vs. ) Case No. 98-4949
Respondent. )
Pursuant to notice, a formal hearing was held in this case by video teleconference on February 10, 1999, at sites located in West Palm Beach and Tallahassee, Florida, before Errol H. Powell, a designated Administrative Law Judge of the Division of Administrative Hearings.
For Petitioner: David J. Busch, Esquire
The issue for determination is whether Respondent committed the offenses set forth in the Administrative Complaint and, if so, what action should be taken.
On October 14, 1998, the Department of Insurance and Treasurer (Petitioner) filed a one-count Administrative Complaint against Joseph Datchko (Respondent). Petitioner charged Respondent with violating Subsection 626.611(5), (7), (8), (9),
and (10), Florida Statutes; Subsection 626.621(2) and (5), Florida Statutes; Subsection 626.6215(5)(g), Florida Statutes; and Subsection 626.9541(1)(l), Florida Statutes. By an Election of Rights, Respondent disputed the allegations of fact and requested a hearing pursuant to Subsection 120.57(1), Florida Statutes. On November 4, 1998, this matter was referred to the Division of Administrative Hearings.
At hearing, Petitioner presented the testimony of five witnesses1 and entered eight exhibits (Petitioner's Exhibits numbered 1-6, 8, and 9) into evidence. Respondent testified in his own behalf and entered two exhibits (Respondent's Exhibits numbered 1 and 2) into evidence.
A transcript of the hearing was ordered. At the request of the parties, the time for filing post-hearing submissions was set for more than 10 days following the filing of the transcript.
The Transcript, consisting of two volumes, was filed on March 11, 1999. The parties timely filed their post-hearing submissions on April 12, 1999, which have been considered in the preparation of this Recommended Order.
Together with Respondent's post-hearing submission, Respondent filed two prospectuses dated May 1, 1998, regarding Prudential variable life insurance policies. The documents were neither requested to be late-filed nor admitted into evidence at the hearing. They have not been considered in the preparation of this Recommended Order, but are made a part of the record.
Subsequent to the filing of the post-hearing submissions, Respondent filed a document on April 13, 1999, regarding a grievance of one of Petitioner's witnesses. The document was neither requested to be late-filed nor admitted into evidence at hearing. The document has not been considered in the preparation of this Recommended Order, but is made a part of the record.
At all times material hereto, Joseph Datchko (Respondent) was licensed by the Department of Insurance (Petitioner) as a life and variable annuity agent; life, health and variable annuity agent; life agent; health agent; and general lines insurance agent. Respondent holds the professional designations of Chartered Life Underwriter (CLU) and Chartered Financial Consultant (CFC).
At all times material hereto, Respondent was a sales manager agent for Prudential Life Insurance Company (Prudential).
In January 1996, Respondent visited Fred Lowery, Jr. to review Mr. Lowery's life insurance program and investments.
Mr. Lowery owned Prudential life insurance policies on himself
and owned a Prudential annuity. Mr. Lowery was 68 years old and was living with his son, Paul Lowery (P. Lowery), in an in-law apartment at Mr. P. Lowery's residence. Mr. P. Lowery was present during the meeting with Respondent.
Donald Coleman, a financial service representative, agent-in-training with Prudential, accompanied Respondent to the meeting with Mr. Lowery. Respondent did most of the talking at the meeting.
At all times material hereto, Respondent supervised
Mr. Coleman who was a relatively new agent, having been employed with Prudential approximately 14 months at the time of the meeting with Mr. Lowery. Mr. Coleman had no insurance background prior to becoming employed with Prudential.
Respondent's review of Mr. Lowery's insurance policies revealed that, in addition to the Prudential policies, Mr. Lowery owned five John Hancock Life Insurance (Hancock) policies, which were "economatic whole-life policies," in which his children, who were now adults, were the insureds. The Hancock policies consisted of one policy on each of Mr. Lowery's five children; had been owned by Mr. Lowery for approximately 17 years; and had a face value of $10,000 each, with death benefits of at least
$25,000 each. The premiums for the Hancock policies totaled approximately $100 a month or $1,200 a year, which was paid through an allotment from Mr. Lowery's military retirement pay.
Mr. Lowery was satisfied with the Hancock policies. He wanted life insurance on each of his children and wanted life insurance that he could pass-on to them. The Hancock policies served this purpose for Mr. Lowery.
During the meeting, Respondent initiated a discussion regarding the purchase of Prudential variable life insurance policies to replace the Hancock policies. Respondent suggested to Mr. Lowery that he cash-surrender the Hancock policies and use the proceeds from surrendering the Hancock policies to purchase four new Prudential policies insuring his children. Respondent represented that the new Prudential policies would have a death benefit of $25,000 each and would be "paid-up," with no premiums due. The reason for four, instead of five, Prudential policies was that one of Mr. Lowery's children had already purchased and owned a Prudential policy.
Mr. Lowery was very interested in Respondent's proposal. Mr. Lowery informed Respondent that a policy that was paid-up and a policy that he could leave for his children to have as owners was a policy in which he (Mr. Lowery) would be very interested.
However, Mr. Lowery was skeptical that the premiums would be paid-up and that he would not have to make any premium payments. Mr. Lowery wanted time to consider the proposal and agreed to Respondent's returning to present an illustration of the new Prudential variable policies.
At a subsequent meeting, Respondent, accompanied by
Mr. Coleman, presented an illustration of the Prudential variable policies. Respondent again did virtually all of the talking.
The illustration showed, among other things, a gross rate of return of 12 percent for the Prudential policies, which was directly contradictory to Prudential's instructions to agents to show a maximum gross rate of return of 10 percent. Mr. Coleman was aware that the rate of return was incorrect but he did not reveal it to Mr. Lowery or to Mr. Lowery's children.
On January 25, 1996, Mr. P. Lowery signed a document entitled "Understanding Policy Values and Premiums," and
Mr. Coleman signed the document as Prudential's representative. Mr. Lowery neither reviewed nor was shown the document. The document indicates an acknowledgement that the policy illustration was reviewed with Prudential's representative. The document also indicates in the "Premium Payments" section that the payment of premiums is required for the policy, and the section states in pertinent part:
Premiums are required to be paid for the term specified in the policy.
Use of the Abbreviated Payment Plan or the payment flexibility provided by certain policies may limit the number of out-of- pocket payments as they become due. . . .
Neither the Abbreviated Payment Plan, nor payment flexibility, makes a policy paid-up. Additional out-of-pocket payments may be needed if actual dividends or investment results decrease, or if charges increase.
Mr. P. Lowery also acknowledges in the document that he reviewed a policy illustration with the Prudential representative, Mr. Coleman. Among other things, the illustration indicates in the "Flexible Payment Alternative" section that paying the proposed yearly payments will not make the policy paid-up.
No evidence was presented that Mr. P. Lowery questioned Respondent, regarding the payment of premiums, after reading the document; that Mr. P. Lowery signed the document without reading it; or that Mr. P. Lowery did anything, regarding the document, other than sign it.
After several meetings, Mr. Lowery decided to surrender his Hancock policies and use the proceeds to purchase the Prudential variable policies insuring his children. Mr. Coleman was present at all of the meetings. Mr. Lowery relied heavily upon Respondent's representation that the Prudential policies would be "paid-up"; he came to trust Respondent. Mr. Lowery would not have purchased the Prudential policies but for Respondent's representation that the policies would be "paid-up." It is clear that Mr. Lowery interpreted "paid-up" to mean that no more premium payments would ever be required on the policies.
The signing of the necessary paperwork to purchase the Prudential variable policies took place at the residence of one of Mr. Lowery's daughters, Shirley Dover. Mr. Coleman was also present at this meeting, and Respondent again did virtually all
of the talking. Ms. Dover inquired, among other things, about the Prudential variable policies. Respondent informed her, among other things, that the policies would be "paid-up," with no premiums due. Mr. Lowery executed the necessary documents to purchase the Prudential variable policies. Mr. Lowery completed a check dated January 22, 1996, in the amount of $189.43, made payable to Prudential Insurance. Respondent advised Mr. Lowery that the money from the Hancock policies had not been received by Prudential and the check would be applied toward activating the policies. The check was given to Respondent.
No evidence was presented to show that Respondent did not handle Mr. Lowery's check in a proper and appropriate manner.
In a letter dated January 29, 1996, to an individual in Prudential's "Home Office Underwriting," Respondent used the term "paid-up" in referring to the Prudential variable policies purchased by Mr. Lowery. The purpose of Respondent's letter was to attempt to convince the underwriter to issue Mr. P. Lowery's policy without a rating.
Mr. Lowery completed another check dated March 19, 1996, in the amount of $208.75, made payable to Prudential for the Prudential policies. The check was given to Respondent.
No evidence was presented to show that Respondent did not handle Mr. Lowery's check in a proper and appropriate manner.
Mr. Coleman was shown as servicing agent of record on the Prudential variable policies. He received the commission on
the purchasing of the policies by Mr. Lowery.
Soon after purchasing the four Prudential policies, Mr. Lowery received premium payment notices. He called
Mr. Coleman and indicated that no premiums should be due on the policies. Mr. Coleman informed Mr. Lowery that the notices pertained only to additional insurance if Mr. Lowery wanted to purchase any additional insurance. Mr. Lowery informed
Mr. Coleman that he did not want to purchase any additional insurance so Mr. Coleman told him to ignore the premiums and throw them away, which Mr. Lowery did.
Subsequently, Mr. Lowery received an annual premium due notice for each of the Prudential policies. One of his daughters, who was not one of the four insureds and who was not present at any of Mr. Lowery's meetings with Respondent or
Mr. Coleman, was able to obtain some information regarding the paid-up aspect of the policies. She informed her father that the policies were not paid-up and that he would have to continue to pay premiums to keep the policies in effect. Mr. Lowery was upset by this information.
An inference is made, and a finding of fact is made, that Mr. Lowery received a notice for the annual premium due for the year 1997. Mr. Lowery did not pay the premium for any of the Prudential policies.
After being informed by his daughter that the Prudential policies were not paid-up, Mr. Lowery decided that he
wanted to re-instate his Hancock policies. Mr. Lowery contacted Hancock, but Hancock refused to re-instate the policies.
Mr. Lowery received a notice for the annual premium due on each of the Prudential policies for the year 1998. The due date for each premium was January 25, 1998. The total of the premiums was $2,139.18, which was more than the total annual premiums for the Hancock policies. Mr. Lowery did not pay the premium for any of the Prudential policies.
Mr. Lowery received a notice for the annual premium due on each of the Prudential policies for the year 1999. The due date for each premium was January 22, 1999. The total of the premiums was $2,139.18. Mr. Lowery did not pay the premium for any of the Prudential policies.
After having received the first notice for the annual premium on each Prudential policy, after having been informed by his daughter that the Prudential policies were not paid-up, and after having been unable to re-instate his Hancock policies,
Mr. Lowery complained to Petitioner. Sometime thereafter, a representative of Prudential reviewed Mr. Lowery's situation. Prudential's representative concluded in a letter dated
January 23, 1998, that no improper actions were committed by any of Prudential's agents or Prudential. The conclusion was based upon, among other things, the insureds' signing of the "Understanding Policy Values and Premiums" document and signing
of an acknowledgment that a current prospectus on the policies was received.
As to the "Understanding Policy Values and Premiums" document, no evidence was presented that Mr. Lowery's children questioned Respondent, regarding the payment of premiums, after reading the document; that his children signed the document without reading it; or that his children did anything, regarding the document, other than sign it.
The evidence presented establishes that Respondent is very knowledgeable regarding life insurance policies.
According to Respondent, Hancock, as well as Prudential, had stopped offering the type of policies that Mr. Lowery purchased from Hancock due to better policies being
subsequently developed. Respondent determined that Mr. Lowery's Hancock policies were inferior to the Prudential variable policies. Even though Respondent does not know when the Hancock policies would have been paid-up, based on the type of policy that the Hancock policies were, Respondent estimated that it would have taken many years for them to be paid-up and determined that the Prudential policies presented a better situation for
Mr. Lowery.
Respondent admits that the Prudential policies were not paid-up. However, Respondent points out that, due to the monies from the Hancock policies being placed into the Prudential policies and to the investments being made by Prudential
associated with the policies, no premium payment need be made on the policies by Mr. Lowery. Respondent points out further that, if the insureds (Mr. Lowery's children) decided to retain the policies, premium payments would have to be paid at some point in time, but Respondent could not say when that time would be.
It is evident that the meaning Mr. Lowery applied to paid-up was not the same meaning applied by Respondent. Respondent failed to explain what he meant by paid-up to
Mr. Lowery; and, if Respondent had done so, it is evident that Mr. Lowery would not have purchased the Prudential policies.
With the Hancock policies, Mr. Lowery was not the risk- taker, the insurance company was. However, with the Prudential variable policies, Mr. Lowery was the risk-taker, not the insurance company. It is evident that Mr. Lowery did not have this understanding of the Prudential policies and, if he had, he would not have purchased the Prudential policies.
Respondent contends that Mr. Lowery is better off financially with the Prudential policies than with the Hancock policies because Mr. Lowery does not have to make premium payments, because Mr. Lowery is receiving a better return on his money, and because the coverage (death benefit) is better. Even assuming that what Respondent is contending is correct, it is not what Mr. Lowery wanted, which was "paid-up" policies where no premiums would ever be due. Respondent failed to give Mr. Lowery what he wanted, and Respondent knew it.
No evidence was presented that Petitioner has taken any prior disciplinary action against Respondent. An inference is made, and a finding of fact is made, that Respondent has had no prior disciplinary action taken against him by Petitioner.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the subject matter of these proceedings and the parties thereto pursuant to Section 120.569 and Subsection 120.57(1), Florida Statutes.
License revocation proceedings are penal in nature. The burden of proof is on the Petitioner to establish by clear and convincing evidence the truthfulness of the allegations in the Administrative Complaint. Department of Banking and Finance, Division of Securities and Investor Protection v. Osborne Stern and Company, 670 So. 2d 932 (Fla. 1996); Ferris v. Turlington, 510 So. 2d 292 (Fla. 1987).
"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 So. 2d 31, 32 (Fla. 1st DCA 1984).
Section 626.611, Florida Statutes (1995), provides in pertinent part:
The department shall deny an application for, suspend, revoke, or refuse to renew or continue the license or appointment of any applicant, agent, title agency, solicitor,
adjuster, customer representative, service representative, managing general agent, or claims investigator, and it shall suspend or revoke the eligibility to hold a license or appointment of any such person, if it finds that as to the applicant, licensee, or appointee any one or more of the following applicable grounds exist:
* * *
(5) Willful misrepresentation of any insurance policy or annuity contract or willful deception with regard to any such policy or contract, done either in person or by any form of dissemination of information or advertising.
* * *
Demonstrated lack of fitness or trustworthiness to engage in the business of insurance.
Demonstrated lack of reasonably adequate knowledge and technical competence to engage in the transactions authorized by the license or appointment.
Fraudulent or dishonest practices in the conduct of business under the license or appointment.
Misappropriation, conversion, or unlawful withholding of moneys belonging to insurers or insureds or beneficiaries or to others and received in conduct of business under the license or appointment.
(Emphasis added)
Section 626.621, Florida Statutes (1995), provides in pertinent part:
The department may, in its discretion, deny an application for, suspend, revoke, or refuse to renew or continue the license or appointment of any applicant, agent, solicitor, adjuster, customer representative,
service representative, managing general agent, or claims investigator, and it may suspend or revoke the eligibility to hold a license or appointment of any such person, if it finds that as to the applicant, licensee, or appointee any one or more of the following applicable grounds exist under circumstances for which such denial, suspension, revocation, or refusal is not mandatory under s. 626.611:
* * *
(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 appointment.
* * *
(5) Violation of the provision against twisting, as defined in s. 626.9541(1)(l).
(Emphasis added)
Section 626.6215, Florida Statutes (1995), provides in pertinent part:
The department may, in its discretion, deny, suspend, revoke, or refuse to continue the license of any insurance agency if it finds, as to any insurance agency or as to any majority owner, partner, manager, director, officer, or other person who manages or controls such insurance agency, that any one or more of the following applicable grounds exist:
* * *
(5) Committing any of the following acts with such frequency as to have made the operation of the agency hazardous to the insurance-buying public or other persons:
* * *
(g) Violation of the provision against twisting as defined in s. 626.9541(1)(l).
(Emphasis added)
Section 626.9541, Florida Statutes (1995), provides in pertinent part:
UNFAIR METHODS OF COMPETITION AND UNFAIR OR DECEPTIVE ACTS. The following are defined as unfair methods of competition and unfair or deceptive acts or practices:
* * *
(l) Twisting. Knowingly making any misleading representations or incomplete or fraudulent comparisons or fraudulent material omissions of or with respect to any insurance policies or insurers for the purpose of inducing, or tending to induce, any person to lapse, forfeit, surrender, terminate, retain, pledge, assign, borrow on, or convert any insurance policy or to take out a policy of insurance in another insurer.
Section 626.9571, Florida Statutes (1995), provides in pertinent part:
Whenever the department has reason to believe that any person has engaged, or is engaging, in this state in any unfair method of competition or any unfair or deceptive act or practice as defined in s. 626.9541 or s. 626.9551 or is engaging in the business of insurance without being properly licensed as required by this code and that a proceeding by it in respect thereto would be to the interest of the public, it shall conduct or cause to have conducted a hearing in accordance with chapter 120.
Section 626.9581, Florida Statutes (1995), provides in pertinent part:
After the hearing provided in s. 626.9571, the department shall enter a final order in accordance with s. 120.59. If it is determined that the person charged has
engaged in an unfair or deceptive act or practice or the unlawful transaction of insurance, the department shall also issue an order requiring the violator to cease and desist from engaging in such method of competition, act, or practice or the unlawful transaction of insurance. Further, if the act or practice is a violation of s. 626.9541 or s. 626.9551, the department may, at its discretion, order any one or more of the following:
Suspension or revocation of the person's certificate of authority, license, or eligibility for any certificate of authority or license, if he knew, or reasonably should have known, he was in violation of this act.
Such other relief as may be provided in the insurance code.
(Emphasis added)
Petitioner contends, and the undersigned is persuaded, that Respondent is charged by a single-count Administrative Complaint, with his violations being based upon a single act of misconduct. However, the single act of misconduct involves the purchase of not one but four insurance policies; and, therefore, four transactions are involved at once in the single act of misconduct.
Petitioner demonstrated by clear and convincing evidence that Respondent violated Subsections 626.611(5), (7), and(9), Florida Statutes (1995). Respondent knew that the Prudential variable policies were not "paid-up," but that, for all practical purposes, no premium payment need be made by
Mr. Lowery on the policies. "Paid-up" was terminology used by
Respondent to persuade or induce Mr. Lowery to cash-in his Hancock policies and purchase the Prudential policies.
Petitioner failed to demonstrate by clear and convincing evidence that Respondent violated Subsections 626.611(8) and (10), Florida Statutes (1995).
Petitioner demonstrated by clear and convincing evidence that Respondent violated Subsections 626.621(2) and (5) and 626.9541(1)(l), Florida Statutes (1995).
Petitioner failed to demonstrate by clear and convincing evidence that Respondent violated Subsection 626.6215(5)(g), Florida Statutes.
As to penalty, Rule 4-231.040, Florida Administrative Code, provides:
Penalty Per Count.
The Department is authorized to find that multiple grounds exist under sections 626.611 and 626.621, Florida Statutes, for disciplinary action against the licensee based upon a single count in an administrative complaint based upon a single act of misconduct by a licensee. However, for the purpose of this rule chapter, only the violation specifying the highest stated penalty will be considered for that count. The highest stated penalty thus established for each count is referred to as the "penalty per count".
The requirement for a single highest
stated penalty for each count in an administrative complaint shall be applicable regardless of the number or nature of the violations established in a single count of an administrative complaint.
Total Penalty. Each penalty per count shall be added together, and the sum shall be referred to as the "total penalty".
Final Penalty. The final penalty which will be imposed against a licensee under these rules shall be the total penalty, as adjusted to take into consideration any aggravating or mitigating factors; provided, however, the Department shall convert the total penalty to an administrative fine and probation in the absence of a violation of section 626.611, Florida Statutes, if warranted upon the Department's consideration of the factors set forth in rule subsection
4-231.160(1).
Rule 4-231.080, Florida Administrative Code, provides that the penalty for a violation of Subsections 626.611(5), (7), and (9), Florida Statutes (1995), is a 6-month suspension, a 6- month suspension, and a 9-month suspension, respectively.
Rule 4-231.090, Florida Administrative Code, provides that the penalty for a violation of Subsections 626.621(2) and (5), Florida Statutes (1995), is a 3-month suspension and a 6- month suspension, respectively.
Rule 4-231.100, Florida Administrative Code, provides that the penalty for a violation of Subsection 626.9541(1)(l), Florida Statutes (1995), is a 6-month suspension.
The highest stated penalty is a 9-month suspension. The total penalty is a 9-month suspension.
Aggravating and mitigating factors are found at Rule 4- 231.160, Florida Administrative Code, which provides:
The Department shall consider the following aggravating and mitigating factors and apply them to the total penalty in reaching the final penalty assessed against a licensee under this rule chapter. After consideration and application of these factors, the
Department shall, if warranted by the Department's consideration of the factors, either decrease or increase the penalty to any penalty authorized by law.
For penalties other than those assessed under rule 4-231.150:
willfulness of licensee's conduct;
degree of actual injury to victim;
degree of potential injury to victim;
age or capacity of victim;
timely restitution;
motivation of agent;
financial gain or loss to agent;
cooperation with the Department;
vicarious or personal responsibility;
related criminal charge; disposition;
existence of secondary violations in counts;
previous disciplinary orders or prior warning by the Department; and
other relevant factors.
As to aggravating factors, Respondent's conduct was willful; at the time of the transaction, Mr. Lowery was elderly being 68 years old; restitution for the difference in the annual premium, approximately $938, cannot be effectuated in that it cannot be determined when premiums must be paid for the Prudential policies to remain in effect (currently, no premiums need be paid for the policies to remain in effect); Respondent was responsible for the offenses; and secondary violations existed in the single count.
As to mitigating factors, the financial gain for convincing Mr. Lowery to surrender his Hancock policies and to purchase the Prudential policies went to Mr. Coleman; there is insufficient evidence as to the motivation of Respondent for his conduct; and Petitioner has taken no prior disciplinary action
against Respondent.
The non-action of the four insureds, Mr. Lowery's adult children, when they signed the "Understanding Policy Values and Premiums" document which indicated that the policies were not paid-up and that the payment of premiums was required, should also be considered. No evidence was presented that his children questioned Respondent, regarding the payment of premiums, after reading the document; that his children signed the document without reading it; or that his children did anything, regarding the document, other than sign it.
Taking into consideration the aggravating and mitigating factors, the final penalty should be increased beyond the 9-month suspension. The final penalty should a 15-month suspension.
RECOMMENDED that the Department of Insurance and Treasurer enter a final order suspending the license of Joseph Datchko for
15 months.
DONE AND ENTERED this 11th day of June, 1999, in Tallahassee, Leon County, Florida.
ERROL H. POWELL
Filed with the Clerk of the Division of Administrative Hearings this 11th day of June, 1999.
1/ Petitioner presented the testimony of an expert witness. Not all of the testimony of Petitioner's expert was more credible than Respondent's testimony.
David J. Busch, Esquire Department of Insurance
Daniel Y. Sumner, General Counsel Department of Insurance
All parties have the right to submit written exceptions within 15 days from the date of this recommended order. Any exceptions to this recommended order should be filed with the agency that will issue the final order in this case.
