STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF INSURANCE, )

)

Petitioner, )

)

vs. ) Case No. 00-0016

)

BOBBY LYNN TEDDLIE, JR., )

)

Respondent. )

)

RECOMMENDED ORDER

On March 22, 2000, a formal administrative hearing was held in this case before J. Lawrence Johnston, Administrative Law Judge, Division of Administrative Hearings, by televideo and telephone between hearing sites in Tallahassee and Tampa, Florida.

APPEARANCES

For Petitioner: James A. Bossart, Esquire

Department of Insurance

200 East Gaines Street 612 Larson Building

Tallahassee, Florida 32399-0333

For Respondent: Stacey L. Turmel, Esquire

412 East Madison Street, Suite 803 Tampa, Florida 33602

STATEMENT OF THE ISSUE

The issue in this case is whether Respondent, Bobbie Lynn Teddlie, Jr., should be disciplined on charges that he violated various provisions of the Insurance Code in connection with the replacement of an 82-year-old's retirement investments with an annuity.

PRELIMINARY STATEMENT

An Administrative Complaint was filed against Respondent on October 26, 1999, in Department of Insurance Case No.

30194-99-AG. Respondent disputed the charges and requested a formal administrative proceeding. The matter was referred to the Division of Administrative Hearings (DOAH) on January 5, 2000, and given DOAH Case No. 00-0016. Respondent filed an Amended Answer on January 18, 2000. After responses to the Initial Order, the case was set for final hearing in Tampa, Florida, on March 22, 2000. A Pretrial Stipulation was filed on March 13, 2000. Subsequently, final hearing was converted to televideo, between sites in Tampa and Tallahassee, Florida.

At final hearing, Petitioner's Exhibits 1 through 4 were admitted in evidence; ruling was reserved on Respondent's objections to Petitioner's Exhibit 5, which was a transcript of the deposition of Genevieve Rathje, the alleged victim of Respondent's violations. Petitioner then called one expert witness before resting. Respondent called one witness, who gave fact and opinion testimony without objection, and testified in his own behalf. The televideo connection terminated during Respondent's testimony, and the remainder of the hearing was conducted by telephone.

After presentation of the evidence, Petitioner ordered the preparation of a Transcript of the final hearing, which was filed on April 10, 2000, and requested until April 28, 2000, to file

proposed recommended orders. Without objection, the request was granted. Both parties filed a proposed recommended order.

Respondent's objections to leading questions asked in Rathje's deposition (Petitioner's Exhibit 5) are overruled, and Petitioner's Exhibit 5 is admitted in evidence in its entirety. The questions either were not leading, were leading but preliminary, or appeared to be leading but did not in fact lead the witness since the sought-after answers were not forthcoming.

FINDINGS OF FACT

1. Respondent, Bobbie Lynn Teddlie, Jr., is a Florida- licensed life insurance agent, life and health insurance agent, health insurance agent, and life and health variable annuity contracts salesman. He is not licensed to sell or broker securities. There was no evidence that Respondent previously was subject to license discipline.

2. In May 1998, while he was employed with Senior Estate Services, Respondent visited Genevieve Rathje, an 82-year-old widow and retiree, for purposes of delivering a revocable living trust prepared at her request, having it executed, and listing Rathje's assets that would be subject to the trust. Rathje's 40- year-old son, Larry, one of two beneficiaries under her estate planning arrangements, was at her home when the documents were delivered. After delivery and execution of the trust, Rathje's assets were discussed; they included an Edward Jones securities account, a COVA Financial Life Insurance Company (COVA) annuity,

   and a SunTrust account. Rathje mentioned that she was not happy about the market risk and fluctuations in the value of the Edward Jones account. Her son concurred. They showed Respondent some recent Edward Jones statements showing the fluctuations and some negative returns. In discussing their concerns, Respondent compared the Edward Jones account to the COVA annuity, with its guaranteed rates of return. Ultimately, Rathje and her son both stated that they preferred the annuity investment. (According to Rathje's deposition testimony, she also had been advised by an estate planning attorney to replace her Edward Jones account, which would be subject to probate on her death, with an annuity.) Respondent then presented an American Investors Life Insurance (American Investors) annuity offered by Senior Estate Services.

   Rathje and her son decided to liquidate and replace her investments, less approximately $30,000 for capital gains taxes and purchase of a new condominium, with an American Investors annuity.

3. There was no evidence that Respondent misrepresented the American Investors annuity to Rathje or her son; to the contrary, there was convincing evidence that there were no misrepresentations. Nor was there any convincing evidence that Respondent made any misrepresentations to induce Rathje to liquidate her investments to purchase the American Investors annuity.

4. To facilitate the transaction, Respondent arranged to have Rathje's Edward Jones account liquidated through Financial West Group (Financial West), a California securities broker associated with Senior Estate Services. There was no convincing evidence that Respondent made these arrangements against the wishes of Rathje and her son, or without their knowledge and approval. There was no evidence that either Rathje or her son had any complaint about the use of Financial West. Respondent also had Respondent cash in the COVA annuity, less surrender charges. The proceeds, less approximately $30,000 for capital gains taxes and the new condominium, were used to purchase an American Investors annuity.

5. Less than 30 days later, Senior Estate Services went out of business, and Respondent obtained employment with Professional Insurance Systems. Respondent decided to replace the American Investors annuity because his commission was being held, and Respondent did not think it ever was going to be paid to him. In his new employment, Respondent was able to offer Rathje a United Life and Annuity Insurance Company (United Life) annuity, which was superior to the American Investors annuity in several respects. Since the 30-day "free look" period on the American Investors annuity had not yet expired, it was possible to replace it with a United Life annuity without any penalty or surrender charge. Respondent returned to Rathje's home with a more experienced Professional Insurance Systems agent named Phil

   Mednick to offer the United Life annuity and compare it to the American Investors annuity. Rathje's son was there to participate in his mother's decision, since he was a beneficiary. Respondent's presentation persuaded Rathje and her son that the United Life annuity was superior to the American Investors annuity. Arrangements were made to rescind the American Investors annuity for a full refund and replace it with a United Life annuity. (Respondent's commission on the sale of the American Investors annuity was reversed, so Respondent received no additional compensation by replacing the American Investors annuity with the United Life annuity. To the contrary, he had to split the commission on the United Life annuity with Mednick--

   $4,500 each.) At Rathje's request, it was arranged for United Life to pay her monthly interest checks in the amount of $200 (according to Respondent) prior to the "Annuity Commencement Date" (July 28, 2008). There was no evidence that Respondent made any misrepresentations in comparing the two annuities.

6. Two weeks later, Respondent and Mednick returned to Rathje's home to deliver the United Life annuity. Rathje's son, Larry, was there again. During this visit, Rathje expressed dissatisfaction with her IRA account at SunTrust. Respondent and Mednick told them about a Life USA Fixed Index Annuity. Rathje and her son agreed that it was better than the SunTrust account, and arrangements were made to liquidate the SunTrust account and

   replace it with a Life USA Fixed Index Annuity. Since the IRA was being rolled over, there were no tax consequences.

7. It is not clear from the evidence how or why the complaint against Respondent was filed. Neither Rathje's son, Larry, nor anyone from the Department of Insurance testified. Rathje's deposition testimony was unclear. Apparently, when she was having her income tax return prepared in 1999, she "got a little alarmed" when her "tax man" told her she had no money "in there" (presumably the Edward Jones account). This apparently led to a Department of Insurance inquiry into Respondent's role in these transactions and eventually to a complaint being filed by Rathje. Yet in her deposition, Rathje testified: "I didn't say [Respondent] did anything wrong. I'm not sure if he did." Asked in her deposition what she thought the problem was, Rathje answered: "I don't know. Why ask me?" Rathje also became upset when she requested $2,300 (presumably from United Life) to put new hurricane shutters on her house and, according to Rathje's deposition testimony, was told: "You're already getting $400 a month." (This statement does not make sense and never was explained by the evidence.)

8. Apparently, one basis for the charges against Respondent was that Rathje was not made to understand that the United Life annuity was subject to its own terms regarding withdrawal of funds before the "Annuity Commencement Date," and related surrender charges. But the greater weight of the evidence was

   that Respondent explained all of this to both Rathje and her son. In addition, it was clearly explained in the annuity documents themselves. It was not proven that Respondent misled Rathje and her son with respect to withdrawal of funds and surrender charges under the United Life annuity.

9. The other basis for the charges against Respondent was the Department's assertion that the liquidation of the Edward Jones account and COVA annuity and their replacement with the United Life annuity patently was to Rathje's financial detriment. (Respondent presented some evidence that the United Life annuity was better than the American Investors annuity, but the Department presented no evidence of the specifics of the American Investors annuity.)

10. According to the March 1998 Edward Jones account statement, Rathje had assets with a total value of $171,329.56. Included in the account were several stock and bond mutual funds, taxable and non-taxable bonds, and a GNMA mortgage-backed security fund. Also reflected on the Edward Jones statement as being held outside Edward Jones was the COVA annuity. These assets are detailed in Findings 11 through 16.

11. The Income Fund of America, Inc. and the Putnam Growth and Income Fund were funds consisting of a mix of stocks and bonds. The Income Fund of America, Inc. had a value of

    $17,132.97, an unrealized capital gain of $1,323.09, and an estimated annual yield of 4.26%. The Putnam Growth and Income

    Fund had a value of $15,055.70, an unrealized capital gain of

    
    

    $2,528.96, and an estimated annual yield of 1.59%.

    
    

12. The Putnam High Yield Advantage Fund was a taxable bond fund with a current value of $25,928.17, an unrealized capital loss of $1,071.83, and an estimated annual yield of 9.4%. The Putnam Tax-Free Income Trust High Yield Fund was a non-taxable bond fund with a value of $28,131.57, an unrealized capital gain of $818.31, and an estimated annual tax-free yield of 4.88%. As a Class B fund, Rathje could have been assessed a sales charge on the sale of shares of this fund.

13. There were two Van Kampen American Capital Municipal Income Funds. Both were tax-free municipal bond funds. One was a Class A fund, which charges an up-front load on the purchase of shares but no sales charge on the sale of shares; the other was a Class B, which did not charge an up-front load on the purchase of shares but imposed a charge on their sales. The Class A fund had a value of $7,314.69, and an estimated annual tax-free yield of 5.38%. The Class B fund had a value of $15,544.23 and an estimated annual tax-free yield of 4.65%. The unrealized gain or loss of the Van Kampen funds was stated as "not available," probably because the cost bases of the funds were not known.

14. There was a municipal bond issued by the Metropolitan Sewer District of Walworth County, Wisconsin, which had current (maturity) value of $15,000, an unrealized gain of $708.75, and a tax-free yield of 6.3%. There also was a taxable corporate bond

    issued by the Philadelphia Electric Company with a current (maturity) value of $26,000, an unrealized capital loss of

    $1,007.50, and an estimated yield of 7.125%.

    
    

15. The GNMA fund paid interest of 9.5%. It had a principal value of $1,000 but a current value of $990.

16. The COVA annuity was a five-year fixed annuity in the amount of $10,000 with a current value of $17,814.28. It was issued on May 25, 1990, and was renewed five years later for a second five-year term. As of March 1998, it was paying 6% interest, tax-deferred; this appears to have been the interest rate for the five-year renewal period. The COVA annuity was subject to a 6% surrender charge and an interest (or market) adjustment. At the time the COVA annuity was liquidated, there was a net surrender charge of $780, after credit was given for a positive $202.08 interest adjustment.

17. The United Life annuity ultimately purchased by Rathje also paid 6% interest, tax-deferred, but paid a 1% bonus in addition the first year. On the $120,000 annuity purchased by Rathje, the bonus was worth a total of $1,200. After the first year, interest was subject to adjustment annually but was guaranteed not to fall below 4%. Surrender charges were 10% in the first year, decreasing 1% each year until the eighth year, to 3%, where it would remain until eliminated in year 11.

18. Contrary to the Department’s argument, it was not patently against Rathje’s financial interest to liquidate the

    Edward Jones investments and replace them with cash (for capital gains taxes and a new condominium) and the United Life annuity. While some of the Edward Jones investments were performing well (and arguably better than the United Life annuity) at the time, it is not clear that all of them were performing that well, and all of them were subject to market fluctuations. Two of the investments were showing unrealized capital losses in March 1998. (Even the individual bonds were subject to the market on a sale before their maturity; the return of the principal only was guaranteed if held until maturity.) It was not patently unreasonable for Rathje to resort to an annuity to reduce her exposure to losses if the market went down. It certainly was not so obvious that the transaction was contrary to Rathje’s financial interests that Respondent, who was not an expert in securities investing, should have refused to participate.

19. Less easily explained was the decision to liquidate the COVA annuity, at a loss of $780 in net surrender charges (after credit for the interest adjustment.) Even taking into account the United Life annuity’s one-time 1% bonus, this only resulted in $174 on the $17,418.77 net surrender value of the COVA annuity on August 5, 1998, for a net loss of approximately $606 on the exchange. It would be five years before the surrender charge on the United Life annuity fell to the 6% surrender charge on the COVA annuity; by that time, the COVA renewable term would have expired, and the value of the COVA annuity could have been

    reinvested at no surrender charge. There was no basis in the evidence to predict the interest adjustment on the COVA annuity if liquidated later but before expiration of the renewal period. The only apparent financial reason to prefer the exchange of annuities would have been the potential for the United Life annuity to pay more than 6% (on the assumption that the COVA annuity was locked-in at 6% until expiration of the renewal period.) But there also was the potential for the United Life annuity’s interest to decrease to the guaranteed floor of 4%, and preference for such market sensitivity would have run counter to Rathje’s primary stated objective of eliminating market fluctuations.

20. The only other logical reason for Rathje to liquidate the COVA annuity and replace it with United Life would have been to reduce the number of her investments to just one. Respondent testified that Rathje and her son indeed expressed such a desire. Although Respondent omitted this claim in his written statement to the Department (Petitioner's Exhibit 2), there was no evidence to the contrary. In the absence of any coherent complaint by Rathje or her son, Respondent's testimony is accepted as a valid explanation for Respondent's participation in the liquidation of the COVA annuity, even at a net cost of $606. As a result, not only was the evidence insufficient to prove intent to defraud or misrepresent, it also was insufficient to prove negligent analysis of the transaction and improper advice to Rathje.

    A fortiori, the evidence was insufficient to prove lack of fitness, incompetence or untrustworthiness.

    CONCLUSIONS OF LAW

    
    

21. The Department asserts that Respondent is guilty of violating the following Sections of the Florida Statutes (1997): 626.611(4), prohibiting the willful use of a license to circumvent the Insurance Code; 626.611(5), prohibiting willful misrepresentation of, or deception in regard to, an insurance policy; 626.611(7), requiring fitness and trustworthiness; 626.611(8), requiring reasonably adequate knowledge and technical competence; 626.611(9), prohibiting fraudulent or dishonest practices; 626.611(13), prohibiting willful failure to comply with provisions of the Insurance Code; 626.621(2), prohibiting violation of any provision of the Insurance Code or of any other law applicable to the business of insurance in the course of dealing under a license or permit; 626.621(3), prohibiting the violation of any lawful order or rule of the Department; 626.621(6), prohibiting, in the conduct of business under the license or permit, engaging in unfair methods of competition or in unfair and deceptive acts or practices, as prohibited under part X of Chapter 626, or having otherwise shown himself to be a source of injury or loss to the public or detrimental to the public interest; 626.9541(1)(a)1, which defines as an unfair method of competition and unfair and deceptive act or practice, in pertinent part, knowingly making, issuing, circulating a

    statement, sales presentation, omission, or comparison which misrepresents the benefits, advantages, conditions, or terms of any insurance policy; and 626.9541(1)(e)1, which defines as an unfair method of competition and unfair and deceptive act or practice, in pertinent part, knowingly making, publishing, disseminating, circulating, or delivering any false material statement.

22. Under Ferris v. Turlington, 510 So. 2d 292 (Fla. 1987), the Department had the burden of proving the allegations in this case by clear and convincing evidence. The standard of clear and convincing evidence to be used in administrative licensing cases was outlined by the First District Court of Appeal in Evans Packing Company v. Department of Agriculture and Consumer Services, 550 So. 2d 112, 116, fn. 5 (Fla. 1st DCA 1989):

[C]lear and convincing evidence requires that the evidence must be found to be credible; the facts to which the witnesses testify must be distinctly remembered; the evidence must be precise and explicit and the witnesses must be lacking in confusion as to the facts in issue. The evidence must be of such weight that it produces in the mind of the trier of fact the firm belief of conviction, without hesitancy, as to be the truth of the allegations sought to be established.

In this case, key evidence was presented through the transcript of the Rathje deposition. Rathje’s son did not testify; nor did anyone from the Department. As reflected by the Findings of Fact, the Department's evidence did not meet the burden of proof.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is

RECOMMENDED that the Department of Insurance enter a final order finding Respondent, Bobbie Lynn Teddlie, Jr., not guilty of the charges alleged in the Administrative Complaint.

DONE AND ENTERED this 25th day of May, 2000, in Tallahassee, Leon County, Florida.

J. LAWRENCE JOHNSTON Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675 SUNCOM 278-9675

Fax Filing (850) 921-6847 www.doah.state.fl.us

Filed with the Clerk of the Division of Administrative Hearings this 25th day of May, 2000.

COPIES FURNISHED:

James A. Bossart, Esquire Department of Insurance

200 East Gaines Street 612 Larson Building

Tallahassee, Florida 32399-0333

Stacey L. Turmel, Esquire

412 East Madison Street, Suite 803 Tampa, Florida 33602

Bill Nelson

State Treasurer and Insurance Commissioner Department of Insurance

The Capitol, Plaza Level 2 Tallahassee, Florida 32399-0300

Daniel Y. Sumner, General Counsel Department of Insurance

The Capitol, Lower Level 26 Tallahassee, Florida 32399-0300

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

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.

Docket for Case No: 00-000016

Orders for Case No: 00-000016