STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
DEPARTMENT OF FINANCIAL ) SERVICES, DIVISION OF INSURANCE ) AGENTS AND AGENCY SERVICES, )
)
Petitioner, )
)
vs. ) Case No. 11-2744PL
)
JUSTIN ALEXANDER CHERRY, )
)
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 26 and 27, 2011, by video teleconference at sites in Lauderdale Lakes and Tallahassee, Florida, and on November 10, 2011, at video teleconference sites in Miami 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: Justin Alexander Cherry, pro se
Cherry and Cherry, Inc.
8499 West Commercial Boulevard Tamarac, 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 and life insurance agent in Florida, charging him with violating sections 626.611(5), (7), (9), and (13); 626.621(6); 626.9521;
626.9541(1)(a)1., (1)(e)1., and (1)(l); and 627.4554(4)(a) and
(c)2. of the 2007 Florida Insurance Code1/ and Florida Administrative Code Rules 69B-215.210 and 69B-215.230; and seeking to impose fines and suspend or revoke Petitioner's license or impose other penalties.
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 14, 2011, but pursuant to joint motion of the parties, the hearing was continued to October 26 and 27, 2011. Pursuant
to Petitioner's motion requesting consolidation, this proceeding was consolidated with Case No. 11-2742 but later was severed pursuant to motion filed by counsel for the Respondent in that case.
The final hearing was partially held on October 26 and 27, 2011, and was continued until, and completed on, November 10, 2011. Petitioner presented the testimony of Robert Wexler, Frances Wexler, and Alina Gromnicki, and offered Petitioner's Exhibits 1 through 25, which were admitted into evidence without objection. Respondent testified on his own behalf and offered Respondent's 1 through 16 for admission into evidence.
Respondent's Exhibits 1 through 11, 13, 14, and 15 were admitted without objection; 16 was admitted over objection; and 12 was not admitted.
On November 14, 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. The three-volume transcript was filed on June 14, 2012, and pursuant to Order issued on November 17, 2012; the parties were given until July 19, 2012, in which to file their proposed recommended orders. On July 2, 2012, Respondent filed a motion to extend the time to file the proposed recommended orders; the motion was granted and the parties were given until August 2,
2012, in which to file their proposed recommended orders. Petitioner timely filed its Proposed Recommended Order on August 2, 2012. Respondent filed its Proposed Recommended Order by facsimile on August 2, 2012, after the Division of Administrative Hearings' normal business hours, so the Proposed
Recommended Order was deemed filed on August 3, 2012, pursuant to Florida Administrative Code Rule 28-106.104. The undersigned duly considered both parties' Proposed Recommended Orders in preparing this Recommended Order.
FINDINGS OF FACT
The Parties
At all times relevant, Respondent was licensed by Petitioner as an annuity, health, and life insurance agent in Florida.
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.
Background
Annuities
This case arises from Respondent's sale of an Aviva equity index annuity ("Aviva annuity") to Robert and Frances Wexler on or about May 22, 2008.
An annuity is a contract 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. The annuities at issue in this case are fixed annuities.
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 annuities at issue in this case are deferred annuities.
Annuities may be "equity index" annuities. 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. 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 permit yearly penalty-free withdrawals at specified percentages. The accrued interest generally is not taxed until the funds are withdrawn or the benefit is paid under annuity.
The purchaser may incur surrender charges for withdrawing funds or canceling the contract before a specified date. The annuities at issue in this case are equity index annuities.
Generally, equity index annuities identify a maturity 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. The benefit paid 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 according to a payment plan.
The Wexlers
Robert Wexler was born on November 12, 1930. His wife, Frances Wexler, was born on March 5, 1932.
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.
The Wexlers raised three children, and they lived in
the same home in Pennsylvania for 40 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 "snowbirds" and eventually purchased a condominium in a gated community in Deerfield Beach, Florida.
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.
The Wexlers consider themselves conservative investors. Their financial objectives included safe investing of their money, ensuring that they had readily accessible money if they needed it at some point, and having money to pass on to their family. For these reasons, they specifically chose to invest in annuities.
Prior Annuity Purchases
Before purchasing the Aviva annuity at issue in this case, the Wexlers had purchased many other annuities——perhaps as many as 16——from different insurance agents, including Stephen
Wolfe, Brian Plonsky, Fredric Armold, and Mark Breiman between 2002 and 2008.
In May 2008, the Wexlers purchased the Aviva annuity at issue in this case from Respondent. The Wexlers purchased the annuity using the money they received from surrender of an EquiTrust annuity (EquiTrust 708F) that Mark Breiman sold them in 2006.
Subsequently, the Wexlers became confused about their numerous annuities. In October 2008, Mr. Wexler sent a letter to Petitioner's Consumer Services Department, requesting assistance in determining what products the Wexlers had purchased and whether the purchased annuities were necessary or beneficial to them. As a result, Petitioner initiated an investigation that culminated in administrative complaints being filed against some of the agents, including Respondent, who sold annuities to the Wexlers.
The Administrative Complaint
The Administrative Complaint alleges, in pertinent part, that Respondent committed the following acts, which violate specified provisions of the Florida Insurance Code:
17. In the process of inducing the purchase of the Aviva annuity, [Respondent] willfully misrepresented and/or omitted material information regarding the sale of that annuity. The misrepresentations, both by omission of material information and
commission of false statement, include, but are not limited to the following:
[Respondent] verbally asserted to the Wexlers that the nearly $16,000 in surrender charges Robert Wexler incurred in surrendering Equitrust 708F, would be offset by a bonus gained from the purchase of the Aviva annuity.
[Respondent], when completing the Aviva annuity application, listed the percentage of charges and penalties incurred by sale of the EquiTrust annuity as 20%, "not less any applicable bonus percentage received on the new [Aviva] annuity," so as to falsely assert in writing that the Wexlers would receive a positive market adjustment of
$10,910.83 on the Aviva annuity that would offset the nearly $16,000 surrender penalty on the EquiTrust 708F.
[Respondent], when completing the Aviva annuity application, listed the amount of the Wexlers liquid assets as being $320,000, when [he] either knew or should have known that most of the Wexlers' assets were tied up in non-liquid investments (primarily annuities)and they had very limited access to readily available funds totally less than a third of that amount.
[Respondent] failed to advise Robert Wexler that the guaranteed cash surrender value of the Aviva annuity would not equal the May 2008 accumulated value of EquiTrust 708F until at least May 2018, assuming the Wexlers did not need to make any withdrawals from the Aviva annuity during that ten year period.
[Respondent] failed to advise the Wexlers that surrender penalties would apply for 10 years following the purchase of the Aviva annuity, including the company's recapture of the bonus, when Robert Wexler would be 87 years old.
[Respondent] falsely assured the Wexlers that the Aviva annuity was suitable to their needs.
The Administrative Complaint further alleges that Respondent's willful misrepresentations were false and material misstatements of fact and Respondent was fully aware of the falsehoods; that given Respondent's position as a licensed life insurance agent, the Wexlers justifiably relied on Respondent's representations and information in purchasing the Aviva annuity and they would not have purchased that annuity but for Respondent's misrepresentations; that the sale of the Aviva annuity was not in the Wexlers' best interests, was neither necessary nor beneficial for persons of their age and financial condition, was without demonstrable benefit to them, and was done by Respondent for the sole purpose of earning a fee, commission, money, or other benefit; and that the Wexlers have suffered financial harm by not being able to access their retirement assets for housing, health care costs, or general living expenses without incurring substantial surrender charges.
The Annuities at Issue
The 2006 EquiTrust Annuity
The Wexlers purchased the EquiTrust 708F annuity2/ from Mark Breiman on May 8, 2006. At the time, Mr. Wexler was 75 years old and Mrs. Wexler was 74 years old.
The Wexlers paid a premium of $32,565.68 for the EquiTrust annuity. Over the two years that the Wexlers owned the annuity, they added three separate cash payments totaling
$40,844.42, for a total premium of $73,410.10 paid for the annuity.
The EquiTrust annuity was a fixed index annuity having a maturity period of 30 years. Interest on the premium was earned according to performance of the market indices in which the premium was invested. After the annuity's first year anniversary date, invested funds could be transferred on the contract's anniversary date between indexed market accounts and fixed rate accounts to reduce exposure to market volatility.
The annuity featured a ten percent bonus paid on the amount of the premium paid on the initial contract date.3/ The Wexlers paid a premium of $32,565.68 for the annuity, so the premium bonus was $3,256.58. Pursuant to the contract terms, the premium bonus was allocated proportionately across the investment strategies in the same manner as the premium; it was not paid to the Wexlers as cash. Because the bonus was invested back into the annuity, it, like other sources of funds invested in the annuity, became accessible upon maturity or if the policy was annuitized.
The annuity had a 14-year surrender charge period.
During this period, if the Wexlers withdrew their money from the annuity in an amount greater than the free withdrawal amount allowed under the contract, ten percent of the contract's current accumulation value,4/ a surrender charge would be
imposed. The surrender charges started at 20 percent and gradually declined over the 14-year period.
The annuity did not contain terms waiving withdrawal charges in case of diagnosis of terminal illness or confinement in a hospital, hospice, or convalescent facility.
Sale of the Aviva Annuity to the Wexlers in 2008
In 2008, Respondent's firm, Cherry and Cherry, Inc., invited the Wexlers to a luncheon at which a program on investment in annuities was presented. The Wexlers attended and made contact with Ronald Cherry, Respondent's father. Subsequently, Respondent arranged to meet with the Wexlers in their home to discuss annuities investments.
As a result of that meeting, Respondent sold the Wexlers an Aviva annuity.5/ The Wexlers applied for the Aviva annuity in late April 2008, and the sale became effective on May 22, 2008. Mr. Wexler was 77 years old and Mrs. Wexler was
76 years old when they purchased the Aviva annuity.
The Wexlers purchased the Aviva annuity using the money they received from surrender of the EquiTrust annuity that Mark Breiman sold them in 2006. They surrendered the EquiTrust annuity on May 21, 2008, just over two years after purchasing it.
At surrender, the EquiTrust annuity's accumulated value was $84,179.97. The Wexlers were assessed a surrender
charge of $15,994.19, which constituted 20 percent6/ of the annuity's accumulation value as of May 21, 2008. However, a positive market value adjustment ("MVA")7/ of $7,658.56 was provided upon surrender, so the Wexlers received a total of
$75,844.42 for surrender of the EquiTrust annuity.
When the Wexlers applied to purchase the Aviva annuity, they completed a "Notice to Applicant Regarding Replacement of Life Insurance" form.8/ The form advised prospective purchasers that the "decision to buy a new policy and discontinue or change an existing policy may be a wise choice or a mistake. Get all the facts." The form further informed prospective purchasers that under Florida law, they could elect to receive a written Comparative Information Form summarizing policy values, which would enable comparison of the existing annuity and the annuity being considered for purchase. The Wexlers elected not to receive the Comparative Information
Form.
At hearing, Mr. Wexler credibly testified that in
selling him the annuity, Respondent discussed the Wexlers' financial objectives to safely invest their money, have ready access to funds if needed, and to leave some money for their family.
Mr. Wexler initially testified that when Respondent sold the Wexlers the Aviva annuity, Respondent failed to cover
several items, including reviewing the Wexlers' other annuities, and did not provide a comparison of the Aviva and EquiTrust annuities. However, Mr. Wexler subsequently acknowledged that he could not remember whether Respondent covered these matters with him. Respondent credibly testified that he covered these matters with the Wexlers.
Mr. Wexler testified that Respondent told the Wexlers that they would incur a substantial surrender charge on surrender of the EquiTrust annuity, but that they would make it up through and the positive MVA that would be realized upon surrender of the annuity and the Aviva ten percent premium bonus. He initially testified that Respondent did not tell the Wexlers that they would not obtain the Aviva policy's premium bonus as an immediate cash payment, but that instead it would be invested in the annuity so would be available only at maturity of the policy; ultimately, however, Mr. Wexler conceded that he could not recall whether Respondent had explained this matter. Respondent credibly testified that he covered this matter with the Wexlers.
As an essential part of purchasing the Aviva annuity, on April 24, 2008, Respondent filled out, and the Wexlers executed, a Customer Identification and Suitability Confirmation Worksheet. On the portion of the form requesting a statement of the applicant's liquid assets, Respondent wrote "$320,000."
Respondent credibly testified that the Wexlers provided him this figure. His testimony is consistent with, and bolstered by, the Wexlers' written confirmation, by signing the form, that the information filled in on the form regarding their financial status and investment objectives was complete and accurate to the best of their knowledge. Further, by signing the form, the Wexlers each confirmed that they understood that the Aviva annuity was a long-term investment with substantial penalties for early withdrawal, and they believed the Aviva annuity was suitable for them. The Wexlers reconfirmed these statements in their hearing testimony.
Terms of the 2008 Aviva Annuity
The Aviva annuity was a fixed index deferred annuity, with the premiums allocated to selected investment strategies.
The Aviva annuity had a 20-year maturity period and a ten-year surrender charge period. During the surrender charge period, the Wexlers would be assessed a penalty, termed a "withdrawal charge," if they withdrew funds in an amount greater than ten percent of the annuity's accumulated value as of the contract anniversary date for that year. The withdrawal charges were determined based on a withdrawal charge rate schedule and a premium bonus recapture schedule.9/ The annuity allowed the transfer of unused free partial withdrawals to subsequent years, so if the Wexlers did not use the free partial withdrawal in one
year, they could transfer it to the following year, enabling them to withdraw up to 20% of the contract's accumulated value for that year without incurring a surrender charge. The annuity also provided for waiver of withdrawal charges, subject to specified conditions, if the insured parties were diagnosed with a terminal illness or if the insured parties were confined to a hospital, hospice, or convalescent care facility.
The Aviva annuity featured a ten percent bonus payable on the initial premium and on subsequent premiums paid within the first two years of the contract. The bonus on the initial premium was allocated to the selected index investment strategies, and the bonus on additional premiums was credited to the fixed strategy and then transferred to the selected index investment strategies on the next contract anniversary date. The bonus under the annuity was not paid as cash, so became accessible only upon maturity of the policy or if the policy was annuitized.
Respondent informed the Wexlers that there would be a charge for surrendering the EquiTrust annuity, and represented that the surrender charge would be offset by the positive MVA derived from surrender of the EquiTrust annuity and the ten percent premium bonus they would receive by purchasing the Aviva annuity.
As of its date of issuance, the Aviva policy had an
accumulated value of $83,429.00. This value was derived from payment of the $75,844.42 premium consisting of the funds obtained from surrender of the EquiTrust annuity, plus the ten percent bonus of $7,584.44.
Respondent credibly testified that a key reason he recommended that the Wexlers surrender the EquiTrust policy and purchase the Aviva policy was that he believed that they had too much money invested in one company, and that this was not in their best interest given the ominous financial climate in May 2008. He also testified, credibly, that another reason he suggested they surrender the EquiTrust policy was that information had been disseminated within the life insurance industry that the EquiTrust Life Insurance Company's financial strength rating was going to be downgraded. This information ultimately proved to be correct; on September 28, 2008, the company, its affiliate, and its parent company all were downgraded by A.M. Best Company. The press release announcing the downgrade specifically identified concern over EquiTrust's capital position and its difficulty in accessing liquidity as the reasons for the downgrade.
Comparison of the EquiTrust and Aviva Annuities
The EquiTrust and Aviva annuities both are fixed deferred equity index annuities. They offered similar investment strategies, and both provided 100 percent
participation in the selected investment strategies, with substantially similar caps on earnings under those strategies.
Both annuities had long-term maturity periods; however, the EquiTrust annuity had a 30-year maturity period, compared to the Aviva annuity's substantially shorter 20-year maturity period. Thus, assuming the Wexlers held the Aviva annuity to maturity, it would begin providing payments eight years sooner10/ than the EquiTrust annuity.
The Aviva annuity's surrender charge provisions were substantially more favorable for the Wexlers than those in the EquiTrust annuity. Specifically, the EquiTrust annuity had a 14-year surrender period, compared to the Aviva annuity's ten- year surrender period. The EquiTrust annuity's surrender charges also were substantially higher than those under the
Aviva annuity, starting at 20 percent for the first two contract years and thereafter decreasing by one or two percent for the remaining 12 years of the surrender period; by contrast, the Aviva annuity's surrender charge rate started at 12 percent for the first two contract years and then decreased by one or two percent per year for the remaining eight years of the surrender period. The Aviva annuity allowed any unused free partial withdrawal to be carried over to the following policy year and accumulated with that year's free partial withdrawal; the EquiTrust annuity did not allow such carryover. The Aviva
annuity also provided for waiver of withdrawal fee, subject to conditions, for diagnosis with a terminal illness or confinement in a hospital, hospice, or convalescent facility, while the EquiTrust annuity did not.
The annuities' minimum guaranteed contract values11/ were calculated in a similar manner. However, the EquiTrust annuity had a more favorable guaranteed rate of return of three percent, while the Aviva annuity guaranteed a one percent rate of return.
Given the difference in financial conditions between 2006, when the Wexlers purchased the EquiTrust annuity, and 2008, when they purchased the Aviva annuity, relative policy performance is not particularly useful in determining which was policy was better for the Wexlers. In 2006, financial conditions were favorable. The Wexlers paid an initial premium of $32,565.68 for the EquiTrust annuity and received a ten percent bonus of $3,256.58 on that premium, for an initial accumulation policy value of $35,822.26. Over the two years the Wexlers owned the EquiTrust annuity, they added $40,844.42 in premiums, for a total of $73,410.10 paid into the annuity. By the time they surrendered the EquiTrust annuity in May 2008, its accumulation value was $84,179.97; thus, the policy earned approximately $10,769.87 in accumulation value for the Wexlers during the two years they owned it. By the time the Wexlers
purchased the Aviva annuity in May 2008, financial conditions had significantly deteriorated. This is reflected in the Aviva annuity's annual statement of annuity showing no earnings for the 2008-2009 year. However, given the similarity of the policies' indexed investment strategies, it is reasonable to infer that the Wexlers would not have earned much, if any, more under the EquiTrust annuity than they did under the Aviva annuity for the 2008-2009 year.
The Aviva annuity had greater relative financial strength than the EquiTrust policy. When Respondent sold the Wexlers the Aviva annuity, the EquiTrust Life Insurance Company's financial strength rating was in the process of being downgraded. Petitioner argues that the company still enjoyed an excellent rating in spite of the downgrade.12/ Notwithstanding, the evidence shows that at the time Respondent sold the Wexlers the Aviva annuity, he reasonably believed that the EquiTrust annuity's financial soundness was questionable, and, in fact, the Aviva annuity ultimately was the more financially sound policy.13/
When the Wexlers surrendered the EquiTrust annuity on May 21, 2008, its accumulated value was $84,179.97 and its cash surrender value was $75,844.42. When the Aviva annuity was issued on May 22, 2012, its accumulated value was $83,429.00 and its cash surrender value was $67,027.00——$8,817.34 lower than
the EquiTrust policy's cash surrender value. The Wexlers immediately lost $8,817.34 on this transaction; however, the persuasive evidence shows that if they hold the Aviva policy to maturity, they not only will make up this loss, but will earn substantially more. In any event, the persuasive evidence establishes that Respondent told the Wexlers were about this issue and they chose to purchase the Aviva policy.
On balance, the Aviva annuity appears more suitable for the Wexlers than the EquiTrust annuity. The EquiTrust annuity had a surrender charge period of 14 years, with extremely high surrender charge rates. The Wexlers would have had to keep the EquiTrust policy seven more years for its surrender charge rate to decline to the rate immediately applicable to withdrawals under the Aviva policy. Had the Wexlers held onto the EquiTrust policy and withdrawn funds in an amount greater than the free withdrawal limit even once during this seven-year period, they likely would have incurred surrender charges in an amount greater than the $8,817.34 they lost by surrendering the EquiTrust policy on May 21, 2008.14/
Ultimate Findings of Fact Regarding Alleged Violations
As more specifically addressed below, the undersigned determines, as a matter of ultimate fact, that Petitioner did not demonstrate, by clear and convincing evidence, that Respondent violated sections 626.611 (5), (7), (9), or (13);
626.621(6); 626.9541(1)(e)1, or (1)(l); 627.4554(4)(a) or (c)2.; or rules 69B-215.210 or 69B-215.230.15/
Alleged Violations of Section 627.611
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 section 626.611(5), (7), (9), and (13). Petitioner did not prove, by clear and convincing evidence, that Respondent violated any of these provisions.
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 Aviva annuity or willfully deceived the Wexlers regarding the Aviva annuity. As discussed above, the persuasive evidence establishes that with respect to the key issue in this proceeding——the large surrender charge——Respondent accurately represented to the Wexlers that the surrender charge would be offset by the positive MVA and the Aviva premium bonus, and that the bonus would have to be earned over the life of the Aviva annuity.16/
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. The persuasive evidence did not clearly and convincingly establish that Respondent violated any aspect of the Florida Insurance Code in selling the Aviva annuity to the Wexlers; accordingly, Petitioner did not prove, by clear and convincing evidence, that Respondent violated this provision.
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. Again, since the persuasive evidence did not clearly and convincingly establish that Respondent violated any aspect of the Florida Insurance Code in selling the Aviva annuity to the Wexlers, Petitioner did not prove, by clear and convincing evidence, that Respondent violated this subsection.
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 Aviva annuity to the Wexlers. Thus, Petitioner failed to prove, by clear and
convincing evidence, that Respondent violated section 626.611(13).
Alleged Violations of Section 626.9541
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. 2nd 1211, 1214 (Fla. 1st DCA 1997).
Petitioner has charged Respondent with engaging in acts set forth in section 626.9541(1)(a)1.——specifically, that Respondent 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. Accordingly, Petitioner did not prove, by clear and convincing evidence, that Respondent engaged in unfair methods of competition or unfair or deceptive acts as prohibited in section 626.9541(1)(a)1.
Petitioner also charged Respondent with engaging in acts delineated 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 acts set forth in that provision. Again, the evidence does not 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)(e)1.
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.
Alleged Violation of Section 626.621
Section 626.621 sets forth violations for which
suspension or revocation of an insurance agent's license is discretionary.17/ 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.
Alleged Violation of Section 627.9521
Petitioner has charged Respondent with violating section 626.9521. This statute prohibits persons from engaging in trade practices that are determined to be an unfair method of competition or an unfair or deceptive act or practice involving the business of insurance, and imposes fines for violations of the Unfair Insurance Trade Practices Act, part IX of chapter 626, Florida Statutes. As discussed above, Petitioner did not prove that Respondent violated section 626.9541 or any other provision in chapter 626 charged under the Administrative
Complaint. Accordingly, Petitioner has not shown, by clear and convincing evidence, that Respondent violated section 626.9521 and thus should be fined under that statute.
Alleged Violation of Section 627.4554
Petitioner has charged Respondent with violating section 627.4554(4)(a) and (c)2. Section 627.4554(4)(a) requires that an insurance agent, in recommending a senior consumer purchase or exchange an annuity, have reasonable grounds for believing that the recommendation is suitable for the senior consumer on the basis of facts disclosed by the senior consumer regarding the consumer's other investments, other insurance products, and financial circumstances. Section 627.4554(4)(c)2. further requires that the insurance agent's recommendation be reasonable under all circumstances actually known to the agent at the time of the recommendation.
As discussed above, Respondent recommended that the Wexlers surrender the EquiTrust annuity and purchase the Aviva annuity on the basis of the information they provided him regarding their liquid assets, other annuities, and financial goals. The evidence further shows that Respondent's recommendation was reasonable, based on the financial information the Wexlers provided and on his determination that the Aviva policy's terms and conditions were comparatively more favorable for the Wexlers than were the EquiTrust policy's terms
and conditions. Accordingly, Petitioner has failed to demonstrate that Respondent violated section 627.4554(4)(a) or
(c)2.
Alleged Violations of Agency Rules
Petitioner charged Respondent with violating rules
69B-215.210 and 69B-215.230. Rule 69B-215.210 declares that the business of life insurance is a public trust in which all agents have a common obligation to work together to serve the best interests of the insuring public, to understand and observe laws governing the life insurance business by accurately and completely presenting every fact essential to a client's decision, and to be fair in all relations with colleagues and competitors, always placing the policyholder's interest first.
Rule 99B-215.230 declares misrepresentation to be unethical, and prohibits a range of acts regarding the making and disseminating of statements that misrepresent the terms of insurance policies or that misrepresent the insurance business or with respect to any person in the conduct of his insurance business. For the reasons previously discussed, the evidence does not clearly and convincingly establish that Respondent committed any acts that constitute violations of these rules.
CONCLUSIONS OF LAW
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).
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); 626.621(6); 626.9521; 627.4554(4)(a) and (4)(c)2.; and rules 69B-215.210 and 69B- 215.230.
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 . . . licensee . . . 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.
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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 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:
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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 or detrimental to the public interest.
Section 626.9521 provides:
No person shall engage in this state in any trade practice which is defined in this part as, or determined pursuant to s. 626.951 or s. 626.9561 to be, an unfair method of competition or an unfair or deceptive act or practice involving the business of insurance.
Any person who violates any provision of this part shall be subject to a fine in an amount not greater than $2,500 for each nonwillful violation and not greater than
$20,000 for each willful violation. Fines under this subsection may not exceed an aggregate amount of $10,000 for all nonwillful violations arising out of the same action or an aggregate amount of
$100,000 for all willful violations arising out of the same action. The fines authorized by this subsection may be imposed in addition to any other applicable penalty.
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:
(a) 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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(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.
Section 627.4554 provides in pertinent part:
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.
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(c) 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.
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.
Florida Administrative Code Rule 69B-215.230 provides:
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 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).
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). 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).
As addressed 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.
Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby
RECOMMENDED that the Department of Financial Services enter a Final Order dismissing the Administrative Complaint against Respondent.
DONE AND ENTERED this 27th day of September, 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 27th day of September, 2012.
ENDNOTES
1/ Unless otherwise indicated, all references to the statutes Respondent is alleged to have violated are to 2007 Florida Statutes, the codification in effect at the time of the alleged violations. Absent express authority, 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)). Respondent is alleged to have violated specified provisions of the Florida Insurance Code by selling the Wexlers an Aviva annuity effective May 22, 2008. The 2008 revisions to the Florida Insurance Code were enacted in chapter 2008-237, Laws of Florida, which into effect June 1, 2008; accordingly, the 2008 revisions are not applicable to this proceeding.
2/ Breiman sold the Wexlers three EquiTrust annuities in 2006. The EquiTrust annuity sold by Mark Breiman to the Wexlers in 2006 at issue in this case is Contract No. EQ0001034708F. All
references herein to the "EquiTrust annuity" are to Contract No. EQ0001034708F.
3/ Petitioner's expert testified that the EquiTrust annuity paid a premium bonus not only on the initial premium payment, but on all subsequent premium payments for a specified period.
However, this assertion is not supported by the terms of the EquiTrust contract. The contract defines the premium bonus, in pertinent part, as "the amount equal to the Premium (received in the first Contract Year) multiplied by the Premium Bonus Percentage shown on the Contract Data page.
4/ At any time after date the annuity is purchased, its total accumulation value is the sum of the accumulation values of the investment accounts chosen by the annuitant.
5/ The Aviva annuity was a Multichoice IncomeXtra product, policy no. 141182.
6/ Under the surrender charge schedule, the highest charge rates
——20% of the accumulation value——were incurred for surrendering the policy within the first two years of purchase.
7/ Under the EquiTrust annuity, a market value adjustment may be applied to amounts withdrawn or surrendered from the contract, and will be applied only when a surrender charge is deducted.
The market value adjustment is calculated pursuant to a formula tied to the Treasury Rate when the annuity is issued and at the time of withdrawal or surrender, and may be either positive or negative.
8/ At some point, AmerUs Life Insurance Company became Aviva Life and Annuity Company.
9/ The premium bonus was invested back into the index strategies; under the premium bonus recapture schedule, the recapture rate always was smaller than the withdrawal charge rate applicable to funds other than those derived from investment of the premium bonus.
10/ This is because the Wexlers owned the EquiTrust annuity for two years before surrendering it to purchase the Aviva annuity.
11/ The minimum guaranteed contract value is the minimum amount that the annuitant could realize under the contract for a given year; it constitutes an absolute floor on the contract's value
that protects the annuitant from losing significant amounts on his or her investment due to poor performance of the selected investment strategies.
12/ Petitioner engages in 20/20 hindsight. At the time Respondent sold the Aviva annuity, he had access to general information that the EquiTrust company was suffering financial difficulty. The extent of the downgrade, from "A" to "A-" and subsequently down to "B+", became known after Respondent sold the Wexlers the Aviva policy.
13/ The Aviva Life and Annuity Company enjoyed an "A+" rating.
14/ Again, the evidence shows that under any circumstances, this loss would more than have been recouped if the Aviva policy is held to maturity.
15/ Accordingly, no fines are imposed pursuant to section 626.9521.
16/ Mr. Wexler testified that he did not remember many key details surrounding the Aviva purchase, including whether Respondent covered the surrender charge and Aviva bonus issues with the Wexlers. As a matter of law, this lack of clarity does not constitute the "clear and convincing evidence" required to determine that Respondent committed the alleged violations. See Westinghouse Elec. Corp. v. Shuler Bros., Inc., 590 So. 2d 986, 988 (Fla. 1st DCA 1991)(the clear and convincing standard precludes ambiguous evidence).
17/ This statute applies when the circumstances attendant to the violations do not warrant mandatory suspension or revocation.
COPIES FURNISHED:
David J. Busch, Esquire Department of Financial Services
Division of Legal Services 612 Larson Building
200 East Gaines Street Tallahassee, Florida 32399
Justin Alexander Cherry Cherry and Cherry, Inc.
8499 West Commercial Boulevard Tamarac, 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.
| Issue Date | Document | Summary |
|---|---|---|
| Dec. 21, 2012 | Agency Final Order | |
| Dec. 21, 2012 | Agency Final Order | |
| Sep. 27, 2012 | Recommended Order | Petitioner did not prove, by clear and convincing evidence, that Respondent violated sections 626.611, 626.621, 626.9521, 626.9541, and 627.4554 and rules 69B-215.210 and 69B-215.230 in the sale of an annuity. |
