DEPARTMENT OF FINANCIAL ) SERVICES, DIVISION OF INSURANCE ) AGENTS AND AGENCY SERVICES, )
vs. ) Case No. 11-2743PL
Respondent. )
Pursuant to notice, a hearing was conducted in this case pursuant to sections 120.569 and 120.57(1), Florida Statutes (2011), before Jessica Enciso Varn, an Administrative Law Judge of the Division of Administrative Hearings (DOAH), on
October 28, 2011, by video teleconference at sites in Lauderdale Lakes and Tallahassee, Florida.
For Petitioner: David J. Busch, Esquire
Whether Respondent misrepresented or failed to disclose material terms and conditions pertaining to annuities that he sold to two senior citizens; if so, whether discipline should be imposed on Respondent's license to transact business as a life and health insurance agent.
The instant proceeding began when Mr. Breiman (Breiman) requested a hearing to contest the allegations that the Department of Financial Services (Department) had made against him in an Administrative Complaint filed on April 19, 2011. On July 12, 2011, the Department filed an Amended Administrative Complaint, removing one factual allegation. The Department charged Breiman, who is licensed in Florida as a life insurance, health insurance, and variable annuity agent, with having engaged in unfair and deceptive acts or practices in violation of the Unfair Insurance Trade Practices Act, which is found in section 626.9541, Florida Statutes.
The Department accused Breiman of having violated the following provisions of the 2006 Florida Insurance Code: sections 627.4554(4)(a), 627.4554(4)(c)(2), 626.611(5), 626.611(7),
626.9541(1)(e)1, and 626.9541(1)(l1/). If proved by clear and convincing evidence, the alleged violations would subject
Breiman to a fine in an amount not greater than $5,000 for each nonwillful violation and not greater than $40,000 for each willful violation. Such fines may be imposed in addition to any other applicable penalty, according to section 626.9521(2).
The hearing was held on October 28, 2011, after a continuance was requested and granted. At hearing, the Department offered the testimony of Robert Wexler, Frances Wexler, and Alina Gromnicki; Department's Exhibits 1-53 were admitted into evidence.
Mr. Breiman relied on his own testimony, and offered Exhibits 1-3 into evidence. A one-volume Transcript was filed on November 15, 2011. The parties agreed to a 20-day extension of time for the submission of post-hearing documents. On December 20, 2011, Breiman requested an additional 30-day extension of time to file a Proposed Recommended Order, which was granted. Because the Department had timely submitted a Proposed Recommended Order on December 15, 2011, the Department was given leave, until
January 25, 2012, to file a reply. Breiman filed his Proposed Recommended Order on January 18, 2011, and the Department filed its reply on January 23, 2011. All post-hearing submissions were considered in the preparation of this Recommended Order.
At all times relevant to this proceeding, Breiman has been licensed in Florida as an annuity and insurance agent.
The Department is the state agency with the responsibility for licensing and regulating agents, such as Breiman, and for taking disciplinary action for violations of the laws in its charge.
This case arises from the sale of three Equitrust annuities, all fixed equity indexed deferred annuities, to Robert and Frances Wexler.
Broadly speaking, an annuity is a contractual arrangement pursuant to which an insurance company, in exchange for a premium, agrees to pay the owner a specified income for a period of time. Annuities are generally classified as "fixed" or "variable." Under a fixed annuity, the benefit is paid according to a predetermined interest rate. With 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.
Fixed annuities can be either "immediate" or "deferred." An immediate fixed annuity is one under which the insurer begins paying the benefit upon purchase of the annuity. Under a deferred annuity, in contrast, the premium is allowed to grow over time, until the contract "matures" or is "annuitized" and the insurer begins paying the benefit.
The equity index annuities which Breiman sold to the Wexlers are considered fixed deferred annuities. An equity
index annuity is a contract under which the insurer agrees to pay a benefit based on a premium that earns interest at a rate determined by the performance of a designated market index, in this case, the S&P 500. 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. It is undisputed that the equity index annuities which Breiman sold to the Wexlers were approved for sale to senior investors by the Department at the time these transactions took place.
Equity index annuities are typically long-term investments. Owners of such annuities have limited access to the funds invested and accumulating in their accounts, although some equity index annuities, such as the Equitrust annuities sold in this case, permit yearly penalty-free withdrawals at set percentages. The accrued interest is generally not taxed until the funds are withdrawn or the benefit is paid under annuity. Besides taxes, the purchaser may incur substantial surrender penalties for canceling the contract and receiving his funds ahead of a specified date.
Some equity index annuities identify a date——often many years in the future——on which the insurer will "annuitize" the contract if it has not done so already at the purchaser's request. 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.
The Wexlers
Robert Wexler was born in Brooklyn, New York, in 1930.
He was 75 years old when these transactions with Breiman took place. His wife, Frances Wexler, was born in Bronx, New York, in 1932; she was 74 when the transactions took place. Each finished high school and took some college courses.
The Wexlers 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 he retired in 1994.
The Wexlers spent 40 years living in the same home in Pennsylvania, and raised three children. Mrs. Wexler worked for a small family owned printing firm for over 26 years.
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.
For many years, the Wexlers visited Florida as "snow
birds", and eventually purchased a condominium in a gated community in Deerfield Beach, Florida.
Mr. Wexler retired in 1994, Mrs. Wexler retired in 1997, and in 1998, the Wexlers sold their home in Pennsylvania, liquidated the stocks they owned, and bought a bigger condominium in the same Deerfield Beach gated community. They moved permanently to Florida in 1998, with approximately
$500,000 in liquid assets.
As part of an estate plan prepared by an attorney, the Wexlers met two agents in Florida, Mr. Plonsky and Mr. Wolfe, who sold the Wexlers annuities. In 2002, the Wexlers bought four Allianz Life Insurance Company of North America annuities, totaling approximately $180,000 in premium payments. These payments were made by rolling over their combined IRA funds.
The Allianz annuities allowed the Wexlers to withdraw a lifetime amount of up to 15 percent after the first year, without penalty. Withdrawals in excess of the penalty free withdrawals began at a rate of 10 percent and decreased yearly to 0 percent by the 13th year.
In 2004, Mr. Wolfe sold the Wexlers a Sun Life Assurance Company of Canada non-qualified single premium annuity for a $35,000 cash payment.
Since Mr. Wexler had lost money in the stock market while in Pennsylvania, his purpose for purchasing these
annuities, including the ones he eventually purchased through Breiman, was to avoid the loss of any principal, and have the ability to withdraw money if needed.
The Breiman Transactions
In 2006, the Wexlers met Breiman, and told him that they had purchased the Allianz and Sun Life annuities a few years back. Breiman reviewed the five annuities, and encouraged the Wexlers to surrender the annuities they already owned, and purchase Equitrust annuities.
Breiman explained the surrender penalties to the Wexlers, and explained that transferring the annuities would result in an immediate loss of capital. The surrender charges for all the annuities combined totaled approximately $45,000.
On August 22, 2006, the Wexlers wrote a letter to Allianz, stating that because they had been told by Allianz that they had already reached the 15 percent lifetime withdrawal limit contained as a term of the Allianz annuities, they wished to surrender the annuities. Mr. Wexler wrote:
My wife Fran and I Robert Wexler have instructed Mark S. Breiman to... exchange the following policies...These four policies mentioned above are all power based indexed annuities, my wife Frances and I were told by Alliance [sic] Insurance Co.[sic] we have met our maximum fee withdrawal, except for RMV. We are not happy to realize that the contracts mentioned above have a lifetime 15 percent free withdrawal. Frances and I,
Robert Wexler, are fully aware of penalties, surrender charges and expenses, please
transfer as [sic] ASAP. DO NOT send a conservation letter.
Upon meeting with Breiman on more than one occasion in 2006, the Wexlers agreed to purchase three equity index Equitrust annuities, for premiums of approximately $230,000, with the majority of that money coming from the transfer of the Allianz policies. The Equitrust annuities allowed a 10 percent annual withdrawal, with no penalty. By purchasing these particular products, the Wexlers were eligible for a bonus of approximately 10 percent of the premium paid, which was added to the accounts. If they surrendered these annuities during the first 14 years, however, the Wexlers would pay a penalty, starting at 20 percent for a cancellation during the first year and declining each year thereafter until the fifteenth year, when the surrender penalty would be 0 percent. The maturity date on one annuity was May 8, 2036; for the second annuity, it was October 2, 2036; and for the third, it was October 2, 2037.
Because Mr. and Mrs. Wexler would be 89 and 88 years old by the time the maturity dates would arrive, the Wexlers could have planned to annuitize the contract before the maturity date, and begin to receive the annuity payments. The Wexlers were not required to keep their funds invested until the maturity date. The fact that the maturity date was beyond the
Wexlers expected lifespan is not, of itself, compelling proof that the annuity was an unsuitable investment for Mr. and Mrs. Wexler.
In applying for the Equitrust annuities, the Wexlers executed an Annuity Application, which contained the following language:
If this annuity is replacing an existing annuity, it is important that you compare the two, taking into account whatever changes you may incur on the surrender of the existing annuity and your need to access your funds. For information about your existing annuity, contact the issuing company.
The application also contained an Applicant Statement, which read in part:
By signing below, I acknowledge I have read, or have been read, this document and understand I am applying for an equity indexed annuity, I also acknowledge that the annuity meets my financial objectives. I have received a copy of this document, as well as any advertisement that was used in connection with the sale of this annuity.
The Wexlers signed and dated the Annuity Application.
The Wexlers also executed a Fixed Annuity Needs Analysis form, which indicated that the Wexlers were surrendering annuities which had been held for 1-3 years, and would incur a 9-10 percent surrender charge. Mr. Wexler signed and dated this form as well.
The Equitrust annuity contract, which the Wexlers agreed they received, but never read, indicated as follows:
READ YOUR CONTRACT CAREFULLY. This is a
legal Contract between you, the Owner, and us, the Insurer.
RIGHT TO EXAMINE AND RETURN THIS CONTRACT
Right to cancel. If you are not satisfied, you may cancel your Contract by returning it within 15 days after the date you receive it...This Contract will then be void from its start. Any premium will be refunded.
On Page 3 of the contracts, the Annuity Dates in 2036 were plainly disclosed, as was the "Surrender Charge" for each policy year from the first year (20 percent) to the fourteenth year (2 percent) and fifteenth year (0 percent).
The provisions of the Equitrust annuity which the Department alleges Breiman misrepresented or failed to disclose to the Wexlers were clearly stated, unambiguously, in the contract itself. The evidence fails to establish that Breiman misrepresented or failed truthfully to disclose to the Wexlers any of the Equitrust annuity contract's material terms and conditions, knowingly made other false representations of material fact about the products, or otherwise made any false promises in connection with the investment.
Breiman is not guilty of any of the following offenses with which he was charged: (a) violating the Wexler's trust and not serving their best interests by presenting every fact
essential to a client's decision as required by Florida Administrative Code Rule 69B-215.210; (b) making false or misleading statements misrepresenting the advantages of the Equitrust contracts as prohibited by Florida Administrative Code Rule 69B-215.230(1); (c) making untrue, deceptive or misleading statements, assertions, or representations to a client as prohibited by Florida Administrative Code Rule 69B-215.230(2);
(d) willfully misrepresenting the terms of any annuity contract as proscribed in section 626.611(5), Florida Statutes; (e) demonstrating a lack of fitness or trustworthiness to engage in the business of insurance, which is punishable under section 626.611(7), Florida Statutes; (f) engaging in fraudulent or dishonest practices, a disciplinable offense pursuant to section 626.611(9), Florida Statutes; (g) willfully failing to comply with, or of violating, a provision of law, which is punishable under section 626.611(13), Florida Statutes; (h) engaging in unfair methods of competition and unfair or deceptive trade practices as prohibited by section 626.621(6), Florida Statutes;
(i) making any estimate, statement, sales presentation, omission, or comparison which misrepresents the benefits, advantages, conditions, or terms of any insurance policy as prohibited by section 626.9541(1)(a), Florida Statutes; (j) making false statements or placing before the public any false material statement as prohibited by section 626.9541(1)(e); (k)
knowingly making any misleading representations or incomplete or fraudulent comparisons or fraudulent material omission for the purpose of inducing any client to surrender or convert any insurance policy to take out a policy of insurance with another insurer, as prohibited by section 626.9541(1), Florida Statutes.
Moreover, although Breiman did not have the burden to prove his innocence in any respect, the greater weight of the evidence nevertheless establishes that Breiman fulfilled the obligations he owed to the Wexlers under section 627.4554, Florida Statutes, which governs transactions involving sales of annuities to senior consumers.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has personal and subject matter jurisdiction in this proceeding pursuant to sections 120.569 and 120.57(1).
The Administrative Complaint alleges that Respondent violated the following insurance statutory provisions: sections 626.611(5), (7), (9), and (13); 626.621(6); 626.9541 (a) and (e)(1)e and (1); 627.4554(a) and (c)(2). It has also been alleged that Breiman violated Florida Administrative Code Rules 69B-215.210, and 69B-215.230.
Section 626.611 provides in pertinent part as follows:
The department shall . . . suspend, revoke, or refuse to renew or continue the license or appointment of any applicant, agent,
title agency, solicitor, adjuster, customer representative, service representative, managing general agent, or claims investigator, and it shall suspend or revoke the eligibility to hold a license or appointment of any such person, if it finds that as to the applicant, licensee, or appointee any one or more of the following applicable grounds exist:
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(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.
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(7) Demonstrated lack of fitness or trustworthiness to engage in the business of insurance.
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(9) Fraudulent or dishonest practices in the conduct of business under the license or appointment.
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(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.
Section 626.621 provides in relevant part as follows: The department may, in its discretion, . . .
suspend, revoke, or refuse to renew or continue the license or appointment of any applicant, agent, solicitor, adjuster, customer representative, service representative, managing general agent, or
claims investigator, and it may suspend or revoke the eligibility to hold a license or appointment of any such person, if it finds that as to the applicant, licensee, or appointee any one or more of the following applicable grounds exist under circumstances for which such denial, suspension, revocation, or refusal is not mandatory under s. 626.611:
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(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.
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:
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.
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(e) False statements and entries.--
1. Knowingly:
Filing with any supervisory or other public official,
Making, publishing, disseminating, circulating,
Delivering to any person,
Placing before the public,
Causing, directly or indirectly, to be made, published, disseminated, circulated, delivered to any person, or placed before the public, any false material statement.
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(1) 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.
Section 627.4554 specifically governs annuity investments by seniors and prescribes certain duties (and limitations on those duties) that an agent owes to a senior consumer. This statute provides in pertinent part as follows:
PURPOSE; CONSTRUCTION.--
The purpose of this section is to set forth standards and procedures for recommendations to senior consumers which result in a transaction involving annuity products to appropriately address the insurance needs and financial objectives of senior consumers at the time of the transaction.
Nothing in this section shall be construed to create or imply a private cause of action for a violation of this section.
APPLICATION.--This section applies to any recommendation to purchase or exchange an annuity made to a senior consumer by an insurance agent, or an insurer where no agent is involved, that results in the purchase or exchange recommended.
DEFINITIONS.--For purposes of this section:
"Annuity" means a fixed annuity or variable annuity that is individually solicited, whether the product is classified as an individual annuity or a group annuity.
"Recommendation" means advice provided by an insurance agent, or an insurer if no insurance agent is involved, to an individual senior consumer which results in a purchase or exchange of an annuity in accordance with that advice.
"Senior consumer" means a person 65 years of age or older. In the event of a joint purchase by more than one party, a purchaser is considered to be a senior consumer if any of the parties is age 65 or older.
DUTIES OF INSURERS AND INSURANCE AGENTS.--
In recommending to a senior consumer the purchase of an annuity or the exchange of an annuity that results in another insurance transaction or series of insurance transactions, an insurance agent, or an insurer if no insurance agent is involved, shall have reasonable grounds for believing that the recommendation is suitable for the senior consumer on the basis of the facts disclosed by the senior consumer as to his or her investments and other insurance products and as to his or her financial situation and needs.
Before executing a purchase or exchange of an annuity resulting from a recommendation to a senior consumer, an insurance agent, or an insurer if no insurance agent is involved, shall make reasonable efforts to obtain information concerning the senior consumer's financial status, tax status, and investment
objectives and such other information used or considered to be reasonable by the insurance agent, or the insurer if no agent is involved, in making the recommendation. (c)1. Except as provided under subparagraph 2., an insurance agent, or an insurer if no insurance agent is involved, shall not have any obligation to a senior consumer under paragraph (a) related to any recommendation if the senior consumer:
Refuses to provide relevant information requested by the insurer or insurance agent;
Decides to enter into an insurance transaction that is not based on a recommendation of the insurer or insurance agent; or
Fails to provide complete or accurate information.
2. An insurer or insurance agent's recommendation subject to subparagraph 1. shall be reasonable under all the circumstances actually known to the insurer or insurance agent at the time of the recommendation.
§ 627.4554, Fla. Stat.
Florida Administrative Code Rule 69B-215.210 provides as follows:
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.
Florida Administrative Code Rule 69B-215.230 provides as follows:
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.
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.
These statutory and rule provisions are penal in nature and must be strictly construed, with ambiguities being resolved in favor of the licensee. Lester v. Dep't of Prof'l &
Occ. Reg., 348 So. 2d 923, 925 (Fla. 1st DCA 1977). Whether Mr. Breiman committed an offense, as charged, is a question of ultimate fact to be decided 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).
For the Department to suspend or revoke Breiman's license, or to impose any other penalty provided by law, the Department must prove the charges by clear and convincing evidence. Ferris v. Turlington, 510 So. 2d 292, 294 (Fla. 1987); McKinney, 667 So. 2d at 388. Further, the grounds proven must be those specifically alleged in the administrative complaint. See, e.g., Cottrill v. Dep't of Ins., 685 So. 2d 1371, 1372 (Fla. 1st DCA 1996); Kinney v. Dep't of State, 501 So. 2d 129, 133 (Fla. 5th DCA 1987).
Regarding the standard of proof, in Slomowitz v.
Walker, 429 So. 2d 797, 800 (Fla. 4th DCA 1983), the court held
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 Slomowitz
court's description of clear and convincing evidence. See In re Davey, 645 So. 2d 398, 404 (Fla. 1994). The First District
46. The Department has failed to prove the statutory violations alleged in the Administrative Complaint by clear and convincing evidence. Thus, Breiman is not guilty of the violations alleged in the Administrative Complaint.
RECOMMENDED that the Department of Financial Services dismiss the Administrative Complaint against Respondent.
DONE AND ENTERED this 22nd day of February, 2012, in Tallahassee, Leon County, Florida.
Filed with the Clerk of the Division of Administrative Hearings this 22nd day of February, 2012.
1/ Unless otherwise indicated, all references to the Florida Statutes are to the 2006 codification in effect at the time of the conduct alleged in the Administrative Complaint.
David J. Busch, Esquire Department of Financial Services
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.
