-11

Tallahassee, Florida 32399-0300

Tom Gallagher

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.

Docket for Case No: 94-000809

Orders for Case No: 94-000809