STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF INSURANCE,

Petitioner,

vs.

MARK SEBASTIAN MITCHELL,

Respondent.

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) Case No. 02-2442PL

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RECOMMENDED ORDER

This case came before Administrative Law Judge John G. Van Laningham for final hearing, by video teleconference, on August 13, 2002, at sites in Tallahassee and Miami, Florida.

APPEARANCES

For Petitioner: R. Terry Butler, Esquire

Department of Insurance

412 Larson Building Tallahassee, Florida 32399

For Respondent: Mark Sebastian Mitchell, pro se

4510 Northwest 175th Street Miami, Florida 33055

STATEMENT OF THE ISSUES

In this disciplinary proceeding, the issues relate to whether Respondent, a licensed insurance agent, violated various provisions of the Insurance Code in connection with his handling of insurance business for three clients, as Petitioner charged in an Administrative Complaint issued in October 2001.

PRELIMINARY STATEMENT

On October 8, 2001, Petitioner Department of Insurance (the “Department”) issued a five-count Administrative Complaint against Respondent Mark S. Mitchell (“Mitchell”), charging him with having committed numerous violations of the Insurance Code in connection with his handling of insurance matters for (i) David Chiverton (Count I); (ii) Nelys Rodriguez and Aramis Cabrera (Counts II-IV); and (iii) Jean Kidd (Count V). Mitchell timely requested an informal hearing.

On May 31, 2002, an informal hearing was held, at which the Department’s hearing officer determined that material facts were in dispute. She ordered that the matter be transferred to the Division of Administrative Hearings (“DOAH”) for further proceedings. Accordingly, the Administrative Complaint was filed with DOAH on June 18, 2002.

The presiding administrative law judge set the final hearing for August 13, 2002. The parties appeared at the appointed time and place, as scheduled. The Department called seven witnesses: David Chiverton, Carole Donner, Steven Firestone, Jean Kidd, Luis Valdes, Nelys Rodriguez, and Ana Martinez. In addition, the Department offered 25 exhibits, numbered 1 through 11, 13 through 24, 26, and 27, all of which were received in evidence.

Mitchell, who represented himself, testified on his own behalf, and presented no other witnesses. He introduced no exhibits.

The final hearing transcript was filed with DOAH on September 19, 2002. The Department submitted a Proposed Recommended Order, which, though untimely filed, nevertheless was considered in the preparation of this Recommended Order. Mitchell did not take advantage of the opportunity to submit post-hearing papers.

FINDINGS OF FACT

1. Mitchell is a Florida-licensed life, health, and general lines insurance agent subject to the regulatory jurisdiction of the Department. At all times relevant hereto, Mitchell was engaged in the business of insurance, which he transacted through his corporate agency, M.G.M. Insurance Agency II, Inc., also known as Mitchell’s Financial Group, Inc.1

   Chiverton (Count I)2

2. In May 1996, in connection with the purchase of a house, David Chiverton (“Chiverton”) turned to Mitchell’s agency for assistance in obtaining homeowner’s insurance. Mitchell placed the risk with Lloyd’s London, a surplus lines carrier, which issued Policy No. HMO3 012935 (“Policy #1”).3 Policy #1 covered the period from June 29, 1996 to June 29, 1997.

3. Policy #1, in its entirety, is not in evidence——only the declarations page. Thus, the policy provisions are not available for review, and neither are the numerous endorsements referenced in the declarations. While it is undisputed that the main body of Policy #1 was a standard “HO-3” form, that form is not in evidence either. Consequently, looking solely at the record evidence, the undersigned cannot be certain as to what perils, exactly, were covered, not covered, and excluded from coverage under Policy #1.

4. The declarations page advises that Policy #1 afforded several coverages, including, relevantly, $75,000 worth of coverage for the “dwelling” and a separate coverage for “other structures” in the amount of $7,500. Each of these coverages was subject to a separate deductible of $500. The total annual premium for Policy #1 was $1,085.70.

5. Chiverton made a claim under Policy #1 soon after it was issued, for a loss resulting from water damage caused by a ruptured pipe that was located in the ceiling of the dwelling.4 The insurer paid this claim, the amount of which the evidence fails to show. Thereafter, on June 29, 1997, Policy #1 expired according to its terms and was not renewed.

6. The evidence fails to establish an orderly sequence of ensuing events. It is clear, however, that, pursuant to Florida’s surplus lines law, Underwriters at Lloyd’s issued

   Chiverton a homeowner’s policy, numbered 97HO1956 (“Policy #2”), effective for the period from September 15, 1997 to

   September 15, 1998. Policy #2 was an “HO-8” policy, which covers fewer risks than does the HO-3 form. Therefore, Policy #2 differed from Policy #1 in several material respects, although the two policies shared certain features as well. For example, the limit of liability for coverage on the dwelling remained the same——$75,000——but was reduced to $1,000 for the other structures. On the other hand, the coverage limit for personal property was increased by $5,000, to $30,000; so, too, was the personal liability coverage ceiling raised, substantially, from $25,000 to $100,000. The loss deductible was $500 (the same as Policy #1) except that losses caused by windstorm or hail were subject to a larger deductible of 10% of the applicable coverage limit.5 The total annual premium for Policy #2 was $731.75, which saved Chiverton about $354 as compared to Policy #1.

7. The Department contends that Policy #2 was inferior to Policy #1, affording less coverage and a higher deductible. The record does not contain a complete copy of Policy #2; in evidence instead is a Certificate of Insurance that is equivalent to a declarations page. Thus, it is impossible to determine, from a review of the instant record, whether Policy #2 was substandard or of poor quality in relation to Policy #1.

8. On the premise of Policy #2’s purported inferiority (which was not convincingly proved), the Department argues that Mitchell acted against Chiverton’s best interests by obtaining Policy #2 rather than a policy similar to Policy #1. Chiverton testified that he would not have agreed to purchase Policy #2 had he known that the deductible (for windstorm and hail) was much higher and the coverage (he and the Department argue) more limited. However, the Department’s and Chiverton’s contentions ignore the advantages of Policy #2 (e.g. higher coverage limits for some coverages, lower premium), which a reasonable person might well have found attractive at the time the policy was written. At bottom, the problem with the Department’s position——and Chiverton’s testimony about what he would or would not have done——is that it constitutes Monday morning quarterbacking made with knowledge of losses that occurred during the coverage period of Policy #2.

9. Chiverton made two claims under Policy #2, and both were denied. The first claim was for damages to the dwelling and the other structures that were caused by a windstorm on February 2, 1998. The evidence is sketchy as to what, exactly, happened on that date, and there is no persuasive proof regarding the actual cost of the repairs (or even if any were made). The adjuster’s report states that the dwelling sustained damages in the amount of $283.42 from a leaking roof and that

   the other structures suffered roof damage that would cost an estimated $1,636.57 to repair. The adjuster concluded that the loss to the dwelling fell within the $500 deductible and hence could not be paid. He concluded similarly that the loss to the other structures was within the 10% windstorm deductible and thus not payable either.

10. The Department contends that this entire loss would have been covered under Policy #1. It is impossible adequately to evaluate this contention because, as explained above, neither Policy #1 nor Policy #2 is in evidence in its entirety. However, based on the adjuster’s figures, it appears that much of this claim would not have been paid under Policy #1. The damages to the dwelling ($283.42) fell under Policy #1’s $500 deductible; therefore, Lloyd’s London presumably would not have paid that portion of the claim. The roof damage to the other structures might have been covered under Policy #1,6 but the carrier would have subtracted the $500 deductible applicable to the “other structures” coverage, resulting in a payable claim of

    $1,136.57.

    
    

11. The second claim, which Chiverton made in March 1998, sought reimbursement for a loss resulting from water damage caused by a ruptured water heater. This claim was denied on the ground that the loss was not covered. The Department’s contention that this claim would have been covered under Policy

    #1 is not proved. Without the entire policy to review, it is impossible to find that Policy #1 would, in fact, have covered this type of loss.

12. In sum, the Department has failed to prove, even by a preponderance of evidence, that Policy #2 was not in Chiverton’s best interests; that Policy #2 caused injury or loss to the public; or that in obtaining such coverage for Chiverton Mitchell manifested a lack of competence or knowledge. Indeed, based on the extremely limited evidence in the record, it is as likely as not that, at the inception of coverage, Policy #2 was a better deal for Chiverton, on the whole, than Policy #1 had been. There is also reason to believe that, given Chiverton’s claims experience, a standard HO-3 homeowner’s policy with a small, $500 deductible on the windstorm coverage simply could not have been obtained for him.

13. Apart from the above, the Department has charged that Mitchell forged Chiverton’s signature on the application for Policy #2. The evidence on this point is at best inconclusive—— and not nearly clear and convincing. The proof consists primarily of Chiverton’s testimony that the signature on the application is not his.7 Chiverton also testified that he never authorized anyone to sign this application on his behalf.

14. There is no persuasive, much less clear and convincing, evidence that Mitchell personally “forged”

    Chiverton’s signature on the application. Further, it is highly unlikely that the application was signed by someone who intended to defraud or otherwise injure Chiverton. The undersigned is not clearly convinced that the person who signed the application for Chiverton (assuming it was not Chiverton) did so without either express or implied authorization, for the following reasons.

15. First, as mentioned, Chiverton made two claims under Policy #2, in February and March 1998, respectively. There is nothing in the record which suggests that for the first five or six months of this policy’s life, Chiverton was dissatisfied with the coverage afforded thereunder. He seems not to have had any problems with Policy #2 until his claims were denied. Granted, the denial of these claims might have been his first notice of any potential problems with the policy, but even so, there is no contemporaneous evidence that Chiverton believed he had been effectively defrauded by the submission of a sham application.

16. Second, Chiverton acquiesced in the renewal of Policy #2. It is undisputed that Underwriters of Lloyd’s issued a renewal policy, numbered 98HO1956 (“Policy #3”), that was (as far as the record shows) identical to Policy #2 in terms of coverage and limitations. Policy #3 was in effect from September 15, 1998 to September 15, 1999. There can be no doubt

    that, by the time Policy #2 was renewed, Chiverton possessed actual knowledge that some provisions of this policy, e.g. the 10% windstorm deductible, were less desirable than some provisions of Policy #1 (and, conversely, that some aspects of Policy #2, e.g. the price, were more desirable). Yet, there is no persuasive evidence that Chiverton objected to the renewal of Policy #2, which undermines the contentions that Policy #2 was the product of a fraudulent application and that Chiverton would never knowingly have purchased such coverage.

17. Finally, Chiverton made at least two claims under Policy #3. On the first of these, submitted in December 1998, the carrier paid Chiverton $526.55 for a burglary loss. The second claim, which stemmed from another broken pipe, was denied in or around January 1999. There is no persuasive evidence that Chiverton contemporaneously expressed any dissatisfaction with Policy #3.8 Because Chiverton made claims and accepted benefits under Policy #3——a policy that he knew was not identical to Policy #1 and was, in fact, the renewal of Policy #2——the undersigned has determined that Chiverton either authorized the submission of the application that he supposedly did not sign or, alternatively, ratified the submission of that application.

18. In any event, the signature on the application was not shown, clearly and convincingly, to have been forged by Mitchell.

    Rodriguez (Counts II-IV)

    
    

19. In mid-1998, Aramis Cabrera and Nelys Rodriguez (collectively “Rodriguez”) agreed to purchase a house. At the closing of this transaction on June 29, 1998, Universal American Mortgage Company (“UAMC”), which was Rodriguez’s mortgagee, tendered $454 to Mitchell, who was Rodriguez’s insurance agent, as payment in full for one year’s premium on a homeowner’s policy insuring the property against windstorm and other hazards.

20. Mitchell’s office accepted the premium payment and produced an instrument entitled “Evidence of Property Insurance” as proof that FRPCJUA had issued Rodriguez a homeowner’s policy covering the property for the period from May 29, 1998 to

    May 29, 1999. Consequently, Rodriguez and UAMC reasonably believed that such coverage was in force. In fact, however, FRPCJUA had not issued a policy; Rodriguez was without homeowner’s insurance.9

21. A year later, when the time came to renew the non- existent homeowner’s policy, Mitchell’s office delivered an insurance binder to UAMC showing that for the period from

    May 29, 1999 to May 29, 2000, the Florida Windstorm Underwriting Association (“FWUA”) would carry Rodriguez’s windstorm insurance and that United Property and Casualty Company (“UPC”) would cover the other hazards. According to the binder, the premium

    for the windstorm coverage was $446 and for the other hazards,

    
    

    $585. On May 26, 1999, UAMC sent Mitchell’s agency two checks—— one for each premium——totaling $1,031.

22. Thereafter, UAMC increased Rodriguez’s monthly mortgage payment to account for this steep increase in the cost of insurance. Rodriguez complained, both to UAMC and to Mitchell’s office, but to no avail.

23. Meanwhile, unbeknownst to either Rodriguez or UAMC, Rodriguez’s property was still not insured. The binder notwithstanding, neither UPC nor FWUA had actually issued a policy.10

24. Months later, in October 1999, Mitchell’s office submitted an application to Fortune Insurance Company (“Fortune”) on Rodriguez’s behalf for dwelling fire insurance. In a letter to Rodriguez dated December 29, 1999, Fortune rejected the application, explaining that it had ceased writing new business in Dade County prior to the application date.

25. At some point, too, Mitchell’s office applied to FWUA for windstorm insurance on Rodriguez’s property and tendered

    $416 in payment of the premium. Evidently there was some problem with this application, however, for FWUA returned the entire $416 payment, sending Mitchell’s agency a check in that amount dated December 20, 1999. Mitchell’s office then resubmitted Rodriguez’s application, together with $416, and

    this time FWUA accepted the risk, issuing a declarations page on March 1, 2000, that evidenced windstorm coverage on Rodriguez’s home from January 12, 2000 to January 12, 2001. At the same time, FWUA sent Mitchell’s agency a check for $122 because FWUA had been overpaid: the actual premium for the windstorm policy was only $294.

26. When UAMC received FWUA’s declarations page in March 2000 showing that Rodriguez’s windstorm coverage had commenced on January 12, 2000, the lender became concerned, knowing that Mitchell’s office had been sent a check for $466 ten months earlier to pay for an FWUA policy that was supposed to have taken effect on May 29, 1999. UAMC immediately demanded that Mitchell provide verifiable evidence of continuous coverage on the Rodriguez property, from the date the loan closed in June 1998 to the present.

27. Mitchell could not comply. Instead, he refunded the money that UAMC had paid his agency for Rodriguez’s insurance. To that end, Mitchell sent UAMC checks dated March 2, 2000, and March 15, 2000, in the amounts of $416 and $1,069, respectively, which equaled the total amount ($1,485) that UAMC had tendered to his agency.11 On March 16, 2000, Mitchell delivered yet another check, in the amount of $122, to UAMC. Thus, UAMC received from Mitchell $122 in excess of the amounts it had paid his agency for insurance——and Mitchell wound up paying, out of

    his own pocket, for Rodriguez’s windstorm policy for the one- year period beginning on January 12, 2000.

28. Whether the product of incompetence, negligence, or intentional wrongdoing, serious acts of misconduct were carried out in Mitchell’s name and under Mitchell’s license. It is appalling that from May 28, 1998 until January 12, 2000, Rodriguez had no windstorm insurance and, until at least March 2000 (and probably later——the evidence is unclear) no insurance for other hazards either, despite having paid for such coverage and having been assured that it was in place.

29. At hearing, Mitchell did not deny that problems had occurred in connection with Rodriguez’s insurance matters, and he accepted responsibility for them as the licensed agent in charge of his office. But, by way of exculpation, Mitchell blamed a former employee for having mishandled Rodriguez’s business, and he disclaimed personal knowledge of, or involvement in, the transgressions associated therewith. The evidence does not dispute or negate this hypothesis.

30. Indeed, no persuasive direct evidence clearly shows that Mitchell himself specifically intended to violate any particular statutory or rule provision in connection with the Rodriguez account. Likewise, there is no persuasive direct evidence that Mitchell personally intended to defraud Rodriguez (or UAMC), or that he personally, willfully misappropriated

    funds belonging to another. In short, the evidence adduced at trial does not convince the undersigned that Mitchell personally committed, caused, condoned, or knew about the misconduct.

31. Whether Mitchell should have known of these misdeeds is a closer question. Making the issue difficult is that the Department presented no evidence of (or argument concerning) the minimum standards of conduct that insurance agents must meet in the exercise of due care. Thus, there is no direct proof that Mitchell negligently supervised his employees, which breach of duty would make him personally culpable for their wrongdoing.

32. Lacking direct evidence, the undersigned has carefully considered whether to infer, based on the nature of the violations or other circumstantial evidence in the record, that Mitchell should have known of the misconduct that occurred in his office. Such an inference would not be outlandish. After all, documents issued in Mitchell’s name falsely assured Rodriguez and UAMC that coverage was in place when in fact it was not. And, profiting from such misrepresentations, Mitchell’s office accepted payments from UAMC (made on Rodriguez’s behalf) for insurance that did not exist. One wonders: Wouldn’t Mitchell have discovered these problems if he had reasonably supervised his employees and made a reasonable review of the files?

33. Before answering “yes,” consider that the Department made no attempt——and hence failed——to prove that the apparent misconduct of Mitchell’s employees was so flagrant, persistent, or practiced that a prudent person could not possibly have missed it. Similarly, there is no evidence concerning the volume of Mitchell’s insurance business, and thus the record does not permit a reliable conclusion to be drawn as to whether these were relatively isolated, easily overlooked lapses——or glaring problems that could not reasonably have been missed.12 Nor did the Department present persuasive evidence that Mitchell completely failed to supervise his employees.13

34. Absent such evidence, it is debatable whether an inference of constructive knowledge is legally permissible here. Even if an inference leading to the ultimate factual determination that Mitchell fostered, condoned, or negligently overlooked the misconduct of his employees were permissible, however, such an inference would be a relatively weak one. Ultimately, therefore, while it is tempting, given the gravity of the misconduct, simply to pronounce that Mitchell should have known of the problems that plagued Rodriguez, such a finding would rest too much on the undersigned’s personal opinion and not enough on either persuasive direct or compelling circumstantial evidence of negligent supervision.

35. At bottom, the evidence does not clearly convince the undersigned that Mitchell should have known of the deceptive practices that occurred in his office in connection with the Rodriguez account. Mitchell, therefore, is not guilty of the charges brought in Counts II and III of the Administrative Complaint.14

36. As for the charge brought in Count IV, wherein the Department accused Mitchell of having submitted an application to Fortune after he had been informed by the insurer that risks in Dade County would no longer be accepted, the only proof of this alleged fact is a letter from Fortune to Rodriguez dated December 29, 1999, which is plainly hearsay and as such cannot be relied upon by the trier. Even if credited, this document would not constitute clear and convincing proof of the charge. Thus, Count IV fails for want of adequate evidence.

    Kidd (Count V)

    
    

37. Jean Kidd (“Kidd”) was a client of Mitchell’s whose homeowner’s insurance had been placed with American Colonial Insurance Company (“American Colonial”) through Mitchell’s agency. Kidd’s initial policy covered the period from November 7, 1998 to November 7, 1999.

38. Before Kidd’s policy was due to expire, American Colonial’s managing general agent, which is identified in the record only as “MHD,” sent a renewal offer to Kidd and to

    Mitchell. The renewal offer comprised two pages, but only the first page is in evidence. The second page——which, according to page 1, contained “important Coverage and Premium Information”—— is not in the record. Apparently, the insured’s acceptance of the renewal offer was to be manifested by paying the premium.

39. For reasons that the evidence does not explain, Kidd failed to respond to the renewal offer, and her policy with American Colonial lapsed on November 7, 1999, for nonpayment. The evidence does not establish whether Mitchell knew that Kidd’s policy had lapsed. It is not clear, either, whether Mitchell should have known about Kidd’s failure to pay, because while her policy was in force, Kidd had been making payments to a premium finance company, not to Mitchell.15

40. Some time later——the evidence is unclear——Kidd contacted Mitchell to inquire about renewing or reinstating her policy. Mitchell informed Kidd that she needed to make a “down payment” of $282 to reinstate the policy, and on April 20, 2000, Mitchell personally collected Kidd’s check, payable to Mitchell’s insurance agency, in that amount.

41. The evidence is in conflict as to Mitchell’s handling of this money. Mitchell testified that on April 21, 2000, he mailed $282 to American Colonial’s managing general agent on Kidd’s behalf, and there is a document in evidence corroborating this fact. The Department did not directly dispute or negate

    Mitchell’s testimony. On the other hand, it is clear that American Colonial did not receive these funds, which arguably casts some doubt on Mitchell’s account.

42. Providing a plausible resolution of the conflict is that around this time, American Colonial was in the process of transferring its business from MHD to a new managing general agent, MacNeill Group. Although there is no direct evidence, the inference that MHD lost, misplaced, or mishandled Mitchell’s

    $282 check in the shuffle of the transition is sufficiently reasonable that the undersigned is unable to find, without hesitancy, that Mitchell willfully misappropriated Kidd’s money, as the Department has charged.

43. It is not clear what, if anything, Mitchell did to follow up on the down payment and follow through with the reinstatement of Kidd’s policy. Since American Colonial did not issue a policy in or around April 2000, a reasonable observer might surmise that Mitchell dropped the ball. The obstacle to making a finding to that effect, however, is the complete absence of evidence in the record establishing the applicable minimum standards of conduct against which Mitchell’s performance can be judged. While the undersigned holds the personal view that a reasonably diligent insurance agent should at least keep track of the progress of his client’s insurance application and promptly inform his client of the insurer’s

    acceptance or rejection of the risk, the undersigned does not make the rules, set the standards, or decide cases based on his personal preferences.

44. As for what happened next, the evidence is incomplete.

    
    

    In July 2000, Kidd suffered a loss from water damage caused by a leaky pipe under her kitchen sink. She contacted Mitchell’s office and, on July 24, 2000, was sent a two-page fax consisting of a cover sheet and page 1 of American Colonial’s renewal offer, which had lapsed in November 1999. According to Kidd, Mitchell’s “then secretary” sent this fax, at Kidd’s request, so that Kidd could file a claim.16 Kidd understood the renewal offer to be evidence of coverage.

45. The Department contends that Mitchell fraudulently and dishonestly passed off American Colonial’s renewal offer as proof of insurance. Nothing in the July 24, 2000, fax, however, characterizes the renewal offer as such. More important, the evidence demonstrates that Sharon Montgomery——not Mitchell——sent the fax, and there is no persuasive direct or compelling circumstantial evidence that Mitchell knew or should have known that these pages were transmitted, much less the reason for the communication. In sum, the undersigned is not convinced that Mitchell personally misrepresented to Kidd the existence of an insurance policy; that he condoned such deception; or that he negligently permitted this to occur.

46. In October 2000, Kidd’s roof was damaged in a storm, and she contacted Mitchell about making a claim. Mitchell was personally involved in this claim, although it is not clear that he or his agency submitted paperwork to American Colonial or otherwise put the carrier on notice. Rather, it appears that Mitchell advised Kidd to make a claim with the Federal Emergency Management Agency, and he may have assisted her in doing so.

47. Dissatisfied with the service that Mitchell’s agency was providing, Kidd eventually filed her claims directly with American Colonial in late October or November 2000. Upon investigation, the carrier determined that Kidd’s original policy had lapsed in November 1999 for nonpayment of premium. However, in late December 2000, American Colonial decided to honor Kidd’s claims anyway, issuing her a policy effective retroactively, as of April 20, 2000 (the date she had tendered

    $282 to Mitchell for a down payment), on the condition that she promptly pay a balance of $1,418 in premium.

48. By letter dated December 20, 2000, American Colonial rescinded Mitchell’s authority to act on its behalf and demanded that he pay $282 towards the premium for Kidd’s policy. On December 22, 2000, Mitchell sent American Colonial a check for that amount.

49. Although the evidence is spotty, it is clear that as of October 2000, when he became personally involved in handling

    a claim for Kidd, Mitchell should have known that Kidd was without coverage, and he probably should have taken affirmative steps immediately to correct the problem. The Department, however, did not charge Mitchell with misconduct relating to his apparent failure to do something to protect Kidd at this late date, focusing instead on alleged violations (misappropriation of funds, misrepresentation of coverage) that were not clearly and convincingly proved. Moreover, the Department did not offer any evidence as to the minimum standards of conduct in these circumstances. Thus, while the undersigned believes that Mitchell should have done something, he can only speculate as to what Mitchell should have done.

50. Similarly, Mitchell’s handling of Kidd’s second claim (for roof damage) seems to have been woefully inadequate, but, again, Mitchell was not charged with any violations relating to claims administration per se, and in any event there is no evidence concerning the applicable standards of conduct in this regard.

51. Consequently, the undersigned is compelled to make the ultimate factual determination that the Department has failed to prove, clearly and convincingly, the truth of the charges brought against Mitchell in connection with Kidd.17

    CONCLUSIONS OF LAW

    
    

52. The Division of Administrative Hearings has personal and subject matter jurisdiction in this proceeding pursuant to Sections 120.569 and 120.57(1), Florida Statutes.

53. Section 626.611, Florida Statutes, under which Mitchell has been charged, sets forth the acts for which punishment, including the suspension or revocation of an agent's license, is mandatory upon proof of guilt. This statute 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, or managing general agent, 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:

    
    

    * * *

    
    

    1. Demonstrated lack of fitness or trustworthiness to engage in the business of insurance.

       
       

    2. Demonstrated lack of reasonably adequate knowledge and technical competence to engage in the transactions authorized by the license or appointment.

       
       

    3. Fraudulent or dishonest practices in the conduct of business under the license or appointment.

       
       

       * * *

       
       

       (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.

       
       

54. Section 626.621, Florida Statutes, under which Mitchell also has been charged, sets forth the acts for which the Department upon sufficient proof may, in its discretion, discipline a violator, the available sanctions again including suspension or revocation of a license. This statute 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, or managing general agent, 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.

    
    

    * * *

    
    

    (6) In the conduct of business under the license or appointment, engaging in unfair methods of competition or in unfair or deceptive acts or practices, as prohibited

    under part IX of this chapter, or having otherwise shown himself or herself to be a source of injury or loss to the public or detrimental to the public interest.

    
    

55. Finally, the Department has alleged that Mitchell violated Section 626.561, Florida Statutes, which prescribes criminal penalties for the willful conversion of funds belonging to insurers or others that a licensee receives in a fiduciary capacity. It provides as follows:

    1. All premiums, return premiums, or other funds belonging to insurers or others received by an agent, customer representative, solicitor, or adjuster in transactions under his or her license are trust funds received by the licensee in a fiduciary capacity. An agent shall keep the funds belonging to each insurer for which he or she is not appointed, other than a surplus lines insurer, in a separate account so as to allow the department to properly audit such funds. The licensee in the applicable regular course of business shall account for and pay the same to the insurer, insured, or other person entitled thereto.

    2. The licensee shall keep and make available to the department books, accounts, and records as will enable the department to determine whether such licensee is complying with the provisions of this code. Every licensee shall preserve books, accounts, and records pertaining to a premium payment for at least 3 years after payment; provided, however, the preservation of records by computer or photographic reproductions or records in photographic form shall constitute compliance with this requirement. All other records shall be maintained in accordance with s. 626.748. The 3-year requirement shall not apply to insurance binders when no policy is ultimately issued and no premium is collected.

    3. Any agent, customer representative, solicitor, or adjuster who, not being lawfully entitled thereto, either temporarily or permanently diverts or misappropriates such funds or any portion thereof or deprives the other person of a benefit therefrom commits the offense specified below:

       1. If the funds diverted or misappropriated are $300 or less, a misdemeanor of the first degree, punishable as provided in s. 775.082 or s. 775.083.

       2. If the funds diverted or misappropriated are more than $300, but less than $20,000, a felony of the third degree, punishable as provided in s. 775.082, s. 775.083, or s. 775.084.

       3. If the funds diverted or misappropriated are $20,000 or more, but less than $100,000, a felony of the second degree, punishable as provided in s. 775.082, s. 775.083, or s. 775.084.

       4. If the funds diverted or misappropriated are $100,000 or more, a felony of the first degree, punishable as provided in s. 775.082, s. 775.083, or s. 775.084.

    
    

56. In particular, in its Proposed Recommended Order, the Department urges that Mitchell be found guilty of violating subsections (7), (8), (9), and (13) of Section 626.611, Florida Statutes, and subsections (2) and (6) of Section 626.621, Florida Statutes, in connection with Chiverton. Regarding Rodriquez, the Department argues, in its Proposed Recommended Order, that Mitchell violated subsections (7), (9), and (13) of Section 621.611 and subsections (2) and (6) of Section 626.621, together with Section 626.561(1), Florida Statutes. Lastly, the Department contends, in its Proposed Recommended Order, that

    Mitchell violated subsections (7) and (9) of Section 626.611, Florida Statutes, as well as Section 626.561(2), in connection with Kidd.18

57. A proceeding, such as this one, to suspend, revoke, or impose other discipline upon a professional license is penal in nature. State ex rel. Vining v. Florida Real Estate Commission,

    281 So. 2d 487, 491 (Fla. 1973). Accordingly, to impose discipline, the Department must prove the charges against Mitchell by clear and convincing evidence. Department of Banking and Finance, Div. of Securities and Investor Protection

    v. Osborne Stern & Co., 670 So. 2d 932, 935-36 (Fla. 1996)(citing Ferris v. Turlington, 510 So. 2d 292, 294-95 (Fla. 1987)); Nair v. Department of Business & Professional Regulation, 654 So. 2d 205, 207 (Fla. 1st DCA 1995).

58. Regarding the standard of proof, in Slomowitz v.

    
    

    Walker, 429 So. 2d 797, 800 (Fla. 4th DCA 1983), the Court of Appeal, Fourth District, canvassed the cases to develop a “workable definition of clear and convincing evidence” and found that of necessity such a definition would need to contain “both qualitative and quantitative standards.” The court held that

    clear 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 testimony must be precise and explicit and the witnesses must be lacking 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 a firm belief or conviction, without hesitancy, as to the truth of the allegations sought to be established.

    
    

    Id. The Florida Supreme Court later adopted the fourth district’s description of the clear and convincing evidence standard of proof. Inquiry Concerning a Judge No. 93-62, 645 So. 2d 398, 404 (Fla. 1994). The First District Court of Appeal also has followed the Slomowitz test, adding the interpretive comment that “[a]lthough this standard of proof may be met where the evidence is in conflict, . . . it seems to preclude evidence that is ambiguous.” Westinghouse Elec. Corp., Inc. v. Shuler Bros., Inc., 590 So. 2d 986, 988 (Fla. 1st DCA 1991), rev.

    denied, 599 So. 2d 1279 (1992)(citation omitted).

    
    

59. As set forth in the Findings of Fact, the trier has determined as matter of ultimate fact that the Department failed to establish, by the requisite level of proof, that Mitchell committed the offenses of which he stands accused. These factual findings, however, were necessarily informed by the administrative law judge's application of the law. A brief discussion of the pertinent legal principles, therefore, will illuminate the dispositive findings of ultimate fact.

    Vicarious Liability

    
    

60. In its Administrative Complaint, the Department alleged that Mitchell personally committed the charged offenses.

    The Department has stuck with this theory throughout this proceeding. In fact, the Department has never asserted that Mitchell should be punished for the misconduct of his employees.

61. As explained in the Findings of Fact, however, the evidence leaves room for the reasonable possibility that the problems which gave rise to the complaints that led, in turn, to this prosecution were the handiwork of Mitchell’s employees rather than Mitchell himself, and that Mitchell was unaware of the misconduct. That was Mitchell’s main defense at hearing, and the Department did not convincingly refute his testimony on this point.

62. Of course, if this were a civil action, Mitchell would be liable for the negligence of his employees under the respondeat superior doctrine. But this is not a civil action, and vicarious liability principles are inapplicable in this context. To suspend or revoke an insurance agent’s license in a proceeding which is penal in nature, the Department must clearly and convincingly prove misconduct personal to the licensee. Ganter v. Department of Insurance, 620 So. 2d 202, 205 (Fla. 1st 1993); see also Pic N’ Save Central Florida, Inc. v. Department of Business Regulation, Div. of Alcoholic Beverages and Tobacco, 601 So. 2d 245, 249-56 (Fla. 1st DCA 1992). This means that a licensee cannot be punished unless it is shown that he personally committed, or is personally culpable for, a

    disciplinable offense. Personal culpability attaches when a licensee knows, or should know, about the misconduct of his employees. Pic N’ Save, 601 So. 2d at 250.

63. These principles are codified in the Insurance Code, at Section 626.734, Florida Statutes, which provides:

    Any general lines insurance agent who is an officer, director, or stockholder of an incorporated general lines insurance agency shall remain personally and fully liable and accountable for any wrongful acts, misconduct, or violations of any provisions of this code committed by such licensee or by any person under his or her direct supervision and control while acting on behalf of the corporation. Nothing in this section shall be construed to render any person criminally liable or subject to any disciplinary proceedings for any act unless such person personally committed or knew or should have known of such act and of the facts constituting a violation of this chapter.

    
    

    (Emphasis added).

    
    

64. To establish that a licensee should have known of a violation for which discipline could be imposed, the prosecuting agency must present evidence of the minimum standards of conduct against which the licensee’s performance can be judged. Ganter, 620 So. 2d at 205; Pic N’ Save, 601 So. 2d at 256. In other words, the agency must show that: (i) reasonable licensees are expected to take certain action, at a minimum, under the circumstances at issue; (ii) the respondent licensee failed to take such action; and (iii) if the respondent licensee had taken

    the objectively reasonable action, he would have discovered the underlying misconduct. Without such proof, whether it be lay or expert testimony, the trier is bereft of an acceptable measure by which to judge the accused licensee’s performance.

65. In certain cases, the agency’s proof might be assisted by the application of a permissible inference. For example, the fact-finder is entitled——but of course is not required, for inferences are always permissive——to infer that the licensee failed to satisfy the minimum standards of conduct if his employees’ wrongful actions were persistent, flagrant, or carried out in a “practiced manner.” Pic N’ Save, 601 So. 2d at 252-54. Depending on the nature of the violations, the fact- finder might also be allowed to infer even the minimum standards of conduct, as was done at the trial level——and approved on appeal——in Ganter. See Ganter, 620 So. 2d at 205-06.

66. In this case, the undersigned determined, as a matter of fact, that the evidence presented failed to prove, clearly and convincingly, that Mitchell personally committed, knew of, or should have discovered, the violations alleged. In reaching these ultimate factual determinations, the undersigned, as the trier of fact, considered whether the inferences just discussed would help the Department meet its stringent burden of proof, and he decided, as a matter of fact, that they would not. For the reasons set forth in the Findings of Fact, the trier

    exercised his exclusive prerogative to reject the factual inferences that the law might permit (but does not require) him

    to draw.

    
    

    Standards of Conduct

    
    

67. It is the Department’s burden, in a disciplinary proceeding, to prove the applicable standard of conduct where such is not explicitly fixed by statute or rule but, rather, as here, depends on broad expressions such as “lack of fitness or trustworthiness” or “lack of reasonably adequate technical competence.” See Purvis v. Department of Professional

    Regulation, Board of Veterinary Medicine, 461 So. 2d 134, 137 (Fla. 1st DCA 1984).

68. As mentioned in the Findings of Fact, the Department did not introduce any evidence regarding the standards of conduct that it contends Mitchell failed to meet. This lack of proof compelled ultimate findings of “not guilty” in several instances where Mitchell’s conduct was probably inadequate. The undersigned, however, cannot hold a licensee accountable under the “sounds bad to me” standard, and neither can the Department.

    Willfulness

    
    

69. In regard to Mitchell’s alleged violations of Section 626.561, Florida Statutes, it is worth emphasizing that willfulness is a necessary element of the offense——that is, the Department must prove that the agent intended to misappropriate

    (i.e. steal) funds belonging to another. See Russell v. Department of Insurance, 668 So. 2d 276, 278 (Fla. 2d DCA 1996); Bowling v. Department of Insurance, 394 So. 2d 165, 170-71 (Fla. 1st DCA 1981).19

70. Although the evidence raises questions about how some payments were handled in Mitchell’s office, the Department did not clearly prove that Mitchell, or anyone else, willfully misappropriated funds. Based on the limited evidence presented, it seems as likely as not that the problems identified here were the result of negligence or incompetence rather than thievery. This is not the stuff of a Section 626.561 violation.

71. Similarly, by its plain terms, Section 626.611(13), Florida Statutes, establishes a “specific intent” violation, because the misconduct prohibited is an act (that which is proscribed by the underlying order, rule, or statute) accompanied by an intent (to disobey the underlying order, rule, or statute) other than to do the act itself. Cf. Linehan v. State, 442 So. 2d 244, 247 (Fla. 2d DCA 1983), result approved,

476 So. 2d 1262 (1985). As noted in the Findings of Fact, the evidence is not sufficient to establish that Mitchell, or anyone else, specifically intended to disobey an administrative order, rule, or statutory provision; thus, the alleged violations of Section 626.611(13), Florida Statutes, were not proved.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department enter a final order finding Mitchell not guilty of the charges brought against him in the Amended Complaint.

DONE AND ENTERED this 18th day of November, 2002, in Tallahassee, Leon County, Florida.

JOHN G. VAN LANINGHAM

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 18th day of November, 2002.

ENDNOTES

1/ At the time of the hearing, Mitchell had closed his agency’s doors and was no longer actively involved in the insurance business.

2/ It is difficult to reconstruct the details concerning Chiverton’s course of dealing with Mitchell because of deficiencies in the evidence. The documents in evidence are of some assistance in closing gaps and explaining otherwise confusing or disjointed testimony, but, taken as a whole, the proof fails to establish a seamless narrative. The findings herein convey as much of the relevant story as can reasonably be gleaned from this record.

3/ Chiverton’s previous residence had been insured through the Florida Residential Property and Casualty Joint Underwriting

Association (“FRPCJUA”), but that coverage had been cancelled due to adverse claims experience.

4/ According to Chiverton, the damage was discovered in June 1996, which means that the leak must have occurred on the 29th or 30th of that month.

5/ It appears that the $500 deductible in Policy #2 applied collectively to all of the coverages, whereas in Policy #1 a separate $500 deductible applied to the coverages for the dwelling, other structures, and personal property, respectively. Thus, Policy #2 was more favorable than Policy #1 in this regard.

6/ Here it should be noted that, not having the policy provisions or endorsements in hand, the trier cannot rule out the possibility that Policy #1 excluded windstorm coverage. If this were the case, then Policy #1 would have been vastly inferior to Policy #2——and none of the claims currently under discussion would have been covered.

7/ While there is no particular reason to disbelieve Chiverton about this, it should be noted that no handwriting expert testified on the topic, and to the untrained eye the signature on the application does not look dramatically different from the authenticated signatures of Chiverton in the record.

8/ To the contrary, Chiverton’s real displeasure with Mitchell seems to have been triggered by the carrier’s decision not to renew Policy #3 and Mitchell’s subsequent inability to place the risk elsewhere.

9/ The evidence fails to establish why Mitchell’s office did not procure a homeowner’s policy for Rodriguez. Also unknowable, based on the instant record, is what, exactly, Mitchell’s office did with the $454 that UAMC had paid for the policy that was not obtained.

10/ It cannot be determined from the evidence whether Mitchell’s office ever submitted an application for insurance to UPC.

11/ UAMC had paid Mitchell’s agency $454 for the first year’s coverage, $585 for the second year’s hazard insurance, and $446 for the second year’s windstorm policy.

12/ Other factors being equal, detectability should be inversely related to volume: the higher the latter, the lower the former, and vice versa.

13/ Of course, Mitchell did not have the burden to show that he properly supervised his employees; rather, to discipline Mitchell for the acts of others, the Department needed to adduce clear and convincing evidence of Mitchell’s personal culpability, e.g. by proving negligent supervision on his part.

14/ This is, deliberately, not a finding that Mitchell was unaware of the problems or had no reasons to know about them, and it should not be construed as such. Indeed, the undersigned is inclined to believe, based on the evidence, that Mitchell possibly knew——and, as likely as not, should have known——what was going on with regard to Rodriguez. The Department’s burden in this case, however, was to produce clear and convincing evidence; thus, competent, credible proof of what might have or likely happened is simply insufficient, even where the agency has established that the licensee likely committed a serious wrong. Further, when it is determined as a matter of ultimate fact that the evidence fails clearly and convincingly to prove an allegation essential to the agency’s case, as here, the undersigned is not required to make an affirmative finding as to an exculpatory alternative——a finding of innocence, in other words——to conclude that the licensee is not guilty.

15/ At hearing, the Department’s counsel suggested that an agent has a duty to contact his client (the insured) about an insurer’s renewal offer. While this may be correct, no evidence was presented as to the minimum standards of conduct applicable under such circumstances. Therefore, Mitchell cannot be found at fault in a disciplinary proceeding for failing to prompt Kidd to make a timely response to American Colonial’s offer.

16/ The fax cover page identifies the sender as Sharon Montgomery.

17/ This is not to say that Mitchell handled Kidd’s insurance affairs properly, for while the evidence is not clear and convincing, it certainly paints an unflattering (if impressionistic) picture of Mitchell. Indeed, the undersigned suspects that more than a few of the allegations could have been proved if the Department had put on a better case. If the clear and convincing standard of proof means anything, however, it means that a licensee cannot be disciplined on the “where

there’s smoke there’s fire” theory; even establishing that the licensee likely committed some bad acts is not enough to justify the imposition of sanctions against him. Here, the case simply was not made.

18/ In its Administrative Complaint, the Department alleged that Mitchell had violated additional subsections of Section 621.611, Florida Statutes, but these allegations were not pursued.

19/ On this point, Bowling remains good law; the court’s explication of the standard of proof does not.

COPIES FURNISHED:

R. Terry Butler, Esquire Department of Insurance

412 Larson Building Tallahassee, Florida 32399

Mark Sebastian Mitchell 4510 Northwest 175th Street Miami, Florida 33055

Honorable Tom Gallagher

State Treasurer and Insurance Commissioner Department of Insurance

The Capitol, Plaza Level 02 Tallahassee, Florida 32399-0300

Mark Casteel, 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: 02-002442PL

Orders for Case No: 02-002442PL