STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

STATE OF FLORIDA, )

DEPARTMENT OF INSURANCE, )

)

Petitioner, )

)

vs. ) CASE NO. 83-2604

)

SONIN MARCUS, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, K.N. Ayers, held a public hearing in the above- styled case on September 8 and 9, 1983, at Tampa, Florida.

APPEARANCES

For Petitioner: David A. Yon, Esquire and

Daniel Y. Sumner, Esquire Department of Insurance 413-B Larson Building Tallahassee, Florida 32301

For Respondent: Patrick F. Sprague, Esquire

1904 East Busch Boulevard Tampa, Florida 33612

By Administrative Complaint dated August 23, 1983, the Commissioner of Insurance, Petitioner, seeks to revoke, suspend, or otherwise discipline the license of Sonin Marcus, Respondent, as a general lines agent. As grounds therefor it is alleged that Respondent failed to forward premiums received from

12 named insureds to the underwriter; that he unlawfully withheld, misappropriated, or converted those funds to his own use, and as a result the insureds' policies were cancelled; that Respondent failed to promptly file an annual report with the Department of Insurance for the year 1982; that Respondent collected some $25,000 in insurance premiums which he wrongfully withheld from Central Insurance Underwriters; and that he collected nearly

$60,000 in insurance premiums which he wrongfully withheld from General Risk Underwriters and/or International Bankers Insurance Company. These acts are alleged to violate numerous sections of Chapter 626, Florida Statutes, to demonstrate a lack of knowledge and competence to engage in insurance transactions, and to show Respondent to be a source of injury or loss to the public or detrimental to the public interest.

Prior to filing this Administrative Complaint, Petitioner, on July 11, 1983, issued an Emergency Order of Suspension of the license of Sonin Marcus as a general lines agent on general allegations subsequently incorporated in the Administrative Complaint. When preliminary negotiations between the parties

failed to reinstate, Respondent's license pending the final hearing, Respondent, by letter dated August 3, 1983, demanded a hearing at the earliest date for which a Hearing Officer could be available. This request for hearing was forwarded to the Division of Administrative Hearings by letter dated August 16, 1983, which requested a hearing at the earliest possible date. By Notice of Hearing dated August 17, 1983, this case was scheduled for hearing on August 22, 1983, and both parties notified by telephone. By telephone conference call on August 18, 1983, Petitioner's motion to continue the hearing until a later date was argued. Upon Petitioner's offer to remove the emergency suspension pending completion of the administrative proceedings, Respondent agreed to the continuance until September 8, 1983. That telephone conference hearing was memorialized by this Hearing Officer's Order entered August 18, 1983.

At the commencement of this hearing Respondent stipulated that the 12 named insureds had paid insurance premiums to Insurance Town as alleged. Thereafter, Petitioner called seven witnesses, Respondent testified in his own behalf, and

19 exhibits were admitted into evidence.

The parties' proposed findings of fact, to the extent they are incorporated herein, are adopted; otherwise, they are rejected as unsupported by the evidence, unnecessary to resolution of the issues, or mere recitation of testimony presented at the hearing.

FINDINGS OF FACT

1. Sonin Marcus, Respondent, is licensed as a general lines agent and is president of Insurance Town, Inc., which sells insurance, principally automobile, to the public. He was so licensed and operating at all times relevant hereto. Marcus has been in the insurance business for some 23 years during which time he has operated as independent agent, managing general agent, adjuster, and executive vice president and regional manager of Heritage Insurance for ten years before starting Insurance Town.

   
   

2. Central Insurance Underwriters (CIU) located in Altamonte Springs, Florida, is a managing general agent for several insurance companies in whose names it issues policies, collects premiums, etc. CIU was exclusive general agent for Atlas Mutual Insurance Company and National Fire and Casualty Company at all times relevant hereto. CIU had a brokerage relationship with Insurance Town during 1982 and the early part of 1983 in that it issued policies sold by Insurance Town.

   
   

3. International Bankers Insurance Company owns General Risk Underwriters, Inc. (GRU) and both are located at Hialeah, Florida, as is General Risk Acceptance Corporation (GRAC), the finance arm of the group. During the period of approximately one year ending in September, 1982, International Bankers Insurance Company and General Risk Underwriters issued policies sold by Insurance Town, who acted as agent for these underwriters.

   
   

4. Insurance Town was on an account-current basis with both CIU and GRU during the period Insurance Town acted as an agent for these underwriters. At the end of each month the underwriters would bill Insurance Town for the policies issued during the previous month, and the oral agreement between the parties provided that Insurance Town remit amount owed within approximately two weeks.

   
   

5. When a policy was sold by Insurance Town which was to be financed by a premium finance company (PFC), Insurance Town would get a down payment at least

   equal to the commission due Insurance Town and forward the application to CIU less the commission earned on the policy. Insurance Town, pursuant to its agreement with the PFC, had the insured sign a finance agreement which was forwarded to the PFC, who remitted the funds to Insurance Town, who paid CIU upon receipt of the monthly statement. GRAC financed the premiums on some policies sold by Insurance Town.

   
   

6. During the approximately one-year period Insurance Town sold policies as agent for CIU, Insurance Town remitted over $500,000 to CIU as premiums. During this period automobile policies were sold by Insurance Town and issued by CIU to, inter alia, Mary Mayo, Alfred Limaruro, Shirley Gilbert, Mabel Green, Ruth Sprague, Walter Burk, Paul Schumann, Odell Lewis, Carla Kibbe, Steve Valdes, Vernon Peaslee, and Mary Porter (Exhibits 1-12). Each month a statement was submitted to Insurance Town by CIU for the charges accrued the previous month. Oftentimes, changes in the premiums came to light after the application was filed and CIU included this additional premium on the statement before issuing a policy or endorsement containing the reason for the additional charge. When these charges appeared on the statement which Insurance Town could not understand, the procedure developed whereby Insurance Town would return a copy of the statement with its check for the amount paid which included those policies checked on the statement. Those items not checked were understood by both parties to be items for which Insurance Town needed additional information.

   
   

7. When Insurance Town started selling policies for CIU in January, 1982, the January, 1982, statement showed Insurance Town owed $6,890.82. Insurance Town paid this amount less commissions, which CIU subsequently allowed, leaving a balance owed of $0. Each month thereafter, there was a difference in the amount shown on the monthly statement and the amount Insurance Town paid caused by lack of documentation provided Insurance Town for debits and failure to allow for credits. The amount of business generated by Insurance Town on behalf of CIU increased each month during 1982 so that in the latter months some $85,000 of business was generated. When the accounting difficulties became a problem, Insurance Town stopped selling policies for CIU in January, 1983. In September, 1982, the difference between CIU figures and Insurance Town payments had reached some $19,000 and, at the insistence of CIU, Insurance Town paid this sum and requested an accounting showing each policy to which these funds were credited. This accounting was never received by Insurance Town.

   
   

8. In January, February, and March, 1983, CIU notified the 12 policyholders listed in Finding of Fact 6 above that their policies would be cancelled for nonpayment of premiums. At the suggestion of the Department of Insurance the policyholders were advised that if they could produce evidence of payment the policies would not be cancelled. All of these policyholders presented such evidence and their policies were not cancelled by CIU. Most of the premiums allegedly unpaid resulted from additional premiums to the policies due to errors in drivers records submitted by the insured, changes in coverage in policy, and type of automobile insured. Some of these endorsements had not been received by Insurance Town when notices of proposed cancellations were sent out by CIU. All these insureds had paid Insurance Town the premiums owed but, due to the delays in applying credits, in providing insurance Town an accounting for the funds paid to CIU, and in providing Insurance Town with endorsements supporting the charges on the statements, Insurance Town had not paid all of the premiums alleged due. Insurance Town sent a payment forthwith to cover those premiums for Mayo and Porter.

   
   

9. After Insurance Town and CIU ceased doing business, the amount CIU claimed to be owed by Insurance Town in February, 1983, was approximately

   $24,000. Before July 11, 1983, due to cancellation of policies, payments made by Insurance Town through March, 1983, changes in policies, and applying various credits to Insurance Town's account, all debts of Insurance Town to CIU had been settled. As of August, 1983, CIU owes a credit of $140.81 to Insurance Town.

   
   

10. General Risk Underwriters and General Risk Acceptance Corporation had an agency relationship with Insurance Town from February until September, 1982, at which time they terminated Insurance Town's agency privileges. They too had an account-current method of billing Insurance Town monthly, with payments to be made within 30 days. In October, 1982, GRU sent a letter to Insurance Town (Exhibit 17) enclosing a summary of accounting activities and claiming Insurance Town owed GRU $41,232.90, GRAC $10,369.07, and demanding payment. At the time of the hearing, after certain credits were allowed, it is claimed Insurance Town owes these companies $49,160.97 which includes unearned commissions of approximately $16,000. Respondent's records indicate a valid dispute to some of the charges alleged to be owed by Respondent to GRU and GRAC. Records presented by Respondent to GRU's witness induced testimony inconsistent with the amount claimed due from Insurance Town. There is a valid dispute between GRU, GRAC, and Insurance Town regarding exactly what is owed by Insurance Town to the former and on which accounts.

    
    

11. The Department of Insurance has no record that Respondent filed an annual report for 1982. No acknowledgement of receipt of these reports is sent out by the Department, nor is any notice of nonreceipt sent to those agents who fail to submit such a report. No action is taken on these reports but they become part of the Department's file on each licensee. Petitioner's witness has no recollection that disciplinary action has ever been taken against a licensee solely by reason of failure to file an annual report. Respondent submitted Exhibit 19, a copy of the Annual Questionnaire of 1982 dated June 1, 1982, signed by Sonin Marcus as evidence that the Annual Questionnaire was submitted. Respondent has no personal recollection of completing this report or mailing it but obtained Exhibit 19 from the files of Insurance Town.

    
    

    CONCLUSIONS OF LAW

    
    

12. The Division of Administrative Hearings has jurisdiction over the parties to, and the subject matter of, these proceedings.

    
    

13. By reason of the acts alleged in the Administrative Complaint, Respondent is alleged to have violated Sections 626.511(1), Florida Statutes (not accounting for funds received and not paying to person entitled thereto); 626.611(7), Florida Statutes (demonstrated lack of fitness); 626.611(8), Florida Statutes (demonstrated lack of knowledge); 626.611(9), Florida Statutes (fraudulent or dishonest practice); 626.611(10) Florida Statutes (misappropriation or unlawful withholding of funds); 626.611(13) , Florida Statutes (willful violation of rule, order or regulation);626.62l(4), Florida Statutes (failure to pay over funds belonging to an insured); 626.621(6), Florida Statutes (engaging in unfair and deceptive practices) and 626.541, Florida Statutes (licensees doing business under corporate name shall file annual statement on forms provided by department).

    
    

14. But for the allegations respecting the filing of an annual report, all of the charges here involved relate to the acts of Respondent while serving as an agent for CIU and GRU.

    
    

15. With respect to the failure of Respondent to file an Annual Questionnaire for 1982, Petitioner presented evidence that no such document

    could now be located in the Department's files. Respondent produced a copy of the Annual Questionnaire for 1982 which the files of Insurance Town indicated was submitted to Petitioner. Petitioner has the burden of proof of this allegation. Even under the most lenient standards, the burden of proof, by a preponderance of the evidence, is not satisfied by proof creating an equipoise. Florida Department of Health and Rehabilitative Services v. Career Service System, 289 So.2d 412 (Fla. 4th DCA 1974). The fact that no copy of the Annual Questionnaire submitted by Respondent in 1982 could be found in Petitioner's files does not even create an equipoise in the face of the copy Respondent testified he signed and had mailed.

    
    

16. All of the other charges in the Administrative Complaint relate to the allegations that Respondent failed to pay over to CIU and GRU funds he collected on policies sold by Insurance Town as agent for these underwriters. As noted in the findings above Respondent was on an account-current basis with both CIU and GRU and he was billed monthly by these underwriters for sums they claimed to be due. With CIU Respondent had developed the practice whereby he paid only those charges for which he had been supplied documentation (generally the policies reflecting the change). This practice was accepted by CIU until it suddenly decided to issue notices of cancellations to policyholders for some of those premiums Respondent had collected but not forwarded to CIU. At this time there was a valid dispute between Respondent and CIU as to exactly what was owed to CIU and what had been paid by Respondent. During the year that Respondent sold policies issued by CIU, more than $500,000 in policy premiums was paid by Respondent to CIU yet he could not obtain an accounting from CIU showing to which policies these funds had applied.

    
    

17. With respect to GRU a similar situation existed with Respondent on an account-current basis and having difficulty reconciling the monthly billings with the policies sold. At the hearing some five or six files were presented to GRU's witness to demonstrate a valid dispute existed regarding what had been paid and what was owed by Respondent to GRU and an additional 15 files of similar import were available for presentation when Respondent moved for a directed verdict on the charge involving GRU. After being advised that this Hearing Officer would recommend dismissal of the charge involving GRU, the evidence in the other 15 files, purporting to represent a legitimate dispute of the amounts owed, was not presented.

    
    

18. Here, the burden is upon Petitioner to prove the charges alleged. Balino v. Department of Health and Rehabilitative Services, 348 So.2d 349 (Fla. 1st DCA 1977). The quality of the evidence required to sustain this burden has been variously described before and after the present Administrative Procedure Act was passed. In Reid v. Florida Real Estate Commission, 188 So.2d 846 (Fla. 2d DCA 1966) the court concluded that an action to revoke a license was penal in nature and that penal sanctions should be directed only towards those who by their conduct have forfeited their right to the privilege [of licensee] and then only upon clear and convincing proof of substantial causes justifying the forfeiture of license. Accord, Lewis v. Planned Financial Services, 340 So.2d 941 (Fla. 4th DCA 1976).

    
    

19. In Florida Department of Health and Rehabilitative Services v. Career Service System, 289 So.2d 412 (Fla. 4th DCA 1974), the court held that an administrative tribunal measures proof presented to it by the preponderance of the evidence standard. That case involved the quantum of evidence required to discharge an employee for cause. This case and others of similar input seriously undercut Reid, supra.

20. Florida Department of Transportation v. JWC Corporation and Department of Environmental Regulation, 396 So.2d 778 (Fla. 1st DCA 1981) involved the burden of proof in a petition by the Department of Transportation for a permit from DER to construct a complex source of air pollution. In this case the court upheld the standards established by Rule 17-1.59, Florida Administrative Code, for permit proceedings involving DER which provides "The person requesting the hearing, variance, license, or other relief, shall have the burden of proof to establish, by a preponderance of the evidence, entitlement to the requested license, variance, or other relief."

1. Bowling v. Department of Insurance, 394 So.2d 165 (Fla. 1st DCA 1981) like the case here being considered, involved a proceeding to revoke the license of an insurance agent. In retreating from the preponderance of the evidence standard without adopting the clear and convincing evidence standard, the court stated at p. 171-2:

   
   

   Although the APA does not in terms descend to such particulars, we have recognized the Act's implication that evidence 'appropriate in form' may differ from one proceeding to another depending on the 'nature of the issues involved.' Now we recognize also that

   in both form and persuasiveness evidence may 'substantially' support some types of agency action, yet be wanting as a record foundation for critical findings in a license revocation. So holding, we need not attempt to resurrect the pre-APA 'clear and convincing proof' standard

   for license revocation proceedings. Rather, we glean a requirement for more substantial evidence from the very nature of the licensee discipline

   proceedings: when the standards of conduct to be enforced are not explicitly fixed

   by a statute or rule, hut depend upon such debatable expressions as `in the applicable regular course of business'; when the conduct to be assessed is past, beyond the actor's power to conform it to agency standards announced prospectively; and

   when the proceedings may result in the

   loss of a valuable business or professional license, the critical matters in

   issue must be shown by evidence which is indubitably as 'substantial' as the consequences. (Citations omitted.)

   
   

2. The United States Supreme Court has approached the burden of proof standards as a constitutional due process issue.

3. Addington v. Texas, 441 U.S. 426, 99 S.Ct. 1804 (1979) involved the standard of proof required to commit an individual involuntarily for an indefinite period to a state mental hospital. The court stated at p. 1808:

   
   

   The function of standard of proof, as that concept is embodied in the Due Process Clause and in the realm of factfinding, is to 'instruct the factfinder concerning the degree of

   confidence our society thinks it should have in the correctness of factual conclusions for a particular type of adjudication.'

   In re Winship, 397 U.S. 358, 370, 90 S.Ct.

   1068, 1076, 25 L.Ed. 2d 368 (1970)

   (J. Harlan concurring). The standards serve to allocate the risk of error between the litigants and to indicate the relative importance attached to the ultimate decision.

   
   

   Generally speaking, the evolution of this area of the law has produced across a continuum three standards or levels of proof for different types of cases. At one end of the spectrum is the typical civil case involving a

   monetary dispute between private parties. Since society has a minimum concern with the outcome of such private suits, plaintiff's burden of proof is a mere

   preponderance of the evidence. The litigants thus share the risk of error in roughly equal fashion.

   
   

   In a criminal case, on the other hand, the interests of the defendant are of such magnitude that historically and without any explicit constitutional requirement they have been protected by standards of proof designed to exclude as nearly as possible the likelihood of an erroneous judgment. In the administration of criminal justice, our society imposes

   almost the entire risk of error upon itself.

   This is accomplished by requiring under the Due Process Clause that the state prove the guilt of an accused beyond a reasonable doubt. In re Winship, supra.

   
   

   The intermediate standard, which usually employs some combination of the words 'clear,' 'cogent,' 'unequivocal,' and 'convincing,' is less commonly used, but nonetheless is 'no stranger to the civil law.' Woodby v. INS, 385 U.S. 276, 285,

   87 S.Ct. 483, 488, 17 L.Ed. 362 (1966)

   See also, McCormick, Evidence 320 (1954);

   9 J Wigmore, Evidence 2498 (3rd ed. 1940). One typical use of the standard is in civil cases involving allegations of fraud or some other quasi-criminal

   wrongdoing by the defendant. The interests at stake in those cases are deemed to be more substantial than mere loss of money and some jurisdictions accordingly reduce the risk to the defendant of having reputation tarnished erroneously by increasing the plaintiff's burden of proof. Similarly, this Court has used the 'clear,

   unequivocal and convincing' standard of proof to protect particularly important individual interests in various civil cases. See e.g.

   Woodby v. INS, supra, at 285, 87 S.Ct. at 487 (deportation); Chaunt v. United States,

   364 U.S. 350, 353, 81 S.Ct. 147, 149,

   5 L.Ed. 2d 120 (1960)(denaturalization); Schneiderman v. United States, 320 U.S. 118, 125, 159, 63 S.Ct. 1333, 1336, 1357,

   87 L.Ed. 1796 (1943)(denaturalization).

   
   

4. After noting the function of the legal process is to minimize the risk of erroneous decisions; that commitment for any purpose constitutes a significant deprivation that requires due process protection; that the state has a legitimate interest in providing care to its citizens unable because of emotional disorders to care for themselves; and that the state also has the authority under its police powers to protect the community from dangerous tendencies of the mentally ill, the court in Addington v. Texas, supra, concluded the middle ground between preponderance of the evidence and beyond a reasonable doubt, viz, "clear and convincing" evidence was required to meet the due process guarantees. Similarly, in Williams v. Williams, 424 So.2d 159 (Fla. 1st DCA 1983) the court held the standard of proof in proceedings for noncriminal involuntary confinement is clear and convincing evidence.

   
   

5. Santosky v. Kramer, 102 S.Ct. 1388 (1982) involved severing the rights of parents to their children upon a finding of permanent neglect. While holding that, before the state may sever completely and irrevocably rights of parents in their natural child, due process requires that the state support its allegation by at least clear and convincing evidence, the court stated at p. 1397:

   
   

   The extent to which procedural due process must be afforded the recipient

   is influenced by the extent to which he may be 'condemned to suffer grevious loss.

   Goldberg v. Kelly, 397 U.S. 254, 262-263, quoting Joint Anti-Facist Committee v.

   McGrath, 341 U.S. 123, 168, 71 S.Ct. 624,

   646, 95 L.Ed. 517 (1951)(Frankfurter, J. concurring). Whether the loss threatened by a particular type of proceeding is sufficiently grave to warrant more than average certainty on the part of the factfinder turns on both the nature of the private interest threatened and the permanency of the threatened loss.

6. License revocation cases are clearly penal in nature. Vining v. Florida Real Estate Commission, 281 So.2d 487 (Fla. 1973). Furthermore, the consequences of these proceedings can result in the loss of an occupational or professional license for which the licensee has devoted many years to acquire. This is much more than a "money judgment." In an action to revoke a professional license the risk of error from using the preponderance standard is substantial; and the countervailing state interest favoring that standard is comparatively slight. The language in Bowling, supra, above-quoted, that "when the proceeding may result in the loss of a valuable business or professional license, the critical matter in issue must be shown by evidence which is indubitably as 'substantial' as the consequences is another way of saying what was earlier stated in Matthews v. Eldridge, 424 U.S. 319, 96 S.Ct. 893, 47 L.Ed. 2d 18 (1976) that both the risk of erroneous deprivation of private interests resulting from use of a "fair preponderance" standard and the likelihood that a higher evidentiary standard would reduce the risk must be considered, and, when so considered, the standard of proof that by its very terms demands consideration of the quantity, rather than the quality, of the evidence, may misdirect the factfinder in the marginal case. Santosky v. Kramer, supra.

   
   

7. The reviewing court measures the correctness of the administrative orders under review by competent and substantial evidence standard. Florida Department of Health and Rehabilitative Services v. Career Service System, supra. While that appellate standard does not change, the court in Bowling, supra, has raised the evidentiary standard at-the trial level in license revocation proceedings by saying competent and substantial evidence in license revocation proceedings requires more than a preponderance of the evidence. It is accordingly concluded that in this case the state has the burden of proving the charges against Respondent by clear and convincing evidence.

   
   

8. Here, we have a dispute between an agent (Respondent) and his principals (GRU and CIU) involving how much money is owed by the agent to the principals. Bringing license revocation proceedings in such a case smacks of using disciplinary proceedings to affect the outcome of a dispute for which the civil courts provide a wholly adequate remedy.

   
   

9. We are not here involved with a Respondent defrauding policyholders which the Department has a duty to protect, but with allegations that the agent is withholding funds from a principal who is eminently capable of taking appropriate action in his own behalf. In sum, the facts here presented show a legitimate dispute regarding an accounting between Respondent and CIU and Respondent and GRU. So long as such a legitimate factual dispute exists between Respondent and his principals, these proceedings constitute an inappropriate forum for their resolution.

   
   

10. No evidence, independent of the facts surrounding the failure to remit funds to CIU and GRU, was submitted to show Respondent is unfit or has insufficient knowledge to operate as a general lines insurance agent. To the contrary, the evidence shows that Respondent has been licensed as an insurance agent for more than 20 years and has served in numerous capacities under his license, with no evidence that this service was unsatisfactory.

    
    

11. From the foregoing it is concluded that the petitioner failed to prove, by evidence commensurate with the disciplinary action proposed, that Sonin Marcus violated the provisions of Chapter 626, Florida Statutes, as alleged. It is

RECOMMENDED that all charges against Sonin Marcus be dismissed. ENTERED this 27th day of October, 1983, at Tallahassee, Florida.

K. N. AYERS, Hearing Officer

Division of Administrative Hearings Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32301

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 27th day of October, 1983.

COPIES FURNISHED:

David A. Yon, Esquire and Daniel Y. Sumner, Esquire Department of Insurance 413-B Larson Building Tallahassee, Florida 32301

Patrick F. Sprague, Esquire 1904 East Busch Boulevard Tampa, Florida 33612

Honorable Bill Gunter

Treasurer and Insurance Commissioner The Capitol

Tallahassee, Florida 32301

Docket for Case No: 83-002604

Orders for Case No: 83-002604