STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL ) SERVICES, DIVISION OF INSURANCE ) AGENTS AND AGENCY SERVICES, )

)

Petitioner, )

)

vs. ) Case No. 11-2742PL

)

FREDERIC BLAINE ARMOLD, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a hearing was conducted in this case pursuant to sections 120.569 and 120.57(1), Florida Statutes (2011), before Cathy M. Sellers, an Administrative Law Judge of the Division of Administrative Hearings ("DOAH"), on October 25 and 26, 2011, by video teleconference at sites in Lauderdale Lakes and Tallahassee, Florida.

APPEARANCES

For Petitioner: David J. Busch, Esquire

Department of Financial Services Division of Legal Services

612 Larson Building

200 East Gaines Street Tallahassee, Florida 32399

For Respondent: Richard A. Schwartz, Esquire

Richard A. Schwartz, P.A. 8913 Belle Aire Court

Boca Raton, Florida 33351

STATEMENT OF THE ISSUE

Whether Respondent, an insurance agent licensed in Florida, violated specified Florida Statutes and agency rules in the sale of an annuity to two senior citizens, as charged in the Administrative Complaint, and, if so, the penalty that should be imposed against Respondent's license.

PRELIMINARY STATEMENT

On April 19, 2011, Petitioner filed an Administrative Complaint against Respondent, a licensed variable annuity, life insurance, and health insurance agent in Florida, charging him with violating sections 626.611(5), (7), (9), and (13); 626.9541(1)(a)1., (1)(e)1., and (1)(l); 626.621(6); and

627.95541/ of the 2004 Florida Insurance Code;2/ and Florida Administrative Code Rules 69B-215.210 and 69B-215.230; and seeking the imposition of fines pursuant to section 626.9521(2).

On May 9, 2011, Respondent requested a hearing pursuant to sections 120.569 and 120.57(1) to dispute the allegations in the Administrative Complaint. The final hearing initially was set for July 11 and 12, 2011, but pursuant to joint motion of the parties, the hearing was continued to October 25 through 27, 2011. Pursuant to Petitioner's motion requesting consolidation, this proceeding was consolidated with Case No. 11-2744, but subsequently was severed from that proceeding pursuant to motion filed by Respondent.

The hearing was held on October 25 and 26, 2011. The Department presented the testimony of Robert Wexler, Frances Wexler, and Alina Gromnicki, and offered Department's Exhibits 1 through 25, which were admitted into evidence without objection. Respondent testified on his own behalf and offered Exhibits A through H, which were admitted into evidence without objection.

On November 2, 2011, Petitioner filed an unopposed Motion for Extension of Time to File Proposed Recommended Order, requesting that the time for filing proposed recommended orders be extended to 30 days after filing of the transcript; the motion was granted. On April 9, 2012, Petitioner filed Department's Second Motion for Extension of Time to File Proposed Recommended Order, requesting an additional ten-day extension for the parties to file their proposed recommended orders; the motion was unopposed and was granted. Petitioner's Proposed Recommended Order was timely filed on April 23, 2012. On April 25, 2012, Respondent filed a Motion to Extend Time for Respondents [sic] Proposed Recommended Order, on the basis that Respondent's counsel had been injured and thus was unable to file Respondent's Proposed Recommended Order by the April 23, 2012 due date. On April 26, 2012, Petitioner filed Department's Response to Armold's Motion for Extension of Time to File Proposed Recommended Order, opposing the requested extension. The undersigned granted the requested extension on April 26, 2012, and authorized Petitioner to file a reply to Respondent's Proposed

Recommended Order on or before May 8, 2012. Petitioner filed its Reply to Respondent's Proposed Recommended Order on May 8, 2012. The undersigned duly considered the parties' Proposed Recommended Orders and Petitioner's Reply in preparing this Recommended Order.

FINDINGS OF FACT

1. The Parties

   
   

   1. At all times relevant, Respondent was licensed by Petitioner as an annuity, health, and life insurance agent in Florida.

   2. Petitioner is the state agency charged with licensing and regulating insurance agents and taking disciplinary action for violations of the laws and rules it administers.

2. Background

   
   

   1. Annuities

      
      

      1. This case arises from Respondent's sale of an Allianz Life Insurance of North America equity indexed annuity ("Allianz annuity") to Robert and Frances Wexler in June 2004.

      2. An annuity is a contractual arrangement under which an insurance company, in exchange for a premium, agrees to pay the owner a specified income for a period of time. Annuities generally are classified as "fixed" or "variable." Under a fixed annuity, the benefit is paid according to a predetermined interest rate. Under a variable annuity, the premium is

         
         

         invested on the owner's behalf, and the amount of the benefit, when paid, reflects the performance of that investment.

      3. Fixed annuities can be either "immediate" or "deferred." Under an immediate fixed annuity, the insurer begins paying the benefit upon purchase of the annuity. Under a deferred annuity, the premium is allowed to grow over time until the contract "matures" or is "annuitized" and the insurer begins paying the benefit. The Allianz annuity that Respondent sold to the Wexlers is a fixed deferred annuity.

      4. The Allianz annuity at issue also is an equity index annuity. This means that the insurer pays a benefit to the insured based on a premium that earns interest at a rate determined by the performance of a designated market index. The premium is not invested in the market for the owner's account; rather, the interest rate rises or falls in relation to the index's performance, within predetermined limits.

      5. Equity index annuities typically are long-term investments. Owners of equity index annuities have limited access to the funds invested and accumulating in their accounts, although some equity index annuities, such as the Allianz annuity at issue in this case, permit yearly penalty-free withdrawals at set percentages. The accrued interest generally is not taxed until the funds are withdrawn or the benefit is paid under annuity. The purchaser may incur substantial

         
         

         surrender charges for canceling the contract and withdrawing his or her funds before a specified date.

      6. Some equity index annuities identify a date——often many years in the future——on which the insurer will "annuitize" the contract if the purchaser has not already opted to do so. This date is sometimes called the "maturity date." The benefit payable under the annuity is determined based on the account's value as of the maturity date, and the payments to the owner of the annuity begin at that time.

   2. The Wexlers

      
      

      1. Robert Wexler was born in 1930. He was 73 years old in 2004, when Respondent sold him the Allianz annuity at issue in this case. His wife, Frances Wexler, was born in 1932, and she was 71 years old at the time.

      2. Both Wexlers finished high school and took some college courses. They married after Mr. Wexler joined the Air Force. While in the Air Force, Mr. Wexler studied electronics, which ultimately led to his career in that field in the private sector. He worked for IBM, Univac, and General Electric before retiring in 1994. Mrs. Wexler worked for a small family-owned printing firm for over 26 years, and retired in 1997.

      3. The Wexlers raised three children, and they lived in the same home in Pennsylvania for 40 years.

         
         

      4. While living in Pennsylvania, the Wexlers saved money by using Mrs. Wexler's salary to pay their living expenses and saving most of Mr. Wexler's earnings in a retirement account. They never bought annuities, but did trade stocks, which resulted in financial loss.

      5. For many years, the Wexlers visited Florida as "snowbirds" and eventually purchased a condominium in a gated community in Deerfield Beach, Florida.

      6. In 1998, the Wexlers sold their home in Pennsylvania, liquidated the stocks they owned, and bought a larger condominium in the same gated community. They moved permanently to Florida in 1998, with approximately $500,000 in liquid assets.

   3. The 2002 Aviva Annuity

      
      

      1. Respondent met the Wexlers in 2002, when he worked for the Cornerstone Financial Group ("Cornerstone"). Cornerstone had mailed out cards to persons 65 years old and older and the Wexlers sent in a reply card with boxes checked indicating interest in learning about Cornerstone's products. Based on that contact, Respondent arranged an in-home appointment with the Wexlers.

      2. At that time, the Wexlers informed Respondent that they had three financial investment goals: safety of their invested principal; long-term growth of their investment; and at

         
         

         some point years in the future, having a fixed income stream for the rest of their lives.

      3. The Wexlers consider themselves "conservative" financial investors, and they live off of their monthly social security and retirement pension checks. Being able to take money out of an annuity to cover routine living expenses was not a high priority for the Wexlers. They were more interested in leaving their investment alone and allowing it to grow, and they communicated this information to Respondent.

      4. Based on this information, Respondent sold the Wexlers an Aviva3/ equity index annuity. The Wexlers paid a $60,000.00 premium. The annuity was issued on June 11, 2002, and had a maturity date of June 11, 2031. The policy allowed partial withdrawal beginning immediately, without charge, of up to ten percent of the value of the account on the prior certificate anniversary date. If the insured withdrew more than that amount, a withdrawal charge was assessed, with the amount4/ of the withdrawal charge decreasing over a ten-year period, so that starting in year 11, there was no withdrawal charge. Pursuant to this withdrawal charge schedule, if the Wexlers withdrew all of their money from the policy——in effect, "surrendering" the policy——before the ten-year withdrawal charge period had expired, they would be assessed charges according to the

         
         

         withdrawal charge schedule. Under such circumstances, withdrawal charges are referred to as "surrender charges."

      5. The Aviva policy allocated the premium to three investment strategies. Specifically, 50% was allocated to the Annual Equity Index Strategy ("AEIS"), which is the Standard & Poors (S&P) 500 index excluding dividend income. The AES investment strategy had a minimum guaranteed interest rate of zero percent. The remaining 50% of the premium was invested equally in the Investment Grade Bond Index Strategy (IGBIS") and the Guaranteed One-Year Strategy ("GOS"). The IGBIS strategy was tied to the Lehman Brothers Aggregate Index, and, at the time, had a minimum guaranteed interest rate of two percent per year. The GOS investment strategy had a four percent per year current interest rate and a two percent minimum guaranteed interest rate per year.

      6. No evidence was presented about how the Aviva policy would have performed to date had the Wexlers not surrendered the policy.

   4. The 2004 Allianz Annuity

   
   

   1. In June 2004, Respondent paid the Wexlers another visit. At that time, Respondent was with Global Financial Group and was marketing different products. Respondent met with the Wexlers to discuss an Allianz annuity that, in his view, had

      
      

      "better" features than the Aviva annuity he sold them two years earlier.

   2. The evidence establishes that Respondent spent at least an hour or more reviewing the Allianz annuity with the Wexlers. In Mr. Wexler's own words, Respondent spent time "explain[ing] it, patiently talking about it." Mr. Wexler nonetheless claimed5/ at hearing that Respondent did not provide a comparison of the Alliance and Aviva policies. Respondent testified that he did provide such a comparison, and the undersigned finds his testimony more persuasive.

   3. Mr. Wexler testified that Respondent told them that surrendering their Aviva annuity and moving their funds into the Allianz annuity would cause them to incur a substantial surrender charge,6/ but that they would recoup the charge through a bonus provided by the Allianz annuity. Respondent credibly testified that he told the Wexlers that the bonus would be available if they annuitized the policy.

   4. Mr. Wexler did not recall Respondent discussing the specifics of annuitizing the Allianz policy with him, and Respondent confirmed that he did not extensively discuss annuitization with the Wexlers. This was because Mr. Wexler told Respondent that they had liquid assets and were not interested in immediately generating an income stream from the

      
      

      annuity, but instead were interested in leaving their investment alone to grow over time.

   5. Using information provided by Mr. Wexler, Respondent filled out paperwork, consisting of the Application for Annuity and Authorization to Transfer Funds, required for the Wexlers to surrender their Aviva annuity and purchase the Allianz annuity. According to Mr. Wexler, Respondent selected the type of product (here, the 10% Bonus PowerDex Elite Annuity) on the Application for Annuity form, and also selected the percentage of funds to be allocated into specific investment strategies on a Supplemental Application form. Respondent testified that he always fills out the forms for his clients, and he credibly testified that he reviewed the selected strategies with the Wexlers.

   6. Mr. Wexler executed the "Agreements and Signatures" section of the Application for Annuity.7/ This section states in pertinent part:

      It is agreed that: (1) All statements and answers given above are true and complete to the best of my knowledge; . . . (5) I understand that I may return my policy within the free look period (shown of the first page of my policy) if I am dissatisfied for any reason; and (6) I believe this annuity is suitable for my financial goals.

      
      

   7. Respondent provided the Wexlers with a copy of a Statement of Understanding regarding the Allianz annuity. This

      
      

      document explained the key aspects of the annuity in substantial detail. Mr. Wexler executed the Statement of Understanding, confirming that he received a copy of that document, and that he reviewed and understood key aspects of the annuity. The document states in pertinent part:

      I received a copy of this Statement of Understanding. The agent has answered my questions. I have also reviewed the 10% Bonus PowerDex Elite Annuity consumer brochure. I understand that any values shown, other than the Guaranteed Minimum Values, are not guarantees, promises, or warranties. I understand that I may return my policy within the free look period (shown on the first page of the policy) if I am dissatisfied for any reason.

      
      

   8. The Wexlers paid a premium of $58,125.01 for the Allianz annuity, and invested an additional $8000.00, for a total investment of $66,125.01. As a result of surrendering the Aviva policy to purchase the Allianz annuity, they incurred a surrender charge of $5,726.89. The Allianz annuity, Policy

      No. 70097189, was issued on July 16, 2004.

      
      

   9. Once the Allianz annuity was issued, Respondent delivered it to the Wexlers and reviewed it with them. Respondent again informed the Wexlers of the 20-day free look period during which they could return the annuity and obtain a full refund of the premium. Mr. Wexler did not read the annuity and "stashed it away."

      
      

   10. The Allianz annuity had been approved by Petitioner for sale to investors, including senior investors, when Respondent sold the annuity to the Wexlers in 2004.

   11. Respondent credibly testified that Mr. Wexler did not tell him that he had purchased annuities from other agents, and Mr. Wexler could not clearly recall8/ whether he had provided Respondent information regarding his other annuities purchases.

   12. Respondent earned a commission of $6,281.92 on the sale of the Allianz annuity to the Wexlers.

3. Comparison of the Aviva and Allianz Annuities

   
   

   1. The parties agree that annuities are intended to be long-term investments. Beyond that, there is substantial disagreement regarding whether the Allianz annuity was, in reality, a "better" investment than the Aviva annuity for the Wexlers. Respondent maintained that the Allianz policy had several advantages over the Aviva policy. Petitioner asserts that the Allianz annuity either had some substantial disadvantages, or, at best, did not offer any significant advantages over the Aviva policy.

   2. Respondent testified that a key reason for introducing the Allianz policy to the Wexlers was that it had a higher index-tied earnings cap than the Aviva policy, so it could earn more than the Aviva policy. Petitioner asserts, and a review of the policies confirms, that the Aviva policy had a higher cap

      
      

      rate——specifically, 15% for the first year with a 10% minimum guaranteed index cap rate thereafter for the Aviva policy, as compared to 12% for the first year, with a guaranteed five percent minimum thereafter for the Allianz policy. Thus, the Aviva policy provides greater potential for index-tied earnings than the Allianz policy. The evidence shows that Respondent provided the Wexlers inaccurate information on this policy term.

   3. Respondent maintained that the Allianz annuity had a 100% participation rate, as compared to only a 60% participation rate for the Aviva policy, so that under the Allianz policy, the Wexlers would keep 100% of any gains due to increases in the S&P Index, whereas under the Aviva policy, they would keep only 60% of those gains. Petitioner disputes that the Aviva policy contained a limit on participation rate. A review of the policies shows that they both state a 100% participation rate in the selected investment indices; however, under the Aviva policy, there is a "certificate charge" that is deducted when calculating the owner's index earnings. Whether this deduction is expressed as a "lower participation rate" or considered a "fee," the fact remains that under the Aviva policy, the owner got to keep less money from his or her index investment. Accordingly, it is determined that Respondent accurately informed the Wexlers on this point.

      
      

   4. Respondent claimed, and apparently communicated to the Wexlers, that there was no risk in the Allianz investment, because gains resulting from the investment allocation indices were locked in so the Wexlers would never lose their invested principal or any gains they realized on the investment indices. Petitioner, on the other hand, asserted that the Allianz policy embodied substantial risk because negative index adjustments were deducted from the policy's current value. Although Petitioner is correct regarding the policy's current value, Respondent is correct regarding the effect of negative index performance on the annuity's high water value. The policy's annuitization value is the greater of these two values, so the high water value is likely more important for investors like the Wexlers, who wish to leave their investment alone rather than annuitize in the short term. Although the Wexlers' investment value under the Allianz annuity may have declined in years 2008 and 2009 due to poor S&P Index performance (which also would have affected the value of the Aviva policy, had the Wexlers still owned it), the annuitization value of the policy was not negatively affected by the poor performance of that index. In light of Respondent's understanding of the Wexlers' investment goals, his representations on this point were reasonable and not materially inaccurate.

      
      

   5. The Allianz policy provided a ten percent bonus for money invested for the first five years, and the bonus was accessible if either the policyholder annuitized the policy or as a death benefit to the policy's beneficiary. By contrast, the Aviva policy offered no bonuses after the first year. Petitioner characterizes the Allianz bonus as an "ephemeral" feature because of the limits on its availability. However, the credible evidence establishes that Respondent informed the Wexlers about these limitations, and that they were aware of them when they purchased the annuity.

   6. Under the Aviva policy, the Wexlers could annuitize at any time before the policy's maturity date. Under the Allianz policy they could only annuitize after five years, could not withdraw more than 5% of the account value of the annuity on an annual basis, and could not withdraw more than 25% of the account value over the life of the annuity. Notwithstanding, the credible evidence establishes that Respondent told the Wexlers about the annuitization limits of the Allianz policy, and they were aware of these limitations when they purchased the policy.

   7. Both policies imposed surrender charges for withdrawal of funds before the maturity date. Under the Aviva policy, withdrawal charges applied during the first ten years; under the Allianz policy, surrender charges could be incurred for the

      
      

      lifetime of the policy pursuant to a formula and terms established in the policy. This information is clearly stated in the policy's contract summary, and Respondent credibly testified that he fully reviewed the annuity with the Wexlers before he sold it to them, and again when he delivered it to them after issuance.

   8. Both annuities had death benefit features. The Allianz annuity provided that if the owner died, the accumulation value9/ would be paid to the beneficiary over a five-year period. The Aviva annuity provided that if the annuitant was less than 75 years old on the contract date, the death benefit would be the greater of the account value or the guaranteed account value.10/ On balance, the policies' death benefits features were similar, and there is no persuasive evidence that Respondent touted the Allianz annuity as having a superior death benefit to induce the Wexlers to purchase the annuity.

   9. The Allianz annuity featured a nursing home benefit that allowed withdrawal of the policy's full annuitization value over a five-year period if the insured was admitted to a nursing home for 30 or more days. However, the Wexlers already had insurance coverage providing assisted living benefits. Respondent acknowledged that the Allianz policy nursing home benefit was of relatively little value to the Wexlers. The

      
      

      evidence is insufficient to prove that Respondent represented this feature as a substantial advantage in inducing the Wexlers to purchase the Allianz annuity.

4. Ultimate Findings of Fact Regarding Alleged Statutory and Rule Violations

1. For the reasons explained in detail below, the undersigned determines, as a matter of ultimate fact, that Petitioner did not show, by clear and convincing evidence, that Respondent violated section 626.611(5), (7), (9), or (13); 626.9541(1)(a)1, (1)(e)1, or (1)(l); or 626.621(6); or rules 69B-215.210 or 69B-215.230.11

   1. Alleged Violations of Section 627.611

      
      

2. Section 626.611 sets forth violations for which suspension or revocation of an insurance agent's license is mandatory. Petitioner has charged Respondent with violating sections 626.611(5), (7), (9), and (13). These offenses require a finding that the licensee had intent to commit the act constituting the offense. See Beckett v. Dep't of Fin. Servs., 982 So. 2d 94, 99 (Fla. 1st DCA 2008); see also Bowling v. Dep't

   of Ins., 394 So. 2d 165 (Fla. 1st DCA 1981). Here, the evidence does not clearly and convincingly show intent on Respondent's part with respect to any of the alleged violations of section 627.611. Although Respondent provided inaccurate information to the Wexlers on a material term——the comparative index earnings

   
   

   caps, which affect how much the Wexlers could earn through the policies' investment strategies——the evidence does not establish that Respondent intentionally misinformed the Wexlers on this policy term. To that point, Respondent accurately represented all other material terms of the Allianz policy to the Wexlers.

   The undersigned finds this probative in determining that Respondent's misstatement was made unintentionally, rather than willfully or knowingly. See Munch v. Dep't of Bus. and Prof'l Reg., 592 So. 2d 1136, 1143-44 (Fla. 1st DCA 2008)(to find an offense of "misrepresentation," an intentional act must be proven).

3. Section 626.611(5) makes the willful misrepresentation of any insurance policy or annuity contract or the willful deception with regard to any such policy or contract a ground for suspending or revoking an agent's license. Petitioner did not prove that Respondent willfully misrepresented any aspect of the Allianz or Aviva policies to the Wexlers or willfully deceived them regarding the policies. Respondent credibly testified that he reviewed the key terms of the Allianz policy with the Wexlers, and there is no persuasive evidence in the record to the contrary. Although Respondent did inaccurately represent the Allianz policy as having greater index-tied earnings potential than the Aviva policy, the evidence does not clearly and convincingly establish that Respondent willfully

   
   

   misrepresented this information to the Wexlers, or willfully deceived them, to induce them to purchase the policy.

   Accordingly, Petitioner did not prove, by clear and convincing evidence, that Respondent violated section 626.611(5).

4. Section 626.611(7) makes the demonstrated lack of fitness or trustworthiness to engage in the business of insurance a ground for suspending or revoking an agent's license. Again, a finding of intent on the licensee's part is required to find a violation of this subsection. The evidence does not clearly and convincingly establish that Respondent intended to provide incorrect, misleading, deceptive, or fraudulent information to the Wexlers to induce them to purchase the Allianz policy. As such, Petitioner failed to prove, by clear and convincing evidence, a demonstrated lack of fitness or untrustworthiness on Respondent's part to engage in the business of insurance, in violation of section 626.611(7).

5. Section 626.611(9) makes fraudulent or dishonest practices in conducting business under an insurance agent license grounds for suspension or revocation of the license. As previously discussed, although Respondent provided incorrect information to the Wexlers regarding the comparative investment strategy caps for the Allianz and Aviva annuities, the evidence does not clearly and convincingly establish that Respondent intended to do so. Accordingly, Petitioner failed to prove, by

   
   

   clear and convincing evidence, that Respondent violated section 626.611(9) by engaging in fraudulent or dishonest practices in the sale of the Allianz policy to the Wexlers.

6. Section 626.611(13) provides that willful failure to comply with, or willful violation of, Petitioner's orders or rules, or any willful violation of any provision of the Florida Insurance Code constitutes a basis for suspending or revoking an insurance agent license. Again, Petitioner failed to prove, by clear and convincing evidence, that Respondent willfully violated its rules or orders, or willfully violated the Florida Insurance Code, in connection with the sale of the Allianz annuity to the Wexlers. Although Respondent did provide incorrect information on a key term——the comparative investment strategy caps, which affected the annuities' comparative earnings potential——the persuasive evidence in the record does not support a finding that Respondent willfully did so. Thus, Petitioner failed to prove, by clear and convincing evidence, that Respondent violated section 626.611(13).

   1. Alleged Violations of Section 626.9541

      
      

7. Section 626.9541 is entitled "unfair methods of competition and unfair or deceptive acts or practices defined." This statute defines the types of acts that constitute unfair methods of competition and unfair or deceptive acts or practices in the insurance industry, but it does not independently

   
   

   authorize disciplinary action. Werner v. Dep't of Ins., 689 So. 1211, 1214 (Fla. 1st DCA 1997).

8. Petitioner has charged Respondent with engaging in acts set forth in section 626.9541(1)(a)1., specifically, that he knowingly made, issued, circulated, or caused to be made, issued, or circulated, any estimate, illustration, circular, statement, sales presentation, omission, or comparison which misrepresents provides that making any estimate, statement, sales presentation, omission, or comparison which misrepresents the benefits, advantages, conditions, or terms of any insurance policy. As discussed above, the evidence does not clearly and convincingly establish that Respondent knowingly engaged in any of these acts. Thus, Petitioner did not prove, by clear and convincing evidence, that Respondent engaged in unfair methods of competition or unfair or deceptive acts as provided in section 626.9541(1)(a)1.

9. Petitioner also charged Respondent with engaging in acts defined in section 626.9541(1)(e)1. This section requires, as a predicate for the imposition of discipline, a finding that the licensee knowingly made false material statements through a variety of actions described in that provision. Again, the evidence does not establish that Respondent knowingly engaged in any of these acts. Accordingly, Petitioner did not prove, by clear and convincing evidence, that Respondent engaged in unfair

   
   

   methods of competition or unfair or deceptive acts as provided in section 626.9541(1)(e)1.

10. Petitioner has charged Respondent with "twisting," which is defined in section 626.9541(1)(l) as knowingly making any misleading representation or incomplete or fraudulent comparisons or fraudulent material omissions of or with respect to any insurance policies for the purposes of inducing, or tending to induce, any person to surrender, terminate, or convert any insurance policy or to take out a policy of insurance in another insurer. Again, there is no persuasive evidence that Respondent knowingly committed any of the acts described in this statute. Thus, Petitioner did not prove, by clear and convincing evidence, that Respondent engaged in twisting under section 626.9541(1)(1), Florida Statutes.

    1. Alleged Violation of Section 626.621

       
       

11. Section 626.621 sets forth violations for which suspension or revocation of an insurance agent's license is discretionary.12/ Petitioner has charged Respondent with violating section 626.621(6) by engaging in unfair methods of competition or in unfair or deceptive acts or practices, as prohibited by part IX 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. For the reasons previously discussed, the evidence does not clearly and convincingly

    
    

    establish that Respondent engaged in any actions that could be considered unfair methods of competition or deceptive acts or practices under chapter 626, part IX. Accordingly, Petitioner has not shown, by clear and convincing evidence, that Respondent engaged in acts under section 626.621(6) that justify the suspension or revocation of his insurance agent's license.

    1. Alleged Violations of Agency Rules

    
    

12. Petitioner charged Respondent with violating rule 69B-

    
    

    215.210. This rule provides that the business of life insurance13/ is a public trust in which all agents of all companies have an obligation to work together in serving the best interests of the insuring public, by understanding and observing the laws governing life insurance by letter and in spirit by presenting accurately and completely every fact essential to a client's decision, and by being fair in all relations with colleagues and competitors and always placing the policyholder's interests first. The rule implements section 626.797, entitled "code of ethics," which directs Petitioner to adopt a code of ethics to "govern the conduct of life agents in their relations with the public, other agents, and the insurers," and to establish standards of conduct to avoid the commission of acts that would constitute grounds for suspension or revocation under sections 626.611, 626.621, and unfair trade practices and unfair methods of competition under chapter 626,

    
    

    part IX. The rule must be interpreted and applied consistent with the law it is implementing. As previously discussed, the violations of sections 626.611, 626.621, and 626.9541 with which Respondent was charged all require that he have intent to commit the act constituting the violation. The persuasive evidence does not establish that Respondent had the requisite intent necessary to find a violation of rule 69B-215.210.14/

13. Petitioner also charged Respondent with violating rule 69B-215.230. Rule 69B-215.230(1) makes unethical the misrepresentation of the terms of any policy issued or to be issued or the benefits or advantages promised by that policy. This rule implements sections 626.797 and 626.9541(1)(a) and (b), violations of which require a showing or willful or knowing misrepresentation. Further, "misrepresentation" requires that an intentional act be proven for a violation to be found. See Walker v. Dep't. of Bus. and Prof'l Reg., 705 So. 2d 652, 654 (Fla. 5th DCA 1998). As previously discussed, the evidence does not clearly and convincingly establish that Respondent knowingly or willfully provided incorrect information or misstatements to the Wexlers regarding the Allianz policy. Accordingly, Petitioner has not shown, by clear and convincing evidence, that Respondent violated Rule 69B-230.210(1).15/

    
    

    CONCLUSIONS OF LAW

    
    

14. The Division of Administrative Hearings has jurisdiction over the parties to, and subject matter of, this proceeding pursuant to sections 120.569 and 120.57(1).

15. Petitioner has charged Respondent with violating sections 626.611(5), 626.611(7), (9), and (13); 626.9541(1)(a)1., (1)(e)1., and (1)(l); and 626.621(6); and rules 69B-215.210 and 69B-215.230.

16. Section 626.611 provides in pertinent part:

    
    

    The department shall . . . suspend, revoke, or refuse to renew or continue the license or appointment of any . . . 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:

    
    

    * * *

    
    

    (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.

    
    

    * * *

    
    

    (7) Demonstrated lack of fitness or trustworthiness to engage in the business of insurance.

    
    

    * * *

    
    

    (9) 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.

    
    

17. Section 626.9541 defines "unfair methods of competition and unfair or deceptive acts or practices" in part as follows:

    The following are defined as unfair methods of competition and unfair or deceptive acts or practices:

    
    

    1. Misrepresentations and false advertising of insurance policies.-- Knowingly making, issuing, circulating, or causing to be made, issued, or circulated, any estimate, illustration, circular, statement, sales presentation, omission, or comparison which:

       
       

       1. Misrepresents the benefits, advantages, conditions, or terms of any insurance policy.

       
       

       * * *

       
       

       (e) False statements and entries.--

       1. Knowingly:

       1. Filing with any supervisory or other public official,

       2. Making, publishing, disseminating, circulating,

       3. Delivering to any person,

       4. Placing before the public,

       5. Causing, directly or indirectly, to be made, published, disseminated, circulated, delivered to any person, or placed before the public,

       
       

       any false material statement.

       
       

       * * *

       
       

       (l) Twisting.--Knowingly making any misleading representations or incomplete or fraudulent comparisons or fraudulent material omission 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 with another insurer.

       
       

18. Section 626.621 provides in pertinent part:

    
    

    The department may, in its discretion . . . suspend, revoke, or refuse to renew or continue the license or appointment of any

    . . . 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 . . . licensee . . . 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:

    
    

    * * *

    
    

    (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.

    
    

19. Florida Administrative Code Rule 69B-215.210 provides:

    
    

    The Business of Life Insurance is hereby declared to be a public trust in which service all agents of all companies have a

    
    

    common obligation to work together in serving the best interests of the insuring public, by understanding and observing the laws governing Life Insurance in letter and in spirit by presenting accurately and completely every fact essential to a client's decision, and by being fair in all relations with colleagues and competitors always placing the policyholder's interests first.

    
    

20. Florida Administrative Code Rule 69B-215.230 provides:

    
    

    1. Misrepresentations are declared to be unethical. No person shall make, issue, circulate, or cause to be made, issued, or circulated, any estimate, circular, or statement misrepresenting the terms of any policy issued or to be issued or the benefits or advantages promised thereby or the dividends or share of the surplus to be received thereon, or make any false or misleading statement as to the dividends or share of surplus previously paid on similar policies, or make the financial condition of any insurer, or as to the legal reserve system upon which any life insurer operates, or use any name or title of any policy or class of policies misrepresenting the true nature thereof.

    2. No person shall make, publish, disseminate, circulate, or place before the public, or cause, directly or indirectly, to be made, published, disseminated, circulated, or placed before the public, in a newspaper, magazine, or other publication, or in the form of a notice, circular, pamphlet, letter or poster, or over any radio or television station, or in any other way, any advertisement, announcement or statement containing any assertion, representation or statement with respect to the business of insurance or with respect to any person in the conduct of his insurance business, which is untrue, deceptive or misleading.

    
    

21. These statutes and rules are penal and therefore must be strictly construed, with ambiguities resolved in favor of the licensee. Lester v. Dep't of Prof'l & Occ. Reg., 348 So. 2d 923, 925 (Fla. 1st DCA 1977). Further, whether Respondent committed the charged offenses is a question of ultimate fact to be decided by the trier of fact in the context of each alleged violation. McKinney v. Castor, 667 So. 2d 387, 389 (Fla. 1st DCA 1995); Langston v. Jamerson, 653 So. 2d 489, 491 (Fla. 1st DCA 1995).

22. For Petitioner to penalize Respondent's license, it must prove the charges specifically alleged in the administrative complaint by clear and convincing evidence. Ferris v. Turlington, 510 So. 2d 292, 294 (Fla. 1987); McKinney, 667 So. 2d at 388; Kinney v. Dep't of State, 501 So. 2d 129, 133 (Fla. 5th DCA 1987).

23. Florida courts have described clear and convincing evidence as follows:

    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.

    
    

    In re Davey, 645 So. 2d 398, 404 (Fla. 1994); Slomowitz v.

    
    

    Walker, 429 So. 2d 797, 800 (Fla. 4th DCA 1983). The First District Court of Appeal has further elaborated, adding that although the clear and convincing standard may be met where the evidence is in conflict, "it seems to preclude evidence that is ambiguous." Westinghouse Elec. Corp. v. Shuler Bros., Inc., 590 So. 2d 986, 988 (Fla. 1st DCA 1991), rev. denied, 599 So. 2d

    1279 (Fla. 1992).

    
    

24. As explained in the foregoing findings of fact, Petitioner failed to prove the statutory and rule violations alleged in the Administrative Complaint by clear and convincing evidence.

RECOMMENDATION

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

RECOMMENDED that the Department of Financial Services dismiss the Administrative Complaint against Respondent.

DONE AND ENTERED this 15th day of June, 2012, in Tallahassee, Leon County, Florida.

S

CATHY M. SELLERS

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675

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

Filed with the Clerk of the Division of Administrative Hearings this 15th day of June, 2012.

ENDNOTES

1/ See note 2 below. Section 627.4554, enacted to establish standards and procedures regarding annuity investments by senior consumers, became effective on July 1, 2004——after the annuity sale at issue in this proceeding occurred. Accordingly, Petitioner cannot lawfully charge Respondent with violating this statute. See Cottrill v. Dep't of Ins., 685 So. 2d 1371, 1372 (Fla. 1st DCA 1996). Petitioner acknowledges this in its Proposed Recommended Order, and this Recommended Order does not address the alleged violations of this statute.

2/ Unless otherwise indicated, all references to the statutes Respondent is alleged to have violated are to 2004 Florida Statutes, the codification in effect at the time of the alleged violations. Absent express authorizing language, not present here, statutes cannot be applied retroactively to penalize conduct that occurred prior to the statute's effective date.

Old Port Cove Holdings, Inc. v. Old Port Cove Condo. Ass'n One, 986 So. 2d 1279, 1284 (Fla. 2008) (quoting Metro. Dade Cnty. v.

Chase Fed. Hous. Corp., 737 So. 2d 494, 499 (Fla. 1999)).

3/ In 2002, the insurer's company name was AmerUs Life. The name later was changed to Aviva Life and Annuity Company.

4/ The withdrawal charge was assessed as a percentage of the annuity's account value. The account value is the value of the investment strategies chosen, plus any premiums not allocated in specific investment strategies.

5/ Mr. Wexler's testimony regarding many aspects of his purchase of the Allianz annuity from Respondent was vague, imprecise, incomplete, and unclear. In several instances, he was unable to distinguish the sale involving Respondent from sales involving other agents. This is understandable, given that over seven years had elapsed between his purchase of the annuity from Respondent and his testimony at the hearing. However, such testimony does not constitute clear and convincing evidence, which is required for factfinding in this proceeding. See Slomowitz v. Walker, 429 So. 2d 797 (Fla. 4th DCA 1983)(for testimonial evidence to be clear and convincing, the testimony must be precise and explicit and the witnesses must be lacking confusion as to the facts in issue).

6/ Mr. Wexler's testimony on this point directly conflicts with the statement in his affidavit of January 14, 2010, that "[h]e never explained surrender charges or that we would be penalized by Aviva for terminating the contract."

7/ Mr. Wexler executed this document and the Authorization to Transfer Funds on June 14, 2004.

8/ Mr. Wexler's imprecise testimony does not constitute clear and convincing evidence establishing that Respondent knew that the Wexlers had purchased other annuities from other agents when he sold them the Allianz policy.

9/ The accumulation value is the tax-deferred value of the annuity due to investment of the premium.

10/ The Aviva policy's account value and guaranteed account value features are determined based on the values of the selected investment strategies, plus any premiums paid and interest accruing on those premiums before transfer into the selected strategies. These values are similar to the accumulated value feature of the Allianz annuity.

11/ Accordingly, no fines are imposed pursuant to section 626.9521.

12/ This statute applies when the circumstances attendant to the violations do not warrant mandatory suspension or revocation.

13/ Fixed or variable annuity contracts constitute "life insurance." § 624.602(1), Fla. Stat.

14/ It is questionable whether this rule constitutes an independent ground for disciplinary action. By its terms, the rule appears aspirational, rather than actionable. To illustrate, the rule requires, in part, that agents "[be] fair in all relations with colleagues and competitors...." This provision appears to lack sufficiently definite standards describing proscribed conduct, the violation of which is a basis for penal action. See Whitaker v. Dep't of Ins., 680 So. 2d 528, 532 (Fla. 1st DCA 1996)(where penal terms are subject to many interpretations and the meaning of those terms is left to the fancy of the enforcing agency, those subject to the terms are not placed on notice of the proscribed conduct, and due process is violated). An agency is not authorized to selectively enforce only portions of its rules. See Arias v.

Dep't of Bus. and Prof'l Reg., 710 So. 2d 655 (Fla. 3d DCA 1998). Thus, Petitioner is not authorized to treat certain provisions of its rule as actionable, while treating other portions of the same rule as non-actionable.

15/ Rule 69B-215.230(2) makes unethical the public dissemination of untrue, deceptive, or misleading statements, announcements, or advertisements. This rule appears to be directed toward penalizing misrepresentations to the general public, as opposed to misrepresentations made to an individual. See Dep't of Fin. Servs. v. Alford, Case No. 05-1146 (Fla. DOAH Sept. 14, 2005; Fla. DFS Oct. 17, 2005). Here, there is no evidence whatsoever that Respondent made misrepresentations in advertisements, announcements, or statements directed to the general public.

Thus, Petitioner has failed to show, by clear and convincing evidence, that Petitioner violated rule 69B-215.230(2).

COPIES FURNISHED:

David J. Busch, Esquire Department of Financial Services

Division of Legal Services 612 Larson Building

200 East Gaines Street Tallahassee, Florida 32399

Richard A. Schwartz, Esquire Richard A. Schwartz, P.A.

8913 Belle Aire Court

Boca Raton, Florida 33351

Julie Jones, CP, FRP, Agency Clerk Department of Financial Services

Division of Legal Services

200 East Gaines Street Tallahassee, Florida 32399-0390

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: 11-002742PL

Orders for Case No: 11-002742PL